Applied Industrial Technologies Inc (AIT) 2011 Q4 法說會逐字稿

Welcome to the fiscal 2011 fourth-quarter year-end earnings call for Applied Industrial Technologies.

My name is John, and I will be your operator for today's call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session.

Please note that this conference is being recorded.

I will now turn the call over to Mr.

Richard Shaw, Applied's Vice President of Communications.

Mr.

Shaw, you may begin.

Thank you, John, and good morning, everyone.

Thank you for joining us this morning.

On behalf of Applied Industrial Technologies, welcome to our fourth-quarter year-end call.

Our earnings release was issued this morning before the market opened, and if you haven't received it, you can retrieve it from our website at applied.com.

A replay of today's broadcast will be available for the next 2 weeks, as noted in the press release.

Before we begin, would I like to remind everyone that we'll discuss Applied's business outlook during the conference call and make statements that are considered forward-looking.

All forward-looking statements are based on current expectations regarding important risk factors, including trends in the industrial sector of the economy, the success of our various marketing strategies and other risk factors identified in Applied's most recent periodic report and also with other filings made with the SEC.

Accordingly, actual results may differ materially from those expressed in the forward-looking statements.

In compliance with that SEC regulation FD, this webcast is being made available to the media and the general public as well as to analysts and investors.

Because the webcast is open to all constituents and prior notification has been widely and un-selectively disseminated, all content of the call will be considered fully disclosed.

Our speakers today include David Pugh, Chairman and CEO of Applied, who will discuss our overall performance during the quarter and the year.

You'll also hear from Ben Mondics, our President and Chief Operating Officer, who will discuss operational activities and Mark Eisele, Vice President and Chief Financial Officer, who will discuss our financial performance in detail.

Here to get us started is David Pugh.

Good to be with you again, and It's good to welcome you to hear the discussion on our year in review.

You've seen from our release this morning, that we achieved record sales and earnings in the fiscal year of 2011.

As a result, we've made good progress toward our goal of recapturing the sales and profitability levels that we posted prior to the 2008-2009 recession.

We accomplished a lot this year, and I want to take just a few minutes to cover the highlights with you.

First, the sales for the year increased 16.9% to our record $2.2 billion.

On those sales, we saw a gross profit that improved 50 basis points on a year-over-year basis.

We lowered our SD&A as a percent of sales over 50 basis points from last year, even while absorbing $8.6 million of ERP expense.

Cash generation was a healthy $76.8 million.

Net income improved 46.8% to a record $96.8 million.

Earnings per share of $2.24 was up 45% from last year.

As usual, we tried to touch all the bases to achieve success on a balanced and sustainable basis.

That kind of performance doesn't just happen.

It took a lot of hard work by the entire team, both in the field and at headquarters, and I want to recognize them for that great effort.

Supporting these objective performances was the smooth integration of 3 acquisitions during the year -- UZ Engineering, SCS, and Gulf Coast Bearings.

And that's part of our continuing growth story.

During the year, we saw some extraordinary events -- world weather events, most notably the tragic earthquake and tsunami in Japan -- the severe tornadoes and the activity across the southern United States and the Midwest.

In the wake of these catastrophes, our depth of inventory and sourcing expertise saw our customers through many challenges.

We adapted our asset management decisions to make this appear seamless to our customers.

Even with these challenges, our asset-management efforts provided excellent cash flow, and it allowed us to show LIFO layer liquidation benefits.

Mark's going to talk about this later, but I'll note that our LIFO benefits totaled $12.3 million during the year as we achieved a better balance of specific inventories against our business needs, and we maintained a 97% on-time performance that helped us win a number of top supplier recognitions from our customers.

Finally, we launched our efforts on a new state-of-the-art ERP system to run our business.

We put a significant amount of expense and planning into this activity, and, as a result, I'm happy to report that we are exactly where we want to be right now -- on time and on budget to the plan.

With that, I'm going turn it over to Ben to talk about the details of the operating performance for the quarter.

Thanks, Dave, and good morning, everyone.

I would like to spend a few minutes this morning talking about the economic indicators, our operations, and the current state of our ERP project.

A quick review of the economic indicators we follow tells the story of the environment we are operating in today.

The June Industrial Production Index was flat with the March number at 93.1.

The Manufacturing Capacity Utilization Index fell 3 basis points from March to June, and the ISM Purchasing Managers' Index was 55.3 for June, down from 61.2 in March.

