Flowserve Corp. Q4 2009 Earnings Call Transcript

Feb.28.10 | About: Flowserve Corporation (FLS)

Flowserve Corp. (NYSE:FLS)

Q4 2009 Earnings Call Transcript

February 25, 2010 11:00 am ET

Executives

Paul Fehlman – VP, Financial Planning & Analysis and IR

Mark Blinn – President and CEO

Kyle Ahlfinger – VP, Chief Marketing Officer

Tom Ferguson – President, Flow Solutions Group

Tom Pajonas – SVP and President of Flow Control Division

Analysts

Scott Graham – Ladenburg Thalmann

Hamzah Mazari – Credit Suisse

Charlie Brady – BMO Capital Markets

Mike Schneider – Robert W. Baird

Jamie Sullivan – RBC Capital Markets

Karen Finerman – Metropolitan Capital Advisors

William Bremer – Maxim Group

Operator

Good morning. My name is Michael and I will be your conference operator today. At this time, I would like to welcome everyone to the Flowserve Q4 2009 Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. (Operator instructions)

Thank you. I will now turn the call over to Mr. Paul Fehlman, Vice President of Financial Planning and Analysis, and Investor Relations. Sir, you may begin your conference.

Paul Fehlman

Hello everyone and thank you for joining us. Welcome to Flowserve's 2009 Earnings Conference Call. Today's call is being webcast with our earnings presentation via our website at flowserve.com. Simply click on the Investor Relations' tab to access the webcast and the accompanying presentation.

Before we get started with the presentation, I want to point out a couple of important items. First, for those of you that have accessed today's call through our dial-in phone number and also wish to follow on with the earnings presentation slides via our website, please click on the click here to listen via phone icon at the bottom of the event details page.

I'd like to note that our webcast will be posted on our website for replay approximately two hours following the end of this call. The replay will stay on the site for on demand review over the next few months.

Joining us today are Mark Blinn, President and CEO of Flowserve; Tom Ferguson, President of the Flow Solutions Group; and Tom Pajonas President of the Flow Control Division, as well as Kyle Ahlfinger, VP and Chief Marketing Officer; Dean Freeman, VP, Finance and Treasurer; and Dick Guiltinan, VP of Finance and Chief Accounting Officer.

Following our commentary, we will begin the Q&A session. Regarding any forward-looking statements, I will refer you to yesterday's earnings release and 10-K filing and today's earnings presentation slide deck for Flowserve’s Safe Harbor Statement on this topic.

All of this information can be found on Flowserve's website under the Investor Relations section. I encourage you to read those statements carefully with respect to our conference call this morning.

The information in this conference call including all statements by management plus their answers to questions related in any way the projections or other forward-looking statements are subject to Flowserve's Safe Harbor.

Now I'd like to turn it over to Mark to begin the formal presentation. Mark?

Mark Blinn

Thank you, Paul. And good morning everyone. 2009 was a year where economies around the world faced change and uncertainty. In the beginning of the year it seemed that everyone paused. In the face of this global uncertainty along with the changes we made through our realignment efforts, the employees of Flowserve to remain focused on taking care of our customers and improving execution, all of which resulted in strong earnings and cash flow.

Earnings per share for 2009 was $7.59 or $8.47, when you exclude the realignment charges of 68 million. Bookings of 3.89 billion were down 24% year-over-year or 20%, excluding the impact of currency. And operating cash flow for the year was 431 million resulting in a year-end cash balance of $650 million.

With respect to our markets in 2009, we saw lower volumes, particularly in large projects and pressure on pricing. And while we did not see many large project cancellations, these projects during the course of the year were pushed out to later periods as customers and evaluated pricing and refined process specifications. At a time when many companies pulled back on investments, we continue to invest in key growth areas such as aftermarket. We opened nine QRCs around the world, and we created our integrated solutions group designed to expand our aftermarket engineering and technical service capabilities.

We invested in localization by building capacity in the Middle East, India, Asia, Mexico and South America. And we opened more engineering centers in India and China. We invested in expanding product technologies in nuclear power, subsea and desalination. We also took action to continue to position the company for the future, including the realignment initiatives and the creation of our Flow Solutions Group, which Tom will discuss later.

I am very proud of what our employees worldwide were able to do and accomplish in a challenging year. As we look at our strategic areas of focus in 2010 and beyond, we believe that our goal of achieving profitable growth starts with our customers, and this means we will be local with the capacity, capabilities and people. We will continue to enhance our large project capabilities from front-end design to start up. We will continue to expand our aftermarket programs to deliver better efficiency and reliability to our customers’ facilities, and we will develop or acquire products and technologies to serve the needs of the increasing number of critical applications around the world.

The keys to success will be disciplined execution, focused on operational excellence, risk management, and enhanced global processes. Also low-cost manufacturing, as well as continued improvement including our realignment initiatives, cost management, lean manufacturing and increased supply chain savings. Finally, we will continue to invest in our growth using our balance sheet for capital expenditures for strategic service and operational capacity like the facility we are building in Brazil. We will further invest in our quick response centers capabilities globally. We will invest in the development and training of our employees, and when we look at our portfolio of products, services and core competencies compared to the needs of our customers, we will evaluate the development and acquisition of capabilities as well as the divestiture of assets that will be required to be a leader in the markets we serve.

Our investments in growth will be evaluated focusing on providing attractive shareholder returns, and as appropriate we will return cash to our shareholders in the form of share repurchases and dividends. And with respect to our dividend, we have just increased our dividend payout by over 7% to a quarterly dividend of $0.29 a share.

In summary, while many challenges remain we have the resources, experience, focus and the commitment to deliver value to our customers, employees and our shareholders.

I will now turn it over to Kyle Ahlfinger to review our markets. Kyle.

Kyle Ahlfinger

Thanks Mark, and good morning. I would like to take a few moments to discuss our key industries in our aftermarket business. First let us look at slide seven which shows a comparison of our 2009 versus ’08 bookings splits by our key industries, along with the percentage split between original equipment and aftermarket. The main points to take away from this view are the increased percentage from the power and water industries, as well as the improved contribution from aftermarket, all focus areas of growth over the past few years.

Turning to slide eight, this provides an overview of two of our key industries, oil and gas and chemical. Both of these industries have been adversely impacted by the global financial crisis, and the recession that followed throughout 2009. In oil and gas, several major projects were delayed from their original schedules. The delay of these projects was driven by the desire to take advantage of lower commodity costs such as steel, of the need to re-evaluate the return on investment for the project or simply to synchronize the planned increased capacity with revised timing of growth and demand.

