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Barnes Group (NYSE:B)

Q4 2012 Earnings Call

February 22, 2013 8:30 am ET

Executives

William Pitts - Director of Investor Relations

Gregory F. Milzcik - Chief Executive Officer, President, Executive Director and Ex-Officio Member of Executive Committee

Patrick J. Dempsey - Chief Operating Officer and Senior Vice President

Christopher J. Stephens - Chief Financial Officer and Senior Vice President of Finance

Analysts

Edward Marshall - Sidoti & Company, LLC

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division

R. Scott Graham - Jefferies & Company, Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Barnes Group Fourth Quarter and Full Year 2012 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. William Pitts, Director, Investor Relations. Please proceed, sir.

William Pitts

Thank you, Frances. Good morning, and thank you for joining us today. With me is Barnes Group President and CEO, Greg Milzcik; Senior Vice President of Finance and Chief Financial Officer, Chris Stephens; and Senior Vice President and Chief Operating Officer, Patrick Dempsey. 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 that we believe is helpful to 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.

I want to remind everybody that certain statements we make on today's call, both during the opening remarks and during the question-and-answer session, may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those 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.

So let's begin today's call with opening remarks from Greg, followed by a more detailed review of the quarter and full year results and our initial 2013 outlook discussion from Chris. After that, we'll open up the call for questions. Greg?

Gregory F. Milzcik

Thanks, Bill, and good morning. As you would expect from our press releases, we certainly have a lot to talk about today. First, we announced that we had entered into a definitive agreement to sell our Barnes Distribution North America business, BDNA, to MSC Industrial Direct for $550 million. This is a good transaction for both companies. It is an excellent opportunity for BDNA and its employees to further develop their full potential as part of MSC, where the primary focus is on industrial distribution.

As I think about the significant evolution of our portfolio with the sale of Barnes Distribution Europe in 2011, the acquisition of Synventive in 2012 and now this announcement on BDNA, we have succeeded in advancing along the strategic path that I've discussed with you for some time.

Second, this morning, we have reported fourth quarter and full year results that delivered one of our best years of financial performance. Despite some enduring challenges in a few of our global end markets, we managed to deliver record fourth quarter net income, improving operating margins and generated solid cash flow, allowing us to move quickly to pay down debt associated with the acquisition.

We ended 2012 with record year end backlog of $677 million, up 16% from 2011, driven by growth in our Aerospace OEM business. This backlog gives us confidence heading into 2013 as it supports continued sales growth.

And finally, we announced my retirement from Barnes Group and our board's selection of Patrick Dempsey as our new President and Chief Executive Officer. After serving as President and CEO since 2006, and with the first phase of our transformation complete, that is the move to a more closely aligned differentiated Aerospace and Industrial base business, I feel it's the right time for me to pass the leadership baton over to Patrick. I will continue as Executive Vice Chairman until our Annual Shareholders Meeting on May 3 to ensure a smooth transition.

Patrick has been with -- been our Chief Operating Officer since 2012. He joined the company in 2000 and has served in several leadership positions over the years. As COO, Patrick has been responsible for oversight and direction of the company's global business segments.

To close my comments today, I'm extremely pleased with the performance that the company delivered in 2012, and I have all the confidence that Patrick will lead Barnes Group to delivering sustained performance. Right, Patrick?

Patrick J. Dempsey

Thanks, Greg. I appreciate the opportunity and looking forward to the challenge.

Gregory F. Milzcik

Now let me hand the call over to Chris to go through the financials.

Christopher J. Stephens

All right. Good morning. All right. Thanks, Greg, and good morning, everybody. I would like to begin by highlighting key points of our fourth quarter and full year results, and then end with color on our 2013 guidance. I will also provide additional details on the BDNA announcement.

Turning now to Slide 3 of our supplement. Sales of $327 million in the quarter were up 16%, driven mainly by Synventive. Income from continuing operations was approximately $30 million or $0.54 per diluted share, up 26%. For the full year, sales of $1.2 billion, up 5% and income from continuing operations was $1.78 per diluted share, up 9%.

2012 income for continuing operations included $5.9 million pretax or $0.08 per diluted share of short-term purchase accounting adjustments and acquisition-related costs. Excluding these items, adjusted diluted EPS from continuing operations was $1.86, which is up 13%. These results were generated by the sustained execution to produce differentiated products and processes that enhance operating margin. As an indication of our progress, even with the sales headwinds in some of our end markets, we delivered adjusted operating margins of 11.6%, up 70 basis points.

