Good day, everyone, and welcome to the Fourth Quarter and Full Year 2013 TriMas Earnings Conference Call. As a reminder, today's call is being recorded. At this time, I'd like to turn the conference over to today's host, Ms. Sherry Lauderback. Please go ahead, ma'am.

Thank you, and welcome to the TriMas Corporation Fourth Quarter and Full Year 2013 Earnings Call. Participating on the call today are Dave Wathen, TriMas' President and CEO; and Mark Zeffiro, our Executive Vice President and Chief Financial Officer. Dave and Mark will review TriMas' fourth quarter and full year 2013 results, as well as provide details on our 2014 outlook. After our prepared remarks, we will then open the call up to your questions. In order to assist you with your review of our results, we have included the press release and PowerPoint presentation on our company website, www.trimascorp.com, under the Investors section. In addition, a replay of this call will be available later today by calling (888) 203-1112 with a replay code of 3029887. Before we get started, I would like to remind everyone that our comments today, which are intended to supplement your understanding of TriMas, may contain forward-looking statements that are inherently subject to a number of risks and uncertainties. Please refer to our Form 10-K for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statements. Also we undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. We would also direct your attention to our website, where considerably more information may be found. At this point, I'd like to turn the call over to Dave Wathen, TriMas' President and CEO. Dave?

Thanks, Sherry, and good morning. To all of you listening, we really appreciate your attention and support of TriMas. 2013 was a year of many accomplishments with multiple growth projects acquisitions, new products and cost-out projects that, completed, will continue to show increasing value for TriMas in future years. We ended 2013 with record sales of approximately $1.4 billion, a 10 point -- a 10% sales growth as compared to 2012, despite the challenges we faced in our Energy end markets. During the year, we fine-tuned our business portfolio with 10 bolt-on acquisitions to expand our geographic presence, product portfolio and customer base, and divested an industrial closure business in Europe. We enhanced our capital structure through our September equity offering and October debt refinancing, which reduced our interest expense and increased our liquidity and flexibility on a go-forward basis. We moved and consolidated multiple plants for cost reductions, evaluated many potential acquisitions and executed multiple growth and productivity programs in each of our businesses. These initiatives will position TriMas for continued sales and earnings growth and will drive additional shareholder value in the future. I'm willing to make a balanced number of these investments, even when some are not accretive in the quarter or year which they're implemented. Before I move on, I would like to address our fourth quarter earnings results, which fell short of our expectations and impacted our annual results. Our full year EPS was $2.06 per share as compared to $1.84 per share in 2012, excluding special items. We experienced all of the typical short-term pluses and minuses that a large set of industrial businesses tend to face. And of course, we are used to managing through those. But during the fourth quarter, we experienced additional pressure in our Energy businesses, Arrow and Lamons, which…

Thank you, Dave, and good morning. We had a busy fourth quarter and year, and we're active on many fronts. During the fourth quarter, we completed 3 bolt-on acquisitions, refinanced to lower our future interest costs and completed our Cequent manufacturing facility move to Mexico. In addition, we focused on many growth and productivity programs, which will drive future margin expansion. Let's continue with a brief summary of our fourth quarter results on Slide 7. Our fourth quarter sales were $323 million, a 7% increase compared to the fourth quarter of 2012 with the unfavorable impact of currency change of about 1%. During Q4, we grew in all of our non-Energy-related segments. Our bolt-on acquisitions contributed significantly with the remainder of these sales increases driven by our expansion in international markets and new customer wins. Operating profit for the quarter was $25 million, excluding special items, with a related margin percentage of 7.7%, flat with prior year despite being impacted by the challenges faced in our Energy end markets. Assuming we're able to hold the margin constant with prior year fourth quarter in our Energy-related businesses, we believe our fourth quarter operating profit would have been more than 200 basis points higher. Fourth quarter 2013 income from continuing operations attributable to TriMas would have been $14 million, excluding special items. This represents an increase of 8.5% compared to Q4 2012. We achieved a GAAP quarterly diluted EPS of $0.15, and $0.31 excluding special items, and absorbed 14% higher share count in Q4 related to our September equity offering. Acquisitions completed during the quarter also cost us about $0.01 in the fourth quarter. Moving on to Slide 8, 2013 full year results. We achieved record sales in 2013 of almost $1.4 billion, an increase of 9.6% as compared to 2012. During…

