Colfax Corporation
Q1 2013 Earnings Call Transcript

Published: 25 Apr 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the Colfax Corporation First Quarter Earnings Conference Call. [Operator Instructions] And as a reminder, this call is being recorded. I would now like to turn the conference over to Scott Brannan, Chief Financial Officer. Please go ahead.

[C. Scott Brannan:]

Well, thanks, Bob. Hello, and good morning, everyone, and thanks for joining us. I'm Scott Brannan, the Chief Financial Officer, and with me on the call today is Steve Simms, our President and CEO. Our earnings release is available on the Investors section of our website, colfaxcorp.com. We'll also be using a slide presentation to supplement the call, which can also be found on the Investor section of the Colfax website. Both the audio of the call and the slide presentation will be archived on the website later today and will be available until the next quarterly call. During this call, we'll be making some forward-looking statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to the risks and uncertainty, including those set forth in our SEC filings. Actual results might differ materially from any forward-looking statements we might make today. The forward-looking statements speak only as of today, and we do not assume any obligation or intent to update them, except as required by law. With respect to any non-GAAP financial measures during the call today, the accompanying information required by SEC Reg G relating to those measures can be found in the earnings press release and in the supplemental slide presentation, also in the Investors section of the Colfax website. And as a reminder, we acquired the ESAB and Howden businesses on January 13, 2012. The sales for the 12-day period are excluded from organic growth, and they are reflected in the acquisitions line in the slide presentation. And now, I'd like to turn it over to Steve.

[Steven E. Simms:]

Good morning, everyone, and thank you for joining us. Regarding the relatively soft economic environment, we are pleased to report the quarter, which, operationally, exceeded expectations. While sales were slightly below forecast, operating performance was substantially better than our guidance for 2 nonoperational events that impacted the quarter and were not contemplated in the original guidance. First, was the currency devaluation in Venezuela. The impact of this was a $3 million loss from the first quarter. The second development occurring after our initial guidance was issued, which was very positive for the company, is the refinancing of our principal credit facility. Scott will discuss this in more detail later. In short, the refinancing negatively impacted the first quarter, as approximately $3 million of costs were written off at the closing. Going forward, however, we will see a significant reduction in our interest cost. Excluding the Venezuelan write-off, adjusted operating profit was better than our internal expectations. Profitability in both gas- and fluid-handling exceeded all forecasts despite lower overall revenue, while fabrication technology, excluding Venezuela, was in line with expectations. Interest cost, excluding the write-off associated with the refinancing, were approximately $2 million lower than expected due to the lower rates post-refinancing. Now for a look at the specific results. Adjusted EPS for the 2013 first quarter was $0.26 per share. This includes $0.04 per share from the write-offs discussed earlier related to Venezuela and the debt refinancing. Net sales of $947 million were up 7% versus the prior-year period. This consists of 12% growth from acquisitions and the 12 additional days of ESAB and Howden activity, partially offset by 2% negative foreign exchange and a 3% organic decline. Turning now to our business segments. For gas- and fluid-handling, orders for the first quarter were $502 million, an organic decrease of 4%. Net sales for the first quarter were for $425.1 million, an organic decrease of 2% compared to revenues of $425.3 million in the last year's first quarter. With respect to our end markets, please refer to the slides for specific growth rates. As you review the data, you'll see significant variation across sectors. This is caused by 2 things

[C. Scott Brannan:]

Thanks, Steve. As Steve mentioned earlier, sales for the first quarter were $947 million, down 3% organically compared to the 2012 first quarter. Adjusted operating income was $78.2 million, representing an adjusted operating margin of 8.3%. Fabrication technology's adjusted margins were 8.5%. Gas- and fluid-handling's adjusted margins were 10.4%. Corporate and other costs were in line with expectations at $10 million for the quarter. Excluded from our adjusted operating income are restructuring costs of $4 million incurred in connection with the cost-saving projects discussed earlier and $1.7 million of costs associated with our asbestos insurance coverage litigation. Interest expense was $23.3 million for the quarter. We closed a complete repricing of our primary credit facility on February 22, which will result in significantly lower interest cost in future periods. Components of interest cost in the first quarter include

[Steven E. Simms:]

