Barrick Mining Corp (B) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Barnes Group earnings conference call. My name is Jennifer, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of today's conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's conference, Mr. Brian Koppy, Director of Investor Relations. Please proceed, sir.

Good afternoon, and thank you for joining Barnes Group's second quarter 2006 earnings call and webcast. This is Brian Koppy, Director of Investor Relations for Barnes Group. And with me this afternoon are Barnes Group's President and CEO, Ed Carpenter; our Senior VP of Finance and Chief Financial Officer, Bill Denninger; and Greg Milzcik, Executive Vice President and Chief Operating Officer. Following our prepared remarks we will be happy to answer your questions.

In addition, I want to remind everyone that certain statements we make on today's call, both during the formal presentation and during the question-and-answer session, may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the statements. We encourage everyone to consider these risks and uncertainties that are described in our periodic filings with the Securities and Exchange Commission which are available through the Investor Relations section of our corporate website.

On today's call, certain non-GAAP measures related to the Company's performance are discussed. Reconciliation of these measures to U.S. GAAP are provided in our earnings press release, and are available on the Investor Relations section of the Barnes Group website at BarnesGroupInc.com. We will begin our discussion today referencing schedules that are also available on our website. If you'd please turn to schedule one, I will now turn the call over to Ed. Ed?

Thank you, Brian, and good afternoon. Today, Barnes Group reported its second-quarter 2006 results, which were significantly better than last year, and continued to demonstrate to our stockholders to our stockholders the benefits of combining our business under the Barnes Group umbrella.

Some of the highlights include strong top- and bottom-line growth. For the 14th consecutive quarter, we achieved double-digit revenue growth. And for Q2, sales were in excess of $300 million for the first time ever, a nice milestone for the team.

Net income of $18 million was up 28% from the adjusted 2005 results, with a comparable diluted EPS of 0.34, up 17% from the adjusted 2.9 in the second quarter of 2005. Our solid year-to-date results which are in line with our plan enable us to continue to feel confident about our ability to achieve full-year guidance of between $1.28 to $1.33, which reflects a 30% increase compared to prior years' adjusted results.

We also continue to make progress with leveraging our businesses, which strengthens our ability to continue to generate balanced, sustainable, and profitable growth. For example, Associated Spring closed the acquisition of Heinz Hanggi on May 17, and integration process is well under way. Heinz Hanggi is an excellent business line extension, adding additional products, geography, and customers.

Barnes Aerospace invested in two major products which will enhance their balanced portfolio strategy. The Goodrich agreement and RSP programs continue to diversify and strengthen Barnes Aerospace long-term outlook.

Lastly, Barnes Distribution took a significant step towards enhancing its global distribution capabilities as a result of the just-announced agreement to acquire Premier Farnell's KENT division. KENT will complement our expansion into Europe following our successful acquisition of Toolcom supplies in the UK. The KENT acquisition is expected to expand our scale and scope in Western Europe to drive balanced and sustainable, profitable growth at Barnes Distribution. Now I will turn it over to Greg.

Thanks, Ed. Good afternoon. Moving on to schedule two, there are a number of operational items I would like to highlight within each of our businesses that will enable us to continue to enhance our financial performance.

Beginning with Distribution, where the team continued to focus on driving sustainable sales growth, sales force expansion continues as Barnes Distribution's North American operations grew its sales force for the second quarter in a row for a year-to-date net headcount increase of 4%. The long-term positive benefits of this initiative will be realized once these new salespeople become trained and fully developed. Also, our relatively new team selling approach continues to yield favorable results and complements our focus on corporate accounts. Year-to-date, our sales per rep are up over 6%.

Barnes Distribution continues to focus on proactively managing service levels, which have remained within our targeted range. Other metrics, such as average order size, which remain over $400 for the second quarter in a row and lines per order, which are up 7%, are key indicators of our effectiveness of our process improvements.

