Actuant Corporation Form 10-Q Summary
Reporting period: Quarter and nine months ended May 31, 2011. The source filing identifies the registrant as Actuant Corporation, not Enerpac Tool Group Corp. Financial statements are unaudited and presented in thousands, except per-share amounts.
Business Context and Reporting Period
Actuant is a global manufacturer organized into Industrial, Energy, Electrical, and Engineered Solutions segments. Results were affected by acquisitions, divestiture activity, foreign-currency translation, restructuring, and improving demand across many industrial, energy, vehicle, and infrastructure markets.
- Fiscal 2011 acquisitions included Mastervolt, completed December 10, 2010, and several prior-year acquisitions.
- Weasler Engineering was acquired on June 2, 2011, after the balance-sheet date, for approximately $153.0 million. It was funded with cash and revolving-credit borrowings.
- The European Electrical business was sold on February 28, 2011, and is reported as discontinued operations.
Financial Performance and Key Metrics
| Metric | Three months ended May 31, 2011 | Three months ended May 31, 2010 | Nine months ended May 31, 2011 | Nine months ended May 31, 2010 |
|---|---|---|---|---|
| Net sales | $392.8 million | $310.1 million | $1,041.9 million | $850.1 million |
| Gross profit | $154.0 million | $116.2 million | $400.9 million | $312.7 million |
| Gross margin | 39.2% | 37.5% | 38.5% | 36.8% |
| Operating profit | $58.0 million | $40.1 million | $136.6 million | $84.2 million |
| Operating margin | 14.8% | 12.9% | 13.1% | 9.9% |
| Earnings from continuing operations | $38.4 million | $28.3 million | $87.2 million | $49.4 million |
| Net earnings | $36.4 million | $21.8 million | $70.2 million | $40.8 million |
| Diluted EPS from continuing operations | $0.51 | $0.39 | $1.17 | $0.69 |
| Diluted EPS | $0.49 | $0.30 | $0.95 | $0.57 |
Reported sales increased 27% in the quarter and 23% year to date. Management reported 14% core sales growth for both periods, with approximately $11 million and $6 million of favorable foreign-currency impact in the quarter and year-to-date periods, respectively. Acquired businesses contributed $31 million of quarterly sales and $74 million of year-to-date sales.
- Industrial: Sales increased 35% in the quarter and 33% year to date; operating margin improved to 27.8% and 24.6%, respectively.
- Energy: Sales increased 38% in the quarter and 20% year to date; operating margin improved to 17.9% and 15.2%.
- Electrical: Sales increased 30% in the quarter and 20% year to date, but operating margin declined to 6.3% and 6.8%, respectively, due to freight, commodity inflation, facility-consolidation inefficiencies, and Mastervolt mix.
- Engineered Solutions: Sales increased 13% in the quarter and 18% year to date; operating margin improved to 15.7% and 13.7%.
The effective tax rate was 23.0% for the quarter and 22.0% year to date, compared with 11.6% and 17.2% in the prior-year periods. Management attributed the 2011 rates to greater foreign tax-credit utilization and higher earnings in lower-tax foreign jurisdictions.
Cash Flow, Debt, and Liquidity
| Cash flow or balance | Nine months ended May 31, 2011 | Nine months ended May 31, 2010 |
|---|---|---|
| Cash provided by operating activities | $95.1 million | $69.6 million |
| Cash used in investing activities | $(171.1) million | $(33.9) million |
| Cash provided by financing activities | $99.4 million | $(23.7) million |
| Capital expenditures | $14.8 million | $13.2 million |
| Business acquisitions | $160.0 million | $29.2 million |
| Cash and cash equivalents at period end | $68.3 million | $22.3 million |
- Total debt was $467.2 million at May 31, 2011, including $349.4 million of senior indebtedness and $117.8 million of convertible notes.
- The Senior Credit Facility was amended and extended to February 23, 2016, with total capacity increased to $700 million, consisting of a $600 million revolver, a $100 million term loan, and a $300 million expansion option.
- The revolver had $597.2 million of unused capacity, of which $454.3 million was available for borrowing. The company reported compliance with all debt covenants.
- Financial covenants included a maximum leverage ratio of 3.75:1 and minimum fixed-charge coverage ratio of 1.50:1.
- Interest-rate swaps converted $100 million of floating-rate debt to a fixed rate of approximately 2.06%.
- Primary working capital increased to $275 million, or 18% of sales, from $213 million, or 17%, primarily due to Mastervolt and increased inventory to support demand.
Material Changes, Outlook, Risks, and Unusual Items
- Operating performance benefited from higher volumes, improved product mix, increased fixed-cost absorption, productivity gains, and prior restructuring actions.
- Restructuring charges declined to $1.6 million year to date from $13.4 million in the comparable period. Remaining severance was expected to be paid within twelve months; facility-related obligations extend over lease terms.
- The European Electrical divestiture generated a $15.8 million year-to-date loss on disposal, including a $2.0 million third-quarter adjustment. Discontinued operations produced a $17.0 million year-to-date after-tax loss.
- Goodwill increased to $812.1 million and net intangible assets to $419.4 million at May 31, 2011, largely reflecting acquisitions and foreign-currency effects.
- Management prioritized integrating Mastervolt and Weasler, investing in growth initiatives, and maintaining strong cash flow generation. Management stated that cash, revolver availability, and operating cash flow should be adequate for operating, debt-service, acquisition, and capital-expenditure needs for the foreseeable future.
- Key risks include economic recovery and end-market conditions, competition and pricing, commodity, labor and material costs, foreign currency and interest rates, supply-chain conditions, acquisition integration, restructuring savings, indebtedness and covenant compliance, regulatory developments, and litigation or environmental matters.
- Outstanding letters of credit were $10.0 million. Contingent liability for certain former-subsidiary leases had a discounted present value of $3.0 million. Management did not expect legal, environmental, or lease contingencies to have a material adverse effect.
Most Important Facts to Verify
- Confirm the correct issuer: the supplied filing is for Actuant Corporation, while the request metadata names Enerpac Tool Group Corp.
- Verify the post-period Weasler acquisition financing, purchase-price allocation, and subsequent effect on leverage and liquidity.
- Assess whether Electrical segment margin pressure from Mastervolt mix, commodity inflation, expedited freight, and facility consolidation was temporary or ongoing.
- Reconcile reported earnings and adjusted earnings measures, particularly discontinued operations, restructuring charges, amortization, tax-rate changes, and acquisition effects.
- Monitor debt covenants, convertible-note repurchase or conversion features, floating-rate exposure, and available revolver capacity.
- Evaluate working-capital growth, especially inventory, relative to sales growth and operating cash conversion.