Thanks, Scott. It's now been just over a year since the acquisition of Howden and ESAB, and we remain ever confident in our ability to reach the operating goals established for 2013 and beyond. Since the completion of this acquisition, we have consistently stated that our program to ensure a satisfactory return to shareholders, which is based on the potential for cash flow and margin enhancement through aggressive restructuring and process improvement without reliance on growth in sales volume. This remains the top priority and the results are generally hitting the double bottom line. Our cost-reduction programs are working in all 3 businesses, most notably in ESAB. While we certainly prefer a more robust economic environment, this quarter demonstrates that we can deliver solid results even with sluggish demand. Having said that, however, we're not satisfied with our lack of organic growth in this quarter, as the organic growth needs to be an essential element of our shareholder value creation. To this end, an addition to the efforts we're taking to implement CBS on the manufacturing floor, we're also beginning to leverage CBS on the commercial side of the business. As mentioned on our last call, we're very pleased with the market's acceptance of ESAB's new Warrior product line, which made heavy use of the CBS's accelerated product development and Voice of the Customer of VOC tools. The ESAB team is now working aggressively using the same tools to expand the Warrior product range with step-up features and they also have a number of other new products, which are designed to hit the market in the next 12 to 18 months. Earlier this week, our fluid-handling organization announced the introduction of the CM-1000 sea water cooling pump for marine vessels. And the VOC tool was critical in defining its features, functions and value proposition. The product utilizes Colfax's SMART pump technology to intelligently vary its speed on operating conditions, which deliver ship operators of 40% to 80% energy savings, depending on specific vessel design. Importantly for our customers and Colfax, the pump can be applied to either new vessel construction or a retrofit solution for existing systems. In addition to the steps being taken to drive organic growth, we remain very optimistic with our prospects for acquisitions. While it is always difficult to project exactly when deals will come to fruition, we have a very strong pipeline for literally each of our businesses that will hopefully bear fruit later this year. In summary, we believe that we're continuing to position the business for long-term profitable growth. Our cost-reduction programs are having a positive impact, the restructuring of our financing and the BDT agreement, highlighted by Scott, increases our operating flexibility and reduces costs. And the CBS tools will continue to build process capability in both manufacturing and the growth side of our business. While there's still much to be done, we remain cautiously optimistic about the future. With that, I'll open up the floor for Q&A.

[Operator:]

[Operator Instructions] Our first question is from John Inch of Deutsche Bank.

[John G. Inch:]

So I think, maybe, Scott, you can confirm this, the refinancing of the debt adds, like what, about $15 million of benefit annually? Is that about the right number?

[C. Scott Brannan:]

That is correct, John. But I would caution everybody that, that would have to be reduced by the $3 million charge-off we took at the refinancing date. But that's the run rate savings, correct.

[John G. Inch:]

All else equal, does that suggest, because you didn't change -- I recognize the refinancing charges, which are in your numbers. But all else equal, that still -- does that sort of push your range of the guide toward the higher end? Or at least slightly move all else equal to the right? I'm assuming it would.

[C. Scott Brannan:]

We're affirming our guidance as we stated, as I said in my remarks. The Venezuelan thing was not anticipated in our guidance, and the overall macro environment is -- it continues to be sluggish. So we're going to reaffirm our income guidance, as we put out originally.

[John G. Inch:]

And then Scott, getting rid of 2 class, the annual EPS impact, if I'm just sort of thinking about 17 -- which, let's say, $0.17 to $0.20 for 8 remaining months, roughly. Does that suggest the annual impact is over $0.25?

[C. Scott Brannan:]

No, it doesn't. Because of the seasonality of our earnings. The -- essentially, it eliminates a 12% allocation to the preferred shares. But since our income is not earned proportionately over the years -- over the year, and the first quarter is seasonally our lowest, you can't proportionately adjust it like that. But it would be slightly higher for the full year, but not nearly those numbers you quoted. The other complication, and I don't want to bore everybody with accounting details, but when you get to a certain level, then you have to go through the further if-converted calculation. So the full year number would be slightly higher than the $0.17, to $0.20, but not that much.

[John G. Inch:]

But that's somewhere in the $0.20 zone?

[C. Scott Brannan:]

Correct.

[John G. Inch:]

Can I ask one more then fundamental question? ITW, as part of its release, disclosed its Miller welding business segment margins were 26% and 28% last year. And I recognized there are mix and geographic differences, but as you guys execute on your global plans, is there some reason that your perhaps very long-term margins can't meaningfully trend higher than these sort of low-teen targets that you've thrown out initially, particularly given all the progress that Clay has made and seen. I'm just kind of looking at margins up over a point with significantly down organic growth, assuming markets normalize. What are your thoughts there? Or is it still a little too early?

