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FMC Technologies Inc. (NYSE:FTI)

Q4 2008 Earnings Call

February 17, 2009 9:00 am ET

Executives

Robert K Cherry – Director of Investor Relations

Peter D. Kinnear – Chairman, President, and Chief Executive Officer

William H. Schumann, III – Executive Vice President and Chief Financial Officer

John T. Gremp – Executive Vice President of Energy Systems

Robert L. Potter – Sr. Vice President, Energy Processing and Global Surface Wellhead

Analysts

Geoff Kieburtz – Weeden & Co

Robert Mackenzie – FBR Capital Markets

Collin Gerry – Raymond James & Associates

James Crandell – Barclays Capital

Dan Pickering – Tudor Pickering Inc

Kurt Holland – RBC Capital Markets

Kevin Simpson – Miller Tabak

Kevin Pollard – JP Morgan

Joseph Gibney – Capital One/Southcoast, Inc.

David Anderson – UBS

Richard Kindig – Keeley Asset Management

Operator

Good morning and welcome to FMC Technologies fourth quarter 2008 earnings release teleconference. (Operator Instructions). Thank you. Your host is Bob Cherry, Director of Investor Relations. Mr. Cherry, you may begin your conference.

Robert K. Cherry

Thank you operator, good morning and welcome to FMC Technologies fourth quarter 2008 earnings conference call. Our press release and financial statements issued yesterday can be found in our website.

During our call we will reference earnings from continuing operations, which excludes the results from the Food Tech and Airport Systems businesses that were spun off to shareholders in the form of a stock dividend on July 31, 2008. Historical results have been revised to reflect those operations as discontinued.

I would like to caution you with respect to any forward-looking statements made during this call. Although these forward-looking statements are based on our current views and assumptions regarding future events, future business conditions, and the outlook for us based on currently available information, these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by these statements.

I refer you to our disclosures regarding risk factors in or annual report and our other SEC filings. I will now turn the call over to Peter Kinnear, FMC Technologies Chairman President and CEO.

Peter D. Kinnear

Good morning. Welcome to our Fourth Quarter 2008 Conference Call. On the call with me today are Bill Schumann, our CFO, John Gremp, who has our Energy Systems, and Bob Potter, who runs our Energy Processing and Surface Wellhead businesses.

I'll give you some highlights on our fourth quarter and full year results, Bill will then provide you with additional details on our financial performance and outlook for 2009, and then we'll open up the call for your questions.

First, let me say we finished the year with a very strong fourth quarter. Our fourth quarter diluted earnings per share from continuing operations was $0.74, bringing our full year results to $2.72. This is an increase of 39% from last year, 2007.

We had record revenue in Subsea for the quarter. For the year, Subsea revenue reached $3 billion, up 32% from 2007. Energy Productions operating profit was up 39% from the prior year quarter, and up 46% for the full year on the strength of our Subsea business.

The Energy Production operating margin in the fourth quarter increased to a record 12.2% and was 11.5% for the full year. The quarter also included significant business development activities, as well as new technology advancements.

In December we acquired 45% interest in Schilling Robotics, a leading manufacturer of ROVs, ROV manipulator arms, and control systems. We have an option to purchase the balance of Schilling Robotics starting in 2012.

As more complex Subsea systems, such as Subsea Processing, are installed on the ocean floor, we envision increased use of ROVs during the life of the Subsea field, including the initial installation, maintenance, and monitoring of the equipment on the seabed.

Also in the quarter, we achieved a new Subsea completion depth record of 9,356 feet. This was achieved at Shell's Perdido Development, located in the Gulf of Mexico. FMC also held the previous record which was at 8,995 feet, at Anarcho's Independence Hub, also in the Gulf of Mexico. We also added to our portfolio of Subsea customer alliances and recently announced a new Subsea frame agreement with Noble Energy for the Gulf of Mexico.

Our fourth quarter and full year Subsea orders were characterized by numerous smaller projects. We had orders for 32 Subsea trees in the fourth quarter, a total of 122 for the full year. The 122 trees were ordered by 22 different customers who were on 38 different projects. Our average order value per Subsea well was slightly over $17 million for the year.