Also, Barnes Distribution is making progress in driving costs out of the business. Distribution costs as a percentage of sales continue to decline. Ongoing warehouse management activities will continue to push overall costs down.

Moving on to Associated Spring -- sales from the specialty operations business were down, while traditional business experienced some positive activity. Three weeks ago, Jerry Burris was appointed President, Associated Spring, bringing over 20 years of experience at GE. Jerry's results-driven management skills, strategic vision, and leadership ability make him ideally suited to drive global sales growth and product rationalization at Associated Spring.

Regarding the specialty operations, as we mentioned last quarter, we are experiencing a temporary slowdown in our specialty operations business, and expect the results to improve in the second half of the year. The slowdown is generally attributed to the timing of sales as a result of customer inventory compression and [some pushout].

We have seen few examples of losses to competitors, as our products remain the product of choice within each of our various markets and we continue to maintain market share. Each of our specialty operations business has performed an in-depth review of its end markets, customers, and sales pipeline. And based on customer order forecasts, new program wins and a recovering backlog, we expect improving conditions through the second half of the year.

I would also like to update you regarding our Barnes Precision Valve business within the specialty operations and its plans for closing the Troy, Michigan facility. We are on schedule for completion by year-end, and continue to transfer production to Brazil, Singapore, and other low-cost domestic operations. Barnes Precision Valve will be well positioned by year end, as the restructuring will be completed, lower-margin business will be eliminated, and we'll be able to leverage our new low-cost structure.

Turning to the traditional business within Associated Spring, we have concluded beneficial labor negotiations at our Saline and Milwaukee divisions, bringing to closure 1.5 years of labor negotiations amongst a number of our U.S. facilities. As a result, three elements of the traditional business have been addressed since the end of 2004. They are the impact of raw materials, including availability and pricing; the pricing of products in the marketplace; and labor issues. With Jerry now on board, the next phase of our profit improvement program has begun, with a focus on profitable top- and bottom-line growth.

Moving onto Aerospace, Barnes Aerospace continues to focus on securing agreements on strategic programs and meeting the increasing production demands of their customers. Barnes Aerospace entered into a strategic supply agreements with Goodrich, which provides more balance among its products and customer mix. This long-term deal secures additional content on Boeing's new 787 Dreamliner through the GEnx and Trent 1000 engines, as well as additional opportunities on the Trent 700 and B2500 engines.

In addition, Barnes Aerospace continued to expand its presence in the aftermarket by entering into its 9th aftermarket Revenue Sharing Program. The commitment for this RSP agreement is 14.75 million, which will be paid off over the next nine months. These aftermarket RSPs are an excellent complement to our aftermarket maintenance, repair, and overhaul operations.

We have been able to increase the capacity of our operations through realization of efficiencies and the introduction of new equipment over the past several months. We also continued to move the manufacture of RSP parts to Singapore which frees up capacity in our other facilities.

Now I will turn the call over to Bill for the financial update.

Thank you, Greg, and good afternoon, everyone. Turning to schedule three, please, we once again posted double-digit quarter-over-quarter sales growth. The 10% second-quarter sales growth rate is comprised about 5% from organic growth and 4% from Barnes Distribution's Toolcom and SPD acquisitions, as well as Associated Spring's Heinz Hanggi acquisition, and 1% from currency changes. I will go into more detail on sales when I discuss the results for each business in a few moments.

Some of the benefits from our strong sales growth were offset by a 0.5 percentage point deterioration in gross margin as the cost of sales increased to 64.2% from 63.7% in the prior year. And this was driven by lower gross margins in Associated Spring due to lower sales in the higher gross margin specialty operations. Margins improved in Barnes Distribution and at Barnes Aerospace. We continue to make strides in reducing expenses as our SG&A ratio improved 2 percentage points, driven by improvements in all three businesses despite a onetime 800,000 pretax expense taken in the quarter for performance accelerated stock awards.