The ISM index then declined even further to 50.9 in July.

For our fourth quarter, 24 of the top 30 industries we track showed an increase over the prior-year quarter.

Of those 24 industries, 16 posted double-digit growth, proof that the manufacturing upturn is still present, although, we are now facing tougher comparables.

For our fourth quarter, SD&A as a percent of sales was 21.1%, compared to 20.4% in the same quarter last year, an increase attributable to the expense associated with our ERP project.

Year-to-date, our SD&A is 20.9% compared to 21.4% last year.

Our goal remains to keep our core SD&A growth rate at about half the rate of our sales growth.

At quarter end, our employee count was 4,640, a net increase of 172 associates compared to last year's fourth quarter.

Excluding the UZ, SCS and Gulf Coast Bearing acquisitions, our employee count is down 40 since June 2010.

Our effort to develop our ERP system is on time and on budget.

We are pleased with the progress we have made with the project, having completed the blueprint phase during the fourth quarter, where Applied's business requirements were gathered.

We expect our first implementation will occur in a limited number of our Canadian facilities by calendar year end, and we will then roll the new operating system out to our other business units in phases over the next 2 years.

We fully expect that the new system will contribute to greater productivity, enhanced profitability, improved visibility and more efficient overall operation of our business.

Strong teamwork helped us achieve our record sales and earnings performance in fiscal 2011.

Helping us to achieve these results are the many product suppliers who have provided excellent training for our people and outstanding support for us and our customers and, of course, our many employee associates who have delivered these results in the midst of our ERP project.

I would like to offer my heartfelt thanks to everyone for their superb support.

They are one of the many reasons I'm looking forward to another strong performance in fiscal 2012.

I will now turn the call over to Mark Eisele for a discussion of the quarter's financial results.

Good morning, everyone.

Let me provide some additional insight for our fourth-quarter fiscal 2011 financial performance.

Our fourth-quarter sales per day increased to $9.3 million, a 5% increase above our third quarter rate and 12.8% above our prior-year quarter.

We had the same number of selling days in the June 2011 quarter compared to 2010.

Of the total quarterly sales increase of 12.8%, acquisitions contributed 2.2%, currency fluctuations represented 0.9%, and the impact of vendor price increases was less than 2%.

Our product mix during the quarter was 30.2% fluid power products and 69.8% industrial products.

Fourth-quarter sales in our service center-based distribution segment increased $52.3 million, or 12.6%, and sales in our fluid power businesses segment increased $14.5 million or 13.6% from the same period in the prior year.

From a geographic perspective, sales in the fourth quarter from our US operations were up $41.7 million, or 9.2%, acquisitions accounting for 1.4% of this increase.

Sales from our Canadian operations increased $21.4 million, or 37.3%.

This increase includes $5.5 million from acquisitions and $3.9 million due to foreign currency translations.

Our Mexican operation's sales increased $3.7 million or 27.1%, of which $1 million is attributable to foreign currency translation.

During the quarter, our total number of operating facilities remained at 474, as our 2 new acquisition-related locations were offset by reductions from mergers of 2 other locations in other parts of North America.

Our gross profit percentage for the quarter was 28.7%,as compared to 29.3% in the prior year's quarter.

Our gross profit margin decrease was the result of lower LIFO layer liquidation benefits in this quarter, compared to the prior year, partially offset by increased supplier support, lower scrap expense and increased margins at the point of sale.

The overall LIFO benefit in the quarter totalled $2.8 million and resulted from $9.6 million of LIFO layer liquidation benefits to a net of $6.8 million of LIFO expense due to supplier price increases.

Our selling, distribution and administrative expenses, as a percentage of sales of 21.1% for the quarter, increased slightly from the third-quarter rate and is 70 basis points above the prior-year fourth-quarter rate.

SD&A expenses increased from the prior year in absolute dollars by $18 million or 16.9%, compared to a sales increase of 12.8%.

Acquisitions increased our selling, distribution and administrative expenses at a higher rate as these organizations have a higher cost structure to support their operations when compared to our historical structure.

Other absolute dollar increases are due to expenses related to improved performance levels, the reinstatement of our 401(k) match and, of course, the additional expense attributable to our ERP implementation.

Our ERP project expense included in SD&A was $4.8 million in the fourth quarter and $8.6 million for all of fiscal 2011.

Total capital expenditures related to ERP included in property additions for the entire year was at $12.5 million.

