Executives
Scott Amann - VP, Investor Relations
Shel Erikson - Chairman and CEO
Franklin Myers - SVP and CFO
Jack Moore - President and COO
Chuck Sledge - VP and Corporate Controller
Analysts
Bill Herbert - Simmons & Company
Brad Handler - Wachovia Capital Markets Llc
Geoff Kieburtz – Citigroup
Dan Pickering - Tudor Pickering
Michael LaMotte - JP Morgan
Ken Sill - Credit Suisse
Roger Read - Natexis
Kevin Simpson - Miller Tabak & Co.
Kurt Hallead - RBC Capital markets
Mike Urban - Deutsche Bank
Renee Gulani - Grand Capital
MonroeHelm - CM Energy Partners
Jim Crandall - Lehman Brothers
Cameron International Corp. (CAM) Q3 2007 Earnings Call November 1, 2007 8:30 AM ET
Operator
Greetings, ladies and gentlemen, and welcome to the CameronThird Quarter Earnings Release. At this time, all participants are in alisten-only mode. A brief question-and-answer session will follow the formalpresentation. (Operator Instructions) As a reminder, this conference is beingrecorded.
It is now my pleasure to introduce your host, Mr. ScottAmann, Vice President of Investor Relations for Cameron. Thank you, sir. Youmay begin.
Scott Amann
Thank you, Ryan. Good morning, and thanks to all of you forjoining us today. As a reminder, if you haven't accessed the release yet, it isavailable on the wire services as well as on our website.
This morning you will hear from Shel Erikson, Chairman andChief Executive Officer of Cameron and Franklin Myers, Senior Vice Presidentand Chief Financial Officer. We're also joined by Jack Moore, President andChief Operating Officer, and Chuck Sledge, Vice President and CorporateController. Shel and Franklin will each offer some commentary on the resultsfor the quarter, and will then take time to field your questions.
In accordance with the Safe Harbor Provisions of thesecurities laws, we caution you that some of the statements made on this callmay be forward-looking in nature and as such, are subject to various factorsnot under the control of the company.
For a more complete description of these factors and therelated risks and uncertainties, please refer to Cameron's Annual Report on form10-K, the company's most recent form 10-Q, and the associated news release.
With that, I will now turn things over to Shel.
Shel Erikson
Thanks, Scott. Let me just make a couple of comments, andthen I'll turn this over to Franklin.We had a strong quarter; no question about that. The headline earnings of $1.31included $0.17 of tax benefits. So, the right way to look at our earnings isreally $1.14 versus $0.80 last year. We reported $0.78 last year, but we had acouple of cents on restructuring charges. So, all in all, your earnings are upabout 42% and a 21% increase in revenue.
Sequentially, earnings were up 5.5% on a 4% increase onrevenue. So, business continued to grow, and we look forward to that growth inthe next year. Third quarter revenues for all 11 operating units reportedincreases from last year, which is remarkable. Every one of our businesses isdoing better.
EBITDA margins, both dollars and percent, were up from lastyear for all of Cameron as well as all three reporting segments. So we continueto make progress on a consolidated front. Orders were at $1.33 billion thatcontinued to exceed our revenues and were up 5% from last year and 1%sequentially.
Despite the fact that we had a significant mix shift,drilling equipments orders were about $200 million, and that's a healthy numberbut not unexpectedly were down more than $150 million from last years' highlevel.
That business continues to grow but at a slower rate; a lotof it's been driven by deepwater semis, as you know, and we think there'sprobably something in the neighborhood of 15 to 20 deepwater rigs that couldorder equipment of our type over the next year or two.
Our surface equipment orders continued strong. Theyaccounted for 21% of our orders; they were up 20% up from last year. Our subseaorders were up 26% from last year. They accounted for 18% of our orders. Weexpected, actually, the number to be higher, but as you've seen from otherpeople, orders continue to slide.
We don't think it's a reduction in the business but a timingissue more than anything else, particularly with the some of the foreigngovernments. It's difficult to predict when exactly things happen, but we areconvinced that this business will continue to grow.
Clearly, this business is characterized by being what Iwould call lumpy in terms of orders. Our large orders come at strange times,and they can make quarter-to-quarter or year-over-year comparisons lookstrange.
Valves and Measurement orders were up 15% from last year. Thatbusiness continued strong, and compression had a very strong quarter in termsof orders. They were up 49% from last year. Really, as a result of ourcontinued strong and diversified order mix, our backlog expanded to more than$4.1 billion. I think, it's interesting to point out, we don't have any onesegment that accounts for more than 21% of our orders on a go-forward basis,and it's pretty much probably the same with revenue.
In the quarter, we had good cash generation. Despite aninventory buildup of about a $100 million, operating cash flow did exceed a$100 million. CapEx, a little more than $50 million for the quarter, was abovelast year but a little less than what we had expected. Some of the equipment iscoming in later than we had expected so what we are doing is guiding for theyear end somewhere around $240 million plus or minus.
We are now operational in Malaysia with our new subseafacility, and our spending there is about complete. We are moving ahead on ourRomanian facility program, and that's been kicked off. We plan to spend about $10million of the $60 million this year.
Looking ahead, given our geographical and product linebreathe; it positions us well in today's environment. As I mentioned, not oneof our 11 product lines accounted for more than 21% of our business.
For the year, earnings are expected to end up between $4.24and $4.27, and that number includes the tax gains recorded in the second andthird quarter to $0.23 a share, and we are forecast a $0.20 non-cash chargethat we'll take in the fourth quarter to cover the beginning of the terminationof our U.S pension plan.
This implies a fourth quarter earnings estimate of $1.18 to$1.21 a share, excluding a non-cash pension charge, Franklyn?
Franklin Myers
Thank you, Shel. As we discussed in many previous calls, wereally try to take a no-whining approach to a lot of the one-time items that we'vehad. Unfortunately, because of the tax line, we've had to call some of thoseout for purposes of your understanding.
It’s really a dull part to go through. Our tax rate for thequarter was approximately 24% versus the anticipated rate of 34.6%, with the differencein the quarter being made of several discreet or in other words one-time items,for which the company had previously established reserves.
The ability to utilize foreign tax credit added $0.04. Theresolution of a transfer pricing concern added a nickel. The application offoreign tax credits to the U.S, added $0.04, and the reduction in the UK statutoryrate added a penny. All important.
I discussed on our last call with a change in the accountingfor taxes, it’s more likely that we'll have these discreet items morefrequently. And we’re trying to eliminate the swings, but current accountingprobably doesn’t make that as likely.