[Steven E. Simms:]

Well, actually, I'd like to invite you to our next budget review with Clay. You could help us to move that up.

[John G. Inch:]

Assuming he's listening, so...

[Steven E. Simms:]

He might be. But I'm sure -- we'll make sure of that. I think you put your finger on it on both points. One, ITW has a very different mix of products. With over 3 quarters of the business and equipment, which tends to be higher margin, it results in a much more significant impact to the bottom line. But our target remains to get the business from low-single digits when we acquired ESAB to the 13% range over the first 3 years, having acquired the business. As I've said before, unlike all of the turnarounds, I think as we get deeper into the turnaround, we continue to learn more about the business. It's my hope that we'll find ways to move beyond that. But right now, we're confirming where we are. It's only been a year. If Clay were here, I think he'd certainly confirm that for you, but we're going to stay committed with where we are.

[John G. Inch:]

Just lastly, ESAB, price realization I think it was about 3%. Was that all Warrior, Steve? I mean, it's way better than Lincoln. Lincoln was flat. What was accounting for your superior price performance in that segment?

[C. Scott Brannan:]

Most of our price increases last year were put in, in the second quarters, so it's essentially the full year effect of actions we took last year. And they we're not overly weighted to equipment. They were across-the-board equipment and consumables price increases. It really relates to the timing they were put in last year.

[Operator:]

Our next question is from Kevin Maczka of BB&T Capital Markets.

[Kevin R. Maczka:]

Can I just take it back on that last question on pricing at ESAB? So the increase, as you saw this quarter, despite the softer top line volume, those are coming from previously announced or enacted price increases. What's the outlook for further increases there?

[Steven E. Simms:]

Well I don't know that we'll see the same level of price increase in 2013, given the trend in commodities. But we will be moving further in pricing later this year.

[Kevin R. Maczka:]

Okay. And Steve, you mentioned that ESAB had performed in line with regional trends. Can you just give a little more color there? Maybe specifically, what are you seeing in Europe and South America?

[Steven E. Simms:]

Well, we -- in looking at our business, we saw that Europe, as an -- what I really stated was that the businesses performed essentially in line with economic trends. What we saw is continued softening or sluggishness in Europe. We saw the same kind of trend in North America. It was very different, however. We saw a very slow start in January. It picked up nicely in February, continued reasonably strong in March. So the quarter overall was soft, softer than we anticipated, got started very slow, with Europe being the -- sort of the slower markets. We'd also say that we experienced softness in North America. Our other areas, however, were quite strong. And many of our other areas were quite strong. We saw a saw very good performance in Latin America, as an example. We saw an increase in China as well. But the 2 markets of Europe and North America were soft.

[Kevin R. Maczka:]

Okay. But was that a statement for the segment as a whole, that January was slower and maybe later in the quarter, February, March, things were improving a bit? Or was that specific to Europe?

[Steven E. Simms:]

I think those statements are specific to ESAB on a global basis. And I think they may be somewhat consistent for the industry, in general.

[Kevin R. Maczka:]

Got it. Okay. Great. And then just finally, for me, on the ESAB margin lift. I guess we're always trying to get a sense for -- is this, the actions that you've laid out, kind of progressing as you had planned or some pull forward there and maybe in response to the softer top line? Can you just comment on that, please?

[Steven E. Simms:]

Could you elaborate on the pull forward? What do you mean by that?

[Kevin R. Maczka:]

Well, we're always interested -- you've laid out $55 million to $65 million as the target for the year. And are you pulling something forward either into this year from out years or pulling it forward in the year?

[Steven E. Simms:]

Got it, got it. Generally speaking, the ESAB cost-reduction is on track. It wasn't an acceleration of movement. One way or the other, we've seen -- we feel that we're pretty much on track with the combination of both restructuring, as well as smart moves that we've taken in pricing, mix management and negotiations with our vendor base.

[Operator:]

Our next question is from Nathan Jones of Stifel.

[Nathan Jones:]

If I could just go over to the mining segment. It's my understanding that a lot of that is aftermarket replacement and more dependent on currently operating mines than new project opportunities. Can you kind of break down the decline in terms of what decline came from replacement versus the new project opportunities?

