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Tyco International Ltd. (NYSE:TYC)

BAML 2011 Industrial Conference

December 6, 2011; 11:20 am ET

Executives

Patrick Decker - President

Antonella Franzen - Investor Relations

Analysts

John Inch - Bank of America Merrill Lynch

John Inch

We are almost at the halfway point of day one. So far the conference is I think been exceeding expectations and I think it’s really worth everyone’s participation in the questions. I just, gauging other conferences I know that the questions have been very robust and interactive, so I’m hopping you get a lot out of these sessions.

It gives me great pleasure to introduce the management team of Tyco Flow Control, Patrick Decker, has been President. Well certainly with Tyco Flow Control since ’03 and President since 2007, he is going to be the CEO of the newly emerged or soon to be emerged Tyco Flow Control and with me as well is Antonella Franzen, who has been Tyco’s IR and post separation, TBD right.

So what that, let me introduce Patrick.

Patrick Decker

Thanks John. Good morning everybody. I wanted to quickly just again put in perspective within the Tyco portfolio, who we are as Flow Control. Most of you probably are familiar with this chart. It shows the three current reported segments of Tyco International and Flow Control being about a just shy of a $4 billion piece of the total Tyco portfolio and again as John alluded to, obviously recently announced, we plan to spin out as three separate companies and expect that separation to be complete by the end of our fiscal year, which is end of September as a ADT North America Retail Business, a Global Commercial Fire and Security Business and the Flow Control business as you will learn about today.

Just giving you a quick snapshot of who we are as Tyco Flow Control, we got three primary platforms to the business. We are the global leader in industrial valves and control solutions around the world. We are also the global leader in industrial heat management solutions. Again, I will talk more in a moment around what exactly the heat management solution is that we provide and we are also the leader in the Pacific part of the world, in large scale water and transmission pipelines that also have an interesting environmental business based out of there as well.

We have arguably the broadest portfolio of products and services in the industry, both from a valve and control perspective, as well as thermal controls and you see a handful of the brands here that make up our portfolio. There are many other brands in our portfolio, these are probably the most well know within the industry and each of these if not all of them have been around for more than a 100 years, so very trusted brands in the industry.

Another element of our portfolio is our products are highly engineered and made to specification, depending upon the specific applications. Again, I’ll speak more to that in a moment.

You’ll also see a chart here momentarily that shows the breadth of our exposure or opportunities across a wide variety of industries. We are not concentrated in any one sector, so we’ve got good balance in the portfolio there, but we also compete in very large fragmented sectors. So to put it in perspective, there’s about $60 billion of spend in the sector for valves and controls and thermal control solutions. We estimate today that we got about 7% market share and we are the definitive market leader. So it gives you a sense of the size and scale of growth opportunity there.

And lastly, we already have a good position in emerging markets and that’s a little less than a third of our revenue is derived in the high growth emerging markets, but we clearly have opportunities to expand on that scale as a future growth opportunity.

Just to spend a few more minutes on each of the three pieces and talk a little bit about exactly what we do in these sectors, I’d like to put it in perspective first that when you look across all of our customers, whether it be in the energy space, whether it be in chemical, whether it be in mining, the food and beverage sector, you walk into their facilities and there are three primary concerns that those leadership teams have and problems they are trying to solve.

First and foremost is safety; second is their impact on the environment, either real or perceived, given the PR angel for this, but also the increasing regulatory environment they operate in around the globe, and third, they have to minimize down time in terms of maximizing their own profit generation. The value of the materials they are processing are so critical they can little afford down time.

And lastly, they are looking for somebody to partner with them over the course of the entire lifecycle of an installation. Not just the initial product sales, but who is there from the design before the installation is built, who is there on the installation and who is there to provide them with the after market service and repair and replacement. That’s something that each one of our three parts of the portfolio are very focused on, is serving that value proposition.

Speaking first of valves and controls, very large fragmented industry. There are literally thousands of valves manufactures around the world. But the part of the market that we focused on servicing is extreme pressure, extreme temperature and severe services and remote locations. It’s the kind of applications in demanding environments that the more mid range or commodity valve players are simply not qualified or specified to sell into and that’s very much our core focus. We also sell more than just the valve. We have actuation, which actually automates and controls the valve, as well control systems that we sell into as well.