Our tax department is working hard on ways to reduce thebook tax rate, but it’s a slow process. The applied tax rate for the fourthquarter is about 33%, down from what we've had previously slightly.
Kind of next, the dollar part in our release is that pencilsare getting a little sharper with the respect to the U.S pension plan or atleast of those of our actuaries. Our best estimate now is that the charge isgoing to be $67 million per versus the original $85 million. Both of thosenumbers are pre-tax; the difference has basically been due to positiveinvestment experience and interest rate stability.
The estimate on the accounting charge in Q4 is between $34million and $38 million pre-tax or about $0.20 per share as Shel mentioned. Ourguidance includes this charge. We still expect to spend about $10 million to$15 million in cash to wrap up the plan. By the end of the plan which will bein ’09, early ’09. The dullest part is, we only bought back 61,500 shares inthe quarter for about $76/$77 a share, and I'll come back to this in a minute.
D&A was $28 million in Q3 and $81 million for the fullyear-to-date. It's about $8.5 million over 2006 through three quarters. Ourestimated D&A is about $110 million for the full year, less than originallyguided due to CapEx being deployed slower than anticipated; really, lead timeson machine tools are what’s causing that.
The CapEx is $53 million in Q3 and a $161 million year-to-date.It's what we expand our estimate, as Shel said, but $235 million to $240million again down from prior guidance. There's really been no change in ourattitude towards deploying the capital. The CapEx has been approved as we'vestated before and what we expect to do. It's really been the effort in tryingto put the capital to work because of the delays and some of the machine toolproviders.
As Shel indicated Malaysia is up and running. Althoughit's up and running, we are not showing any revenue this year because of theway we recognize our revenue. The revenue from Malaysia really starts in the firstquarter of next year.
Share count used in Q3 was $115.4 million and $115.1 millionfor the full year guidance. As I said, we bought about 61,000 shares in Q3, butwe purchased 4.7 million shares for the year-to-date at an average of about $65a share through three quarters.
One question we probably say well is "Has your attitudeon share repurchases changed?" I think Q3 was an unusual quarter becauseof a couple of things that happened. We were not unaffected by some of theconcerns that took place in the credit markets and that were experienced inbroad markets in general.
We rescrubbed how we invest our cash and assured ourselvesthat we won't take any institutional risk in the cash we had on hand. We also triedto evaluate the longer term effect of what I will call the prices oftransparency and confidence that occur principally in August. And what we seeis, we believe that valuations on company in our space, meaning the private orparts of larger businesses are going to become more reasonable, and kind of comeback to historical norms. As a result, we've taken a look at the cash we had onhand and believe that we need to hold it ready to expand our franchise.
We've already seen signs of this. When you couple that withpossible higher private capital gains rates, we believe that private companiesmay be more anxious to transact with our principal competition being strategicplayers who are typically more conservative prices than what we've seen formprivate equity.
I would characterize, the deal activity right now within ourshop as very robust. We are seeing a number of transactions, whether we actuallyexecute only time will tell, but we do have great deal of activity. Debt at theend of the quarter was $753 million. Net debt was $184 million down from theprior quarter or about 8.5% debt-to-cap.
The other thing that I had mentioned is that currency hasbeen a little, what I will call, concerning in the last quarter because of theweakness in the dollar. As we’ve mentioned before, we are net along US dollars,but what we do and what we’ve indicated before is we tend to hedge our largeorders against currency swings so that we can lock in our currency to maintainour margins and to avoid adverse effect at the cost line. And so far, we’ve notseen any meaningful adverse effects as a result of currency swings.
As Shel discussed and the numbers indicate, we had a goodquarter versus our expectations and what we’ve guided, and we expect that as weshow with our guidance for Q4, that our trend will continue that we are seeinga very robust environment and good results.
With that, Scott, we'll take any questions.
Scott Amann
Okay, Ryan, we can open up for questions please.
Question-and-AnswerSession
Operator
Thank you. Ladies and gentlemen, at this we’ll be conductinga question-and-answer session. (Operator instructions). Our first questioncomes from the line of Bill Herbert of Simmons & Company.
Bill Herbert -Simmons & Company
Thanks, good morning.
Scott Amann
Hi Bill.
Bill Herbert -Simmons & Company
I was wondering if you could update us with respect to youwhere you stand today on you subsea manufacturing capacity? I believe Malaysia and also work in Brazil was going to get hit about170 tress per year, is that correct?
Shel Erikson
That probably right. Again, it depends, Bill, on the mix oftress you’re talking about.
Bill Herbert -Simmons & Company
Got that. But the 170 compares with what at this point lastyear?
Shel Erikson
Well with Malaysia.You’ve got an increase probably there of about 30 or so
Bill Herbert -Simmons & Company
Okay
Shel Erikson
On an annual basis.
Bill Herbert -Simmons & Company
And with regards to Romania the 60 odd million dollars inCapEx that you are putting in that is that for subsea trees as well?
Shel Erikson
No, no, no that's all surface. Our surface business isstrong, and one of the reasons that we are putting up that facility is really acost issue. We're finding that we're outsourcing way, way, way too much stuffand we are paying a premium to do that. We made that investment, we considerthat investment for any increase in the revenue.
Bill Herbert -Simmons & Company
Okay.
Shel Erikson
It's a cost kind of deal where you get a pay back two or twoand half years. And I said we got to do that.
Bill Herbert -Simmons & Company
Sure. Now with regard to subsea back to that question. Doyou envision continuing expanding capacity in 2008 from where you are rightnow?
Shel Erikson
The capacity yes, but not the bricks and mortar and notmachine tools, it's called softer capacity called people.
Bill Herbert -Simmons & Company
How would you, because I think there is the fair amount onconsternation and hue and cry on this particular subject, so here is thequestion. How would you characterize yourself today from the subseamanufacturing standpoint? Are you capacity constrained or are you basicallywhere want be and where you envision being for the next couple of years.
Shel Erikson
We are tight now.
Bill Herbert -Simmons & Company
Okay. So you are tight right now, but it doesn't sound likeyou are going to engage in any sort of meaningful capacity expansion in thecoming year?
Shel Erikson
Not from what we've already done with the Malaysia. No.
Bill Herbert -Simmons & Company
Okay, fine. And then second question, you mentioned withrespect to the continued delays if you will with respect to project sanctioningand some of these large West African Subseaprojects. In hearing one of the large offshore constructing companies the otherday on their call, it was their belief that Usan was going to get sanction veryquickly and probably awarded before year end. And I was just curious as towhether your perspective agreed with that one?
