Enerpac Tool Group Corp (EPAC) 2004 Q4 法說會逐字稿

Welcome to the Actuant Corp. fourth-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. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded Thursday, September 30, 2004. 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 on a variety of factors which could cause actual results to differ from these estimates.

Actuant's results are also subject to general economic conditions; variations in demand from customers; the impact of geopolitical activity on the economy; 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 fluctuations and interest rate risk. See the Company's registration statements filed with the Securities and Exchange Commission for further information regarding risk factors.

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.WebEx.com/WebEx/ and go to "join as a participant" and enter meeting number 7120-38598. Once again go to www.themeetingson.WebEx.com/WebEx/ and go to "join as a participant" and enter meeting number 7120-38598. I would now like to turn the conference over to Robert Arzbaecher, President and Chief Executive Officer.

I hope your first reaction to Actuant's earnings announcement this morning was wow. I am immensely proud of the way our 2004 financial results came through and the effort put forth by the Actuant team worldwide.

For the year we generated sales growth of 24 percent to 727 million, including 9 percent core growth. We had 17 percent EBITDA growth excluding the bond repurchases to 105.7 million. Our EBITDA margins also improved as the year progressed. Free cash flow of 54 million or 2.19 a share was used to refinance debt and pay for acquisitions. Since the spin-off we are batting 100 percent in generating free cash flow per share in excess of annual earnings per share. And last but certainly not least, a 41 percent increase in EPS excluding the onetime items to $1.99 in 2004. The EPS growth has been consistent quarter over quarter over the last 3 years and annually above our 15 to 20 percent target which we set 3 years ago.

Andy is going to go through the fourth-quarter numbers in detail and then I will come back and give you an outlook for fiscal 2005. Andy?

Thanks, Bob, good morning everyone. Our fourth-quarter sales increased 27 percent over last year to $188 million. This includes 11 percent core sales growth, 3 percent growth from currency, and 13 percent growth from acquisitions. Our core sales growth, as we had predicted, was down slightly from last quarter, but it exceeded our expectations and we were very happy with it. Operating profit also grew 27 percent to $25 million. We saw profit growth and margin expansion in both of our segments. Our fourth-quarter operating profit margin at 12.9 percent was the highest of the year and up sequentially from the third quarter despite higher corporate expenses.

Similar to last quarter, we saw sequential improvement in automotive margin which is an area we've really been focusing on. Our financing costs again came through well below last year. Fourth-quarter borrowing costs were 2.4 million, down over 50 percent from last year and reflect the bond buybacks throughout the last 12 months.

On a combined basis the lower financing cost and the higher operating profit drove our bottom line to record quarterly EPS. Our fourth-quarter EPS excluding special items increased 44 percent to 59 cents a share versus 41 cents last year. This year's adjusted EPS excludes a $9.5 million bond buyback charge incurred in the tender. In the fourth quarter we also recorded a nonrecurring $10.9 million non-cash net gain in discontinued operations reflecting the release of a reserve for income tax and other obligations related to the APW spin-off.

Another fourth-quarter highlight is that we completed the repurchase of the remaining 13 percent bonds, one of the last vestiges of the spin-off. The bond tender in July brought in all but $1 million of the bond and we subsequently (indiscernible) these, so we have no 13 percent notes outstanding at the end of the year. We believe that our patience in buying these back over the last 2 years has paid off since the actual cash cost to retire them all was less than it would have been had we tendered for them back in 2003 when we first considered the tender.

The just completed fourth quarter was our 13th consecutive quarter of year-over-year EPS growth excluding special charges. As you saw in this morning's press release, we've raised our fiscal 2005 outlook to take into account the savings from the bond tender, the Yvel acquisition and the improved economy and are targeting another year of solid EPS growth in 2005.

Our fourth-quarter results reflected the benefit of year-over-year economic improvement in North America. Our overall core sales growth of 11 percent was not as strong as last quarter's 17 percent; it was definitely more than we had anticipated and was aided by strong-than-expected demand from our engineered solutions markets -- auto, truck and RV. Currency was also slightly favorable to our sales forecast.

Within tools and supplies, Enerpac continued to show nice sales growth with solid core increases in both the Americas and Asia while our electrical business globally was essentially flat with the prior year. Engineered solutions segment sales increased 26 percent on a core basis driven primarily by automotive and truck growth. RV sales for the quarter were about flat on a core basis, better than the decline that we had predicted, but lower than the past quarters due to the much tougher comps and marketshare loss we discussed last quarter. We expect slightly lower RV sales in fiscal '05 in line with the recent University of Michigan 2005 forecast for the RV industry.

