Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Actuant Corporation's Quarter Earnings Conference Call. We are conducting a live meeting to coincide with the audio conference. If you would like to view the presentation online, please refer to your meeting invitation for details.
During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct the question-and-answer session. As a reminder, this conference is being recorded on Wednesday, March 20, 2013.
It is now my pleasure to turn the conference over to Karen Bauer, Communications and Investor Relations Leader. Please go ahead Ms. Bauer.
Karen Bauer - Communications and IR: Good morning. Welcome to Actuant's second quarter fiscal 2013 earnings conference call. On the call with me today are Bob Arzbaecher, Actuant's Chief Executive Officer; Mark Goldstein, Chief Operating Officer; and Andy Lampereur, Chief Financial Officer.
Our earnings release and the slide presentation supplementing today's call are available in the Investors section of Actuant's website.
Before we start, let me offer the following cautionary note. During this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Investors are cautioned that forward-looking statements are inherently uncertain and that there are a number of factors that could cause actual results to differ materially from these statements. These factors are outlined in our SEC filings.
Consistent with prior quarters, we'll utilize the one question and one follow-up rule in order to keep today's call to an hour. Thank you in advance for following this practice.
With that, I'll turn the call over to Bob.
Bob Arzbaecher - Chairman, President and CEO: Thank you, Karen, and thanks to all of you for participating in our second quarter earnings call. We were satisfied with our results which came in at the high end of our guidance range. Back on December's earnings call we said we expected the second quarter would look a lot like the first quarter and that’s what happened.
Core sales were down 6% compared to 7% in the first quarter and margins and earnings declined year-over-year as expected.
While consolidated results were in line with expectations there were some puts and takes between and within the segments, that we'll provide more color on today. Certain parts of Electrical and Engineered Solutions segment came in better than we anticipated while others were negatively impacted by customer inventory destocking and program launch delays. Industrial is 1% core sales growth was in line with our expectation. The Energy segment saw moderating results sequentially largely due to a robust 27% core sales growth comparable from a year ago. We feel we've arrived at an inflection point in the fiscal year with the first half down on a year-over-year basis in sales and profits, but the second half expected to grow. We'll expand on this later in the call. Andy will go through the details of the second quarter, then Mark and I will come back and cover a few other topics including guidance. Andy?
Andy Lampereur - EVP and CFO: Thank you, Bob and good morning everyone. I'll provide some additional color on our financial results we reported this morning. Summarizing the results at a high-level, we generated second quarter sales of $370 million, which were down 2% from the prior year due primarily to lower shipments in the Engineered Solutions and Electrical segments. Our operating profit margins declined in the second quarter, which is our seasonally weakest of the year. Half the decline was due to an acquisition earnout accrual reversal in the prior year and the balance due to lower current year value.
Our diluted earnings per share was $0.38 a share, which was 12% below the prior year due to lower sales and margins which are partially offset by lower tax rate and financing costs.
Now we'll dig in and provide a little bit more color in results starting first at the sales line. Our second quarter sales were down 2% on a year-over-year basis reflecting a 6% core decline in the 4% benefit from last year's three acquisitions. Currency did not have a meaningful impact on the second quarter on a year-over-year comparison. The 6% core sales decline compares to last quarter's 7% year-over-year decline. This was driven by headwinds in the Engineered Solutions and Electrical segments, but both of these segments reported less – worse declines than in the first quarter. We took this as a sign that we are moving off the bottom. Sales in the other two segments weakened sequentially on a year-over-year basis. I'll provide more color in sales by each of the segments in few minutes.
Geographically, it feels like demand in our Industrial-oriented end markets is holding up best in the Americas, although the OEM customer inventory correction seems like it will be a headwind at some accounts in North America for another quarter. Europe is clearly facing challenges right now, but we expect to see some easier comps coming our way.
While demand in China and India continues to be weak, our Energy quotation activity around the globe remains strong. Our Second quarter profit margins are typically the weakest of the year due to lower production levels during the holidays and short month of February. We also normally see the impact of a seasonal slowdown in oil and gas maintenance in the North Sea due to inclement winter weather. The combination of these factors hurt absorption in our facilities and adversely impacted second quarter profit margins.