Shel Erikson
Well, we would like to have that in the case, but as I'vementioned in my comments this is not within our control, they don’t check withus before they are ready to go, and typically in large systems like this Bill,it isn't just us that they are having to deal with.
Forget about having to get the sanction approval from thenational oil company, you got lots of bits and pieces, things like FPSOs,things like rigs and so forth. My sense is and I have not been told this by anylarge supplier, but common sense would tell you that you got to have all your piecesin place at one time because it doesn’t do any good ever, rigs standing therewaiting.
Bill Herbert -Simmons & Company.
Right.
Shel Erikson
Nor does it do any good to have a whole bunch of treeswaiting to be planted and you don’t have a rig.
Bill Herbert -Simmons & Company.
Okay.
Shel Erikson
But I am not saying they got a rig issue, but I am sayingyou got to take a look at all the pieces and so we are not privy to a lot of thatinformation. So, when they come to us and say, hey we are ready to go, assumingwe are ready to go we say, yes.
Bill Herbert -Simmons & Company.
Okay. And then recognizing that delays are a fact of lifeand handicapping for that, was your hazard a guess as to what the growth insubsea tree orders will be in '08 versus '07?
Shel Erikson
That's a hard one because you do have two or three largeorders out there that can dramatically change that number. You are dealing witha relatively small number of wells.
Bill Herbert -Simmons & Company.
Right.
Shel Erikson
Whether you calling at 400 or 500 or 600, you know a 100trees in one year can change that number dramatically. So do I think over thelonger term this continues to grow? You bet.
Bill Herbert -Simmons & Company.
Okay.
Shel Erikson
From quarter-to-quarter? No.
Bill Herbert -Simmons & Company.
Thank you very much.
Shel Erikson
You bet.
Operator
Our next question comes from the line of Brad Handler withWachovia.
Brad Handler -Wachovia Capital Markets Llc
Thanks. Good morning.
Shel Erikson
Hi Brad
Franklin Myers
Hi Brad.
Brad Handler -Wachovia Capital Markets Llc
Could you guys please spend a little time on compression,just a nice quarter, strong orders as you mentioned. Where is the strength inthe order book coming from firstly?
Shel Erikson
Well, we saw a pretty split between both our recip andcentrifugal business. A lot of it internationally, and as you would probablynotice the EBITDA margins in that business surpass the number or the target weset a year ago and it will for the year.
So, a lot of the work that we have been doing in the pastcouple of years is starting to pay off; a lot of product development, a lot ofnew products, and a lot penetration outside the United States. So, we're seeingpretty good growth in orders from both sides of our business. It's not one-leggedstool.
Brad Handler -Wachovia Capital Markets
Good. That's good to hear. Coming back to the margin, Iguess there was some talk last quarter about second quarter was particularstrong because there were some deliverers that have been delayed from Q1.
Shel Erikson
Yes.
Brad Handler -Wachovia Capital Markets
And so, there was some sense that perhaps that wasn’t sustainable margins. Here you've basicallyput up the same margin and ..
Shel Erikson
Well, you are right. We did better than we expected.
Brad Handler -Wachovia Capital Markets
Okay. Well that’s great, but is there something about theway the business is shaping up with that, that looks to be a sustainable levelfor us to think about over the next few quarters?
Shel Erikson
Well, it looks like some place between 15% and 20% EBITDA orreasonable number to look at for that business.
Brad Handler -Wachovia Capital Markets
Okay. And the basis for that step up then, how much ispricing versus some of the mix that you are describing and the initiatives?
Shel Erikson
Well, I think part of our problems is not enough of its pricing.We could do a better job on pricing. We are getting it basically throughmanufacturing volume, and we are tight in that business. The revenues in thethird quarter were probably a little less than what we expected, but themargins were certainly better. My guess is you'll see an increase in revenuesin the fourth quarter
Brad Handler -Wachovia Capital Markets
Okay, that’s helpful, and I will turn it back, thanks.
Shel Erikson
Thank you
Operator
Our next question comes from the line of Geoff Kieburtz withCitigroup.
Geoff Kieburtz –Citigroup
Good morning
Shel Erikson
Good morning Geoff.
Franklin Myers
Hey, Geoff.
Geoff Kieburtz –Citigroup
Housekeeping first, can we get the revenues orders and backlogwithin drilling and production?
Shel Erikson
Yeah, I will tell you what probably the easiest thing to dois it's in a bunch of pieces. Why don’t you give Scott a call after theconference call and we will give you that detail. I think we have 11 differentpieces so ---
Geoff Kieburtz –Citigroup
That's why. In terms of your comments on the subsea market,you know I quest really sort of wobbly in to the discussion earlier this week. Theykind of certainly get a totally different view. They are looking for a declinenext year in subsea tree orders and a very subdued growth from there. Youclearly have a different view you see continued growth in the subsea market. Whatis your confidence based on?
Shel Erikson
Well, first of all, we've got some pretty good visibility onsome rather larger orders
Geoff Kieburtz –Citigroup
Okay
Shel Erikson
That, for us gives us an increase in business. I am lookingat it from my point of view, I am not looking at it from my competitors’ pointof view but I don’t see that market declining. There is absolutely a continuinggrowing need for development of the offshore wells, it’s where the product is.Are there timing issues? Yes.
Geoff Kieburtz -Citigroup
Okay.
Shel Erikson
And are there political issues with particularly foreigncountries? You bet. But over the longer run, over the next two, three, fouryears, the business will be bigger than it is today.
Franklin Myers
Geoff, if the deep water rigs that have ordered come onstream. If they are either unsuccessful or not used, then the market won't grow.But if you believe that they are going to be used and to some degree are successful
Shel Erikson
Then their contract is -
Franklin Myers
And they are contracted is (inaudible). There are a lot ofthat now. That market should grow
Geoff Kieburtz -Citigroup
Yeah
Franklin Myers
We don't know what goes in to quest on a quarter-by-quarteranalysis or even a short term analysis, but just step back and look on a macrobasis from where the operators are spending their money and that's what givesus some comfort as to the growth of this area.
Geoff Kieburtz -Citigroup
In terms of the delays this is a characteristic, that thatcharacteristic that's been with this business for as long as I can remember, isthere any thing different from your prospective in the nature of the delays isit the magnitude or the causes of them or is it just sort of.
Shel Erikson
No, I don't see any thing different today than it was a yearago or two years ago. It's the same stuff. How it effects us is when you getlarge orders that can really swing your business from one side to the other,and we have really three business segments today that have these larger ordersin them. One of them is our subsea business, the second one is basically whatwe see in drilling equipment, as you can see how can get some big swings there.
