Columbus McKinnon Corp (CMCO) 2013 Q3 法說會逐字稿

Welcome and thank you for standing by. At this time, participants will be in a listen-only mode until the question-and-answer portion. (Operator Instructions). Today's conference is also being recorded. If you have any objections, please disconnect at this time. Now I would like to turn the call over to your host today to Mr. Tim Tevens. Sir, you may begin.

Thank you, Melissa. Good morning, everyone and welcome to the Columbus McKinnon conference call to review our results of the third quarter of fiscal '13. With me here today is Greg Rustowicz, our Vice President of Finance and Chief Financial Officer.

Please note that we have included summary slides of the quarter for your review and they can be found at our website, www.cmworks.com/investors and hopefully you have them in front of you as well because we will be referring to them as we go through.

We do want to remind you that this press release and company slides and conference call may contain some forward-looking statements within the meaning of the Private Litigation Reform Act of 1995. These statements contain known and unknown risks and other factors that could cause the actual results to vary. You should in fact read the periodic reports that we publish with the SEC to make sure you understand these risks.

Okay, so let's start with the presentation. If you can get to page 3, that would be great. I just want to remind you of our long-term objectives of growing to be a $1 billion business with about a third of our revenue in developing markets and two-thirds in developed markets, along with a very important piece of $200 million to $300 million in acquisitions that we would like to do with very strong operating margins in the 12% to 14% area and a very nice working capital level and a solid balance sheet. And we continue to focus our resources and energy on acquiring companies that will strategically add presence and product breadth to help us grow around the world and achieve these results.

Page 4, some highlights of the third quarter for fiscal year '13. Our revenue was up 7.3%, but was negatively affected by foreign currency translation and a divestiture that impacted the quarter. Otherwise, it was up, if you remove those two, 10.6%. The US revenue continues to grow nicely, up 5.4% or up 10.9% excluding that divestiture that occurred in the second quarter of this fiscal year.

Sales outside of the United States were up 9.7%, or 12.9% excluding the effects of foreign currency translation. We did ship some fairly large projects from our engineered products group in Europe and we continue to see some very positive results from our emerging market investments, which you know we have been doing for a while now where our revenue increased about 42% on still a very small base, but a growing small base.

Also, we have been seeing a slowing global market with Q3 flat with last year net of currency translation. We did have some bright spots, a general industrial distribution, material handling specialist and our entertainment industry. Our specialty hoists also seem to be doing well. These are highly engineered products that normally go into oil and gas.

Europe is still growing, excluding the effects of currency, but at a slow rate. Asia and Pacific and Latin America are small and continue to grow rapidly driven by our strategic investments in the market. You might know that we are not economically linked at this point in our life in those parts of the world.

Our gross margin improved 160 basis points over last year, up to 28.6% and our operating margin improved to 9.3%, up 90 basis points. Our operating leverage in the quarter was 34.9% and that excludes a one-time gain on the sale of a closed facility that happened last year. Earnings per share for the quarter was $0.49, up from $0.44 last year and we generated a very nice $18.7 million in cash from operations for the first three quarters of the year.

Please flip to page 5, if you would, where we summarize our sales for the third quarter and you can see that volume, two additional shipping days in the quarter and price were up 10.6%. The US sales increased to $83.1 million, or up 10.9%, again excluding the previously mentioned divestiture and sales outside the United States were up 10.8%, excluding an acquisition that we had in that part of the world, as well as the effects of currency. At this time, let me turn it over to Greg who will provide us with more details for the quarter.

Thank you, Tim and good morning, everyone. Turning to slide 6, our third-quarter consolidated gross profit dollars increased by $5.2 million, or 13.5% and our gross profit margin improved 160 basis points to 28.6%. Our gross profit increase was driven by pricing gains of $3.8 million, as well as volume and mix of $2.6 million. The South African acquisition completed in December of last year added $600,000 of gross profit to this quarter. We also had lower product liability costs of $600,000 compared to a year ago.