As has been the case all year-long, the biggest share of the ES segment, our engineered solutions segment sales growth came from convertible top actuation sales. They were 72 percent above the fourth quarter of last year. This reflects shipments on new convertible platforms that we launched in the last year as well as increased demand for existing models. Based on wins over the last 3 years and the help of a weak U.S. dollar, we've more than exceeded our 2001 goal of doubling convertible top volume a full year ahead of schedule.

As you can see on this chart our unit volume also increased substantially, now driving the convertible top sales above $100 million in fiscal 2005. I'm sorry, fiscal 2004. Based on platforms that have already been won but not yet launched, the expansion into latching and other actuations, such as tailgates and the current prototype and cording activity, we expect Actuant's convertible top sales growth will continue to exceed GDP by a wide margin for the foreseeable future.

The 27 percent fourth-quarter sales growth led to a corresponding 27 percent increase in operating profit with both our tools and supplies and engineered solutions segments generating increases in real dollars and in margin. Tools and supplies' profit increased 27 percent to 17.1 million on a 14 percent growth in sales. This reflects the benefit of cost reduction actions, prior year restructuring and the impact of favorable sales mix from higher (indiscernible) sales.

Engineered solutions' operating profit increased 48 percent on a 42 percent increase in sales. As forecasted, we saw sequential improvements in our auto margin which were primarily efficiency and volume related again. Our improved margins also came from truck and RV operations which were both up in the fourth quarter.

As you may have noted in our release, our corporate expenses increased significantly in the fourth-quarter from the prior year on account of about a 1 million environmental cleanup provision for a former business as well as higher incentive comps, medical insurance, tax consulting and internal audit expenses. Our corporate expenses in the second half of this year were higher than normal and we expect them to decline in 2005.

From an operating profit margin standpoint we saw a 120 basis point improvement in the fourth quarter in tools and supplies versus the prior year and 20 basis points of expansion in engineered solutions. So operationally things are moving ahead as planned. Both of these improvements are after the negative impact of commodity price increases. On a sequential basis the net impact of these material increases was modestly higher than what we saw in the third quarter.

Despite improvements from operations unfavorable sales mix and higher corporate expenses worked against us and resulted in an overall 100 basis point decline in our consolidated operating margins versus the fourth quarter of last year. Mix adversely impacted margins by 30 basis points as our lower margin engineered solutions segment sales increased 42 percent while our higher margin tools and supplies segment increased its sales by a more modest 14 percent. The best news of margins is that we finished the year on a positive trend and our fourth-quarter margins were the highest of the year in both of our segments.

Turning now to cash flow. Our fourth-quarter cash flow came in better than we expected on account of favorable earnings and working capital management. Our debt declined during the quarter from 212 million to 194 million or 188 million of net debt despite the approximate $9 million premium paid as part of the note tender in July.

Now part of our success in generating cash flow and reducing debt has been the improvement in working capital turns since the spin-off. This slide illustrates its improvement. Our internal metric for working capital efficiency is primary working capital as a percentage of annualized trailing 90-day sales. Primary working capital would be gross receivables plus inventory minus accounts payable with our receivables including the receivable securitization.

The slide here shows that we've been able to reduce our working capital from 22.7 percent of sales back in the spin-off to 18.4 percent of sales in 2004. This has been a significant source of cash for debt reduction for Actuant. To put things in perspective, if we were still at the spin-off rate we'd have an additional $30 million of working capital and a corresponding $30 million increase in debt. This improvement reflects a concerted effort to reduce our working capital via operational improvements using our lean model as well as negotiating longer payment terms with our vendors and reducing our invoice-to-collection cycle.

As a result of refinancing this year our debt picture has really been simplified. Of the $194 million of debt outstanding, 150 million of it is our 2 percent convertible bond and the balance is our senior debt primarily revolver borrowings in commercial paper. At year end we had over 200 million of availability under our 250 million revolver providing plenty of liquidity for going forward. Term revolver borrowings are costing us just over 3 percent.

