Barrick Mining Corp (B) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Barnes Group fourth quarter and full year 2011 earnings conference call. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to hand the conference over to Mr. William Pitts, Director of Planning and Investor Relations. Please proceed.

Thank you. Good morning, everyone, 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 the 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 also posted on our website.

I want to remind everybody that certain statements 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. Today's call will begin with opening comments from Greg, followed by a more detailed review of quarterly and full year results and a 2012 outlook discussion by Chris. After that, we will open up the call for questions.

So at this time I will turn the call over to Barnes Group's President and CEO, Greg Milzcik.

Thanks, Bill, and good morning, everyone. Today, Barnes Group reported fourth quarter and full year results that capped a great year for our Company. We exit 2011 with strong fourth quarter EPS from continuing operations and a healthy backlog of $582 million, up $100 million or 21% over 2010. In a significant portfolio move, we completed the sale of our Barnes Distribution Europe -- BDE -- business to Berner SE. This transaction was mutually beneficial to us and the buyer, as the operating scale provided by Berner offers the business and its employees a better opportunity to realize their full potential. With the BDE transaction now behind us, our Management team is squarely focused on maximizing the opportunities within the current business and searching for value-enhancing additions to our portfolio. During 2011, improving end markets helped lift revenues and our profitability benefited from sales leverage and continuing improvements in productivity.

For the fourth quarter, Barnes Group delivered excellent results overall. Sales grew 10% year-over-year to $283 million, driven primarily by organic growth. Operating profit was up 46% and operating margins expanded to 10.2%. Earnings per share from continuing operations increased 87% to $0.43 per share. For the full year 2011, revenues increased to approximately $1.2 billion, growing 14% through solid organic growth. We produced meaningful margin flow-through leading to expansion in operating margins of 250 basis points to 10.9%. Together, with our continuing focus on profitable growth and improved productivity, we delivered a 70% increase in net income from continuing operations over 2010.

Our financial results are very rewarding considering the economic challenges of the past several years. Actions taken throughout the economic downturn, specifically investments in our people, systems, products, and processes, have positioned our business well both now and for the future. Our end markets improved in 2011. In aerospace, we maintained our focus on key platforms, and in Industrial we witnessed recovery with improving industrial output, and in transportation we saw meaningful growth at auto builds continue to rebound. As we look forward to 2012, we expect much of that positive momentum to continue. Our aerospace business, in particular, should benefit from the forecasted extended up cycle in the commercial aerospace industry. Both our OEM component manufacturing and aftermarket products and services businesses are anticipated to see increased demand over the next several years.

Let's now discuss some of the details of each of our two segments. In Logistics and Manufacturing Services, our quarterly and full year sales results were strong, up 10% and 11% respectively. Looking at the year's performance, the increase is primarily the result of double-digit organic sales growth in aerospace aftermarket and high-single-digit growth in our North American distribution business. Operating profit for the full year increased 65%, driven primarily by the impact of higher sales volumes and further productivity improvements. Productivity is measured by sales per employee, including temporary labor, improved 19% over 2010.

In our aerospace aftermarket business, we saw a 27% increase year-over-year in sales for the fourth quarter. For the full year, we saw a 20% increase in sales versus a year ago. During the quarter, we noted several positive stories that related to the CFM56 family of engines which make up the majority of our RSP revenues. General Electric announced that it expects revenue from CFM56 parts to double by 2020. Aviation Week's MRO Prospector services predicts a record level of CFM56-7 engine overhauls in 2012, with significant additional growth in 2013. And CFM International says the production of the CFM56 engine is likely to reach around 1,600 units a year in 2014. Certainly, all this positive news is good for our revenue sharing program. Our North American Distribution business saw daily sales average, or DSA, continue to improve year-over-year. As we've mentioned before, the investments we've made over the past several years to improve sales force productivity and supply chain management have helped us achieve better performance.

Our Precision Components segment delivered a 9% increase in fourth quarter sales and ended the year with 15% growth on the top line. Full year segment operating margins grew to 9.1%, a 120 basis point improvement over 2010. For the segment, full year orders were up 22% and backlog increased to $538 million from $444 million at the year-end 2010, a further sign for sustained growth in 2012 in end markets that these businesses serve. Our Associated Spring business continues to benefit from increased global automotive production rates and improvements in industrial end markets. For the year we saw orders increase 7% over 2010. Our export-driven European manufacturing businesses collectively saw orders increase by 21% in 2011 as compared with 2010, providing positive momentum as we enter 2012. Our aerospace OEM businesses, including both military and commercial customers, realized a 37% increase in orders for 2011 with backlog growing to $431 million at year-end from $347 million a year ago. Our commercial aerospace positioning is reflective of Boeing and Airbus' public comments on commercial aircraft orders, deliveries, and forecasted production levels. We are certainly encouraged by the many signs that point to an extended up cycle in this industry for both OEM and aftermarket.

