Barrick Mining Corp (B) 2015 Q4 法說會逐字稿

Good morning. My name is Carol, and I will be your conference operator today. At this time, I would like to welcome everyone to the Barnes Group Inc. fourth-quarter 2015 earnings conference call.

(Operator Instructions)

Thank you. Mr. William Pitts, Director of Investor Relations, you may begin your conference.

Thank you, Carol. Good morning, and thank you for joining us for our fourth quarter and full year 2015 earnings call. With me are Barnes Group's President and CEO, Patrick Dempsey; 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.

Our discussion today includes certain non-GAAP financial measures which provide additional information we believe is helpful to our investors. These measures have been reconciled to the related GAAP measures in accordance with SEC regulations. You will find a reconciliation table on our website as part of our press release, and in the Form 8-K submitted to the SEC.

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 projected.

Please consider the risks and uncertainties that are mentioned in today's call, and are described in our periodic filings with the Securities and Exchange Commission. These filings are available through the Investor Relations section of our corporate website at bginc.com.

Before we begin our prepared remarks, I want to remind everyone that our financial results discussion is based on continuing operations. We'll now open today's call in our customary fashion, with remarks from Patrick, followed by a review of our fourth quarter and full year 2015 results, and our 2016 guidance from Chris.

After that, we'll open up the call for questions. Patrick?

Thanks, Bill, and good morning, everyone. The 2015 story for Barnes Group is certainly a tale of two halves. The year started off with strong organic growth and operating performance momentum, however, the second half was a different story.

The global macroeconomic environment certainly pressured a number of our industrial end markets, and continued delivery challenges weighed on our aerospace performance. That said, I remain positive on our outlook, as we achieved great progress executing our vision of being a global provider of highly engineered products and differentiated industrial technologies. We made significant strides with the transformation of our portfolio, further ingrained the Barnes Enterprise System to drive productivity across our operations. And given the weaker environment during the latter part of the year, took proactive cost management actions across the Company.

All of these actions, when combined with a well-positioned balance sheet, reinforce our long-term profitable growth strategy. Before I address some of the progress made in 2015, let me begin with a summary of our fourth quarter and full year results. Chris will later provide more details.

In the fourth quarter, sales were down 7% compared to last year. Adjusted operating margins declined to 15.5%, down 60 basis points, and adjusted diluted earnings per share were $0.60, a 3% decline from last year's adjusted $0.62.

In the quarter, in addition to a modest amount of acquisition-related costs, there were a couple of items that warrant further discussion. First, we took immediate steps to proactively respond to the challenging economic environment affecting certain businesses. In our industrial segment, actions included workforce reductions and consolidation of certain locations.

In our aerospace segment, workforce reductions and a facility consolidation were initiated, given reduced aftermarket MRO volumes from a major customer. Collectively, these actions resulted in an approximate $4 million pretax charge in 2015, that we have excluded from our adjusted results. The benefits of these actions are expected to contribute $7 million in 2016 cost savings, and are reflected in our 2016 guidance.

Second, we took action to reduce our US pension plan obligations by offering certain former employees an option to receive a lump sum distribution of their vested benefits funded by the assets in the plan. Based on the offer acceptance level, a pretax settlement charge of approximately $10 million was recorded in the fourth quarter, and excluded from our adjusted earnings.

For the full year, sales were down 5% compared to a year ago. Adjusted operating margin was 15.8%, up 40 basis points, and adjusted earnings per share were $2.38, versus last year's $2.34. Although net income and earnings per share exceeded last year's solid performance, I am disappointed that we didn't deliver results closer to the expectation we laid out on our third quarter call.

Nonetheless, we have taken the necessary actions to better position us for a solid 2016, in what is expected to continue to be a slow growth environment. Within our business segments, at industrial, organic sales declined 3% in the fourth quarter, although finished the year up 2%, given the strong first half. We continue to realize mix performance across our varied end markets, and the unfavorable headwind from foreign exchange remained.

Within our molding solutions business, sales for personal care and general industrial end markets were solid in the fourth quarter. Maenner's organic sales were up double-digits, driven by the strength in Europe and North America. For automotive Hot Runner systems organic sales in the quarter were down single-digits, yet remain up single-digits on a full year basis.