Our leverage, defined as net debt divided by pro forma EBITDA which takes into account a full year of our Dresco results, declined to 1.7 times at year end which is an all-time low since the spin-off. In addition to lowering leverage we've considerably reduced our borrowing cost as well. On a go-forward basis we expect to see our year-over-year interest savings continue into 2005. Our estimated interest expense for next year or 2005 is about $8 million compared to 14 million in 2004. On that positive note I'm going to turn it back to Bob.

Thank you, Andy. As Andy reviewed, we ended 2004 on a strong note in the fourth quarter with sales, EBITDA margins, cash flow and earnings per share all exceeding our expectations that we had going into the quarter. We are particularly pleased with the strong cash flow which was driven by our lead programs and our ability to reduce working capital even in a period of sales growth. We are also pleased with the continuing recovery of our EBITDA margins in engineered solutions.

As many of you know from following Actuant, we made management changes in both the RV and auto businesses over the last 2 years and I'm pleased with the progress that both of these new teams are making in a very dynamic environment that they participate in. Acquisitions have played an important role in our success over the last few years and, with a full funnel of opportunities for 2005, I would expect it to continue.

A major reason for our success in acquisitions has been the Actuant AIM process, AIM standing for Acquisition Integration Model. This process begins with a regimented 90-day integration period where we bring together the acquired company employees and existing Actuant employees to drive project initiatives and communication programs that make the acquisition a success. We started this program with Kopp and have refined it on the Kwikee, Dresco and Yvel acquisitions. Acquisition integration is rapidly becoming a core competency for Actuant.

None of our success would be possible without people. One of our largest successes since the spin-off is not a financial metric; it's the improvement in the quality of the Actuant management team. We believe we've assembled a very solid team that's capable and we're building additional training and development programs with the next level down to manage Actuant's growth vision. I think Mark Goldstein and Bill Blackmore who run the two business segments are great examples of this, but there are many, many more below them.

We now have over 100 people through our Actuant development -- leadership development training program over the last 2 years. While that might not sound like a lot to you, it comes from a zero starting point with no training programs whatsoever in 2002. All of this leads to Actuant's growth profile. As this slide depicts, we continue to believe we can grow Actuant's earnings over the long-term in the 15 to 20 percent range. This is driven by above-average internal growth, acquisitions and LEAD programs to improve margins and cash flow. Clearly we beat this in 2004 in a recovering North American economy and exceptional growth in convertibles and RVs.

Before talking about our guidance for fiscal 2005, I want to give you a brief overview of Yvel, our most recent acquisition which we announced a few weeks back. This deal -- this has been a deal that Power-Packer has had on its acquisition radar screen from prior to the spin-off and has been in the works for the last 15 months. Yvel is the leader in cab over engine latching systems. A cab latch holds the cab down to the frame when the truck is in use. Yvel's latches are both mechanical and hydraulic; hydraulic being used on the larger trucks and they typically connect into our cab tilt system for the hydraulic pump. So you can see how it's a logical bolt-on acquisition for Power-Packer given we're the leader in these cab tilting systems for cab over engine trucks.

Yvel does roughly 15 million in annual volume in the European heavy-duty truck market and serves the same heavy-duty customers as Power-Packer, namingly Scania, Volvo, DAF, Renault, just to name a few. Yvel is based in Paris, employs about 85 people. We continue to expect to operate the business there; it will report into Jan Schmidt (ph), our global truck leader, who's based in Holland.

Yvel provides Actuant with three things, a leading position in the niche latching market, additional content per vehicle on heavy-duty trucks and immediate earnings accretion for Actuant. I think a perfect bolt-on acquisition.

Moving to the guidance for 2005, we're expecting Actuant's growth to continue albeit at a slower rate. We are projecting sales of 750 to 775 million, this equates to 3 to 7 percent growth. While this is less growth than we realized in 2004, we do have visibility at two markets that accounted for a significant portion of our internal growth in 2004, namely convertible top and RVs. This also does not include acquisitions other than Yvel which with a full plate of opportunities is a very conservative assumption.

Provided we hit the sales range, our EPS would be in the range of 2.25 to 2.35 per share. This has been adjusted up by 10 cents from our previous guidance, as Andy said, to reflect the bond repurchase, the Yvel acquisition and fourth-quarter financial improvements. Again, no future acquisitions in any of these estimates.

Lastly, our 2005 guidance does not assume that the shares issued belong to our 2 percent convertible bond enter the EPS calculation. You're probably aware that this is under consideration by the FASB.

