Operator: Greetings. Welcome to the Gardner Denver Fourth Quarter 2012 Financial Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Vick Kini, Vice President of Investor Relations. Thank you, Mr. Kini. You may now begin.
Vikram U. Kini - VP, Investor Relations: Thank you, Rob, and good morning, everyone. Gardner Denver's fourth quarter results were released earlier this morning and a copy of the release is available in the Investors section on our website at gardnerdenver.com.
Before I turn the call over to Michael Larsen, President and CEO for Gardner Denver to discuss our Q4 results, I'd like to remind you that any statements made by Gardner Denver during the call that are not historical in nature are to be considered forward-looking statements. These forward looking statements are subject to a number of risk factors and uncertainties that may cause the Company's actual results to differ significantly from expectations.
A detailed discussion of the risks and uncertainties that may affect our future results is contained in Gardner Denver's filings with the Securities and Exchange Commission including the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and subsequent quarterly reports on Form 10-Q. These statements are made only as of the date of this call and Gardner Denver disclaims any intention or obligation to update or revise any forward-looking statements. I will also refer you to the investors section of gardnerdenver.com for the reconciliation of any non-GAAP financial measures including adjusted EPS and adjusted operating margins used during this conference call.
We will begin with some prepared remarks and then open it up for questions. As a reminder this call is being broadcast in listen-only mode through a live webcast. This free webcast will be available for a replay up to 90 days following the call through the investor relations page on Gardner Denver website at gardnerdenver.com or through the Thomson StreetEvents site at Earnings.com.
Now I would like to turn the meeting over to Michael.
Michael M. Larsen - President and CEO, CFO and Director: Thanks Vick and good morning everyone. We are pleased with our strong finish to 2012 and fourth quarter results that exceeded our expectations in terms of revenues and margins allowed us to achieve record adjusted due to earnings per share for the full-year. For the full-year 2012 sales were essentially flat at $2.4 billion, orders were $2.2 billion down 11% as expected, adjusted operating income was down 2% and adjusted diluted earnings per share ended at $5.74, a 4% increase over 2011. Our fourth quarter results illustrates the momentum that we exited the year with as we achieved sequential growth across a number of measurements. Orders in the fourth quarter were $515 million, a 7% sequential increase versus the third quarter. Orders in the fourth quarter of 2011 were $598 million. Q4 order trends were encouraging particularly in December where we saw across the board strength. The good momentum has carried into the first quarter of 2013 and halfway through the quarter orders are up 8% sequential versus the fourth quarter. Backlog at the end of the fourth quarter was $526 million and gives us reasonable visibility out over the first six months of 2013.
Sales in the quarter were $590 million, up 8% compared with the third quarter. Fourth quarter 2011 sales were $614 million. Adjusted operating income for the fourth quarter decreased 7% to $102 million from $110 million last year and adjusted diluted earnings per share were $1.49, $0.22 above the midpoint of the guidance we provided on October 29, 2012 and 13% above the third quarter 2012 adjusted EPS of $1.32. The main drivers of this stronger fourth quarter earnings were higher sales and team's progress on the ongoing operational excellence initiatives supported by our commitment to the Gardner Denver Way as adjusted operating income increased by 14% sequentially. Fourth quarter cash flow from operations was solid at $86 million and at 125% of net income it was essentially flat compared with the prior year and the third quarter. For the full year of 2012 cash flow from operations was $289 million or 110% of net income.
Turning to the individual operating groups, industrial products group had a strong fourth quarter and excellent operating performance. For the quarter sales were $326 million, up 1% versus last year and up 5% sequential versus the third quarter. In the fourth quarter we were encouraged by emerging order trends in IPG, particularly with the strength we saw in December. Orders improved 7% sequential versus the third quarter. The double-digit growth in Europe, high single-digit growth in China and Asia Pacific and stable demand in the Americas. Year-over-year orders were flat based on moderate growth in the Americas that was offset by declines in Europe and China.
As we entered the first quarter of 2013, the positive order momentum we saw in the fourth quarter continued into January and February. We continue to see improvement in sequential trends with 10% sequential orders growth in IPG. Through the first six weeks of the quarter, the Americas, Europe and China are all tracking above the fourth quarter.
Robuschi is off to a great start with the highest levels of order since acquisition. While we will continue to evaluate additional data points before we confirm as a sustainable positive trend, this early performance in addition to positive excellent data point such as PMI makes us cautiously optimistic. That said, year-over-year order rates are down mid-single-digits and you have to bear in mind that the comparisons to the first quarter of 2012 as last year's first quarter was our strongest order quarter ever in IPG and EPG. In the second half of '13 comparisons get a little easier and we could see positive year-over-year growth.
On margin expansion, the IPG team had an outstanding quarter. Compared with the prior year, IPG's adjusted operating income in the fourth quarter increased 13% to $42 million and adjusted operating margins were up 130 basis points to 12.9%, reflecting the team's continued execution on our margin expansion strategy supported by the principles of the Gardner Denver Way.
A few comments on the year for IPG, despite the challenging economic environment in 2012, the IPG team achieved full-year record revenues of $1.3 billion, an increase of 3% over 2011 and adjusted operating earnings increased to 7% as operating margins increased 40 basis points to 12.3%. Sales growth was driven by trends similar to those we saw in the fourth quarter, including the addition of Robuschi, which contributed 7 points of growth, moderate growth in the Americas and strong growth in Asia Pacific. These positive trends were partially offset by the impact of 3 points of foreign exchange and single-digit declines in Europe and double-digit declines in China.
