Enerpac Tool Group Corp (EPAC) 2005 Q1 法說會逐字稿

Thank you for standing by. Welcome to the Actuant Corporation first-quarter earnings 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 Friday, December 17, 2004.

Certain of the above 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, including. without limitation, the statements relating to the completion of the Key Components acquisition, 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 of geopolitical activity on the economy, continued market acceptance of the Company's new product introductions, the successful integration of acquisition 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 risks.

See the prospectus and the Company's annual, quarterly, and current reports filed with the Securities and Exchange Commission for further information regarding risk factors. I would now like to turn the call over to Bob Arzbaecher, President and CEO of Actuant Corporation. Please go ahead, sir.

Thank you and good morning. As Andy will discuss with you in detail, our first quarter proved to be record performance on a number of fronts. Our sales were a record 199 million, up 20 percent in total, of which 6 percent was core growth. We saw strong results from both business segments.

Our EBITDA was 33 million, the highest in Actuant's history. While 2 million of this could be viewed as a 1-time related to the APW tax matter, even excluding this our EBITDA was a record; and it was up 80 basis points over the prior year's first quarter.

This operating performance plus significantly lower interest expense resulted in record EPS of 71 cents a share, up 73 percent over last year's 41 cents a share. The 41 cents excluded the bond buyback that we had last year.

As I am sure you have noticed, we issued a press release last evening to announce the launch of our equity offering. While I am not going to go into any specifics on this and we're not this call, I would invite you to take a look at our related SEC filings.

On today's call we're going to talk about the first-quarter results and our outlook for the balance of the year. All of this will exclude the KCI acquisition and the equity offering. Now I will turn it over to Andy.

Thanks, Bob. Good morning, everyone. As you can see from our press release, we are off to a great start for fiscal 2005. We had sales growth, margin expansion, lower financing costs, which led to the record results.

Our sales increased 20 percent over last year to just a hair shy of $200 million. Currency and acquisitions helped, but we also had nice core sales growth. Breaking down our 20 percent, we saw 6 percent on a core basis, 4 percent from currency, and 10 percent from acquisitions. In this case, the acquisitions were Dresco in December of last year and Yvel in the beginning of the quarter.

Our operating profit also grew 32 percent, which is more than sales, meaning we had margin expansion this quarter. Operating profit margin increased 130 basis points from a year ago to 13.7 percent. I will provide more color on that later in the call.

Product (ph) declined 50 percent over last year, which should not have been a surprise as we had no high-yield bonds outstanding during the quarter. As disclosed in our press release, we recognized a $2 dollar gain during the quarter as a result of an agreement we reached with APW Limited regarding a reimbursement of a tax refund. We sent them about $16 million in the last week of the quarter, which represents the total amount that is due to them.

Now if we factor in the increased sales, the margin expansions, lower interest expense, our first-quarter diluted EPS was 71 cents, or a 73 percent improvement over the 41 cents last year. Or if you want to exclude the APW gain, we would have 66 cents of EPS, up 61 percent from last year. However you view it, the first quarter was our 14th consecutive quarter of year-over-year EPS growth excluding special charges.

As you can see from this slide, the fact that the lines in the chart do not intersect means we have shown growth consistently year-over-year. 1 thing to point out on this slide is you can see our second quarter is typically our weakest quarter of the year. That has been the case in 3 of the last 4 years; and we're calling for that again this year.

Turning now back to this quarter, our first-quarter results reflect the benefit of year-over-year economic improvement in North America, currency, and acquisitions. While our overall core sales growth of 6 percent was not as robust as last quarter's 11 percent, it was more than the low single digit growth we had anticipated and was aided by stronger than expected demand from Enerpac and the auto and truck markets. Currency was also favorable to our sales forecast.

Digging down into our businesses, within our Tools & Supplies segment, Enerpac continued to shown nice sales growth with solid core increases in both the Americas and Asia. While the sales growth was nice, I can tell you the profit fall-through (ph) in this business is even nicer. Within Enerpac we continue to win new integrated system contracts worldwide. This has been a major focus in the growth area for Enerpac and has been highly visible to all.