We expect 2005 cash flow to be 60 to 65 million ahead of our earnings per share in an earnings basis. To help you modelers out, we would expect D&A to be in the $17 million neighborhood, capital expenditures to be in the $14 million neighborhood, interest expense around 8 million and a tax rate in the low 34 percent range. From a currency point of view we're expecting that the Eurodollar conversion will stay somewhere between 1.15 and 1.2 meaning a modest strengthening in the dollar.

If you look just at the first quarter, we're projecting sales of 185 to 190 million compared to our '04 sales of 167. We would expect our net sales volume diluted EPS to be in the neighborhood of 53 to 58 cents per share. Operator, I'm now going to turn it back over to you to take our participants' questions.

(OPERATOR INSTRUCTIONS) Deane Dray, Goldman Sachs. Wendy Caplan, Wachovia Securities.

One of the things that I didn't hear you talk about in your remarks was the reserve reversal. And when I saw that actually I said wow because it would -- your comments -- I inferred from your comments that this tax issue related to your former parent is behind us. Can you walk us through that and let us know whether, in fact, we don't have to worry about that anymore?

The audit itself for fiscal 2000 (ph) is in the process of wrapping up right now. We're comfortable enough with what we know in that audit that there won't be any adjustments coming out of it and that's why we made the adjustment. Obviously it is a non-cash gain, but we view it as a positive development as well going forward.

Okay. Bob, your comment -- your "wow" comment, could you -- there's been some selling of your shares recently and we've seen some somewhat -- not indicative of your feeling "wow". Can you address that for us and let us know what's going into those sales of your shares, please?

Sure, Wendy, and just so you know, there was a press release out probably a month ago talking about me filing a 10b5. Nothing has actually happened; it doesn't happen until you guys, the investors, have a chance to digest this fourth quarter. So the earliest it could happen would be sometime next week. For people like Wendy who followed the story for a long time, I think they recognize that I'm a 4 percent holder and that I do have options that were issued to me under the applied power regime in the mid-90s and these converted into Actuant during the spin-off and are expiring.

In the past, notably 2000 and 2003, I exercised shares and held those shares in my ownership. In addition, I took out a loan in 2000 to buy additional shares on the open market; this all led to the 4 percent holding. With the proceeds that I'm expecting from this exercise of these long-lived options -- they represent about 15 percent of my holdings -- I'm planning on retiring all of this debt. After the exercise Actuant will still represent about 90 percent of my net worth and I think I'm still motivated with this, but I was running up against the time.

On a side note, I'm not alone in this position. Andy Lampereur has got expiring options, Brian Kobylinski and Dick Crowther, one of our directors, all three of us came over from the spin-off and have the same situation. Does that answer your question, Wendy?

It did, thank you very much.

Scott Graham, Bear Stearns.

I was just curious about the acquisition pipeline which you said was full. I know that it's been full for a while and here we are almost a year later and we just have this one small almost immaterial acquisition. I was just wondering what the environment is like out there? Are you seeing more financial sponsor activity push up prices and those higher prices are stopping you, given your compensation and performance model internally, from pulling the trigger on some acquisitions? Why haven't we seen more and why would that change in 2005?

That's a good question, Scott. The reality on acquisitions is the timing is dictated by a lot of things. And particularly when you're talking about the kind of small things like Yvel is -- there's legal due diligence that owners of small businesses really aren't prepared for. There's negotiation back and forth where they get seller's remorse, they wait a little bit, then they come back at you. And that's just the reality I think of small deals versus doing big public deals.

So while we have had a full plate for a while, it looks more imminent to us now. We're in positions where on several deals we have handshakes that give us confidence that you'll probably see one close before calendar year and maybe two.

The financial buyer community on these bolt-on type things tend not to be a significant attribute. These markets, say like in Yvel, would really be too small for a financial buyer to get that excited about in a specific product. I think that one we really were the logical buyer. I think we were the logical buyer at Dresco in the same vein.

So that's the answer to your question. I look at the year as pretty happy. We closed Kwikee, Dresco, and just about got Yvel into the year, just missed. But three deals, 65-70 million in acquisition purchase price. That was pretty good for us. It ended up creating some of our growth for the year and if I could do that again next year maybe with one more deal get to 100 million, that would be great.

Bob, would you say that there were any transactions that you walked away essentially at the altar from?