The Engineered Products Group also had a better quarter than expected, driven by higher sales as we achieved sequential growth in every EPG business. Sales increased 11% sequentially with the third quarter, with growth in Nash up 30% and EmcoWheaton up 70%. As you know, Nash and EmcoWheaton are both project business and orders and revenues can be lumpy.
We were encouraged by the 7% sequential increase in 4Q orders versus 3Q for EPG, as well servicing, which is our pressure pumping business, EmcoWheaton, Nash and Thomas all achieved positive orders growth compared with the third quarter.
In terms of year-over-year performance, sales decreased 10%, which was better-than-expected to $263 million with performance driven by the anticipated lower sales in well servicing. This decrease was partially offset by positive sales growth in drilling pumps and the 3 other businesses in EPG. EmcoWheaton, Nash and Thomas all improved on a year-over-year basis.
Quarter-to-date in 1Q 2013, the Nash, Emco and Thomas businesses are tracking ahead of 4Q order rates, as EPG orders across-the-board are up in the mid-single-digits versus the fourth quarter. One particular bright spot has been our drilling pump business, which booked large orders for onshore drilling pumps for shipment in the second half of 2013. These are the first significant orders in this business since mid-2012 and are early but encouraging signs as we look into the second half of 2013 and beyond.
As expected versus prior year, EPG adjusted operating income in the fourth quarter decreased 18% to $60 million. And adjusted operating margins fell to 22.6%, driven by lower revenues in our P&IP business. That said, we achieved operating margin improvement in three of our four businesses, but the impact of these achievements was more than offset by the performance of P&IP. However, operating margins did improve 150 basis points sequentially versus 21.1% in the third quarter. For the full year 2012, revenues in EPG decreased 5% to $1.1 billion, adjusted operating earnings fell 8% and adjusted operating margins were 23%, as well servicing, EmcoWheaton and Thomas experienced lower sales, partially offset by positive pricing on operational improvements and a record year in terms of both sales and margins in Nash.
Now I'd like to give you a quick update on our five strategies for profitable growth; organic growth, aftermarket, innovation, acquisitions and margin expansion. We're committed to achieving profitable growth, and we believe the principles of the Gardner Denver Way, combined with our disciplined, balanced approach to capital allocation, provides us with a roadmap for success.
First, on organic growth. In 2012, we faced headwinds stemming from the weak economic environment in cycle pressure pumping. These headwinds were greater than we originally anticipated. And as a result, the organic growth rate was down 1% in IPG and down 3% in EPG. On a consolidated basis, our organic revenue growth was down 3%.
That said, there were pockets of growth in emerging markets and in energy, too, where our drilling pump business had its best year ever. Our later-cycle Nash business also had a record year, as China, Asia Pacific and North America led the way with double-digit growth. Our Thomas business in China saw positive growth in Asia Pacific. And IPG in Asia Pacific had a record year, up more than 20% versus prior year.
In 2013, we are going to continue to grow where the growth is. In late 2012, we broke ground a manufacturing facility in India that give us local manufacturing presence and access to a fast-growing and large market core products and services. To win in places like India, you need local presence, and we're successfully pursuing the opportunities in this market, following a roadmap for success that we've seen working on locations like Brazil.
In 2012, we celebrated 50 years of Nash in Brazil and we continue to see the benefits of having a long-standing presence, deep customer relationships and a strong local leadership team in a fast growing market. We anticipate that we'll begin to see the benefits of these investments in India in 2013 as we continue to focus on expanding our sales presence in underserved markets to support organic growth opportunities. While the near-term outlook for organic growth is challenging in our Petroleum and Industrial Pump business, we're big believers in the medium to long-term growth prospects and in 2012, we invested in broader and deeper sales coverage or as we refer to as feet on the street.
In the second half of last year, we doubled our sales force in P&IP in an effort to better serve our existing customers and gain market share by focusing on gaining traction with new customers, especially those outside the U.S. For example, we added a dedicated, experienced sales leader focused solely on selling our state-of-the-art PZ-2400 offshore drilling pump as well as a dedicated international team focused on expanding our presence in large markets outside the U.S. such as the Middle East and China.
Throughout 2013, we're going to continue to invest prudently on organic growth by expanding our global presence in additional underserved markets with an emphasis on fast growing end markets, many of which are located in the emerging markets.
Switching to the aftermarket, we'll continue to make solid progress. Our aftermarket as a percentage of sales remained relatively flat at 32%, excluding the impact of the Robuschi acquisition. In well servicing, we completed our investments in two state-of-the-art aftermarket facilities, one in Fort Worth, Texas and one in Altoona, Pennsylvania, serving Utica and the Marcellus Shales.
Our investments in the less cyclical aftermarket over the last two years have paid off as we continue to work our way through the current cycle in pressure pumping. In 2012, even as shipments of pressure pumps declined, we had a record year in the aftermarket as revenues from repairs and fluid end shipments increased by double-digits.
Our new aftermarket valves and sweeps business, which is an adjacency to our traditional pressure pump business, was developed organically in 2012 with a modest investment and started shipping product in the second half of last year and is on-track to reach $5 million in sales in 2013. With these investments, we're achieving profitable growth while reducing the cyclicality of our well servicing business.
Like many of our customers, we remain bullish on the opportunity in unconventionals outside the U.S., especially in places like China and Argentina. Our largest customers are very well positioned to capitalize on these growth opportunities. And in 2013, based on the voice of the customer, we're planning to invest in aftermarket growth by expanding our aftermarket presence in China by leveraging our existing manufacturing footprint in the Nash business.