Thanks, Mark. Now I would like to look forward, starting with longer term, and then specifically about 2014. I'll start with our strategic aspirations on Slide 18. We stay consistent here. We intend to continue growing revenues through a combination of new products, expanding geographic coverage and new customers, utilizing organic programs and careful bolt-on acquisitions. Some market growth in the U.S. and Europe would sure help, but we grew nearly 10% in 2013 despite these slow-growth economies. Top line growth is a priority for us, as we intend to differentiate TriMas from our peer group by consistent implementation of our growth activities. We expect to pay for these growth projects with ongoing productivity and strike a balance of savings and investment that achieves earnings growth faster than our revenue growth. We talk often about our intention to improve TriMas' debt ratios such that our capital structure is in line with our peers. And as Mark showed you, we've made great progress here. Throughout all this, it is vital that we make TriMas the kind of company where people want to work and have a satisfying career, so we have multiple expanding programs, which address the communication and training needs of our increasingly global workforce, as well as provide competitive compensation and health care programs and career opportunities for our employees. So I'm pleased with our consistent effective strategic aspirations. At the same time though, it's clear to me that we are a changed company going forward with new top priorities. Our debt metrics have improved greatly, which has been a high priority for us. Going forward, our high priority is our need to improve our overall margin rates to be mid-pack with our peers or better. This margin improvement, of course, will be a major EPS driver for us…

[Operator Instructions] And we will take our first question from Karen Lau with Deutsche Bank.

On Lamons, could you parse out what exactly are the impact from weaker Brazil versus the slower refinery MRO impact? I'm just trying to get a sense of if, after you've taken the cost actions and if the MRO activity gets better, what would be your run rate -- your margin run rate next year?

The effect was largely a Q4 discussion, Karen, and the Brazil portion of the content was approximately $2 million.

Okay. So there's not a meaningful drag from MRO mix?

Absolutely. But if you look at the year-on-year comparison of that number, you can see that year-on-year within the quarter, they were down a slight amount, but we had also seen relative margin rates within that business also slow within the quarter. So for example, if you look -- if you exclude the $2 million that I made mention of, the business still lost $1.7 million plus or minus, approximately $1.7 million in the quarter. Margin rates are significantly affected by that.

I just like to -- so call that half and half. The characteristic of the business is it makes considerably higher margins on the fast turnaround stuff, the specialty products. And they clearly have got plant rebuilds pushed out. They're going to occur. We'll see when they occur. Obviously, the business will look a whole lot better as they start to kick in.

So what type of margins have you baked into your guidance for Energy this year?

When you think about margin rates in terms of the operating income level, you'll see a couple-hundred-basis-point improvement year-on-year taking into effect obviously the onetime nature associated with the Brazil actions that we took. And at some point, we don't expect the run rate of the business to be a Q4 run rate within the year. At some point, turnaround activities, it will -- starts to rejuvenate the business. Now we've seen some activity improvement in Q1 so far, but we're not ready to call a back-to-normal kind of level.

And so when we say we've got a margin improvement baked in, that's things we've got control of. It's some of the insourcing we're doing, it's the ramped-up production in India, it's some cost-out programs throughout the business, it's some new products that are higher margin. It's not -- I hesitate to forecast an uptick in orders. So again, all I can say is stay tuned. You have to believe it'll come, but I would rather count on what we've got in hand.

Okay, that makes sense. And then on Arrow Engine, the slower purchasing -- well, actually the purchasing from Pemex, how much of that would you attribute to the energy reform in Mexico, meaning that it could be a onetime event? Or could it be Pemex, because of the energy reform, they may be consolidating their supply base, so there might be some share loss there? Can you comment on that?