We walked away from one that was a public auction -- it was a small business but a public auction and the price just got too expensive for us. We would have liked it; it would have fit within engineered solutions.

That one goes back 8 or 9 months already, so it's not real recent.

Terrific, thanks a lot.

Deane Dray, Goldman Sachs.

That was a technical issue I think with the operator. I'm sorry, I don't know if this question got asked. If not we can move on to another one. With regard to guidance, you gave 3 factors -- bond tender, acquisition and an improving economy. How does that additional 10-cent spread work out between those 3 factors?

The bond tender itself, Dean, was worth about 4.5, 5 cents from an interest standpoint. The other 2, I would say, is kind of evenly split between them with the Yvel acquisition. As you know, we typically do not lay out detail transaction by transaction, but it definitely is an accretive deal by a few cents for this year. It's not a real big deal.

With regard to the comments on cash generation and cash conversion being in excess of 100 percent, that is the benchmark that everyone works towards and you've got that streak going. Is there anything about your business mix or about your capital needs where that would change? In other words, how sustainable is in excess of 100 percent cash conversion?

No, I don't see anything that would affect it. In fact, I would tell you that through this 3-year period where we did it, we were putting in $2 to $3 million of capital on automotive lines where the revenue wasn't in there yet. So that was actually a drag on it that going forward doesn't exist. So I don't see any reason we can't do it. I don't see us spending our D&A in CapEx for the foreseeable future. I see no brick and mortar need that the Company has that would take that outside of that range.

Working capital we've just done a terrific job on, but there are still pockets that we could do better on. The Kopp inventory, for example, is a place that we believe we still have opportunities for. So I think it is a fundamental structural issue for Actuant in that we're not vertically integrated. We don't have a lot of CapEx going into machine tools, and because we are more of a designer at the front end, an assembler and constant service customer at the back end model, we just don't chew up that much capital.

Sounds good, thank you.

Charlie Brady, Hibernia Southcoast.

I'd like to talk about when you speak to operating efficiencies on the automotive side, that's helped out the margins as those projects have ramped out to higher production levels? And then on a general sense just cost initiatives -- how much if any of that is still left on some automotive efficiencies or are we all 100 percent ramped up, we've gotten what we're going get until the next set of programs come out? And then in general on the overall corporate level?

We never say never on operating efficiencies. We've had a fairly dramatic improvement in just three quarters in automotive margins. We've been happy with that, I don't think we're going to be able to keep that kind of torrent growth pace going. But we clearly are not to the point where we're saying we're done there. We still -- if you visit us here in Glendale we still have half a building that has models that are coming into it over the next year where you'll get the absorption of that production going through a building that is vacant for waiting for that. So that's a good example of where we can continue to improve it. Anything to add, Andy?

I would say when I talk to investors I think the two areas where I see opportunity for margin expansion going forward clearly is the Kopp business. I think you're familiar with the restructuring that has gone on there and in automotive. I mean, there is some room to run, but we've made a lot of progress this year in automotive.

And then just if you look at China on the truck business, it sounds as though you've made a little more headway there. Can give us a little more detail on what's happened with that with the development of Class 8 trucks in China?

Yes. There hasn't actually been that much news in Class 8 in China since the last call where we told you we had won a couple of small models. I'll be over there actually in 2 weeks to get a first-hand update. There's really nothing slowing down that market. I mean, it's very vibrant. Everything about trying to make 200,000 trucks over a period of a couple of years as being an initiative for the Chinese government is still on track. We still see all the major OEMs trying to get a piece of that, working out joint ventures with local Chinese truck guys and we're right in the middle of that play. It's exciting for us; we're participating literally with three of the top four truck guys now in some kind of development role. We'll see what that leads to in terms of a contract. We think that's still a $10 to $20 million opportunity, pretty consistent on that for the last 6 months.

From an operational standpoint we're also in the process of setting up a line in China to serve that market, so that has been going on for the last 3 months. So we will be making the product in China for that market as well.

Great, thanks very much.

Rob McCarthy, R.W. Baird.

Someone should say it, congratulations to the organization on a good year. The ruling has apparently come in on co-cos (ph). They are going to require reflecting the dilution of the shares unless you change the terms to allow for a cash conversion. Could you first, based on your new forecast, tell us how much you calculate this will dilute the earnings per share number? And then second, talk about whether you've considered the idea of trying to change the terms in a way that would allow you to avoid that?