Material inflation reduced gross profit by $1.5 million and productivity was slightly negative due to our December shutdowns and a favorable inventory adjustment that happened last year. Additionally, foreign currency translation had a $600,000 negative impact on gross profit this quarter.

On slide 7, selling expense increased 2.6% from the prior year in dollar terms and represented 10.7% of sales this year compared to 11.2% last year. The increase in selling costs is primarily related to the new sales offices that we have established in Turkey, North Africa and the United Arab Emirates, as well as the incremental selling costs from the South African acquisition. In addition, foreign currency translation had a favorable impact on selling expense of $400,000 this quarter.

G&A expense increased $1.1 million compared with the prior year, representing 8.3% of sales versus 8.1% in the prior year. About $600,000 of the increase was related to a favorable pension adjustment in last year's third quarter, which did not occur again this year. Other increases were due to investments for growth in the Asia-Pacific region, as well as general inflationary increases. We expect our SG&A run rate to be approximately $30 million per quarter going forward.

Turning to slide 8, operating income increased by 18.2% to $14.2 million or 9.3% of sales compared to 8.4% of sales in the previous year. The improvement in operating income is being driven by the net pricing gains over materials inflation, as well as higher sales volume and mix more than offsetting SG&A increases previously discussed. Excluding the gain on the sale of a closed facility that happened in the prior year, operating income expanded 34.7%.

As you can see on slide 9, income per diluted share for the third quarter of fiscal 2013 was $0.49, reflecting a $0.05 increase from the prior-year period where we reported earnings of $0.44 per share. The effective tax rate in the quarter was 11.1% versus 16.4% in the prior-year period due to the mix of earnings in the US versus our foreign affiliates and the fact that we have a valuation allowance against our deferred tax assets in the US.

On a pro forma basis using a 38% tax rate, earnings per share in the third quarter of fiscal 2013 were $0.34 per share versus $0.32 a share in the third quarter of fiscal 2012. Our effective tax rate for fiscal 2013 is expected to be between 13% and 17% based on the geographic mix of earnings that we anticipate.

On slide 10, we have compared our year-to-date performance for several key metrics. Year-to-date revenue was up 4.7%, largely driven by volume and price increases, offset by $16.3 million of unfavorable foreign currency translation. Excluding the impact of foreign currency translation, revenue was up 8.5%.

Gross profit is up 14.6% and gross profit margin has expanded 250 basis points to 28.7%. Higher volumes and not pricing over material inflation, along with manufacturing efficiencies, drove the margin expansion. Year-to-date operating income is up 26.5% as a result of the additional gross margin. Operating leverage for the first nine months of the year is 41.1%. Finally, year-to-date earnings per share are $1.34 versus $0.92 in the previous year.

Turning to slide 11, our working capital as a percent of sales decreased to 17.5% in the current quarter from 17.6% at March 31, 2012. More importantly, our working capital as a percent of sales declined from 19.4% in our fiscal second quarter. The decline from the fiscal second quarter is due to improved accounts receivables management and better inventory performance. DSOs dropped to 46.7 days in the most recently completed quarter from 51.5 days in the fiscal second quarter. Inventory turns improved to 4.3 times compared to 3.7 times in the fiscal second quarter. The improvement in inventory turns was due to inventory management initiatives that have been ongoing, as well as lower inventory levels associated with projects that shipped this quarter.

On slide 12, you can see we generated $19.1 million of operating free cash flow in the nine months ended December 31, 2012. Capital expenditures were $7.1 million versus $10.5 million in the previous year. We expect capital expenditures for fiscal 2013 to be in the $12 million to $15 million range.

Finally, on slide 13, you can see that, as of December 31, 2012, net debt was $40.4 million and total gross debt was $152.3 million. Net debt to net total capitalization was 17.6%. In addition to having $111.9 million of cash on our balance sheet at December 31, we have an additional $88.5 million available under our new $100 million senior secured credit facility net of $11.5 million of outstanding letters of credit. This new facility, along with our healthy cash balance, provides significant liquidity to support our strategic growth plan. With that, I will turn it back over to Tim to cover the fiscal fourth-quarter outlook.