I have to -- I'd call it more the political restructuring of how they get oil out of the ground in Mexico. And so it's likely to be onetime. Our spec of engines is needed in those kinds of fields. So when they turn on, we tend to get the orders. We don't take the orders direct. They usually go to a pump jack manufacturer that we supply the engines. And there's been some changes in that, some acquisitions of different companies and things. But when you cut through it all and get to what engine is going to drive the pumps, they're most always Arrow engines, and we're clearly competitive in North America.

Okay, makes sense. And then lastly on Aerospace, you had very strong margins in the quarter, but yet you're calling longer term, you're only expecting mid-teens margins. I guess, are there any onetime issue in the quarter that lift up...

If I said that, I stumbled, Karen. Now that business can run at mid-20s. I...

I'm sorry, I mean mid-20s.

Yes. I mean, it can run in the mid-20s. And what drags it down are onetime things. We built a plant in Tempe and it took 18 months and I'm going to stop griping about that. So there are some things that can drag it down, an acquisition might be a little lower. But no, that's a business I count on running in the mid-20s.

Okay. But you're already in the high 20s in the fourth quarter.

That's true. And I mean, if you look at -- things are never quite this simple. But our strategic plan says grow Packaging and Aerospace and hold margins. And I mean, that's a pretty straightforward way to run the business as it does imply a pretty heavy reinvestment in the businesses and future programs.

Recognize also, Karen, that there is a very shortened effect associated with Mac Fasteners within that quarter, so that you have a full year effect in 2014 as a result of it being part of TriMas for the full year. So Dave's point is spot-on that we're looking at mid-20s in terms of the profitability of the business. The legacy businesses has recovered to its near-peak levels. So we've got work to do, as Dave made mention, around just making sure acquisitions continue to ramp to kind of like fleet averages in that specific business. And that's where the team obviously has focused it.

And we will take our next question from Scott Graham with Jefferies.

Maybe just some housekeeping stuff here. There were a couple of gains that you cited. And it wasn't clear to me that if it was for the fourth quarter or the full year on the gains in the segments.

Well, if you look at gains bridge for 2014 on a full year basis, you have the AL-KO as reported during the year, the AL-KO gain on purchase, the Italy gain on the sale of the business and Australia's sale of a plant in Q4. And those other 2 are obviously within the year, and Australia was obviously in Q4.

I got it. That's great. In the Energy side, particularly relating to the refinery turnarounds, how the branches serve that, it seems to me that we've heard that from a lot of companies, particularly in the second half of the year, oil it being high, not doing the turnaround activity that people thought. A very large MRO player just 2 days ago said that, that was an issue for them throughout the year. Any reason to expect why we won't return to normal turnaround schedules next year and kind of bail this Energy margin out? It just seems like the business is suffering maybe a little bit operationally but a heck of a lot more from what seems to be maybe more of a transient issue. Are your customers saying they expect something more in '14?

Of course, you're perceptive. That's what's going on. It's lack of turnarounds. And of course, they have to do them at some time. And the only -- the thing I'm not sure of what might have changed is they may have -- for years, you could count on turnarounds. Some companies did them in December, some companies did them in August. And the people in that business got real used to that, and they knew when to build up inventories, et cetera, et cetera. The people running those plants may have gotten better at extending the turnarounds, putting them in different cycles and all that, so it's probably gotten tougher for us to -- for everybody to forecast. But that said, you walk through those kinds of plants. They have to shut down periodically and do rebuilds. And so of course, it will come. And the struggle is what do we all forecast? And again, you know my style. We won't forecast it until we see the orders because it's just out of our control.

Right. Yes, I agree with that statement, by the way, about the efficiency in these operations being able to extend, which isn't necessarily a good thing for suppliers, but it does tell you that it's still coming at some point. The other question I had was relating to the acquisitions, where you gave -- specifically said that you were unhappy with where they were or they were behind plan. Can you tell us which acquisitions they were or maybe even within the segments?