Why don't I handle the first half of that while Andy thinks about the dilution question that you had? We have not thought about changing the terms. We love this debt and it had nothing to do with delaying the per-share charges. This is 2 percent 7-year debt; we were comparing it against high yield and other opportunities when we were looking at the 13 percent debt that we retired. And we love this.

So the ability just to create some financial engineering by changing the terms and paying those bondholders some kind of fee for that, while they might want that I don't think they're going to get that from Actuant. The co-co thing that you're talking about I guess came out this morning. I saw a quick briefing on it -- or yesterday I guess. And we are looking at the implication. It might be such that we actually take this into account in our 2004 10-K and then start next year with it really restated through that period. We're going to have to work with our accountants to figure that out.

From an impact standpoint, Rob, we'd be adding 3,850,000 shares to our shares outstanding calculation to take into account the assumed conversion, and then reducing interest expense by 3 million so about 2 million of that drops to the bottom-line. So when you take that through based on the guidance we gave, it's somewhere -- 22 to 23 cents or about 10 cents dilution against '05's numbers.

I'm sorry.

22 to 23 cents.

What was the 10 cents you were referring to?

10 percent.

Okay, thanks. That's real helpful. The other thing I wanted to ask you is I'm interested in your top line forecast for the coming year, up 3 to 7. I understand you don't want to get ahead of yourself and, as you point out correctly, you may have a weaker market to deal with in RV. But honestly, based on what we're seeing broadly and what we've seen in your numbers recently, it's really kind of hard to imagine an industry environment where you can only grow the top line by 3 or 4 percent. I'm wondering, could you help us a little bit?

You did tell us that you thought your RV business might be down slightly and I think you said that you thought automotive would grow pretty nicely this coming year. You didn't speak specifically to truck, didn't talk to the other segment, didn't speak to which segment you thought might grow faster than the other. Could you talk a little bit more about your forecast for the coming year, what you're assuming in that 3 to 7?

Sure. I think people who know me know that I do not want to get ahead of myself. I'm not as convinced as others are that this North American recovery that we're participating now has that much legs to it. Now, I don't want to get into it like I did on the last call where I was affectionately known as Alan Greenspan predicting the economy. But if you look at the growth we're talking about, about half of the growth on the face of that 3 to 7 is internal growth, the other half is either acquisitions or currency -- working against you.

The RV industry had a huge 2004. Most people who follow that industry expect the sales rate of change to moderate significantly in the second half of this calendar year. For us being in August and August, I think we're going to feel the full brunt of that versus most people who are calendar year are going to see half of the brunt of that. Further, we disclosed that we lost some market share last year when we went through that.

So when we look at RV, we did a little over 100 million this year, we think we'll probably do a little under 100 million next year, somewhere in that neighborhood. This year automotive had a terrific year. Next year is kind of a pause year for us and then we have some 2006 model years that start in the back half. I would expect probably only 1 percent growth due to automotive this year versus a much bigger piece this year. So those are the two factors that we see visible -- convertibles and RV delivery schedules and that we talk to customers -- we have pretty good visibility of that.

You're feeling like the growth that you've been seeing in European truck markets can continue for a while?

Europe we've had great growth -- it hasn't been that necessarily due to new models as much as it is additional market share for us. So that probably tapers a little bit from last year. But the last comment I want to leave you with, Rob, and you can read into this however you want is our internal growth at Actuant has been above most other industrial companies, industrial peers that we've seen. We've consistently outperformed them. I don't see anything structurally that changes that, even with the slowdown in convertibles and the RV thing we talked about.

We think our served markets will have above-average industrial growth. And if my forecast is conservative we'll revalue it as the year unfolds, but I don't think that impacts the reality that starting with our business model, that first box is above-average industrial growth. I continue to feel that as you see other companies report we'll continue to be slightly above them.

Thanks, Bob. That's very helpful.

Dana Walker, Kalmar Investments.

Bob, I was hoping you could lend some thoughts on Chinese monetary policy?

The hurricanes must be affecting you down there in the Wilmington area.

There has been some flooding but we're dry.

That's good to hear.

Could you folks comment on where you stand with Kopp from a profit standpoint -- compare that to prior year and what you think a couple year potential is and then what framework you think that way?