Based on conversations with our customers, we believe these projects will continue and may begin releasing orders in 2010. Long-term demand forecast for both oil and natural gas remained favorable with recovery beginning in 2010. Some forecasts show a stronger demand growth for oil in 2010 due to the continued economic growth in the developing markets such as China. The forecast in investment in these markets include upstream, midstream and downstream operations.

Refining operations in the mature markets continue to face challenges from operational economics, as well as overcapacity situation. No new capacity is forecasted in the mature markets in the near future. The majority of spend will be in operational improvements and maintenance support. We believe that our global quick response centre presence, along with the additional capabilities of the integrated solutions group offer the opportunity to grow market share in supporting these aftermarket needs.

As we look to 2010 and into 2011, several oil and gas companies both international and national have announced intentions to focus the majority of their capital spending in the area of exploration and production. We believe that our investments in heavy oil and subsea oil production placed us in a good position to participate in this market opportunity.

The downstream application, which continues to show strength, is liquefied natural gas or LNG, where Flowserve has invested to expand our capabilities. In the recent World Energy [ph] report projects an increase in global LNG capacity with more than 50% between 2008 and 2014. As for the chemical industry, several challenges still exist due to the global economic recession. However, many of the majors in the chemical industry are starting to discuss stabilization in the market and signs of a moderate recovery.

As you look at projected capital spending, it is apparent that the majority of new capacity is being planned in the developing regions of the world. The Middle East has several petrochemical projects in the planning phase, supporting their ambition to move from exporting crude oil only to exporting more the value-added products derived from the processing of both oil and natural gas. As the market continues to show signs of stabilization and indications of recovery, there will need to be investments in maintenance as well as optimization projects to improve the efficiency of continuing operations.

We believe that our increased presence in the developing regions, along with our expanded capacity to serve aftermarket requirements positions us well for growth opportunities in the chemical industry.

Slide nine shows our other two key industries, power generation. As can be seen by the graph on the left, we have experienced year-over-year bookings growth in power generation. This industry continues to show promise for investment for new capacity on a global scale. The developing markets are experiencing growth and urbanization and industrialization, which is driving an increasing need for electricity. Several industry forecasts support our global growth in generating capacity of 1000 gigawatts or more over the next decade.

Because of the desire for a cleaner environment around the globe, an important component of this new capacity is forecasted to come from renewables with an increased interest in nuclear power, solar, geothermal, wind and environmental controls like carbon capture and storage. These are all areas where Flowserve has an established reputation, broad product capabilities and recognized application knowledge to be a leading partner for companies, which will develop and provide solution to meet the needs for cleaner electrical power.

As can be seen by the graph on the right side of slide nine, bookings in the water industry did experience a drop in 2009 compared to ’08. Similar to the experience within oil and gas, several major projects were delayed in water due to the global economic recession. A recent report concerning the state of freshwater showed that forecasted demand growth driven by industrialization, urbanization and population growth has the potential of creating a supply gap of 2.4 trillion cubic meters of water by 2030, when considering the current state of water supplies. Desalination has been projected to be a major contributor to solving this potential supply gap.

The current forecasts indicate growth in investments for reverse osmosis applications, supported by the advances made in energy recovery devices, which measurably reduce the operating costs of these facilities. The investment outlook for the water industry remains favorable across the globe. And we believe our capabilities and reputation in large volume water movement along with our expanded capabilities to serve the growing desalination market positions us well for market share growth opportunities.

Slight 10 shows how our aftermarket business has progressed from 2005 through 2009. As can be seen in the graph, our bookings reduced in 2009 compared to ’08 by approximately 6%. Excluding the negative impact from currency, the reduction would have only been 1.4%. Overall, we're pleased with the performance of our aftermarket business, particularly when you consider the stall in this area in the first couple of months of 2009.

Looking forward, as the global economy begins its recovery process; we believe there will be increasing maintenance and optimization opportunities in our key industries. With the investments to expand our global aftermarket presence and leverage our technical application knowledge on a global scale, we believe Flowserve is well positioned to provide our customers with solutions to extend the operational life of their facilities, or upgrade their processes for increased throughput and improved operational performance.

Now I would like to turn the presentation over to Tom Ferguson for a review of our pump and seal business and the introduction of our new Flow Solutions Group. Tom.

Tom Ferguson

Good morning. I am Tom Ferguson, president of the newly formed Flow Solutions Group. For this call, I will briefly discuss the Flowserve pump division and the Flow Solutions division for 2009. We integrated both to create the Flow Solutions Group effective January 1. Let me start by saying that we were pleased with the pump division's performance for the year. Our focus on our end-user customers, operational excellence, and our strategic growth initiatives continue to provide a platform to drive solid sales and income performance.

We saw continued challenging end-market conditions, which were reflected in our year-over-year bookings performance, primarily in the large original equipment projects. We were pleased with our aftermarket business, which was relatively stable in the face of declines in customer maintenance spending and also lower commissioning [ph] tied to new units. By using our global opportunity management and sales approval tools, we continue to drive our project performance disciplines and avoid taking projects that do not meet our strategic or financial performance objectives.

Our customer focused end-user strategy allowed us to sustain strong customer satisfaction survey metrics, and helped us maintain 93% on time delivery to our customers’ requested date. Pump division bookings in the fourth quarter of 520 million were down 67 million or 12% versus Q4 2008, and down 16% on a constant currency basis. Full year bookings of 2.2 billion were down 833 million or 27% and down 23% on a constant currency basis versus last year.

Sales in the fourth quarter of 753 million were 72 million or 10.5% versus Q4 2008, and up 3.9% on a constant currency basis. Full-year sales of 2.65 billion were up 135 million or 5.4% versus 2008, and up 10.4% on a constant currency basis. Adjusted operating income in the fourth quarter of 134 million was up 24 million or 22% versus Q4 2008, and up 17% on a constant currency basis when adjusted for realignment.

Full-year operating income of 475 million was up 83 million or 21% versus 2008, and up 29% on a constant currency basis adjusted for realignment. Operating margin, including the realignment in Q4 decreased 9 basis points to 15.3%, but increased full-year by 110 basis points to 16.7% versus 2008. Pump division operating margin, excluding realignment in Q4 increased 160 basis points to 17.8%, and increased for the full year by 230 basis points to 17.9%. Bookings were primarily impacted by decreased year-over-year original equipment project activity, caused by lower demand in oil and gas and chemical markets. Additionally, we saw continued major project release delays in the fourth quarter.

We continued to see opportunities in 2010 project bookings based on major projects that appear now to be moving closer to release. While we will not discuss the specifics of these opportunities, the Middle East, China, India, Latin America, and Russia are key areas of focus for us in the oil and gas, power and nuclear markets for major projects. We are also continuing to pursue desalination, water and solar energy opportunities globally. Specifically, for oil and gas we see continued increases in the refinery and pipeline project activity in the Middle East, Latin America and Eastern Europe.