Speaking of Nash, this team reached a milestone in 2012 as their percentage of sales from aftermarket reached nearly 25%. And with their global presence, 13 aftermarket locations, dedicated aftermarket focus and a large installed base to mine, they're poised for profitable aftermarket growth in 2013 and beyond.
Both of these business, well servicing and Nash, are good examples of the success we can achieve in the aftermarket with a dedicated team. And over time, our goal remains to drive 40% to 45% of our sales from the aftermarket, which is more in line with our competition.
2012 was also a busy year for engineering teams, as we launched several new products and continue to push forward on our innovation strategy. We estimate that approximately 10% of our sales last year came from products developed over the last two years. The teams continue to focus their innovation efforts on the voice of the customer. And with this focus, we're providing solutions that make our customers more profitable with Gardner Denver products and services that give them better performance in areas such as energy efficiency, environmental friendliness, reduced size and weight and longer product life. Whether it would be the falcon shoot ins or the Maverick drilling pumping energy business, the just launched compact 1010 Diaphragm Pump in our Thomas division, and our Hoffman Revolution for wastewater application or our newly developed proprietary CompAir aftermarket lubricants. All of our recent product introductions are developed with the customer in mind and have been well-received in their respective markets. In 2013, we'll continue to invest in developing new products and commercializing them successfully as we expand our sales coverage.
Much of Gardner Denver's success over the years has been built on a strong acquisition strategy, and our recent success with Robuschi underscores our strength in this area. We remain confident that we can effectively analyze and integrate smaller-to-medium sized acquisitions. As discussed on prior calls, in 2012, our capital allocation bias was towards opportunistic stock repurchase as we reduced the number of outstanding shares in 2012 by 3.5% and returned $114 million to shareholders. And so our acquisition efforts in 2012 were focused primarily on integrating Robuschi. The Robuschi management team, which remains intact since acquisition a year ago, had a good first year delivering on their operating earnings budget. The team is getting ready to go live on SAP as we prepare to consolidate some of our European production in Parma in 2013, and with our strong start on orders this year, I'm confident they'll have another successful year.
Robuschi was a deal that expanded our geographic reach and filled technology gaps in our blower product line. Our blower business, excluding Robuschi, is now nearly $500 million, and we enjoy a global leadership position in an attractive space. We remain committed to acquisitions like Robuschi with a bias towards smaller and medium-sized deals that build on our existing platforms, expand our geographic reach, fill technology gaps, and accelerate our presence in adjacent markets. We will continue to be disciplined and selective in terms of capital allocation and we'll make sure that our organization has the capacity to absorb and integrate potential acquisitions.
On operational excellence and margin expansion, the fifth point of our strategy, we had a great year as we took decisive action to improve productivity, reduce structural costs, and drive profitable growth in 2013 and beyond. We continued implementing cost initiatives, such as our previously announced European restructuring plan and are continuing to opportunistically right size and restructure our operations if needed. In 2012, guided by the principles of the Gardner Denver Way, we reduced our headcount by approximately 5%, closed or announced the closure of 22 facilities, and implemented SAP in six additional locations. Importantly, we launched the European restructuring program, which is progressing according to plan as we finalized the consolidation of two U.K. sites into one high pressure center of excellence in the second quarter and transition to execution mode for the movement of higher-cost facilities and production to lower cost locales such as Parma, China and Finland. The European program will give us run rate savings of $40 million by 2016 and take our IPG margins beyond the 14% target we set for 2014.
On low cost country sourcing, we are making good progress and achieved mid-single digit savings in 2012 and expect that to nearly double in 2013. As we've said before, we can do better on sourcing as we expand the scope of our efforts to leverage the combined IPG and EPG spend in areas such as motors and castings and focus on our indirect spend, including freight and logistics. We do not see any structural reasons why we would be unable to increase our spend in low-cost countries to 30%, 40%, just like many of our competitors from our current 15% spend. We realized positive pricing in the 1.5% to 2% range in both segments in 2012, which was slightly ahead of material inflation. In general, we expect this trend to continue as we anticipate mild material inflation and some pressure on pricing in well servicing, specifically at the lower end of the product range.
In 2013, we will continue to focus resources on executing European restructuring, increasing low-cost country sourcing, implementing strategic pricing initiatives, and a continued lean rollout across the enterprise, including our back office. 2012 was the first full year that we benefited from our finance shared service center in Brno in the Czech Republic, and we achieved savings of close to $2 million. We now have the experience and talent to expand the capabilities beyond finance. And we intend to leverage this experience into future savings.
As we expand margins, we will continue to generate significant cash flow, which combined with our strong balance sheet, provides us with the liquidity needed to operate the business, invest in organic growth, repurchase stock opportunistically when conditions allow for it, and under the right circumstances, make strategic acquisitions. Broadly speaking, our capital allocation strategy remains unchanged for 2013. We will continue to be balanced, disciplined and focused entirely on creating long-term shareholder value.
In summary, we remain fully committed to executing our five point strategy and disciplined capital allocation because it's a strategy that has so served us well as evidenced by our track record of earnings and cash flow. Over the last two years, our adjusted earnings per share and cash flow have increased by more than 30% and 10%, respectively, on an average annual basis. And it's a strategy that has positioned us well for continued success in 2013 and beyond.