I'm not going to list the acquisitions. Obviously, we have a batch of smaller acquisitions that we're working on. But that is not -- and it's affecting within Cequent, it's affecting within Energy, it's affecting within -- not really in Aerospace. So I'd say it's within Engineered Components and Cequent and Energy, a little bit. But it's a handful. And again, I mean, the thing we're happy about is in summary, in some, enough of them are ahead that we're making up for some of them that are behind. We've just got to get the ones behind and get the lessons learned and get them on track. And you know how it is. Our acquisition checklist is 300 items. And they aren't fluff, they're real. And sometimes, you just have to double up on the project management and the horsepower to get some stuff accelerated. I can't give you a numbers answer, obviously. But there is an upside for us by pulling those forward. And there's -- going forward, you learn lessons and get better at it.

Just to emphasize Dave's point a little bit here, it's Cequent Americas, Cequent at large in terms of when you think about these smaller acquisitions that we did outside of our home markets. Now I want to emphasize a point here. This is not that they're going poorly. They're not just going as well as we had hoped or planned for. So we still remain very much enthused by the acquisition thesis of these businesses. We're just behind time scale. And the other portion obviously being Lamons, and specifically you heard us talk about Brazil.

Understood. I actually have one other question, if I may. 2013, you did a lot of things. You even went through it, Dave. A lot of changes of facilities, openings, closures, acquisitions. What is -- if we look at all those, as let's say just put them on a list of, let's say -- I don't even know what that list count is. But if you were to look at a similar list for 2014, is that a lot fewer? Like in other words, have you done a lot of the things you want to do? Or is that list the same number?

The list is a smaller number. Now I remind myself not to just pull in my reins and say we're going to stop and fix everything before -- get everything settled in. But no, you're going to see us do fewer, bigger, better acquisitions. We don't have any more huge plant moves to make, like Indiana to Reynosa and Juarez. Now there may be some other smaller ones, but we don't have any of those big ones. That one will still work out through 2014. I mentioned suppliers. You don't get the whole supply base moved right away. You don't get all your warehouses done, et cetera. But no, I think 2013, and I've said it before, we knew we had a big interest rate reduction going on, interest cost reduction going on in '13, and it was the year to spend money on some of these catch-up projects. So less -- part of risk management is to think through that and mitigation. And yes, I think we've got fewer, bigger projects in '14.

And we will take our next question from Steve Barger with KeyBanc Capital Markets.

I'd like to start back on Slide 23. And sorry, if I missed this. Did you say what the $0.19 in nonoperating items is made up of?

In his script, he did not. But it was asked in terms of what those gains were, and it's really the AL-KO bargain purchase gain, the sale of the Italy business and Australia's sale of a building. All generally equal, Steve.

Okay, good. Next on that bridge, you show the $0.18 headwind from the secondary, offset by $0.05 of interest reduction. When you did the secondary, it seemed like you were raising cash to pursue the acquisition strategy. And Dave, I heard you just say you'll do fewer and probably larger acquisitions. But now that the cash has gone to reduce debt in what is a net dilutive effect, can you tell me just what changed in the mindset between last fall when you did the deal and now?

Steve, I would tell you that nothing changed in terms of the thought process. Acquisitions are a fluid thing. And as such, we closed 3 within the quarter. There's still plans to deploy this capital. We will remain acquisitive in nature. We are very, very much focused on, as Dave made mention, the Packaging and Aerospace businesses in terms of really looking at assets in that space so that the money will be deployed. Recognize that we're only 4 months into that and we've already used a chunk of it in Q4. And we're here at February 20, and the quarter is not even done yet.

Right. So if I take your guidance range and just kind of back into the operating margin, it looks like it's maybe a mid-10% range. Is that right? And I guess, is that how you're thinking about the profitability of the portfolio, this as you look into 2014? Or do you really think that there's puts and takes that can drive that higher as you go through the year?

There's obviously some puts and takes that can drive it higher through the year. I think you can probably back into a margin improvement of at least a full percent, if you...

Yes, that's at the high end there. So that's...

You're right.

So as you think about the year, how much is dependent on the revenue hitting the high end of your range? Or how much operating margin expansion do you think you can drive if revenue were to come in at the low end or to disappoint? Do you have a line of sight on how you drive margin in that environment looking into '14?