The North American market continues to be strong, Europe has stabilized, and China has flattened. We continue to be bullish on the plastic injection molding space, as is evident by our recent acquisitions, and we firmly believe these investments will provide growth and good economic returns.

In an approach similar to the alignment of our engineered [SPUs] -- engineered components SPU earlier in 2015, we have recently formed the molding solutions SPU, now comprised of Maenner, Synventive, Thermoplay and Priamus. Molding solution will enable us to leverage the combined resources of the four businesses to accelerate profitable sales growth, drive innovation and increase productivity utilizing the Barnes Enterprise System. We expect the new SPU to fully leverage functional synergies in sales, marketing, R&D, supply chain, quality and global manufacturing footprint to maximize sales effectiveness, customer service and operational excellence.

Demand from our nitrogen gas -- for our nitrogen gas springs continued to slow in the fourth quarter, with a mid teens organic orders decline. As we mentioned a quarter ago, tool and die end markets have been elevated for some time, and contraction from these highs was not unexpected, with destocking in the distribution channel occurring over the second half of the year. North American automotive and industrial tool and die activity remained slow in Q4.

In China, we are seeing signs of market stabilization after a couple of challenging quarters. On the positive side, we saw increased quoting activity as we exited 2015, and that has continued into January, which is a good indicator that the market -- that market demand has once again picked up, albeit at a slow pace.

In our engineered components business, fourth quarter organic sales were flat, though organic orders were up low single-digits. We continue to closely monitor our global industrial end markets, including automotive, where concerns over China and Volkswagen linger. For general industrial end markets, declining manufacturing PMIs in North America and China give pause, while improving PMIs in Europe and emerging markets are encouraging.

Forecasted production for light vehicles remains favorable for 2016. Mid single-digit growth for China and North America, and low single-digit growth for Europe is expected. For 2016, our expectation is for sales growth in the mid single-digits for the industrial segment, with organic sales in the low single-digits. For engineered components and nitrogen gas products are anticipating low single-digit organic growth.

Molding solutions is forecasted to achieve low double-digit sales growth, aided by the full year of contribution of Thermoplay and Priamus, while organic growth is expected to be mid single-digits. Operating margins for industrial are anticipated to be in the mid teens.

Moving now to aerospace. For the quarter, total aerospace sales declined 14%. Our aerospace OEM sales were down the same amount, primarily due to new product introduction challenges.

These included engineering design changes, evolving additional customer approval requirements, and operational execution to meet our own expectations despite these hurdles. Such challenges on new programs are not uncommon, yet the compounding effect impacted our fourth quarter performance, though it did not impact our customers. Ultimately, these orders remain in our backlog, which continues to be healthy.

However, some of these factors, particularly the recent movements in schedule changes, and announced production cuts such as the Boeing 777 have impacted our 2016 outlook. Aerospace aftermarket revenues declined 6% for the quarter. MRO declined 12%, primarily from continued lower volumes from one of our significant customers, while spare parts sustained solid performance, up 7% over the prior year.

For the full year, total aerospace sales were down 6%, with OEM sales down high single-digits, and MRO sales down mid single-digits, with spare parts up 25%. Aerospace OEM orders declined in Q4, given a difficult comp in the prior year, though they were up 15% for the full year. OEM backlog increased to $564 million, up 9% year-over- year, and up 2% sequentially.

Today we are happy to announce that our content expectation on the Airbus A320neo equipped with the LEAP-A engine is approximately $400,000 per aircraft, a nice diversification for our OEM business onto a narrow body platform. Now, with a greater mix of our backlog reflecting new engine programs, we expect about half of it to ship in the next 12 months, a lower percentage than what we are accustomed to seeing.

As such, we see 2016 as more of a transitional year for Barnes aerospace, with declines in some mature programs being offset by the ramp in next-generation platforms. For 2016, we expect aerospace sales to be up low single-digits, with OEM and MRO also up low single-digits, and spare parts to be flattish given the strong performance in 2015. Operating margins are anticipated to be in the mid to high teens.