Overall, our consolidated operating profit margins declined to 11.3%, down 180 basis points from year ago. Approximately half the decline was due to the prior year earn-out adjustment in the Energy segment that I mentioned earlier. From a segment standpoint, margins were down year-over-year in all four segments, but are expected to rebound nicely in the second half.
Now, I will step down on layer of detail and provide some color for each of our segments, starting first with the Industrial segment. Industrial generated 1% year-over-year core sales growth in the second quarter, the continuation of the moderating trend that we've been seeing. As a reference point core sales were up year-over-year by 2% in the first quarter.
Similar to last quarter the sales growth experienced in the Integrated Solutions product line more than offset the slowing economies impact on the base industrial tool hydraulic product line.
This same mix diluted margins year-over-year however as IS projects do not generate margins as high as the standard industrial tools. The pockets of strength in the industrial segment continue to be bolting, energy, and mining maintenance where we are capitalizing on our vertical market strategy and taking share.
Energy segment core sales growth in the quarter was lower than we expected largely the result of a high hurdle we created in the prior year when we had 27% core growth in the second quarter. Similar to the first quarter we saw sales growth at Hydratight and the decline at Cortland.
Cortland again had a lumpy quarter with weaker demand in its non-energy markets such as defense. It is a healthy backlog and a lot of outstanding quotes and this forecasting a stronger second half. The strongest demand at Cortland has been for the subsea oil and gas umbilical product line, while diving and seismic slowed a bit during the quarter.
While Hydratight did report year-over-year growth it was weaker than we saw in the first quarter. Beyond a difficult prior-year core sales comp, we saw some service customers delay the start of our service work until other contractors completed their part on the project and we saw lower nuclear maintenance activity in the prior year.
The Americas was a weakest region for Hydratight in the quarter while Asia Pac continued to grow very well on the strength of Gorgon project activities.
Our Energy segment operating profit in the quarter was down year-over-year, but if you exclude last year's acquisition earnout reserve adjustments both profits and margins were up year-over-year.
Moving on to the Electrical segment, year-over-year core sales declined 9% compared to 16% decline in the first quarter. Most of the year-over-year decline and sequential core sales change was again due to the solar product line within Mastervolt. Low-voltage transformer sales also hurt top line comparison. Areas of strength in the Electrical segment included the global marine channel for both the Mastervolt and Marinco brands as well as Del City's business-to-business Internet channel.
Electrical segment profitability was impacted by the lower sales volume in the quarter. We realized cost savings in the second quarter from last year's planned consolidation, but we also booked an additional $1 million of solar restructuring costs in this quarter to reduce future operating costs in Europe.
Now on to our final segment Engineered Solutions. This segment continued to feel the brunt of customer inventory destocking at Actuant, most notably from construction equipment off-highway and heavy duty truck OEMs. Segment core sales were down 12%, an improvement from the 17% year-over-year decline that we saw in the first quarter. Although highly unusual from the seasonal standpoint, segment sales actually increased sequentially from the first to second quarters due to the significant impact of destocking in our first quarter. We expect this to continue to get less worse as customer destocking comes to an end and we see easier prior year comps. Thanks to some aggressive cost reduction actions in the first quarter and the last 90 days, the decremental margins on the lower Engineered Solutions sales have improved. EBITDA margins in the segment in the second quarter were up sequentially 10 basis points as a result of these actions.
We expect to see margin improvement in Engineered Solutions over the next several quarters, the combined benefit of cost reduction efforts from the past, as well as higher production levels in the second half. Before wrapping up my prepared comments today, I'll quickly cover cash flow, liquidity and our financial position. We generated approximately $30 million of free cash flow in the quarter which was used to reduce our net debt.