And the third is in our engineered valve business, whichtends to take larger orders, and we said all three of those businesses aregoing to be lumpy. Whereas you get into the surface business which tends to bea little bit smoother, you get in the Distributed Valve business that kind of justmoves up and down easily. In the subsea business, I don't see any thing differentthan what we saw a year or two ago.
Geoff Kieburtz -Citigroup
Okay. And in terms of your outlook for '08, we’ve kind ofbeen through this transition where we had a period where the outlook wasdominated by large project, larger number of trees per order, and we kind of wentin to a phase where it was more distributed, a lot of smaller lower number oftrees per order. Are we going back into the concentrated market conditions herein the next year or two?
Shel Erikson
To some extent Geoff, as you are absolutely right. We went forat least a couple of years, where there are no 25 plus tree orders that werelet. And I think you are going to see a few of those over the next 6 to 12months that come out that tend to skew the numbers. But the thing to look at,the pulse to look at is probably the smaller, the one to five kind of things,because that kind of tells you what people's attitude is in terms of drillingoffshore. These larger projects, god it's been in the work for years, and thoselarger projects whether the price of oil is 90 or 70 is not going to change.
Geoff Kieburtz -Citigroup
Right. And last question. Franklyn when you were talkingabout acquisitions, you mentioned the prospect of increased capital gains tax, doesthat suggest that you are looking at a lot of US-based candidates?
Frankly Myers
What I am saying is a number the prospects that come up are USowned.
Geoff Kieburtz -Citigroup
Okay. Not necessarily domestically --
Frankly Myers
They may have business in North Americaas well as other places, and it's the old Bernard Baruk saying you buy sweatersin the summer time. North American markets have been pretty soft here recently;that we believe that in the long term they will remain soft forever. And so youhave to look at where you find the best value.
Geoff Kieburtz -Citigroup
Okay. Thank you.
Shel Erikson
Was it Panamahats or sweaters?
Frankly Myers
Yeah I think it's a sweater.
Operator
Our next question comes from the line of Dan Pickering withTudor Pickering.
Dan Pickering - TudorPickering
Good morning guys.
Shel Erikson
Good morning Dan.
Frankly Myers
Hey, Dan.
Dan Pickering - TudorPickering
As we look at the DPS business obviously mix effects marginsas we step forward but nice quarter this quarter. Is this sort of a baselineEBITDA and operating income margin level for the company as we step through thenext two, three, four quarters?
Shel Erikson
Well, we kind of like to think that that. Is kind of the targetwhere we want to be, the question is, are we capable of executing and beingthere. But that, to me it’s a reasonable target Dan.
DanPickering-Pickering Energy Partners
Okay. So business mix isn’t going to be a meaningfulinfluence or it's going to be your execution capability?
Shel Erikson
Absolutely.
DanPickering-Pickering Energy Partners
Okay. And then just spending a lot of time on subsea, Ican’t want to pin you down a little bit. If you've booked something before theend of the year, Shel, on a big project or even small projects, does thatgenerate any revenue in 2008, are we really talking about it 2009 issue, whenwe talk about this projects slippage?
Shel Erikson
I guess it depends on what it is. The answer is yes, itcould have an impact on ’08 but not significant.
Dan Pickering-PickeringEnergy Partners
Okay. So 2008 in the subsea business, the one reason is coming fromsmall projects, they are going to be more influential to revenues than the bigprojects?
Shel Erikson
That’s correct.
DanPickering-Pickering Energy Partners
Okay. And then last question, the drilling business, you hada big backlog there and the expectation is you start delivering a lot of thatequipment. Are you going to see some continued growth in the revenues there andhas that revenue ramp started?
Shel Erikson
The revenue ramp has begun, it will continue on. I think thething we look at Dan, last year we had orders of about a $1.03 billion indrilling equipment. My best guess is you are going to see that number probablybetween, these orders I am talking about, some place between 8 and 8.50 thisyear.
DanPickering-Pickering Energy Partners
Yes.
Shil Erikson
It will be the second largest order year we've ever had. So,you'll have deliveries that will extend out ’08-’09 and going into ‘10. So, itgives us a nice rollout over the next two or three years. The other thing that happensof course is, as you put more of that equipment out there your after marketbusiness starts to grow and in the past and in periods where you didn’t haveany large subsea orders or large jack of orders, typically about half thebusiness was aftermarket which is nicely profitable.
So, if you take a look at today our margin percent mix indrilling is down from where its traditionally has been, because we’re shippingnew capital not half-and-half margin, I mean higher margin in spare parts.
Now you’ll return to that higher spare parts business whenyou complete delivery of all of these capital goods. We’re not getting the samemargins on new equipment as we do in aftermarket. But it gives you a nice blendgoing forward.
DanPickering-Pickering Energy Partners
Fine.
Shil Erikson
It gives you a lot of surety in terms of what you are goingto do in terms revenue and margins.
DanPickering-Pickering Energy Partners
Right. And I guess the reason I'd asked the margin question Shelwas because as drilling grows that OEM will have a negative mix impact butessentially you are making it up in the other business as it sounds like.
Shil Erikson
Yeah that's pretty true. I think what happens is, I am notsaying that the drilling capital equipment margins are bad, they are just not asgood as they are just playing after market margins
DanPickering-Pickering Energy Partners
Right.
Shil Erikson
So, I don’t think your going to see any dilution of ouroverall margins as a result of the ramp up of new drilling equipment.
DanPickering-Pickering Energy Partners
Well, thank you.
Shil Erikson
From a company standpoint.
DanPickering-Pickering Energy Partners
Right, thanks.
Shil Erikson
You bet.
Operator
Our next question comes from the line of the Michael LaMottewith J.P. Morgan.
Michael LaMotte -J.P. Morgan
Thanks good morning guys.
Shil Erikson
Good morning Mike.
Michael LaMotte -J.P. Morgan
I am sorry to beat this subsea horse one more time, but I amwondering how much perhaps needs to follow-up on Jeff's question, the issue oflarge contracts versus the onesy, twoesy. And in particular I am thinking aboutExxon's plan to sort of switch from Kasamba B concept to satellite developmentson ABC. Whether that kind of mix factor is really at play here?
Shil Erikson
Well, I can't tell you. The last project we did for Exxon wasKasamba B. Kasamba C we didn't qualify as the preferred supplier, they just didn'tlike our terms. So, what they are going to do going forward, I really don'tknow.
Michael LaMotte -J.P. Morgan
Okay, I guess, just in terms of Quest accounting forprojects and what shows up in their database.