Let's now turn to segment performance, and I'll begin with Aerospace. In the fourth quarter, Aerospace generated sales of $101 million, up 2%. Higher OEM sales were largely offset by sales declines in aerospace aftermarket. Operating profit was $19 million, up 5%. Profit benefited from higher OEM sales and lower employee-related costs, primarily incentive compensation, but was partially offset by the profit impact from lower aftermarket sales and a valuation adjustment on inventory that supports our aftermarket repair and overhaul business. Operating margins increased to 18.8%, up 50 basis points in the quarter.

Full year Aerospace sales were $390 million, up 2%. Sales growth in OEM and aftermarket repair and overhaul was partially offset by a decline in aftermarket spare part sales. Full year operating profit was $63.3 million, up 1%. Operating profit for the year was impacted by many of the same factors that drove our fourth quarter results. And for 2012, our operating margins were 16.2%, down 20 basis points.

In our Aerospace business, we continue to see solid growth in OEM, while aftermarket continues to be soft. OEM sales were up 10% for the quarter and up 5% for the full year. Backlog for the total Aerospace segment grew to a record of $548 million, up $73 million or 15% from year end 2011. As a reminder, while backlog is a helpful indicator, sales can be affected by a number of factors over time, including in-sourcing decisions, material changes, production schedules and volumes of specific programs to name a few. We continue to believe the industry's expectation -- we continue to believe the industry's expectation for commercial aftermarket production is realistic, and supported by high unit backlog at Boeing and Airbus and by forecasted air traffic growth.

In the quarter, aftermarket MRO sales were down, but up 5% for the full year. Sales in our high-margin Revenue Sharing Programs were down 21% in the quarter, reflecting a trend we've seen for several quarters now. So if you recall, last year's fourth quarter, we had strong sales due to the benefit of a large customer stocking order that we received in December, so a decline in the fourth quarter actually was expected. However, similar to other industry participants, like GE and Pratt, our fourth quarter spare parts sales results improved sequentially. For us, we actually saw a 20% sequential improvement from Q3.

Despite growth in airline traffic and capacity during 2012, it was a soft year for aerospace aftermarket. Today, many market participants are anticipating a stronger aftermarket in 2013, with anticipated air traffic and capacity growth again this year. We believe further deferred maintenance and inventory destocking by the airlines becomes more difficult. Accordingly, we likewise foresee a recovery in aerospace aftermarket. However, we remain cautious about the timing, as well as the size of 2013 recovery.

At Industrial, fourth quarter sales were $148 million, up 44%. Synventive sales of $44 million contributed to most of the growth, while organic sales were up 2% and FX was 1% unfavorable. Operating profit of $15.2 million for the quarter increased $8.4 million, driven by the profit contributions of Synventive, and operating margins increased to 10.3%, up 370 basis points.

Industrial's full year sales were $497 million, up 13%. Synventive added $60 million, organic sales increased by $10 million and FX decreased sales by $13 million. Full year operating profit was $43.9 million, up 12%, primarily benefiting from the profit contribution of Synventive. Noted earlier, operating profit was partially offset by the $5.9 million of short-term purchase accounting adjustments and transaction costs related to Synventive. Excluding these items, adjusted operating margins increased to 10%, up from the 8.9% last year.

Within our Industrial segment, our Nitrogen Gas Products business once again delivered double-digit sales growth in the quarter. The team did a great job completing the facility expansion in Sweden. The 2012 nitrogen gas price delivered a record year.

In our other European Manufacturing businesses, we did see continued weakness as a result of the economic environment and the waning European automotive production.

At Associated Spring, global sales declined slightly in the fourth quarter, but were essentially flat for the full year.

At Distribution, quarterly sales were down 4% to $80 million as a result of softness in our North American markets and our focus on more profitable accounts. Operating profit in the quarter was $5.6 million, up 41%. This improvement was driven by favorable pricing actions, customer mix and lower employee-related costs, offset by higher pension costs and the profit impact from lower sales. Operating margins increased to 7%, up 230 basis points.

Distribution's 2012 sales were $351 million, down 1%. But full year operating profit was $29.4 million, up 14%. The profit increase was driven by a factor similar to those experienced in the fourth quarter. Full year operating margins increased to 8.4%, up 110 basis points.

