Actuant (ATU)

Fiscal 2005 compared to Fiscal 2004

Industrial segment operating profit in fiscal 2005 increased approximately $18 million, or 50%, to $54 million from $36 million in fiscal 2004 primarily due to increased sales volumes and fixed cost absorption and earnings from acquired business.

Electrical segment operating profit in fiscal 2005 increased approximately $5 million, or 18%, to $33 million as a result of a 2005 business acquisitions which were partially offset by the cost of product buybacks in conjunction with a major reset, increased raw material costs that we were not successful in entirely recovering from customers, as well as increased customer incentive costs.

Actuation Systems segment operating profit in fiscal 2005 increased approximately $8 million, or 22%, to $45 million from $37 million in fiscal 2004 primarily due to 2005 business acquisitions and improvements in production efficiency for the automotive platforms launched in 2004. The segment also experienced improved fixed cost absorption from increased sales volumes to the automotive and truck market and increased low cost country sourcing. This was partially offset by lower sales volumes in the recreational vehicle market.

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Engineered Products segment operating profit in fiscal 2005 increased $3 million, to $5 million in 2005 as a result of increased sales volumes and increased low cost country sourcing.

General corporate expenses increased by approximately $2 million, to $15 million in fiscal 2005. This increase resulted from $2 million of expense recorded pursuant to the adoption of FAS 123R, $2 million of third party Sarbanes Oxley Section 404 compliance costs, and higher staffing levels associated with acquisition activity, partially offset by lower incentive compensation expense.

Fiscal 2005 compared to Fiscal 2004

Industrial Tools operating profit in fiscal 2005 increased approximately $13 million, or 37%, to $49 million from $36 million in fiscal 2004 primarily due to increased sales volumes and fixed cost absorption.

North American Electrical operating profit in fiscal 2005 decreased approximately $2 million, or 16%, to $16 million as a result of product buybacks from a retail home center customer in conjunction with a major reset, partially offsetting incremental profits from a 2005 business acquisition.

European Electrical operating profit in fiscal 2005 declined approximately $6 million from fiscal 2004 due to increased raw material costs that we were not successful in passing on to customers, as well as increased customer incentives and product buyback costs.

The reported increase in operating profit in the Joint Integrity, Specialty Electrical, and Professional Electrical segments in fiscal 2005 resulted from acquisitions.

Truck Actuation Systems operating profit in fiscal 2005 increased approximately $12 million, or 249%, to $17 million from $5 million in fiscal 2004 primarily due to a 2005 business acquisition as well as improved fixed cost absorption from increased sales volumes and increased low cost country sourcing in our European Truck unit.

RV Actuation Systems operating profit decreased approximately $9 million, or 35%, to $17 million from $26 million in fiscal 2004 due to lower sales volumes and reduced fixed cost absorption from lower production volumes, both of which were partially offset by increased low cost country sourcing initiatives.

Fiscal 2005 operating profit in the Automotive Actuation Systems segment remained flat compared to fiscal 2004 primarily due to improvements in production efficiency in the second year of production for the new automotive platform launches in fiscal 2004 offset by higher raw material costs.

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Other Engineered Solutions segment operating profit in fiscal 2005 increased $9 million, to $11 million in 2005 as a result of sales volumes from acquired businesses as well as increased low cost country sourcing.

In addition, operating profit for all segments in fiscal 2005 was impacted by $1.8 million of equity-based compensation expense due to the adoption of SFAS No. 123R effective September 1, 2004 as well as Sarbanes-Oxley compliance costs neither of which were incurred in fiscal 2004.

General corporate expenses increased by approximately $2 million, to $15 million in fiscal 2005. This increase resulted from $2 million of expense recorded pursuant to the adoption of FAS 123R, $2 million of third party Sarbanes Oxley Section 404 compliance costs, and higher staffing levels associated with acquisition activity, partially offset by lower incentive compensation expense.

Fiscal 2005 compared to Fiscal 2004

General corporate SAE increased by $1.9 million, from $13.0 million in fiscal 2004 to $14.9 million in fiscal 2005. This increase resulted from $2.4 million of expense recorded pursuant to the adoption of FAS 123R, $1.6 million of third party Sarbanes Oxley Section 404 implementation costs, and higher staffing levels associated with acquisition activity, partially offset by decreased incentive compensation expense.

All debt is considered to be for general corporate purposes, thus, financing costs and charges for early extinguishment of debt have not been allocated to the reportable segments. The increase in financing costs during fiscal 2005 versus the prior year reflects the interest expense on the debt incurred for fiscal 2005 acquisitions, offset by the impact of the Company’s gradual replacement of $110 million of outstanding 13% Senior Subordinated Notes (“13% Notes”) throughout fiscal 2004 with lower interest rate debt such as the 2% Convertible Notes. The Company’s overall weighted average debt cost has significantly declined as a result of replacing the 13% Notes with less expensive forms of debt. See “Liquidity and Capital Resources” below for further information.

During fiscal 2004, the Company retired all of its remaining $110.1 million of 13% Notes. We incurred an aggregate pre-tax charge of $34.4 million in fiscal 2004 to retire the 13% Notes, comprised of $30.1 million of premium payments made to bondholders, $3.0 million for the non-cash write-off of unamortized debt discount and capitalized debt issuance costs, $0.9 million for the non-cash write-off of fair value adjustments to the 13% Notes for fixed rate to variable rate interest rate swaps underlying the 13% Notes, and $0.4 million of legal and professional fees.

In February 2004, the Company entered into a $250 million five-year senior revolving credit facility (the “Revolver”). The Revolver replaced the senior secured credit agreement, which had a final maturity of June 2006. All borrowings outstanding under the senior secured credit agreement were repaid in February 2004 and the Company was released from any remaining obligations. The early extinguishment resulted in a non-cash, pre-tax charge of approximately $2.3 million in the second quarter of fiscal 2004, representing the non-cash write-off of remaining capitalized debt issuance costs.

Other (income) expense increased in fiscal 2005 due to a $2.0 million settlement gain on the reimbursement of a tax refund to a former subsidiary. See Note 10, “Discontinued Operations” in Notes to Consolidated Financial Statements for further information.