We expect that the $30 million working capital build that we had in the first half of this year will reverse in the second half and be source of cash. We used approximately $2 million of cash in the quarter to buy back 61,000 shares of our own stock. Our quarter-end net debt of $304 million was the lowest we've had in the last five years in our net debt to EBITDA leverage of 1.1 times is the lowest in Actuant's history.
Liquidity and availability remain strong with our full $600 million revolver and $90 million of cash on the books available and ready to fund growth.
With that, I will turn the call over Mark.
Mark Goldstein - COO: Thank you, Andy. I wanted to spend a few minutes this morning explaining the segment leadership changes that we announced in January. While there were a number of reasons for the organizational changes, the punch line is that the change is focused on accelerating growth, both organic and acquisitions in these two segments.
Brian Kobylinski has done a great job growing the combined Industrial and Energy segments over the past five years, through both organic growth and acquisitions. The larger combined size breath and scale necessitated that we appoint dedicated leaders for each segment in order to provide more emphasis on each in the future. This will enable both segments to focus on accelerating their individual growth strategies. Brian continues to run the Industrial segment and we hired Sheri Roberts, who comes with a strong energy industry experience at Tyco and Shell to run the Energy segment.
In addition, to this increased focus and attention on our two most profitable segments we also assigned responsibility for our Actuant (Light) China business to Brian. His extensive past experience in M&A, along with his global perspective will allow us to fast-track our growth plan in this important region where frankly we feel we have plateaued.
I'm excited to have Sheri onboard and expect many of you will get to meet her at our Fall Investor Day, if not before.
I wanted to provide a brief update on our growth and innovation efforts at Actuant. Despite cost pressures in this low GDP growth environment, we remain focused on investing in organic growth initiatives. The year-to-date growth and (indiscernible) spending at Actuant reflects this.
One of the things we've learned with growth and innovation is that new products and technology take longer to show up our revenues with OEM customers versus distributors. And as a result, it's important to engage with OEM design teams earlier in the process.
Elliott's agricultural seeder system. For example of this is taken over two years from initial concept to customer acceptance and start of production for this new line of seeders. We are now through the prototype stage and will be shipping actual production units in the third quarter.
The benefits of the other new products and end market strategies are starting to contribute to our results in other segments as well. Our focus on strategic vertical markets from mining maintenance or voice of the customer research resulted in the introduction of the Enerpac Dozer Lift System to our focus on power gen within Hydratight are just a couple of examples.
That PowerGen effort by Hydratight was recently recognized by Bechtel, where we just accepted their key supplier award for the second year in a row. To be in the top 2% of suppliers two years in a row is an outstanding accomplishment for our team. We are encouraged by the progress and growth and innovation and are convinced that this initiative will pay off for investors.
With that, let me turn the call back to Bob
Bob Arzbaecher - Chairman, President and CEO: Thanks, Mark. The other area of growth that continues to get attention and action is acquisitions. It's been a busy quarter also. We've had a busy quarter within our acquisition funnel and I've had a number of opportunities under consideration. Some are later in the due diligence phase while others earlier in the acquisition process. We passed on some ideas that were in the funnel last time we talked and added others for consideration. Most of our activity has been in the Energy segment.
As Andy mentioned, we have a strong balance sheet to fund such deals that doesn't mean they will all make to finish line, but we are feeling good about our process and programs in the idea funnel overall. Finally as Mark described, the additional segment resources in Energy and Industrial and also in channel will give us additional horsepower in the M&A area as well.
As I mentioned in my introductory remarks this morning, we believe that we are in an inflection point with our financial results. We expect to see sales and earnings growth in the back half of the year, but the slope of the improvement is modestly lower than our view last quarter. This is largely due to a weak economic condition in Europe, mix signals out of China, some OEM destocking in North America and some currency headwinds.
As you can see on this slide, we expect roughly 10% to 20% earnings growth in the second half of the year, compared to a 7% decline in the first half. Why are we comfortable with this rebound? First, we are up against easier comparisons in the second half of the year. We will see margin benefit from the first half volume – sorry, an increase from the first half's volume as well as benefits in the cost actions that we took in the first half of the year and finally, the mix between our segments with our more profitable segments growing faster. While we don't expect a sharp rebound in the economy to drive earnings growth, we are generally feeling better about the second half economy and economic activity than we did in the first half.