The company's effective tax rate for continuing operations was 19.2% in 2012 compared to 21.7% in 2011. Last year's effective tax rate included the recognition of $1.8 million of discrete tax expense related to tax adjustments for earlier years. And in 2012, the effective tax rate was impacted by the absence of this discrete item, a change in the mix of earnings attributable to higher taxing jurisdictions and the impact of a decrease in the repatriation of a portion of our current year foreign earnings to the U.S.. The company repatriated $8 million in 2012 and $17.5 million in 2011.

Regarding share count, our fourth quarter average diluted shares outstanding were 55.2 million.

We had solid fourth quarter cash generation, as cash provided by operating activities was $59 million. This performance allowed us to reduce debt by over $40 million in the quarter. Total debt-to-EBITDA improved to 3.1x, down from 3.4x at the end of the third quarter.

For 2012, cash provided by operating activities was $136 million, up 13%. Free cash flow, which we define as operating cash flow less capital expenditures, was $99 million, up 17% in 2011, and our full year cash conversion was a solid 104%.

Turning our attention now to our outlook on Slide 5 of our supplemental slides. Please note that our 2013 outlook does not include any impact from the announced sale of BDNA and the CEO transition. We will update our outlook upon closing of this transaction, which we anticipate will occur late March or early in the second quarter.

For 2013, we expect sales to grow 14% to 18%, with operating margins in the range of 12% to 13%. EPS is expected to be $2.03 to $2.18 per diluted share, up 9% to 17% from 2012's adjusted earnings per share of $1.86. Our 2013 cash conversion is anticipated to be greater than or equal to 100% of net income, even though we do expect higher CapEx spending of approximately $50 million.

Our guidance reflects the following items: pension expense, as expected, is going to increase by approximately $3.5 million to $4 million in 2013, as a result of a lower discount rate of 4.25% versus 5.05%; interest expense is expected to approximate our fourth quarter run rate, planning purposes totaling around $17 million to $18 million for 2013; depreciation and amortization is expected to be roughly $70 million, and about $38 million of that reflect -- of the amount reflects our outlook for depreciation; and we expect the 2013 effective tax rate to be in the mid-20s.

And finally, let me provide some color on the recently announced divestiture of BDNA to MSC, which is summarized on Slide 2 of our earnings release supplement.

First, the deal. The transaction involves divestiture of BDNA, with operations mainly in the U.S. and Canada, and 2012 sales of approximately $300 million. The purchase price is subject to certain adjustments. And second, we would expect the after-tax proceeds to be immediately used to initially reduce our debt levels after closing.

Third, going forward, we expect to use up to half of the after-tax proceeds to buy back shares. Our board yesterday approved the new 2013 repurchase program of 5 million shares, which supersedes the 2011 program. We plan to file a 10b5-1 shortly and expect to repurchase between 4 million and 5 million shares in 2013, depending on our stock price. This, of course, is subject to change, and we will provide repurchase activity updates during future earnings calls.

Fourth, we expect to report BDNA and discontinued operations in the first quarter of 2013, and we will realign our reporting segments into 2: Aerospace and Industrial. The remaining business within the Distribution segment, Associated Spring Raymond will be realigned in the company's Industrial Segment. The financials will be adjusted on a retrospective basis to reflect discontinued operations and segment realignment. And finally, this transaction helps to improve our balance sheet as we pursue value-enhancing acquisitions and continue to invest in strategic profitable growth initiatives.

So let me end by making 3 points before we turn the call over to your questions. One, we delivered on our expectation of closing the year with solid fourth quarter performance. Two, we have made significant progress towards strengthening our balance sheet by focusing on reducing debt levels given the Synventive acquisition. And third, the recently announced BDNA transaction clearly provides a win-win and allows us to improve our balance sheet and seek value-enhancing investment opportunities.

So with that, operator, we'll now turn the call over and open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Edward Marshall.

Edward Marshall - Sidoti & Company, LLC

Where do I start? Can you shove anything else in that release?

Christopher J. Stephens

Yes, we got a lot to talk about.

Gregory F. Milzcik

Yes, I know we're a pretty happy folks, though.