Operating income increased 31% with an increase in operating income margin of 1.5 percentage points to 9.3%. Interest expense of 5.8 million was up 33%, primarily due to higher average borrowings, which increased 90 million over the prior year to fund acquisitions.

The second-quarter effective tax rate was 24%. The prior year's effective rate includes the impact of the sale of the NASCO JV interest. Our adjusted tax rate for last year would have been approximately 21%. Changes in our tax rate are largely dependent upon mix of business between domestic and international earnings. We do continue to project full year rate in the low to mid-20s.

Net income for the second quarter was 18 million. It's a 28% increase over last year's adjusted level of 14.1 million. And on a comparable basis, diluted EPS was $0.34, a 17% increase.

Results for the second quarter were adversely affected by approximately $0.01 per share by the impact of the Heinz Hanggi acquisition, which includes a 1.4 million pretax related purchase accounting valuation adjustments for inventory and order backlog. We expect a similar charge for these items in Q3 as the inventory turns and the backlog is shipped. The prior year's adjusted results exclude the effects of the gain on the sale of the NASCO interest of approximately $0.08 per share and includes the Singapore tax benefit reclassification of $0.01 per diluted share.

Diluted shares for the quarter increased 9% to 52.9 million. This increase was driven by two factors -- first, the additional shares issued as consideration for the Heinz Hanggi acquisition, and second, the impact of employee stock plans which reduced diluted EPS in the quarter by $0.01.

Turning now to schedule four, I will review the results of each of the businesses, starting with Barnes Distribution, where sales for the second quarter of 125 million were up approximately 11%. Organic sales growth was 4%, driven by corporate accounts and tier two relationships which were up 11% and 33% respectively. Toolcom and SPD acquisitions contributed 6.3 million or 6%, and currency change is 1.6 million or about 1%.

Barnes Distribution's operating profit was 8.9 million, up 51% from last year's 5.9 million. The operating margin for the second quarter was 7.1%, up from 5.2% a year ago. This improvement came from higher sales volume and improved gross margins, which were driven by higher selling prices, cost savings and operational improvements. The full-year 2006 operating margin at Barnes Distribution is expected to be in the 6 to 7% range.

Associated Spring sales of 112 million were up 1% from prior year. These results include 4.6 million from the Heinz Hanggi acquisition, and a favorable impact of 1.4 million from foreign exchange. Specialty operations sales declined about 2%, while the traditional business realized sales growth of about 3% due to its ongoing price improvement program and strength in the heavy-duty truck and telecommunications end markets.

The reduction in Spring's specialty operations sales was the primary driver for lower operating profit and margin in second quarter, as operating profit declined to 9.2 million, reducing operating margins by 0.7 percentage points to 8.2%. Included in Associated Spring's results are the benefits from lower compensation costs, costs related to the Heinz Hanggi acquisition, and costs for closing one of Barnes Precision Valve facilities. Costs incurred during the quarter for the plant closure and product transfer were approximately 400,000. Next quarter, Barnes Precision Valve expects to incur approximately 1 million, the heaviest quarterly spend for the plant closure. Full-year 2006 operating margin at Associated Spring is expected to be in the 8 to 9% range.

Turning now to Barnes Aerospace, which continues to achieve record results -- second-quarter sales of 74 million were up 27%, and operating profit improved 68% for another quarter with impressive dropthrough.

Total OEM sales for the second quarter were up 17% to 51.7 million. Commercial sales were 38.2 million, which include a 19% increase in sales of components for the GE90 engine family to 16 million. Military sales were 12.9 million, and industrial gas turbine sales were 600,000 for the second quarter. Barnes Aerospace orders for the quarter were a record 125 million. This is up approximately 66% from the prior year level of 75 million. Backlog increased 33% to a record 326 million, of which approximately 60% is scheduled to ship in the next 12 months.

Commercial orders of 85.7 million were up 91% from a year ago, and commercial backlog of 255 million was up 41% from the prior year. Military orders and backlog in the second quarter were 15.2 million and 61 million, respectively. Aftermarket sales increased 58% to 22.2 million for the quarter, including MRO sales of 14.9 million and aftermarket RSP sales of 7.3 million.