While our power market grew in 2009, we still see growth opportunities for nuclear projects in China, Korea, India, and hopefully in the USA and Europe. Additionally, we see continued opportunities in the power market as a derivative of growth in desalination projects globally. We face challenging end markets in 2010, but Flowserve is well positioned to leverage discrete opportunities for growth in our core energy and infrastructure markets, in both original equipment and aftermarket solutions.

Fourth-quarter aftermarket bookings were down 8% on a constant currency basis versus Q4 2008. This was primarily due to the lower volume of commissioning spares, which were driven by lower project bookings. We consider commissioning or start-up spares on original equipment projects to be aftermarket business. The aftermarket mix for the fourth quarter increased significantly versus Q4 of 2008 to 46% of total bookings. Full-year aftermarket bookings were down 3% on a constant currency basis versus the prior year.

When you consider the challenging global market conditions in 2009, lower maintenance spending and lower volume of parts tied to new projects our core end-user strategies in pumps perform quite well. Our original equipment to aftermarket sales mix shifted somewhat with aftermarket declining to 33% of total sales in the quarter versus 37% in Q4 2008. Aftermarket sales were down 6% versus Q4 2008 on a constant currency basis. Full-year aftermarket sales were up 3% on a constant currency basis versus the prior year.

Our on-time delivery performance, shorter cycle times and growing technical services capability should provide a strong platform for future aftermarket growth. Our backlog remains over 1.8 billion and provides us a solid book of business to begin 2010. Our emphasis on our end-user customers, building new QRCs, and driving end-user growth initiatives by leveraging our integrated solutions approach provides us a platform to ensure long-term growth regardless of short-term market cycles.

Our integrated solutions approach leverages our global technical, engineering, repair and parts delivery capability to significantly enhance customer solutions by improving critical application performance and reducing life cycle costs. We continue to enhance global service capability through newly opened QRCs in Saudi Arabia, Dubai, and Asia. Our strategic supply chain team continued to focus its effort on low-cost sourcing, while improving the overall quality of our entire supply chain. Our continuous improvement efforts generated solid operational benefits, and we continued to emphasize safety and total cost of quality, while also developing our leadership team for the future.

Moving on to the flow solutions division, which provides our engineered mechanical seal products and services. Seals continue to focus on providing exemplary service to its end-user customers to grow the installed base for the mechanical seal market. The fourth quarter saw solid results for the division will total bookings of 148 million. Seal division bookings during the fourth quarter were above the first three quarters of the year, and down compared to last year by 5% or 9% on a constant currency basis.

Full year seal bookings were down compared to last year by 17% or 14% on a constant currency basis. Consistent with previous quarters of 2009, fourth-quarter project bookings saw a greater decline than the aftermarket business. Aftermarket bookings were more stable, and correlate directly to the maintenance and repair of seal rotating equipment. Seal division shipments of 155 million in the quarter were slightly up compared to prior quarters of 2009 as a result of increased quarterly bookings, and some shipments from backlog. The mixing in shipments shifted to higher levels of aftermarket for the year.

This business enabled full year seal division to maintain its gross margin of 45.7%, which is virtually flat versus 2008, and improved nicely when realignment costs are excluded. While quarterly sales were down compared to Q4 of the prior year, adjusted operating income was up nicely due to the realignment actions taken early in the year and continued focus on operational performance.

Comparatively for the full year 2009 sales were down 11% or 8% on a constant currency basis. While adjusted operating income was down 5%, but up 2% on a constant currency basis and excluding realignment charges.

To summarize, the division saw a year of lower project activity and product demand reductions by seals customers. While total demand was lower, seal division was rewarded by its customers for having provided solid value in the aftermarket, while responding appropriately to the lower total business volume. The net result was the delivery of solid financial performance for 2009 despite challenging market conditions.

And finally looking forward, I like to take a few minutes to comment on the integration of the pump and seal divisions into the new Flow Solutions Group. The primary strategic imperative is to leverage the global customer coverage, and operating capabilities of these two divisions as an extension of a very natural vertical integration strategy. It should be noted that the pump division was seal’s largest customer by far. More specifically, the integration enables us to achieve the following objectives.

Faster delivery of solutions and technology to end-users, enhanced flexibility in providing customers with tailored product and service coverage, drive deeper and broader penetration of an integrated package support in emerging markets, enhanced global project solutions in the pump, seal and system package and finally, to increase the integrated solutions value-added services pull through across the entire platform.

FSG will go to market as one customer facing organization, but be divided into two reportable segments, the engineered division and industrial division. Engineered includes the more custom engineered pumps, which typically have long lead times and require more focus on comprehensive project management. This will encompass the engineered pump product operations, and most of the former seal division operations.

Industrial consists of pre-engineered pumps or those that tend to be configured to order rather than fully engineered to order. The focus will be on fully integrated supply chain, operational efficiency and product line innovation and development. As an added benefit, we expect to achieve these objectives in a much more efficient and operationally effective organizational structure that delivers a highly focused, well-trained customer facing level of intimacy across the global platform.

We have communicated the new structure and strategy with key customers, and the response has been positive. While we face uncertain and challenging markets, the integration of the two divisions allows us to accelerate our solutions offerings, while enhancing the overall value to our customers.

And now over to the valve division. Tom.

Tom Pajonas

Thanks, Tom, and good morning everyone. My name is Tom Pajonas, president of the Flow Control Division. I'm pleased to say that the division continued to perform well in Q4 of 2009. Bookings in the fourth quarter of 291 million were only down to 8 million or 2.7% versus 2008, and down 7.7% on a constant currency basis in a very challenging environment.

Sales in the fourth quarter of 310 million was down 36 million or 10.4% versus 2008, and down 15% on a constant currency basis. We responded to the market downturn by rescaling and realigning our business activities in the first-half of 2009. Accordingly, the gross margin was up 130 basis points to 37.7% versus last year's 36.4%, while SG&A percentages decreased to 19.9% from the prior year Q4 of 22%. Operating margin in Q4 was 18% versus the prior year Q4 of 14.8% or a 320 basis point increase.

Adjusting for realignment charges, operating margin was 19% in Q4 versus the prior year of 14.8% or 420 basis point increase. Strong gross margin performance, particularly in the nuclear power and the oil and gas business grow the overall operating margin performance. Operating income, when adjusted for realignment was up 15% over prior year Q4. Looking ahead to the current market trends, the nuclear market is active, as all major players including the Westinghouse, Areva, GE-Hitachi, and Korea Electric Power are pursuing various opportunities in China, India, the US and the Middle East.

