RBC Bearings Inc (RBC) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2011 RBC Bearings earnings conference call.

My name is Keith and I'll be your operator for today.

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

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

(Operator Instructions).

As a reminder, today's conference is being recorded for replay purposes.

And I would now like to turn the conference over to your host for today, Mr.

Adam Sigel, please proceed, sir.

Good morning and thank you for joining us today for RBC Bearings' fiscal 2011 fourth quarter and full year earnings conference call.

On the call today will be Dr.

Michael J.

Hartnett, Chairman, President and Chief Executive Officer, and Daniel A.

Bergeron, Vice President and Chief Financial Officer.

Before beginning today's call, let me remind you that some of the statements made today will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those projected or implied due to a variety of factors.

We refer you to RBC Bearings' recent filings with the SEC for a more detailed discussion of the risks that could impact the Company's future operating results and financial condition.

These factors are also described in greater detail in the press release and on the Company's website.

In addition, reconciliation between GAAP and non-GAAP financial information is included as part of the release and is available on the Company's website.

Now, I would like to turn the call over to Dr.

Hartnett.

Thank you, Adam, and good morning.

This is a great time to be in the bearing business, as you'll hear as I go through my little summary of the quarter this morning.

So I'm pleased to report that the fourth quarter of fiscal 2011 showed a continued year over year improvement in order volumes and sales in all core market segments.

Our diversified industrial markets continued to see terrific demand and our aerospace and defense markets experienced strong order volume and sales growth.

During the fourth quarter our sales were $88.9 million, an increase of 11.4% from the same period last year.

Adjusted operating income was $16.8 million versus $12.9 million a year ago.

This was a 280 basis point improvement year over year.

Cash flow from operations was strong at $9.6 million for the fourth quarter of fiscal 2011, compared to $6.2 million during the same period last year.

We ended the quarter with $67.9 million in cash and short-term investments and $31.3 million in debt.

The strength of our industrial markets continued through the fourth quarter, with sales for our industrial products up 18.5% on a year over year basis.

This increase was driven by strong demand from OEMs, with year over year growth rate of 22.4%.

If we exclude military vehicles, which those in-coming orders and sales tend to be lumpy in any given fiscal year, the industrial OEM growth rate is an impressive 41.1% compared to the same period last year.

Sales to industrial distribution followed with a 9.9% increase in the same year over year comparison.

These markets are responding well to our new product offerings and strong initiatives taken to expand our industrial sales team.

Sales of industrial products in the period represented 52% of our total revenues this quarter and 53% of our total revenues for the full year.

We mentioned last call that we were encouraged by the continued strength of our industrial markets.

This is certainly the case today.

New technologies for oil and gas recovery coupled with $100 per barrel oil drives demand for both our mature and new products.

We are making good progress with major OEMs in this sector and are planning for real growth this year and next.

We continue to see strong demand for our bearings from our traditional core industries, such as large construction and mining equipment, industrial distribution, semiconductor machinery, heavy trucks and consumables for machine tooled products in Europe.

Recent events in Japan have created further demand, as our customers have moved sourcing for some bearing products to the United States.

Currently, we are tooling our plants to absorb this additional volume.

Our aerospace and defense markets grew 4.6% in the fourth quarter compared to the same period last year and this is the third quarter over quarter of sequential growth.

We saw 2.5% growth Q3 over Q2 and 8.4% growth Q4 over Q3.

Positive developments in the aircraft markets continue.

Today major plane builders are surveying our plants among those of other key suppliers to understand capacity limitations and jointly discuss and plan needs for capacity expansion.

The industry outlook is for a 50% to 60% increase in demand for large aircraft for the period from our fiscal '11 to our fiscal '14.

We are currently strategizing the most effective actions needed to support and improve our customer base over this period.

Demand expansion coupled with a myriad of new product introductions for these markets makes some interesting calculus, to say the least.

It is certainly fun to think through the implications of these demand drivers on what our business will look like in future years.

We continue to see improvements in our sales to aircraft after market distributors, which began at the beginning of our Q3.

Sales to these customers were very strong, 35% above last year's quarter and 10% increase sequentially.

Relative to the sale of government products, this was the weakest part of our lineup and we suspect it has bottomed and will probably stay at the bottom for an indefinite period.

We ended the fourth quarter of fiscal 2011 with $196.7 million of backlog compared to $157.9 million for the same period last year.

Gross margin performance for the fourth quarter was 31.4% compared to 31.5% for the same period last year.

This is an improvement of 2.6 percentage points better than last year's fourth quarter.