When you look at our thermal controls business, which is about 20% of our revenue, this is also one of the real crown jewels in the portfolio, that we are really seeing some tremendous growth profile over the last few years. At one end we sell effectively a self-regulated heating cable that is used in both industrial as well as commercial and residential applications, that helps generate and maintain a certain level of temperature in the facility. But beyond that over the last number of years, we’ve moved well beyond being a product-only provider and now we sell a full turnkey suite of designing the installation, installing the product, the actually heating cable that coils around the pipe, but also handle all the insulation, the tubing and bundling and wiring that goes into that insulation.

We then also provide the ongoing after market service, but also the temperature monitoring, where we effectively guarantee a temperature range in that facility. We’ve been able to demonstrate and this really is the key competitive differentiator. We’ve been able to demonstrate to our large global customers, anywhere from a 25% to 30% total lifecycle cost reduction with this type of installation. Its first mover advantage. There are others out there that have tried to bring in a more turnkey component. We feel very good about this part of the business and think that there is some tremendous growth path here for us in the future.

And lastly in water, there are a lot of thing we do in the water space that are largely concentrated in the Pacific region, but our core is large scale, large diameter, water transmission pipelines, typically high pressure. It could be in and around a D-cell plant, could be to and from a large mining operation or an oil and gas installation and we have clear market leadership in that region of the world.

When you look at the geographic split of the business, very well balanced across the globe. About, a third, a third, a third if you look at three spheres of the world, but if you dive in deeper, you would see that we do just less than a third of our revenue today comes from emerging markets and also, much of the revenue that we actually report in AMEA or even in the America’s, it’s ultimate destination, its to an installation in emerging markets and so the emerging markets play for us continues to be a very big focus.

Hence you see the two takeaway boxes here around recent acquisitions that we announced. I feel good about the footprint and platform that we got in a number of the large emerging markets such as China and India already, but there contended to be opportunities for us to increase our capabilities there, but the acquisitions we did over the last two years were really focused on doubling down in a couple of even hotter markets, that being the middle east and certainly with all of the spend happening in the mining and oil and gas sector in Brazil.

Lastly, I would say it’s been critical for us to do that by way of meeting local content requirements in those spaces, but also the relationships we established with customers there by way of them seeing that we are committed to those markets for the long run, two, that we can give them a shorter lead time and a more robust supply chain in those markets are key differentiators for us with those two recent investments.

From an industry perspective, end market, you can see here that we play in a number of very attractive markets, that are very attractive just over the long run, but we’ve also got good balance here. I know a number of our competitors and peer companies tend to steer a little bit more towards one sector or the other, very much doubled down in Energy. I feel very good about the balance that we draw and we saw that balance really benefit us during the last global downturn, when not each of the industries behaved in the same way. So you’ll see here a good penetration on the energy side, both oil and gas as well as power.

In our case power is evenly spilt between nuclear, but also other conventional, as well as alternative forms of power. You see the oil and gas number here, which is about 30% of our total, but we also feel very good about our penetration in the various process industries and in water, not only the pipe business, but also valves and controls.

One other key take away here is that the aftermarket service dynamics and characteristics of these industries differ quite dramatically and so there is a very nice aftermarket service opportunity here in the process industries, where you have a much more corrosive environment and you’ve also got end users that are looking at maintaining their installations to a pretty high standard over a long period of time, so we tend to derive either more of our aftermarket service opportunities in that process space.

I thought I would speak a little bit about what’s driving demand in each one of the industries. I think this is probably fairly straight forward to each of you and well known, so I don’t plan to belabor this too much, but certainly in the process industries, we certainly see most new installations, especially in the chemical and petrochem sectors, taking place in the emerging markets, the most notably the Middle East, certainly China, India, to a lesser extent Brazil, but we also are now beginning to see a healthy level of refurbishments and replacement as facilities that were mothballed during the economic downturn are brought back on line and so that’s provided us with a nice up-tick in after market service and repair replacement activity.

Oil and gas, I think it speaks for itself. We are obviously seeing a continued rise in demand in the oil sector. I would say that we focus predominantly in the areas of upstream and midstream in that sector and where we’re seeing even more spending in that area is clearly in the Middle East, where projects quite frankly slow down for a little bit in the last economic downturn, but were the first really to reconvene and we’ve seen continued strong demand in that part of the world and then certainly with the spend happening in Brazil and in China, those are really the hot spots that we see at this point in time.