Shil Erikson
The problem which you have with Quest and it's not theirfault. It's just the data that they use, is they count trees, they don't countrevenue.
Michael LaMotte -J.P. Morgan
Yeah.
Shil Erikson
And years ago, when you were selling individual trees, itwas very much apples and apples, and as you started to go to larger systems,the tree is only the minority of the revenue that is in a system. A typicaltree used to go for $2 million or $3 million probably in that range, may be $4million with all the jewelry on it. But today if you take look at a largersystem, it's not unusual to have per tree, if you want to look at it that way, $10million to $20 million in revenue. So, when you look at the data is data and Iam not falsing their data per say, it just is incomplete.
Michael LaMotte -J.P. Morgan
Fair enough. That's helpful, thanks.
Shil Erikson
Yeah.
Michael LaMotte -J.P. Morgan
And then on the surface side, you've been running at arevenue run rate mid 20%, high 20% range, orders are up again 20% in thequarter. Can we comfortably see up 20% revenue year in ’08?
Shel Erikson
Well, we will give you some guidance when we do ’08, we’renot doing ’08 right now, but the answer is it’s not likely. That’s a pretty bignumber. Having said that, I love our surface wellhead business; it’s the best inthe world by far. It’s a jewel for us, but its more than just equipment, it'sthe whole package that goes around it.
Michael LaMotte -J.P. Morgan
Can you remind us of what the cycle time is between backlogbooking and revenue flows through to them?
Shel Erikson
Well, again its depends on the product, it could as much asa order today as revenue next week. To an order today is revenue six to eightmonths from now, depending upon the size of the tree. You start building, thereare large block trees that look kind of like subsea trees and you put those onland, they are going to have a longer lead time because you’ve got a huge hunkof metal to machine out. You take a simple gate valve and stack it on somethingelse and you can get that pretty fast. So, we have a broad mix in our surfacebusiness.
Michael LaMotte -J.P. Morgan
In the orders are you still running 80% or so on theinternational side or does that stretch out that?
Shel Erikson
Well it's interesting. In the US,in that business we’ve basically seen kind of a flat market for the last coupleof years, and the growth we’ve seen is been coming out of places outside the United States.But we haven’t seen any decline per say in the US, we just don’t see any growthright now. Do you expect that to resume at some point? Yeah I do.
Michael LaMotte -J.P. Morgan
Lastly, Franklin,a question for you on the dollar impact on B&M in particular. Withmanufacturing in Europe; you obviously managedthe currency issue well in the third quarter. How do we think about that goingforward?
Franklin Myers
Most of the orders taken out of North Italy, our two plantsin north Italy are in Euros. So we are okay there.
Michael LaMotte -J.P. Morgan
Okay
Shel Erikson
What we want to try to do is sell in the currency that wemake, except we can't do it best than we hedge.
Michael LaMotte -J.P. Morgan
Okay. Great, thanks a lot. Goodbye.
Operator
Our next question comes from line of Ken Sill with CreditSuisse
Ken Sill - CreditSuisse
Thank you. Shel and Franklin, obviously the way you guysbook things on a ship and every thing out on a completely contract basis you couldsee a lot of lumpiness in the revenues. I guess was there anything unusual inthe quarter or this quarter in any other businesses that would cause some sortof strange trajectory in revenues Q3 to Q4?
Franklin Myers
No.
Shel Erikson
No.
Ken Sill - CreditSuisse
Okay. And then obviously the margins very good across the Boardthis quarter, Valves and Measurement were very strong. Just going to ask a questionon that one, do you think that, that kind of margin is sustainable or is theresomething unusual that caused the margins to come in so strongly at almost 24%even EBITDA.
Shel Erikson
I don't think there is anything particularly unusual, one ofthe things we didn’t see in the quarter which is probably contrary to the doomand gloom that you hear about United States. We said before that our distributedvalve business tend to pretty much follow a rig count, and we sell in to bothUS and Canada. Actually our revenues in that part of business were up slightlyfrom where they had been from last two quarters.
So, I guess the good news for us is, I don't see anycontinued decline in the US,and maybe we've seen a bottom I don't know. But other than a few million oneway or the other in that business I don't see anything that is really differentby the quarter or in the quarter that would make us change how we operate ourbusiness.
Ken Sill - CreditSuisse
And I wanted to dig a little bit deeper in that business.Obviously, this is something that gives you some exposure to infrastructure spendinggoing on internationally. How much of the business is international in the Valvebusiness? And we are starting to hear delays of big projects and obviouslyanything going on in Russiapipeline wise, timing is an issue. Do you think this is going to affect whathappens in Valves and Measurement in '08 relative to expectations?
Chuck Sledge
I don't really think its showing up. I will tell you why, Ken.If you take look at the components of our Valve business, as I've mentioned, wehave this distributed Valve business that basically operates in North America. We have a Processed Valve business that'sfor all terms and purposes, our Orbit Valve business that's related to L&Gand projects like that and that kind of continues on.
The thing that is the largest valve piece we have, is anengineered valve and that's when we put the camera all welded together with thegrove bolted valve. But a piece of that in Italy is really going for subsea. Inour engineered valve, presently there's probably a $500 to $600 millionbusiness and probably a quarter of that is for subsea manifold valves that wesell not only to ourselves but we sell them to our competitors.
So, you got lots of different market segments each of thesebusinesses itself. So, we are not overloaded necessarily in the pipeline or inone segment or another. But again, that part of the business because its longercycle will be lumpier than the typical Distributed Valve business or the ProcessValve business.
Ken Sill - CreditSuisse
Okay. And then just one final question on the subsea just tobeat the dead horse one last time, are you see any change in behavior out of Iguess back to another GEs in there? When your competitors said that thoughtthey were actually probably a little bit more disciplined.
Shel Erikson
Do I? I don't. But I don't hear anything, I don't seeanything. Jack, would you agree?
Jack Moore
I would agree, Shel. I think the behavior I think is one wewould have expected for the worldwide organization. So --
Shel Erikson
Yes. Its spread in a large corporation, and of course, yourtech orders, it's in, as I said before, the oil field center of the world Florence, Italy.And you just don't hear over here much about what's going on with thatbusiness.
Ken Sill - CreditSuisse
Okay. Thank you, Shel.
Shel Erikson
Good.
Operator
Our next question comes from the line of Roger Read withNatexis.
Roger Read - Natexis
Good morning, gentlemen.
Shel Erikson
Good morning. Hi, Roger.
Roger Read - Natexis
Quick question on deepwater and I kind of went through itquickly on the internal part. The 15 to 20 deepwater rig, did you indicatethose were yet to order equipment or you were getting orders off kind of 15 to20 deepwater rigs that have recently been ordered?