I promise this will be the last picture of the Milau Viaduct we show, but we wanted to let everyone know that the bridge opened on Tuesday of this week. Our President of Enerpac, that is, George Bowman, was on hand to see French President Jacques Chirac in the grand opening ceremonies. If you are ever in Southern France on vacation, this bridge is really something to see. It has been also featured on the Discovery Channel's extreme engineering show recently, which included a lot of free press for our Enerpac business.

Our electrical business overall was down low single digits in sales, in part due to the loss of a region of one of the U.S. home centers which we had announced already in the third quarter of last year. Our core growth overall for Tools & Supplies was 2 percent.

While our electrical business did not have the same type of quarter that our industrial hydraulic tool business had, we were very encouraged by some of the new products that are being rolled out, particularly in Europe, including remote control switches and plumbing, the plumbing being stuff we got into with the Dresco acquisition last year. Dresco's plumbing division also reported during the quarter a new customer win with several million dollars of sales annually that will roll out in the second half a fiscal '05.

Turning to our Engineered Solutions segment, sales there increased 24 percent. ON a core basis this was 11 percent growth. With the exception of RV, sales to all of our Engineered Solutions markets grew year-over-year.

RV declined 18 percent, which was not a surprise to us, as we expected sales to be down for the full fiscal '05. Part of the decline was the loss of business that we had talked about in the third quarter; part of it was also due to lower retail RV sales; and the balance was due to reduced production days at a number of RV OEMs, which we expect to continue into our second quarter. Bob will be providing more color on the RV market later in this call.

Looking at other Engineered Solutions markets, automotive sales were up 40 percent on a core basis, reflecting the continued benefit of new platforms that were introduced in the last year. This growth is down from the 70 percent range for the last few quarters and will continue to slow as the comparables from last year get tougher and tougher.

On the truck side, the news there continues to be favorable to what we had forecasted. Our European truck market has been very robust especially over the last 3 quarters; and our customers appear to be gaining market share, which has supersized the industry growth for us.

1 newsworthy item to report is that we recognized our first truck sales in China during the quarter. While not really meaningful in terms of dollars and cents this quarter, we are very excited about the market potential in the future. The red truck that you see on this picture is a heavy-duty truck from China's largest truck OEM, FAW.

So in summary for the quarter, sales to all of Actuant's markets in the first quarter exceeded our expectations except for electrical and RV, which were on target with our expectations.

Turning now to profit, the 20 percent first-quarter sales growth led to a 32 percent increase in operating profit. Similar to the fourth quarter, both Engineered Solutions and Tools & Supplies segments' margins showed year-over-year expansion.

Within Tools & Supplies, the operating profit increased 23 percent on a 17 percent increase in sales. This reflects the benefits of cost reduction actions, a restructuring charge in the first quarter of last year, and the impact of favorable sales mix from higher Enerpac sales.

Engineered Solutions' operating profit increased 39 percent to $12.2 million on a 24 percent increase in sales. As we had forecasted, we continue to see sequential improvement in our automotive margins. We also saw nice expansion in the truck business as well, while our RV market margins declined slightly because sales came off.

Total operating profit for Actuant, the margins were 13.7 percent, up 130 basis points from the prior year. Even better yet they were the highest we've seen in the last 9 quarters. While a part of the improvement was favorable sales mix given Enerpac's strong quarter, the majority was from margin expansion in other businesses.

Now shifting away to earnings to cash flow, our first-quarter cash flow was pretty good despite the increase in debt. For the quarter we spent about 9 million in the beginning of September on the Yvel acquisition; and as I mentioned earlier we borrowed an additional $16 million to repay APW for the tax refund. Partially offsetting this was operating cash flow that was used to reduce debt of $8 million.

During the quarter we had a $17 million increase in primary working capital, which probably caught your attention. But when you consider the record quarterly sales volume and the normal first-half seasonality at Kopp, the $17 million increase is not out of line, especially taking a look at our primary working capital chart as a percentage of sales. Primary working capital was actually lower than a year ago on a percentage basis. So our working capital management continues to be solid.

The impact of all the cash activity was a $17 million increase in debt for the quarter. As you can see on this slide, our financing picture continues to be very good. Our quarter-end debt consisted of $150 million of 2 percent convertible bonds and $62 million of other low-cost senior debt. Debt to EBITDA leverage was constant with year-end at 1.7 times.