That brings us to our updated guidance for the year. We expect sales to be in the $1.575 to $1.6 billion range. This reflects the current economic activity in foreign currency environment, as well as the divestiture of the NEOs sessions business unit last week. This is a small business unit within Engineered Solutions segment with annual sales under $10 million.
We have reduced our total full year core sales outlook by 2% to a decline in the range of 3% to 5%. ES and the Electrical core growth ranges are in the zip code of our prior guidance, while Energy and Industrial have been reduced modestly. The recent strengthening of the U.S. dollar also is affecting our outlook with the British pound weakening from 1.60 to 1.50, which reduces the translation of our financial results into U.S. dollars.
We now expect full year fiscal 2013 EPS to be in the range of $2.15 to $2.25. Last quarter we told you that – to expect the low end of our $2.20 to $2.30 guidance range for the year. After delivering an as expected second quarter, we're still targeting the EPS of $2.20, but wanted to add a nickel range around it, resulting in the $2.15 to $2.25 range.
We are still holding to our $200 million free cash flow target for the year, but admittedly this will be a challenge. As we have always generated the majority of our cash in the back half of the year, and I think 2013 will be no exception. For the third quarter, we expect sales of $410 million to $420 million and EPS of $0.63 to $0.68 a share, which would represent decent growth over last year $0.60 a share.
Finally, as always, future acquisitions and stock repurchases are not included in this guidance. However, we've already discussed, we expect to deploy capital on both as we move forward. That's it for our prepared remarks, operator please open the phone lines for the Q&A section of the call.
Operator: Allison Poliniak, Wells Fargo.
Allison Poliniak - Wells Fargo: Can you guys talk; Bob there is obviously a lot of uncertainty out there. But at this point are there any areas of your businesses that have been I guess depressed. You are starting to see the light at the end of the tunnel, that people are becoming more optimistic as we move forward?
Bob Arzbaecher - Chairman, President and CEO: I don’t think it’s a big change from last quarter. But what I would tell you is I think the Canary and the coal mine for us has always been kind of European truck. That seems to be the market that led us into the '08 recession and also led us into this one and if you peel out North America and look at truck in Europe, we've had strong less worse numbers, we are down to what high single-digits down and that’s from much, much higher numbers over the last three or four quarters. That we hope is one of the areas that will a little bit better. Obviously, as we said in our prepared remarks energy a little bit weaker, mostly Cortland related, mostly push out or kind of pushed to the second half related. So I don’t see a lot of other changes from what we said 90 days ago.
Allison Poliniak - Wells Fargo: Then just going back to Energy with the push outs I mean are we assuming these push out or delays are into your fiscal Q3 or Q4 or are they beyond that at this point?
Bob Arzbaecher - Chairman, President and CEO: Three and four.
Operator: Charlie Brady, BMO.
Andrew - BMO Capital Markets: This is (Andrew) in for Charlie Brady. I was wondering if you may be able to breakout the core growth of the traditional Enerpac business and the Integrated Solutions business?
Andy Lampereur - EVP and CFO: I think Enerpac was – the IT business was down a couple of percent to 3% and the IS business was probably up 10% or so, double-digits.
Karen Bauer - Communications and IR: Low double-digits.
Andrew - BMO Capital Markets: Also how much was the Cortland business down in – I guess what are you guys doing in the defense segment –defense industry end market?
Bob Arzbaecher - Chairman, President and CEO: Let me handle that and Andy you can decide what you want to give in the numbers. We typically don't give business unit numbers, but Andy will granulize it for you. The two big products that we do in defense, we do a tether that is done for balloons that do reconnaissance and it – so that is – it's a tether that actually moves helium up the balloon and also holds the balloon in place. The second piece is we do an umbilical that is used in submarines for torpedoes and those are the kind of the two major products within the Cortland portfolio.