Our consolidated balance sheet remains strong.

Shareholders' equity is now $633.6 million, up $78.5 million from June 30.

Inventory turns continued to improve in the quarter and reached another all-time high.

Overall receivables balances increased in line with our sales increase, and our DSO's remain consistent in the quarter.

Our effective tax rate for the quarter was 37.1%, in line with our estimated fourth-quarter guidance.

We are forecasting our effective tax rate for fiscal 2012 to be in the 37% to 38% range.

Looking forward to fiscal 2012, we do not expect to have any LIFO layer liquidation benefits or a continuation of fiscal 2011's LIFO benefits of the effective price deflation from supplier purchasing incentives.

These 2 factors positively impacted gross margins in fiscal 2011.

In our press release, we quantify the impact of the full-year LIFO layer liquidation benefit at $12.3 million.

In previous conference calls, we quantified the positive impact of LIFO of supplier purchasing incentives at $4.2 million.

These 2 factors total $16.5 million, and, as they are not continuing into 2011, will be a drag on our fiscal 2012 gross margin by about 70 basis points.

For all other factors impacting gross margins, we are forecasting them to be relatively stable from 2011's levels.

Regarding our ERP project, we expect capital expenditures to be in the $14 million to $16 million range for fiscal 2012.

SD&A expenses associated with this project for fiscal 2012 should be between $16.5 million to $18.5 million.

Other non-ERP capital expenditures for 2012 should be around $10 million to $12 million.

Regarding SD&A levels in fiscal 2012, we expect that, even with the increased level of ERP expense, we will still realize some efficiencies and leveraging benefits of volume; therefore, we believe SD&A, as a percent of sales, will decrease slightly from the fiscal 2011 levels.

We provided our annual fiscal 2012 earnings guidance in this morning's press release.

Our sales guidance range is between $2.35 billion and $2.45 billion, and our earnings per share range is $2.40 to $2.55 per share.

Now, I'll turn the call back over to Dave Pugh for some final comments.

That's a wrap -- a solid quarter and a record year.

And we're looking forward to another great year in 2012.

I'd like to mention that this is scheduled to be my last investor teleconference as the Chairman and Chief Executive Officer of Applied.

As previously announced, my plans are to retire as of our shareholders meeting on October 25 of this year and spend more time with my family and some of our interests.

I'd like to say that I've inherited a wonderful organization that responded well to new profit enhancement efforts.

Not only do we have a good recent history, but we have made good investments for the future, and we have a solid management team in place.

Hopefully, I've been a part of the Company -- of the improvements during my time here, and I would fully expect my successor to do the same thing.

Each successor brings different individual strengths to this Company.

For our investors, we've worked hard to improve shareholder value.

Over the last 12 years, we've moved Applied's market cap from $220 million to over $1.5 billion at year end.

And, importantly, we have accomplished this in a manner which has maintained the company's reputation for the highest in honesty and integrity.

As I draw my oversight to a close, I would state my note of appreciation to all of you who own a slice of our Company.

Thanks for trusting us with your investment, and I hope you feel as I do that the entire Applied team has always acted in your best interest.

With that, we'll open it up for questions.

Thank you.

We will now begin the question and answer session.

(Operator Instructions) There will be a delay before the first question is announced.

(Operator Instructions) Standing by for questions.

Matt Duncan, Stephens Inc.

Good morning, guys.

Congrats on a great quarter.

Thanks, Matt.

The first question I've got is just with regard to your end market.

What are you guys seeing out there right now?

Are there any end markets that are stronger or weaker than others?

Have you sensed any change in customer behavior over these last 2 crazy weeks?

Just talk a bit about what you're seeing in the marketplace.

Hey, Matt this is Ben.

From an end user industry perspective, we're seeing strength in machinery manufacturing still going strong -- primary metals; the durable goods area.

One of the areas that has been very steady for us over the years and continues to grow is the food industry; still strong for us and growing.

Then on the weak side, it seems like a broken record with the last few years, with forest products and some of the construction-related industries.

We've seen some -- a little bit of bounce back but off of some historical lows.

The transportation industry seems to be bouncing around.

We have an up month, a down month but, not really sure what direction that's going in yet.

A mixed bag, but overall, we're still positive on the industrial economy as we move forward, notwithstanding some of the events of the last few weeks.

So Ben, as you look at daily sales trends month by month, maybe April through July, has there been any material change?