[C. Scott Brannan:]

I guess, what I would point out here, Nathan, is that the mining segment is only -- the mining end-market is only 6% of the segment. So these are not real large numbers. I can't give you specific percentages, but the -- particularly on the order book side, the new order decline is essentially most of the decline. We're not experiencing a decline in the aftermarket business. But the new order business is very, very slow in that segment.

[Nathan Jones:]

Would you be, I'll probably put my Australian hat on here for a minute, expecting the environment over there to improve in the second half of the year with the extremely likely change of government over there in September?

[C. Scott Brannan:]

Well, we have low expectations for Australia for this year, not for any political reasons, but more for just our sense of the market and the -- in the primary mining companies.

[Steven E. Simms:]

Nathan, just -- I would just add is that we -- when structured the plan for 2013, we felt like we took a pretty conservative posture. Most of the key markets and verticals reflected what we thought would be a tough economic environment. So we try to plan conservatively. I think, overall, difficult to say on any one country, but generally, the trends are in line with what we anticipated or a bit softer. So from that standpoint, we certainly aren't expecting any improvement as we go to the back half of the year.

[Nathan Jones:]

And just a clarification on the guidance. The $0.17 to $0.20 improvement from the lack of BDT participation. That will hit your reported EPS, right? So you guide it should be going up $0.17 to $0.20?

[C. Scott Brannan:]

Yes. That's what I was attempting to communicate. And it will go up beginning the 24th of April. So there will be 4 months under the old method and then essentially, the EPS will go up 12% because of not allocating income to the participating securities any longer from the 24th of April forward. So that will be a little -- a complicated calculation for the second quarter, but then it will be clean for the third and fourth quarter.

[Nathan Jones:]

Got it. And just one more for me. Can you talk about how the demand environment progressed in China through the first quarter and into the second quarter?

[C. Scott Brannan:]

I'll take the gas- and fluid-handling side and let Steve comment on welding. China was very, very strong in gas- and fluid-handling. As Steve said in his remarks, the Chinese business, if anything, is strengthening the activity and the SCR quoting is -- we think it's probably nearing a peak at this point, but it was very, very strong in the quarter. And then some of the other activity that was sort of held back because of the price of coal seems to have come through in the first quarter order book as well. So on gas- and fluid-handling, China was very strong for us.

[Steven E. Simms:]

And in terms of the fabrication side of the business, it's a relatively small part of our business in general. Overall, I guess, maybe 2 quarters, maybe 6 months ago, we hired a new leader for our China business, Stanley Tiu [ph]. He's done a great job of really helping us to think through the role of China in the portfolio and realigning priorities. And we've seen a little bit of a bump in sales and an improvement in profitability. I wouldn't say that there's anything that we've seen that's going to turn that around to a dramatic increase in the near-term. But we think we are getting better positioned for 2014. So not a significant lift in our business. One of the best improvement we've seen in over a year. We're getting positioned for the longer-term market for China.

[Nathan Jones:]

And China profitable at ESAB though?

[Steven E. Simms:]

I'm sorry?

[Nathan Jones:]

Chinese is profitable for ESAB, though?

[Steven E. Simms:]

Yes. Yes, it is. Sorry.

[Operator:]

Our next question is from Jason Feldman of UBS.

[Jason Feldman:]

Going well in China for gas- and fluid-handling, but have you seen any change or increase in competition from local Chinese competitors, particularly at Howden?

[Steven E. Simms:]

We've seen a continuation. I don't know that it's increased. As you probably know, we have a very strong manufacturing presence in China, so we feel we can compete effectively in those segments that we are focused on. So that's not a new phenomenon. We haven't seen an increase. I think, as Scott highlighted, however, activity in China is certainly reaching a peak. It was very strong in January and February and then really took another step up in the month of March. So the competition remains as it has been. The market continues to be very strong. And we see it remaining that way for several more years.

[Jason Feldman:]

Okay. The M&A pipeline, Steve. You touched on this earlier in the call. You said you had a number of opportunities throughout the various businesses. When we think about potential size range of near-term deals, meaning this year or early next year, should we be thinking about Soldex-sized deals or Covent Fans-size deals or something in between those 2? What's kind of the sweet spot that you see in the near-term for M&A size?

[Steven E. Simms:]

I'd say that, that range between, Covent and Soldexa is generally what we're focused on. There may be on occasion, an opportunity a little larger than that. But generally speaking, when we think about bolt-ons, and that's our primary focus right now is in that zone. As we've described before, we will eventually add a third platform, but that will be years -- several years down the road. But as I mentioned before, the pipeline is very strong right now, a number of smart strategic bolt-ons that we think provide a great fit for our company. That's a pretty good target. It could be a little larger than that. But generally speaking, I think that's our planning range.