Andy Lampereur - EVP and CFO: In terms of Cortland, what it was down, pretty similar to last quarter; it was down high single digits relative to Hydratight which this quarter was up low single digits.
Andrew - BMO Capital Markets: In the agriculture market, in the Engineered Solutions segment, you guys mentioned it was flat, are you guys seeing – do you guys expect that to kind of improve throughout the year or – and what's kind of like the cause of its kind of moderation.
Bob Arzbaecher - Chairman, President and CEO: Couple of things there, one, we do expect, there is some seasonality in that business as you would expect, as you plant crops. It's predominantly North American focused with some piece in Europe, but basically the North American crop and the use of equipment creates and aftermarket that we see. So, we will expect to see growth in the back half just as you get into the spring plantings season. As for what caused the decline, it's a combination of factors, the drought in the South last year certainly affected hay silage and utilization of our shaft because there weren't – they just were not bailing and harvesting as much grain and hay as they did the prior year due to the drought. So, the normal recurring revenue that we get associated with usage was just a little bit lighter. The other thing is OEM backlogs. Again, we don't sell a lot to the big three. We sell more to the short line guys, but OEMs in general have been very careful with the inventory as we’ve talked at length on and that affected. But even with all that, kind of a bad quarter for us and agriculture was flat. So, we felt pretty good about that.
Andy Lampereur - EVP and CFO: The other comment I'll make on ag is the first six months after we owned it (indiscernible), they did have a past due – they did have a past due backlog that was work down and we saw kind of the balance of that flow through in the second quarter of last year. So, we've had a very good balance right now. So, that won't be a headwind as we move forward.
Operator: Ann Duignan, JPMorgan.
Ann Duignan - JPMorgan: Can you talk a little bit more about the inventory destocking around the world and in the different sectors were you hearing from your OEM customers that we are close to the bottom and where do you think it's going to drift. So I think you said some of them you expect will drift into the next quarter. If you could just stress that it'd be great? Thanks.
Bob Arzbaecher - Chairman, President and CEO: So the thing that it is a little hard for us to be real definitive on that is for example we sell a Caterpillar and Peoria and where that equipment goes, we don't really know. So the same is true with, all of the same is true with a number of our bigger OEMs so I am going to comment on where we sell and that's really the data that we have, because that's where we deliver and how that then turns into a global thing you'll have to try to do from there, their communication. Basically what we've seen is that Europe and it's pretty broad-based meaning it's almost all the OEMs started earlier in their destocking programs. Summer to fall of last year and by the end of February, they were pretty much behind it. What we have seen is the U.S. guys who did start quite as early, started more in the November-December timeframe and we talked about in the first quarter, have continued in the second and we have some examples of North American people who are even continuing past that. Caterpillar, for example, was out with some communication recently talking about they are not quite where they want to be and they are going to go a little bit later. We've seen a number of other accounts also that way. China, our major exposure in China with OEMs was CNHTC, that's in addition to what they are doing with their demand. They have dual supplier role and they are always moderating our volume either up or down depending what kind of quality they are getting from the other side. Right now we've been a little bit down, but I would say in the next six months it feels like it's going to be probably on the positive side of the ledger there. So that's how I'd answer that Ann.
Ann Duignan - JPMorgan: Good. Thank you, that's great color. I must say it's – I know you get limited lead-times from your OEM customers, but they do have attended to change their demand flows when they needed. So, good to get that insight. Could you just talk a little bit also about European automotive, what are you seeing there? Germany have been a great exporter of luxury vehicles to China. You probably benefited somewhat from that. Can you just talk about what are you hearing on the automotive side particularly within the Eurozone and then exports to China and I'll leave it at that?