I expect these gains to continue throughout this year.

We are seeing real improvements at the plant level margins as a result of process initiatives renewed at the beginning of the year and expansion of our 5 S programs to new sites.

These margins have begun now to migrate through to operating margins and turns to the inventories.

Adjusted operating income was 18.9% of sales versus 16.1% last year.

This is a 280 basis point improvement for the fourth quarter year over year and 320 basis point improvement for the 12 months year over year.

Looking ahead, we expect the first quarter of fiscal 2012 to look very much like the performance we've seen in the fourth quarter of fiscal 2011.

I will now turn the call over to Dan, who will provide more color on the quarter and the full year.

Hi, thanks, Mike.

Since Mike's already covered sales and gross margin, I'll jump down to SG&A.

SG&A for the fourth quarter of fiscal 2011 increased $1.2 million to $13.9 million compared to $12.7 million for the same period last year.

As a percentage of net sales, SG&A was 15.6% for the fourth quarter of fiscal 2011 compared to 15.9% for the same period last year.

The increase in SG&A year over year was mainly due to an increase in personnel related items, higher professional fees and an increase in incentive stock compensation expense.

For fiscal year, the full year ended April 2, 2011, SG&A as a percentage of sales was 15.7% compared to 17.2% for the same period last year and this was right in the range that we discussed last time on the conference call of 15.5% to 16%.

Other net for the fourth quarter of fiscal 2011 was a loss of $0.4 million compared to a loss of $0.9 million for the same period last year.

This was mainly comprised of amortization of intangibles.

Operating income was $16.1 million for the fourth quarter of fiscal 2011, an increase of 39.4% compared to operating income of $11.5 million for the same period in fiscal 2010.

Operating income excluding cost associated with the expansion into large bearing products and restructuring cost was $16.8 million, an increase of 30.8% compared to adjusted operating income for the same period last year of $12.9 million.

For the fourth quarter of fiscal 2011, the Company reported net income of $9.9 million compared to net income of $9.7 million for the same period last year.

Diluted earnings per share was $0.44 for the fourth quarter fiscal 2011 compared to $0.44 for the same period last year.

Adjusted net income was $10.4 million in the fourth quarter fiscal 2011 compared to an adjusted net income of $8.1 million for the same period last year.

Diluted earnings per share on an adjusted basis was $0.47 for the fourth quarter fiscal 2011 compared to $0.37 for the same period last year.

Turning to cash flow.

The Company generated $9.6 million in cash from operating activities in the fourth quarter fiscal 2011 compared to $6.2 million for the same period last year.

Our capital expenditures were $3.2 million compared to $2.4 million for the same period last year.

And for the full year, cash provided by operating activities was $50 million and capital expenditures were $10.4 million.

Total debt for the period ended April 2, 2011 was $31.3 million compared to $38.5 million for the same period last year.

And the Company ended the year with $67.9 million of cash and short-term investments on the balance sheet, which exceeds our total debt by $36.6 million.

I would like now to turn the call back over to the operator for a Q&A session.

(Operator Instructions).

Edward Marshall with Sidoti & Company.

You mentioned the aero -- you're seeing good orders in your order book for aerospace.

Typically, I think your backlog is representative of aerospace growth.

Can you quantify the order growth that you're seeing or can I extrapolate from what you're seeing in the backlog as being largely driven by aerospace customers?

If you can give me more clarity on that.

Yes, I'm not sure how much clarity we can give you on that, Ed.

We don't usually break it down that way.

I would say this, though.

The aerospace product is a longer lead time product, so there would be just normally more of that in backlog.

Although the incoming orders are strong from both sectors and it's really hard to say which sector is going to pull ahead in the FY '12 race here.

Raw materials spiked, they're kind of coming off their highs, but was there any kind of signs of lags and temporary pressures to the gross margins because due to costs or anything like that?

I mean, it doesn't appear in this release, but should we think about that going forward?

And based on your commentary, it also sounds like those are not going to be an issue at all.

Yes, I don't -- we don't see it as an issue.

We're pretty much on top of managing our raw material cost input and deciding what to do if it starts to get out of line.

But it's been either well-behaved or we've been able to take whatever actions we needed to take early enough to offset it through pricing.

You mentioned something about military sales and I'm assuming you're saying they're down year over year.

My question's related to an MRAP order that came through earlier this week, maybe two days ago or so.

Is that something that you will ultimately benefit from?

Yes.

Okay.

Yes, although we wouldn't report that as government military sales.