Turning to our outlook for 2013. We expect the vast majority of our businesses to experience moderate, mid to low single-digit growth, except P&IP, which I will provide more color about in a moment. By region, we expect demand to remain stable in North America as the economy here appears to be improving modestly. Fairly weak growth in recent – in Western Europe as the economies there continue to struggle and moderate growth in China, Asia Pacific, as China appears to be improving from those of last year.
While we are not forecasting a strong upswing in growth this year, we do think we're coming off the levels based on what we see in orders so far and what we hear from customers. We believe that this moderate growth will improve throughout the year and lead to a stronger second half, which coupled with our focus on margin expansion, positions us well for success.
Looking at it by business group. We anticipate that IPG will show moderate single-digit growth in 2013. On the EPG side, we anticipate that our Nash, Thomas and EmcoWheaton business will grow at a similar mid-single-digit pace, offset by our Petroleum & Industrial Pump business, which as I said, remains challenged in the near-term and is expected to decline by, approximately, 30% to 40%, with some price pressure on lower-end products.
While there is increasing evidence to support the view that order rates in pressure pumping are at or near bottom in terms of pumping orders, in our guidance, we are not counting on a rebound in 2013. Customers continue to experience price pressure, there is oversupply of equipment, and CapEx budgets are generally lower this year. We still believe based on what our customers are telling us and our past experience that when the recovery begins in well servicing, repairs will lead the way, followed by fluid ends and eventually pumps.
Our Altoona repair facility is on track to have its best month ever this month, which is a positive sign. But given the uncertainty and the timing of sustained improvement in this business, our outlook, like I said, does not include improvements in our pressure pumping business in 2013. That said, for the first time in our history, we have the capacity to meet the demand of our customers when pressure pumping returns and we are poised to benefit from improving trends should they occur faster than expected.
As expected, we anticipate a decline in drilling pumps in 2013 as the business cycles. We're encouraged, however, by the large customer orders we received in January for delivery in the second half of 2013. Our rig count expectations are generally in line with consensus as well as our customers' expectations. As such, we're expecting total year rig count in North America to be down slightly versus 2012, with the first quarter of 2013 flat compared with fourth quarter exit rates and then just slightly increase on a sequential basis thereafter. So across total EPG, based on these market dynamics and given current order rates and backlog, we anticipate that overall EPG revenues will decline in the mid-single-digits with positive growth in all EPG businesses offset by the expected declines in P&IP.
Operating margins in IPG should improve as our margin expansion efforts continue to do deliver and we continue our progress towards our stated 14% target by 2014. In 2013, the European restructuring efforts will generate approximately $10 million to $15 million of savings as we right-size our Western European footprint and get a full year's worth of savings from the headcount actions that we are taking in 2012. We anticipate that IPG margins will improve by approximately 75 basis points in 2013, with a flow-through in line with prior years of approximately 25%.
EPG margins will be challenged in 2013 as a result of lower revenues in P&IP and the decremental margins will probably be in the 35% range. In all businesses, except P&IP, we expect to continue to make progress on expanding margins as well as growing earnings and cash flow with little help from market growth. We anticipate that EPG margins will settle in around the high-teens to 20% range for 2013. Heading into 2013 and in line with past practice, we've tried to take a cautious and appropriately conservative view given the uncertainty we're facing today, particularly in our well servicing business and as a result we are expecting adjusted diluted earnings per share in the range of $5 to $5.25.
Let me walk you through our 2013 assumptions for our earnings per share guidance. With $5.74 adjusted EPS as our starting point in 2012, in 2013, we anticipated low single-digit volume growth across all segments, excluding P&IP, which contributed about $0.20 of incremental earnings per share. European restructuring and sourcing improvements will add $0.25 to $0.30, and we expect foreign exchange tailwind of $0.05 given current exchange rates. This will be offset by the challenged outlook in our energy business as we expect declines in our drilling and well servicing businesses to contribute about $1 of pressure to earnings per share. Taken together with a typical modest variability on a year-over-year basis from the tax rate and corporate costs, this gets you to a midpoint of $5.13 in 2013.
The fact that, that could improve over this outlook are obviously a rebound on our P&IP business, upside on cost actions, share buybacks and the tax rate. We estimate that adjusted diluted earnings per share in the first quarter will be in the range of $0.94 to $1.04. And like I said, we expect that second half will improve from the first half.
Guidance for both the full-year and the quarter excludes profit improvement and other items, totaling $0.75 for the full-year or approximately $50 million, related to the restructuring project I detailed earlier. These costs are second half weighted and only $0.04 are expected in the first quarter. Based upon this, our guidance on a GAAP basis is in the range of $4.25 to $4.50 for the year and a range of $0.90 to $1 for the first quarter of 2013.
In summary, we were able to deliver strong results in 2012 by staying focused on our customers and executing on the five growth strategies despite the challenges we faced as we navigated tough economic conditions in the pressure pumping cycle. We're successfully achieving our strategic priorities of organic growth, aftermarket innovation, selective acquisitions and margin expansion with disciplined capital deployment.
I'm proud of the Gardner Denver team and all the hard work that have went into delivering record earnings per share in 2012 and confident that these achievements position us for success in 2013 and beyond.
At this point, I'd like to pass it over to Vick to give you a little more detail on some of the financials.
Vikram U. Kini - VP, Investor Relations: Thanks, Michael. First, we continue to execute well on cost controls in the fourth quarter as SG&A as a percentage of sales declined 70 basis points quarter-over-quarter to 16.7% or $98 million, which was also down 1% versus the fourth quarter of 2011.