In 2008, about 50% of our tree orders came from customers with whom we have Subsea alliances. We ended the year with a Subsea backlog of $3 billion, this substantial backlog should provide us with comparable revenues in 2009 as we had in 2008.

We continue to expect numerous small Subsea add on orders to existing fields in 2009. The bigger question is the Subsea order rate in 2009 for delivery in 2010 and beyond.

Looking at the upcoming large Subsea projects, which have historically been less than 50% of the total market, we still see a healthy list. However, the projects on that list are weighted to the second half of 2009, and are subject to more uncertainty given the commodity prices. This uncertainty will continue as oil companies assess investment decisions on their Subsea projects.

On a more positive note, Petrobras is aggressively pursuing their pre-salt discoveries. We are well positioned in Brazil with over 1,000 employees focused on Subsea. We just recently received a $75 million order from Petrobras for four Subsea manifolds. Two of the manifolds will utilize FMC's proprietary all electric actuators for the operation of the chokes, and we have installed over 100 all electric actuation systems worldwide to date.

In our other businesses we are facing short-term market risks, particularly in North America with our Surface Wellhead and Fluid Control businesses. North American sales for these businesses account for approximately 10% of our total corporate revenue.

While these businesses held up very well in the fourth quarter, they are ultimately driven by North American land rig activity, which we believe will be down significantly in 2009. We also expect declines in our Loading Systems, Measurement, and Material Handling businesses in 2009.

Returning to and summarizing our fourth quarter results, we saw strong revenue in profit growth. Subsea revenue reached a record $788 million in the quarter, and our operating profit in Energy Production segment was up 39%. The end result was a 39% increase in diluted earnings per share.

And now let me turn the call over to Bill Schumann, who will provide you some further details on the quarter and more details in our outlook for 2009.

William H. Schumann, III

Thanks Peter. Let's review the continuing operations for the quarter first. Energy Production sales were $973 million, up 12% over the prior year quarter, primarily due to the growth of Subsea sales, which increased 15% in the quarter. Surface Wellhead revenue was down slightly in the fourth quarter.

Energy Production segment generated EBIT of $119.1 million in the quarter, up 39% from the prior year quarter due to higher margins and volumes. Higher operating profit for Energy Production reached an all-time high of 12.2%.

Inbound orders in Energy Production were $402 million in the fourth quarter, backlog was $3.3 billion, including Subsea backlog of $3 billion.

We received new Subsea orders of $692 million in the fourth quarter. This new order volume was reduced by $484 million due to the impact of weaker foreign exchange – foreign currencies on our backlog, resulting in year-end Subsea backlog of $3 billion.

Most of the impact was from the Norwegian kroner and Brazilian real, which fell against the U.S. dollar by 22 and 29% respectively, from the end of the third quarter to the end of the fourth quarter. Those two currencies typically comprise around 60% of our Subsea backlog.

Energy Processing sales were $230 million, up 9% over the prior year quarter. This segment generated EBIT of $40.7 million, up 4% from the prior year quarter.

Energy processing sales increase was primarily due to our Material Handling business. The segment's operating profit margin dipped from both the prior year and sequentially, to 17.7%. This drop reflects a sales mix of lower gross margin products.

Inbound orders and backlog for Energy Processing were down sequentially, decreasing 29% and 17% respectively. The decreases came mainly from Loading Systems and Fluid Control. In Loading Systems the large Flex LNG order in the third quarter caused the fourth quarter inbound difference. In Fluid Control, the weakening pressure pumping market dampened order flow towards the end of the quarter.

Now for the corporate items; corporate expense in the quarter was $9.1 million, down 8% sequentially. Other expense net of $21.8 million increased $34.7 million from the prior year quarter. This increase was primarily driven by three items; the net impact of foreign exchange gains and losses in the quarter was a loss of $8.3 million driven by foreign currency rate changes.

The prior year quarter saw gains from foreign currency hedging activities, which drove a net gain of $11.9 million, thus creating a quarter-over-quarter difference of $20.2 million. Additionally, the company had an increase of $7.2 million in pension related expenses due to executive early retirements, and we had an increase of $4.6 million in LIFO inventory costs, also in the fourth quarter.