Shel Erikson
Yes. There are yet to be ordered, and there are some ordersthat are coming through.
Roger Read - Natexis
Okay. And I know you guys do a lot of risers as well asother equipment, is the mix on those any different than what you've seenhistorically or is the margin on deepwater rigs any different for you than theorders that are mostly in already, which if I remember correctly, in a morejack-up and deepwater oriented?
Shel Erikson
Well, we've booked, I think 22-23 deepwater systems and thesystems that have been booked more recently, have a higher built in margin thanthe ones that we did at first. The majority of those deepwater rigs we are supplyingto, Roger. And so, as this thing rolls out, the margins in that segment shouldimprove. But it's a business that won't go away. It will moderate overtime andthen you will get ready to go through another cycle at some point, I don't knowwhen that is. But rigs continue to age. It’s one of those things that is kindof like people, sooner or later they all die and you got to replace them. Butwe've have gone through a rig build cycle right now and we still see things infront of us but not what we saw two years ago.
Roger Read - Natexis
Sure. And then a different of way of asking questions in thesubsea area, the DC tree, has there been any uptake or any update on that interms of orders or more market penetration?
Shel Erikson
I am not sure I didn't understand your question.
Roger Read - Natexis
The DC tree, your direct current tree.
Shel Erikson
I am sorry. I thought you said deep sea.
Roger Read - Natexis
I am sorry.
Shel Erikson
No, the DC tree, we are delivering that this year and Ithink we have other people who are interested. We want to make sure that we getthe ball all the way in the glove. Everything works the way it's supposed toand then we'll continue on. But the last thing in the world we want to have issomething that doesn't work exactly where we expected it to work. But yes, wehave interest by several other parties and basically said, hold on, let's getthis one planned and make sure it operates.
Roger Read - Natexis
Okay. That's it for me. Thanks.
Shel Erikson
You bet.
Operator
Our next question comes from the line of Kevin Simpson with MillerTabak & Co.
Kevin Simpson -Miller Tabak & Co.
Good morning.
Shel Erikson
Good morning, Kevin.
Kevin Simpson -Miller Tabak & Co.
A couple of questions, first a quick one for Franklin. Could you maybegive us some guidance on what you might be using for share count ongoingforward? It sounds like you embanking off ---
Franklin Myers
Our guidance for full year was based on the 115.1 millionshares for the year. So, what you see in the press release, the number for thefull year earnings is 115.1.
Kevin Simpson -Miller Tabak & Co.
And I know you are not into next year guidance, but shouldwe begin to put a little bit of upward creep on shares or would you call themflat?
Shel Erikson
No comment at this point. We'll talk about that in January.
Kevin Simpson -Miller Tabak & Co.
Got you. So, consistently I can't believe it.
Shel Erikson
We are boring, I guess.
Kevin Simpson -Miller Tabak & Co.
Boring is good. The revenues were wide from where I thoughtthey'd be. Maybe I was just overly enthusiastic, I wondered kind of across thesegments, how they came in relative to your expectations?
Shel Erikson
Well. Clearly, I would have liked to have more, and more isalways better. But as I mentioned that in a number of different places, we arepretty tight. On capacity, we wouldn't be adding capacity in Malaysia. We wouldn't be addingcapacity in Romania.And basically, we are ramping up capacity in our drilling business. So, as wesaid before, execution is getting stuff out of the door and that's why when youtalk about guidance, we don't try to give you, here's the most we couldpossibly do, here's what we think is the reasonable expectation. But havingsaid that, yes I would like to have more and would I like to have more in thequarter, you bet.
Kevin Simpson -Miller Tabak & Co.
Okay. Normally, you get a big kick, you get a seasonaldepending on business kick in 4Q manufacturing. With things so tight, is thatgoing to be more muted than it normally would be?
Shel Erikson
I would think so. The flexibility that has traditionallybeen there in the fourth quarter and they have already started moving towardsand trying to make sure, they make their bonus for the year, the foot is on thepaddle all the way to the floor. You can't push into the floor board. In manycases, it's already down to the metal.
Kevin Simpson -Miller Tabak & Co.
Pretty much everybody has made their bonuses for the year orbeing close to it?
Shel Erikson
No.
Kevin Simpson -Miller Tabak & Co.
No.
Shel Erikson
No.
Kevin Simpson -Miller Tabak & Co.
No, okay. Good. Sorry about that, one other quick. Localcontent seems to becoming an increasing issue in Angola. Where do you guys stand onthat there are couple of big Angola?I know Usan is -- Nigeria but Block 31 you guys have mentioned favorably, wekeep on waiting for that to come as well, and maybe the incremental Block 18.Are you kind of okay on local content or you going to have to put more moneyinto Angola?
Shel Erikson
We have facilities in both Nigeriaand Angola.It's not so much the issue of having to put more investment in per se, it'swhat the companies want is more product and coming from these local areas andthat becomes an area of risk. If you can just think out loud with me for asecond, can you imagine somebody in Nigeriabuilding a subsea tree from scratch, compared to what we can do in our leadsfacility or what we can do in Brazil?
It just boggles the mind, yet these local people would liketo have that happen, it becomes really a training issue, make sure you canmanage the quality issue, it's a much higher risk. So, when you think aboutlocal content, it isn't a facility that you have there, you have to have that,it's the actual manufacturer or assembly or production of equipment that peopleare looking, because you are looking for jobs, and that's a risk. And veryfrankly, today we are building manifolds in West Africa, and they are far moreexpensive, far more expensive to build in West Africa, than would be in United States or in Europe.
Kevin Simpson -Miller Tabak & Co.
On productivity issues?
Shel Erikson
Of course. Not withstanding the fact that the unit laborcost is a lot lower. It just takes longer. You've got things that get screwedup, it’s tough. And I understand why the local governments want you to do that.They are trying to build up their own capabilities internally. But it’s along-long way from what we do in a developed country to do it in an underdevelopedcountry.
Kevin Simpson -Miller Tabak & Co.
I don’t know if that’s politically correct anymore, Shel. Ithink it might be emerging economy or something.
Shel Erikson
Okay.
Kevin Simpson -Miller Tabak & Co.
Sorry. So, these big orders that are out there, they tryingto hold your feet to the fire, you are going to have to push more products, bitof more content item both of those countries or do you think you will be ableto continue kind of billing along as you are right now?