Bob Arzbaecher - Chairman, President and CEO: Yeah, because really for newer investors almost our entire – in fact our entire volume relates to convertible top actuation, that's really the piece of auto that we have. And while it goes on a lot of luxury convertibles, the emerging markets tend not to be big buyers of convertibles, whether it's pollution, whether it's security, they just have not had a strong demand in either India-China for convertibles. So we haven't seen that top that may be you are talking about that you've heard from some other German OEMs. Convertible in a lot of ways is a third car it tends to be a discretionary purchase. I would say 60% of our convertibles are consumed in Europe, that's where they are made and consumed and it's about a week market for us. We have not seen the kind of less worse kind of numbers that we've seen in truck in auto. So, we are getting to a point where we're up against some very easy comps, but I wouldn't say we've seen the turn. Anything you want to add to that Andy?
Andy Lampereur - EVP and CFO: Two items first off and you think about our customer racing, I mean the Peugeot, Renault, VW, those are big customers for us in auto, so – well Mercedes certainly is a customer. There is a lot of everyday type you know middle-class type cars in there. The second piece that we've seen in the last two or three months is some of the auto companies similar to the 2008-2009 timeframe appear to be stretching out there not a little bit, instead of having five or six year cycles, there we've had a couple of them. Say we're going to run this model one year longer and delay the rollout of the new one. We hand one customer in each of the last two months announce that on a platform. So, we certainly get the revenue off of the old one, but usually when they do introduce a new platform, we tend to get a little bit of fashion spike if you will on the new ones. So, that is something that we're up against as well.
Operator: Ajay Kejriwal, FBR Capital Markets.
Ajay Kejriwal - FBR Capital Markets: So, maybe on Energy, any color on the services delay that you mentioned on Hydratight. We heard some comments last week from team I know from different customers, but any thoughts there whether this is one-off, is it more an industry type activity dynamic that you're seeing, and then the reserve earn out sounds like couple of million dollars in energy. Maybe just update us what that is and what should we expect in the second half?
Bob Arzbaecher - Chairman, President and CEO: Obviously we saw the team release last week also. They were blaming Canada and some international markets, said U.S. was pretty strong. For us it was almost the reverse we felt a little weaker in the U.S. than we did internationally. But kind of similar trends where things were getting just pushed to the right we had a one very large nuclear customer that was a PowerGen where we literally were -- we got too far off in front of other contractors other people who were involved in the turnaround and they said, you guys are just too far ahead, take them off. I wouldn't normally comment on that, but it was a big job. He had 20 or 30 technicians involved in that, that’s an unusual situation. So that revenue will come, it's just other people are going to catch up and it gets caught. So that's how I would comment on it feels like a time where you know people are pushing a little bit to the right and you haven't seen anything that gives us concern over a 12 month cycle. This has always been a lumpy segment. The second quarter is always a little lumpier than most because of the North Sea stuff Andy talked about. We had all of that kind of factor into this quarter where we dipped to minus one on the core.
Andy Lampereur - EVP and CFO: With regard to the other part of your question about the adjustment. Just as a reminder what we had in the second quarter of last year, we had roughly $2 million, $2.5 million pickup related to reducing and earnout reserve for one of our prior deal so that was one-time item that we called out last year. There was a pickup therefore our income was higher last year, margins were higher as a result, so those are the comps against if peel that out of last year our margins and our profit in the second quarter was up year-over-year.
Ajay Kejriwal - FBR Capital Markets: Then on acquisitions, Bob, you mentioned Energy segment looks like you have a decent pipeline there. Any color on the size type of deals that you more looking at adjacencies. Obviously, Energy is a big end market, lots of opportunities, just any thoughts and color around what you are looking at?
Bob Arzbaecher - Chairman, President and CEO: So the majority of the things in the funnel and things that are there are closer to 10 in terms of number of deals. I would say the majority of them are in the $50 million to $75 million tuck-in range, that's the kind of the typical stuff we look at. There is one transaction that's $250 million to $300 million kind of half, tuck-in half platform and so that would be how I guided. So, that would be the top one and then quite a few things in our normal $50 million to $75 million fairway
Operator: Matt McConnell, Citigroup.
Matthew McConnell - Citigroup: Just to follow-up on that question, it seems like there would be plenty of capacity to do buybacks in addition to M&A even though you do have a strong pipeline. So, how do you feel about buybacks? I was a little surprised it wasn't a meaningful capital use in the quarter.