Earlier this week, we were pleased to name Patrick Dempsey as Chief Operating Officer of Barnes Group. In addition we announced the alignment of our global business units to better serve our customers and to accelerate growth. This organization realignment results in three reportable segments -- Aerospace, Industrial, and Distribution. And following the successful divestiture of BDE, and the implementation of our targeted customer-focused aerospace strategy, this realignment is the next logical step in positioning Barnes Group for the long term profitable growth. Beginning with first quarter 2012, the Company results will be reported under the new segment structure and all previously reported segment information will be adjusted on a retrospective basis.

To conclude, during the past year, Barnes Group transitioned from an economically-driven tactical business agenda to one that emphasizes strategic planning and portfolio positioning. As we move forward, our corporate strategy will continue to focus on investing in our businesses and looking to add market-leading differentiated businesses that provide for superior growth and expanding global access. We remain committed to enhancing the value of Barnes Group to its owners and in 2011, we delivered a positive 18% total shareholder return. Also, toward the end of 2011, our Board approved a quarterly dividend rate increase of 25% to $0.10 per share.

So now let me turn the call over to Chris, who will discuss some of the financial details of our results and provide our guidance for 2012. Chris?

Thank you, Greg. Good morning, everyone. I would like to first turn your attention to slide 2 of the earnings release supplement which is available on our website. I will start by providing some details on our results for the fourth quarter and full year 2011 and summarize the financial details of the Barnes Distribution Europe transaction and end with our 2012 guidance.

Beginning with the top line, Barnes Group ended the year with another quarter of solid growth, as our fourth quarter sales of $283 million increased approximately 10% from prior year. As Greg mentioned, for the full year we were able to grow the top line to about $1.2 billion, or $141 million or 14%, versus 2010. 12% was from organic growth and 2% was from FX.

Within our Precision Component segment, we continue to see positive trends and continued strength each of our end markets -- aerospace, transportation, and industrial. This segment recorded sales of approximately $164 million in the fourth quarter of 2011, up $14 million or 9% from a year ago, all driven by organic growth since FX did not have a meaningful impact in the quarter. For the full year, Precision Component sales were about $688 million, an increase of 15% from 2010. This increase was primarily due to organic sales growth of $75 million while the positive impact of FX was $17 million in 2011. Within the segments' full year sales for the aerospace OEM business, Associated Spring and our European manufacturing businesses all achieved double-digit growth, including the benefit of FX. Segment orders for the year were 13% higher than sales, which provided a nice backlog lift to $538 million, up 21% from 2010. While backlog is a helpful indicator, I would remind you that sales can be affected by a number of factors over time including insourcing decisions, material changes, production schedules, and volumes of specific programs, to name a few.

For Logistics and Manufacturing Services, sales in the fourth quarter were $122 million, up 10% from last year. The aerospace aftermarket business generated revenue growth of 27% with both maintenance, repair, and overhaul and revenue sharing programs experiencing double-digit sales growth year-over-year. Certainly, ending the year on a very strong note. For the full year 2011, LMS sales were $493 million, up 11% from 2010. The increase was primarily a result of double-digit organic sales growth in aerospace aftermarket and high-single-digit growth in our North American Distribution businesses. FX positively impacted sales for the year by $3.2 million.

So the steady improvement and growth in our end markets continue and we see the benefits in our financial results. Barnes Group operating income increased 46% in the fourth quarter and 48% for the full year. As Greg commented, operating margins in the fourth quarter increased 250 basis points to 10.2%, while operating margins for the full year likewise expanded by 250 basis points to 10.9%. Margin expansion was driven by the beneficial impact of higher sales, pricing actions and continued productivity improvements. Our PC segment had operating profit of $13.2 million in the fourth quarter, an increase of 28% from prior year.

For the year, PC operating profit was $62.8 million, an increase of 33%. The profit increase was primarily due to the benefit from higher sales levels combined with productivity improvements in lean initiatives. These benefits were partially offset by higher costs associated with investments in new product introductions and outsourcing certain manufacturing processes.