Yes. Margin improvement on an ongoing basis is a very high priority for us. If you sat in the meeting with all the P&L managers, you'd -- and it's 100 programs and it's cost-outs, it's products that have higher mix, it's willingness to raise prices on some product lines and suffer revenue loss if we have to. There's a whole lot of those kind of things. But it's pretty clear to us that it's time to work hardest on margin, versus at times working hardest on debt. Now we've got to do a lot of things, but top priority for us is gross margin and operating profit margin improvement.

Got it. And last question, I'll get back in line. You and Mark have done a lot of deals at TriMas and, I think, in other phases of your career. And during your prepared remarks, you talked about really needing to get better at integrating acquisitions. Can you talk about any of the specific steps you're taking? Is that coming organically just from learning as you go on these specific deals? Or are you engaging outside services to implement external best practices? Or how are you going about that process?

You may have met Tom, my head of operations here at corporate, who mostly has been building out our Global Services Organization in the world, which is purchasing and new markets penetration and that kind of thing. But Tom is a longtime VP of ops type. Tom has added some project managers to specifically do project management and, call it that 300-person integration list, which if you look at that list, some of it is, I'll call it, corporate stuff, like payroll and reporting and all that. And some of it is integration within the business and CapEx and what are we going to change and all that. And we've had too much variance in the success rate, the speed rate of that implementation. So what do you do? You put project managers on it. You have a few people that you can lean on to go -- I mean, I had one of our high-performance people here go run an acquisition for a few months until we could put a new manager in place, things like that. So I would say it's specifically project management, adding some resources that know how to do that and working through -- because we know the plan, it's getting it done faster.

Right. So the focus this year, margin expansion, acquisition integration, and then third, acquisitions themselves. Is that a fair characterization?

I think that's a fair characterization. And I've said it in a variety of different ways. But the board has talked with us pretty extensively about it's time for us to do maybe a little bigger, not 10 times bigger, but a little bigger. Still bolt-ons, but in better condition, less fixer-uppers and more that we can enhance. But it's not a fixer-upper, and there's a difference in those. You might pay a little more, too, and that's the balance.

And we will take our next question from Robert Kosowsky with Sidoti. Robert A. Kosowsky - Sidoti & Company, LLC: I was wondering on Cequent North America. Can you dive a little bit into the profit weakness that we saw year-over-year within the business? And just curious if there were facility move expenses in there. And then ultimately, what accretion do you see from the facility move from Indiana to Mexico?

First question first in terms of the effects within '13. Yes, there are some costs associated with inefficiencies that we did not special item as a result of the move. And as such, you saw some headwind in that context. I would also say that the other pressure in terms of relative margin rate was the acquisitions of Harper and Laitner Brush within the consumer portion of that Cequent Americas outlook. Those are the 2 major drivers of that degradation year-on-year. Just to add clarity, where that Laitner and Harper acquisition is, we've just finished the consolidation of both facilities into a single production location. The team is going through optimization. And one of the meetings that Dave made mention of, what we're calling get-on-track meetings, was about the plans around that Harper and Laitner business. As an example, just to talk about the intensity and visibility that it's getting. So that's that. With respect to 2014 on a roll-forward basis, the production activities have moved. The burn-off of inventory at the higher cost levels continues. And therefore, we're seeing improvements in our standard cost, so to speak, that other parts of the business are feeling as a result of their purchase products. So to that end, we're going to see a good portion of Q1 without improvement because of the burn-off of inventory. And throughout the year, you'll see continued improvement as they make their way through supply chain efficiencies and, ultimately, distribution challenges. Recognize that we're talking about 40% of the, I believe, the manufactured product that CPP otherwise moved. So this is the largest plant move that Dave and I have seen at TriMas. And the manufacturing is going exceptionally well. It's now about burning off the inventory, getting through the supply chain and optimizing that distribution activity. Robert A. Kosowsky - Sidoti & Company, LLC: Okay. And any way you can frame what the potential accretion is longer term with this move?

