Corporate and Income Taxes
Corporate expenses for the third quarter of fiscal 2013 were $7.9 million, $0.9 million below the comparable prior year period due primarily to lower incentive compensation expense. As expected, the effective income tax rate for the quarter was significantly lower than the prior year reflecting the reversal of provisions in prior years for uncertain tax positions upon the lapsing of applicable foreign statutes.
Net debt at May 31, 2013 was $231 million (total debt of $392 million less $161 million of cash); approximately $73 million below the prior quarter end. With the exception of $5 million used for share repurchases (0.16 million shares at an average price of just under $30), essentially all of Actuant’s third quarter operating cash flow reduced net debt. At May 31, 2013, the Company’s net debt to EBITDA leverage ratio was 0.8, and its entire $600 million revolver was available.
Commenting on Actuant’s outlook for the remainder of fiscal 2013, Arzbaecher stated, “We expect the inflection in earnings we saw in the third quarter to continue into the fourth quarter, albeit at a more modest rate given a higher prospective effective tax rate. Taking into account current business trends from continuing operations, we expect to complete fiscal 2013 with full year sales of $1.275-1.285 billion and EPS in the $1.85-1.90 range. With another expected strong cash flow quarter, we should finish fiscal 2013 with $190-200 million of free cash flow, representing approximately 115-120% conversion of net earnings (excluding the non-cash discontinued operations write-down.) This would represent our 13
consecutive year of conversion in excess of 100%.
As we look ahead to fiscal 2014, we face a market environment in which low global GDP and uncertainty are likely to persist. Actuant will continue to focus on taking advantage of our broad product and geographic scope to capitalize on profitable growth opportunities. Based on our current view of economic indicators as well as Actuant’s business trends and specific growth drivers, we anticipate fiscal 2014 core sales growth of 3-5%. Assuming current foreign currency exchange rates, we expect total sales of $1.315-1.340 billion. The benefit of volume and operational excellence initiatives, partially offset by investments in our best growth opportunities and a higher effective tax rate, should increase EPS to $1.95- 2.05 in fiscal 2014. This represents an increase of approximately 5-10% from fiscal 2013 levels, not including the benefit of potential future acquisitions or share repurchases, which continue to be a priority for the Company. We expect full year free cash flow to be approximately $175 million.”