In the fourth quarter, operating profit at LMS increased 65% to $15.7 million. LMS full year operating profit increased 65% to $64.8 million. This increase was primarily driven by the profit impact from higher sales. Also contributing to the operating profit increase were productivity improvements, including the favorable impact of a lower cost structure in our North American distribution business. Operating profit increases were partially offset by higher employee-related costs and Management fees related to RSPs.

Turning our attention to cash flow, we had a solid fourth quarter in terms of cash generation, as cash provided from operating activities was $42.5 million, up from $18.8 million in the same quarter last year. For the full year 2011, cash provided by operating activities was $121 million, up $55.3 million or 84% from 2010. Free cash flow, which we define as operating cash flow less capital expenditures, was nearly $84 million, an increase of 127% over 2010. Our free cash flow expansion was the result of improved operating performance, offset in part by higher capital expenditures which grew 29% to $37.1 million as we continue to make investments in our businesses. Our full year cash conversion ratio, excluding the loss on the sale of our BDE business, was 92%, a meaningful improvement over last year's cash conversion of 69%.

With regard to share count, full year diluted average shares outstanding was 55.9 million, basically flat to 2010. During 2011, we were an active buyer of our stock, repurchasing 1.5 million shares -- 1 million under the 2008 Board-authorized repurchase program, and 0.5 million shares under the new 2011 repurchase program. With the maximum shares authorized to repurchase under the May 2008 fully exhausted in 2011, our Board authorized and approved a new program up to 5.0 million or basically 5 million additional shares of the Company's common stock. At December 31, 2011, the Company had 4.5 million shares remaining under the 2011 program.

Moving on to taxes -- the 2011 effective tax rate on continuing operations was 21.7% compared to 15.4% last year. The increase in the effective tax rate on continuing operations was primarily driven by a shift in mix of earnings attributable to higher-taxing jurisdictions and the effect of an increase in the repatriation of a portion of current year foreign earnings. The Company repatriated to the US $17.5 million in 2011 and $7.5 million in 2010.

Before moving on to our 2012 outlook, let's spend a moment to discuss the impact of the BD Europe transaction. On slide 3 of our earnings release supplement, you'll find a summary of the financial performance segregating from continuing operations and reported as net loss from discontinued operations. On December 30, 2011, the Company completed the sale of its Barnes Distribution Europe businesses for the purchase price of $33.4 million. The transaction yielded net proceeds of $22.5 million after considering transaction costs, employee-related costs, and other closing adjustments. For the year, the loss on discontinued operations net of tax was $26.9 million which included loss on sale of $26.1 million. The loss on sale includes a non-cash goodwill impairment charge of $16.8 million.

Let's now discuss our 2012 financial guidance on slide 4 of our supplemental slides. We expect 2012 sales to grow 6% to 9% next year, with operating margins expanding to approximately 12%. EPS from continuing operations is in the range of $1.78 to $1.93 per diluted share, up 9% to 18% over 2011. Our 2012 cash conversion ratio is anticipated to be in excess of 90%, even though we do anticipate higher levels of capital expenditure spending in the range of $45 million to $50 million in 2012. Our guidance reflects the following items. Pension expense is expected to increase by approximately $5 million in 2012, primarily as a result of a decrease in the US pension discount rate from 5.65% to 5.05%. Interest expense is expected to be in the range of $11 million to $13 million in 2012. Depreciation and amortization are expected to be roughly $60 million and about $38 million of that amount reflects our outlook for depreciation, given higher CapEx spending. We expect the 2012 effective tax rate to be in the low- to mid-20s.

And let me comment on some key factors in our 2012 guidance range, given the following. So on the upside, we would benefit from a robust aerospace aftermarket; better volume leverage or flow through on increased sales; and stronger productivity gains, given our focus on lean and quality. On the downside, we would be negatively impacted by a slowdown in the global economy; a steeper than anticipated decline in Europe industrial levels, including automotive; and commodity price inflation that may be difficult for us to offset, either through pricing actions or productivity initiatives. In closing, a very good quarter in terms of financial performance for Barnes Group, capping off a solid 2011. We generated good earnings growth, meaningful margin expansion, strong cash generation and maintained a healthy balance sheet, all positioning us well for another good year in 2012.

Operator, with that we will now open the call for questions.

Thank you. (Operator Instructions)

Christopher Glynn, Oppenheimer.