The tax rate for continuing operations in the quarter was 26.8%. It was lower than expected due to the recognition of foreign R&D tax credits. The full year rate was 30.1%.

Our net debt at the end of the fourth quarter was $155 million, comprised of $340 million of cash and $495 million of debt. The increase in net debt was partially driven by our investment in Schilling Robotics and by pension contributions made in the quarter.

With our January addition of a $350 million revolving credit facility, we now have $950 million of total credit facilities in place.

We averaged 127.5 million diluted shares outstanding in the fourth quarter. We also spent $47 million for capital additions in the quarter, which was down 36% from the prior year quarter, as spending nears completion on our Subsea capacity expansions and Light Well Intervention Systems.

The full year total for continuing operations CapEx was $165 million. We expect 2009 CapEx to be around $120 million.

As we look forward into 2009 we see an uneven year. In Subsea, we benefit from having a $3 billion backlog. As Peter said, 2009 sales should be comparable to 2008 sales. We expect this despite foreign currency exchange rate declines of 20% and 24% for the Norwegian and Brazilian currencies, respectively.

On the margin front, we expect that based on our continuing improvement and execution, we'll be able to increase our margin slightly from 2008 on our existing backlog.

Our Surface Wellhead and Fluids Control businesses are the most exposed to the North American land drilling, 10% of total revenue, and slightly more of profits. As such, they face revenue declines in North America, but not as extreme as the decline rate in the land rig count. Their operating profit decline in the market should exceed – will probably exceed their revenue decline.

We do not expect the same impact on the international side of these businesses, which represent 40% of the Wellhead business, and 45% of the Fluid Control volume, as they expect to be only slightly impacted in 2009.

We believe that our other energy processing businesses linked to infrastructure spending will be down 10 to 15% on the top line and 15 to 20% on the bottom line. For corporate items, corporate staff will be down from last year, and other expense nets should be higher, due in part to higher U.S. and international pension expense.

So in summary, we see an uneven outlook for our businesses in 2009. Some businesses, like Subsea and our international Wellhead business will be executing backlog, and we expect relatively good performance from those segments. The key to the performance in those businesses will be the order inbound during 2009.

Other businesses, like North American Surface Wellhead and Fluid Control will be impacted fairly immediately by the downturn in rig count, and our focus continues to be adjusting our business accordingly.

Factoring in all these expectations, we are providing 2009 diluted EPS guidance of $2.40 to $2.65. This range of $0.25 is a function of uncertainty in the market, especially in our North American Surface Wellhead and fluid Control businesses.

So in summary, we had a very good quarter and a very good year. Our Energy Production and Energy Processing segment profits were up 39 and 4%, respectively. We've reported fourth quarter earnings of $0.74, up 16%, and our 2008 full-year earnings were $2.72, up 39%, and finally, we have provided 2009 guidance in a range of 240 to 265.

Operator, you can now open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question will come from the line of Geoff Kieburtz – Weeden.

Geoff Kieburtz – Weeden & Co.

Thanks. I think I know the answer to this question, but just in terms of your guidance range, the primary variable is the North American Fluid Control and Wellhead business?

Peter D. Kinnear

Geoff yes. That's correct. That's obviously our biggest risks and exposure.

I would like to make one correction. Bill indicated that only 40% of our Wellhead revenue was international, it's actually 70% international and 30% on the North American side, so just to correct that.

Yes, I mean obviously, the North American activity issue and what the rig count's going to do is a big issue for it.

Geoff Kieburtz – Weeden & Co.

And in your guidance, what have you assumed in terms of the U.S. rig count?

Peter D. Kinnear

Yes, I mean that's a good question and we're somewhere around, on average, probably 1,100 to 1,300. We think in the second quarter it could go under 1,000 in the second quarter. Today the rig count sits at 1,300 plus and so we're in that kind of range, Geoff.

Operator

Our next question will come from the line of Rob Mackenzie – FBR Capital Markets.

Robert Mackenzie – FBR Capital Markets

Quick housekeeping question. I think you mentioned it in your prepared remarks, but I missed it. What was Subsea revenue in the quarter again?

William H. Schumann, III

$788.

Peter D. Kinnear

Yes, $788 million, Rob.