We bounced around a little bit in the quarter -- the June quarter.

We finished strong in June.

Seasonally, we're always slow in July with vacations and typical plant shutdowns, so we did see that -- nothing extraordinary.

And then, early in the month in August, we've seen a bounce back.

I think that gives us some optimism.

Okay.

Then if you look at the guidance, what type of economic back drop does that guidance assume?

Can you clarify what you mean by that?

I mean, maybe if you look at industrial production, capacity utilization, sort of the type of economic indicators you typically talk about on your call.

What type of economy are you expecting to be operating in within your guidance?

Yes, I think that we're seeing -- if you use -- one of our sources is MAPI, and their latest report shows industrial production for calendar 2011 being up 5% and 2012 being up 4%.

Okay.

That's helpful.

Then last thing, Dave, congrats on a wonderful career at AIT.

I hope you enjoy your retirement.

Can you give us an update on how the CEO search is going?

Matt that's in the hands of a board-appointed CEO transition committee, and they're working their way through candidates.

At this moment, I have not pressed them hard to give me the details of where they stand, because I'm still the guy right now.

So, you know, not giving up until October.

So there's nothing really to report on right at the moment.

They're just doing a thorough job of researching candidates, both internally and externally.

And I appreciate your kind comments.

The guys here aren't going to escape my attention, because I'm still going to have a few of their shares.

I hope you enjoy life n retirement, Dave.

Thanks a bunch.

Jeff Hammond, KeyBanc capital markets.

I wanted to share those congrats to you, Dave, as well.

Thank you, Jeff.

Just, I guess on the economic backdrop comment, we've seen some choppiness in industrial production and PMI, and you typically see that on a 6-month lag.

Is that -- as we think of the shape of the year, are you kind of building some of that softening into the back half of your fiscal year or more kind of relying on this MAPI view?

I think as we go forward, Jeff, we have obviously tougher comparables, but we have modeled for the year, typical seasonal slowdown at the start of the year and finishing stronger throughout the year.

Okay, great.

And then, I guess, given where the stock is and given what you're seeing in the pipeline and your balance sheet, maybe just talk about what the M & A pipeline looks like and how you feel the same or different about share buyback here.

Jeff, I'll talk a little about share buyback now.

We did some modest buybacks in the June quarter, as we've stated over the past year, that we're getting back more and more into the buyback market.

We will plan to continue to be active in the buyback market and in the current quarter that we're in now.

I think I would agree with you, especially with what's happening with the overall marketplace here.

We may utilize more of our outstanding available purchase capacity now based upon the stock prices of maybe what we were thinking of a month ago.

I guess on the M&A side, we're very active.

The M&A market is active right now as it has been.

We've been fortunate to be able to fill in a couple of geographic holes in Montreal and Corpus Christi, TX.

We would like to do some larger acquisitions than the ones we've done, but we're pleased to have those folks on board.

And we'll continue to look for those opportunities that match up with our needs.

The other thing, and we talked about it a bit here this morning.

I know I've been to a number of supplier meetings lately, and, with multiple customers around.

We're not seeing any fear and trepidation among our customers right now.

They are still very positive about the way things are going.

Suppliers are still pretty positive about the way things are going.

With regard to the market reaction to the credit discussions in Washington, and what has happened, the market has reacted to a credit crisis.

I don't know that it has reacted to a real slowdown in the marketplace.

So we will see whether the marketplace is impacted by the credit crisis.

Okay.

That's helpful.

Just, you know, a couple fine tuning items for Mark.

Can you clarify the rebate comment?

I think you quantified a number and then thought that maybe that wouldn't repeat.

Can you just clarify?

And then on the ERP, it sounds like that's running a little bit ahead on the spend and the CapEx.

Is that just an indication of you guys running ahead of schedule?

Yes.

The CapEx is still on budget for the ERP project.

So, it's just the timing of when those things are happening, so there's no issues with that.

You asked 3 or 4 things with that question, Jeff.

Just on rebates.

Can you just clarify the rebate dynamic?

That was the LIFO impact of -- at the beginning of our fiscal 2011, when we started recapturing some rebates from our suppliers when we resumed our purchasing.

In essence, those things were a price decrease as it slowed through our LIFO calculation in our Q1 and Q2 of fiscal 2011.

So that was $4.2 million.

Obviously, when we're rolling through fiscal '11 -- our rebate levels in 2011, we expect them to be comparable in 2012, so we will not have a big change year-over-year.

