Barrick Mining Corp (B) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Barnes Group Inc. second quarter 2011 earnings conference call. My name is Derek, and I will be your operator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the content. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now I turn the conference over to Mr. Bill Pitts, Director of Planning and Investor Relations. Please proceed.

Good morning, and thank you for joining us today. With me this morning is Barnes Group President and CEO, Greg Milzcik and Senior Vice President of Finance and Chief Financial Officer, Chris Stephens. If you have not received a copy of our earnings press release, you can find it on our investor relations section of our corporate website at bginc.com. During our call we will be referring to the earnings release supplement slides which are likewise posted on our website.

I want to remind everybody that certain statements that we make on today's call, both during the opening remarks 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 financial statements. Please consider these risks and uncertainties that are described in our periodic filings with the Securities and Exchange Commission and are available through the investor relations section of our corporate website at bginc.com.

Greg will begin today's call with opening comments and then Chris will provide some details regarding our financial results and updated outlook for 2011. Afterwards, we will then open up the call to questions. Let me now turn the call over to Barnes Group's President and CEO, Greg Milzcik.

Thanks, Bill, and good morning, everyone. Barnes Group delivered strong results in the second quarter reflecting the ongoing benefits of our focus on profitable growth and operating productivity. Sales in the quarter grew 16% year-over-year with approximately 12% organic growth after removing the favorable impact of foreign exchange, or FX. Operating profit was up 42%, and operating margins expanded 10.2% during the quarter. These quarterly results were driven by sales volume leverage as our end markets continue to rebound and by further increases in productivity as measured by sales per employee which improved 17% year-over-year. Net income for the second quarter was up 51%, and earnings per diluted share increased 54%.

Looking at our end markets, we are benefiting from positive conditions at this point in the economic cycle. This is evident in our aerospace aftermarket and OEM businesses that are now coming into their own and look promising going forward. The cover story in a recent edition of Aviation Week magazine captured the state of the Aerospace market in its title which asks, Are Suppliers Ready? And by the way, Barnes Group is ready.

Also, the tone of the 2011 Paris air show was more upbeat than it is been in years with significant order activity recorded by aircraft OE manufacturers. The largest program in our aerospace OEM business, the Boeing 777 with the GE90 engine, has a substantial backlog going out over an extended period of time, and backlog for Boeing 787 provides additional visibility on future production requirements. Our aftermarket aerospace revenue sharing program, or RSPs, are expected to benefit over the long-term as the CFM 56 engine continues to be produced at record levels.

This was a very good quarter in our aerospace maintenance, repair and overhaul business. And based on June and July to date order input, we are optimistic about the second half of the year. For aerospace, we believe we're on the right platforms, platforms that should outpace the industry growth rate for a couple years as the demographics of the fleet and aftermarket activity look favorable.

With respect to the automotive industry, we are working to balance our prior dependence here over time, although this industry should do fine over the next several years. Current third-party industry reports continue to forecast a North American light vehicle production rate of about 13 million units, so we feel good about the prospects in this market and the second half. In the industrial markets, capacity utilization was a directional indicator, and it was not long ago that utilization recovered from the recession low point. But there was also a significant amount of capacity taken out during the last cycle. Therefore, we believe capacity utilization relevant to our industrial operations still has more runway.

On the cost side of our business, we are benefiting from our ongoing productivity initiatives, and we've been generally successful in managing the volatility in commodity pricing. Like many firms, we learned a hard lesson back in 2004 in 2005 when greatly increased raw material costs could not be passed on. From that point forward, we've made deliberate efforts to modify the customer terms and conditions in all our businesses to enable maximum commodity price flow through. As result, looking across the entire business, we're better covered for commodities price increases, although the timing of cost recovery can be an issue from quarter to quarter.

With that as background, let me comment on the results of our two segments. In logistics and manufacturing services, our quarterly sales results were outstanding with Barnes Distribution North America achieving its best quarter since Q3 2008. BDNA productivity as measured by sales per employee improved 17% over the second quarter last year. Daily sales average, or DSA continues to improve on both a year-over-year and sequential quarter over quarter basis. The investments we made in the past several years to improve sales force productivity in our supply chain in Barnes Distribution North America are gaining traction, and this business is now well leveraged to a rebounding economy. Sales on our European distribution business, after adjusting for favorable FX, were essentially flat compared to the second quarter 2010. However, operating performance continues to improve.