In the quarter, foreign exchange impact was essentially flat on a year-over-year basis and versus our October guidance. Our guidance for the first quarter of 2013 assumes current exchange rates, which on a year-over-year basis is essentially flat. For total year 2013, foreign exchange creates approximately $0.05 of earnings tailwind versus 2012.
Our effective tax rate in the fourth quarter was slightly ahead of our previous guidance at 26%. For total year 2012, the effective tax rate finished just below 27%. While the rate can fluctuate on a quarterly basis, we expect our tax rate to be in the 27% range in 2013.
On the balance sheet, operating working capital, defined as the net of inventory, receivables and payables/accrued liabilities, was 16% of sales in the fourth quarter, down sequentially from the third quarter of this year. Working capital improvement, especially inventory, remains a top priority, and we expect to see solid cash generation ahead of net income again in 2013.
We also finished at $50 million of CapEx for the year, coming in right in line with expectations that we previously stated, and we similarly expect to invest $50 million in 2013. At the end of the fourth quarter of 2012, we had approximately $254 million of cash on hand and total debt was $369 million, resulting in a debt-to-capital ratio of 20%, giving us plenty of flexibility in terms of capital deployment.
As far as share repurchases, we did not buy back any shares in the fourth quarter or the second half of 2012 for that matter. However, as Michael noted earlier, we did repurchase nearly 1.788 million shares over the course of 2012. This marks the second year in a row we have repurchased nearly 3.5% of our outstanding shares and fits with our previously stated capital allocation strategy of opportunistically buying back our shares when conditions allow. Finally, depreciation and amortization was $15 million for the quarter and $64 million for the full year.
With that, I'd like to turn it back over to Michael.
Michael M. Larsen - President and CEO, CFO and Director: Thanks Vick. Before we turn to the Q&A, I want to remind you of the announcement we made in October of last year regarding the exploration of strategic alternatives. The purpose of today's call is to discuss our fourth quarter financial results and 2013 outlook and therefore we will not be commenting further on this process or taking any question on this topic. We anticipate providing an update on the outcome when our Board has determined a definitive course of action. I thank you all in advance for your understanding and cooperation.
With that, we'll open the call up for questions. Rob?
Operator: Julian Mitchell, Credit Suisse Group.
Julian Mitchell - Credit Suisse Group: I guess, the first question, just on the IPG restructuring program. It sounds like you are tracking very well on that in terms of SG&A. You've reiterated the $10 million to $15 million savings target for this year in Europe. I just wondered if you could talk about how conservative you feel that is and a little bit more color on the pace of the footprint reduction and the headcount reduction.
Michael M. Larsen - President and CEO, CFO and Director: Yes. I would say the $10 million to $15 million is consistent with the plans we developed last year and what we announced in August and we're committed to delivering on the $10 million to $15 million. I'd say we've assembled a fairly large team that has gone through similar restructuring programs in the past and have a lot of experience in this area. We're comfortable that our savings will come in, in the $10 million to $15 million range as previously communicated. So like I said, the activities are well underway. The first major site consolidation is going to take place here in the second quarter as we finalize the consolidation of two sites in the U.K. into a high-pressure center of excellence for that business. And we continue to execute on the plans here for 2013.
Operator: Kevin Maczka, BB&T Capital Markets.
Kevin Maczka - BB&T Capital Markets: Michael on the energy business, can you size – with the moving parts you experienced in '12, can you size that for us now with drilling pump having a record year, pressure pump under tremendous pressure? Again, can you size it and maybe talk about those three buckets in terms of pressure pump, drilling pump and aftermarket?
Michael M. Larsen - President and CEO, CFO and Director: Yes. Let me try to do that, Kevin. I think we had previously, last year, on this call told everybody that the size of our Petroleum & Industrial Pump business is approximately $450 million in terms of revenues. That is correct. That was the number for 2011 and approximately the number for 2012. So the business was approximately flat in 2012. And that is obviously an increase in drilling pumps, offset by a decline in pressure pumps, which shouldn't be a surprise to anybody, and then offset to some extent by an increase in the aftermarket in pressure pumping. What we are expecting now, based on current order trends, based on the backlog that we have today is a decline, and like I said, in the 30% to 40% range for Petroleum & Industrial Pump here in 2013, and I'd say that 30% to 40% range is accurate for both drilling pumps as well as well servicing.
Operator: Jeff Hammond, Keybanc Capital Markets.
Jeffrey Hammond - Keybanc Capital Markets: I guess, my question is, I mean, you made some favorable commentary about order trends in 1Q and yet the guide is significantly lower than you typically have on a sequential basis. So I was just hoping you could reconcile the 1Q guide and the conservatism therein versus the 1Q commentary.
Michael M. Larsen - President and CEO, CFO and Director: Yeah, so you're trying to compare fourth quarter versus first quarter, right?
Jeffrey Hammond - Keybanc Capital Markets: Yes.
Michael M. Larsen - President and CEO, CFO and Director: So I mean, clearly we are expecting a decline in our energy business here in the first quarter versus the fourth quarter, which is about almost half of the decline that you're going to see from the $1.49 we just did to, call it, $1 in the first quarter of '13. The balance is really the Nash business. The Nash business had a terrific year in 2012 with every region inside of Nash experiencing earnings growth and a very strong fourth quarter, executing very well on project management. And so they came in higher not only on the revenue side but also on the margins. They did a great job on project management. So that's essentially the other half of the decline here. Then you've got some other items, tax and other costs, but those are the two main drivers, the decline in energy and then kind of the typical sequential decline we will see in our Nash business. The other thing I'd just say in kind of your comment on order trends, I mean, clearly, we're encouraged by what we saw in the fourth quarter, particularly in December. We're encouraged by what we've seen here in the first quarter. We're not – we are being in line with past practice. We are being – we feel conservative and so we are not counting on a significant recovery. We're not -- we'd like to see a couple more data points here until we describe these order trends as sustainable, okay.