Andy Lampereur - EVP and CFO: I think we've been pretty consistent in our approach and discussion on buybacks. We are not out to buy a set number of shares in a given period. We have authorization in total for 7 million shares and we've done a few millions of those already. When we look out there and see dislocation stock we're going to jump on top of it. We saw a little bit of that right at the end of the calendar year, that's when we bought the shares the last time around. So, it's going to continue to be opportunistic. We are not out in the market every day, where we have to get a set number of shares. So, that is definitely the approach we have.
Bob Arzbaecher - Chairman, President and CEO: The other thing I would add to that comment Matt is the – we also look and we are doing both and I think we say we're going to do both, but we're also looking at the acquisitions and what's in the pipeline. So, the fact you didn't see a lot there should give you an –should collaborate my comment earlier that we're pretty active in the M&A funnel with things moving towards the finish line.
Matthew McConnell - Citigroup: Right and they are not – it's tough to time them…
Bob Arzbaecher - Chairman, President and CEO: it's tough to time them and I think we've been pretty clear if they don't happen and we're generating $200 million of free cash flow that would change our kind of the way we look at the buy back a little bit.
Matthew McConnell - Citigroup: Switching back to quote – one real quick, I mean bookings and quote activity were pretty strong in the first quarter and then I think strong again this quarter. So, any other insight into, what's driving the push out? I was a little surprised to see that organic revenue decline this quarter and then really what kind of supports visibility into your expectations for an improvement in the second half of the year for sales?
Bob Arzbaecher - Chairman, President and CEO: Well for Cortland, it's an area we probably feel more comfortable just because of what's happened in the backlog for the second half. So, I don't have a ton of color to give you. It is programed largely umbilical related that have been pushed to the right by a customer. A lot of times they – that umbilical go in one part of a bigger system that they might be shipping. It's nothing that I can put my arms around and say that that I got any definitiveness. I think my concern is the ones that we got pushed out the first and second can shift in the third. But what happens with things that we had forecasted for the third, do they get pushed to the fourth. So is this kind of gradual pushing of and you actual lose the period. I am fairly confident that’s not the case, but that’s the thing that would give me some pause.
Andy Lampereur - EVP and CFO: When you look at Cortland there are certain parts of the business that tend to be more project in nature. Bob was correct when he said the umbilicals that’s really been the strong point for the last 18 months to two years. Our backlog there was quite high and we have very busy production calendar for the second half of the year on that, the more lumpy part of the business tends to be the synthetic tends to be some of the lifting slings, some of the cyclone mooring areas with the Jeyco and Selantic type businesses. They have some big quotes out there for the back half of the year, that should be decided shortly and is for delivering the back half of the year. So that's the lumpiness we talked about that’s out there. We're pretty comfortable with what's out there. Cortland was backend loaded last year as well, so this is not a surprise, this is just, its lumpier businesses, with any lumpier segment than overall Actuant.
Operator: Jeffrey Hammond, KeyBanc Capital Markets.
Jeffrey Hammond - KeyBanc Capital Markets: Just to kind of wrap up on kind of the whole inflection dynamic, if you could just focus on industrial, you lowered the organic growth number by three points. I mean is that simply timing of recovery or a more muted inflection? I mean what's driving that change?
Bob Arzbaecher - Chairman, President and CEO: Well, it's – I think it's fact-based. This is a business that has orders and sales that are very close to each other. We don't have a lot of backlog. Most of our distributors will order and expect shipment within 48 hours, three or four days, that's the normal cycle. So it's not a backlog driven thing like we just talked about at Cortland and that's just what we're seeing Jeff. It's a slower economy and, you know, this is a quarter where we had the fiscal cliff in the middle and other things going on that I think were given people pause. Distributors, our view is that distributors are ordering and they are not in crisis mode like they were in '08, and '09, but they're not increasing their inventories – at least we haven't seen it yet for the spring construction season and some of the other things. So, I think we're just taking into account where it's at and assuming, based on what we see in terms of orders and stuff where we think the years going to be for that. You are correct it's down a couple of hundred basis points from our previous guidance.