Thanks, good morning.

Good morning, Chris.

Just wanted to ask about the fourth quarter tax rate. Was that driven by the aftermarket strength and the revenue mix or looked kind of low?

Chris, three things really just driving the tax rate lower to that 9.8%. First of all we had the BD Europe businesses in terms of stripping that out that had the higher rates, more than kind of our worldwide rate. The second item, as you mentioned, just given the higher earnings from lower tax jurisdictions, we had a strong revenue sharing program contribution to the top line in the fourth quarter. Then, the last item, we recorded a provision benefit related to a valuation allowance that was no longer required. So the combination of those three things ended up with a tax rate of 9.8%.

Thanks. Can you quantify the last item?

The last item was a $1.5 million.

On the pioneer tax status related to the RSPs, what is the duration of the horizon of that, roughly, and what does it revert to?

Well we've published that in the last K and we'll renew that in the upcoming K. The first two are due to expire in September.

Yes, of 2012.

2012. And they are roughly seven year in duration, seven to nine years, so we did RSPs from 2003 up until the beginning of 2008. I think fourth quarter of '07 was the last one, so it's staggered along those lines. We also have ongoing discussions with the Singapore Economic Development Board, and we expect that we'll continue to make efforts going through the year to extend those out. And they've been very receptive in the past.

Okay. And the Precision Components, quite a sequential drop off. Just wondering, is that kind of the lumpiness in the OEM that's intrinsic to that business?

Yes, exactly.

Okay, and then lastly, pension funded status and expected 2012 cash contribution if any?

Chris, what we identified, we're about 90% funded on our pension plans. Going into 2012, we anticipate about $25 million of funding coming off about $17 million to $18 million of funding in 2011. But in good shape, not a concern.

Yes, that's a voluntary cash contribution I'm guessing?

That's right.

Thanks a lot.

Thank you.

Edward Marshall, Sidoti & Company.

Good morning.

Good morning guys. So the quarter spoke for itself, the guidance certainly is positive, and that -- I don't want to spend too much time there. What I want to start with is kind of a comment that you've made over the last couple quarters about more product coming out in this aerospace cycle than you've ever seen. And I'm just kind of curious if you can quantify kind of any of the new engine platforms that you're looking at, where the next wave of growth? I mean you had good success with the Gen X and the Trent 1000 and I'm just kind of see if there's anything you can talk about today, knowing that I'm assuming you're trying to protect some of that from your competitors as well.

Oh, absolutely. But besides the 777 and the 787, it's too early in some of these programs to give a dollar value because when you're going through the development portion, it's very fluid. We expect -- the A350 is one that we definitely have our eyes set on because we think that it's a winner long term. It's definitely going to go through a lot of new product introduction issues as well as there's bound to be delays in the introduction of this aircraft, just like there was with the 787. So when we look at it, even though it's scheduled into service I think it's Q2 of 2014, chances of that moving to 2015 are pretty good. And so that's just an investment in the future, but that's going to be something that will drive the long term. And then in the interim, you still have the ramp up of the 777 coming up as well as the 787, and I'm sure there will be some hiccups along the way with 787. It's certainly been its history.

Sure, sure. Can we talk about maybe the outlook? I know you say it's a little early. But you think you have more content on, say, the 350 than the 787? Or do you historically have higher content on, say, the Airbus planes relative to the Boeing planes, et cetera?

It really doesn't matter. We're not airplane people as much as engine people.

Sure.

So we almost don't care whether Airbus wins or Boeing wins as long as the engine has parts that we produce. We typically talk 777 historically, because it's a sole source engine for the GE90. I think 99.9%, don't quote me on that, of the work is engine work. There may be some [of the cell] work also that we do that people debate whether it's an engine component or an airframe component.

Switching gears a little bit. Pitfalls you might find. Europe has been going through some ups and downs, I'm sure you're aware. You have transportation there. You also have the outsourcing that's going on, but there's a little bit of a drag on, say, I think it's the nitrogen gas products. What can you tell me about Europe, your order pattern so far through mid February? Others that I've heard, this earning season, have characterized the business, their business in Europe as either choppy or indecisive. Help me think what you guys are looking at for 2012.