I would also say that we are seeing even more demand obviously in new, more progressive forms of sources of oil. So we are introducing product development activities and introducing some new products in Sub Sea and in the offshore realm of oil and gas and feel very good about our progress in that area.

Power is the one industry over the last year that we finally saw some cooling off, given the Fukushima incident and the fact that things had been put on hold over the last year in some parts of the world, but we remain very bullish on power over the long run and even though we saw a slow down, it was only a modest slow down in demand for our products in the power sector. Again, most of that driven by emerging markets, but as you all probably know, there are a number of plants, power plants here in the US and North America that there needs to be a decision made as to whether we are going to refurbish or introduce nuclear as an alternative, so more to come on that front.

Mining is also one of the higher beta industries in our portfolio and while we saw one of the sharpest slowdowns two years ago, it’s also been one of the fastest to recover. There’s a large concentration within a handful of big players there that we are very close to and again, I feel very good about the prospects there. One of the biggest challenges in this space is that these mining sites, you know these are not in urban metropolitan areas. They are very difficult to get to, labor demand, as well as access to water to manage the mine sites themselves presents a challenge. But given our global footprint and where we are based, we have a competitive advantage there and we’ve really seen some nice growth in the mining sector.

And lastly, water I think speaks for itself in terms of the global demand for water. I would say that in our water business in Australia, we are clearly at the bottom of the cycle right now in terms of not a lot of activity there over the last year and a half, but we feel very good about a handful of projects that we are bidding on right now that I can certainly speak to more in Q&A, that we see coming on the horizon that will really help us return to a period of growth in our water business.

This puts in perspective where we are coming out of the cycle and what you see here is a chart that lines up both our order activity in the bars and the line graph charts out how that converts into organic revenue growth and you can see here that we’ve had a number of quarters of positive order growth.

What I would do is to characterize the three pieces of our business as to what the conversion cycle is in terms of orders to shipment. In our Valves & Controls business, our average time of taking an order into backlog and shipping it out is anywhere from six to nine months. It can be a little shorter to that, it can be longer to that, but that’s about six to nine months conversions time.

In the thermal controls business, it typically is within one to three months and so those of you that have listened in our earnings call, you’ve heard us report some very impressive order growth in the thermal controls business the last few quarters. Those orders ship out typically within the same quarter or within the next quarter that they are taken on with some exceptions.

Lastly in water, its largely a quick term business, unless we are in an environment where we have a large scale multi-year project and so as you look out over our last number of quarters, we really are now at a point where we can comfortably say we are back into a very positive order momentum period, as well as organic revenue growth, and feel still pretty good about what the momentum looks like for the coming years here.

On the water front, I mentioned earlier we’ve already won a couple of mid sized water projects this quarter and we’ve got about five big projects that we are bidding on right now that we expect to win and we expect to be able to speak more to those over the course of the next two to three quarters. They however will not begin to benefit our revenue until the second half of fiscal 2012 and really benefit 2013 and ’14.

I’m not going to go through each and every one of these, but I thought it would be good to give you a flavor for what some of our major focus areas and priorities are as a Flow Control leadership team. As I’ve alluded to before, we see enormous organic growth opportunities that continue to exist within the Flow Control business, that do not require a significant investment of capital to achieve them and one of those certainly is to expand our capabilities in emerging markets. We certainly see one of the biggest opportunities there is extending our turnkey heat management model beyond North America and Western Europe and to more of the emerging markets.

Secondly, on the services side, to put in perspective today, we have 66 service centers around the world for our valves and controls business and we’ve got a commitment over the next few years to increase that by another 25%. When your talking to our large global customers and they talk about frame agreements with us, it’s very important that they know that we have a commitment to put service centers wherever their installations are around the world. These are not large capital investments.

To put in perspective, any given service center might be a couple of million dollars, maybe $3 million to install. It is really more of the human capital required to make sure we have the right capabilities on the ground to service our products. Again, leveraging the recent acquisitions that we’ve announced in emerging markets and leveraging those also around the world in terms of the product lines they bring with them is important for us.

Margin expansion will continue to be a very key focus area for us as a Flow Control leadership team. The biggest driver of value creation for us, as long as we obviously keep up with the market and grow a little faster than the market and revenue, it’s to expand our margins consistently over time. I think the best way to do that is to really get a best-in-class supply chain in our valves and controls business.