[indiscernible]

Well, the labor costs alone on a full year basis was basically the labor arbitrage between Goshen, Indiana and Mexico. That's -- 350 people is what we typically talked about. And it's about $20 an hour in terms of all-in cost. The implication here is that, that's a labor good guy. There's a couple million dollars of a transportation bad guy, and you can do your own math as to what that should be on a full implementation basis. But as I said, we're still getting through that. You have to purge the inventory that was obviously produced in a higher-cost jurisdiction. It's going to take us some time to get through that. But we're starting to feel and see the labor cost advantage in our production costs. Robert A. Kosowsky - Sidoti & Company, LLC: Okay. That's helpful. And then finally, on Packaging. Any way you can view what your growth rate of your blended markets were? I'm just trying to get a sense of what your new products have contributed to market outgrowth growth rate, and then kind of how that looks in the next couple of years. Do you see that increasing now that you have the Beauty Park up and running and you have the China facility running? And I'm just trying to get an understanding...

Probably the indicator is middle-class growth rate. So you really got 0% to 1% in the U.S. and Europe and 5% to 10% in India, Thailand, Philippines, Brazil, et cetera. And so the only way we can get the market growth is penetrate more and more in those 5% to 10% markets. If you look at year-over-year comparisons for us in China, if we showed you those, I mean, they're huge year-over-year growth rates. But it's almost out of context because it's starting at such a small number and then growing. Let me put it in perspective, India is very attractive for this kind of business. It's not just middle class in India. Most cosmetics and pharmaceuticals in India are sold in what we would all call a little aluminum foil envelope that you tear the top off of. The conversion to dispensers, somebody has to pay more money, buy a larger amount, the conversion is ramping like crazy. We are very attentive to that. So how do you measure that kind of growth rate, but the growth rate is so high that we have to plug ourselves into it. But unfortunately, I mean, we all got to admit that the U.S. and Europe are flat. And the only way we get growth is form ourselves a little more, we get some product growth. But as far as the end markets, they're flat.

And we will take our next question from Walter Liptak with Global Hunter.

Most of my questions have been asked already, but I just have a couple of hopefully quick ones. Did you call out what the acquired sales were from the bolt-on acquisitions?

In 2013, the full year effect was...

I mean, just in -- yes, maybe -- I'm sorry, for '13 and for the fourth quarter.

That's what I was answering. 60% of the growth within the year was related to acquisitions. Within the quarter, it was the vast majority of the growth within the quarter. Recognize the underpinnings associated with that. You had some businesses actually shrinking from an organic perspective, so just putting it in context.

And I'll add the complexity that we did sell a business in Italy in Packaging that takes that revenue out year-over-year. A smart strategic move, sold at the right time, et cetera, et cetera, but it does give us a headwind on number comparisons.

Okay. It wasn't clear to me, on that Italian sale in Packaging, was that gain excluded from the adjusted operating profit? Or was that included?

There's 2 pieces of it, a, it was in Q3. It wasn't a Q4 effect. There's was the currency translation that got special item-ed, which was a big number. And a gain on the actual sale of the business in terms of the assets of the business was recognized in Q3.

Okay. But the foreign currency was a special item so that was excluded from the fourth quarter number.

They're both Q3 events, Walt, between that and [indiscernible]

Okay, got it. And then on the Arrow business, the weakness that we're seeing there, I just want to clarify that this is CapEx-related by the Energy producers and not related to any of the consolidation that's happened in the industry? Or is it a combination of those things?

It's CapEx-related. The consolidation confuses things, changes timing and all that. But that's probably all it really does to it. You mean GE buying Lufkin and that kind of thing?

Yes, right, exactly.

And we will take our next question from Andy Casey with Wells Fargo Securities.

Questions really related to the 2014 guidance. Could you provide a little more color on the components of the 6% to 8% revenue growth forecast, meaning how much is related to base and acquisition carryover benefit?

If you think about it, the benefit in 2014 from acquisitions is probably about 1/3 of the overall gain.

Okay. And then going back to the margin outlook question that was asked a little bit earlier, I appreciate the line of sight methodology. But trying to understand the implied 32% incremental operating profit margin midpoint a little bit better, given what you encountered in 2013 related to energy drag, some nonspecial Cequent that probably don't reoccur, then the benefit of the labor cost improvement for Cequent Americas, and then some tailwinds from some other stuff. So within the guidance, how much, if any, of the reversal -- of any reversal of the $0.27 2013 Energy-related headwind are you including?