Shel Erikson
Well, today we've produce product in places like Nigeria.The [AGFO] manifolds are being produced in Nigeria, not without difficulty.So, the question is, we’re not the ones that contract with the national oilcompany, typically their partners do. But their partners have a demand placedon them by the national oil companies, so the partners have to decide, whatlocal stuff can they put there to satisfy their contract?
Kevin Simpson -Miller Tabak & Co.
Right, although in Angola, Cameron Valves seems to begetting very, very aggressive and while projecting with some of that into thesemarquee projects that are out there, looking like I guess for more price?
Shel Erikson
Did you see that, there continual pressure. It is not justin West Africa; you see the same thing in Malaysia. You see the same thingand there is pressure to do that in Indonesia. All around the world,people want to have stuff made in their country. It’s not unexpected.
Kevin Simpson -Miller Tabak & Co.
So, for you kind of an issue is business as usual in termsof trend?
Shel Erikson
Yes.
Kevin Simpson -Miller Tabak & Co.
And you don't think you probably can handle?
Shel Erikson
It’s not a massive shift. This has been trend for a numberof years.
Kevin Simpson -Miller Tabak & Co.
Thanks, that’s it from me.
Operator
Our next question comes from the line of Kurt Hallead withRBC Capital markets.
Kurt Hallead - RBCCapital markets
Hey, good morning.
Shel Erikson
Good morning, Kurt.
Kurt Hallead - RBCCapital markets
Now, when are you moving the HQ to Florence?
Shel Erikson
Maybe at the summer time.
Kurt Hallead - RBCCapital markets
There you go. I think I kind of covered a lot of groundobviously today and I just wanted to make sure that I understood generally whatyou are saying here is that, in terms of overall business trends as you look into ’08 and potentially even beyond, there is really nothing on the horizon herethat’s causing you worry or concern or raising a caution flag in any of yoursegments is that a fair read.
Shel Erikson
I would say no more than it ever has. There are alwaysthings, one of the things that we worry about again is something we can't do aheck of lot of about is other than react is currency.
We can’t do a heck of a lot about the fact that people aretalking about raising iron ore prices by 50%. Now, how much of that impacts ourfortune suppliers and so forth? I don’t know, but do we expect to have someinflationary pressures going forward? Yes. How do we react to that? Well, webasically have to look at how do we lock in contracts for raw material, how dowe pass it on. This is not a whole lot different than what we've been doing forthe last several years, so I don’t see major jump shift in the way thisbusiness is operating or what our expectations are going forward.
Kurt Hallead - RBCCapital markets
Okay. And then Franklin would say this is kind of the bestenvironment you maybe facing for acquisitions and if that's the case is that inrecent years or in the recent memory or are things getting relatively better orabsolutely more --.
Shel Erikson
Recognize Kurt he is an old guy so he has a lot ofexperience. The best environment is when everybody's on their rear end that’swhen you can buy things right. And in terms of having more willing seller withan elimination of competition who are in our view paying at the highest levelsthat could be valued on some company. This is certainly improved from the lastcouple of years.
Kurt Hallead - RBCCapital markets
Okay, alright. And then want to follow-up here. So, you'vedone so well on the compression segments, what kind lead indicators should webe focused on there, as to kind of track what's going on?
Shel Erikson
You know years ago in the centrifugal, one of the thingsthat took place was there was a downturn before we had that Asian flu. I cantell you we don't see any of that downturn and not necessarily that that was atrue precursor of what's going to happen, because we certainly see things inthat part of world is continuing on strong. I know China's GNP growth dropped all theway to 11.5%, so things are slowing down there.
I just don't see things changing a heck of a lot. I thinkthere is more concern today over what's happening from a financial standpointin our markets that what's affecting us right now. You got very frankly strong,strong commodity prices that will continue draw attention by our customers. So,as long as that continues and to me, if it were $60, I don't think that wouldbehave any different then if it's $90. It was $20, you bet, a big change. Idon't see that likely to happen.
Kurt Hallead - RBCCapital markets
Alright, great. Thanks.
Operator
Our next question comes from the line of Mike Urban withDeutsch Bank
Mike Urban - DeutscheBank
Thanks, good morning.
Shel Erikson
Good morning Mike.
Mike Urban - DeutscheBank
The only thing I had left was on the V&M business, niceperformance there this quarter. But you have been working on some efficiencyinitiatives and putting in some machine tools, and it sounded like some of thatstuff was running a little late. Was just wondering if one, you still expectedthe kind of margin improvement in the Engineered Valve side that you had beentalking about previously, and if so is that pushed out a little bit? Just tryingto think about what we are looking out for next year?
Shel Erikson
The answer is yes and no. We have seen really goodimprovements in our Engineered Valve business. The profitability of thatbusiness has improved a lot. Do we still have some more things to do? Yes wedo. But I would count on the V&M business margins to expand beyond whereyou see them right now. If for no other reason, we don’t need to attract awhole lot of competition because we are a holding a price umbrella up.
This is a highly profitable business for us, we intend tokeep it that way, and the way we intend to keep it that way is to continue topress for cost reduction and by doing stuff in-house as opposed to outsourcing,we can drive our cots down. So it’s conceivable that you could have a pointwhere our price we would actually drop and our margins would continue on.That’s our game plan.
Mike Urban - DeutscheBank
Okay. That’s helpful, that’s all I had. Thank you.
Shel Erikson
Okay.
Operator
Our next question comes from the line of Renee Gulani withGrand Capital.
Renee Gulani - Grand Capital
Good morning guys.
Shel Erikson
Good morning.
Renee Gulani - Grand Capital
Shel, you have minimal net debt and you’re seeing moresteady cash flows than you have in previous cycles. I know there are somepotential opportunities in the North American market. What is your optimalcapital structure? I know you’ve looked at possibly leveraging up your balancesheet in the past, but is that something that?
Shel Erikson
I would say that, and I think most people would agree evenin an energy business that tends to have a lot of volatility, we’re underleverage at this point in time. And our practice in the past is we would eitherbe doing acquisitions or we would be buying back shares or we’d be spendingmoney on capital.
We push the capital button, we kicked up big time this year,in fact coming in as fast as we like, but we kicked that up, but then againthat was consistent with the size of our business. I always said anyway that Ithink our depreciation or i.e. capital spending it probably be somewherebetween 3% and 5% of revenues and that's kind of where we getting. Although inthis quarter we, I think, we are less that 3%, we are like 2.5% depreciation.
But we would see that as Franklin said earlier that there are a numberof opportunities outside this company that we could possibly spend money on.
Renee Gulani - Grand Capital
True
Shel Erikson
And right now that's a higher priority for us than it hasbeen in the past again, because the external markets change. So
Renee Gulani - Grand Capital
May
Shel Erikson
That's kind of our first choice over the next over the nextyear.