The recent announcement of the US government’s proposal to provide an additional 36 billion of nuclear loan guarantees should have a positive impact on the US nuclear business. Flowserve is positioned very well in the worldwide nuclear market to capitalize in this growth area. The fossil power market is also active with players partnering such as Mitsubishi Heavy with Larsen & Toubro, and Bharat Heavy with ALSTOM to drive the fossil fuel opportunities in India.

The chemical industry on the other hand is still experiencing some tough economic times as product production continues to shift from North America in Western Europe to emerging markets, where production costs are lower and local demand is higher. Opportunities in select oil and gas areas, liquefied natural gas, deep sea oil initiatives, and refinery expansions have started to pick up. The orders received through our global distributors have begun to stabilize, but at a lower level.

Engineering, procurement and construction companies are active in driving cost reductions. Korean EPCs are active outside Korea, particularly in the Middle East and Algeria. The Japanese EPCs are pursuing liquefied natural gas projects around the globe, while Fluor and Bechtel [ph] remain active in the same liquefied natural gas projects in the oil and gas projects.

On a full-year basis, the Flow Control Division booked almost 1.2 billion of orders, down 288 million or 19.4% versus 2008 and down 15.8% on a constant currency basis. The decrease in orders was attributed to Europe and North America, which decreased 135 million and 70 million respectively driven by an overall decrease in the distributor orders in chemical in the customer driven delays in large projects.

FCD bookings also decreased, but to a much larger extent year-over-year in Asia Pacific in the chemical business and Latin America due to the pulp and paper projects. The overall power business increased year-over-year in the nuclear and nuclear aftermarket in China and in the US. A highlight here was the significant $45 million order to supply valves to Westinghouse nuclear power units in North America. Orders in the solar business in Europe represent an emerging technology product opportunity for us.

Sales in the valve division of 1.2 billion in 2009 were down $179 million or 12.9% versus 2008, and down 8.9% on a constant currency basis. Gross margin was 37% versus 36%, an increase of 100 basis points as our pricing, low-cost sourcing, lean manufacture, six sigma, and material strategies continued to perform for us. SG&A decreased to 20.4% versus 20.8% from prior year, while operating margin including realignment adjustments increased 120 basis points from 2008 to 17%.

Operating income was almost 216 million for the year, excluding adjustments for realignment, which was up 3.2% on a constant currency basis from prior year levels. Operating margin, excluding adjustments for realignment was 17.9% versus the prior year 15.8% or a 210 basis point increase.

From a strategic perspective, the flow control organization will continue to focus on growth opportunities in our existing markets in the Middle East, India and China, increasing our market share through project portfolio selling, especially in nuclear power and oil and gas, growing our aftermarket business through our life cycle advantage services, built on diagnostics, and asset management to optimize the value of our equipment during its useful life, further developing our value automation offering, and lastly continuing to optimize our operating platform by creating a focus on the general industries’ markets, integrating our marketing and research and technology functions, and also better aligning supply chain and manufacturing processes.

With that I like to turn it over to Paul Fehlman.

Paul Fehlman

Thanks Tom. As we discussed earlier, we are pleased with our results for the year, which demonstrates the strength of our global platform and our backlog, the success of our aftermarket focus, and our continued execution of realignment efforts, all driving stronger earnings and increased margins.

Turning briefly on slide 18 to our consolidated financial results, fourth-quarter bookings of $939 million were down 8.3% reported, and down 13% on a constant currency basis. Sales of $1.2 billion were up 2.6% reported in down 3.4% on a constant currency basis. Gross margin reported was down 110 basis points to 34.1%, and that included around 180 basis points of realignment expense.

SG&A as a percentage of sales went down 90 basis points to 20.9% in the fourth quarter, including about 120 basis points of realignment expenses. The result was that operating margins were down 10 basis points to 13.5% on a reported basis, and excluding realignment expenses, we will call our adjusted basis for this call, the operating margin grew 290 basis points to 16.5%.

Our reported earnings were $1.96 per share or $2.41 per share on an adjusted basis, which represented a $0.38 increase over the prior year. Looking at the full-year results, bookings of 3.89 billion were down 23.9% reported, and down 19.7% on a constant currency basis. Sales of 4.37 billion represented a 2.4% decrease reported, but an increase of 2.2% on a constant currency basis.

Reported gross margin for the full year rose 20 basis points to 35.5%, and included around 90 basis points of realignment expense impact. SG&A as a percent of sales improved 50 basis points versus 2008 and also included around 60 basis points of realignment expense. The result is that full-year reported operating margins improved 60 basis points to 14.4%, and adjusted operating margins improved a significant 220 basis points to 16%.

Full-year reported earnings were $7.59 per share, and adjusted earnings came in at $8.47 per share representing a $0.76 increase over the prior year. Page 19 outlines our cash flows. We were pleased with our 426 million of operating cash flow in the fourth quarter, historically our strongest cash generating quarter. For the year, we invested $108 million in CapEx to further strengthen our operating platform, and pursue growth by investing in new QRCs around the world, manufacturing in Latin America, the Middle East and India, expanding our capabilities in growing markets such as nuclear power, as well as projects to drive more cost efficient manufacturing.

We returned $100 million in cash to the shareholders in dividends and share repurchases, and increased our cash balances by $182 million. The themes of investing our strong cash flows into organic growth opportunities through CapEx, returning capital to shareholders, the strengthening our balance sheet have been a consistent focus of management.

During 2009, we also invested in growing the business through the Calder acquisition, and positioning our operating platform for the future by investing in realignment. Page 20 outlines selected uses of our cash flows since the beginning of 2005. As you can see, we have used over $1.4 billion of our cash flow over the past five years in the areas shown here.

We have strengthened the operation driving organic growth, returning capital to shareholders, and reducing balance sheet leverage by topping up the US pension program and eliminating factoring and securitization. By strengthening the balance sheet, we have positioned ourselves well to further invest in growth opportunities. Finally, as I pointed out earlier in 2009, we made a modest investment in growing our desalination offering, and we spent cash on realignment, which we view as an excellent investment in our future.

At the end of the year, we finished with a cash balance of over $650 million, driving us to net cash position as cash exceeded debt by around $88 million. Slide 21 shows the results of our operating excellence, cost, and realignment initiatives as well as our focus on the customer, and the growth of our aftermarket offerings over the past five years. The results include the improved metrics around SG&A and corporate expenses as a percentage of sales, higher operating margins, and higher RONAs.