Barnes Aerospace has now produced quarter-over-quarter growth in operating profit for 10 consecutive quarters. Second-quarter results reflect a record operating margin of 14.4%, up from 10.8% in 2005. This improvement was primarily driven by higher sales volume and the increased percentage of aftermarket activity. The full-year 2006 operating market for Barnes aerospace is expected to be about 14%.

Turning to schedule five, cash was 38 million at the end of the quarter. The gross debt to capitalization ratio was 45%, at the high end of our targeted range of 40 to 45%, primarily due to the Heinz Hanggi acquisition. Our debt to EBITDA ratio was 2.8 times versus the debt covenant of four times, giving us additional borrowing capacity of at least 175 million.

Importantly, this quarter we entered into an amended and restated credit agreement that more than doubled our available bank credit from 175 million to 400 million, a clear indicator of our increasing financial strength. Now, as part of our overall international financial restructuring, both Barnes Group in the U.S. and its Swiss holding company, Barnes Group Switzerland, they borrow under the new facility, either in U.S. dollars, or in other globally traded currencies including the euro, Swiss franc, and pound sterling. The 225 million increase in our borrowing capacity under the new credit facility provides the financial flexibility we need to continue executing on our strategic growth plans.

Capital expenditures for the second quarter were approximately 10 million. The level of capital expenditures for the full year is expected to be approximately 35 million, with depreciation around 35 million for the year, including approximately 4 million for Heinz Hanggi. Capital expenditures continue to be focused primarily on investments to increase capacity at Barnes Aerospace.

Estimated amortization of intangible assets is projected to be approximately 7.2 million in 2006, which is increasing due to acquisitions and aftermarket RSP activity. These amounts are before consideration of the announced agreement to acquire KENT.

So in summary, our disciplined financial and capital management continues to enable the Company to finance internal growth and enter into strategic acquisitions, long-term agreements, and aftermarket RSPs in order to generate balanced, sustainable, and profitable growth.

Thank you. I will now turn the call back to Brian.

Thank you, Bill. We will now open the call to your questions. We ask that you limit yourself to one question and one follow-up so that as many individuals as possible have an opportunity to ask their questions. Operator, the first question, please.

(Operator Instructions). Holden Lewis, BB&T.

Could you guys give a little bit of color on the -- since the issues seem to be in Associated Spring -- the deferral issue; and by color, I mean, A, give us a sense of how much revenue, sort of order of magnitude we're talking about; and then, B, why are we confident that this is -- that these deferrals aren't exactly -- aren't going to become future cancellations? Just some color on those items?

Sure, and good afternoon. The main driver of our shortfall at the specialty operations is our nitrogen gas products business. First of all, when we looked historically, you'll find somewhere in the mid 2004 period, we had a similar temporary soft period. And we recovered nicely from that throughout the balance of the year, as well as into 2005.

We think we are experiencing a similar type of action. The magnitude of the shortfall was roughly around $5 million.

Okay, and that's all -- that's primarily Nitrogen Gas Spring. Wasn't Seeger-Orbis a problem in the past as well?

Actually, the backlogs have recovered nicely, and it -- really with earlier in the year, not so much through the second quarter.

Okay. Now I guess the -- what sort comes to mind is that it seems like this issue actually existed in Q1 as well. In fact, Seeger-Orbis, I think, was a bit more of a problem in Q1. You know, and it didn't seem like it had this adverse an impact on the aggregate results. And so it kind of feels like maybe the situation in Q2 actually got worse versus Q1. Is that true? And then sort of -- I guess I'm feeling [why] we're getting worse, and now we feel we're going to sort of snap back?