Robert Mackenzie – FBR Capital Markets

$788 million, thanks. On the margin side in production systems really nice margin expansion there, can you give us a feel for where that came from? Was that capturing, perhaps some material cost deflation? Or where else did that come from? And then looking forward, how should we think about how that plays out, particularly as steel prices weaken further or continue to stay weak?

Peter D. Kinnear

Well, I think in the quarter we had a pretty good execution and a favorable mix to drive our margin. I think as we dial forward, we're in a situation where the oil companies, obviously, are asking for discounts, and we're dialing back to our suppliers asking for discounts, and I think our margin expectations are – we have backlog, obviously in Subsea that's going to carry us forward into this year, '09, and I think our margin expectations are around what we achieved in '08 in the Energy Production sector.

I mean in that sector, we have our Surface Wellhead business, which on the North American side obviously, is going to have some pressure on margins.

Robert Mackenzie – FBR Capital Markets

Okay. Maybe put another way, the margin expansion of fourth quarter, was there positive contribution from Surface there, was it mostly Subsea? How should we think about the positive surprise?

William H. Schumann, III

Rob, it was virtually all subsea and it was primarily execution related, as Peter mentioned.

Robert Mackenzie – FBR Capital Markets

Okay, thanks, and then a follow-up question on Subsea related to your comments, Peter about the outlook and the order of outlook being somewhat back-end weighted. What are you hearing if anything from your customers right now about the magnitude of cost reductions, deflation they're hoping to get out of you guys and what are your thoughts internally about how much of that pressure to drop prices might end up delaying award of a lot of these products, which while they go ahead could be substantially delayed?

Peter Kinnear

Let me say this as, there's a lot of not confusion but there are customers, primarily the oil companies took a long time to do their budgeting cycles and come to terms with what kind of CapEx they were going to do in '09.

They're taking a long time to kind of see what the oil price was going to do. They are obviously pushing for cost reductions to make their projects economic at lower oil prices. That push I think comes from, in our view, comes from a lot of the larger facilities that they procure.

Big FPSOs and big, of course the drilling rates went up substantially. We're going to do everything we can in our power to cost reduce our position, in terms of pushing back on our suppliers, be more efficient internally, look at low cost sources and everything we can do to be competitive to try to maintain our margins in this business.

Robert Mackenzie – FBR Capital Markets

Okay thanks. I'll let someone else have a chance.

Operator

Our next question will come from the line of Colin Gerry – Raymond James Associates

Colin Gerry – Raymond James Associates

I might have missed this, how many trees did we book in the quarter?

Peter D. Kinnear

Thirty-two in the quarter, 122 for the year.

Colin Gerry – Raymond James Associates

Okay thanks, and then just looking back on 2008, kind of the smaller orders have been a big part of the backlog and the inbound orders, how are conversations going on that front? I guess how would you expect inbound orders in that side of the business to compare to 2008? I'm just trying to understand kind of the backlog as we go through 2009 outside of the bigger orders that you've outlined in your presentation.

Peter D. Kinnear

We would think the – I mean it's a typical pattern where they all come in and do their initial discovery and then they come in with 10 or 15 wells, and once they get towards the completion of that phase if they have a rig on site that they feel they have another three or four or five good little reservoir pockets that they want to go ahead and drill with the existing rig and the infrastructure has the capacity to through put it.

I mean it's very easy for them to call us up and say, well we need four or five more trees and in a six, eight, nine month period so that they can do some additional drilling in that particular reservoir. So I mean that happens all the time and a major portion of our orders in '08 were that type of order.

Colin Gerry – Raymond James Associates

Right yes, and I'm looking just recently you had a big order from BP in the Gulf of Mexico and I guess I'm just thinking where commodity prices are right now, I hate to pin you down but can you say where you see that call off business going in '09 on the inbound tree front, or is it really just more project specific as you go from operator to operator?

Peter D. Kinnear

Well it's pretty project specific and depends on where they are in the field, whether they do have a rig out there, or whether they have to bring a new rig back to the location that obviously is more expensive, so just depends on the particular circumstance.

But it's an easy add on for them and it's a very quick incremental payback for the oil companies to go out there and drill a couple more wells in a field that they are reproducing.