To sum up, while we’ve steadily taken out costs in driving a more efficient operating platform, we have also been strategically investing in growth initiatives, pursuing geographic expansion in developing markets, and aftermarket growth opportunities. We also advanced our technological capabilities positioning us for the future.

Page 22 outlines our realignment efforts taken last year that were designed to reduce and help to optimize certain non-strategic manufacturing facilities, and our overall cost structure. They were also designed to drive synergies in customer facing activities and project pursuit. For the entire program, we incurred $68 million of costs in 2009 with approximately 35 million of that coming in the fourth quarter, and achieved savings of $33 million for the year.

For all of the projects identified in the program, we expect to save $95 million in costs in 2010, helping to offset the pricing and volume pressure on earnings, and expect an annual run rate of $110 million in savings, the majority of those being structural. We expect to enter an additional $20 million of costs in 2010. Keep in mind that these costs are very much like an investment, the benefits come sometime after the costs are incurred.

As for our uses of cash in 2010, we expect to spend between $110 million to $125 million in CapEx to support our growth initiatives in emerging markets, further expansion of our QRC network, and pursuit of enhanced product capabilities and cost-reduction, while also investing in our information systems. We also expect to contribute between $30 million and $40 million to our US pension plan during the year.

As Mark mentioned earlier, we have announced that we have increased our quarterly dividend to be paid in the second quarter from $0.27 per share to $0.29 per share. As for other opportunities for cash, we have $94 million of headroom left under current share repurchase program, and will have some planned 2010 cash expenditures related to realignment.

We will also continue to review potential acquisition opportunities that will be considered after disciplined analysis. I would also like to note that we will be closely monitoring global currency issues during the year. We have previously announced an estimated after-tax charge of $14 million in the first quarter of 2010 related to the Venezuelan currency devaluation. We are also keeping close watch on the effects of the recent market dynamics in Europe that have created volatility in exchange rates. In general terms, a strengthening dollar tends to negatively affect the translation of our local P&Ls and balance sheets as we report and may also drive volatility in other income and expense, as our transaction-based currency hedges are mark-to-market and settled.

For 2010, we are reaffirming our full year earnings per share target range of between $6.35 to $7.15, which includes approximately $20 million of $0.26 per share in realignment charges, and an estimated after-tax charge of around $14 million or $0.25 per share related to the Venezuelan currency devaluation.

In summary, we believe that we’ve responded well to the downturn in our industry by driving out costs, working to optimize the operating platform, and seeking synergies in customer facing areas. Further, we have pursued growth in key geographics and end markets, where we believe there are good opportunities, and have continued to drive our end-user strategy to grow opportunities in aftermarket and technology-based solutions.

We will continue to focus on the customer’s needs in localization, products and technology, will further build aftermarket and large product capabilities, and will look to disciplined execution, cost efficiency, continuous improvement and investments in assets and people as the keys to success as we drive for enhanced value for our customers, shareholders and employees.

With that I will turn it over to the operator to open up lines for Q&A. Operator.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Scott Graham with Ladenburg Thalmann. Please go ahead.

Scott Graham – Ladenburg Thalmann

Yes, good morning. Really a couple of questions here. The first one on the aftermarket bookings in the Pump Division, and I know that the commissioning spares had an impact, but I'm wondering if you were able to pull that out, what would you say were your organic aftermarket bookings in the Pump Division in the fourth quarter?

Paul Fehlman

You're talking about – I am looking at Tom, you're talking about pulling out the commissioning spares.

Scott Graham – Ladenburg Thalmann

Yes, if there's any way of doing that, just to kind of give us an idea of how much the OEM is in fact affecting the aftermarket?

Tom Ferguson

I think – this is Tom Ferguson. It was probably a split of 50-50 of the net reduction between commissioning spares and organic, mostly impacted by normally customers, especially the refineries have some budget money at the end of the year to spend and this was one time. We're just going to see that. So I'd say we actually probably grew our market share of the aftermarket, but it was a split between organic falloff and commissioning spares.

Scott Graham – Ladenburg Thalmann

Okay, fair enough. So I think I heard you saying, Tom, that organic did in fact decline, even when we put aside the commissioning?

Tom Ferguson

Yes, just slightly.

Scott Graham – Ladenburg Thalmann

Okay, okay. The backlog in the quarter, now as obviously a late cycle company, first the bookings go then the aftermarket goes. Is there anything that we should be reading into the aftermarket – I'm sorry into the backlog number – if I said aftermarket, I apologize, the backlog number in the fourth quarter, which was down more than any other quarter on a year-over-year basis this year; but that's kind of expected, right?

Mark Blinn

Yes, I mean, a couple of things happened in the fourth quarter as you saw very large shipments traditionally that is our largest shipment quarter. The other thing is you had the mark on the currency as well. If you think about where the euro moved, we have to – we marked that backlog. So you got those two factors that drove the backlog, and then overall that's, you know, the book-to-bill it will drive it as well, but keeping in mind over really now the last five quarters bookings have been relatively steady at the plus or minus billion dollar level.

Scott Graham – Ladenburg Thalmann

I get that. Okay. And I understand that the backlog has been contemplated in the guidance. I guess my last question would be on the use of cash, where I know you have professed a desire to really build out your QRC structure over time. I see you added four in total in 2009. What would be the plan for QRCs in 2010, even directionally, if you could tell us that? And can we expect you guys to think about another share repurchase once you've utilized the first one in full?

Mark Blinn

Yes Scott, it was nine QRCs in 2009. I think the plan going forward part of what Tom talked about with the Flow Solutions Group is, there is a number of things that are going on is one to further leverage the QRCs that we have across really all of our offerings, and which is something that we've been doing. But you know, we unlike kind of a retail shop, and we’ve talked about this before, we put QRCs where our customers need us and there are some that we are working on that are very strategic right now that we can comment on going forward, but we're going to continue to add QRCs where our customers require that.

The opportunities, we talked about this before. If you look at our QRC network it is very developed in, for example, the Gulf Coast region in the United States, really across all of our offerings and all of our divisions and products. We are not there at that level that we need to be certainly in Asia, portions of South America, even in Russia and other areas of the world, so in the Middle East for that matter. So, we have plenty of opportunity to go ahead and add them. I think you know, general message right now is if you think of all that has occurred around integrating into the Flow Solutions Group and some of the realignment, it's required a lot of focus and energy. At the same time we're going to go ahead and push these things forward on the QRCs side. So we will continue to invest.

Scott Graham – Ladenburg Thalmann

So you think that if we – I know there was a lot going on in 2009, to be sure, within the company, and obviously within the world. So would you consider, Mark, the 2009 add really at the lower end of what you would want to do that we should see on an annual basis an add of maybe double that number?

