Actuant Corporation (now associated with Enerpac Tool Group) — Fiscal 2011 Form 10-K Summary
Reporting period: Fiscal year ended August 31, 2011. The filing is an annual Form 10-K, not a quarterly filing, although fourth-quarter results are separately disclosed. Actuant was a diversified global manufacturer organized into Industrial, Energy, Electrical and Engineered Solutions segments. Fiscal 2011 sales were approximately 48% U.S., 35% Europe, 12% Asia and 5% other regions.
Financial performance and key metrics
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Net sales | $1,445.3 million | $1,160.5 million | +25% |
| Gross profit / margin | $555.9 million / 38.5% | $427.3 million / 36.8% | Margin expanded |
| Operating profit / margin | $193.6 million / 13.4% | $121.8 million / 10.5% | +59% |
| Earnings from continuing operations | $124.5 million | $70.4 million | +77% |
| Diluted EPS from continuing operations | $1.68 | $0.97 | +73% |
| Net earnings | $111.6 million | $24.0 million | +364% |
| Diluted net EPS | $1.50 | $0.35 | +329% |
| Operating cash flow | $171.6 million | $121.1 million | +42% |
| Capital expenditures | $23.1 million | $20.0 million | +16% |
| Total debt at year-end | $525.2 million | $367.4 million | +$157.8 million |
Fourth-quarter fiscal 2011 net sales were $403.4 million, compared with $310.4 million in the prior-year quarter. Fourth-quarter earnings from continuing operations were $37.3 million, versus $20.9 million, and diluted EPS from continuing operations was $0.50, versus $0.29.
Fiscal 2011 consolidated core sales growth was 13%, excluding $119 million of acquired sales and a $23 million favorable foreign-currency translation impact. Segment sales and operating margins were: Industrial $393.0 million and 25.0%; Energy $293.1 million and 16.8%; Electrical $286.0 million and 7.2%; and Engineered Solutions $473.2 million and 13.4%.
Liquidity, debt and cash flow
- Cash and cash equivalents were $44.2 million at August 31, 2011.
- The amended Senior Credit Facility provided a $600 million revolver, a $100 million term loan and a $300 million expansion option. Unused revolver capacity was approximately $539.7 million, of which $522.6 million was available for borrowing.
- The company was in compliance with its debt covenants, including a maximum leverage ratio of 3.75:1 and a minimum fixed-charge coverage ratio of 1.50:1.
- Fiscal 2011 investing cash outflows were $331.3 million, primarily reflecting $313.5 million of acquisitions and $23.1 million of capital expenditures. Financing activities provided $158.5 million, principally through new borrowings.
- Net primary working capital increased to 17% of sales from 16%, mainly because of acquisitions and higher inventory levels supporting demand.
- Fiscal 2012 capital expenditures were expected to be approximately $30 million. Management stated that cash, revolver availability and expected operating cash flow should meet operating, debt-service, acquisition and capital-expenditure needs for the foreseeable future.
Material changes versus the prior comparable period
- Sales growth reflected improving industrial, energy and vehicle markets, acquisitions and favorable foreign-currency translation.
- Industrial sales increased 31% and operating profit increased from $66.3 million to $98.4 million, supported by volume, restructuring benefits and operating leverage.
- Energy sales increased 24% and operating profit increased 58% to $49.3 million as oil and gas, maintenance and power-generation activity recovered.
- Electrical sales increased 22%, primarily from the Mastervolt acquisition, but core sales were flat and margins declined because of raw-material inflation, expedited freight, facility-consolidation inefficiencies and unfavorable acquisition mix.
- Engineered Solutions sales increased 21% and operating profit doubled to $63.6 million, reflecting stronger heavy-duty truck, agriculture and construction-equipment demand and productivity improvements.
- Restructuring charges declined substantially to approximately $2.3 million from $16.7 million. No fiscal 2011 impairment charge was recorded, compared with significant impairment charges in fiscal 2009 and discontinued-operation impairment charges in fiscal 2010.
- Mastervolt was acquired in December 2010 for approximately $158.2 million, and Weasler Engineering was acquired in June 2011 for approximately $153.2 million. Together, these acquisitions added substantial goodwill and intangible assets.
- The company sold the remainder of its European Electrical business in February 2011 and recorded a $15.8 million pretax disposal loss, contributing to a $12.9 million loss from discontinued operations.
Guidance, outlook, risks and unusual items
Management’s fiscal 2012 priorities were operational excellence, cash-flow generation and growth through new products, market-share gains and strategic acquisitions. Specific revenue or EPS guidance was not provided in the filing text.
- Key risks include cyclical demand in vehicle, industrial, oil and gas, marine and electrical markets; competitive pricing; raw-material and labor-cost inflation; supply-chain disruption; foreign-currency exposure; interest-rate risk; and geopolitical or economic deterioration.
- Acquisition execution and integration are central to the growth strategy. Failure to realize synergies, retain key personnel or integrate systems could adversely affect results and liquidity.
- Goodwill and other intangible assets totaled $1.368 billion, approximately 67% of total assets. Future underperformance could result in material non-cash impairment charges.
- Approximately 50% of revenue was denominated in currencies other than the U.S. dollar. Dollar weakness favorably affected reported fiscal 2011 results, creating potential translation headwinds if currency trends reverse.
- Outstanding debt included $249.4 million of 6.875% senior notes due 2017 and $117.8 million of 2% convertible notes due 2023. The convertible notes are subject to holder repurchase rights in 2013 and 2018 and potential conversion into approximately 6.0 million shares.
- Unrecognized tax benefits were $26.2 million, and the company had approximately $288.7 million of undistributed foreign earnings for which an additional tax provision of approximately $61.9 million would have been required if remitted.
- Legal, environmental, product-liability, labor and patent matters were described as ordinary-course contingencies that management did not expect to have a material adverse effect. Letters of credit totaled approximately $9.5 million.
- Management and the independent auditor concluded that internal control over financial reporting was effective, although certain Mastervolt and Weasler controls representing approximately 20% of consolidated assets and 5% of consolidated revenue were excluded from the fiscal 2011 assessment.
Most important facts for an investor to verify
- Confirm the corporate-name relationship between the filing registrant, Actuant Corporation, and the requested Enerpac Tool Group entity.
- Reconcile reported growth with the contribution from Mastervolt, Weasler, other acquisitions and foreign-currency translation.
- Review acquisition purchase-price allocations, goodwill concentration and impairment sensitivity.
- Assess debt maturities, covenant headroom, floating-rate exposure and the availability of the revolving credit facility.
- Evaluate whether Electrical-segment margin pressure from commodity costs, pricing and integration persisted after fiscal 2011.
- Separate continuing operations from the European Electrical divestiture and other discontinued operations when comparing earnings and EPS.
- Verify the effect of the September 28, 2011 authorization to repurchase up to 7 million shares, which occurred after the fiscal year-end.