In summary, despite $25 million in borrowings for acquisitions and APW, the leverage ratio at the end of the quarter was unchanged as a result of strong earnings and cash flow.

Next I wanted to bring you up-to-date on the performance accounting rule change for COCOs, or contingent convertible debt. The new rules were finalized recently for contingent convertible bonds, which will be effective for periods ending after 12/15/04.

Since our first quarter ended just before that, the new rule first applies to Actuant in the second quarter. So our first-quarter results that you see in our press release as well as the guidance we have provided in the press release do not reflect the new accounting rules for contingent convertibles. Our second quarter results will reflect this change.

The ironic thing about this is, based on the trading price of our stock, we probably would have to account for the contingent convertible bonds as if they converted in fiscal 2005 anyway. If you recall, the bonds can be converted at a conversion price of just under $40 once our stock price trades above $48 for essentially the last month of a given quarter. We didn't hit that for the first quarter but we came pretty close.

Now as a reminder of the specifics of the new rule and the impact on Actuant, for purpose of calculating EPS, the interest on our $150 million convertible bonds will be added back to our pretax income, which will mean a $3 million increase as a result of savings on these bonds. We also will have to increase our shares outstanding by the 3.85 million shares that would be convertible upon conversion of the bonds.

As we have discussed in past calls, the impact of this charge is about 10 percent dilution to our EPS. So 24 to 25 cents a share on our revised fiscal 2005 guidance. This again ignores KCI.

However it is important to remember that we also have to restate all prior periods that the bonds were outstanding, which means we have to restate the 10 months of fiscal 2004, which will bring down our base numbers from 2004, the $1.99 of EPS, down by 17 cents. The bottom line is while EPS will be lower, the base line will also be lower; so you'll continue to see double-digit EPS growth year-over-year.

Moving on to more exciting topics, even for a bean counter like me, let's talk about acquisitions. Since we announced the KCI acquisition a little over a month ago, we have been very busy moving towards closing, which we still expect to be around the end of the calendar year.

As we announced via press release on Wednesday, we have cleared antitrust clearings with our HSR filing. We are also well underway in lining up our senior financing. Lastly, as Bob mentioned at the outset and as you saw in the press release from last evening, we have commenced the equity offering which we hope to wrap up by the end of the year.

Until the equity deal is complete, we can't provide a lot of additional comments on KCI. However we feel this deal, the KCI acquisition, is very transforming to Actuant. KCI has 6 separate business units including a number of leading market positions that fit well into our Engineered Solutions and Tools & Supplies segments. KCI has a decentralized management approach similar to Actuant, strong cash flow characteristics, and great diversity across end markets and customers.

The acquisition will be accretive to earnings out of the blocks with synergies upside above and beyond that in the future. This transaction moves our revenues to close to $1 billion and our EBITDA to north of $150 million.

While certainly smaller than the KCI deal, we don't miss the opportunity today to comment on the most recent acquisition, that being A.W. Sperry, which we announced at the beginning of December. This is a great bolt-on acquisition for Gardner Bender, as it broadens GB's electrical tester product line and nearly doubles the revenue of that product line.

This is a company that has been on GB's acquisition wish list since I first joined GB as its CFO back in 1996. It will help increase our sales in the big box retailers, particularly at Lowe’s and Home Depot; and as we indicated in our press release will be accretive to earnings in the first year. With that, I'll turn it back to Bob.

Thank you, Andy. As you can tell from Andy's comments, we were very pleased with the first quarter. It really sets the table for another great year at Actuant. Before going into our revised guidance, let me update you on 2 other fronts.

The first is our automotive business. Being long-time ATU shareholders, you recollect that about a year ago we were talking a lot about automotive margin issues. We commented that this was largely due to the volume of new platform launches and that things would get better. The first-quarter results proved to be an extension of the third and fourth quarter, where we saw very robust sales growth and additional margin expansion.

What is encouraging to us about automotive is there is no letup in new program activity. We currently have multiple models of new and replacement programs which will be launched in model year 2006 and 2007. In addition we are winning additional business in 2 other areas of automotive, that being latching and tailgate actuation. These are natural extensions of our actuation systems. They increase our content per vehicle, and both use our existing hydraulic pump systems to actuate.