Mark Blinn

Well, again, it's not like a retail sector, but the fact that we added nine QRCs in a year of great uncertainty should indicate to you our commitment to it. I don't want to come out specifically with a number because it's just not as meaningful and as much as you know, we're going to invest or our customers need us to be. Let me also answer your other question. On the share repurchase program, you know, we're amidst our second program. I am not saying that surely calling there is going to be a third, yes or no, but we do find that that is a good way to return cash to our shareholders. So it is something that's ongoing. We have 94 of capacity in our existing program, and beyond that I don't want to comment at this point.

Scott Graham – Ladenburg Thalmann

Understood, okay. Thanks a lot.

Mark Blinn

You're welcome.

Operator

Your next question comes from the line of Hamzah Mazari with Credit Suisse.

Hamzah Mazari – Credit Suisse

Good morning. Can you guys hear me okay?

Mark Blinn

Good morning. Yes, we can hear you.

Hamzah Mazari – Credit Suisse

Okay. Just a question on how to think about the margin profile on your new bookings, you called out negative pricing already. You know, but you're getting more nuclear orders. I think nuclear is probably higher-margin business for you guys, and how much of sort of a high-priced backlog have you already gone through?

Mark Blinn

Well, I mean in general Hamzah, the pricing pressures we talked about last year are going to impact overall margins in backlog, specifically as it relates to projects. Having said that as we’ve talked about a number of times the margins in aftermarket and there is backlog of aftermarket business are relatively stable. So those are sort the general themes as you think about our business and, you know, and so that's part of why we respond around the pricing environment in terms of taking costs out, driving improvements in our operating platform, supply chain to continue to drive margin improvement, but all other things being equal, pricing and projects being competitive is going to impact your backlog. I think the other thing you call that as important as well is you know, focusing on where we participate in the nuclear is that is true. Typically that is higher-margin business. If you think about the critical application, the criticality of the application often corresponds to the margin somebody can command despite the fact that it's certainly a competitive environment.

Hamzah Mazari – Credit Suisse

Okay. And then just on your cash position on your balance sheet, you talked about use of cash, how much cash are you generally comfortable with carrying on your balance sheet? You know, Last year, obviously, things were a lot more uncertain. Going forward, you guys have a little more visibility. Bookings are sort of stable, in sort of the plus-minus $1 billion level. How much cash do you expect to carry? It doesn't take a whole lot of cash to build out a QRC network, you know, relative to what you have.

Mark Blinn

Yes, to your point I think this year versus last year people perceive cash differently. The reason – I don't want to just say how much cash do we feel comfortable because that presumes that whatever is in excess of that I'm willing to just invest for any reason at all. I think the approach is we want to be very disciplined with our cash. It does not burn a hole in our pocket sitting on our balance sheet over a period of time, and as we look forward we want to make sure we have the flexibility to do all the things we wanted to do.

As we’ve talked about over the last three years we like being able to invest in our business organically, be able to take advantage of inorganic opportunities and as we talked about before, those markets have been very volatile over the last couple of years. We hope to see them stabilize over this period of time, and then you know, return cash as appropriate. So we're very – we're certainly pleased with our cash balance. We are pleased certainly with our capital structure profile at this time, but what I don't want to suggest is just because we have a balance over X is that we're going to go spend it tomorrow.

Hamzah Mazari – Credit Suisse

Got you. And then just last question. How much visibility do your guys have in the extent of timing of project delays? You said – you mentioned that you expect most of these delays to be booked and not lost. How should we think about how much visibility you have into that, and sort of the timing of that? Any color you can give us there would be helpful.

Tom Ferguson

This is Tom Ferguson. We through our sales and operations planning process we look forward about 18 months, but you know, when we see things move they can move by you know, a few weeks or a couple of months, pretty easily just on the customers’ approval process, and as they're making the final decisions in some cases on who the engineering contractor is going to be, and then, you know, once it gets to that point, you know, we can be fairly accurate within about a 90-day period, but there has just been a lot of movement and a lot of budgetary, you know, I won't say budgetary issues but it's just customers looking at their budgets and looking at when they're wanting to spend and being a little more cautious. So let's move things out and they've looked at some technical specifications, you know, two, three, four times where it's usually they are doing one or two reviews. So it's that kind of thing, but we actually look at projects pretty far out.

Mark Blinn

Yes, I mean, a couple of overarching themes to what Tom talked about, one is as you saw with the pricing environment, you know, customers for them it has paid them to wait to see how those things pan out certainly in a competitive environment. Keeping in mind that the commissioning times of these projects are still out there and so they are going to – what they're going to do is put for shorter delivery period. I think the second thing Tom talked about is, and I mentioned in my comments was around the process condition specifications. If you think about it, if you let in order out with all of those really tight what it will do is result and change orders and that can certainly be costly for the customer and the engineering contracting firm.

The other thing out there, you know, as we look out there, you know, we don't presume anything. I mean we have to remain competitive in this environment out there. So you know, we always keep that in mind that's certainly why you know, we always remain guarded with our comments around going forward is it is certainly a competitive environment where you know, willing to compete and certainly compete out there is strategic and financially appropriate.

Hamzah Mazari – Credit Suisse

Great, thank you very much.

Mark Blinn

You're welcome.

Operator

Your next question comes from the line of Charlie Brady with BMO Capital Markets.

Charlie Brady – BMO Capital Markets

Hi, thanks. Good morning, guys.

Mark Blinn

Good morning Charlie.

Paul Fehlman

Good morning Charlie.

Charlie Brady – BMO Capital Markets

With respect to the order you guys booked this morning for that large pump order, was that an order that you had originally anticipated would fall into Q4 and got pushed out?

Tom Ferguson

This is Tom Ferguson. Yes, that was definitely one we were tracking for the fourth quarter that moved a little bit, but it is very highly technical equipment that was being specified. So this is one that you know, pretty easily moves month to month and can push over a quarter and that's exactly what happened in this case.

Charlie Brady – BMO Capital Markets

I mean that would account for almost half of kind of a delta from while you are coming out of Q3, what your expectation would have been. I'm just wondering for the other $30 million, $40 million, whatever it was, how much of that push out is likely do you think at this point to hit in 2010?

Mark Blinn

Well, you know, Charlie having gone through what we did around the fourth quarter and that delta pushed, you can understand why we're not going to comment certainly quarter-to-quarter at this point, for what Tom talked about the more technical opinion [ph] has become, these things can certainly push out. I think our general comment was we did see a number of projects push out of 2009 to 2010 and we will just leave it at that.