That would be an OEM the way we book it.

And to some extent, the government sales decline is a result of the government's preference to buy their spares through the OEM rather than buying them independently as they've done for years.

So there's a little bit of a sea change going on there at the government.

So if their deliveries are set to start in January of '12, when do you start to see that revenue come in and to what extent?

Well, I missed the MRAP announcement.

Okay.

Which -- can you --?

Looks like Oshkosh had 177 orders for MRAP vehicles for -- that they set to expect that for January of 2012 they're going to start delivery.

So we would probably see that in October.

October.

And then finally, you said Japan, you're seeing some reallocation of the sourcing.

Is that temporary or --?

No.

No.

It's not temporary.

We wouldn't do it on a temporary basis.

Okay.

What type of product line?

It's in the industrial products area.

Perfect.

Thank you very much.

Walt Liptak with Barrington Research.

Congratulations on a nice gross margin quarter and I wonder if you could talk a little bit about things that impacted the gross margin, product mix, that may have elevated it this quarter.

I would be happy to.

Well, if you roll the clock back a couple years where we had this fiscal crisis and the economies stalled and we lost -- I forget how many dollars of sales we lost in the top line.

It was maybe $80 million.

I think we went from something like $360 million to $280 million on an annualized basis.

When something like that happens, your priority and your preference and your organizational initiatives become macro cost management and restructuring.

And so the programs that you were working on to reduce the manufacturing cost of any specific line or line item are really put on hold as you go through restructuring your business.

And so now we're beyond that.

We've been beyond that for 18 months.

And the pendulum has swung to the other side of the scale.

And so we've been able to go back to the basics of restructuring the way we make some of our core product lines and the efficiencies by which we make them and the manufacturing methods and techniques and capital equipment used to make them and with certain objectives to produce those at more profitable levels.

So we have that going on in all of our major core businesses and by core meaning businesses that have scale with us and have management teams that are well-staffed and well-founded and able to take on fairly sophisticated manufacturing engineering projects.

And so you're seeing the result of that now in our gross margins.

Okay.

And when we look out into 2012 and maybe this is a question for Dan, as your revenue ramps, what kind of leverage can you get at the gross margin line?

What kind of an expectation should we have for what gross margin looks like?

Our internal target this year for fiscal year 2011 was 32.5% and we ended up at 32.7%.

So we are happy where we ended the year.

We think in fiscal year 2012 we can add another 1 to 1.25 points onto that number on gross margin and then 2013 maybe another 1 point on to that.

And I think our SG&A is going to stay in that 15.5% to 15.7% range through this year.

So any improvement we get on that gross margin line, we should see drop right down to the operating income line.

And what about, since we're going down the income statement, what kind of tax rate should we use for next year.

A little higher.

I think we're going to be closer to 35.5% to 36%.

And I just want to ask about a couple of sectors.

The truck sector has come back extremely strong over the last three or four months.

I remember you had restructured that four or five years ago.

What's the revenue run rate at this point?

Are you having to add capacity?

We're hearing a lot of parts shortages in the truck sector.

What kind of profitability?

The profitability is sort of normal with everything else that we make.

It's an industrial product, so it probably closes in on 25% to 30% kind of gross margin.

The scale -- I mean, we make pins and shafts and bearings for axles, steering columns and steering mechanisms.

So I suspect that's a $15 plus million sector, probably closer to $20 million, because we make bearings for hydraulic pumps that go into all those different vehicles.

So it's an industry that -- where the outlook for us is -- we suspect that there will continue to be shortages of parts as they ramp up the number of chassis that they build and the fleet's very old, as you know Walt.

Right.

And they'll probably -- we were cruising along at 130,000 chassis a year.

Even less than that in '09, right?

It was probably more like 100,000 chassis a year in '09.

250,000 chassis is the steady state requirement for just keeping the fleet age constant.

So there's probably a couple of 400,000 chassis years ahead of us here with a very old fleet right now.

So there are going to be bearing shortages and parts shortages to that sector with volumes like that coming through.

So with the capacity that you have are you going to be able to meet those sort of forecasts?

How are you going to approach this growing market?

Well, basically, we try to understand the volume demands of the market maybe six months out.

And so we normally will run a -- rather than running a plant order book, we run a plant to forecast by line item based upon what we project is the consumption rate of that line item.

And then ship to our customer from a finished goods position.

So there's -- it will be a matter of us adjusting the run rates at the right level and the finished goods at the right level and right now there's -- right now we're in sync.

What we have to -- I don't think we'll have to add machine tools to keep up to the demand.