Before I close my prepared remarks, I'd like to comment on a couple of important initiatives for which substantial progress was made during 2015. First, is the Barnes Enterprise System, where we have made tremendous inroads advancing the organization to the next level of performance. Major foundational work was put in place, establishing common processes to identify and leverage five major focus areas of productivity -- sales effectiveness, technology, global sourcing, operational excellence, and functional excellence.

Corporate-wide targets have been established for each, and we expect to drive visible results in 2016, with a goal of expanding current operating margins. In addition, we implemented more robust systems and processes to allow us to measure our performance, with respect to creating a culture of innovation. These include an enhanced innovation portfolio management process, with [phase gates] to drive focus and prioritization on cultivating a robust innovation pipeline.

This is a broad initiative to generate new products and services that will sustain vitality within the business, and create even greater value for our customers. I'm excited about this initiative, as I expect it to drive much of the future organic growth of Barnes Group.

Lastly, I wanted to note that our Board recently authorized the repurchase of up to 5 million shares of the Barnes Group common stock. Under this authorization, the Company may from time to time repurchase shares in the open market, or through privately negotiated transactions, depending on market conditions and other relevant factors.

In closing, the second half of 2015 proved to be very challenging, with softer industrial end markets and delayed aerospace deliveries. However, we are taking the necessary steps to position for a continued slow growth environment as we enter 2016. Our commitment to execute on our profitable growth strategy have not wavered, and we have come a long way in a relatively short period of time.

The transformation of Barnes Group is well underway, as we position the Company for long-term growth and improved profitability. Before I turn the call over to Chris, I would like to acknowledge the unexpected passing of our friend and colleague, Ken Hopson, our VP and Treasurer. Our thoughts and prayers go out to Ken's family at this difficult time.

Let me now turn the call over to Chris.

Okay. Thanks, Patrick, and good morning, everybody. Let me begin with highlights of our fourth quarter and full year results, starting on slide 2 of our supplement, and end with our 2016 outlook.

Fourth-quarter sales were $287 million, were down 7% from the prior year period. Organic sales likewise decreased 7%, while unfavorable FX impacted sales by 4%, and the Thermoplay and Priamus acquisitions collectively contributed $11 million or 4%. Income from continuing ops in the quarter was $24.4 million or $0.44 per diluted share, compared to $33.3 million or $0.60 per diluted share a year ago. On an adjusted basis, EPS was $0.60, down 3% from our $0.62 a year ago.

Fourth quarter 2015 adjusted income excludes restructuring and workforce reduction charges of $0.05 per share, and a pension lump sum settlement charge of $0.11 per share. In last year's fourth quarter, adjusted income excludes Maenner short-term purchase accounting adjustments and costs related to closure of our Saline, Michigan facility, which combined were $0.02 per share.

For the full year, Barnes Group generated sales of $1.2 billion, which were down 5% from last year. Organic sales declined 1%, unfavorable FX reduced sales by $69 million or 5%, and acquisitions contributed $16 million to 2015 sales.

For the year, income from continuing ops was $121.4 million or $2.19 per diluted share, compared to $120.5 million or $2.16 per diluted share a year ago. On an adjusted basis, earnings were $2.38 per diluted share, up 2% from last year's $2.34.

Let me now comment on segment performance, starting with industrial. For the quarter, sales were $190 million, down 4% from $198 million in the same period last year. FX reduced sales by approximately $13 million or 6%.

Organic sales decreased by 3%, primarily driven by continued soft industrial end markets in North America, and transportation end markets in China, though partially offset by stronger personal care end markets in our molding solutions business. In the quarter, Thermoplay and Priamus together contributed $11 million.

Operating profit for the fourth quarter was $14.7 million, down from $27 million last year, driven by the reduced sales volume, lower productivity and unfavorable FX, partially offset lower employee-related costs, primarily lower incentive compensation. In addition, $7.5 million of the pension lump sum settlement charges, $3.4 million in restructuring and workforce reduction charges, and $300,000 of short-term purchase accounting and acquisition transaction costs negatively impacted industrial's operating profit.

Ex these items and the Maenner in Saline items last year, adjusted operating profit was $25.9 million, was down 9% from $28.3 million a year ago. And adjusted operating margin was 13.6%, down 70 basis points.