That's a great question. When you think about it, the adjustment that Dave talked about from onetime effects within that is circa $0.05. Those would obviously improve. The volumetric element of it is we planned this business with some level of improvement in terms of relative volumes. Both those Energy-facing businesses, some improvement in terms of relative volumes that you'll see improvements in profit generated from those companies year-on-year.

So within the businesses, I did say that if you look at a snapshot right now of Arrow, it looks a heck of a lot better already. What we're unclear on is how much of that is cyclical and how much of it is seasonal. Our products tend to be used quite a lot in Canadian oil and gas fields. And even though it's snowing here in Michigan right now, Canada is starting to turn on their fields. And so we have order rates strong there. If that's all it is -- and that's all we're seeing it is so far, that it's not a cyclical recovery, it's seasonal. But we did shoot ourselves in the foot. We thought that selling services in compressor fleet compressors and renting made all kinds of sense. Well, it does until other customers see you as a competitor. But we've already reversed that. So we do know we're going to have an improvement there. And I mentioned we actually -- we'd already sold or we'd already leased a lot of compressors out. We actually sold that lease fleet a month ago to one of those customers. So that's one way of saying you'll see Arrow looking better, faster than you'll see Lamons looking better.

And we will take our next question from Davis Paddock with Invesco.

My first question is on Cequent Americas. And just hearing you describe kind of what's going on with the plant move, would it be fair to say that Q1 margins should be around the level of where we were in Q4, and then they should progress -- increase as we go through the year as the inefficiencies and acquisition integration costs abate?

When you think about it, the seasonality of this business, Davis, should show you an improvement Q4 to Q1 on a rolling basis.

A lot of U.S. customers stock up for the season in first quarter, so that will -- but if you look at pure gross margin based on cost, you're right. We're still burning off inventory in the first quarter. We're still moving supply base, we're still moving warehouse stuff. And through the year, all that gets better. But that it's overriding it is the normal seasonality of that business.

Okay. And then you mentioned on your long-term goals that for Cequent, low-teens operating margins. Is that for both of the Cequent segments?

Yes, that's total.

Right. And I mean, should they be, over the long term, roughly equal in margins? Or is there some structural difference that would cause one to be different than the other?

Our history says that we tend to be highest margin in the country of Australia. We are very, very -- we're high share here, we're higher share in Australia and we tend to be the highest margin. Now there's a lot of strategic issues in Australia, the last manufacturers of SUVs and that sort of thing have announced closures in Australia. So longer term, it may drop off some there, and then it will all be about the same. But I anticipate keeping the Australia margins a little bit higher.

Okay. And so on the Asia and the rest of the world Cequent, you did actually mid-teens margins a few years ago, but you're down to 9% in '13. Is the primary difference there just some of the acquisitions you made and getting them up to the average?

It's the acquisitions and the moves. I mean, we did an acquisition in South Africa, and then immediately moved into a bigger operation because we had 2 big customers show up doing pickup trucks there. And as you know, it's an easy strategic decision to make the move and add the capacity and all that. But short term, it's an ops cost negative. But we wouldn't be doing it if we couldn't get to that low mid-teens.

Right. And so what's -- I mean, those acquisitions were a little bit -- a while ago. I mean, what's the time frame to get those acquisitions and moves and so forth fully integrated to get back to those low-teens targets?

Well, to put it in context, just to make sure that we're on the same piece of paper, we bought Witter in April and AL-KO in July of this past year. So there's still efforts that in terms of optimizing AL-KO, that's probably more of a significant effort for us. And the Witter acquisition was a healthy business running very well, so we've got more leverage there than we probably do have cost synergies. And BTM, it's been a discussion really of customers and being ready for those customer needs. So the timeline, we're in that timeline.

I'm sorry. We're in that timeline to get back to that the low-teens by when?

Within that timescale that Dave talked about, the next couple.