Jeffrey Hammond - KeyBanc Capital Markets: Just a clarification, can you give us what the 3Q tax rates going to be?
Andy Lampereur - EVP and CFO: It's definitely going to be lower than we – than the quarter you just saw and the fourth quarter will be higher. So it is very difficult under the current accounting rules and just the way cycles worked ahead, nice move. Tax rate – if you look back in history, the third quarter is probably been the lumpiest of Actuant, so we're going to be in the high-teens in Q3 and we'll be higher than the highest rate at the yield will be the fourth quarter by quite a bit.
Jeffrey Hammond - KeyBanc Capital Markets: Then just real quick, in the presentation you have sales for 3Q of $420 million to $430 million and I think you said in the release $410 million to $420 million.. I just want to make sure they are correct?
Andy Lampereur - EVP and CFO: Hopefully we don't have a mistake there. We'll come back to you and address.
Karen Bauer - Communications and IR: It's $410 million to $420 million.
Bob Arzbaecher - Chairman, President and CEO: It's $410 million to $420 million.
Operator: Jamie Sullivan, RBC Capital Markets.
Sid Panda - RBC Capital Markets: This is Sid Panda standing in for Jamie Sullivan. My question was on the EPS guidance versus the EPS guidance last quarter. Are you assuming any incremental cost savings when you go from last quarter's EPS guidance to this quarter's EPS guidance?
Andy Lampereur - EVP and CFO: From Q2 to Q3?
Sid Panda - RBC Capital Markets: No, I mean for the full year when you go from the guidance that you gave last year versus the guidance – last quarter versus the guidance that you are giving this quarter?
Bob Arzbaecher - Chairman, President and CEO: We went from $2.20 to $2.30 last quarter. If you recollect on the call, we were basically saying we were expecting the low end. We didn't want to throw in the call, but we were expecting the low end. We've now basically reaffirmed that low end, but then put a nickel on either end of it. So, that's about a nickel change from the previous guidance that we had of $2.20 to $2.30 is now $2.15 to $2.25. Is that what your question was?
Sid Panda - RBC Capital Markets: Is there any further incremental cost savings that you were assuming in that – in the guidance this time versus the guidance that you gave last time?
Andy Lampereur - EVP and CFO: Nominal amount. I mean we took out in Q2, we took out some reduced our headcount in solar, so we're picking up a little bit of savings from that. But I mean we're talking maybe a $1 million or something, it's not significant.
Bob Arzbaecher - Chairman, President and CEO: I think we're pretty consistent with what we told you last quarter, $5 million to $6 million of restructuring for the year, somewhere along a one year payback, but some of that coming later in the year you are not going to see a lot this year it really will be more of '14 activity blend all that together it's not that significant.
Sid Panda - RBC Capital Markets: Could you just elaborate on sort of good trends in Enerpac including China?
Andy Lampereur - EVP and CFO: Just to reiterate what we covered on the call. Our strongest region was in the Americas it was up single digits, Europe was definitely down, reflecting the economy and then talking about the base industrial IT business within Enerpac. Most of IS the Integrated Solutions is in Europe, so we had growth in that area. China and India are weak, with Enerpac right now, mixed bag in Australia and the rest of Asia. You have got some pieces that are doing well we certainly are feeling a slow down with mining in certain regions but we have new products that are somewhat muting that, we are taking some share. But the U.S. is definitely the strongest right now out of the geographic regions.
Operator: There are no further questions at this time.
Karen Bauer - Communications and IR: Well, thanks for joining our call today everyone. We'll be around all day to answer any follow-ups you have. Just a note that our third quarter earnings release and call will take place on June 19, so you can mark your calendar for that and we've tentatively scheduled our Investor Day for October 7, again if you could block your calendar for that, in New York City as kind of traditional. So have a great rest of your day. Thank you.
Operator: 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.