Edward Marshall - Sidoti & Company, LLC

Yes, I think there's a lot of happy people out there today. Well, I mean just the deal multiples alone, I'm assuming that it looks a lot like just because of the synergies that are anticipated between the 2 businesses because they seem higher than some of the other multiples in the industrial space.

Gregory F. Milzcik

I'll tell you that there's tremendous synergies from a variety of perspectives. And I think that when we looked at how many synergy -- how much there was with synergies with MSC compared to our own company, it just confirmed our overall strategy that we need to be a more closely aligned manufacturing service business. And I think that the folks at BDNA will really appreciate being associated with a pure distribution company. They think distribution, they have been very successful over the years. The sales folks will have a lot more to sell, their product line offering will expand, so I really think this is a win-win. And it's part of our transformational strategy. We are definitely doing what we said we would do, and I'm really pleased.

Edward Marshall - Sidoti & Company, LLC

Just if I could speak to the timing, it looks like there's $400 million after-tax, give or take, some changes. You said by end of first quarter, beginning of second, is that right?

Gregory F. Milzcik

Yes.

Edward Marshall - Sidoti & Company, LLC

Okay. And the proceeds, did you say half the proceeds will be used for debt and the other half will be used for stock repurchase? Just can you go over those numbers again for me?

Christopher J. Stephens

Sure, Ed. So immediately, obviously, when we get the proceeds, we will reduce our debt. And the expectation in terms of the use of those proceeds, we said up to up to half of those proceeds would roughly be used to buy back shares, and we would anticipate that to be roughly 4 million to 5 million shares in the year. And again, of course, that's subject to change. As you know, we're continuing to look at opportunities from an acquisition point of view, but that's our thought right now.

Edward Marshall - Sidoti & Company, LLC

Okay. So just so I don't look back, you said half the proceeds, you mean $200 million will be placed towards the debt, the other $200 million will be going towards -- that's where I'm getting a little confused.

Christopher J. Stephens

Yes, yes. So there's multiple -- clearly, there's multiple of uses. So if you start with the $400 million of after-tax, we're going to immediately reduce our debt levels, so that's one.

Edward Marshall - Sidoti & Company, LLC

By what amount are you saying? Are you saying $400 million?

Christopher J. Stephens

Roughly. Some cash will be outside the U.S. and our debt is sitting in the U.S, so a majority of which will be reducing our debt levels. We're going to take a look at -- we'll obviously take a look at the pension funding, as well as investments in the business. But the headline is, is we'll immediately reduce our debt, and about half the proceeds would be used to buy back shares.

Edward Marshall - Sidoti & Company, LLC

So let me just clarify what you're saying. You're basically saying $400 million worth of cash, give or take, will go immediately to debt, you'll refinance at some point and that will be used -- those refinancing will be used for pension or debt -- I mean your share buyback...

Christopher J. Stephens

Yes, I wouldn't call it refinancing. I think we were just -- we have a $750 million revolver that's out there. So when we take those, most of those proceeds and reduce U.S. debt.

Edward Marshall - Sidoti & Company, LLC

I got you. Okay. So on to the guidance, and you made a few comments about the MRO business in the fourth quarter. Did you actually give up -- give the number for the fourth quarter?

Christopher J. Stephens

In terms of MRO in the fourth quarter?

Edward Marshall - Sidoti & Company, LLC

Yes, yes.

Christopher J. Stephens

Yes. So quarter-over-quarter, we were down actually 13% in MRO. And on the Revenue Sharing Programs, we were down 21%. So net-net, our aftermarket had a tough quarter. But I did comment sequentially the good news is that we saw sequential growth in our spare parts, our Revenue Sharing Programs from third quarter to fourth quarter.

Gregory F. Milzcik

And I'd also comment that if you look at the responses to inquirers from the OEMs, as well as some independent analysts, they're pretty bullish on aftermarket in the back half of the year. We're taking kind of a wait-and-see approach, but at the same time, the profitability of the airlines, combined with continued growth in flight hours, et cetera. Sooner or later, it's got to happen. We're just being a little more cautious than most.

Edward Marshall - Sidoti & Company, LLC

Okay. So if I can kind of cut to the guidance and how the aftermarket and your thoughts for next year, you're saying you're being a little bit and you just said again, wait-and-see kind of approach, conservative approach. Obviously, some of them -- the industry dynamics, your customers like GE are a little bit more apt to be a little bit more bullish. I know we've heard the song and dance before...