I think we may have to add shifts.

Thanks for the answers.

I'll get back in queue.

Fred Buonocore with CJS Securities.

Nice quarter.

Thank you, Fred.

My first question just goes back to the commentary about Q1, if I caught that correctly, you said Q1 should look similar to Q4?

Correct.

And Q1's usually your seasonally weakest or one of your seasonally weakest, is that right?

The lineup normally is Q4 is our strongest and Q1 is our second strongest.

Middle two quarters.

But when you're in a growth cycle that kind of jumps around.

So I am sure it's going to be a little lumpy over the four quarters.

Well, related to that, my question is that looking something like Q4 would imply for Q1 kind of a high single digit year on year top line growth rate.

Is that a proxy for what we should think about for a top line growth rate for the year?

Or I would think it would probably be something higher given the backlog.

How should we think about that?

Fred, I think maybe low double digits.

Okay.

This year.

A lot will depend upon the aircraft sector and I think when they actually release that 787 for production.

Sure.

It will be -- there will be a big surge in demand and right now I think the entire marketplace of subcontractors that support that build are skeptical.

Right.

And so they're holding back on orders and when Boeing actually pulls the trigger, that's going to all break loose.

That makes sense.

And then you talked about new products helping the growth in the fourth quarter in fiscal '11.

And I just wanted to get a sense if you can give us some sort of scale or dimensionalize what new products may have contributed to your revenues or revenue growth rate in fiscal '11 and what can we expect that to be in fiscal '12, if that's -- if you sort of think about it that way?

Well, it's a little hard to really talk about that in a specific analytical way, just because of the nature of the business that we operate.

And our mix is very broad and so a meaningful new product to us would generate $0.5 million worth of revenue a year.

And although it's not material to our top line, if you get enough of them you can gang up on the top line, right?

And so we virtually have dozens of products like that that are moving through either into production or will -- we expect to start production on during the year.

So that's just a health measure for the business and that health measure for us is very, very good.

That's helpful.

Thanks.

And then obviously your balance sheet just continues to get stronger and stronger.

With respect to acquisitions, are you finding it a challenge to find good ones or finding it a challenge to find good ones at the right price?

Just want to understand how the acquisition scenario has looked for you in recent months and what your outlook is for fiscal '12.

Would you be surprised if you went through the fiscal year without making at least one transaction?

I think the -- to answer that is there are -- we have no shortage of candidates.

Most of them are a little on the small side, $5 million to $10 million kind of numbers.

Okay.

It just takes -- it seems to take a long time to nurture them through the process, because you're normally -- you're often buying these from an owner that's retiring and he's a little slow on retiring and actually creating a positive transaction for you here.

So there's several of them.

I would be really surprised if we didn't close a few of them this year to move the consolidated revenue number over $400 million.

There's just so many of them right now that I'm absolutely certain several of these will convert.

That's very helpful.

And then finally, what do you think about CapEx needs for fiscal '12?

I think that's going to be in that $11 million to $14 million range.

Still running around probably a little less than 4% of sales type thing.

Great.

Well, thanks.

I appreciate it.

Fred?

Yes.

There's one thing more about the CapEx.

Yes.

There's one thing about this business that's pretty interesting and that is the fact that the accountants and the tax guys let you depreciate this equipment over X years, five or seven or whatever it is, has almost nothing to do with their useful life.

So almost probably more than half of that CapEx is capacity expansion, because the machinery that we bought 20 years ago still runs every day, three shifts.

That's a good point, yes.

Thanks for bringing that up.

Peter Lisnic with Robert W.

Baird.

I just wanted to follow up on that capacity answer that you gave.

Half of the CapEx for what I deemed growth.

Can you give us a sense as to, A, kind of where that capital's being allocated, and then B, just as we look past fiscal '12, just your commentary sounds like there could be further incremental capital investment required to support the growth of the business.

Can you give us color as to whether or not we could see that capital investment grow off of that '12 number?

Good questions.

I think first of all, the capital investment -- it's not pooled in any one place.

It's definitely spread all over the corporation, depending upon need and justification and as -- if we go back to Walt's question on margin expansion, often there's some capital solution that really moves the meter and so we like those the best.

And so that -- so the capital isn't going to any one particular product line or any one particular plant, currently.

I think the need for capital expansion for capacity expansion in the future is -- I think our capital requirements will be normal, what they are today, and I think the -- we have plenty of capacity.

We'll probably need to add manpower.

In terms of the capacity being added or allocated, domestic versus international?