Charlie Brady – BMO Capital Markets

Okay. As we look at the mix of aftermarket and original equipment bookings in the pump segment, it looks as though there's about a four, maybe five-quarter lag between when the bookings switched to when that gets reflected in the sales. And you had – this quarter now is the fifth quarter where you've got well into the 40% on aftermarket bookings, which would imply that starting in 2010, we ought to see a meaningful shift towards that aftermarket in terms of sales on the pump side. I'm just wondering, does that – given what you're seeing out there from your incoming orders and your customers, does that make sense, does that still hold true?

Mark Blinn

That's – this is a thing we talked about a couple of years, and as you look I think on one of Paul’s slides, you can see the bookings and the sales kind of how they rolled out over the last couple of years, and we talked about this a couple of years ago, a lot of those bookings for a longer lead time. So you're seeing the smoothing effect of really global capacity and I'm talking not only manufacturing capacity for flow control companies, but the supply base as well. So what you saw a couple of years ago when you had you know, the auto growth that you saw as they were quoting longer lead times.

So at the end of the day the questions we're talking about three or four years ago is do you have enough capacity in your suppliers. That's in fact how they played out is that'll tend to smooth things over time. So that's an affect what you're seeing. Underlying that is what we see is stable aftermarket business. The one other thing to remind you of when you look at year-over-year, the comments really about year-over-year after market is you basically had a pause in the first two months of the year last year.

You don't really necessarily you know, catch that up during the course of the year. So when we looked at our aftermarket last year it was stable, it's grown steady over the last couple of years especially on a currency neutral basis, and what you see around that is there is no run rate to original equipment business which is good business and then on top of that, you have these large projects, which tend to be very lumpy. So that's a good way to think of our business. Those large projects, the duration of those will depend mostly on what's going on in the worldwide supply environment which we certainly talked about a couple of years ago.

Charlie Brady – BMO Capital Markets

Can you comment, in the backlog, how much of that currently is aftermarket?

Mark Blinn

We don't break it out specifically. To say, it's not an insignificant amount. I don't want you to think of all of it is projects, but that is predominantly project work.

Charlie Brady – BMO Capital Markets

Okay. And then just switching gears, on this new reporting structure, and the integration of the pumps and the seals, try and help me understand maybe a little more granularity on internally how that's going to work. This has been tried in the past, these two divisions. It has met internally, I think, with maybe a bit of resistance. It sounds as though now the culture is clearly different from what it was several years back. Maybe you can just talk about how that gets integrated from both sides of those divisions?

Mark Blinn

Well, actually I'm trying to refer back if this has been tried before. If you followed us years ago, I can say from my history lesson, some of the things we did were not anything like this. Bottom line is as you look back this business right now, the FPD, FSB, in the former nomenclature, integration really has occurred over the last couple of years in North America. And so we have a proven model around where you really focus on the aftermarket strategies and leveraging your capabilities.

And at the end of the day these two divisions over the last couple of years have been in different states of what I'll call efficiency. You see the margins in the seal business and Tom had great knowledge of that because he ran it up until 2003. We're very strong in the pump business. What's improving is we were improving execution and really driving the benefits of the acquisition we made. So now they get to a point at the end of last year where we can leverage the North American model that we've seen and then you know, reconfigure and integrate these to the way we really think about these businesses, one around the engineered side, focused on being proximate to the customer and driving aftermarket, and on the industrial side really leveraging global processes, global supply chain management, and systems. We think it brings a much better focus.

Charlie Brady – BMO Capital Markets

One more and I'll hop back in the queue. This $20 million incremental you're taking in 2010 for realignment and restructuring, what's the expected savings coming out of that, and what do you realize on that in 2011?

Mark Blinn

Yes, Charlie, as you can see in our disclosure, you know, we've only put in our disclosure the plans that we've approved in place, and the reason around that is because approving a plan has certain accounting significance. What you can see from there clearly is that we have some additional capacity that is in the works for the lack of a better term, but what we talked to you about right now in terms of savings and opportunity are for the plans that are in place.

Charlie Brady – BMO Capital Markets

Okay. Thanks very much.

Operator

Your next question comes from the line of Mike Schneider with Robert W. Baird.

Mike Schneider – Robert W. Baird

Good morning.

Mark Blinn

Good morning Mike.

Mike Schneider – Robert W. Baird

Maybe first, just going back to the aftermarket issue, so in constant currency aftermarket was down about 1.4%, and I'm curious what you think the market was down, and what I guess economic indicator you would use to support that, is it industrial production, is it capital spending or utilization rates, whatever it is. And the obvious inclusion is just trying to determine how much share you are taking with this aftermarket strategy?

Mark Blinn

I think the – this is Mark, and let me give you my general comments. I think the only third-party indicators that you can really use for us in terms of execution are going to be the mature market refineries spend and chemical spend budgets throughout there is probably an indication for what happened to our markets. As far as the emerging and the emerged markets, what you saw and that's what we saw very good success. That's more around – that's establishing our footprint and our capabilities there. So – and I honestly couldn't tell you what market indicators but there tend to be fairly robust market indicators for certainly like refineries spend and chemical market spend.

Mike Schneider – Robert W. Baird

Well, and most of those, at least European and U.S. indicators are down at least high-single digits if not low-double digits. Is that kind of the frame of reference you guys use to assess what type of market share you're taking, at least in those mature markets?

Mark Blinn

Yes.

Mike Schneider – Robert W. Baird

Okay. And then just in terms of the end markets specifically within aftermarket, you gave the growth of different markets, but I'm curious if you have a view as to what specific applications or end markets where you think you've made the most strides in your aftermarket strategy?

Tom Ferguson

This is Tom Ferguson. We've – it's somewhat across the boards but our focus of course between pumps and seals is we are very heavily focused on the refinery and chemical markets, but the aftermarket in power is a major source of opportunities for our QRCs, and I'd say it's pretty much across the board, whether it is parts, repairs and almost all markets we believe we've grown and taken some share and then in the developing areas you know, where we've put new QRCs you know, throughout Asia and more in Latin America and throughout the Middle East. Those are all areas where we didn’t even have the capability to service anything other than the parts business for that installed base, and so over the last three or four years you know, the expansion accuracies has allowed us to get repaired service business that we used to not even participate in.

Tom Pajonas

Mike, I would add to that. This is Tom Pajonas from the valve group. I would say on the power side, certainly the nuclear aftermarket has been robust for us. So over the last certainly six months to eight months with the amount of build going out there, we should see that progress very nicely and on the control valve side, the oil and gas control valve aftermarket business has been a bright spot for us also especially as we drop in more QRCs around the world in the Middle East and Asia-Pacific.

Mark Blinn

And that's a good point Mike. Just to follow-on, I mean, you know, oftentimes we talk about the pump aftermarket business. One of the areas of focus for us this year around our strategic initiatives is accelerated investment in the aftermarket capabilities for our valve business.