So the combination of the high-growth characteristics of the convertible top market as many of you have heard is doubling over this decade. And the expansion of the served market by adding latching and tailgates, we remain confident that we can continue the above-average growth in this subsegment of Actuant for the remainder of the decade.

The next market update is RV. It is a good time to update you on the RV business since we have just returned from the national RV show in Louisville. Attendance at the show was up from last year and a number of OEMs stated they were pleased with the traffic and order intake from the dealers.

Calendar 2004 is turning out to be a record year for the RV industries, with total RV shipments north of 300,000 units. Class A and class C motor homes, where most of our business is centered, is expecting units to be up around 65,000 units in total. Low interest rates, the growth in baby boomers, which are the target buyers for RVs, and reasonable consumer confidence have all contributed to this record year.

As discussed in our last call, the first half of the calendar year was very strong for RV, with class A and class C sales up 11 and 21 percent respectively. This annualized growth moderated significantly in the third quarter, which we expected and we saw in our November results. For the full year now in 2004, class A is predicted be up 6 percent, class C 15 percent. Again, both records.

As Andy stated, our first-quarter RV sales were down 18 percent. We knew going into the quarter it was going to be a tough quarter for comparisons against last year, and we were right. We're still expecting RV sales for 2005 fiscal year to be in the $100 million neighborhood; in effect the same guidance we gave you 3 months ago.

A couple of other comments worth talking about in RV. The decline in this RV business for us was more than offset by the strength of truck and automotive product lines within Engineered Solutions. We began a year ago working on some aggressive new actuation solutions for the industry; and Louisville proved to be a place where we got to display some of that technology.

We worked to design a number of new slide-out platforms which offer OEMs additional design capability. Examples of this would be Actuant's 23-foot -- what's call a full wall slide. It is in effect the whole wall of the RV moving. And also a new slide-out mechanism that was driven by cables versus the post and rail and motor system of the past.

We introduced new lightweight leveling, which expands the leveling market into class C motor homes. These traditionally have not had leveling. We introduced a new air over hydraulic leveling system which a number of OEMs are very excited about. Lastly we displayed some new actuation applications associated with lifting beds under toy haulers and TV (ph) actuation of applications.

In summary, we remain very excited about the RV market, the characteristics of growth for the RV industry, and our position in this channel.

Now moving to our 2005 guidance, as you saw in the press release we increased our guidance by 15 cents to $2.40 to $2.50 a share on a full-year basis. This guidance assumes sales of 790 to 810 million. Based on the midpoint of the guidance our diluted EPS would be up 21 percent over last year's $1.99. This excludes the bond buybacks that we had last year.

Looking at the second quarter specifically, we are expecting EPS of 47 to 52 cents a share on sales volume of 185 to 199 million. As Andy walked you through, the second quarter is traditionally our lowest-margin quarter of the year, through the winter season affecting construction, plant shutdowns around the holiday, and a short work month in February, all of which pile into our second quarter. While down sequentially due to the seasonality from the first quarter, it still represents year-over-year improvement in earnings growth of 15 to 26 percent.

Both the second-quarter and full-year guidance excludes the accretive effect of the KCI acquisition and the dilutive effect of the convertible bonds that Andy walked you through. Both of these will be updated in our guidance in the future. Operator, I would now turn it over to you for the participants' questions.

(OPERATOR INSTRUCTIONS) Deane Dray of Goldman Sachs.

I know we are not supposed to ask about KCI. But conceptually any time you are acquiring assets from a private equity firm, you run the risk that the previous owners may have underinvested in CapEx in the businesses in some way in order to boost cash flow. How do you address that kind of risk? And what is your impressions of this going forward?

I think it is a good question and I think it is something we spent some time in due diligence looking at and making sure we were comfortable that that indeed did not happen. I think we're comfortable there was no under investment in CapEx.

I think where there probably was under investment was in additional market growth opportunities. For example Europe. KCI does almost no business in Europe. When we delved into that with them, this is where they really did not want to make the investments, didn't have a platform or offices or footprint in Europe. That would've been a big expensive launch for them and they would not gotten meaningful revenue probably for a couple of years. That is just not something a financial sponsor is going to like to do.