As I mentioned, the aero industry is trending in the right direction, and that's benefiting our aftermarket business. The airlines are profitable, and they continue to see growth in passenger miles as well as available seat miles. Maintenance repair and overhaul quarterly sales are at the highest level since Q2 2009, and Aerospace MRO sales grew 24% year-over-year. Our aftermarket RSP spare parts business saw a 19% improvement in revenues over the prior year second quarter as June orders powered this growth. Precision components delivered 20% year-over-year sales growth in the second quarter as our manufacturing businesses in both North America and Europe continued to benefit from the global economic recovery.

Additionally, Barnes Aerospace OEM and Associated Spring each experienced double-digit sales gains. For the segment, productivity as measured by sales per employee improved 14% of last year's second quarter. Operating profit margins expanded to 9.5% from 9.2% in the second quarter of last year. This is a step in the right direction, but we clearly need to see more incremental sales dollars flowing through the margin line, and we have mobilized the business to make this happen. There are a number of factors at play here, including the need to temporarily outsource some of the production given capacity constraints resulting from the strong growth we are experiencing in our European manufacturing businesses. Actions are underway to address this situation, but in the meantime, we will continue to see some incremental cost.

In summary, our strategy of investing in profitable growth and cost productivity is generating positive momentum on both top and bottom lines by driving the right balance between growth and margins and realizing benefits from prior cost actions and higher flow throughs. Looking forward, we anticipate further improvement in our end markets, and we expect to deliver good performance in the second half of the year. At this point in the call, Chris will take you through some of the financial details and provide comments on your updated 2011 guidance. Chris?

Thank you, Greg. Good morning, everyone. I'd like to first turn your attention to slide two of the earnings release supplement which is available on our website. Net sales operating margin, net income and EPS all improved year-over-year, and operating cash flows improved over the first half of last year. For the Company, net sales grew 16% to $328 million, up from $282 million in the second quarter of 2010. Organic sales were up 12% while favorable FX benefited sales by about 4%.

Operating margins increased 180 basis points to 10.2%. Margin expansion was driven by the impact of higher sales volumes and our success in mitigating higher commodity costs through pricing actions and other productivity improvements. These benefits were partially offset by costs associated with strategic initiatives to support long-term growth in both of our business segments. Net income for the quarter grew 51% to $22.3 million, and EPS was up 54% to $0.40 per diluted share compared to $0.26 per diluted share a year ago.

Turning now to segment performance. In our logistics and manufacturing services segment we recorded sales of $155 million, up $17 million or 12% from last year's second quarter which includes a $5 million benefit from FX. Our favorable sales performance in LMS was driven by 21% sales growth in aerospace aftermarket and 8% growth in our North American distribution businesses. In our European distribution businesses, sales were essentially flat year-over-year on a local currency basis.

Operating profit at LMS increased 65% to $16.8 million. The increase was primarily driven by our North American distribution businesses which were positively impacted by higher sales volumes, improved customer mix and further productivity improvements. And our aerospace aftermarket business likewise benefited from higher sales levels. In our precision components segment, we saw continued strength across our end market, as Greg discussed. Sales were $175.8 million, up approximately $29 million, or 20% over the prior year.

Organic sales grew $21 million as result of increases in the North American and European industrial manufacturing businesses and from better performance in the transportation industry, including the automotive sector. Sales in the aerospace OEM business grew 12%, and for the segment, FX contributed $8 million to sales growth in the quarter. Operating profit in our precision components segment was $16.7 million, an increase of 24%. The operating profit improvement resulted from the beneficial impact of higher sales levels combined with the lower cost structures from previous actions and lean initiatives. These improvements were offset in part by incremental expense from higher production levels and the impact of unfavorable foreign exchange on certain transactions.

For PC, overall orders were down slightly on a year-over-year basis, driven by lower aerospace OEM. However, orders in our European manufacturing businesses increased 18% on a year-over-year basis and continue this strong sequential trend. Segment backlog at the end of the quarter was $459 million, up $22 million on a year-over-year basis, but down slightly from the end of the first quarter. While backlog is a helpful indicator, I would remind you that sales can be effected by a number of factors over time including insourcing decisions, material changes, production schedules and volumes of specific programs, to name a few.