Renee Gulani - Grand Capital
Okay
Franklin Myers
If you look it our three buckets that Shel indicated; CapEx,share repurchases, and acquisitions we've deployed through third quarters over$0.5 billion and now our rate of growth of cash as opposed to our rate ofdeployment has been a little out of whack. But if we could efficiently putcapital out, we'll work on that 30%-35% debt-to-cap and maintain our Triple Bplus ratings which is important to us for a lot of reasons because of ourproject businesses. We would like to be there, but the one thing we can't do isjust because we have the cash go spend it. We need to make sure we do itprudently.
Renee Gulani - Grand Capital
Okay. Thanks.
Shel Erikson
Thanks, Rene.
Operator
Our next question comes from the line of Monroe Helm fromwith CM Energy Partners.
Monroe Helm - CM Energy Partners
Thanks a lot. Actually my question was already asked by DanPickering, and it had to do it whether or not these delays could have anymeaningful impact on '08 earnings? So I was glad to hear your answer to that.Sounds like this just happened upon the fact that maybe there some delays inthese big projects. Somehow surprised, but they are being surprised that thereis some -- like the earlier responses to some of these questions, so thanks forthe answers.
Shel Erikson
Thanks Monroe.
Operator
Our next question comes from the line of Jim Crandall withLehman Brothers.
Jim Crandall - LehmanBrothers
Good morning.
Scott Amann
Hi Jim
Shel Erikson
Hi Jim.
Jim Crandall - LehmanBrothers
Shel, how many subsea trees did you book in the quarter?
Shel Erikson
Well, if you believe Quest, it says 17 I believe. One of thethings that we booked in the quarter when we got the contract was the ApacheVan Gogh project. We don’t look projects until we get an order. It doesn’t gointo our backlog until we get an order. In this case I think those trees wereaccounted for by Quest probably two or three quarters earlier. So, whatevernumber you want to use is up to you.
Jim Crandall - LehmanBrothers
So if were to look at 2008, 2009 and estimate at this pointwhat percentage of the orders will be booked with subsea separation and thatyou have that both and you bid on both in conjunction, what would you guess interms of the total trees in the industry?
Shel Erikson
Probably less than 5%.
Jim Crandall - LehmanBrothers
Really.
Shel Erikson
Yeah.
Jim Crandall - LehmanBrothers
Okay. And how do you think you -- would you think you couldbe competitive in awards coming up if you're bidding on those in conjunction?
Shel Erikson
If we will bid when we have a package that is we think isequal to or better than our competition. We've been putting the pieces togetherand that's why we did that DES acquisition. That's why we have the jointventure with Curtis-Wright, and we are developing our own separationcapability. Hopefully and more efficiently I think the word really fits nicely.It's with our all electric system. Because what it allows you to do is, is doseparation on a major step by the way, far beyond what you can do under acurrent hydraulic system.
So, a lot of these pieces go together in a package, butthere are lots of problems that you have to solve. It isn’t just okay, I amgoing to separate water from the oil and this is it and it's all set. We'vebeen involved, we were years ago with Petrobras and it was called the Vastproject and that was done in Brazil.But there is always going to be separation of some sort that's going to be doneon a platform or an FPSO, you are not going to get rid of it. People are notgoing to all of a sudden down size an FPSO or a platform based upon the factthat they can do all the separation in subsea.
It will come in parts and pieces and it will be developedovertime. One of the big benefits that has been heralded for separation is, youget a greater recovery from the well. And if that's true, then there is a realstrong, strong economic benefit of doing something like that. But, whensomething goes wrong in subsea, you got a huge separation unit, I’ll tell youwhat, it's a going to be the real cost. So, it's one to these processes thatwill be developed overtime like our school tree was back in 94 and 95. It tookseveral years before it was accepted by the industry, and that's small incomparison to what we are talking about the way of separation subsea. So theanswer is will it move in that direction? Yes, Jim. Will it move at a rapidpace? I don't think so.
Jim Crandall - LehmanBrothers
Okay. So I’ll just bring it back to my first question. Firstnine months of this year, where do you think you market share was? A number oftrees up, a number of orders?
Shel Erikson
Let me see what Quest has said. What has Quest said Scott?
Scott Amann
Here, nine month 25%.
Shel Erikson
25% that's what Quest says.
Jim Crandall - LehmanBrothers
Do you think that that number understates your ongoingmarket share because the numbers of projects that you think you are – lookslike a strong candidate to win, might have been delayed or pushed out?
Shel Erikson
Well I think you've got two pieces in there, you are measuringas said earlier your previous question. This is measuring number of trees, it’snot measuring dollars. Measuring in fact what percentage of the wells did youget, that’s what you are really measuring. And market share can be developed ona unit basis, it could be developed on a dollar basis.
When you do larger projects you pull through more dollars,typical smaller individual trees are worth a whole lot less for a tree than alarger project. But if you included some of the projects that we are looking atright now, our target number is going to be, we'd like to be somewhere around13% to 35% of the market. Our intent is not to abandon the market nor be theguy that’s been the price leader. We want to make money, we just want to be theprofitable subsea guys. And we think we are
Jim Crandall - LehmanBrothers
But do you see market share. Let's just say that, that 25both in dollars and units was lets just say that was the new level, would younot be happy with that and would you tend to bid some sharpen your pencils sothat your market share did raise back, come back into the targeted range?
Shel Erikson
I don’t think so Jim. I think we're pretty disciplined. Oneof the things that’s very important particularly in larger projects, price is apiece of the whole thing but current terms are extremely, extremely important.
On larger projects you get whipsawed by the customers interms of how they handle changed orders, on smaller it's not an issue. So,we're careful when we go forward on a process that we can get a return that wethink is adequate number one, and number two, we are not betting the company.Call us conservative, but that's just the way it is. Ours is not a market sharestrategy ours is a profitability strategy.
Jim Crandall - LehmanBrothers
Okay and one other question, how many deepwater BOP stackdid you book in the quarter?
Shel Erikson
I don't know. What was it? Was it two or three? Two in thequarter.
Jim Crandall - LehmanBrothers
Okay. Alrighty. Thank you very much.
Shel Erikson
You bet.
Operator
Seeing there is no further questions in the queue, I wouldlike to turn the call back to management for any concluding remarks.
Scott Amann
Okay thank you, Ryan and thanks to all of you for joining usthis morning.
Operator
Ladies and gentlemen, this concludes today's teleconference.Thank you all for your participation.
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