So I view that more as a plus than a minus. That is our upside, because we have got facilities in place. We have got the ability to look at that. So I guess my answer to your question is I think where they were underinvested is in growth opportunities, not necessarily in the businesses that they already have.

Roughly the D&A versus CapEx? I am just trying to gauge what kind of cash generation on balance we should expect.

The CapEx in this business have been relatively low, roughly 2 percent of sales, which is right in line with D&A. So it is pretty even.

We don't see a lot of brick and mortar, which ends up being the place where a lot of CapEx gets chewed up. We don't see any needs there.

Good capacity.

Sure. A quasi housekeeping question. I was a little surprised on the funding of the APW cash. It was always my impression that you had almost segregated cash balance on this. How is it that you had to borrow to return that cash?

We got rid of the escrow cash about 2 years ago.

End of fiscal 2002.

And paid down debt. That was really part of a settlement we came to with the Bankruptcy Court about where that money went and how it was going to be accounted for. What happened with the money -- and I think it is fair to say this was a dispute between the parties -- was when was this 16 million due to them?

Our view and our view of the contract was that it wasn't due until a final extension on another tax year was finished. So it was out in 2006. Their view was that is was due now. Obviously that was a dispute between the parties. We negotiated hard on that, and that is what resulted in the $2 million in effect gain. Because we met in the middle.

So I think that should answer your questions unless you want to have a follow-up.

You are right, that did come out of escrow and I know we went through that. Just a last question, given the kind of digestion ahead for KCI, what is your acquisition interest pipeline and so forth?

We're going to slow it down until we do KCI. I think that is a natural thing. I think you have heard me tell you in the past that our acquisition pace is really dictated by our management's ability to integrate things; and we spend a lot of time doing that.

The place that I would tell you we're still pretty active right now is in Enerpac; and KCI doesn't really affect Enerpac. It really is electrical and it is Engineered Solutions. It doesn't affect the industrial tools business.

I'm going to squeeze 1 more in. Regarding Enerpac, if you can gauge the way your sales have gone, I know some of it goes through distribution; but if we think about the sales in an industrial (indiscernible) first or some pent-up MRO. So you see some of that business go. Then maybe a second stage where you get some smaller projects bid. And then finally a third stage, late cycle, where you get bigger projects, like the bridge. Where are we today in that cycle, just based upon the kind of sales you're seeing in Enerpac?

The history of Enerpac -- and obviously I have been around this business for a decade or so -- is that it goes into recessions early and comes out late. We saw that in this cycle. It tends to be a late-cycle recovery business. Because while it is still a tool, it is still a 3 or $4,000 purchase if you're going to buy a maintenance set. It is something that -- it is not capital purchase, but it is not something you do the first day of an economic recovery.

So I have always viewed it as the late cycle. That happened this time. We did not start seeing improvement in Enerpac until November/December of last year, and then it has come on. So I would say it is a little less, even though it goes into the MRO market I would say it tends to be a little later cycle than MRO.

When you talk about the big projects, we have had those going throughout the whole period. Quite frankly those things get funded irregardless of recessions. That bridge got funded right through the middle of an industrial recession.

So those projects are smaller nature; it's probably 20 million of the total Enerpac sales. They are just on a continuing frequency. The most recent one is we won a national stadium in China which is going to be a big projects for 2006.

The last thing is I think Enerpac's winning market share. We have had better deliveries. We have had better internal performance. Our competitors have slipped a bit. I think Enerpac is getting a little bit of marketshare also. So put all that together, that is really what is driving Enerpac.

That is helpful. Thank you.

Wendy Caplan, Wachovia Securities.

It is Julie LaPunzina for Wendy Caplan. Can you just clarify for us that the 40 cents accretion that you have already told us about for KCI includes all debt and equity financing costs?

Then also we have seen some nice upticks in many of your businesses. At this point in time can you clarify which you think have the most operating leverage?

Why don't you handle the first one, Andy; I'll handle the second.

Just to confirm the number that we have previously talked about in terms of accretion with KCI, that did in fact contemplate all of the equity, all of the debt financing. So you do not need to factor in the shares from the equity offering off of those numbers. They are already baked in; so in that is a clean number.