Those of you that follow the flow industry would know that one of the biggest frustrations that our customers have around the world with flow control companies, these are very big complex projects that we are selling into and having supply chains all the way from the foundry, all the way into the installation of the product and the inflection of the product is a long lead times. It’s very unpredictable in it’s cycle.

60% of our business today is project versus the aftermarket service and replacement. In that 60% you’ve got a lot of unpredictability and uncertainty as to any given quarter or week as to when the job site is going to be ready for us to actually install the product and so the tighter we can get with our customers around that, I think takes that cost from the system, but also gives us a market share gain opportunity as we go forward.

And then last but not the least here, on the organization side, we’ve done a lot of work over the last couple of years to further leverage and take advantage of our global portfolio and footprint and we just recently announced a couple of frame agreements in the oil and gas space and the water space that are a good testimony to the breadth that we’ve got there.

We announced a multi year frame agreement with Shell just a few months ago and I think we’ll have some other frame agreements to announce here coming soon, that really speaks to the breadth of the product line we have there and our commitment to service around the world and I feel very good about our performance in that area and the opportunities that presents to us.

So in closing, before I opening it up to questions, again a couple of points here. We are the global leader in the valve control and thermal controls markets around the world. Therefore I think that we are very well positioned in a highly fragmented industry to drive organic growth, but also to add some things to our portfolio where it makes sense from an acquisition stand point.

We have a very balanced portfolio that I think serves us well, during and beyond the cycles that we inherently face in this business, a clear focus on emerging market and leveraging our critical mass there and adding more to that. And then lastly, as I touched on margin expansion, we’ve done a lot over the last four or five years to lean out our footprint. There is still opportunities there in that area, as well as in the G&A side and we’ll continue to stay focused on that as a source of margin expansion going forward.

So with that John, I’ll hand it back over to you and open up for questions.

Question-and-Answer Session

Unidentified Participant

Are those synergies between the three different businesses that you outlined or are they really three separate businesses?

Patrick Decker

There are definitely synergies I would say at two predominant levels. One there is synergies as it relates to opportunities to leverage an enterprise cell with common customers in some of the larger industries. Predominantly focused on some of the larger global players and we’ve had some success in that in the past. I think we are getting better organized around that to have those conversations on a more regular basis, but there is still work to do in that area.

I think there’s also synergies at the level of back office in some of the shared services opportunities around the world. We have been on a path over the last couple of years of implementing SAP as a standard enterprise platform around the world. We still got a few more years of that to complete that work and I think that’s really going to allow us to facilitate some additional cost take out and I think the third level is the engineering talent and the customer facing talent that we got around the world, can be fairly easily transferred amongst business. So I think from a talent management standpoint, there are synergies there as well.

Unidentified Participant

As you prepare for separation, your company has talked, but broadly Tyco has talked about legal systems, I’m sorry legal entities that have to be rationalized and back office systems and IT systems. What’s the status of the Flow Controlled rationalization process? Just may be you can give us a little color in terms of how many, how complicated its going to be, just as you look our, sort of – you guys might be one of the easier platforms to rationalize. I’m just curious, what your thoughts are.

Patrick Decker

Sure, I would say that overall before I give some dimension of size of the portfolio, I would say that we’ve been on this path now for I would say the last four to five year of where it made sense to further rationalize our manufacturing and supply chain footprint, and while we’re not all the way there yet, I think we made good progress in that area with still opportunities in front of us, but I would say measured opportunities as we go forward.

I think where the biggest opportunities are for us going forward is more on the G&A side and therefore kind of the back office and legal entity complications. We still have a large number of ERP systems around the world, as well as legal entities.

I’ll give you some directional numbers that are out there. We still have easily 40-plus ERP systems around the world that are yet to be integrated and we’ve got a very clearly defined path to get those not only on to SPA, but certainly to get them on to one instance to where we can really manage this in full leverage as a global business.

We have a few 100 legal entities around the world. I’ll kind of leave it at that. There’s a large number of them for flow that’s correct, that we continue to rationalize where it makes sense. Not all of those have a chunk of cost associated with them. They each have different roles to play in the portfolio, but there continues to be an opportunity in that space as well and then I think just getting a leverage on our IT systems and network from a spend perspective continues to be an opportunity for us as well.

Unidentified Participant

Dover had their analyst meeting yesterday and one of the takeaways was that their own fluid systems business is likely to emerge as a platform as they do M&A. They have a very high share in the specialty valve and other sort of applications. What are your thoughts, broadly speaking around global flow control consolidation and how given your portfolio that fits, number one.