Thanks, Greg. Okay, let's spend a moment and talk about our outlook on page 14 of the deck. Overall, we are expecting slow growth. I think it is still growing, but it is certainly tentative, but emerging markets are growing strong as our investments are working well for us. In the US, we are seeing a generally tentative market with some exceptions. There is still strong activity in oil and gas and in our entertainment sectors. Capacity utilization was at 78.1% in December, up slightly from September. We need to remind you that, in Q4 of fiscal '13, we will only have 62 available shipping days as compared with 65 in last year's Q4 and those fewer shipping days represent around $7 million to $10 million of additional revenue. So this Q4 will be certainly down as a result of that.

We are seeing Europe being very fragile and our bookings in the hoists and rigging business are flat with last year and we are declining in our engineered products business right now. Currency translation will remain a headwind, although a smaller headwind, for a bit longer. Capacity utilization is down to 76.8% at the end of December in Europe.

Our backlog remains very good, about $95 million. It was negatively affected by the divestiture that we announced in July by about $6 million and by many projects that we actually were able to ship in the quarter. Our European business shipped about $3.7 million. Our crane business shipped about $5.1 million and we had a shredder shipment of $2.4 million, so it actually came down by about $11 million or so and it was offset by growth in backlog in our other businesses in the hoist and rigging around the world. Two-thirds of our backlog is indeed scheduled to ship in the fourth quarter.

We continue to execute our strategic plan and make investments in emerging markets around the world like China, Eastern Block of Europe, Africa and Latin America and we are certainly also looking for key acquisitions to help accelerate our growth in these and other regions of the world. And at this time, Melissa, let's open it up to questions if you would.

(Operator Instructions). Jason Ursaner.

Good morning. Great quarter. You mentioned in the commentary that you shipped several large engineered orders in the quarter and then, Tim, at the end there you said a few of them in a little bit more detail. So just a couple of questions. Could you repeat what you said there at the end and what was the total impact on revenue versus a more normalized quarter?

Yes, so we look at these large projects. As you know, most of our business is not large projects; it is hoist and rigging products that get consumed and shipped every day regularly. But we do have a couple businesses that are more engineered in nature. In Europe, we call it the Columbus McKinnon Engineered Products Division and these are large rail and road actuator systems that we ship around the world and they were actually able to ship one to Taiwan -- two, two in the quarter, one to Taiwan and I don't remember --.

The other one was to Taiwan as well.

Both Taiwan. And these were projects that had been -- they are actually tied to construction cycles. So if construction projects get completed or delayed as the case may be, our equipment gets delayed as well. And then finally we just shipped these in the quarter, which was positive for us. And then we also had -- I am trying to find my notes here -- we had some large crane orders that we've shipped out of our crane business located in Peoria, Illinois or outside of Peoria, Illinois. It was about $5 million of pretty good shipments. The backlog came down in that regard and these were large, heavy, OEM equipment manufacturers and we service them around the world. So that came out of backlog and then, Jason, you might recall we have a small tire shredder business that makes pieces of equipment that actually shred whole tires and that was able to ship a fair amount in the quarter as well, which reduced their backlog. So if you total these three project-oriented businesses up, you get about $11 million.

Okay. And the tire shredder, that was in the US that that shipped?

I don't recall what part of the world it went to. We can look that up for you.

Okay. And directionally, the impact of larger projects on margin, on gross margin relative to the consumable (multiple speakers)?

Let's say flat.

In the 30% range.

Okay. And then in terms of the outlook for order growth moderating, can you talk a little bit about the progression you have seen month-to-month? I mean you have been discussing an expected moderation in growth for a couple of quarters, so is this in line with that or is this maybe moderating faster or to a greater magnitude than what you had previously been expecting?