Gregory F. Milzcik

After a few times, you start to get gun shy.

Edward Marshall - Sidoti & Company, LLC

I get it. What is your expectation that you're building into the guidance for that business for 2013 bearing, I know you don't give individual segment guidance...

Gregory F. Milzcik

Right. We're looking at somewhat flattish.

Edward Marshall - Sidoti & Company, LLC

Flattish, okay. And so your customers saying up 10% -- 5% next year certainly means there's upside to that number?

Gregory F. Milzcik

Potentially, but they have been wrong before.

Edward Marshall - Sidoti & Company, LLC

Yes. Guidance looks like right in line with what we were looking for in the operating profit, but EPS was a bit shy. Was there something going on in a tax or interest to changes next year? I mean, you are paying down some debt and I understand that's not in the number there, but...

Christopher J. Stephens

Exactly. That's one caution and obviously, I wanted to give some color on guidance excluding the 2 announcements. But so given that, we wanted to at least profile out. I think the headwind of pension expense clearly was a drag on 2013 as we looked at that. But the rest of the business, that's how we're profiling out the year. And again, I would say just a little bit cautious on the aerospace aftermarket and outlook for 2013.

Edward Marshall - Sidoti & Company, LLC

But based on the revenue growth, based on the operating margin growth and if you kind of peel back the EPS assuming things are static from '12 to '13, it appears the number -- certainly the low end of the range is not even close. Is there something going on with the share count, the interest expense, the tax rate, something else that changes from '12 to '13 that we can kind of...

Christopher J. Stephens

Yes, share count for purpose of planning, again, prior to the transaction, we don't expect that to significantly change much. Clearly, you've got the headwind of an incremental interest expense that's factored in given the leverage, again, before transaction. And then tax rate-wise, we do anticipate that to be more in the mid 20% aside from this transaction.

Edward Marshall - Sidoti & Company, LLC

Like stepping back to the 24% or so that you just...

Christopher J. Stephens

Yes, so what we're kind of guiding in that number would be roughly mid-20s.

Gregory F. Milzcik

And don't forget, we still have the management fee increases year-over-year that are affecting the aftermarket as well.

Edward Marshall - Sidoti & Company, LLC

Right. But that should be related in the operating profit line?

Gregory F. Milzcik

Right, exactly [indiscernible] point.

Operator

Your next question is from the line of Matt Summerville from KeyBanc.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

Couple of questions. First on the transaction. Because I know your tax rates differed so much by jurisdiction, how much EPS accretion was there in 2012 from the business you're selling?

Gregory F. Milzcik

Oh, that's a good question.

Christopher J. Stephens

Yes. Again, for purposes of disclosure, Matt, we don't get to the SBU level.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

Chris, is there any color you can give us then to button it up in terms of the EBITDA generated by the Distribution segment, and then we can make our own Raymond adjustment?

Christopher J. Stephens

Yes -- no, I'd say again that the SBU level, we were cautious to that. And as you mentioned and I'll comment again, this relates to the BDNA divestiture within our Distribution segment, and we'll take the Associated Spring Raymond business, the remaining part of our Distribution business and move that to the Industrial segment.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

As you think about Synventive for a moment, how much -- if you back out the onetime costs for the transaction and inventory step-up, how accretive was it to 2012 versus what you anticipated? And how much accretion, on an incremental basis, are you factoring in for '13?

Christopher J. Stephens

Yes. So Synventive. As you recall last quarter, we talked about this short-term purchase accounting adjustment. That ended up being an 8% impact to the full year -- I'm sorry, $0.08 to the full year. So when you think about that impact and then the overall business, we were down -- roughly, we guided that we will have no dilution. We were down about $0.01 to $0.02 for the year, actually, so it's a little bit higher on that onetime item. And then we're staying consistent with our contribution of Synventive to 2013 where we commented on $0.16 to $0.18.

Gregory F. Milzcik

In general, we're very happy with the business. We think 6 months in, we're still -- there's no buyer's remorse.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

And then as you think about -- you mentioned the backlog in Aerospace early on in the call. How much -- it's about $550 million I think. How much of that you anticipate on shipping in '13?

Christopher J. Stephens

Roughly 2/3 of that gets shipped out in 2013. Roughly 60%.