So there's not necessarily going to be an increase or decrease because of rebates through our LIFO category.

So that was the thing I was quantifying on those numbers as to say that, that was a one-time thing.

To the corollary of that, during fiscal 2010, we saw the opposite when the rebates went away.

That was an effective price increase to us, and so our LIFO expense in 2010 -- because of the price changes, we saw a negative thing on that too.

Okay.

That clears it up.

Perfect.

Thanks, guys.

Joe Mondillo from Sidoti & Company.

Just 2 quick questions -- first off, Mark, you mentioned, when you were talking about the CapEx and expenses associated with the ERP, you mentioned a $10 million to $12 million figure.

What was that associated with?

Non-ERP CapEx, so that would be all of the other capital expenditures that would need to be to keep the business going?

Okay, got it.

And how does that -- is that flat, or how does that compare to what you were thinking of last quarter?

That, I'd say is somewhat flattish, especially for the non-ERP capital expenditures.

Over the last several years, we've been running probably around $7 million or $8 million in traditional CapEx.

This year, we're projecting $10 million to $12 million, which is still lower than our annual depreciation expense for those things.

So, we don't really have a lot of big projects coming along that's going to use our capital expenditures except for the things related to the ERP.

Okay, great.

And then just, lastly, just to sort of piggyback on I guess the whole economic fear questions.

How fast did you see it?

I know you have a 6 month lag, but it seems like it might have been a little faster last time in 2008.

How fast did you see it, and what did you learn in preparation for something like that?

Let me just comment on that because you know, we go back to our notes in our officers' meeting in April of 2008, and we started making plans for what took place in the fall in April of 2008.

Because we had -- we were in the bowels of the organizations.

We see when the shafts start to turn more slowly, and when fewer widgets are being produced.

So we felt like we responded ahead of the game then.

We feel like we're in the same position and have the same capability to respond ahead of the game now.

One of the things we pride ourselves in, and pride's a tough word we try not to use around here -- but the fact of remaining flexible and agile.

So we are probably on a higher alert right now.

But, it's just to make sure that we see things when they start to happen.

We have not started to take any actions because the sales still are holding pretty well.

I think we kept our disciplines in place as the economy picked up and you know, being up, you know, 16.9% in revenues for the year, and which includes a couple of acquisitions, our head count is up less than 4%.

So net of acquisitions, our head count was down with an increase of, probably in the 15% range.

We've done a great job -- our folks have done a great job in keeping the disciplines in place.

So the market, obviously, thinks it's much more extreme.

The market's actually falling faster than in 2008.

Are you feeling it similarly or like, say in April of 2008, or is it a somewhat different feeling?

It's certainly a different feeling.

We were hearing it before seeing it.

We were seeing indicators that were where we're dropping.

Right now, we still have customers who are fairly optimistic and seeing good business out there.

So, at this point, we have not actually seen anything that would support the market crisis, the credit crisis concerns that are up front today.

Okay.

Very helpful.

Thanks for the color.

Jason Rodgers, Great Lakes Review

Hello and congratulations on the record year.

Thank you.

Looking at government sales -- what were they -- what were their performance in the quarter, and then what do you expect from that area in the new year?

Yes, the government sales for the quarter, we were slightly up for the quarter, but we do not have great expectations for growth as strong as the rest of the business.

There are definitely some clouds on the horizon with -- in many areas of the government.

So, we don't expect tremendous growth, however, at the same time, our share of some of the major segments of the government business is still very low.

We still have a large group of folks involved in government sales -- our normal sales force, as well as some folks that are specialized on some segments of the government.

We'll continue to work our plan to grow our share in a very large market even though the market may not be growing.

Okay.

Looking at inventory and receivables -- those up 18%, year-over-year, a little bit higher than the sales figure.

What was the reason for that?

Was that the inventory percentage, Jason?

Yes, I think it was both inventory and receivables were both up year-over-year, 18%.

Some of the inventory increase, obviously, we have acquisition impact.

We also have impact of the currency translation throughout the year.

The other thing is, when we have LIFO layer liquidation benefits that we are recording, that in essence is an increase in inventory, because you're removing a reserve that's reducing your inventory levels.

So I would also say, that needs to be taken into account, also.

From an operational perspective, we feel very comfortable with our inventory levels.