Operator: Josh Pokrzywinski, MKM Partners.
Joshua Pokrzywinski - MKM Partners: Just wanting to follow up on Jeff's question there. Does that imply then the trough in energy is in the first quarter?
Michael M. Larsen - President and CEO, CFO and Director: I would say that the trough in energy is in the first half of '13 based on what we're seeing today, all right and so if you think about what I said on drilling pumps, let's start with that for a moment, the orders we just took in January for shipment in the second half of '13 and they were the first orders since about the summer of 2012. So, we don't have the typical backlog for drilling pumps that we would expect for the first half of '13. So, clearly, we're going to see a decline in drilling pumps here in the first half of '13. I think in terms of pressure pumping basically what we're saying is we're not expecting anything different here for 2013 than what we have seen in the fourth quarter. So, we're basically assuming fourth quarter run rates for the balance of ‘13 with some increased price pressure at the low end of our product range. So, the old technology fluid ends, we are seeing some price pressure. The high end, the new technology, longer-lasting, better-performing fluid ends, we are not seeing that pressure. So the comparisons in the first half of ‘13 versus a record first quarter 2012 and second quarter are going to be challenging. But I would say that, as we sit here today, we are at or near a trough in the energy business here in the first half of '13.
Operator: Cliff Ransom II, Ransom Research.
Clifford Ransom II - Ransom Research: I have a question, but I have one comment and I don't expect you to respond. And that is that you're getting a lot of heat to do some kind of a massive buyback. And just as one man's vote, please don't do that. I'd like you to give us some flavor, please, on how you currently have the office of the Gardner Denver Way, your operational excellence structure. What does it look like? Who runs it? Who is today the person? Who is the internal champion?
Michael M. Larsen - President and CEO, CFO and Director: I think Cliff, similar to what we talked about on the last call, it's really not one individual that has the title of the Gardner Denver Way leader. I think over the last four years, we've made tremendous progress on the Gardner Denver Way. We've trained our 6,000 employees, and it's really become more of a way of life, day-to-day activities. Our employees are always thinking about doing things faster, leaner and in a better way. And so I think what we started to see last year was terrific progress in the operations continued. And you see that in our margins in IPG in particular. And we also took the Gardner Denver Way to the back office. So our finance shared service center is a great example of that with standard processes and consolidating activities and really speeding up everything we do there in terms of how we get invoices out and how we apply the cash that we receive and so forth. So the best way I can answer your question, Cliff, is that this really has become and given us a very strong foundation operationally. And we're going to continue to accelerate our efforts on margin expansion supported by the Gardner Denver Way. And it's really not any one or two people, it's all of us here that are totally committed to continuing to execute, supported by the Gardner Denver Way.
Operator: Jamie Sullivan, RBC Capital Markets.
Jamie Sullivan - RBC Capital Markets: Michael, you talked a little bit about, I think, it was IPG orders in Europe. I just want to clarify. Did you say they were up double-digits in the fourth quarter? And just sort of maybe within Europe, sort of where you're seeing some of the pickup in activity.
Michael M. Larsen - President and CEO, CFO and Director: Yes, I think what we're seeing is that sequentially in the third quarter and in the fourth quarter orders are improving in that double-digit range in Europe. What's helping us, I'll tell you, is that our largest end market in Europe is Germany. And so I think what you're seeing that there are different trends inside of Europe, and we're seeing strength in our German business and then in other places, if you go further down the list, whether it'd be France or Italy, we are certainly not seeing those same order trends. And so I think we are not expecting great things from Europe here in the near future. We think it's going to be a grind and that's why we are taking the decisive cost actions that we announced last year and that we are executing on this year in terms of our European restructuring efforts.
Operator: William Bremer, Maxim Group.
William Bremer - Maxim Group: Can you give us an idea of the pockets, the pricing in the geographic region primarily in EPG? Are you having better success in pricing in certain regions there, just trying to get a little more granular on the comments?
Michael M. Larsen - President and CEO, CFO and Director: Yeah. I think what I can tell you is that it is fairly broad-based across our EPG businesses. I think it's hard to separate out any geographies specifically. Clearly, what we are seeing, which is not surprising, is that where we have innovated, where we are offering products and services that make our customers more profitable, whether it'd be new products, equipment, pumps or on the aftermarket side, customers are willing to pay for that and so the positive price that we saw in EPG in the 1.5% to 2% range was fairly broad-based across the EPG businesses. I'd say the one exception like I said earlier is if you look at our fluid end product range what we have been innovating and continue to develop what we believe is the premier, longest lasting fluid end in the industry. For those types of products and services, customers – price is not the primary concern, okay. It's really around the reliability and the life of the part. The older technology, however, some of our other customers are more price sensitive. And so there, we are seeing more pressure on price than other parts of the product range, okay?
William Bremer - Maxim Group: And then my second question is on the aftermarket. It seems as though the company has been hovering around this 32% range for quite some time. At the end of '13, where would you hope that this level is? And how much of your CapEx is specifically targeted to the aftermarket?