I think it is pretty much following what we expected. The moderation is predominantly coming from the eurozone. We are still growing; although it is growing slower. The project business seems to be a little more tentative than our normal hoist and rigging component business, which seems to be doing okay. It's more flattish. The larger projects seem to be delayed or put off or the people are pushing out the projects in a bigger way.

So call it flattish in that part of the world. I think that is fair to say. We did expect the emerging markets to continue to grow at a rapid pace. They have, which is good. And the US is doing fine; it is just not growing as rapidly as we would like. It is somewhat -- it is certainly up quite a bit, but I think our bookings are going to be -- and were challenged in December. We seem to be spending more time talking about things like fiscal cliff with our channel partners and other concerns that people weren't let's say really focused on the business at hand. I think, in January, we have seen some bright spots come back, which was positive, but I still think it is a tentative market out there.

And you continue to generate very strong cash flow and you have naturally gotten to a point now where you are undercapitalized relative to your published targets. I know you have talked about it before, Tim, but can you just give an update on the M&A environment and how that priority for cash compares to returning cash to shareholders through a dividend or a more aggressive share repurchase?

Yes, so our management team and our Board has been spending quite a bit of time, I would say, really focused on our available cash and the strategic uses of that cash going forward. It is our intent to apply that cash in areas where we can outperform our cost of capital and put it in projects where it gives us a pretty good return. We are looking at some -- certainly acquisitions are on that list and I would argue that probably would be at the top of that list. We have a fair number of them in the hopper today that we are evaluating and some that look to be very nice bolt-on acquisitions that would use some of that cash. There is the potential for some larger ones as well that we are looking at and studying very closely and having conversations with folks in those regards as well.

However, if those things don't come to fruition, we certainly would look at and continue to look at all uses of that cash, including dividends or stock repurchase or any of that kind of thing. But the number one thing we really want to do is deploy it in a way that really adds value, long-term, sustainable value to the Company and I think that it is important for us to continue to think and spend a lot of our strategic energy around how to do that and how to do that globally to position us to continue to grow.

Okay, great. I appreciate the commentary. I will jump back in the queue. Thanks, guys.

Schon Williams.

Hi, good morning. Congratulations on the quarter here. I wanted to talk about Q4 coming up here. I mean generally that is a seasonally strong quarter for you. Can you maybe just talk about -- obviously very good performance this quarter. Should we still see seasonal trends where we could actually see Q4 outperforming Q3 or does that need to be moderated a bit in light of the project shipments that went out the door?

Yes, I think you need to moderate it just from the standpoint of the shipping days that I spoke of. Three days is 4.5% of our total available capacity, if you will and that is going to be $7 million to $10 million minimally off of last year. I will tell you that last year was a very strong quarter for us as well and we need to have bookings in the quarter to actually come close to making the run rate that we hit last year. So we need to have business activity be strong in the fourth quarter and I think that there is areas that aren't necessarily strong. So we have to be cautious in that regard as well.

The potential is there -- first of all, I would tell you that our seasonality pattern in the fourth quarter always is stronger. Coming off a very strong Q3, it may not be as strong as what you typically would see coming from Columbus McKinnon.

All right, thanks. That is helpful. And then can you maybe just talk about where we are in terms of the ERP rollout and maybe you had some goals for inventory reduction for the full year here. I mean do you feel comfortable with where you are in terms of working capital and inventory and maybe how the ERP rollout is going to affect that?

Sure. We feel good about the work that has been done this past quarter on the working capital side. And you saw that inventory did perform quite well and got to a level that we actually were targeting and we would expect that trend to continue a little more positively throughout the fiscal year. We would like to see inventory turns actually a bit higher at the end of the year.