[Jason Feldman:]

Okay. And then, lastly, you've now had Charter for a little over a year. There's been a lot of restructuring, plant closures, you had the issues last quarter, which you talked about with the start-up in the United States, and a lot of change, which can potentially create disruption. Based on the ESAB growth rates and your commentary, it certainly doesn't seem like you're losing share. But have there been -- how's the reaction been from your sales force, from your customers? Are they seeing improvements in service quality and potentially, share gains? Is it kind of neutral and they're just playing wait-and-see? Or have there been issues that you kind of are still addressing?

[Steven E. Simms:]

There's a lot in your question there. And just to be completely clear, I believe we lost share in North America in 2012. And I think, as we've shared on previous calls, we had a tough time in the start of the Midway plant, which was a plant, a new plant that was began by Charter. That plant is now up and running. Deliveries are very strong now and the quality is where it needs to be. So I think that certainly, that particular startup did not go well. So I just want to be clear about that. The other facilities, I think Clay and his team have closed nearly 7, in total. Most of those closures have gone as planned. We've gone to great length to make sure that, above all else, while we want to get a cost improvement and the benefit from the restructuring, above all else, we try and shelter the customer from those moves. Hopefully, the customer sees no disruption to service, quality or any responsiveness from ESAB. And we feel that, for the most part, we've been able to deliver on those expectations. We've done work with our customer base, particularly in North America, to determine their views on our service, our quality and so forth. And we think that we are continuing to progress and make improvements. But I don't think the customer would experience any disruption to quality or delivery. Part of that though, I made reference to that -- through the CBS work we use the example of about Thomassen compressors and also ESAB. Part of that, in the demand pull process improvement with CBS, the primary focus is responsiveness and shortening lead times. If we can keep those lead time shorter, it obviously gives us a chance to respond to customer demand on real-time basis. It allows us to shrink our inventory level which is certainly something we are focused on, and it also means an improvement of quality. So a lot of those things that we're doing in the CBS enable us to not only close those plants, but hopefully close the plants, get the cost improvement we want and continue strong deliveries to our customer.

[Operator:]

Our next question is from Jeffrey Hammond of KeyBanc Capital Markets.

[Jeffrey D. Hammond:]

Just back to the guidance. I mean, I understand that the demand is weak. But it just seems like, if this quarter is any trend, you're kind of making that up on the cost side. So why shouldn't the trend of kind of weaker demand and better continuous improvement, margin improvement be an offset and kind of allow the interest expense savings to flow through the guidance?

[C. Scott Brannan:]

Well, we have about a $30 million pretax range in the guidance. And given the uncertainty of the economic environment, it just seemed prudent to leave the guidance where it was at the current time. I think as we get through next quarter, if the environment is stronger, we'll certainly consider narrowing it or something along those lines. But given the reasonable spread that's already exist, and as I said in my prepared remarks, the positives from the interest offset against the currency devaluation and the soft macro, we felt most comfortable leaving the guidance where it is.

[Jeffrey D. Hammond:]

Okay, that's helpful. And then, just how is your shipbuild or your commercial marine business so resilient? Do you think there are share gains, what's in there, or is the oil and gas vessels or what's the dynamic versus what seems to be a pretty ugly market on the welding side in shipbuilding?

[Steven E. Simms:]

I think we're probably gaining share in that market. And I made reference to a new product that comes out later this -- well, actually, it was launched at the beginning of the week. So I think we're taking share. We'll continue to see a little bit of a share capture there.

[Jeffrey D. Hammond:]

Okay, great. And then just final question. Is there a way to kind of spike out or give us a sense of what the run rate is of Covent and Soldexa, kind of x the ESAB, the Charter stuff?

[C. Scott Brannan:]

So I think in the materials themselves, we gave you a specific information on Soldexa there. Their sales were a bit over $30 million and their profit was discussed in the prepared remarks of being $3 million after absorbing a $3 million currency revaluation. Soldex has been integrated into Howden Industrial Fan business, and it would be -- it's a much smaller acquisition and it would be difficult to specifically break that out, given its integration into the Howden Industrial Fan business.

[Jeffrey D. Hammond:]

But it's fair to say, those are kind of running in line with your expectations?

[C. Scott Brannan:]

Yes.