For the full year sales were $782 million, down 5% from $822 million in 2014. Unfavorable FX negatively impacted sales by $69 million, while acquisitions provided $16 million of sales. Organic sales grew 2%, primarily due to the favorable end markets served by our tool and die and molding solutions businesses during the first half of the year. However, the softening of certain transportation and general industrial end markets during the second half of the year tempered a substantial portion of the organic growth we realized in the first half.

Full year adjusted operating profit was $117.5 million for 2015, down 4% from $122.9 million a year ago. Full year adjusted operating margin was 15%, up 10 basis points. Adjusted operating profit benefited from higher organic sales, however, this was offset by lower productivity and the impact of unfavorable FX.

At aerospace, fourth-quarter sales were $97 million, down 14% driven by lower OEM and MRO sales, though partially offset by higher spare part sales. Operating profit in the quarter was $15.4 million, down $6.2 million from the prior year, primarily due to the lower profit on reduced sales, $2.4 million of the pension lump sum settlement charges, and $800,000 in restructuring and workforce reduction charges. Ex these last two items, the adjusted operating profit was $18.6 million -- of $18.6 million, was down 14% from a year ago.

For the quarter, adjusted operating margin was 19.2%, down 10 basis points. Full year 2015 sales for aerospace were $412 million, down 6% from $440 million last year.

The lower sales from the OEM and MRO businesses were partially offset by higher spare part sales. Adjusted operating profit was $71.4 million, down slightly from the prior year, as a lower contribution from reduced OEM sales and lower productivity was only partially offset by higher profits from both the MRO and spare parts businesses, and lower employee-related costs primarily incentive compensation.

Adjusted operating margins increased 100 basis points to 17.3%, due mainly to the favorable aftermarket mix. Backlog at aerospace was $571 million at the end of the year, up 9% from prior year end, and up 2% sequentially from the third quarter.

Our 2015 effective tax rate from continuing operations was 23.2%, compared to 27.6% last year. The effective tax rate decrease for 2015 over last year's rate is primarily due to a tax refund of withholding taxes, an extended tax holiday in China, and a change in the mix of earnings, partially offset by an increase in the repatriation of a portion of foreign current year earnings into the US. We repatriated approximately $20 million in 2015 and $13 million in 2014, as part of the Company's global cash management.

As we discussed on last quarter's earnings call, during the fourth quarter, the Company took action to reduce the size and potential future volatility of its pension plan obligation, by offering certain former employees an option to receive a lump sum distribution of their vested benefits. Based on the offer acceptance level, cash payments of $28 million were made in December, funded by the assets of the Company's pension plan.

Related to this settlement, a pretax charge of $9.9 million, which reflected the accelerated amortization of actuary losses was recorded in the fourth quarter. And as Patrick noted, this charge has been excluded from our adjusted earnings.

With respect to share count, our fourth quarter average diluted shares outstanding were 55.1 million shares, while quarter end basic shares outstanding were 53.9 million. For the full year, average diluted shares outstanding were 55.5 million.

During the fourth quarter, we repurchased approximately 1.1 million shares at an average cost of about $38 per share. For the year, share repurchases totaled approximately 1.4 million shares at an average cost of $38.52. As Patrick mentioned, the Board recently authorized a 5 million share repurchase program, and we will continue to be opportunistic on share repurchases going forward.

Cash generation remained strong, as full year cash provided by operating activities was $210 million, versus $187 million a year ago. Free cash flow, which we define as operating cash less capital expenditures, was $164 million versus $130 million last year.

With respect to our balance sheet, debt to EBITDA ratio was 1.9 times at quarter end. Under our existing debt covenants, additional borrowings of approximately $390 million would be allowed, and $370 million remained available on our credit facility at year end. Turning to our 2016 outlook on slides 4 and 5.

We expect 2016 organic revenue growth to flat to 2%, with total revenue growth of 2% to 4%, after consideration of a negative FX of 1%, and acquisition growth of about 3%. Our operating margin outlook is in the range of 16% to 17%. GAAP net income is forecasted to be in the range of $2.40 and $2.55 per diluted share. Excluding an expected $0.03 charge for 2016 restructuring, adjusted EPS is forecasted to be $2.43 to $2.58, up 2% to 8% from 2015's adjusted EPS of $2.38.