The ERP rollout is well underway. We have, as you know, we finished one business here in the States, installing it and we are doing our second business in Germany right now that is scheduled to go live toward the end of the fourth quarter, beginning of the first quarter timeframe. So that business -- and by the way, I need to get all of Europe installed on the same ERP system before we can make some really meaningful improvements in the inventory turns in that part of the world. They have done a great job with the systems that they have in place, but they are not interconnected today. So sharing information and matching customer demand patterns is difficult for them. It is actually somewhat cumbersome. But we are still working on that and preparing the base business to be able to flow the inventory much better and it will be even better when we get one ERP system across Europe.

This is Greg. We do have further plans to reduce our inventory levels below where we ended this current quarter. We were quite pleased with the progress we made and we would hope to end with under $100 million of inventory by the end of the year.

All right, thank you. Then one last final question here, I wondered -- the commentary you gave in the slots around SG&A, run rate kind of being consistent with Q3 around that $30 million range, does that mean that maybe you are backing off in terms of your overseas investment and marketing and sales or are we seeing a shift in dollars somewhere that you are actually still doing investments, but the dollars aren't really moving?

The back half of your question is the right answer. We are continuing to do the investments in the emerging markets. It is pretty important for us to continue to do that, but I would say that we are just taking it from other portions of the business, if you will, and moving it around. But the $30 million number is probably pretty reasonable on a go-forward.

All right, thanks, guys. I will get back in queue.

Lance James.

Tim, congratulations. Super quarter. Congratulations to you and your team. I had a quick question. As you look at your growth in the emerging market, there have been some suggestions that, whereas your brand names and your high quality products have good market positions in the more mature economies, the US, Europe, that in the emerging markets more of an emphasis on price of goods, not necessarily quality or brand name, that has been some suggestion. Just wondering what you are seeing in those markets? Obviously, you had good growth there. It is still a relatively small portion of your total sales, but do you see the high quality and the brand names of your products having the same cachet in those markets and potential to gain marketshare?

Yes, so far, as we walked down this emerging market growth road that we have been on, our target has really been let's say at the more premier companies, the Western companies that are investing in those markets that do indeed recognize the brand, do indeed recognize the quality and are willing to pay up for it because they recognize that productivity and safety are two trends that they need to pay attention to globally. So as we make sales, it is primarily to those level of companies.

As we look to the future now, however, we need to get deeper into those economies and sell to more indigenous manufacturers and industries that are there. So one of the things and strategies that we have in place is to manufacture more product in those local economies that brings the cost down a bit, does not degrade the quality, does not degrade the productivity or the safety aspects of our equipment because it is the same design of product. But basically reduce the cost by a fair amount that allows us to compete more directly with the local manufacturers.

Now that doesn't necessarily mean that our product will be as inexpensive from a sale price standpoint. In fact, it will be higher. It will be a premium to it, but we do believe and we have tested this to some degree that people are willing to pay up for that if they could get uptime on the equipment and not have it go down. So that is our strategy going forward. And so far, we have been leaning on our brands and our product quality with a foreign investment in those markets that people who already know us around the world that are making those investments. If that makes sense to you.

It does. Thanks very much and again congratulations on a great quarter.

Thanks, Lance.

Joe Mondillo.

Hi, good morning, guys. Just wanted to touch on the project work that you guys were talking about, the $11 million. Just wondering if you could give some perspective on what that looks like compared to sort of your past quarters before that. Is that sort of close to a zero number or are we looking -- is '11 up from sort of a 5 or 6 level in past quarters or just give us a sense of sort of how, I guess, lumpy that business is?

Yes, it is lumpy. You are absolutely right. It will vary quarter-to-quarter up and down. I don't have last quarter's numbers right in front of me right now, Joe. But I would suspect looking at what we are able to ship this quarter, we had a couple things happen. We had two of our actuator projects go out of Europe into Taiwan. That is atypical. Maybe it is one normally. So that one was probably -- should be cut in half on average and then we had a couple major shipments going to some heavy OEM customers out of our crane business that arguably should be cut in half as well.

And our shredder business bounces all over the map from zero to several million dollars a quarter. So arguably, if you take that logic and you apply it, maybe on average, you cut it in half or thereabouts and to be honest with you, I am really just estimating that at this point.