So we would say that's a logical thing to do if they have rig commitments they don’t know what to do with it, they're going to go drill a well that that can produce and get some revenue from even if it's $30 or $40, $50 a barrel.

Colin Gerry – Raymond James Associates

Right and then final question, just kind of housekeeping, how much of the current backlog do you expect to convert to revenue in 2009 and then maybe in 2010, I guess would be the balance?

Peter D. Kinnear

On the Subsea side, I think our current estimates is around – which we said last year, around $2 million of the $3 million, in that range.

Operator

Our next question will come from the line of Jim Crandell – Barclay's Capital

James Crandell – Barclay's Capital

Good morning, could you talk to the timing and outlook for Subsea tree orders in Brazil, both this large order of trees and manifolds that's coming up shortly and then the outlook for the remainder of the year in the pre-salt area?

John T. Gremp

As you know, there's a very large multi-year tender from Petrobras, both for their standard trees, these are non to be pre-salt trees and manifolds, and that tender came out at the end of last year. This submission has been, the bid date submission has been extended a couple of months, but we expect that bid and the award to happen in the second quarter, so other than the normal movement by Petrobras of a couple of months we think that's on track for those awards to be made in the second quarter.

James Crandell – Barclay's Capital

Okay and John, is this going to be made in three stages plus the manifold order, and are you looking for plus or minus 300 trees in total?

John T. Gremp

The tree maximums that were on the bid spec totaled 306 and the trees are in three different tranches and they're not divided up equally and Petrobras is explaining that they expect two, or three different suppliers of the five that are bidding to participate in each one of those different tranches.

Now how they'll be awarded is completely different, we don’t know if they will be called off or what, but they'll award each of the three tranches to three different suppliers.

On the manifold side, similar, there's two tranches and they expect to give two suppliers each one of those tranches. Again we don’t know, I mean we'd expect the way Petrobras normally does it is that they would call off in pieces, not call off all the trees or manifolds at one time, but we don’t actually know that.

James Crandell – Barclay's Capital

Okay, John do you expect the [Cazamba Satellites] to be competitive?

John T. Gremp

[Cazamba Satellites] were competitively bid.

James Crandell – Barclays' Capital

Did you expect that and are you trying to get involved there?

John T. Gremp

No we didn’t bid the [Cazamba Satellites], there's a couple of other suppliers that were the incumbents, we were not an incumbent on the previous three [Cazamba] projects, so we elected not to bid.

James Crandell – Barclays' Capital

What's your outlook right now for the Cloud project in Angola?

John T. Gremp

It's going ahead, it slipped a little bit to the right, which is normal for a large Angolan project, so it will be at the end of the year, the bid'll come out at the end of the year.

James Crandell – Barclay's Capital

Okay and how about the Chevron Jack and St. Malo project in the deep water U.S. Gulf?

John T. Gremp

That's more or less on schedule. The bid's out – the bid gets submitted in early next month, so that's tracking pretty much to schedule.

James Crandell – Barclay's Capital

How many trees would that be?

John T. Gremp

Twelve trees.

James Crandell – Barclay's Capital

Okay last project John, could you comment on the Tullow Jubilee project in Ghana?

John T. Gremp

There's been no public announcement of the award of the Jubilee project, that's Ghana they just had a presidential election haven’t named the new petroleum minister so I think that's probably delaying the announcement.

Operator

Our next question will come from the line of Dan Pickering – Tudor Pickering Inc.

Dan Pickering – Tudor Pickering Inc.

Peter, I think I heard you say that in your expectation of flat Subsea revenues for '09 there's about $2 billion of that coming out of backlog, the rest would be an order that you win or would anticipate winning during 2009, is that correct?

Peter D. Kinnear

Yes, that's correct Dan.

Dan Pickering – Tudor Pickering Inc.

Okay and when we, Bill, as you talked about margins, I think I heard you say generally, flattish maybe slightly up margins and I wasn’t sure if that was for the company as a whole or for the Subsea, the Production Systems business?

William H. Schumann, III

Well, I was referring to Subsea and by the fact that it's such a large percentage of the energy production business, energy production also.