And number two, what about adding sort of broader -- overtime, not obviously now, sort of in the timeframe, you have a broader product that could include pumps or other types of applications. Sort of may be just walk us through a little bit of strategic road map if you will, how you see your company positioned over the course of the coming years.

Patrick Decker

Yes, I would start first with broadly speaking how do we think about capital allocation organically versus inorganically and I would always start first with I still believe that these markets are so fragmented that each one of us as competitors have a number of opportunities to grow organically in the business and so my first priority will always be to be allocate capital against organic opportunities.

That having been said John, to your question, I think the reality is we do still operate in very fragmented industries and we long talked as an industry as to when will there be more consolidation that occurs. I think that if you look at it in terms of the number of companies that are out there, that any one of us would every kind of seriously look at, it’s a smaller list of companies that would come to mind and play.

I think that the reality is we see opportunities over time from a built on perspective in flow control, that would really focus predominately on certain key high growth emerging markets that we feel it’s better to add existing capability in those markets versus building it on our own.

I think that there are opportunities for us also to explore the possibility of adding more automation to our valves controls portfolio. Third, I think there is opportunities for us to look at ways at further accelerating and expanding our turnkey heat management capability at a global scale, whereas its today its still largely concentrated in North America and Europe. We are making in-roads elsewhere, but I think there may or may not inorganic needs there over time.

What I would say to each of you is that certainly coming out of the new flow control company, we will have plenty to do in terms of focusing on the organic side, but also being out there as a new public company that we are going to be very disciplined. I will be very disciplined as a CEO as to both capital allocation choices that we make, both in terms of committing financial capita, but also managing the bandwidth of the leadership team and making sure that we are executing on all cylinders, before we take on too much integration risk going forward.

Unidentified Participant

To put automation in the context of Tyco flow control and may be I’ll put in layman sense, what exactly does that mean?

Patrick Decker

Sure. Certainly, if you look at length today as we look at the valve controls part of our portfolio, we are predominately in the what we call the on-off valve part of the market and then we have roughly 10% to 15% of our total revenue that is in what we call the actuation part of the market, where you are actually the opening and closing of the valve itself. And then lastly, some element of control switches and control systems that we sell into.

So we will continue to explore and look at ways to move further up the technology curve there where it makes sense and where we think we can create most value and be competitive. But at the same time we want to make sure that we preserve the space that we are in, which is still very large and that is the on-off market. So that’s one element of what I’m talking about in terms of automation John.

I think the other piece is in thermal controls. The more that we can add to what we provide as a turnkey heat management provider is certainly interesting to us. We focus predominantly on electrical heat today and there is also a large steam component of the heat market out there that we really don’t play in to a large degree today.

Unidentified Participant

I was wondering if you could comment on your after market strategy a little bit and specifically, how critical is it to win and lock in the aftermarket business in order to make the OEM business profitable. And then perhaps how does your aftermarket strategy different from your competitors?

Patrick Decker

Sure. So, in terms of who critical it is, I think in terms of how critical it is to actually win the initial project that historically has been less critical and its really been an opportunity for us to go after in terms of not only winning the original installed, but then actually locking in the after market sort of its component to that and in terms of how important is to protecting the margin profile, I certainly wouldn’t want to give an impression that the project business in diluted by any means; it’s a very profitable, but the aftermarket service certainly is directionally more profitable than the OEM piece.

And we typically say that over time it can be as high as 1.5 times more profitable than the initial install, that’s not always the case, but that’s the general rule of thumb that we use. I think in terms of our strategy on the aftermarket service piece, it differs by industry, because is relatively more or less important depending upon the industry that we are talking about and the products that we sell into that market.

So where its extreme temperature, excrement pressure, highly engineered, we always stand a much better change to win that aftermarket service and we need to own that, because we want to be the ones that are controlling the quality over time of our product.

I would say in terms of our strategy in totality, we are finding more and more that as we talked to people about frame agreements multi year, the service piece is a big differentiator in their mind as it relates to their choice of partnership and I would say the other element of service which is important to us is that in certain markets, predominantly North America, we also have a distribution channel between ourselves and the end customer, whereas around the rest of the world, that’s a much smaller peace of our supply chain and therefore service is easier for us to get access to.

So we are making in-roads in North America to try to take back control of that service base ourselves.