Michael M. Larsen - President and CEO, CFO and Director: Yes. I think what we've laid out as the long-term goal that is in line with what our competitors, frankly in IPG and EPG are seeing, which is somewhere in the 40% to 45% of our total sales. I think as we sit here today, I'm not prepared to give you a specific number for 2013. But what I will tell you that in the businesses where we have dedicated teams and strong leadership focused entirely on the aftermarket. And we've organized the businesses with P&Ls, with tier metrics and accountability for the aftermarket, which is the case in our Nash business, as well as in our well servicing business. We have seen very strong results. And so in other parts of our business, in IPG for example, where a significant portion of our sales go through distribution. The approach has to be different. I think you really need to think about their how do you make your partners, how do you make your distributors successful and how do you help them increase their sales of aftermarket parts and services. So it's a different approach really by product line, by region. It's something that we are very focused on this year. And we'd like to continue to take the lessons learned and the approach from Nash and well servicing and spread that across the company where it makes sense by product line, by region to continue to really increase the percentage of sales from the aftermarket because it is less cyclical and it tends to be more profitable.
Operator: Mike Halloran, Robert W. Baird.
Michael Halloran - Robert W. Baird: So could you just talk a little bit about the competitive dynamic around the well head? You've seen some of your competitors try to little bit more aggressively consolidate around the wellhead. You've got great positioning with the larger customers. The makeup – really the core of your business on that side, but wouldn't mind hearing how you view the competitive landscape in light of some of the changes that are ongoing there.
Michael M. Larsen - President and CEO, CFO and Director: Yes. I mean, I'd say clearly given the outlook in terms of growth for '13 and what we saw in the second half of last year, it has become more competitive. I think customers are becoming more fragmented in terms of customers that are focused on technology, efficiency. And then there are other customers that are focused more on price. Our customers, as you said, tend to be kind of the premier, the largest customers in that space, and so they are more focused on efficiencies and technology, and have made some real progress there. We have focused our efforts to some extent obviously on servicing those large customers very well, but like I said, we've also increased our presence in terms of sales and the objective there is really to expand our customer list. Beyond the large customers, we've made some good progress gaining traction with kind of the tier customers, and while market share is kind of a tricky metric in this space, everybody looks at it a little bit differently and I'm not ready to say that we are taking share here. But if I think that customers have recognized the premium product and services that Gardner Denver can offer are attracted to us and we are comfortable with the investments we've made in the aftermarket last year and what we've done to expand our presence from a sales perspective. We are comfortable that those things will pay dividend as we move forward.
Operator: Joe Mondillo, Sidoti & Company.
Joseph Mondillo - Sidoti & Company: My first question, I was just wondering if you can just sort of give an update on the international opportunities within P&IP from your viewpoint?
Michael M. Larsen - President and CEO, CFO and Director: Yeah, I'd say there is – if you look at pressure pumping in particular, I think the estimates are roughly 80% of pressure pumping horsepower globally is in the U.S. Number two is Canada, followed by China and you go down the list from there. I'd say we are very excited about the opportunities in China and as well as Argentina and the Middle East. And really that's based on what our customers are telling us. I mean, if you look at the activity that's been driven in those countries that I just mentioned, a lot of that is done by the large players in this space, and that is traditionally our customer base. So as they are well positioned to take advantage of that, we will go with them. And like I said, we have plans to expand our presence in terms of the aftermarket outside the U.S. in 2013 and so plans are to focus on China first, where we have an existing facility in the Nash business that can accommodate our energy business for pressure pumping, as well as drilling pumps. So clearly, the growth rates in pressure pumping are going to be greater outside of the U.S. over the years to come. And so we're excited about that, and we're positioning ourselves now to take advantage of that.
Joseph Mondillo - Sidoti & Company: I think year ago, you were talking, this is a three plus year opportunity. How has things progressed in terms of that timing? And any idea on how significant of an opportunity it will be down the road?
Michael M. Larsen - President and CEO, CFO and Director: Yes. I don't think really the timing has changed. Like I said, if you look at the growth rates outside of the U.S., they are significantly greater than what we will see in the U.S. this year and probably next year. And so we haven't put a hard and fast number on it, but we expect that the majority of our growth in this business will come from serving existing customers in the U.S. that are international and will come from expanding our customer list in North America and then outside the U.S. And so we've attended a number of trade shows and customer visits in the Middle East, for example, and there's a lot of excitement. I mean, the Gardner Denver name is the premier name in the energy – in the space that we're in. And so customers want to buy from us and they want their equipment serviced by the OEM. And now it's a matter of getting our infrastructure in order so that we can provide those activities with the level of service that they would expect from Gardner Denver.
Operator: Jeff Hammond, KeyBanc.
Jeffrey Hammond - Keybanc Capital Markets: Michael, just on capital structure. Can you, one, just address how you've been able to continue to look at deals or not look at deals amidst the strategic alternatives? And just I guess, once we kind of get through the strategic alternatives, how do you think about an optimal capital structure, given that the balance sheet is really sitting with no net debt?
Michael M. Larsen - President and CEO, CFO and Director: Yeah, I mean, I think the best way I can answer that is that throughout 2012 really our focus and our bias was in terms of capital allocation towards funding our organic growth, which we did, with $50 million of investments in capital equipment, most of that for the aftermarket, and then buying back stock. And so we bought back 7% of our outstanding shares over the last 2 years. Given the activities that we've been engaged in since the announcement we made back in October, we have not spent any significant time recently on developing an active pipeline. So we have some work to do. I don't want anyone to think that there's anything imminent here. Our focus is on running the business and completing the process in terms of exploring strategic alternatives. And when we have done that and the Board has made a decision, we will communicate that as soon as possible.