Gregory F. Milzcik

And keep backlog as -- it's a very fluid -- it depends on customer and everything else and how they have horizon, so we're going to take that with a little bit of a grain of salt.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

Okay. And then, I guess, would you say your OEM business at this point, excluding 787s, so your legacy platforms, would you say that you're seeing a business level out the door, so parts going out the door is commensurate to how many planes the OEs intend to build as they've raised their forecast?

Gregory F. Milzcik

I would even include 787 in that. There's been no halt to 787 ramp-up at all. I know they have the issues with the battery and like, but there's they've been no impact that I've been able to ascertain, and that's the feedback we're getting from our customers as well. So we're seeing that there's a delay of 6 to 9 months or it's in advance to 6 to 9 months. In other words, it's 6 to 9 months from the time we ship a product before it gets out to the OEs, the final OE that is.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

And then just one last one on the Industrial business. You talked about Europe being soft outside of nitrogen gas spring. I guess, we're almost 2 months into the year. Are you still seeing that strength in nitrogen gas carry over? And I guess from a cost structure standpoint, you've seen several quarters now of Europe not doing a whole lot outside of that business. What's your approach to the cost structure in Industrial for '13?

Gregory F. Milzcik

Well, there's a couple of things. One is, we're still bullish on Nitrogen Gas Products as a whole. Long term, we have very good view on our Heinz Hanggi business because of the emergence of the gas direct injection technology. But also, there's some key points about the European auto specific PMI, which has been public for a little bit, and we're seeing increased order rates at our Seeger business. So I think stabilization and slight improvement would be the way I'd characterize Europe right now.

Operator

Your next question is from the line of Peter Lisnic from Baird.

Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division

So first question, if I could just -- Chris, you talked a little bit about BDNA and the numbers there with Raymond, but the total segment's $350-some-odd million in revenue, you've quoted about $300 million in the press release, so is it safe to assume that Raymond's about $50 million business and can we make the assumption to around a corporate level EBITDA margin kind of business just as we're doing this math looking forward?

Christopher J. Stephens

Yes, I would say, first of all, again, we're cautioned to comment on SBU-related profitability. But you're right, Peter, when you think about the $50 million roughly for our Raymond business would be transferred into Industrial.

Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division

All right, that's fine. And then as you're looking at the growth rate for 2013, I'm just wondering if we could parse out Aero and Industrial, just color commentary, not specific numbers if you don't want to give specific numbers. But with the pending divestiture of BDNA just building a model x that I think is going to be important. So just kind of what's the color on, Aero -- Aero growth as you look to '13? Can you give us a little bit of color there? But -- and also the outlook for Industrial specifically would be helpful.

Christopher J. Stephens

Yes -- no, no, no, very good. Good question. So on the Aerospace side, obviously, strong backlog, record backlog, right? Contributing a majority in terms of the OEM space. So we expect that to be double-digit growth clearly going into 2013. When you factor in the kind of, I would call, planned flattish level for aerospace aftermarket, we're being a little cautious there rightfully, so given 2012 in terms of how that played out. For Aerospace segment, we would expect low double-digit growth. On the Industrial piece, I'll actually -- let me comment on 2 pieces; one is without Synventive, and then one is kind of with Synventive, obviously, a lot of M&A contribution growth, inorganic growth, if you will, in that number. So without Synventive, we actually see, I would say, mid-single-digit type of growth globally, all right, within the Industrial segment and that would be the addition of our Raymond business to that segment. Clearly with Synventive, the revenues we anticipate are consistent with what we've communicated in the past than were close to 25% to 30% type of growth. So we -- I would say Industrial without Synventive, that mid-single digit and Aerospace being low double-digit is what we're anticipating for 2013.

Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division

All right. That's perfect. And then just on -- you were very clear on the capital allocation side, but I'm wondering as you kind of go through some of these moves with the portfolio and integrating Synventive, what's the appetite for maybe adding onto the business, not necessarily via new stool or leg of the stool, but just what the appetite for acquisitions might be and maybe what the pipeline looks like?

Gregory F. Milzcik

First of all, we have a large appetite for acquisitions especially now, but we're looking at several things. Our strategy of becoming more closely aligned, differentiated Aero Industrial business stands solid. And I might add, Patrick had a major hand, as well as Chris, in developing that strategy, so we expect that to continue going forward. Right now, we're looking at businesses or acquisitions that are aligned with the Synventive-orientated platform, as well as our Aero and industrial platforms to meet those criteria. So bolt-ons to existing businesses is the way I would identify those, not necessarily another leg of the stool, but building out a business that could potentially become another segment, such as Synventive's hot runner market may be one of the long-term goals.

Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division

Okay. All right. And then that leads in my last question, which is, actually for Patrick, and if he can opine or talk about whether or not there's any changes in the strategy. It sounds like not just given your answer there, Greg, but I'm just wondering as that transition occurs, should we think about any sort of adjustments to the operating model as we look forward?

Patrick J. Dempsey

Thank you and -- thank you for the question. So first, I might just say that I'm very excited to become the CEO of Barnes Group and for the opportunity to lead the company forward. I'd also like to just express my gratitude to the confidence that the board has expressed in me, as well as Greg, to lead us forward. What I would highlight is that one of the great benefits of being selected as an internal candidate by the Barnes Group Board of Directors through our internal succession planning process is the fact that, as Greg just mentioned, as a member of the senior leadership team, I've played an integral role in the development of our current corporate strategy. And as such, I'm fully committed to it along with the rest of our senior leadership team to its successful execution, so we're excited to continue to accelerate our strategy forward. And today's announcement is a significant -- with regards to BDNA, is just one more significant milestone on that path forward.

Operator

[Operator Instructions] Our next question is from the line of Scott Graham from Jefferies.

R. Scott Graham - Jefferies & Company, Inc., Research Division

So I just want to make sure, earlier, Chris, you indicated that the aftermarket and OE numbers, well, you said quarter-over-quarter, you mean year-over-year, right?

Christopher J. Stephens

So let me -- are you talking about 2012?

R. Scott Graham - Jefferies & Company, Inc., Research Division

Fourth quarter...

Christopher J. Stephens

Yes, so fourth quarter, let me give some color on fourth quarter. So OEM quarter-over-quarter was up 10%. Aftermarket was down for an overall Aerospace for the quarter was up 2%. And then, Scott, just to elaborate from a full year point of view, we saw 5% OEM growth year-over-year, down on the aftermarket side with an overall Aerospace of 2% growth.

R. Scott Graham - Jefferies & Company, Inc., Research Division

The second part of what you just said is a full year number, or...

Christopher J. Stephens

Yes, full year number. Year-over-year is 2%, quarter-over-quarter was also 2%.

R. Scott Graham - Jefferies & Company, Inc., Research Division

Okay. What I'm trying to understand is your definition of quarter-over-quarter. You mean sequential?

Christopher J. Stephens

No, that would be fourth quarter last year...

R. Scott Graham - Jefferies & Company, Inc., Research Division

Okay, so that's year-over-year?

Christopher J. Stephens

Year-over-year, yes.

R. Scott Graham - Jefferies & Company, Inc., Research Division

Fine. Okay. Next question is could you tell us the Synventive contribution to operating income dollars?

Christopher J. Stephens

No. Not to be blunt about it. We were cautioned about disclosing profitably at the SBU level. But I could say that aside from my earlier answer to the question when it was brought up, we saw a slight dilution to the year. But again, the performance of the business as we carried into 2013, we anticipate that to deliver $0.16 to $0.18 of EPS to the year. So again, just echoing Greg's comments, we're very pleased with the acquisition. It's going very well and we're progressing.

Gregory F. Milzcik

Good try, Scott, though.

R. Scott Graham - Jefferies & Company, Inc., Research Division

Well, Greg, now I'm going to come at you a little bit here. So we have a great job done by you guys selling Barnes Distribution Europe, then you fixed up Barnes Distribution North America and you sell that at what looks to be a pretty good price. You've got the largest OE backlog or Aerospace backlog, you've ever had. You just completed a partially transforming acquisitions from Synventive, and you've got now a bunch of proceeds to continue to upgrade the portfolio. You're a young guy and you're retiring.

Gregory F. Milzcik

That sounds perfect.

R. Scott Graham - Jefferies & Company, Inc., Research Division

Help me understand why you would retire right now.

Gregory F. Milzcik

Well, first of all, I'm really pleased -- I always say that though, if you leave the place in better shape than when you found it, you did a good job, and that's very satisfying to me. But I'm well into my seventh year at CEO, and I think it's healthy for the company, as well as for me, for a change. And don't forget, late '08 and '09 are like dog years, so it's equivalent to 17 years if you...