As we enter 2016, we expect Q1 to be approximately in line with last year's adjusted first quarter EPS of $0.53 per diluted share. And a few additional guidance items, our CapEx outlook is about $50 million in 2016. We expect cash conversion to remain strong, an approximate -- at about 100% of net income.

Our 2016 effective tax rate is expected to be in the range of 27% to 29%. And the euro to the US dollar conversion rate is planned at $1.10.

In summary, the second half of 2015 was challenging, as compared to our expectations. But as Patrick mentioned, we have demonstrated progress on many fronts, including managing costs and cash generation.

With respect to 2015 capital allocation, we invested $46 million in CapEx, about half of which for growth programs, $52 million in acquisitions. And we returned $78 million of capital to shareholders through share repurchases and dividends.

We exit 2015 with a strong balance sheet. And at the same time, our cash generation remains strong, allowing us to continue to pursue further growth opportunities.

Operator, we will now open the call for questions.

(Operator Instructions)

Joe Radigan, KeyBanc.

Thank you. Good morning, guys.

Good morning, Joe.

Let's start with Aero -- the delivery issues that you are seeing in Aero. Can you give a little bit more color there, Patrick, in terms of what's resolved, or what's been recaptured, and what is still lingering? Maybe quantify the impact it had on Q4, and how we should think about growth in Aero in the first half of the year, as some of that kind of bleeds into the year?

Absolutely. The primary reason that we -- we're having issues in Aerospace is as a result of the new product development that we are undertaking. And as we continue to take on these new programs, they come with the challenges of all of the engineering side of the equation.

As you know, Barnes's reputation is for the most complex, most difficult to manufacturer type components, and that's why our customers come to us. Unfortunately, with that comes challenges from many different aspects of what it takes to develop these highly technical parts.

In the fourth quarter, what we saw was a combination of things, which included engineering design changes that took place, evolving customer approval requirements, and operational execution issues to overcome even with those. So, these were not unexpected challenges that are hand in hand with new product development. But where I feel we fell short was overcoming them, and still meeting the commitments that we had given in the third quarter.

So, as we look -- the positive side of this -- as you know, we recently announced [$550,000] content per platform on the A350. And today we were happy to announce $400,000 on the Airbus A320neo LEAP-powered aircraft. And so, all of these investments are setting up Barnes on great programs, and strong revenue generators for many years to come.

As we think about the shift into 2016, our guidance, which we are providing for Aerospace in total, takes into account all of this -- any slippage from Q4 into the new year. And that, combined with a number of schedule changes that I referenced in my prepared remarks, have all been embodied into the guidance. But we see it, in turn, spreading over the full year, as opposed to being front-end loaded, it will be spread out over the course of the year, and in fact, back-end loaded, as the ramp continues on the LEAP program in particular.

Okay. That's helpful.

And then, on the aftermarket side, there's been mixed commentary in Aero aftermarket, with perhaps maybe a new normal, as airlines are being more cautious or more efficient with their approach. You are guiding to growth in MRO -- low single-digit growth in MRO. Can you just talk about what you're seeing there? Are you expecting growth from the CRP programs, or what's your general sense on the aftermarket MRO side?

So, the aftermarket MRO has clearly been a year of mixed results for us, too. But not so much driven by the industry, but particular events.

In particular, as I mentioned previously, we had one major customer whose volumes dropped in 2015 quite significantly. And then that same customer announced the closure of one of their major engine overhaul shops, which was a JV with American Airlines down in Texas.

So, as we move into 2016, our outlook for MRO is built upon the [shop visit] rates on some of our key programs, which the CRP is a key factor, in particular the CFM56 powering the volume behind it, as it does the [RFPs]. And so, as we look at last year, if I take out, as an example, the one issue with that major customer, and look at our other two MRO businesses, they've done very well, up almost double digits -- are up double digits with those benefits being driven primarily by the CRP.

Okay, great. Thanks, Patrick.

Thank you.

Pete Skibitski, Drexel Hamilton.

Good morning, guys.

Hi, Pete.

Good morning, Pete.

So, first of all, congrats on the content on the LEAP -- on the neo -- that's tremendous. I was wondering if we could flesh that out a little bit more -- the content? I think it's a LEAP-A on the neo; should we think, therefore, maybe a similar order of magnitude content on the LEAP, that's sole sourced on the 737 MAX?