[Steven E. Simms:]

Yes. We've been very pleased, as well, Jeff, with the way that the 2 organizations have come together, particularly with Covent and the industrial business that we had or have with Howden. The leverage that we're getting commercially is certainly in line with what we hoped. It looks we're very, very promising. We feel very good about that.

[Operator:]

Our next question is from John Moore of CL King.

[John R. Moore:]

We talked a bit about the guidance on the net income line, but I was wondering if you could address your revenue ranges provided at the end of last year on the last call. By division, down 4 to flat for fluid, 4 to 6 for Howden and 0 to 2 for fabrication technology. Is it -- do you feel like the lower end of those ranges is more reasonable now?

[C. Scott Brannan:]

Let me address it segment by segment. I think we're very comfortable with gas- and fluid-handling. There was no surprise in there. But it's the -- there's a lot of very large projects in those segments. We feel very comfortable with the revenue guidance there. We see the majority of it is already in the backlog and there's no indication to either side of the range. We're very comfortable with that range exactly as we stated it. I think on the fabrication technology side, the first quarter was a little light of expectations. The general macro indicators including comments from distribution and what not are that the second half got maybe a little stronger. So 0 to 2 is, I think, a range we're still reasonably comfortable with. It's a little -- given it's only a 2% range, it's a little early in the year to be narrowing that. So yes, there's obviously less visibility and less certainty on the fabrication technology side. But we're certainly very comfortable with the gas- and fluid-handling revenue ranges.

[John R. Moore:]

Okay, that's helpful. And then the gas- and fluid-handling margins this quarter were pretty strong. I think you're actually looking forward to be about flat with the prior year. I guess, can you just give us a little more detail as to what drove that? Did you happen to have some more aftermarket work in the quarter? Or anything that was unique?

[Steven E. Simms:]

I think a couple of things. I think aftermarket was particularly strong, particularly at Howden. But the team has done a very good job of managing the expenses and leveraging CBS to get margins up, both from an SG&A standpoint as well as on the gross margin line.

[John R. Moore:]

Great.

[Steven E. Simms:]

I remember as well -- sometimes, John, I think we tend to forget that we have just as large a challenge to improve margins at Howden as we do at ESAB. They're a little higher to begin with, but we've targeted mid-teens operating income for that business and we feel that the first quarter is an excellent start, led by Ian Brander and James Brown, the guys at Howden. They're well on their way to achieving that, as we've seen with ESAB. So we feel good about both areas.

[Operator:]

Our next question in queue is from Jim Krapfel of Morningstar.

[James Krapfel:]

It looks as though you're general industrial end market suffered a larger-than-expected decline in revenue and orders. Can you explain a bit more what drove that weakness? And what gives you the confidence that you'll see some strengthening in revenue and orders for the rest of the year?

[C. Scott Brannan:]

Well, the -- it is a very broad based segment that's sort of an amalgamation of many, many submarkets. A lot of the significant decline relates to some large projects, particularly in the steel industry that we had in the 2012 first quarter that didn't repeat in the 2013 quarter. So there is an element of lumpiness in there. And based on the feedback we're getting from our sales [indiscernible] base, we don't expect that kind of downdraft for the balance of the year. It seems to be -- the market was down slightly, but the big numbers is largely related to lumpiness of just a single 3-month period.

[James Krapfel:]

And the other end markets of industrial then are holding up pretty well?

[C. Scott Brannan:]

No. I mean, they're modestly down. So I wouldn't say they're holding up great. But the large decrease was mainly related to some large project items.

[James Krapfel:]

Okay. And then to what extent does the weaker-than-expected demand environment affect your ability to reach your low-teen, mid-teen, high-teen average margin goals for the next 3 years?

[Steven E. Simms:]

As we said before, we built those objectives and our game plan around an assumption that is not really relying on growth. We believe we can deliver. As an example in 2013, the operating income targets that we've established by business to $55 million to $65 million in cost take out that we continue to talk about for ESAB. We can identify or reach that without significant volume growth. So it does not have a significant impact on our long-term views.

[Operator:]

And with that, I'm showing no further questions in queue. I'd like to turn it back to Mr. Scott Brannan for any further remarks.

[C. Scott Brannan:]

Thank you very much, and thank you, everyone, for joining us today. And we look forward to speaking with you again next quarter.

[Operator:]

Again, thank you, ladies and gentlemen, for joining today's conference. You may now disconnect. Have a great day.