Mike Schneider – Robert W. Baird

And then taking onto that, the CapEx budget for this year, $110 million to $125 million, at least on the high end is nearly at the rate of 2008, which would have been your peak in CapEx spending. I'm curious there aren’t lots of companies, especially long cycle companies that are increasing CapEx budgets this year; where specifically is the incremental money being spent, either by geography or physical plant? And then secondly, should we view in hindsight now the $108 million of last year as what most would call maintenance spending for you? Thanks.

Mark Blinn

No. I mean, we, you know, last year we deployed $108 million we built at our facility in the Middle East, and in India. So I think it was pretty much steady as it goes. If anything that might have kind of curbed the spend last year would have been the timing of some projects for example. This year we will spend the bulk of our – the expense relating to this project this year around building at our facility in Brazil, and you know, that's going to be the first basically new plant that we built in a long time.

So you see that impacting our CapEx for this year. So I think it's – to your point I think what we've done has been deliberate and very consistent in our view is that as long as we can see through uncertainty in terms of our balance sheet, this is a great opportunity to invest. You know, we think organically and inorganically it presents a great opportunity when you have a strong balance sheet because we are very focused on growth.

Mike Schneider – Robert W. Baird

Thank you, again.

Mark Blinn

You bet.

Operator

Your next question comes from the line of Jamie Sullivan with RBC Capital Markets.

Jamie Sullivan – RBC Capital Markets

Good morning. Thanks for taking my questions.

Mark Blinn

You are welcome.

Jamie Sullivan – RBC Capital Markets

On the – I guess on the bid pipeline, the projects in your bid pipeline, I just want to confirm that a lot of the delays, it's more of a timing issue, still no cancellations, you know, no – nothing going to competitors, a lot of the nature of the delays are kind of similar to what we saw in this morning's announcement. Is that fair to say?

Mark Blinn

Let me see if I can part your question out, I mean we still see a lot of these projects going forward but we're not you know, we're not going to sit here and suggest that some of the projects we like to have don't go to competitors, because they do for any number of reasons, but, you know, the – as we talked about the opportunities are certainly still out there.

Jamie Sullivan – RBC Capital Markets

Okay. And I guess just moving to the realignment programs, I think you've talked about $110 million in projected savings. Can you remind us, how much did you get in 2009? And how much would you expect in 2010 from those programs?

Paul Fehlman

Jamie, it is Paul. In 2009, we saw $33 million of savings, 2010 from everything that we've identified so far we expect $95 million of savings, and so the $110 is an annualized run rate that comes in its full stride right after that.

Jamie Sullivan – RBC Capital Markets

Okay.

Mark Blinn

And we've commented on this before for certainly the expanded realignment efforts. We expect to see those come towards the back half of this year. I think to Paul's point, you know, often these things; these are programs that take a while to implement. So you don't go from one day to the next on these.

Jamie Sullivan – RBC Capital Markets

Right, okay. And then can we take by your reiteration of the guidance, it means that you're – you're comfortable with the currency fluctuations that we've seen in February thus far?

Mark Blinn

Yes, I mean, from what we've seen so far but it has been very volatile. We'll have to certainly keep an eye on that.

Jamie Sullivan – RBC Capital Markets

Okay. And then just last question real quickly, are there any restrictions on the share buyback blackout periods? Can you just remind us there?

Mark Blinn

Yes. I mean, a company has a number of restrictions in terms of buying back. It has to respect and honor the blackout period. There is also actually, believe it or not, rules around the volumes that it can acquire in any given day because they're all promulgated externally.

Jamie Sullivan – RBC Capital Markets

Okay, thanks.

Operator

Your next question comes from the line of Karen Finerman with Metropolitan.

Karen Finerman – Metropolitan Capital Advisors

Hi, guys.

Mark Blinn

Hi, Karen.

Karen Finerman – Metropolitan Capital Advisors

Hi, what do you think of as the right tax rate to use going forward?

Mark Blinn

I think, yes, I think what we talked about is around 28% on our tax rate for this year, and if we haven't been, I'm talking about it now.

Karen Finerman – Metropolitan Capital Advisors

Okay, 28%; got it. Thank you.

Operator

Your next question comes from the line of William Bremer with Maxim Group.

William Bremer – Maxim Group

Hi, gentlemen.

Mark Blinn

Good morning Bill.

William Bremer – Maxim Group

Can you just give us a little color possibly on the strength that we're starting to see in liquefied natural gas? What's your capacity there, what are some of the opportunities, and if could, maybe on a geographic region base?

Tom Ferguson

This is Tom Ferguson. We – you know, we have a very good solid product line to service the LNG market and also the gas to liquids market, and we're seeing you know, good activity in Southeast Asia, Australia and throughout the Middle East as well. So I mean, there are opportunities for LNG and gas to liquids, you know, in those higher growth areas, (inaudible). I am sorry.

William Bremer – Maxim Group

And correct me if I'm wrong, you guys play on both sides, the front end and the back end of that, correct?

Mark Blinn

The liquefaction and the regasifications, yes.

William Bremer – Maxim Group

Is there a difference of margins on the front end or back end? Can you give us some insight there?

Paul Fehlman

I mean I would say from LNG side, I mean, it's all very critical application. So we have a pretty good basis on both sides, and certainly the majority of the EPCs around the world are very active on LNG. So as Kyle has mentioned before, it is one of the promising markets going forward. Clean, so it meets the environmental requirements going forward in the future, high efficiency when it is burned, and as the infrastructure gets built up in the various regions, it will be used more and more for you know, natural gas or heating and commercial and both residential also.

Mark Blinn

You know, as we talked about before Bill, in liquefied form is the only cost-efficient way to transport it over, I think it is 1500 km and if you look around the world, the mature markets are net consumers, and they have the existing infrastructure to transport it within their regions, and a lot of the emerging or emerged markets are the next suppliers. So you know, and right now that's the only way to move it over to that distance. So as you can see is, yes I mean the sense generally is that consumption for natural gas is going to go up over long periods of time. We do have a supply base certainly here in the United States, but you know, it'll be the markets. LNG will allow the markets to be more efficient by being able to transport it efficiently across long distances.

William Bremer – Maxim Group

Thank you, Mark, I appreciate it.

Operator

And there are no further questions at this time.

Paul Fehlman

Okay. Thank you, operator. I would like to remind everyone that this webcast will be available on our website for replay in approximately 2 hours. And thank you for joining us on the call today.

Operator

Thank you, ladies and gentlemen, this will conclude today’s conference call. You may now disconnect.

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