This year we did about 100 to 200 basis points higher than the prior year. So we're starting to get the benefit of some of that restructuring. We still didn't hit double-digits in a quarter which we had kind of targeted to do. So I wouldn't say it's all perfect news but nevertheless we are getting margin improvement. What we're finding is it's going to be very difficult to look at Kopp outside of Dresco. There's a number of things going on with those two businesses where they're sharing things and you're going to have to put the two together. Dresco was more of a 15 percent -- 14, 15 percent EBITDA business. So when you blend the two together we're going to be in the low double-digits in 2005 and that's up from the 5 percent range when we bought it in 2003.

When you look at that business, we believe there's a lot of upside opportunity in it. The people that we took out of it this year in Germany when we shifted some products down into Tunisia in the Czech Republic, they came out three-quarters of the way through our fiscal year so we didn't get a lot of benefit from that. So we do expect some improvement in our margins coming in 2005 in that business. So our view as to the potential -- hasn't changed at all. We're still very excited about this thing and we're pretty confident we'll be able to get the same on a combined basis into the mid teens over the next 2 to 3 years.

What's interesting about our Europe electrical business -- and I'm putting Dresco and Kopp together -- is right now as I look at it, it actually has more top line growth profile than we think the North American market does. That's due to a number of new product developments that are coming out by us that's due to going into plumbing which is a big initiative for Dresco. It's due to some moving into Eastern Europe, there's a little bit of market expansion going on. And we bought Kopp because we thought we could improve the margins, we've done that. We're starting to see Kopp now as maybe a little more of a growth market for us. And I don't want to get too much further than that in there, but that's an exciting -- I think you'll see us talking about some of the growth initiatives in the Europe electrical market as something we're going to start focusing -- getting more traction on.

Is your opportunity there similar to your competitive peers or is that unique to Kopp and Dresco?

It is -- no, I wouldn't say it's unique to Kopp and Dresco. None of our peers are trying to go into plumbing like we are. And we have a couple of proprietary items that we are trying to launch that I don't think our competitors can duplicate quickly. They probably could over a couple of years. That's no different than the U.S. air (ph) market, though. In the DIY market -- you bring out a new idea, a new concept, it gives you a 2-year head start and then by then your competitors are all chomping at the bit and you've got to keep moving to the next one.

As well would you talk in somewhat greater detail about the tools and supplies organic growth in Q4 and, from a mix standpoint, what you foresee in '05?

Okay. In the fourth quarter the electrical business was somewhat flat and it was overshadowed by the Enerpac business which had an up year. When you look at Enerpac, it's a tale of two economies. In Europe we're actually down over the prior year if you take out currency; U.S. we're up enjoying the North American recovery. Some of the reason we're down in Europe was that we had the Millau Viaduct, that big bridge last year rolling through the numbers and if you peel that out it might not be as bad.

But Enerpac is clearly on a roll, it's led by the North America, led by China and Europe, it's not doing bad given the economic picture. Tools and supplies or the electrical business, I'm pretty satisfied. We're going through a period where we've been adding, we've been changing some of the face of our product at a place like Lowe's there's a new launch that's going out right now. It's kind of exciting with a new look. A number of new opportunities in Europe, as I just mentioned. So that would be the color I'd give you. We're starting out –- first quarter seems okay.

Two last quickies. Could you talk at least directionally and magnitude wise to corporate expense '05 versus '04 and order of magnitude where you think you are with convertible operating margins versus where you believe they should more -- or where they should better operate?

From a corporate expense standpoint I'd expect next year to be somewhere in the 11 million or so range for the year. Included in that line, just so you understand -- included in that line on our income statement would be nonoperating foreign currency gains or losses as well. So it does provide some volatility to it or some lumpiness to it. And you can certainly see that looking in the last 8 quarters. But something along that line. And a little bit different than what we saw at the last two quarter was probably in the $3.5 to $4 million range per quarter. That's artificially high just with some of the unusual things we had coming through.

In terms of automotive margins, I think we already covered that one in the earlier question. I think there's still some room to run yet with these certainly on a full year basis. But as we said earlier, the margins really came up nice over the last couple of quarters. We still have some room -- opportunities to go with efficiency and absorption, but on a year-over-year basis there's going to be nice improvement given what happened in our second quarter.

Thank you.

Wendy Caplan, Wachovia Securities.