So far, so good. I will say we did have and we expected it to happen, some draw-in of Q1 work into Q4. That's one of the things that I think drove Q4 up higher than anticipated, in particularly the RSPs, so we expect the profile through the year to be a little different. We expect Q2 and Q3 to be stronger quarters while Q1 and Q4 will be down. And some of that's very much the profile of the backlog that we see in the pipeline. But right now, we see nothing that gives us concern except for the macroeconomic issues that we all face. I think that the commercial cycle is going to be good and strong. We have very little military work load. It's less than 4%, or approximately 4%, of our overall sales. I will also comment that in the fourth quarter we did sign a military deal for a B2 bomber component, and it's a five-year agreement that's $50 million. So that has a little bit of a distortion to the backlog in the sense that it's a long term program. But at the same time, we booked the entire amount because it met the criteria.

To your response, I think you focused on a little bit on the aerospace thing you've got to pull in from Q1 to Q4 and I think that's appropriate, because that's what drives your business dramatically on say the EPS line, but I was more referencing to the industrials. Is there anything you can comment there or do you think you said that?

No, I think industrials look good so far. In Europe as well, European business tends to be a lot of export-driven product, so that's been cushioning us. We had nice order improvement last year. So far, so good. I don't want to speculate too much into what's going to happen with the Euro and resolutions there, but it's appropriate to be cautious.

And lastly, Chris, you talked about the cash conversion in 2012 and you're generating decent cash, and you have the sale of BDE, and that cash at the balance sheet you were about $63 million or so. What are the plans? Is there any restrictions from paying down additional debt from here? How do you kind of look at your balance sheet?

Yes, no, actually, the balance sheet is in very good shape as you can see, given where we were two years ago but the cash generation as a sale of Barnes Distribution as well as the cash generation outside the US. What we're focused in on is kind of taking a look at those acquisition opportunities to be able to fund those investments over time. As we look to our debt levels, most of the debt is in the US. And when we think about our cash needs globally, the repatriation program, although small, is something that's a part of our global cash strategy. But regarding the acquisitions and opportunities and reinvestments in the business, that's what we're focused in on with cash held outside the US.

Just if I could touch on acquisitions just a second. When you talk about acquisitions outside of the US, would you be particularly interested something that was, say, going after your capacity issues that you're having in some of your divisions there?

I think that we were resolving the capacity issue. In fact we were a little bit ahead of schedule in the sense that we drew capital expenditures into Q4. And the building is being constructed due to above-average temperatures in Sweden, which is odd, for the mainland of Europe is definitely having a bad winter. So, I think we're addressing that pretty successfully. The real focus is on buying businesses that have the strategic criteria of being differentiated business that give us access to the growing markets around the world. And some of those acquisitions will definitely be outside the US, so I think the use of that cash over the short- mid-term definitely has a target strategy.

That's really good news, guys. Thanks, I appreciate it. Good quarter.

Thank you, Ed.

Peter Lisnic with Baird.

Good morning, gentlemen.

Good morning, Peter.

First question, Chris I guess. If I look at the forecast you're looking at mid- to high-20% incremental Op margins, and I know you mentioned a couple of levers that can maybe drive the overall forecast a bit higher. But I'm just wondering what sort of levers you might have on the profitability side, or maybe if you could talk about productivity and what your assumptions there are to kind of get us back, maybe not necessarily back, but into that 30%-ish incremental range, if that's a fair question.

Yes, I think -- well, first of all, I think the performance in operating margin and especially the leverage towards the second half of last year, clearly we're pleased with, right? To end the year at 10.9% on the operating margin line, driving to 12%. A good part of the mix of our business, as you know, will be dependent on how we profile out the full year. We look at each of our business being able to deliver kind of that mid- to upper-single-digit growth going into 2012. When we looked at that and then looked at the conversion or the flow through in that mid-20% range and continuing to do that, and being able to offset commodity price inflation with adequate pricing or productivity initiatives, it's really across-the-board. So each of our businesses, and Greg commented before, as well as given our focus on lean and quality, driving margin expansion. So the guidance for approximately 12% assumes each of our businesses is growing going into 2012 but no one particular business is down or up, if you will, over 2011.

Okay, and presumably that sort of trend -- I mean who knows what volume is going to look like -- but that trend continues through '13? Or are there restructuring actions or productivity initiatives I guess that can kind of drive the incrementals higher than that base mid-20s forecast?

A lot of that has to do with the mix. The stuff in LMS typically has higher flow-through and better margins than the manufacturing.

Yes.

It also has to do with what type of strategic initiatives we move forward on. I think that, obviously, margin expansion is one of the by-products of our overall strategy of differentiation. We're moving away from the build-to-print into more process differentiation or product differentiation and a by-product of that will be higher margins.