It's mostly domestic.

And is it just simply a function of just strong underlying cyclical growth in end markets or, as I think I'm perceiving it, it's probably the result to some degree of share gains.

Is that a safe way of looking at it?

I think it's more growth.

There may be some share gain there, but in some of these markets we have such a large share it wouldn't make much of a difference for us.

Okay.

So I think it's definitely -- if you look at construction and mining, that's certainly growth when you have Caterpillar talking about going from $50 billion to $100 billion.

That's real growth, right.

Right.

So that's almost what that sector is like.

When you look at oil and gas, that's definitely growth.

Right.

All those fracking and all those pumps and all that stuff, all that hardware that's being deployed, that's absolutely growth.

And heavy truck is certainly it's going through its government induced cycle right now.

So that's growth.

So I'd say it's more growth than share gain.

I appreciate the color there.

On the aerospace side of the equation, you mentioned after market distribution plus 35.

Just wondering if you can give us the other components of the business.

If we look at the OE side of the equation or military just kind of what those did to the comp for the quarter and what the outlook there is.

I think sequentially the government products is flat with the previous quarter.

And then government, I presume, will be somewhat of a headwind in fiscal '12 because it bottomed through fiscal '11.

Is that the right way to think about it on a year over year basis, a modest headwind for '12?

It's not going to be much of a headwind because there's not much left there.

Okay.

The numbers are really small.

All right.

And then how about OE?

OE is going to be -- that's going to be a tough one to manage.

I think demand there is going to be extraordinary and I think when you see these aircraft companies ramping up to the extent that they're talking about, I mean, when the Boeing folks come here, they say it's real, it's sustainable, it's long-term.

Don't bite off more than you can chew or you'll hurt the whole industry.

That's the message to the Boeing subcontractors right now.

And so I think that's absolutely right.

I think there's probably going to be more demand than we have capacity to satisfy if we deal with it in its rawest form, in its most unmanaged form.

So we have to put some management technique into dealing with that process.

And we talk about that every day, what techniques to use so that we make sure that we're taking care of the right customers, that our service levels are what they should be, that we have control of our plant floors and that we can have control of our mix.

But it also sounds as though there could be the need for even further CapEx to support the extraordinary growth in aerospace.

Is that a safe way of thinking about it?

Could we hear maybe, I don't know, $15 million to $20 million of CapEx in '12 to serve the aerospace market?

Not aerospace specifically, but just instead of the $12 million to $15 million you talked about?

I don't think so.

Okay.

I don't see that happening.

You could tell me 12 months from now I was totally wrong, but I don't see it in the next 12 months.

I don't think I'm smart enough to tell you that, but --.

Good on that.

Then last question.

Just can you handicap what probability of a larger acquisition might be?

Are you seeing bigger deals in the pipeline?

You felt comfortable with some smaller ones, but I'm just wondering what deals of size might look like from a prizing perspective and your ability to consummate a transaction that could be call it more meaningful to the top line.

Well, what is -- what do you define as size?

Where does your meter register?

$25 million or more in revenue.

I'd say that the chances are 60/40 that we'll do something of that size with companies that will be of very high quality.

They won't be turnaround situations that we've enjoyed so much in the past.

And I think you're probably looking at something like two times revenue.

That actually is very helpful and perfect.

Thank you for your time.

(Operator Instructions).

Steve Barger with KeyBanc Capital Markets.

Couple of follow-ups.

You were talking about the potential to add some manpower.

As I look back at your first half of fiscal '09, you were running in the low $90 million range in terms of revenue per quarter.

Obviously you did $89 million this quarter.

Are you -- how far below peak staffing levels are you right now?

And how much more revenue could you support when you get back to peak?

I would be guessing here, but it would seem that $50 million more in revenue could be done largely through staffing within the current CapEx budget.

$50 million more than current run rates?

Right, correct.

Wow.

Okay.

And as --

Well, that's only $5 million for 10 plants and that's -- and so per plant, that isn't a big move for any one plant.

Right.

Well, is that kind of increase -- I mean, you're not expecting that kind of increase for 2012, you're just making a longer term expectation of how much you can support at those levels?

Right.

And as you think about the current -- you talked about a low double-digit revenue growth being possible in 2012.

And you talked a little bit about some waiting to see what happens in terms of some of the programs on the aerospace side.

So should we still think about that as industrial revenue growth rates running quite a bit higher than aerospace, kind of the same that we're seeing right now?

No, I don't think so.