Well, we are definitely continuing to work on the LEAP-B. And when that comes closer -- as you know, our position has always been to wait until the aircraft is just about to enter into service. And so, at that time, we will look to announce what our content is on the LEAP-B. But we are doing development work on it, and actively engaged on the program as we speak.

The LEAP-A, to point out, we are not the exclusive provider on the LEAP-A. And so, the content per platform that we've provided takes into consideration that we have approximately 50% of the content on the LEAP-A, and the $400,000 takes that into account.

Okay. And any content, lastly, on the geared turbofan for the A320neo?

Nothing of any significance to mention at this time, Pete.

Okay, got you. Okay, thanks, guys.

Thank you.

Tim Wojs, Baird.

Yes, hey, guys. Good morning.

Good morning, Tim.

Good morning, Tim.

I was just -- maybe switching over to Industrial. And I was just curious how -- I think the first half of the year has a little bit more difficult growth comparisons, so I am just trying to see how you guys are thinking about Industrial -- the cadence of growth in that business, as we go through 2016?

So, as you mentioned, nowhere was it more evident than on our Industrial side, the tale of two halves last year. We saw extremely strong organic growth in the first half of last year, posting 8% in the first quarter, 5% in the second quarter, and then we moved towards negative low-single digits in the second half.

So, as we move into 2016, clearly the first half represents a tough comp for us. And so, as we look at the year, we are looking at it as growth being over the course of the year, with slightly weighted to the back half.

Okay. And what are some of the end market assumptions that you have embedded, specifically around global auto production in 2016?

So, global auto production, we're thinking about it in the context of -- from our engineered components business, as well as the Molding Solutions business. As we think of auto in particular, we're thinking about mid-single digits in North America and China, with low-single digits in Europe.

Okay. And then just on the restructuring, how should we think about the savings layering in, I guess, both on a quarterly basis, but then also between the segments?

I would think predominantly the savings were directed towards the Industrial side, more than Aerospace. And I would layer them in relatively flat over the course of the year.

Okay. Well, good luck in 2016. Thanks, guys.

Thank you.

Edward Marshall, Sidoti & Company.

Good morning, guys.

Good morning, Ed.

Good morning, Ed.

So, first and foremost, I guess, condolences on your loss.

Thank you.

Thank you, Ed.

Yes, very, very sad.

Yes. So, I guess, I wanted to just follow up on a question earlier. The engineering design changes in Aerospace that are affecting the Business to some extent -- I am assuming it was customer design changes? It wasn't your production changes, in your engineering or your processes? (multiple speakers) It was customer design changes?

Yes, it's a combination of both. What we do as we [work] through some of these parts, they present issues that have been unexpected, if you like, in terms of whether it's the quality of weld joints, whether it's the quality of castings -- a number of different issues. And then, as those present themselves, we go back to the customer.

We propose changes, in some instances, as it pertains to the design, the original design, and others in terms of the processing. So, I would say, it's a combination of both.

You anticipate them in the sense that, as I said, it's not uncommon with new product development. And then you react to them, if they -- as they do present themselves. And where I think I'd mentioned that I think we were disappointed with ourselves is that, in recognizing that this happens, we anticipated still we would overcome them, and meet our commitments. And to that end, we fell short.

Got it. So, I mean, it is a bit of production issue there, I guess, but only as it's linked to a design program?

Primarily, yes. And that's why I highlight that, as we go into 2016, it will be a transitional year. For those mature programs, we are producing them steady state -- the processes, the systems, they are all pretty much locked down.

On the new development programs, there is an aspect in this early stages of continuous improvement, continuous refinement. And so, it's a little bit more in flux.

But nonetheless, I want to commend the Aerospace team for everything they've done, because some of these components were extremely challenging from an engineering perspective. We did ship the first articles, and we are working through subsequent design changes and benefits to the follow-on parts.

Got it. And good content on the LEAP engine. I just had two points of clarifications. One: I am assuming that's production content, not developmental content, based on --

Production. (multiple speakers) That's correct.

Okay. And is it right to think that it's an $800,000 per aircraft that you are on, and, therefore, a 50% share gets you to $400,000. Is that kind of your thought process?