Right, and that actually leads to my next question, which is the comments on the CFM engine platform and RSPs. It looks as though that growth you had, double-digit growth, is the way you put it in the fourth quarter. But my guess is your comments suggest that growth is, it's reasonable to expect that it could accelerate in '12 and '13 and beyond. I'm just wondering kind of A, is that right? And then B, what sort of margin impact does that have as the RSPs become a bigger piece of the mix, if you will, of LMS?

The first thing I'll remind you -- a number of years ago, and it continued up to this day, is we have a scale of Management fees that increased over the past several years. And I think we're in our last year or close to last year of Management fee increases, so there was some headwind to that. We have always said that we expect the CFM56, the demographics of the CM56 fleet, which is a majority of RSPs, to provide a real lift for the foreseeable future. And I'd also comment on the long term.

Now, when you're looking at increasing engine production to 1600 units a year, it will be seven years from then before they start seeing significant overhauls. At the same time, this bodes well for the long term of the business, that we're going to continue to feed that fleet out in the field that will generate revenue sharing program, revenue for the next 30 years. In the interim all the numbers we're seeing point to very robust growth in CFM56 overhaul market, both the dash-5s and the dash-7s, which principally are what we are involved in.

Right, I mean, if you're at the point of where the Management fee sliding scale has sort of peaked, my guess is that you should see better drop-through on that growth on the RSPs.

Yes, this is the last year, so it's starting in '13.

Okay, is there any way of quantifying what that incremental bump might be?

No, we can't get that granular.

Ah, but I can always ask.

Just trying to do your job.

All right. Yes, all right. Well thanks for the color. I very much appreciate it, and great quarter.

Thanks.

Matt Summerville, KeyBanc Capital.

Good morning. Couple questions. First, on your European businesses, now that you've gotten rid of the distribution piece, how much of your revenue in Europe would you say is generated by the automotive industry there?

That's a great question. I don't have it calculated.

Yes, we have -- of our three European manufacturing businesses, Matt, we've got our Nitrogen Gas Products business, our Hanggi business in Switzerland and our Seeger business in Germany. I would say you think about they're serving both the automotive as well as the industrial, transportation as well as industrial space. I would view it as 50/50, maybe 60/40 on the automotive side or -- and Greg's looking at me like a lot higher. So let us get those numbers, Matt, and we'll get back to you on that.

Keep in mind the Nitrogen Gas Products serves the tool and die industry and a lot of that goes to the automotive.

Yes, Seeger automotive.

Sure, to the end market.

And it is global tool and die, so it's a difficult question but one that we certainly will dig up the answer to.

Yes, we will, Matt.

Okay, and then I wanted to follow up on the segment reporting. A couple of years ago, you had this rationale from going from three to two, now you're back to three. I think part of the rationale in going to the two was eliminating some of the redundant layers of cost associated with operating that way. And I guess, are you going to be adding back a layer of cost in order to do this? And I guess if I'm mistaken about the rationale of switching from three to two and then back to three, can you just kind of walk through how you guys thought about that process?

I'm thrilled you asked that question because I think that there's a lot of thought that went into it. When we first went that way it was exactly that reason. We stripped out, if I recall correctly, $7 million or $8 million of cost by doing that. That was the principal reason. The rationale for going to aligning along manufacturing and then a service segment, I think that was solid. What we're trying to do is several things. One, is with the divestiture of the Barnes Distribution Europe, we rethought our business profile and we looked at several aspects. One is we don't want to go back to that heavy layering of Management and that's one of the reasons why we appointed a Chief Operating Officer, Patrick Dempsey. He will act as a leader for, from a lot of the segment structure that we used to have in place, he will be acting in that role, so we don't expect to add more cost back into the business. In fact, we look at it a little bit more de-layering if anything else. We also looked at the transparency of the business, and some of the feedback that we got from people like you, where the alignment on long vertical markets makes our business easier to understand, and that was one of the driving forces as well.

That makes a lot of sense. I appreciate your answer. Just two other general questions. First, on the distribution business, how are you seeing -- obviously North America. How are you seeing -- you mentioned daily sales averages are up. Maybe can you give a little more color around that? Then where do you find -- this is -- you have a pretty large direct sales force here, what are they saying about customer inventory levels kind of relative to the last cycle? And I guess how, I would imagine they are considerably less, how have you guys been able to manage your own inventories in response to today's buying patterns, if you will, by your customers?