Well, first of all, we did a very deep review. And when we examined it, we found that it was very specific customers, issues that were largely around inventory compression as well as deferral of specific programs. And the reason we expect the recovery in the back half of the year is primarily because we expect these actions are temporary in nature, that we have seen the recovery and backlog at our Seeger operation. So therefore, we know that the inventory compression was temporary, and as well as we expect the series of releases based on customer forecasts going forward as well as new wins.

Okay, so Seeger-Orbis has a little bit of a leadtime to it -- so you're making that judgment based on backlogs that you are seeing that have recovered?

Seeger-Orbis is not a real issue in Q2.

Okay. So it's primarily Nitrogen Gas Springs. You said it's about 5 million -- okay, I guess that does it for me.

Yvonne Varano, Jefferies & Company.

Just need to ask about the backlog in Aerospace. You know, there was a pretty big jump in this quarter or relative to last quarter. Are we reaching a peak here, or is this expected to continue to arise with what we're seeing with the orders coming out of Boeing?

Well, there are several things in it. When you look at the backlog at aerospace, it has a wide variety of components. And if I recall, there's about 60% of that backlog is expected to be delivered in the next 12 months or 12 to 18 months. So there's a series of different measurements based on the customers. In other words, the -- how far out the releases will go with leadtime purchase, etc. But I think you'll see that our sales growth will certainly keep pace with backlog to a certain degree and I don't expect it to grow infinitely.

The other point that is probably worth making is a lot of these orders are not surprises, that we knew, for example, the GE90 was going to accelerate to a higher level. The equipment was ordered a year ago. It came in in the first quarter. We were producing parts, and we produced at about double the rate we did last year in terms of that particular program.

So the advantage in aerospace is -- and the OEM side -- some predictability in where it's headed, so we can get ready for the capacity. In the MRO and aftermarket activities, it's a little more immediate, because you really don't want to have more than 30 days backlog on that. And so we've done some additional staffing in one of the operations, and we continue to monitor that very closely, because we want to enjoy this sales increase. And as you can see from the margins in aerospace, we're enjoying it.

Yes, did you say how much of that backlog was GE engines?

The backlog for GE -- Yvonne, this is Brian -- the GE90 was about 132 million.

And then do you know how much of that is military?

Military came in around 61 million.

And IGT?

2 million.

Karl Oehlschlaeger, Banc of America Securities.

I'm going to talk about the Spring just a little bit more, if I can. And you mentioned some of the problems there in the nitrogen gas business was customers that have had some inventory compression and program delays. Can you put a little bit more color on what customers those are, and what gives you confidence that that's what the inventory compression (multiple speakers) is what caused it and the program delays -- and what are those exactly? What makes you think that this isn't an economic issue -- like general economic slowdown for that customer?

Well, first of all, since some of our competitors are probably listening very closely, I won't give too much detail on which particular competitor. But I will say in most cases, we looked at distribution businesses that distribute to various tooling operations, etc. And the reason why we don't think it's a general economic downturn is based on the releases we're seeing going forward and the customer surveys.

Okay. And then, secondly, when we think about -- you had these issues with the share count this quarter, and you ended it at -- for the quarter, you average diluted share count of 52 9. How should we think about that going forward with this -- employee stock option plans and the acquisition? Kind of where do you see this third and the fourth quarter playing out on an average basis?

It's Bill Denninger here. It really depends on what happens with the stock price. As you know we saw a significant increase sort of midway through Q2, so it's tough to speculate other than to say that it really does relate pretty directly to the price of the stock.

Okay, and then just one more, if I may. With the deals that you have done here, you had a higher debt balance. And kind of where do you see your debt balance being at the end of the year, and what sort of interest expense, I guess, should we expect?

We expect to have the debt to cap ratio back within the 40 to 45% range. Interest is going to be higher, obviously, given the debt for Heinz Hanggi and now KENT. I don't have a number in front of me but we can certainly get back to you with it.

(OPERATOR INSTRUCTIONS) Matt Summerville, KeyBanc.