Dan Pickering – Tudor Pickering Inc.

Okay so the, that guidance is specifically to that segment, okay and then could one of you guys comment generally on your philosophy around share re-purchase in what is sort of a less certain environment here?

William H. Schumann, III

I think we will consider share re-purchase, we've said opportunistically we'd like to kind of have reasonable assurance of cash flow during the quarter before we do it. We did not re-purchase any shares in the fourth quarter, in large part because of the investments we were making in Schilling and other places, but we think the stock is attractive at these prices given our outlook, and to the extent we generate excess cash flow.

I think you should expect us to invest that first of all, in our current ongoing businesses and internal expansions. Second, in small technology oriented acquisitions like you saw with Schilling, and finally in stock repurchase.

Dan Pickering – Tudor Pickering Inc

And do you see a bigger pipeline of Schilling like opportunities or have you done the best first and that pipeline is now lower?

William H. Schumann, III

We still have some prospects in the pipeline, but I don’t think it's any fuller than it was a quarter ago.

Operator

Our next question will come from the line of Kurt Holland RBC Capital Markets.

Kurt Holland – RBC Capital Markets

Just want to make sure I get a better understanding here. So if I heard correctly, earlier on you said that Subsea order intake for the quarter was $400 million, is that right?

William H. Schumann, III

No, I’m sorry, the Subsea orders for the quarter were $208 million, but that included $484 million of currency adjustments. The orders, the actual orders for Subsea equipment were $692.

Kurt Holland – RBC Capital Markets

And then the best way to sort of track that going forward is just the Brazilian and the Norwegian currency?

William H. Schumann, III

Yes right. But I mentioned about 60% of our backlog is Norwegian or Brazilian currencies and you can just track that and apply that to the backlog.

Peter D. Kinnear

Our budgets, Kurt, I just want to clarify our budgets built on for 09 on the – particularly for the Norwegian NOK and the Brazilian real is built on basically what today’s rates are. So as we go forward, if there’s further strengthening of the dollar, obviously we’re going to get impacted a little bit on that, but if the dollar weakens, we’ll gain. So I think we’re coming off going into 09 budget, we’re coming off what the rates are currently in terms of what we set in our budget.

Kurt Holland – RBC Capital Markets

Okay and just for point of clarification on another item here is you reference that Wellhead is 70% international, and Fluid Control 45% international? Did I hear that correctly?

William H. Schumann, III

That’s right.

Kurt Holland – RBC Capital Markets

And then just a quick housekeeping item here Bill. What are you thinking for tax rate as you head out into 09?

William H. Schumann, III

Well we should have more offshore income, which should lower the rate, and that will be partially offset by repatriation of cash. So, I’m looking at some that’s probably a little bit higher then the 30% rate we had in 2008, net-net.

Operator

Our next question will come from the line of Kevin Simpson- Miller Tabak.

Kevin Simpson- Miller Tabak

First Bill, just to pin you down a little bit more, so somewhere between 30% and 32%, is that reasonable for tax rate?

William H. Schumann, III

Yes, probably the upper end of that.

Kevin Simpson – Miller Tabak

On your – Peter on the [Weco Chixanne] Business, are you assuming in the guidance that, is international related activity expected to be flat to up? And I guess if so, will it – are you in a situation where you could see it weakening as the year progresses? I assume this you're comping higher.

Peter D. Kinnear

I’ll let Bob comment on that.

Robert L. Potter

Yes Kevin, we're assuming international for Fluid Control to be flattish to perhaps slightly down. We’ve had some rig count erosion internationally here of late, some expectation that maybe the rig count will decline as much as 5% or so year-on-year. So to the extent that occurs, we could be down a little bit, but Fluid Control tends to be more project driven internationally and right now it’s holding up fine.

Kevin Simpson – Miller Tabak

Okay and then Bob, could you speak to pricing? Your customers are beginning to get hammered, not beginning, have been getting hammered on pricing, and I expect that pressure will continue in the US. What kind of – I mean how much pressure are you under and what kind of, I guess how much down side is – are you building into your guidance for this year?