As for the operating leverage, as you know we're not very vertically integrated. So we do not get as much operating leverage and uptick as other industrial companies. That is a pro and a con. It is a con in a rising; it is a pro in a shrinking, because our margins end up being a little more protected than traditional industrial business.

When I look across ours, Enerpac is very vertically integrated, as is the RV. Not vertically integrated, I mean variable cost model, as is the RV. The ones that have a little more capital intensity is automotive and Gardner Bender.

Okay, thank you.

Charlie Brady from Hibernia Southcoast Capital.

What is the embedded dollar/euro in your guidance going forward?

I have got it baked in there around 1 euro equals about $1.30.

On Sperry, when you announced the acquisition you did not disclose sort of revenues or accretion or margins. Can you give us any little more detail? Is the margin sort of higher, lower, in line with what Gardner Bender is? What sort of revenue number are we looking at? Low teen type of thing given what you paid for it?

We can't give you a lot of guidance on that due to how the contract was worded with the seller. I think the best thing I can tell you is that it is in line with other smaller bolt-on things that we have done.

Just for clarification, Bob, and maybe I misheard you. I thought when you said your guidance for revenues in '05 that you verbally said 790 to 810, which is a little bit higher than what the printed guidance says.

Bob misspoke. It is 785 to 800.

Thank you for catching that, Charlie.

That is the revenue number. The EPS was correct as he stated, $2.40 to $2.50.

Okay. I thought maybe Bob was just kind of (multiple speakers).

As you guys well know, I am an old CFO; and Andy is convinced the minute you become CEO you lose all comprehension for what numbers are and you lose all your sense of consistency and conservatism. I don't think I do, but Andy certainly does.

Bob, I don't think that's the case at all.

Thanks, Charlie.

If I look at the incremental margins for both Tools & Supplies and Engineered Solutions, incremental margins are north of 20 percent, and almost 21 for tools. Is there anything specific driving the really strengthening incremental margin? Or is it on the tool side, really, the Enerpac is really seeing some strong margin growth there?

We did have very good incremental margins. But it is pretty dangerous to do that given how strong Enerpac was in terms of mix, with Enerpac being up and our electrical business, which is our lower-margin business in that mix, being down.

We saw expansion across a lot of different platforms. But Enerpac really drove the bus from a Tools & Supplies standpoint. We saw nice margins in the other segment as well. But I just want to warn you, I do not know how margins could've been any better.

From a mix standpoint during the first quarter, it was like all the stars aligned, and that is why the results were the way they were. We just had great mix.

Let me give you some things that will temper your guidance a little bit in the back half of the year; and probably talk about why that does not continue. First is we have a reset going on at Lowe’s, which is really a beautiful set. We're going to start having some artwork on that in the next week or 2. It gets launched in the second quarter, kind of late second quarter, and then goes into third and fourth.

Whenever you have 1 of these reloads at a DIY it is a blessing and a curse. You've got a lot of stuff to bring back and to set it up; but then you usually get incremental revenue. We have most of the Lowe’s business anyways, so it is not a big incremental revenue. But it is a nice new wall.

Number 2 is that, and many of you know, that I have got some identified growth initiatives that I'm trying to drive that are new products and new markets going in. I have allocated $2 million of cost for that. Didn't see a lot of that in the first quarter. You will see some of that going into the back half of the year. So the combination of those 2 things does affect our margins going forward.

On the Sperry I know they sell on the Sperry brand into Loews. What is the brand they sell into, in to Home Depot?

Commercial electric.

Thanks very much, that's all I had.

Scott Graham from Bear Stearns.

I recall that Bob slipped just a haircut by Andy, which I am sure he has (multiple speakers) from time to time on you, Bob. Nevertheless, I just have housekeeping questions, really. If you wouldn't mind, Andy, providing FX by segment?

Give me 1 second. Why you don't you ask your next question; I will come right back.

You may have said it, but I missed it; the change in Enerpac sales. And you may have said it, but I missed it; the change in truck sales.

Okay, let me hit a couple of those. The FX by segment, it was actually an even 4 percent for each of the segments during the quarter.