Moving on to taxes. The Company's effective tax rate for the second quarter was 27.6% compared to 16% in the second quarter a year ago. The tax rate was primarily impacted by a projected shift in the mix of income to higher taxing jurisdictions, the recognition of a discrete tax expense of $1.8 million related to prior years and the effect of an increase in the planned repatriation of a portion of current year foreign earnings.

Turning now to cash flow. For the first half of 2011, operating activities provided $40.3 million of cash versus generating operating cash flows of $32.8 million in the first half of 2010. This quarter's free cash flow, which we define as operating cash flow reduced for capital expenditures, reflected our higher operating performance, offset in part by larger capital expenditures. For the full year, we still expect free cash flow conversion of 90%-plus given that we anticipate CapEx to significantly increase from 2010 levels to a range of $40 million to $45 million. With regard to share count, second quarter diluted average shares outstanding were $56.3 million which was up slightly compared to the prior year. In 2010 we were an active buyer of our stock, and we have authorization to buy back another million shares under the board's 2008 repurchase program which we may exercise on occasion during the second half of the year.

As you may recall, in March of this year we announced that we have exercised our right to redeem the remaining $92.5 million principal amount of our 3.75% convertible notes. Given that our share price has been trading above the conversion price of $20.62, redeeming the notes avoids additional dilution. Of the total $92.5 million principal amount, about $11.8 million of these notes were redeemed with interest for a total cash payment of $11.9 million. The remaining $80.6 million of these notes were surrendered for conversion, and we elected to pay cash to these holders, resulting in a total cash payment of $90.4 million, including a premium on conversion of $9.8 million. We funded this redemption using available capacity on our $400 million credit facility. Our existing revolver expires in September of 2012. We are now in the process of renegotiating this facility and expect that the new revolver will be in place before we end the third quarter of this year.

Let me end my discussion today with a few comments about our updated 2011 outlook. As you can see on slide three, we currently expect our top line to increase 12% to 14% for the full year including the favorable impact of FX. We expect operating margins to be approximately 9.5% to 10% and EPS to be in the range of $1.35 to $1.45 per diluted share, up 42% to 53% over 2010. This guidance reflects the following items, interest expense is now expected to be approximately $12 million for the year as result of lower average effective interest rate combined with a reduction in debt discount. Our lower interest rate reflects a shift from fixed rate debt to variable rate debt due to the retirement of senior notes, redemption of the 3.75% convertible notes and maturity of interest rate swaps that we had last year. The effective tax rate for full year 2011 is expected to be in the mid 20% range.

As I mentioned, capital expenditures are anticipated to be in the range of $40 million to $45 million, and depreciation and amortization are now expected to be in between $55 million and $58 million. Fairly similar to last quarter's outlook, key factors in our updated 2011 guidance range include the following. To the upside, we would benefit from faster ramp in aerospace aftermarket which we've seen a year-to-date top line improvement of 18%. Better volume leverage or flow-through on increased sales and stronger productivity gains given our focus on lean end quality. On the downside, we would be negatively impacted by a slowdown in economic recovery, timing of expected benefits from our investments and strategic initiatives and commodity price inflation that may be difficult for us to offset either through pricing actions or productivity initiatives.

In closing, for the first half of 2011 we delivered strong performance which allows us to increase our near term expectations and gives us more confidence in our long-term outlook. This reinforces our commitment to invest in new products and services which should lead to continued profitable growth, sustained financial performance and an increase in shareholder value. Operator, we would now open the call for questions.

(Operator Instructions) Your first question is coming from the line of Fred Buonocore from CJS Securities. Please proceed.

Good morning, nice quarter.

Good morning, hi, Fred.

First question is on the Precision Components margin. You indicated that you have needed to take advantage of outsourcing, given your capacity constraints. Can you talk about -- try and quantify maybe the drag that that's currently having? And you also talked about the actions that you have underway to get more capacity and what the timing we should see on this initiative.