Okay, not a problem. Also, so if that $11 million is about 7.5% of the sales of a year ago, and your volume growth this quarter was about 4.5%, so could I assume ex these large products that your sort of volume was down year-over-year?

No, no. I think what Tim said, Joe, was that, in a normal quarter, project business is maybe about half of what we had. So I think you were excluding all of the project business.

Okay. So maybe then flattish then if I take out half?

I would think it would be up, especially in the United States and I shouldn't generalize because you asked a very specific question and I don't have a specific answer. And it would take us a little bit of time to get that specific answer because we don't track it that way. I just -- one thing I just noted was our backlog came down quite a bit quarter-over-quarter and I wanted to know why and a lot of it was driven by some pretty good shipments. I don't know how that compares to prior quarters.

Okay. Not a problem. What about sort of the -- I guess this sort of has to do with the same type discussion, but sort of backlog three plus months from now? How does that usually trend as a percent of backlog? You said it is 35% right now. Is that closer to 15%, 20% normally or I guess it is probably usually much less?

It probably is about the same.

About 30%, yes, if you look back. It has been reported in all of the last press releases.

Yes, it is consistently somewhere around two-thirds of our backlog is shippable in the quarter that we are in and about a third beyond that.

Okay. And then just looking at your international sales, I think you have mentioned that emerging market sales were up 16%, but that is sort of a small portion of it. So I mean does that insinuate that Europe is essentially up high single digits? It would have to, right, if your volume on non-US is up 13% ex acquisitions and FX?

Let me try and take that one, Joe. The emerging markets, which we are defining as really Latin America and our Asia-Pacific region, in the quarter were actually up 42%. Once again, it is coming off of a small base. But on a year-to-date basis, it is more in the normal range of 16.5%.

Okay, I confused that then. So they are up 42%. So what essentially is sort of the growth rates that you are seeing in Europe? I guess I was trying to back into that.

In the quarter, if you exclude currency, we are in the 8.5% range.

8.5%. And that is an acceleration from past quarters, right, what you were seeing sort of low single digits? Is that partially due to project work?

Yes, yes, that would be partially due to the project work that we were able (multiple speakers).

Okay, okay. And then lastly, just wondering -- we don't talk a ton about this, but if you could just sort of talk whether quantitatively or qualitatively how your sort of OE sales, new equipment sales is doing versus all the aftermarket sales that you do. I know that is a huge part of your business, the aftermarket, so I was wondering if you could just talk about how the difference of those are sort of trending lately.

Yes, there is multiple answers to that, so let me see if I can break it into pieces so that we can communicate effectively. We sell spare parts for hoists predominantly and that is reasonably flat. I am just going to take a moment here and pull out one of my sheets here that give me a sense of how our parts business is doing.

Yes, parts is growing at the same rate as hoists, actually a little flatter, which tells me that our hoist business from a unit perspective, which you would consider to be like OEM kind of perspective, is going faster than the parts business, which makes sense in most recoveries that we have seen over the years. When we are in a recession mode in developed markets, we see parts grow faster than actually unit sales. But the reverse is true today. So that is logical, right? I mean especially in America and Europe.

I would say that though, just to remind you that a lot of our hoists are sold as replacement business, especially in markets where we have a pretty strong position like in America and Western Europe to begin with. So you have this overall theme of I need to replace my hoist, so I will buy a new one as opposed to repair it and that you could arguably say is an MRO or more of an expense, maintenance expense kind of replacement as opposed to true growth of a new facility going up.

Okay, thanks, guys.

Gary Farber.

Yes, good morning. Just a couple of questions. One was I know capacity utilization is a statistic that sort of stands out to be something to sort of track relative to your demand. I am just wondering, PMI data, purchasing manager index data, do you think that has any relevance at all whatsoever? Do you look at it much?

We do. We track a number of metrics and the PMI data is really futuristic for us. It is way out in the future. It makes a lot more sense and will drive us eventually, but capacity utilization is a little closer like, as you know, a couple of quarters out.