In terms of growth in Enerpac and truck sales, we (technical difficulty) in Enerpac very nice sales. The truck business was double digits. It was in the teens, high teens. It was very robust.

Last question is the picture that you show for the convertibles, all the programs, the 12 programs, those are programs that begin? I didn't really understand that picture. That represented what, exactly?

Those are programs that will be coming out over the course of 2006 through 2007. Some of those are programs that we had announced previously that we had won. Some of these are new ones that we hadn't previously announced. So these are programs that are rolling out over the next 24 months or so.

So these are your wins that roll through your revenues?

Correct, these are our wins; and obviously Hoybegger (ph), our only kind of competitor, would have its set of wins, which includes the Sebring, which we talked to you guys about. There's BMW products.

So we are getting away from keeping score of how many wins. We used to say 17 out of 22; and the numbers are now into the 20s somewhere. But because of the latching and the tailgate actuation, it is getting to be very muddy to try to keep track of the wins and losses.

I think my prepared comments were probably really a good assessment, that there is a lot of activity going on. I think the Detroit Auto Show you're going to see some new convertibles. I think that theme is very good.

The liftgate actuation which I talked about a lot 2 or 3 years ago at the Detroit Show, we really were not hitting the price point. All of a sudden that seems to be coming a little more in line. The latching is a big issue, particularly with the retractable hardtop roofs. Most people want a pushbutton actuation on their latch instead of these manual handles that you have got to turn to lock your roof down.

All of this is playing very nicely into our auto business. That is what leads me to believe that this thing is a 3-time GDP grower for the rest of the decade.

Okay, last question on the KCI acquisition. From your prior press release it looked as if the operating margins of KCI were actually higher than yours. With purchase accounting adjustments, needing to maybe hit those numbers, amortization of intangibles, that kind of thing, what do those margins look like to you guys right now, all in?

I really don't comment on specific margins on that. What I can do for you, Scott, is point you to the prospectus. There are pro formas that are in there. There are pro formas that have been filed with the SEC this morning that lay them out. It also includes some of the specific adjustments that you are talking about. But we have been advised by legal counsel not comment on something like that on this call.

I will look there. Thanks a lot.

(OPERATOR INSTRUCTIONS) Robert McCarthy from Robert W. Baird.

With the $16 million payment, are we now totally done with APW?

The answer is no, we are not done. We still are on the hook for some leased property. Now some of the businesses that were on the hook of the leased property aren't even owned by APW any more. They were sold to other third parties. From my point of view we are done, meaning I do not expect any monetary effect going forward from any of those issues.

I wasn't worried about the lease contingencies. But the tax issue is now behind us?

We believe it is done.

Terrific. The numbers, Andy, that you are providing on how different product lines performed during the quarter, I assume all of those excluded the impact of currency?

That is correct, Rob. Those are all core results.

Huge number in auto; but as I recall coming into the year you are looking for the year to be sort of flat. Is that still your expectation with that strong number in the first quarter?

Probably not. Some of that strong number was currency driven. I think we had more conservative currency estimates when we did this. As you know, most of our convertible business is revenue generated in Europe.

The programs had a very big first quarter. I don't think it's going to continue at that level. But I think the amount that you captured above our forecast in the first quarter will. I don't think we have gotten very tight on that, but I think you're going to see a little more revenue than we thought.

Part of what I am trying to get at, Bob, is you don't have any quarter this year where you would expect that business to be down by any material amount, do you?

Over the prior year?

Right.

Possibly in the third or fourth where we had the launch of the Renault Megane and the Peugeot 207 in Europe. Both of these were big, big programs.

But you had pipeline fill?

That's right.

You got a line fill. So that would be the place that would happen. Now going the other way, as you got some of the 2006 model years that will be starting in the fall. So I --

Hard to say.

If it is down I don't think it's going to be monster.

That's a nice segue to follow on with Scott's question. You say 3 times GDP for the rest of the decade as an average growth rate, fine. But you've got a lot on tap for '06, '07. Are we looking at, as you sit here today, an expectation for some kind of teens growth in the auto business in fiscal '06?

Yes.

And between the 2 years, '06 and '07, based on projections you've been given, which of the 2 would be the stronger growth year? Or do you know?