Our inventory turns for which -- we measure our turns still on a FIFO basis -- our inventory turns continue to increase throughout the year, quarter by quarter.

And we are at our all-time high of inventory turns as of June 30.

We expect inventory turns to continue to improve throughout fiscal 2012, also.

From a receivable point of view -- our DSOs -- we feel very good about the DSOs.

We think that the growth in receivables has pretty much mirrored the growth in our sales so that we would see a similar increase.

Thank you.

Holden Lewis, BB&T capital markets.

Thank you.

Good morning.

David, let me also echo the other sentiments of congratulations on your pending retirement.

Thanks, partner.

I also figure this is a good time to ask this question.

I'm sure you won't want whatever successor you have to take all the credit for the gains from the ERP system.

So I figure this might be a great opportunity to provide some color, now that we're approaching the first sort of turn-on, if you will, at the end of the year to maybe give us some update on what's kind of expected in terms of savings and things like that.

I hate to disappoint you and myself both, but, you know, we don't have a bunch of that plugged in for 2012 as we stated from the beginning.

That's really going to start hitting significantly in 2013.

I will leave that to my successor to make sure he carries that on.

All right.

Very magnanimous.

You don't, at this point -- you're still are not interested in sort of talking about what you think, if not the year, the year sort of contribution, what the ultimate contribution, you think, could be from this at this point?

Holden, this has been and for fiscal 2012, we have a small number of facilities ramping up mid-year.

So any benefits will be negligible in fiscal 2012.

In 2013, we will start to see the benefits ramp up and the costs ramp down.

So, I think as we get closer to fiscal 2013 a year from now, we'll have a much better idea.

We've done some modeling on different areas where we'll see benefits, and I don't think we're comfortable yet with throwing any of those numbers out.

Okay.

In 2012, you're sort of expecting the overall expense to kind of be similar and '13 back off and kind of the same way with the savings.

Is the way to look at it?

The expense should start ramping down in fiscal '13 and fiscal '14.

So, we'll hit the high level mark of our expense in SD&A during fiscal 2012.

Then, of course, the benefits will start ramping up as we start putting people on the system.

So that we'll have some benefits in 2013, a much greater level in 2014, and then, basically, 2015, you should just be about a full year of full benefits going forward.

Great, okay.

And then can you remind us -- how big is the government business as a percent of sales now?

Just a little over $100 million a year in total sales.

So that's about 4% to 5%.

Okay.

And then one market I was kind of interested in as well -- if memory serves, you have a presence in the semiconductor high-tech world.

We're starting to hear some companies maybe talking about 2012 being tougher on semiconductor.

How big is that market for you, and are you hearing anything in that particular sub-market.

Holden, I do not have the numbers on how big that market is for us, but, yes, we are starting to hear some indications of a slowdown in that market segment this fiscal year, definitely.

It's obviously a small piece of your mix, if you don't know exactly what it is.

Is the rate of growth that you'll be comping against so dramatic that we're likely to see it?

Or has it been growing at a relatively slow pace so that, even if it weakens, when you combine it with the size of the mix, it's probably just going to be a rounding error?

I mean, do you have a sense of that?

I don't have a good sense for that, Holden.

I think it -- I wouldn't call it a rounding error because high-tech isn't one of our nice, strong inventory that we serve into.

I don't think we have a feel yet for how it'll affect us this year.

It could be a rounding error.

It could be -- it's not such a large segment that it will affect the overall number greatly.

Okay.

And then, can you comment a little bit on pricing?

We continue to hear about bearings shortages for instance.

I think you said it was maybe 1 to 2 percentage points from price?

Any sense that there's perhaps momentum to keep that going or to accelerate it?

What do you see in the pricing environment going forward?

If you look at, you know, fiscal 2011, the price increases were a little bit more frequent than 2010.

2009 and 2010 were very abnormal as well as the years prior to the downturn.

We had significant increases in 2007, 2008.

I would say we're back to normal, so to speak, currently.

Okay.

Sort of what are you expecting as you go into 2012?

Are you expecting the pricing sort of remain on a quasi-frequent level, or does the price cost relationship look like it's balanced out here, and maybe it's more stable?

I feel it's more stable, and we'll see something similar in fiscal 2012 as we saw in fiscal '11.

Okay.

Lastly, housekeeping -- number of days in fiscal '12 -- do you have that by quarter?

I believe we have the exact same number of days by quarter and each quarter throughout the year, and the total number for the year is the exact same as well.