Operator: Brian Konigsberg, Vertical Research.
Brian Konigsberg - Vertical Research Partners: A quick question on just the customer base, so some of your larger customers talked about rebalancing of their pressure pumping assets actually towards international markets. I'm just curious, how is that impacting, how quickly the market could come back? I mean, had they not been rebalancing in that way, would there have been a period of absorption that would have need to have occurred, whereas now it's leaner than it otherwise would have been and the snapback could be much quicker in nature, if you comment on that would be great.
Michael M. Larsen - President and CEO, CFO and Director: Yeah. Sure. I mean, I think our customers are international and so what we saw really – if you look at our cancellations in pressure pumping last year and I'm going to say at about $8 million for the whole year, one of the reasons why they were significantly lower than what you saw from some of the other players, competitors is that our customers were able to redeploy equipment from North America to international and so that is a trend that we started seeing increasingly really in, I would say in over the summer of last year and I'll tell you that is still continuing and so when we talk about overall CapEx budgets being down, that is a fair statement. I also think if you peel back the onion a bit, you'll see that CapEx spend in North America is down and pressure pumping is down more than international spend and so like I said earlier, I feel like we are well positioned to take advantage of international growth opportunity to the extent that our customers already are international and they are the ones that are competing in all of these international jobs that are being done.
Operator: Julian Mitchell, Credit Suisse.
Julian Mitchell - Credit Suisse Group: So, I just wanted to follow-up on the comments around the EPG total business 2013 guidance, because you're talking about a mid-single-digit sales decline, talking about decremental margins, maybe the sort of 35% range. That should be getting you to sort of a 20% plus full year margin, I would think, but you're saying its high-teens to 20%. Is that just because the first half you have particularly low margins say in the mid-teens on the operating line because of a mix of pricing and volume deleveraging or is there something else?
Michael M. Larsen - President and CEO, CFO and Director: Yeah. I think there is a couple of things going on. One is the decline in the first half of '13 is predominantly in our drilling pump business, which as you may know is one of the higher margin businesses inside of Gardner Denver. So, I think we could see some quarters here with margins in the teens for EPG. I think for the year, though, high-teens to kind of low 20% is what we are expecting.
Operator: Cliff Ransom, Ransom Research.
Clifford Ransom II - Ransom Research: Michael, how do you feel about your 14x14 goal today? What are the takes and the pushes and the shoves on that?
Michael M. Larsen - President and CEO, CFO and Director: Yeah, I'd say we feel very good about it, Cliff, as we sit here today. I think we made good progress in 2012. We continue to execute well on margin expansion in the third quarter and fourth quarter. Obviously, for this year, if we ended last year at 12.3% OE, we said this year we expect about 75 basis points of improvement, which should take us to 13% range. The big drivers this year are going to be sourcing. Last year we'd say we generated about $5 million of sourcing savings. We think we can increase that number and have a plan to double that in 2013. And then the biggest driver here is going to be for the restructuring. The restructuring that we've already done in 2012, and so we'll get a full year benefit from those actions and the headcount reductions, and then the European restructuring programs that we start executing on in earnest here in 2013. So I'd say as we sit here today, we are reaffirming our commitment to 14x14. The European restructuring programs alone, when they are completed, should give us 300 basis points on top of that on a full-year run rate basis, which we would see in 2016. So I'd say we are well on our way here to get into the kind of the mid-to-high teens. And I'd say the IPG team has done a terrific job executing.
Operator: Brian Konigsberg, Vertical Research Partners.
Brian Konigsberg - Vertical Research Partners: Just one follow-up question. Just on EmcoWheaton, I'm just curious how you're viewing that market right now. Obviously, Petrobras doing a large FPSO build out. It's a little bit delayed, but certainly, things are getting some traction. How large you think that market is for you and when does it become a real needle mover those FPSO trends?
Michael M. Larsen - President and CEO, CFO and Director: Yeah, that's a great question. I mean, I think when you think about the global transportation of hydrocarbons and chemicals, you have to believe that the EmcoWheaton loading arm business is very well positioned to take advantage of that growth. So, at EmcoWheaton today is let's just call it roughly $100 million business, including the marine, the large marine loading arms that you typically find in an FPSO. We have a longstanding and very good relationship with Petrobras and when we look at the total funnel of projects that we're quoting, it is a multiple of 2 to 3 times the size of the current business. Now we've got some work to do obviously to secure those orders. It's a competitive space and we've got some terrific competitors and we are positioning ourselves to take advantage of those opportunities and grow the EmcoWheaton business. So, I think we've talked about EmcoWheaton being in somewhat of a turnaround situation for the last two years. We've got new dealership and we are making good progress, good fourth quarter, we're getting better at project management in the EmcoWheaton business and I'd say I feel like we've always been very well connected to customers and to the end markets at EmcoWheaton. So, I'm confident that they are not opportunities that we're not going to see. Customers want to buy from Gardner Denver especially they want the premier product. If you want a premium loading arm for your FPSO, EmcoWheaton is where you would go, and so we feel like we're well positioned to take advantage of that especially as we sort out some of the internal issues that we've been working on for the last year or so.
Operator: We have reached the end of our allotted time for question-and-answers today. I will turn the floor back to management for closing comments.
Michael M. Larsen - President and CEO, CFO and Director: All right, just thank you everybody for attending the call and have a great day.
Operator: This concludes today’s teleconference; you may disconnect your lines at this time. Thank you for your participation.