A couple of questions. First, given the stock is down so much today, Bill, what are your plans for share repurchases as you look out the next couple of quarters here?

We do have an open authorization from the Board. We haven't decided at this point what we're going to be doing. But it's certainly something we will be evaluating.

And you have how much remaining?

That's not information we disclose.

Oh, okay. If you look at 787, your content -- can you review what you have now with this Goodrich deal on the GEnx engine and then the Trent? Because I don't think you had content on it before -- and then, how you expect those programs to ramp up through the remainder of '06 into '07, what kind of production rates you're looking for.

Well, first of all, there's two different levels of content we have, and that's preproduction and production figures. But you're probably more in the neighborhood of 300K a unit in the production range. And we expect it to ramp up -- correspond six to nine months ahead of Boeing's schedule. (multiple speakers)

And then on the Trent?

On the Trent, you would see similar numbers, if I recall that. We have similar numbers on the Trent as far as content.

You are up to 300,000 an engine or per plane?

No, no, no -- that was for just the Goodrich portion. The total content I don't have in front of me right now.

Yes, I think the total content that we have on the Trent right now -- this is Brian -- it's certainly not as high as the GE90 or even the GEnx. But it's a nice engine that in our portfolio -- it will put the content on the Trent about -- let's call it 100,000 per engine. And so you can double that per plane. So it's still a nice solid content that really helps balance the portfolio within Barnes Aerospace.

Okay, and then when you look at -- switching over to distribution, when you look at your daily sales rate. Can you talk about how that played out, moving through April, May, and June and whether or not you have seen any signs of slowing in your MRO distribution business, and what you're seeing so far in July.

Yes, I'd say overall in the U.S., Matt, the strongest month was June. But it does tend to ramp up during the quarter.

And then what are you seeing so far in July, and have you seen any signs of any slowing there?

Tough to say -- the first few weeks of a new quarter are tough to gauge.

Plus, as you know, the way the Fourth of July fell, even though you count the workday, really we have more vacation in that first ten days than you normally would see.

And can you talk about pricing in both Spring and Distribution, how much pricing is up on a year-over-year basis?

Let's start with Spring -- Greg?

Well, first of all, I think that most of the improvement we've seen in our legacy operation is largely due to price improvement. And I won't get into specifics on individual customers. But I think we're going to continue to see an effort to recover the impact that we have had over the years from material and price to market, and likewise with our distribution business.

And I think the guys at Spring have done a great job. We don't talk about it too much, because there's a lot of customer sensitivity there. But in distribution with a wide customer base, it's a little easier to implement. We've got a lot of different product lines and SKUs, so we're able to have what I call a rolling price increase, where we don't necessarily do 100% of the product for 100% of the customers on a given month. So we've felt pretty good about that so far, and our ability to pass through price. But I will tell you the raw material pricing has not eased up.

Right. If you net pricing against raw material inflation, how do you think you're coming out right now, and what are your thoughts on the back half of the year?

Distribution, I think we might be -- distribution, we might be level, maybe a little plus. Spring I would still think has got some opportunity.

(multiple speakers) Spring was certainly a plus, Matt, in the first half.

Are you running into any raw material constraints in any business at this point in time, and is that a concern?

Not yet, but we certainly pay very close attention to that, and monitoring inventories, we've increased our raw stock inventory in our Aerospace business. We've been very closely monitoring our inventory levels at a variety of locations, and have the appropriate leadtimes to protect our deliveries.

And then last, can you just talk about -- beyond this planned acquisition of KENT, what your M&A portfolio looks like, or what your pipeline looks like right now in terms of acquisitions?

Matt, we always have and have had for the last couple of years at least a full pipeline of various targets that are under consideration that's at the moment, no higher or lower than it's been recently. It's still a lot of activity out there.

(OPERATOR INSTRUCTIONS). Peter Lisnic, Robert W. Baird.

If I could ask another question on Spring, can you give us a general sense as to just end market break down there generally for Specialty?