Unidentified Participant

Maybe something of a shorter-term question. The business you’ve been booking in your backlog, which has obviously gone up a lot consistent with other industry players, is the mix conducive to driving higher profit margins, looking out over the next couple of years.

Patrick Decker

Yes, so I think the first piece of that question I would answer is, we feel pretty good about where we are in terms of having shipped out any backlog that would have been priced or negotiated during kind of the bottom of market and so we don’t really see much of that overhang there.

Having said that, I certainly wouldn’t want to suggest that any of us in the industry have not faced some level of pricing pressure, because I think if you look at it by industry, oil and gas is certainly the one that in the down cycles pricing becomes very competitive and then once supply dement equals out, pricing becomes more favorable. But I think we feel pretty good about our ability to have either passed that back to our suppliers, taking cost out of our footprint and manage that with some other pricing tools that we put in place, but that has been a pressure.

I think what’s helped mitigated is some of the other industries that have not been as price sensitive as the oil and gas piece. I think when you look out in terms of the projects that we are taking into backlog, first I would say the up tick in growth that you’ve seen to this point over the last few quarters has not really been driven as much by large projects that have been booked. It’s really been an increase in the day-to-day smaller project business in that space.

So there are still a number of big insulations and projects out there that are in the conditioning phase that have yet to be awarded and we are certainly going after those aggressively to make sure that we are well positioned to win them, but not to the extent that we envision that being a margin pressure going forward. We should certainly get health leverage on those projects going forward.

John Inch

And you’ve been doing about a 35% profit margin contribution, so is that basically sustainable. You think based on the mix, I mean you are not facing some sort of second half profit pressure because of what was entirely booked off of lower oil and gas.

Patrick Decker

Yes, I think I would say the way I would characterize the 35% leverage is that’s particularly attributable to our valves and control business, that that 35% leverage applies to and I would say, that’s been a good rule of thumb and is a good rule of thumb, probably kind of quarter-to-quarter over time. There obviously will be quarters here or there or years here or there where we are reinvesting in the business in terms of adding selling capability or investing in R&D etcetera.

So I think everything equaled the operating leverage that we would expect to get from the growth that we are seeing in backlog, would not be dramatically different from what we’ve seen before and the only thing that will be different will be if we choose in a certain quarter a year to make an investment, but we will be very transparent and open as to what those investments were that we were making.

John Inch

And one more broad one from me. Can you talk a little bit more about the frame agreement process? The purpose of a frame agreement may not be clear to a lot of folks. So first thing, what is that? Where and how do you compete and bid for it? Who you are actually competing against and then how does this play out in terms of sort of the revenue and profit contribution over time.

Patrick Decker

Sure. So a frame agreement, it certainly differs by – frame agreement is a very generic term and it’s good that use asked the follow up question John that I can clarify.

The frame agreement really just simply means that there is a typically a multi-year agreement, whereby you are effectively reaching an agreement with an end user, it could be with an ENC contractor as well, but typically with an end users, whereby you’ve already been specified in.

These are typically long lead-time missionary work to make sure your products are even on the approved vendor list and once you’ve done that, you typically are looking for an agreement whereby they will either give you preferred treatment where you are giving first look and last look on any of the orders you are going to be placing. In other cases it could be surely exclusive where you are the only, you are sole source provider as we would say for a product and each agreement is different.

In terms of who we typically would find ourselves something up against, it would be any of the global valve players that are out there, who are typically invited in to these negotiations and we are often times bidding on very different parts of the total package and so to put it in perspective, in one of the recent frame agreements that we won, there were more than 18,000 specific applications, not products off a shelf, but applications that were in that valve package that was being bid. We were able to bit on more than 16,000 of those applications. That was far in a way the highest percentage of any of our competitors and then you add to that the service component is a big part of this as well.

So each one is different, in terms of how many of these we see. I think that each customer has a different philosophy as to whether they want to commit to a frame agreement or not and we certainly also want to disciplined around how much of our capacity that we commit over time to a frame agreement.

I would close with the fact that we are also very disciplined thus far on making sure that frame agreements that we take on are not dilutive to our overall margin performance and therefore we are not giving away that much in terms of leverage by way of negotiating a broad agreement with the customer. They vary dramatically by customer. I mean the one that we announced with Shell recently is a five-year agreement. We have others that are two years, three years in nature.

Okay, thank you very much.

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