R. Scott Graham - Jefferies & Company, Inc., Research Division

For all of us.

Gregory F. Milzcik

Yes, I won't relive that. But I never truly intended to make -- being a CEO a lifetime career and I intend to continue working for the rest of my life, so when I say retire, that's just retiring from this particular position, but I will continue to make endeavors long-term. I intend in the short term to work with individuals and organizations helping to shape public policy in manufacturing in America, which I think is thoroughly needed. So that's why intend to do short-term.

R. Scott Graham - Jefferies & Company, Inc., Research Division

Well, okay. I thought we'll get a little from you, but that's okay. I get that. Patrick, on to you, just given what I laid out there, you now have this grand opportunity to continue to move -- trade the portfolio up into higher-margin businesses. Could you give us an idea of what's you're looking at? Do you think is it more on the Industrial side? More on the Aerospace? The balance of the 2, a third leg? What is your view here?

Patrick J. Dempsey

Yes, from my perspective, I think the focus will continue on the Aerospace and the Industrial segments more so than thinking about it as a third leg. As we continue to execute our strategy, we'll look to transform into more differentiated intellectual property-based products, processes and systems. And so I think we are actively continuing to fill the pipeline and are very aggressive in terms of our continued focus on identifying potential targets, and excited to continue to leverage the most recent transaction into future growth and the balance sheet will be in great shape for us to make our next strategic move.

Operator

We have a follow-up question that comes from the line of Ed Marshall.

Edward Marshall - Sidoti & Company, LLC

I'm assuming you're not going to give guidance x the sale of the business today, is that right?

Christopher J. Stephens

That's right, Ed.

Gregory F. Milzcik

So we wanted to making -- get through the transaction, and I would expect close at end of March, early part of the second quarter that we'd be able to share some color at our first quarter call.

Edward Marshall - Sidoti & Company, LLC

Makes sense. Is there any way you can kind of look at the position on your debt assuming the $400 million proceeds are paid off on debt, and what that interest expense for the year might look like, or at least the rate of interest that might look like, assuming you pay down certain tranches of debt that you like to?

Christopher J. Stephens

Yes -- no, understood. I'd rather wait for the first quarter. It's not I'm kind of trying to not to answer the question, it's just that we'll have a lot of moving parts, one, being the timing of that cash, thinking about the deployment, thinking about timing of share buyback. There will be many factors. I'd rather caution until the first quarter and then provide as much color as I can then.

Gregory F. Milzcik

We've discussed this at length that there's so many variables involved. I'm just going to add, we'd love to be open kimono right now to give you guys an ability to build the model going forward, but we just can't.

Edward Marshall - Sidoti & Company, LLC

Sure. Right. Out of curiosity, your guidance of $2.03, $2.19 and the other ranges as well, does that include -- is that GAAP? Are you including anything from Synventive, and I think you kind of alluded to that earlier in the call?

Christopher J. Stephens

Yes -- no -- yes, it's including Synventive in those numbers, so it's...

Edward Marshall - Sidoti & Company, LLC

Well, not just the acquisition of Synventive, but any inventory accounting, anything else like that?

Christopher J. Stephens

Yes, yes, it's a full-up number, exactly. It's not on adjusted basis. Let's say, $2.03 to $2.18 would be on a GAAP basis.

Edward Marshall - Sidoti & Company, LLC

What would -- what is the assumption for, say, onetime charges or accounting charges that is going with Synventive?

Christopher J. Stephens

Yes, there were just -- the short-term purchase accounting that we discussed with the 2012 issue given the inventory turns, so it's really behind us. As we go forward, it's more recurring in nature in terms of the purchase accounting impact.

Edward Marshall - Sidoti & Company, LLC

Okay. So the GAAP number is just as close to the adjusted number at this point anyway?

Christopher J. Stephens

Right, right. Exactly.

Operator

At this time, we have no other questions in the queue. I'd like to turn the call back over to Mr. William Pitts. for your closing remarks.

William Pitts

Very good. Thank you, Frances. Well, we would like to thank everybody today for joining us this morning. We look forward to speaking with you next quarter. So at this time, we will conclude our call.

Operator

And ladies and gentlemen, this concludes your presentation. You may disconnect and have a good day.

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