Are you looking for -- which end markets, or --?

Yes, how much goes into auto, etc., if any. I don't think you have given out that information before, and it may help us to get some color (multiple speakers) on exactly what's going on there.

Peter, I can give you some of the detail. We kind of break it down by the heavy-duty truck, electronics, etc. I can give that to you off-line.

Okay, that's fine. If you look at the $5 million that you talked about, or that $5 million shortfall, is it safe to say that's probably relatively higher-margin business, or is it in line with overall segment profitability or lower? How do you think about that?

Well, the Nitrogen Gas is a more technically advanced product, and it has higher margin.

Okay, wanted to make sure. And then you've pointed to customer surveys that you have recently done as one of indications that things are going to get better in the second half. I'm wondering what those customer indications said at the end of last year looking into 2006?

Actually, we did similar surveys in the fall and into the early part of the winter. And we saw basically what we expected in general in the first quarter, but there was much steeper drop in Q2.

So much steeper drop in the second quarter (multiple speakers) and it would -- again, because, apparently an inventory rebalancing issue --?

Inventory rebalancing, and also a delaying of projects that were in the pipeline.

Okay. In terms of backlog in that specialty business, do you have a good sense or do you have visibility on a certain number -- in backlog that you are comfortable with?

You're only going out 60 to 90 days, typically.

All right, so it's a relatively shorter cycle.

Right -- (multiple speakers) [not] like aerospace where you could have a very long view.

And then if I could ask my unrelated follow-up, I guess -- for last night's acquisition, kind of what you're -- I guess, the strategy behind that, key points, and what we could assume for profitability potential there?

This acquisition we think is going to be a very nice follow-on to the Toolcom acquisition. We have an existing business, Barnes Distribution business in the UK and in France. This acquisition, which adds about 70 million of sales, with a footprint on the continent, gives us that additional geographic coverage. It's quite a bit more profitable than the existing UK- and France-based businesses -- good product line, complementary sort of product lines, I should say, between our existing business and KENT and Toolcom. Put it all together, it's going to give us an immediate significant increase in our geographic coverage in Europe.

And do you have a number built in for this year's forecast for accretion, or is that an '07 event, basically?

It is. This year, we expect the purchase accounting -- it will be relatively -- it will have very little impact.

Okay. And then if I could just ask one more -- on the 8 to 9% margin estimate for Associated Spring, that includes the plant closure charges, right?

Yes, it does.

And what is the dollar amount that you've got budgeted in for that?

About 1.5 million pretax.

Holden Lewis.

A couple of quick follow-ups. First, the 60% delivery that you are expecting from the backlog that you have now -- is that 60% sort of the normal, or is that significantly lower than is typical, and therefore you really have some long leadtime projects in there in there?

Traditionally, the 12-month shipping number is 70 to 75 so there is some degree of additional work that is further out.

You may recall that when titanium material started to become a little more difficult or the planning cycles were a little longer, we went back to a lot of our major customers, and asked for increased reliefs, and we highlighted that in the first half of last year. And that continues to be the situation.

And then, since you had some pretty good insights at this time last quarter with regard to Seeger-Orbis picking up, are you seeing anything right now through July that would lend some comfort to the belief that the second half in Nitrogen Gas Springs will be better? I mean, any early indications you're starting to get that dam break?

Well, first, we expected July to be relatively soft, and pick up in August. And we're seeing the orders and we expect to deliver beginning in August some increased production. That's going along pretty much the way we expected it to.

Okay, but you are actually getting the orders in now?

Yes.

And that's different from what you were seeing earlier?

Well, certainly specific releases, yes. Some of the projects that were delayed we're actually getting, and some of the distribution business that was expected is coming in.

This concludes the question-and-answer portion of the conference call. I will turn the floor back to Mr. Koppy for any closing remarks.

Thank you. If there are any additional questions about today's matters, please don't hesitate to contact me or the Investor Relations department. Thank you again for joining us today.

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a great day.