Sure. Clearly, the flow-through in Precision Components is not what we had anticipated or want. But at the same time, I think there is upside. Several things. 1, in the European manufacturing, the order rate improved so dramatically that we did have some capacity issues, but that's only 1 component to it. The other component has to do with our management of new product introduction. And we have a series of point issues, primary Aerospace orientated where we are having to spend additional resources to get the program up and running. We could have done a better job managing it, but we are working our way through it. I think it will take about 2 quarters to solve the core problems, and I think it will improve the margin flow-through from that point on.

Okay. And I guess as part of that, you talked about strategic initiatives to support long-term growth being kind of a headwind to margin as well. Is some of that related to getting better flow-through, or can you talk about those initiatives a little bit, please?

Some of it has to do with making new product introduction core competency. Especially in Aerospace because what we are seeing in Aerospace as a whole is an unbelievable number of new platforms coming along over the next several years. And historically, we've done a pretty good job in the new product introduction. I think we lost some of that skill set, and we are reinvigorating that effort. So there's a lot of training and development along with other areas of training and development and also our corporate development effort as a whole. We're spending more money on the M&A side, and there's a lot of opportunities out there. We just have to be selective.

Great. And then finally, on the Aerospace aftermarket you talked about your spare parts orders up 19% year-over-year. Was that for the quarter or just for -- you said it was June orders that powered that?

Well it was for the quarter, but we saw a strong June.

Okay. And would you say that this was kind of an inflection point? I know the spare parts business had been lagging the MRO. Would you say something has changed there noticeably?

Yes. I'm more optimistic about the aftermarket than I've been in some time. For 2 and a half years we've had this deferred maintenance cycle and the like, and we finally saw some upside in the first quarter. When I look at the overall, MRO as a whole is up 24%, spare parts 19%, and that's consistent with -- GE announced an 18% increase, Pratt & Whitney at 25%, Goodrich 16%. So when I look at the consistency there -- I also, in the last quarter I mentioned that I had some concerns about cannibalization or the spare parts, used parts having some effect on our RSPs, and that's diminished. I don't see a dramatic impact from that cannibalization effort.

So, I'm pretty optimistic. But I'm also looking at things like flight hours, engine shop forecast, our orders into July at our maintenance, repair and overhaul operations for summer months are pretty strong. So, it is a short-cycle business, but I'm optimistic at this point. But 2 quarters -- or 2 points in time don't make a trend, but I think will -- the next quarter will certainly be more revealing.

Very good. Thank you, I appreciate it.

Your next question is from the line of Edward Marshall from Sidoti & Company. Please proceed.

Good morning guys. Good quarter.

Thank you.

Help me think about how you're positioning the guidance for the back half of the year, because as I look at it, it looks like revenue at the high-end is flat. EPS at the high-end is down about $0.03 from the first half. And I guess it is probably a little -- I don't want to put words in your mouth, but is it either a sense of caution because of what's going on out there and how other people are reporting? Is a seasonality, which is probably the most likely answer, or are you just being a little bit conservative?

Sure. In the past call, we mentioned that we did a rough calculation and again, the information is public, and I would encourage you to do it yourself because there are some things you have to take into consideration. But it is roughly a 55, 45 historical average. And that's due to shutdowns in August and December at various plants, it's auto manufacturing and other things. So, that's really what's driving a lot of it.

We also have our internal forecast that we scrub pretty diligently. Unlike a lot of businesses, we have a mix of short- and long-cycle businesses. We know the long-cycle business is pretty straightforward and clean; the forecasts are easy to adapt to the guidance. The short-cycle business, unfortunately are much more difficult to predict such as Aerospace aftermarket, spare parts sales, things of that nature. And there we have to go with macroeconomic trends, and that's really what goes into building our guidance right now.

The LMS incremental is pretty solid. (laughter).

I noticed (laughter).

Do it again?

(Laughter). Amazing what water boarding will do for you.

Obviously, I think the numbers come out to 72%, that's kind of hard to repeat. But is this where we should see this business trend at least, maybe in a non-seasonal kind of fashion? Just kind of help me think about that from the LMS side of the business?

One of the things that we are really pleased with LMS is, the investments we made during the downturn are paying off now. And I mentioned before that the uptick that we're seeing now took about 3 quarters longer than I thought it would, literally. And we suffered some pain and suffering keeping capacity in certain areas, making investments. It would've been easy to increase earnings by $0.05 or $0.10 a quarter last year by avoiding these investments, but we knew sooner or later it would come about. And I think that's what we are seeing.