Well there's a number of components to that. First, that we continue to see daily sales average increase. I think this makes 23 consecutive months of year-over-year sequential growth and we're very pleased with that. It still has a ways to go to get back to the levels that we were operating at before the recession. We're in probably mid- or high-single-digit ROS type of a number. This is a business that we believe is double-digit. When we report the operating segments as distribution, you'll see it reported in that fashion. But the flow-through is what I'm looking at, as we're getting outstanding flow-through which shows the productivity initiatives as well as the investments that we've made are really paying off.

We saw 19% productivity growth in the business and that's pretty substantial. That's good for our sales folks because their commissions are higher. It's good for the overall profitability of the business. The inventory levels are not as much of a concern for us because unlike other business models, once the inventory hits the shop floor and our customers, it's their product. It's not on consignment, so that's one of the ways that we manage it. That's why this business model has a very good return on assets. And as far as the ability to pass price, we've been able to pass price through pretty effectively. I don't think that the inventory levels have been much affected from the type of vendor-managed inventory that we're involved in.

Just to follow-up on aerospace. Greg, is there any update -- and I apologize if you already mentioned this. Is there any update as to the content on 787, 747 as we think about those build rates going forward?

Yes, the 787 is still roughly $300,000 per unit and that hasn't changed very much. It's something that can change over time as the content on the 747-8 is pretty low. It's $100,000 area, something like that.

Great. Thanks a lot.

Holden Lewis, BB&T Capital Markets.

Thank you. Good morning.

Good morning, Holden.

In the past, you've kind of talked about if you return the peak revenue numbers being able to achieve I think it was a 12% to 13% type of operating margin, so I guess a couple things about that. First, now with sort of the new structure, what is sort of the prior peak revenue numbers on an apples-to-apples? You still believe that, and in the 12% to 13% number, given that BDE probably pulled you down by 100 basis points all-in for the Company, does that 12% to 13% become 13% to 14% once you get to that level?

First of all, the previous peak was roughly $1.3 billion, something just shy of that, and it will depend on the mix as we go forward and also the investments that we make. But we expect that we'll be able to exceed the 12% and get into the teens. And part of that's going to be the by-product of the strategy that we have with improving the differentiation of our businesses. So I think good diversified industrials that have differentiated strategies are in the teens.

Okay. But if you get to that, because I mean at the high end of your range, you're sort of approaching that $1.3 billion -- actually a little shy of $1.3 billion. So, I mean, you could argue that you're going to be sort of around those peak numbers --

Right.

-- for revenues this year. Does that put you kind of on a 13% to 14% potential margin this year if you could achieve the high end?

I don't want to go there yet. I want to see some of the year unfold. I like the productivity growth we've been getting. Outside of FX, it was about 12%, so that's a pretty solid move forward. Also if you look at the range, our previous record EPS was $1.80 if you reconstitute it under the current continuing operations. And our range is outside that or within that number, $1.78 to $1.93 on a diluted basis.

Okay, and then just trying to get a sense, trying to maybe square up how you reported it versus kind of how the models were initially. It looks like, if I'm reading your supplementals right, that the fourth quarter operating performance of BDE, even though you've been posting losses all year, looks like they had a pretty substantial profit in Q4. Is that correct? That means sort of if you printed 43, if you were sort of on the old basis, the earnings would have actually been $0.03 or $0.04 better than 43. Is that the right way to look at it?

Yes, Holden, in terms of the transaction itself -- and you can think about the activity just to pull this out of continuing operations, and then to be able to report it and segregate it as discontinued operations. There were a number of items that went either way as we clearly pulled this out. Whether it will be pension curtailment, thinking about FX, thinking about just adjustments of the balance sheet, going through the assessment of the goodwill impairment charge of the 16.8. So, there were a number of items that were just driving that change. What we try to do is kind of just separate that from the business, look at continuing operations and performance for the fourth quarter. We feel really good about the continuing operations for the fourth quarter. Granted there was a benefit from the tax rate being lower than what we were expecting as well, but the strength of BAA in the fourth quarter drove a good amount of it.

And the RSP draw in of course.

Absolutely with BAA, sure.

Right, so all that to say yes, there was, in terms of the net performance of discontinued ops, it was actually nicely profitable in Q4 for the first time of the year?

Absolutely. Yes. That first -- clearly, Q4 was a nice positive surprise in terms of our traditional performance in the fourth quarter.