Okay. And then in Americas, as we exit '14, will we have a line of sight on this low-teen margins goal at that point? Or is that...

We'll have line of sight, but don't count on it in '15. I mean, these are big businesses and they take quite a while to improve. I'll remind you, we're talking about a set of businesses that was barely profitable 5 years ago, and they've come a long, long way and will continue to improve. But they're big businesses, and it takes a little while to move the needle. The dollars change is big.

And we will take our next question from Philip Shen with Roth Capital.

Just have a quick couple of housekeeping questions. First one is can you share with us what your target for 2014 CapEx might be?

It's in the presentation, 4% of sales.

Great. And in terms of free cash flow guidance, using the midpoint that you have, you're looking for free cash flow to grow by 25% year-on-year. How much of that improvement in free cash flow is driven by improved working capital management that you see?

When you think about it, it's probably a portion -- we could probably apportion it basically 50% in terms of working capital and 50% basically add back to D&A. Because we're starting to get to that same reinvestment level versus it being disproportionately new capital into the business.

And we will take our next question from Samuel Eisner with Goldman Sachs.

So just in terms of the timing on the new facility in China, when is that supposed to be fully up and running and when do you expect it to start registering D&A on that business?

The China 2 Packaging plant, the plant is built and equipment, some of it's moved in, that sort of thing. Actual production is in second quarter.

But you're currently paying or at least absorbing that fixed cost at the moment?

Yes.

Okay. And then on Tempe, you mentioned within the Aerospace & Defense business, you mentioned that you had some ramp-up, I guess, in the production there. Are you fully absorbed there? Are you running -- I guess, what is the utilization on that facility? Just curious again also when that's fully up and running.

In my terms, utilization is barely 50%. And it is configured, though, because, I mean, if it all goes right, we'll double the size of the plant a year from now, and then step down utilization and build it and ramp up. It has sunk in that we are at the beck and call of the customer approvals, and they need us and they pay our prices, all that sort of thing, but it's step function changes. Yes, so we're 50% utilized right now in that facility.

Okay. And then just, Dave, to clarify your comments on your Cequent exposure in Asia Pacific. It sounds like you were saying that there are some structural issues over the long term with your business from both a revenue and margin standpoint as you have some of the OEMs starting to pull out of that market? So just curious if you want to hash out that comment a little bit further.

I would say it's not a strategic threat to the business, but it changes the product and the part numbers. If you used to have a GM plant building in Australia -- and they're still going to sell vehicles, but they're going to be shipping them from someplace else, and then all the accessories that we sell will be a different spec. So we'll be chasing all that as to where we build it, what product line works. I mean, this is a common story you hear. Globalization continues to occur. Australia had been kind of a market by itself for a long time, but globalization's kicking in. But luckily for us, we are the provider that has full global product lines. But we'll be adapting to it. The trick is stay ahead of it. So I would not call it a structural threat. I would just say the people running the business have a lot of work to do to stay on top of it. But so be it, that's what we do and that's how we stay competitive.

Understood. And then just lastly, Mark, on the tax benefit in the quarter, what specifically was that? And if you can call out maybe just the EPS impact.

On the year bridge?

On the year bridge or...

On the year or just also on the quarter. I think, on a GAAP basis, I think it was $2 million or $3 million tax benefit. And versus my expectations, the overall tax rate, even on an adjusted basis, was much lower than I was expecting. So just curious, are there some true-up issues that happened this quarter? What specifically happened in the quarter regarding taxes?

It gets back to the restructuring initiatives within Cequent and when they were ultimately deducted and when they were ultimately recognized. So that's where you're seeing a heavier amount there.

And at this time, I show no additional questions or comments over the phone lines.

Well, we sure appreciate your attention and questions. I'm encouraged by how much you all know about our business, so thank you for your attention. I said a couple of times, stay tuned. I think we've got a lot of good things going on. It's our job to make them happen. And so you know we're keeping at it. So again, thank you, and we'll talk to you later.

And that does conclude today's conference. Ladies and gentlemen, we'd like to thank you for your participation. You may now disconnect.