Robert L. Potter

Well you’re right. We are obviously hearing a lot like everybody else is from their customers about reducing prices to reflect for commodity prices. We are responding to that in a multitude of different ways. We’re obviously trying to educate our customers somewhat on the difference of that they can expect when they look at scrap prices to what we buy, which is alloy, steels, and forgings, and they haven’t come down as significantly as some of the indices they refer to.

So we’re spending a lot of time with our customers right now. We are educating them, they are talking to us. We are jointly looking for ways to take costs out of the structure, and that goes beyond just product pricing. We’re looking at technology avenues. We’re looking at the way in which we support the operations in the U.S. with our bases and how we man those bases.

A lot of different avenues are on the table for discussion right now. Do I expect that we’ll see some impact? Probably, but we’re doing the things that we need to do as Peter said earlier to try and protect our margins in this market, and again that’s a whole array of things that range from supply chain management to the appropriate head count reductions that we need to make in the organization to the way we optimize facilities.

While at the same time insuring that when we come out of this cycle that we’re going to be in a position to satisfy our customers throughout the U.S.

Operator

Our next question will come from the line of Kevin Pollard – JP Morgan.

Kevin Pollard – JP Morgan

Would you expect the revenue per well figure or revenue per tree, however you want to characterize it to decline slightly going forward as some as some of the raw material savings on your end are passed through the customer?

William H. Schumann, III

I mean obviously it varies on the mix and complexity of the equipment that’s used on a particular Subsea completion, but yes I think that mix has expanded in terms of it’s scope and complexity so the $17 million that we had this year was somewhat impacted by the exchange rates. If you went back to the exchange rates it would be over 20, and so I would anticipate it’s still going to be at that level going forward in 09.

Kevin Pollard – JP Morgan

And so far in this year you’ve announced nearly $400 million of large Subsea product awards, were all those booked in Q1 or was some of that in the fourth quarter? Referring to the large recent awards you've announced?

William H. Schumann, III

Most of the awards were recorded in the fourth quarter.

Kevin Pollard – JP Morgan

Okay and then on the last conference call you mentioned you have some down time in the Light Well Intervention and the Subsea business. Is that – did that, I think was going to impact you by about $0.03. Does that still – did that work out like you expected?

John T. Gremp

It did, we – the thruster on the vessel was repaired pretty much on schedule and our Live Well Intervention stack is back in operation – it went back in operation towards the end of January for that contract.

Kevin Pollard – JP Morgan

And so that really actually impacted your margins and production systems by what, about 50 basis points, if I sort of back into it using the $0.03 hit?

John T. Gremp

Yes I think you’re – well maybe a little bit less then that, but that’s the arithmetic, yes.

Kevin Pollard – JP Morgan

And then last question on the earnings guidance, what kind of accretion are you assuming from the Schilling Robotics acquisition? Is it material?

John T. Gremp

Well let me just talk about that for a minute. It obviously is included in our guidance. As we go through the year we’re going to record it as minority interest, so we’ll just get our share of their profits, no revenue associated with it.

It will be reported in the energy production segment and will be accretive, not more then $0.10, so I don’t think it's material, and just for competitive reasons we’re not going to disclose exactly what it is at this point.

Operator

Our next question will come from the line of Joe Gibney – Capital One/Southcoast, Inc.

Joseph Gibney – Capital One/Southcoast, Inc.

Most of my questions have been answered just want to – Bill, if you could remind us again where we stand on buy back authorization now, coming out of the quarter given that you didn't repurchase any shares?

William H. Schumann, III

I think we’ve got 7.9 million left, out of a total authorization of 30 million.

Joseph Gibney – Capital One/Southcoast, Inc.

That’s helpful. Thank you. And Bob just wanted to follow up a little bit on the Weco side. Could you comment how after-market is trending within this business? I know this can be a fairly large percentage of the Weco mix. Are you seeing more price concession demands out of your customers on this side or is this side of the business still holding in for now? Just some color there would be appreciated.

Robert L. Potter

Yes the after-market side of our business is holding up really well. In fact, some of the things we’re doing on the Wellhead side to reduce costs is moving some of their techs temporarily over to Fluid Control because of the demands that we have on the after-market side, so that part of the business tends to hold up pretty well.