Overall, I'm really happy with the distribution business, North America in particular. I think the improvements they made in project catalysts several years ago and the improvements they made through the downturn are just paying off in spades, and I'm hopeful that it continues. They have historically had a higher margin than the manufacturing business being a service orientated business. So, I think we keep pushing that along, it will be great.

So, it is interesting that you keep pointing out that it was driven by distribution and not aftermarket. I would've thought it would have been --

Both.

It is both. Yes. But is it -- are you just complimenting distribution because of what they've -- where they've come from? Or is it that that business has kind of turned the corner and it's not -- you expect it from aftermarket, but you haven't in the past expected it from distribution?

When I look at in real terms, it is both. I think the Aerospace aftermarket business is a great business, the RSPs and the MRO combination is a powerful combination when we look at our participation in the maintenance, repair and overhaul industry as a whole. So, I think it really -- when I look at the performance, it is those 2 businesses that are driving it.

I'm not sure if you'd done this before in the past, but I will ask. In your guidance, the operating performance is 9.5% to 10% margin for the business as a whole. Can you give me what you are thinking from the components of the business and how those 2 segments kind of break out to get you to that 9.5%, 10%?

Yes. Ed, I would just add that it's pretty consistent when you look at PC as well as LMS. I wouldn't put much variation on it. Obviously, we are pleased with LMS's performance in the quarter, and Greg talked to some of the investments and activities that's going on in the PC side. But I'd say there's not much differentiation in our guidance between the 2 segments for the full year.

So that mid-9%, 9.5% type range for the 2 businesses is a little bit higher probably.

Yes.

Okay, and then finally, Chris, you mentioned backlog. I think you said 459, but I think you meant 359? Is at 359 or 459?

Well, for the total PC business it is 459 for BA OEM specifically, which we typically spike out at 346 ending backlog for the quarter, yes.

Okay, thank you very much, guys.

You're welcome.

Your next question is coming from the line of Christopher Glynn from Oppenheimer & Company. Please proceed.

Thanks, good morning.

Good morning, Chris.

You mentioned some higher M&A expense. Just wondering what that is exactly, and then some comments on how your acquisition pipeline looks and what's your appetite for deals?

Several things. 1 is during the downturn, we had some real critical issues. As you know, a couple years ago, we were actually concerned about covenants, and we cut a lot of expenses out of our corporate development budget. Our balance sheet has recovered faster than we expected, and we have reinvigorated that effort, therefore we will have additional costs associated with corporate development.

The opportunities out there are bountiful. There's a lot of businesses out there for sale. We are trying to be extremely selective. We have a strategy that we laid out with the board of directors, it is very defined. We have a very refined filter for those businesses. So, we are looking aggressively but at the same time, we're going to be picky. And when we buy a business, it will be the right business for the long-term.

Okay. And then even before the downturn, you were investing a lot in capacity on the OE and aftermarket side, I believe, and maintained pretty aggressively during the downturn, so what is the headroom there? How do you feel on both the aftermarket and OE sides at the moment?

I'm pretty bullish. I think that a lot of the capacity that we have in Aerospace can handle the uptick in both MRO and OE. The concern there is we have to improve our new product introduction skill sets, it is as simple as that.

On the capacity issue, it is primarily in European manufacturing business that came back a little sharper and faster than we anticipated. We know we can handle it, it is not a major issue. It's simply adding some incremental capacity, and we are doing it in a way that will be long-term orientated. But we did actually, before the downturn, add a lot of capacity in order to handle the anticipated load from the new platforms that are out there. Everything from the 787 to the A350 et cetera, et cetera. We think the aerospace OE side has a run going out for the next several years that is going to be impressive.

And you are already situated with capacity for that?

Yes, for the most part. We're going to have to add little bits here and there, but for the most part, we are pretty happy.

Great. And on the discrete tax expense adjust for prior years, how one-off is that? Or does it sort of comment on maybe some taxation in the past that wasn't done properly?