An Enerpac question. It's our view that -- our estimate that Enerpac probably is squarely in the mid 20 percent range these days in terms of EBITDA margin. We're guessing that we probably won't see it above that next year, primarily because we are reinvesting in the business. Can you comment on that and help us to kind of get a feel for how we're reinvesting in Enerpac?

I'm not going to comment on business unit margins, that's just not appropriate for me to do. The margins we look at for next year within Enerpac I think will be somewhat flattish, to answer the second half of your question. We are doing a number of things with our pump platform. We are talking about investing a little bit for growth initiatives in eastern Europe; Russia we might open an office in and clearly continue to invest in China. So a combination of those three I think leads to some reinvestment in the business.

Thank you.

Charlie Brady, Hibernia Southcoast.

Could you by the two segments just give us, excluding foreign currency and acquisition, what the margin was for both those businesses?

Operating margin or EBITDA margins?

Operating margin excluding foreign exchange and acquisitions.

Excluding acquisitions -- give me a call later on. We do not have that broken out right in front of us right now. Typically -- I think what you're saying is pull out currency impact overall and -- give me a call later on.

I'll give you a couple of directional and then Andy can get into the specifics. But the Kwikee business was about average engineered solutions margins for us, similar to our own RV business. But I don't think that would have an impact on margins. Dresco, as we said, higher than Kopp, low teens, midteens kind of neighborhood. And Yvel hasn't affected us yet so it didn't have any effect on those margins. Pretty similar to our own truck business if you want to factor that in. So if your gist is did margins improve from acquisitions or currency, the answer is, no.

The acquisitions overall had a slightly negative impact on our comparison of our segments on a combined basis. But I think there is clearly operational improvement underneath these things.

Probably the biggest underlying thing is even though you had flat operating profit year-over-year, if you look at the fact that we had that huge growth in -- 50 percent growth in automotive and that being one of our lower margin businesses, it does point towards the operating improvement that happened. And across the businesses we had improvement in most of the operations -- operating profits, but the mix changed because of that automotive and that's what kind of left it flat on a consolidated basis.

We just addressed the question of currency as well. Given the stronger Euro relative to the dollar this past year, that would have also had a negative impact on our margins overall because on average our margins are lower overseas than they are here in North America.

That's very helpful. When talking about your RV business being slightly lower next year, I think on your part as far as losing market share or any projects you look at that might be in jeopardy or the market share loss that you experienced in your mind sort of a one off type of deal?

It's a very dynamic situation. One thing about the RV market is you don't have a long tail on anything, they make changes pretty damn fast. But there's no really new news from the third-quarter call. We've had wins, we've that losses, it all kind of lumbers along together. So I don't want to get into specific customer by customer or application by application situation, but it's very dynamic.

One thing I will tell you is at Louisville this year we'll have a number of new technologies that are going to be on vehicles that we're pretty excited about. I think one of the things that is a true view of us in the RV market is we believe we're the innovators in these actuation systems, more than the competition. And I think that's going to come out pretty strongly in Louisville.

Thanks very much.

(OPERATOR INSTRUCTIONS) Rob McCarthy, R.W. Baird.

Two small questions just for -- well one's a clarification. And that would be -- I don't mean to beat a dead horse, but for the purposes of us that are modeling, when will we lap the most significant impact of marketshare issues in RV? After the second quarter, third quarter?

We didn't have much effect in the fourth quarter. It has more effect in the first quarter -- probably double the effect in the first quarter that it had in the fourth. (multiple speakers)

And are you looking at or bidding on anything now in the Enerpac business that even approaches the order of magnitude of the French Viaduct project?

No, not individual projects.

Great. Thank you.

But we are working on Olympic stadiums. We seem to do pretty good in Olympic stadiums. We did the one in Athens. We were the ones who lifted that roof into place and in Shanghai we're right in the middle of a system that might be more of a retractable roof. Sorry -- not Shanghai, Beijing for the '07 Olympics -- '08 Olympics.

Maybe you ought to consider an analyst field trip to the Olympics, Bob.

As long as you're paying my way I'd be happy to do that.

I'm sorry, you've been disconnected.

Mr. Arzbaecher, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Well, I'll end with another "wow". I feel very good about the year. We obviously are pleased; I hope you feel that from our tone. With our 2004 performance I think we are carrying momentum into 2005. I look forward to talking to you about the year as 2005 progresses. Andy and I are in the balance of today to answer any of your questions. I appreciate your attendance on the call and goodbye.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a good day.