We’re moving into new areas. In fact like Haynesville, we just opened a new base there so we’ve got a lot of activity going there and we’ll continue to monitor that, but for the time being, some of our service company customers are actually pushing more toward us in the after-market side as they want to do a little less of that on their end of the business.

Operator

Our next question will come from the line of David Anderson – UBS.

David Anderson – UBS

Probably a question for John here, a number of oil service companies over the last couple of weeks have noted a potential shift in operator spending from the expiration side to more development work. I would think this would positively impact the Subsea market. I was just wondering if you agree with this and would you expect to see this trend manifest itself in any of the 2009 awards?

John T. Gremp

David, yes, that’s what we’re hearing as well, is that they’re shifting in development work and that would obviously have a positive affect, but you have to just watch the timing on that. I mean these projects, the big projects we’re talking about, they’ve been in the works for years, so I don’t think the big projects necessarily are going to be affected. Those budgets have been allocated, so I don’t see a big change there.

Maybe back to some of the comments Peter made with regard to the smaller call off orders, it could affect that, and as you saw throughout last year and especially in the fourth quarter, a lot of our inbound came from those call off orders, smaller call off projects, with our alliance partners.

In fact, in the fourth quarter of the tree inbound, almost two-thirds of the inbound came from direct awards from our partners in smaller call offs. So that business might be positively affected if there’s a shift in development work.

David Anderson – UBS

Are there any specific customers or projects that you’ve seen this happen in?

John T. Gremp

I know in Shell’s case, they’ve talked to us about the importance of some of the satellite wells for the Gulf of Mexico project. So I think in the case of Shell, we’ve seen a couple of examples and possibly with Anarchos as well. Both partners of ours where we benefit from call off satellite systems.

David Anderson – UBS

On a different subject, with respect to the Schilling acquisition, I was wondering if somebody would just comment a little bit about the competitive landscape in the ROV construction market. I guess specifically, how much share does Schilling currently have and where do you see that going over the next several years?

John T. Gremp

Well after really being in the full ROV business for only about three years, they’ve got a little bit more then 25% market share and we expect that to grow. We think they’ve got a highly competitive product and we expect their share to grow.

David Anderson – UBS

And are there plans for expansion in that business and over what time frame is it currently being projected?

John T. Gremp

Well yes, we expect it to grow with the market and as we’ve mentioned, we expect with more things on the ocean floor, with more moving parts on the ocean floor, there’s going to be a lot more requirements for ROVs and the kind of systems that Schilling manufactures.

Peter D. Kinnear

I think one of the things that was attractive to Schilling, with regards to their joining FMC was our global infrastructure and the way we could maybe help them grow internationally, so we are anticipating that we can help Schilling leverage from that respect and grow significantly into Brazil, into the Far East and other areas, West Africa, that they’re not yet have really penetrated.

David Anderson – UBS

In terms of your thought process, this is more about really kind of like the Subsea after-market? Is that what we’re targeting here?

Peter D. Kinnear

Yes. We just think that’s going to, I mean we’re not interested in going into the ROV service business, okay, and we’ve stated that before. But I think there’s much, much more complexity going on in the seabed as, most of it's ROV related and every project we do, there’s significant specialized ROV tooling related to what we do.

There’s standard tooling that can hot stab or open a valve or close a valve, but there’s also very, a lot of specialized tooling so, we think there’s just a lot of synergies between what we do and what Schilling can do, and so expanding their global reach, getting us more integrated on the Subsea ROV interfaces with our equipment, we just think there’s good synergies and as Bill said, we think they’re a great little technology company and have a great product.

David Anderson – UBS

Does this also kind of leverage up your Light Well Intervention as well? Or are those two really separate things still?

Peter D. Kinnear

Well they’re pretty much separate things at this point.

Operator

Our final question will come from the line of Dick Kindig – Keeley Asset Management.

Richard Kindig – Keeley Asset Management

My question’s been answered, thanks.

William H. Schumann, III

Before we close up, I'd like to – I made a mistake in the number of shares that we have remaining under our authorization. It’s 9.7 million and the total authorization was about 31.8 million, in total.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may all disconnect.

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Source: FMC Technologies Inc. Q4 2008 Earnings Call Transcript
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