Okay, yes, I'm just pointing it out because I don't know if you saw yesterday PMI data -- the flash for January actually was pointing up in a lot of the territories. Wondering what you are seeing now is sort of a lag to what you might see based on that.

Well, I would say that eventually that hits us. The real question is when and it might be multiple quarters out into the future, like maybe even years.

Okay, just because you need the usage and the equipment to sort of --?

Right, right.

Replace.

Now, and I don't know what the construction number was; I didn't see that. We do sell into the construction market, which, as you know, Gary, is pretty poor right now, pretty low right now and we are hoping that commercial construction and buildouts and infrastructure buildouts start to come back and I suspect that they will at some point. We are just not seeing any demand from that to any great degree right now.

Right. Those have been pointing up, but that's again a forward indicator --

Correct.

-- which could be like nine months out.

Correct.

So would you say that if those kind of things kept pointing up for the next two to three months, the PMI, the American Institute of Architects study, that you would sort of start to feel it potentially, what, in December of 2013 or the fourth quarter calendar year?

Very hard for me to say because we don't correlate PMI directly as well as we do capacity utilization, but certainly conceptually, yes, it would be, let's say, three to four quarters out, we would conceptually begin to see some of that demand. Now if some big projects came out and people needed a manual hoist or a ratchet lever hoist on the job site, we would feel that immediately. But generally speaking that economic indicator is much more futuristic.

Right, okay, and then all the -- I don't know if you (inaudible) -- all the storm damage and everything, is that an opportunity or is that not much of an opportunity whatsoever?

No, that is an opportunity. So our industrial distributors like Grainger and Fastenal and MSC and those folks certainly are moving product to support that rebuild and we would certainly feel that. But it is obviously very regional. It is not global and it is not even across America.

Okay. And then just one last one. I don't know if you touched on it, the raw material environment, how was it in the quarter and how do you see it going forward?

Actually it was down slightly from an input cost standpoint, which was positive and if the economy is continuing to be flat, I suspect that will be flat. If things start to pick up, of course, I think that would react, which isn't bad for our Company, as you know, Gary because generally speaking, we pass on those increases in the form of our own price increase to offset that material cost increase.

Right, right. Okay, all right, thanks again for your time.

(Operator Instructions). Jason Ursaner.

Just a real quick follow-up for Greg. You made a comment earlier on the expected tax rate. I was just wondering if you could repeat that and give an update on the expected timeline for when the reversal of the tax allowance will happen.

Yes, the commentary was that the expected tax rate for the year is 13% to 17% is the range and we continue to evaluate the valuation allowance that we have on our deferred tax assets. And I would say that we are getting very close to I think having the positive evidence we need to perhaps reverse that valuation allowance.

Okay, I appreciate it. Thanks.

And with that, sir, I am showing no further questions.

Great, thank you, Melissa. Well, thanks, everyone. We certainly continue to expect the rest of fiscal '13 to be in the slow growth mode that we have been experiencing, but certainly our operating leverage should remain positive. Our investments in emerging markets continue to bear fruit and we expect the US to continue to grow albeit slowly. Europe will be a very slow growth mode and we see some negative growth in our engineered products business, as I mentioned.

We do remain positioned to continue to execute our strategic growth plans to profitably grow our business as we have about $112 million in cash now and a new $100 million revolver to help execute those plans. We continue to have multiple discussions with businesses that can add strategic value to our Company. Our targeting process does indeed take time as these businesses are generally not for sale so introductions and in-depth discussions need to take place before any agreement can be reached and of course, this takes some time.

We also continue to make strategic investments into selling in emerging markets such as China and Latin America and the EMEA region, as well as invest in our new products and services. And once again, I would like to thank all of our people around the world for their dedication to excellence in making our Company a stronger, well-positioned organization and as always, we appreciate your time today. Thanks and have a good day.

Thank you. This does conclude today's conference. All parties may disconnect.