Probably '07 because you'll get the full-year benefit of the '06 launches.

Okay, all right.

Now there are programs falling off, as you would expect, guys. So if you're looking at the schedule that Ann has up, the Audi TT we already had.

(multiple speakers) Some of these are replacements.

The Lamborghini we already have. The Mitsubishi -- the Jaguar we already have. So we don't want to just get you focused on the wins. There are programs that fall off also.

That's why I asked the question.

I think my 3 times GDP growth is probably double-digit average from now for the next 5 years. That is pretty heady growth. I would like to see more program activity before I go any different than that.

Bob, maybe we should've been asking all these years and months and quarters whether you mean real or nominal.

Don't get him going.

I have 1 more. Just I appreciate your comments about the reset at Lowe’s. And we have talked about your plans to try and accelerate new product development. But you have to admit that from the outside. after a quarter in which beat your own forecast by a dime, to only raise your forecast for the full year by 15 cents would appear to be pretty conservative. Do you want to address that?

I think you're accurate. Being an old CFO, I understand the importance of making sure you hit you numbers in both the quarter and the year of a public offering. And I have a more conservative view of the euro than what it is trading at today. I do want to invest in these new opportunities, which drags a couple of million of cost and does not have any revenue.

These are the things that are coming into our guidance. I guess I continue to be on that side of the equation where if we beat it, we will beat it with actual numbers, not with a far show-me prediction that gets me in trouble later in the year.

Your comments on the euro are well taken. Thanks.

Yvonne Varano from Jefferies.

I just wanted to ask for 1 clarification on the guidance, and whether or not that included the favorable settlement from the first quarter of 5 cents.

Yes, it does.

It does. Okay, thank you.

Roger (indiscernible) Capital.

It's Roger Norberg. I'll fix it for you, Roger.

Thank you, Bob. I'm not going to try to press you on fleshing out of your guidance is too conservative. But I would just be interested in listening to your thoughts about pricing into '05 and maybe for the full year of '05.

What is your best guess on what you'll realize overall for price increases '05 versus '04? If you have a sense for how much growth in your revenue number '05 over '04 is, just from price increases, I would just appreciate your best guess on what that is. So I just appreciate your thoughts on pricing.

It's pretty hard to do with the diversity of our businesses. But let me give it a shot. Prices, everybody is getting some price now just due to the sheer value of the raw material price increases that's going into almost every industrial product. So you start with an assumption that you are getting some price.

It is not recuperating. It is not covering the cost increases that you have. It is covering some percentage of them, and it depends business by business. Electrical is a place that you get less. Enerpac is a place you get more. Convertible tops is a place you get less. RVs, because they are short cycles, they tend to reprice all the time on new models; you get more.

So you put all that together and I think we are probably in the 2 percent realized price increase across the whole Actuant platform. Andy, any feel?

I think my feel is less than that; because we haven't seen anything on auto or truck at all this year in the electrical business.

But some of this is also timing, where if you had extended purchases --which in OEM businesses you do -- you don't need the price increase, because the raw material hasn't gone up yet. I don't know if we answered all your question.

I want to go back to a line Andy used in the last call, which is we think we're eating about $1 million a quarter in the difference, the net cost between what we can raise and what our raw material is. We are making that up in other places.

Maybe just 1 other way to ask it, is it getting any easier to get price realization through on your list pricing and ultimately realize it in your invoicing?

No, it is not any easier.

Thanks very much. Nice quarter.

A follow-up from Robert McCarthy of Robert W. Baird.

We should be about done, because I just punched that in. Andy, you said that the electrical business was down a low single digit in the quarter. Could you contrast North America versus the European businesses?

Pretty similar process here (ph).

I just want to reconfirm that I heard your answer to the question that was just asked correctly. The 5 cent item -- I'm sorry; let's ask it this way. The $2.40 to $2.50 forecast for the full year includes the first quarter at 71 cents?

That is correct.

Okay, thank you.

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

Thank you very much. It was a great quarter. It's a busy time for Andy and I. We are obviously traveling, associated with an equity offering. We appreciate your interest in this call. We hope you can have some time to study some of the SEC documents and work with the various underwriters to improve your position in Actuant's stock. We look forward to it. Have a happy holidays, 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.