I think they're going to be -- it's going to be a dead heat there, because we're seeing -- the incoming order rate right now for aerospace has definitely picked up and so --.

And just the math of the industrial side means it comes down a bit.

Yes, just the math means that that component comes down a little bit.

But we are seeing good demand on the industrial side, too.

So it's -- usually, Steve, when it gets this good, the world does something really stupid.

(laughter)

And messes it all up again.

Assuming that that doesn't happen and assuming we get by the Mayan calendar thing, we should be in for a good stretch here.

Current period production, was any of that backlog growth due to capacity issues or lower manufacturing volume in the current period?

And I'm just thinking about that in the context of the press release statement that you're planning an expansion of production rates at many of the plants.

Well, if the projections at the aircraft companies have now for their plane builds are believable, right, and so there's a 50% to 60% expansion over the next three or four years in just raw aircraft production, for us to support that kind of demand means that we should be thinking right now about how to plan and use our existing capacity effectively.

So if -- and that's exactly what we're doing.

So should we be adding staff and training staff and moving into a position to expand shifts?

It's hard to do that in the exact quarter that you get more order book.

Right.

Because there's a lead time associated with training and screening and making sure that you have technical support at an engineering level on various shifts.

So the lead time associated with the human side of this is substantial.

Got it.

So there are timing issues there.

Yes.

And I've heard from some private companies that they just can't ship enough product to support oil and gas right now.

What percentage of your revenue is that currently?

And do you expect that to increase as a percentage of mix going forward or with everything growing pretty well, will that stay the same?

It's currently about 5% of sales and we're working pretty hard to see if we can't move that to 10% or 15% of sales.

Great.

Okay, thanks.

Edward Marshall with Sidoti & Company.

Two questions.

Well, two line of questions.

The first one, when you talked about the more demand than capacity satisfy, are you talking about the industry or are you talking about RBC Bearings?

Well, for which sector, Ed?

I believe you're referring to aerospace at that point, talking about what comments the aerospace OEMs are coming back to you with.

I think the industry's going to have a real problem.

Secondly, on the acquisitions and you talked about on a larger acquisition you may pay two times revenue.

When you talk about the $5 million to $10 million kind of targets, would you pay two times revenue for those or how do I think about those types of smaller acquisitions?

Well, I think for the -- it depends upon how profitable they are.

We've actually looked at $5 million companies that had $3 million worth of EBIT.

It's hard to get the guy to sell it for one times revenue.

That's the exception to the rule.

It really depends upon how profitable they are.

Some of these are incredibly well run and incredibly profitable and they understand manufacturing, sourcing, and value of their product.

So I would say normally for a small one that's not the case and we've seen cases where they were good businesses and the owners just didn't want them anymore and were throwing us the keys.

We have a case like that right now.

But I think normally you're looking at -- we sort of settle around five times EBITDA is sort of the yardstick when we weigh these things out and should we go more or less than that and what are the reasons for and what are the reasons against.

When you say five times EBITDA, is that forward projection, normalized projection?

Trailing.

We do it just like the bond guys do it.

Okay.

And do you get any synergies in that equation or is that strictly on reported EBITDA?

It's strictly on the Company's performance.

That's pretty attractive when everybody else is going 10 times forward right now.

And I know you have a history of doing this, so I have confidence that you can.

Same line of business, they're bearings businesses?

I know you've talked about in the past where you may kind of go into peripheral markets.

For the most part it's the same line of business where it's bearings or a like products.

We make gears, we make belts, but it's all sort of power transmission or motion control.

So for the most part, it's like that.

There are certain parts of our business that service the medical industry and they're small.

We maybe do $3 million, $4 million in medical industry products right now.

And it's below critical mass, so if I could find a medical products business that was $5 million or $10 million, then I could achieve more, I can get more, a little closer towards critical mass and I like -- I sort of like that macro.

These are mechanical products for medical -- for the medical field.

Dan, I'm going to make you sweat here, but, Mike, you mentioned that a series of acquisitions could get you to kind of $400 million in revenue.

Do you mean for fiscal 2012, assuming that you close on those?

Can I answer that on a pro forma basis?

(laughter) Sure.

Not a problem.

That's our goal.

That's the goal.

Okay, perfect.

Thanks.

And there are no other questions at this time.

So I'd like to turn the call over to the CEO for closing remarks.

Well, I'd like to thank everybody today for participating in the call and your continued interest and support and we will be speaking again in July, I believe.

Thank you.

Ladies and gentlemen, that concludes today's conference.

Thank you for participating.

You may now disconnect.

Everyone have a great day.