No, Chris, it's very much a one-off. It's just basically our review of tax returns in the past and it relates to 1 of our subsidiaries. We identified it, we're making the adjustments accordingly, and it is truly reflected as a discrete tax charge, it's behind us. That's the $1.8 million charge for the quarter.

Got it, thanks gentlemen.

Thank you.

Your next question is from the line of Matt Summerville from Keybanc Capital Markets. Please proceed.

Good morning, just a couple quick questions. Greg, you mentioned in Europe in your manufacturing businesses, the underlying strength you are seeing has prompted you to have to outsource some of your manufacturing. Specifically, which business units are being impacted by that, what products, what end markets are driving that need to outsource some of your production? And I assume that comes at an added cost, so how should we think about that going forward?

First of all, I will be very specific. It's primarily our nitrogen gas products business. And as you may know, that business primarily services the tool and die industry, and from that perspective -- and it is on a global basis. From that perspective, if you look at industrial manufacturing around the world, one of the leading indicators is tool and die building. And I think that's a positive indicator that the demand is there. It is also a technology destructor from a market perspective in the sense that it replaces mechanical springs with nitrogen gas cylinders. So, there's 2 things that are amplifying it. One is the tool and die build rate around the world, and second is the improvement that it provides to the end customer in durability and precision. Did I answer the question for you?

I guess, Greg, I'm looking kind of going forward, I would assume this outsourcing comes with an added cost to Barnes, how we should think about that. I guess at what point are you increasing capacity? Are you adding brick-and-mortar? How do we think about the cost dynamics of having to do this going forward?

Yes. I think it will take the couple quarters to solve some of our new product introduction issues at other businesses. On this business, it is going to take a little longer because it is brick-and-mortar. So, we are probably talking about next several quarters.

And Matt, I would just say that we factored that into our guidance, so it's more of a capital investment. We have the flexibility of outsourcing, which is good, but it does come at a premium, and that's what we saw. And I would just quantify, we are talking about less than $1 million here. We're not -- it's not exacerbated in terms of real time issue. So, we're going through that investment and making sure that that business is able to globalize and capitalize on globalization efforts because they do serve the world, as Greg mentioned.

And then with regards to the Aerospace OEM business, from time to time you talk about how you're content is evolving on some of the major aircraft programs out there. Have you seen any changes from the last time you updated us with regards to 787, 747-8, et cetera?

No, there's been no change. I also was reviewing a lot of the stuff that's going on, the Paris air show was incredible, actually. And I started taking inventory of all the new programs that are out there from the A350 to the Airbus A320neo, the new LEAP-X engine that's coming out, the gear turbo fan, the Comac C919, the C series. It is just astonishing how many platforms are coming out over the next several years and the backlog that is supporting it. So, I think that the OE side, the real challenge is truly going to be making sure that you have not only capacity, but the skill sets in order to capitalize on this opportunity.

And then just 1 final question. With regards to the Distribution business in North America -- can you talk about what kind of linearity you saw in terms of incoming order rates, April, May, June? What you're seeing in July? And you mentioned some of the metrics you track like the DSA, maybe average lines per order, that those are trending in the right direction. You give some qualitative comments, can you give us something a little more quantitative on DSA and lines per order and those types of metrics that you use?

Sure. First, we've seen 16 consecutive months of year-over-year DSA improvement. So we are seeing a fairly consistent improvement over time. July, we actually -- the last I checked, which I think was yesterday, was double-digit year-over-year DSA improvement. So, I think we are seeing improvement that's sustainable.

Right now I think that the flow throughs we are getting from the business is outstanding, and that's another thing that we look at as far as the productivity of the sales force and how it's contributing to profitability. It is pretty strong. I don't have the dollars per order with me handy, but we can dig that up.

Thanks, Greg.

Your next question is from the line of Peter Lisnic from Robert W. Baird & Company. Please proceed.

Hi, good morning, this is Josh Chan filling in for Pete.

Hi, Josh.

Hi, on the OE side of the Aerospace market as it relates to the narrow body re-engines, are you at a position to maybe be able to address the potential to achieve higher content on the next gen engines compared to the current ones?

It is difficult at this time, we are actively working packages on both engines. They are still variants in development programs, et cetera. I think the LEAP-X engine is targeted for a 2016 date on, the first one, I believe is the Comec C919.