Okay.

We saw good operational performance on a continuing ops basis that obviously allowed us to have an end to a terrific year.

Okay, and then just last thing. Where does your shares outstanding sit now that you've been as active on share repurchase, and obviously you've got new authorizations? Do you expect to continue to be aggressive as you have the last two quarters or is there something seasonal in that going forward?

What we typically try to do is offset dilution for employee-based stock compensation plans. So it's not a major -- even though the Board approved 5 million shares in 2011, which is good, that's coming off us exhausting the 2008 program. We don't have a large, or nor are we announcing a large buyback program.

Okay.

I would say we'll take the opportunity in the open market to buy back, but it's mainly to offset dilution.

Okay, and so what did shares -- diluted shares outstanding finish the quarter at?

Finish the quarter? We're at 55.5.

55, so that's the average for the quarter?

The average, yes, the average for the fourth quarter.

So I'm assuming since you're active in repurchase that it's lower than that now. Just trying to get a sense of the number.

Yes, plus you have activity from options and exercising as well, so we don't have it at our fingertips Holden, but we'll get the number back to you.

All right, cool. Thank you.

Thank you.

Scott Graham, Jefferies.

Hi, good morning. Very nice quarter.

Thank you, Scott.

Just one question, and it's about the discontinued operations loss that you showed. Does any of that include -- during the year you encountered some expenses to sell this business. And did you put all of that in that -- for the fourth quarter, in that line? So that, in other words, we have to kind of think through that on a comp basis, that it's kind of in the operations in Q2 and Q3 but not in the operations in Q4? How did you handle that?

Yes, if I go back to the third quarter and we kind of profiled out this $0.10 before the actual transaction itself, and then once we closed on the transaction on December 30, it's really all in, right? So you've got the normal operations as well as the goodwill impairment transaction fees, and the eventual loss on sale. We've, in effect, segregated that and are reporting that as discontinued operations. So is that answering your question?

It does. So in other words these are clean numbers?

Exactly. So when you look at the continuing operations performance of the Company, that's what you'll see, and should kind of build your models off, if you will, project off those numbers going forward.

That was what was in the supplement.

The supplement, and that was the purpose of the supplement, right, is we basically pulled out Barnes Distribution Europe from each of those quarters and those years to be able to provide that on a continuing ops.

Yes, right, I do understand that. I just was concerned about if transaction fees had been --

No, it's all inclusive on that line.

Very good. That's helpful, thank you, Chris.

Thank you.

Holden Lewis, BB&T Capital Markets.

Nothing difficult here. I was just curious. Are you going to go back and sort of give us some history about these segments on a, on sort of the new three segment reporting? You used to do it obviously, I don't know if you're going to sort of fill in the historical gaps or if we're just doing this on a go-forward?

Yes, Holden, what we will do is, we will -- once we're organized, obviously, that way and report the first quarter under the new segment structure -- we will plan, just like as we did this time, issue a financial supplement to be able to recast the past under the new segment structure.

Okay. And you gave sort of the aerospace aftermarket growth for the quarter up 27%. Oftentimes you also sprinkle in the same kind of quarterly result performance for aerospace OE, North American Disty, sort of the two manufacturing. Can you give what you're willing to give on those?

Yes, in terms of Barnes aerospace OEM?

Yes, quarterly revenues.

Quarter-over-quarter performance, we achieved 14% growth quarter-over-quarter.

Okay. What was the North American Distribution?

North American Distribution for the quarter was up 3% quarter-over-quarter.

Okay. And then can you sort of talk about what the Euro manufacturing and the Associated Springs also did?

Yes, let me clarify. It's actually 4% on the distribution side. And Holden, repeat that second question?

Just also sort of the manufacturing breakup, the Associated Springs and the Euro manufacturing.

Yes, Associated Spring was up 6% quarter-over-quarter and our European manufacturing businesses were up about 9% to 10%.

Okay.

Yes, clearly each of our businesses contributed well in the fourth quarter.

All right. Excellent. Thank you.

Okay. Thank you.

Holden, just to follow up, year-end share count was 54.3 million shares.

Thank you, ladies and gentlemen. This concludes our question-and-answer portion of today's call. I will now turn the call back over to Mr. William Pitts for any closing remarks.

Very good. Thank you. We want to thank you all for joining us this morning. We look forward to speaking with you next quarter. And at this point, this concludes our call.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day, everyone.