That's correct.

And is there any chance that 50% becomes, say, 60%, 75%? Or is it an equal split over X period of time?

At the onset, it's an equal split. But when we enter into these programs, we're always aggressive, in terms of looking to move that split in our favor, and we do that through performance.

And then, finally, when you look further out into the aftermarket, does being on the initial design phase give you any chance for the aftermarket business later on?

In general, we continue to keep close contact with the customers, to see where there are those opportunities, but the gap between them usually is quite a long period of time. So, if you think about a new engine going into service, from the time of development until the time it requires its first overhaul could be 10 years. And so, there is a -- we continue to work opportunistically, but in general, aftermarket agreements are not tied to the production volumes.

Got it. The delta on the Industrial margins from 4Q 2015, based on your guidance for 2016, Chris, which I think you said was mid-teens. And by definition that you've given in the past, 13.5% adjusted is not mid-teens. So, what's the delta, as we look forward?

I know that you have, what, 2% revenue growth on industrials or so? How do I think about the delta on the margin there? What happened maybe in Q4, and what won't repeat in 2016?

Yes, as Patrick mentioned, 2016, more of a cost-led plan. So, most of the restructuring we took in the fourth quarter was on the Industrial side. Those savings will come through.

So, it's more heavily weighted in terms of our savings, productivity savings -- or the benefits of restructuring will be impacting Industrial margins. So, we do view 2016 for Industrial being in the mid-teens.

Did you quantify those savings for the two divisions, and could you, if you didn't?

Yes, we talked about an overall benefit of roughly $7 million. Most of that, the majority of that, is benefiting the Industrial segment.

Got it. Thank you.

Yes.

Thank you.

Bhupender Bohra, Jefferies.

Hey, good morning, guys.

Good morning.

Good morning.

I have a question on destocking. Patrick, I believe you mentioned something on destocking here within your channels. Can you update us how that went through the fourth quarter, and what are you seeing like in the first two months of the year here?

So, my reference, Bhupender, to the destocking was with regard to nitrogen gas products in particular. What we saw coming into the first half of last year with NGP was extremely strong orders and sales. And in particular, they serve -- a large percentage of their business goes to market through distribution channels.

In the second half of the year, effectively what we saw was the distributors putting the brakes on, because I think they were anticipating lower volumes to their direct customers than they originally had anticipated in the first half of the year. As a result, we saw destocking in Q3, and it further continued into Q4. The silver lining for us, and the thing that encourages us is the fact that coming into, or towards the end of December and into all of January, we saw the quoting activity and the orders start to pick back up, albeit at a slow pace.

Okay. That's good. So, I believe nitrogen NGP is the only business which primarily goes through distribution?

Predominantly; most of our rest of our businesses are direct sales force.

Okay. Got it. And can you just talk about the 5 million, the shares repurchase program here, what your thinking behind that is?

Well, I was pleased that our Board authorized an additional 5 million shares for repurchase. And our intentions as we go forward is to opportunistically avail of that authorization, based on a number of different factors.

Okay. And lastly, on M&A, now that you have created a new business unit with the Molding Solutions, just give us some color on the further M&A transactions or your pipeline basically?

Well, as you mentioned, we're really excited about the Molding Solutions SBU. And really what we're looking at there is combining the four acquisitions that we've made to date, onto one leader. And in doing so, we're looking to accelerate sales growth. As well as the fact that we've brought together the engineering teams, with a view to driving innovation across those businesses. All of which, we believe, is continuing to reinforce our position as we've entered into the plastic injection molding space, with a high degree of technology and value-added services, aligned with our overall strategy.

We continue to look at other -- clearly look at other M&A opportunities in terms of our pipeline, both within this space and adjacent spaces, and continue to be very diligent and focused in driving that activity in parallel to organic growth within the existing businesses.

Okay. Thanks a lot, guys.

Thank you.

Thank you.

I will now turn the call back over to Mr. William Pitts for closing remarks.

Great. Thank you, Carol. We would like to thank all of you for joining us this morning. We look forward to speaking with you once again in April, with our first-quarter 2016 earnings call. And so, we will conclude today's call at this time.

Thank you for joining today. This concludes today's call. You may now disconnect.