So, there's still some development programs going on. This is where I think Barnes flourishes, because we do concurrent engineering with the design engineers in order to make the manufacturability and the cost more reasonable. And we are actively involved on those, and it will be some time before we have any idea of what content we ultimately end up with from a launch perspective. But they are both great engines. They're definitely making a difference.

Okay. And then you talked about the potential to repatriate some cash back into the US, what is the thinking on those? Is it mainly to pay back the revolver, or is there some other use in mind?

You've got it, Josh, just overall cash management strategy for the Company. So, we did $7.5 million last year, and we expect to continue that into this year, and that's been factored into our tax rate for the full year.

Okay, and then finally, you talked a little bit about M&A. Could you just go through, what are some of the characteristics of the potential targets that you would be looking for or interested in?

Sure, one of the things that we believe is that there's a 50-year excess supply of labor in the world and that you really have to look at moving up the intellectual property chain. And I think the type of businesses that we are looking for will either be product or process differentiated to start with. We think that the markets in North America and Europe will grow slower than the rest of the world, so we are looking at businesses that have global access. That doesn't mean that they can't be in Europe -- located in Europe or North America, but they have to have access to the global markets. We're looking at things that have superior margins, which usually come along with good product differentiation, and those are just some of the characteristics. But we're looking at a variety of businesses, and I would also comment that the type of business we are looking for is not a discounted business in the sense. You're going to have to pay full price, and we accept that, we understand that. But we are thinking for the long-term we need to evolve into a more differentiated business as a whole.

Okay. Thank you, and congrats on the quarter.

Thanks Josh.

Your final question is coming from the line of Scott Graham from Jefferies & Company. Please proceed.

Good morning. Another good quarter, very nice. A question for you on the North American Distribution business. If we could maybe segregate the industrial MRO piece from maybe the transportation piece, are you seeing a dichotomy there? Are they both growing nicely for you in North America? Is one slowing? Just maybe a little more color on the split.

Yes, we are seeing pretty broad-based improvement. We are also seeing -- we segmented the business pretty narrowly in some segments such as food services and the like that held up very nicely during the downturn. But we are seeing nice improvement across the board.

Okay. Then, the same question on the PC side. The industrial portion of that business, could you give us an idea what the growth rate in that business was this quarter?

We mentioned in some of our industrial businesses like, take Associated Spring, for example, which is a balance between automotive and industrial, that was double-digit growth. And the industrial market, I think that there's going to be some ripples here and there, both an auto and industrial. Auto has got a ripple primarily from the Japanese effect, at least that's what some of the analyst reports I've been reading. And the industrial, it's broken up by what area your focusing on. But we are seeing nice growth, nice improvement in the industrial businesses as well.

Okay. Last question is regarding the spending on the strategic initiatives. Any chance of giving us a number there? Was a 50 basis points, 100, by segment? Some type of parameter for what that number was this quarter in each business?

I haven't defined in that way, and the other issue is some of the strategic initiatives are temporary. So, I'd have to break it down, and I don't have that handy right now.

Scott, it is not significant. We are not talking about a lot of money here in terms of $1 million to $2 million in terms of just driving our pipeline and thinking about business development and corporate development activity.

That's fine.

Versus last year, really not spending a significant amount, as we've publicly said.

Okay. I actually do have 1 other question. Previously, a question was asked about the acquisition pipeline, and I was just wondering if there was -- I know you're looking in aerospace for sure, but where else are you looking? Are you finding multiple start to soften up a little bit? What are you seeing out there maybe by segment of market that you are searching?

Actually, we are being pretty selective on the criteria, and the stuff we are looking at is fully priced. We've seen businesses through the downturn and even recently that are less pricey, but they tend not to be as high a quality, and --

So, you would rather pay up a little bit and get something that you know versus something you don't?

Absolutely. We're not interested in turnarounds and broken businesses, we really want a quality business to add to our portfolio.

Understood. Thanks very much.

Thank you.

At this time, I am showing no further questions in queue.

All right, Derek. Well, thank you very much. We want to thank you all for joining us this morning. We look forward to speaking with you again next quarter, and this will conclude our call.

Ladies and gentlemen, thank you for participation. You may now disconnect, and have a great day.