252.5?

Yes.

All right.

Great.

Thank you guys.

Again, Dave, congratulations.

Thanks a bunch, Holden.

Brent Rakers, Morgan Keegan.

Good morning.

I just wanted to follow up a couple questions on the ERP first.

I think, earlier in the call, you talked about a $16.5 million to $18.5 million number for 2012.

Was that a CapEx number or an OpEx number?

That was the operating expense number.

The CapEx number was smaller.

I'm looking it up right now, what we said.

Mark, while you're looking, is there any update to the OpEx number for 2013?

I don't have that with me.

I have it, I just don't have it here, so I can't share that.

The CapEx for 2012 for ERP is $14 million to $16million, and then the operating expense in 2012 is the $16.5 million to $18.5 million.

Then, of course, also, we have additional CapEx for non-ERP of $10 million to $12 million for 2012 as well?

And do you have in mind a peak quarter of OpEx during 2012?

Can you be that precise?

We cannot be that precise.

Okay.

And then, in talking about 2013 and 2014, when do we become neutral to EPS with benefits offsetting fallen costs.

Can that happen as early as 2013, or are we talking 2014?

Or when would that swing positive for you guys.

It's too soon for us to really tell, Brent, right now.

You're in the right time frame -- 2013 to 2014.

That's a big range.

But we'll take it, I guess.

Then, I guess, lastly, on the SG&A, could you maybe talk about the sequential jump Q3 to Q4.

I know you talked about some of the issues affecting the year-over-year comparisons.

It looked like a pretty significant sequential increase -- if you could maybe talk me through that.

I'll go off of my recollection on all of that, because I don't have it all sitting in front of me, but the ERP project -- that was probably a $1.7 million, $1.8 million jump for that.

And that's the one thing that sticks in my mind as one of the big --.

Would there have been any significant true ups, you know, whether it be compensation-related lines or anything else in there?

I don't believe so.

The only other thing that would be maybe a little unusual, is we did purchase Golf Bearings.

So Golf Bearings had 2 months of their SD&A in the fourth quarter, where they had none in the third quarter.

But that was just maybe -- just a couple $100,000, if that much.

Okay.

I guess, last question -- well, 2 more questions.

I think you commented about the gross margin guidance.

The head winds related to LIFO being 70 bps.

Maybe you can give us on some clarification on that.

And then, secondly -- any negative or noticeable negative impact to revenues in the fourth quarter from some of the auto shutdowns?

We -- I wouldn't call it noticeable.

I mean, I think that sector -- we did see some impact from those, but it wasn't anything huge.

Okay.

Then just clarification on the LIFO head wind of 70 ips.

Which components are you referring to?

Well, it was really the 2 thought processes that we talked about earlier even in the Q & A, regarding some of the beneficial impacts on LIFO from the fact that rebates resumed during fiscal 2011.

That really gave us a $4.2 million benefit through the LIFO methodology of accounting in our Q1 and Q2 that we talked about and disclosed, obviously, previously in other conference calls.

But that's not going to continue.

And then, then secondly, is the LIFO layer liquidation benefits of $12 million that we saw during fiscal 2011.

Granted, that was much smaller than what we saw in fiscal 2010, but now, we believe, we're done with those things.

So those 2 combined is about a 70 basis point impact on margins.

Okay.

Great.

Thanks.

(Operator Instructions) Matt Duncan, Stephens Inc.

I was just wondering if you could help us with the size of the 2 most recent acquisitions you've made and sort of how much you think those will add to sales and profits in fiscal year '12?

Right.

Gulf Bearings had 2 locations down in Texas, and the acquisition that we just announced last week was a 1 location facility in Montreal, Canada.

Those combined sales for those locations should be on an annual run rate -- not that big.

I don't have the number in front of me.

I think it's less than $10 million a year, all those combined.

Okay, that's helpful.

Any impact on profits from those -- do you expect them to be accretive combined?

Yes, I think they'll be accretive.

Obviously, we do have some -- we will have some intangible assets that we'll be amortizing, so they'll be more accretive to EBITDA than they will to the bottom line.

Although, with the bottom line, they still should be somewhat positively accretive.

Okay.

We have no further questions at this time.

I'll now turn it back to you, Dave.

Great, thanks.

I think it's only appropriate then that I should be the one to wrap this thing up.

Thanks for being with us.

And I guess I'll be signing off.

Thanks again.

Bye.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.