Q4 2012 Earnings Call Transcript
Transcript Call Date 03/01/2013

Operator: Good morning, ladies and gentlemen, and welcome to Dresser-Rand's Fourth Quarter and Year End 2012 Earnings Conference Call. My name is Bini and I will be your coordinator for today's call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference call. As a reminder, this conference call is being recorded for replay purposes. After Dresser-Rand's comments today, I will instruct you on the procedures for asking your questions.

I'll now turn the conference over to Blaise Derrico, Director of Investor Relations. Please go ahead.

Blaise Derrico - Director, IR: Amy, thank you. Good morning. This call is open to the public. It's being webcast simultaneously at www.dresser-rand.com and will be temporarily archived for replay. A copy of the news release we issued yesterday is available on our website, as are the slides we will use today during our presentation. We will let you know when to advance the slides as we deliver our prepared remarks.

Please turn to Slide 2. The statements made during this conference call that are not historical facts may be forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied in such statements. In addition, this conference call contains time-sensitive information that reflects management's best judgment only as of the date of the live call. Management's statements may include non-GAAP financial measures. For reconciliation of these measures, refer to our earnings news release or the conference slides available on our website.

Dresser-Rand does not undertake any ongoing obligation other than that imposed by law to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after this call. Further information concerning issues that could materially affect the financial performance related to forward-looking statements can be found in Dresser-Rand's periodic filings with the SEC.

I'll now turn the call over to Vince Volpe, our President and CEO.

Vincent R. Volpe Jr. - President and CEO: Thank you for joining us today, and welcome to Dresser-Rand's earnings conference call. I'll start with a few opening comments, and Mark Baldwin, our Chief Financial Officer, will follow me with a detailed discussion of our fourth quarter results.

Please turn to Slide 3. Overall 2012 was a good year with another year of record bookings and record level year-end backlog. Operating income was approximately 30% higher compared to 2011, despite our 2012 results being adversely affected by certain project delays and as compared to 2011 the stronger U.S. dollar. We estimate the impact of the adverse translation of a stronger U.S. dollar to be approximately $20 million.

Please turn to Slide 4, on specialty part of our safe performance; safety is a core value of our core value of our company and we continue to make progress toward our goal of zero injuries. Our total recordable incident rate for 2012 was 0.41, which improved 28% compared to 2011. This is significant as we believe the prior year's industry average is nearly 10 times higher. While our principal emphasis on safety is to safeguard the well-being of our employees and others involved in our business, it is also important to recognize that a strong safety performance is a proxy for a culture of discipline that results in operational excellence, which inures to the benefit of our clients and shareholders as well as our employees. We believe that safety, quality and operational excellence are an inextricably linked. We share our clients' belief that safety excellence requires the same kind of discipline as quality, on-time delivery and cost reduction.

Please turn to Slide 5. The markets for our products and services remained strong in 2012 and we achieved record levels of bookings in both segments. Industry fundamentals are positive and (already met) prices remain at levels that support continued investment in the worldwide energy infrastructure and inquiry activity is robust. As such the markets for our products and services are expected to remain strong throughout 2013. That said, there appears to be evidence that several major project closings maybe delayed approximately 6 months principally due to resource constraints of the engineering contract or an end-user client levels as well as continued work by the end-user clients to reduce project CapEx. We estimate the impact of these delays on the order of magnitude of $150 million which moved from the fourth quarter 2012 to midyear 2013. Based on the feedback, we have received from our clients, we expect another record setting year for both new unit and aftermarket bookings at this point and our record setting year-end backlog gives us a solid start for 2013. As such, we are reiterating our previous guidance for bookings for this year.

Please turn to Slide 6. New unit bookings of approximately $1.6 billion were 9% higher than 2011 and reflect continuing recovery across worldwide energy infrastructure markets with major orders coming from midstream and upstream oil and gas segments. We consider this a very strong performance as 2011 contained $400 million new unit booking for Petrobras which was approximately three times larger than what we would consider a typical major order.

As I just mentioned, we experienced delays in the closing of the several projects which resulted in our new unit bookings for the year falling slightly below the bottom of our guidance range. These orders should still come to us, so it maybe midyear or later in 2013. As a point of clarification, our formal bid activity increased by over 20% year-over-year from 2011 to 2012 which is a concrete indicator of continued strong market activity.

In the new unit segment, fourth quarter bookings of $363 million were approximately 61% higher than the corresponding period in 2011. Major new unit awards in the fourth quarter include the sale of compression and power generation equipment for an offshore production platform in the North Sea, a compressor and turbo-expander train for a chemical facility in the U.S., main refrigeration compressors for two mini-LNG plants and compressors for another major pipeline in China.

I mentioned on last quarter's call that we will focus on a number of major pipeline projects planned for China and the former CIS countries, the most recent order in the fourth pipeline award that we booked in 2012. The total order value of these four awards amounts to nearly $290 million. We expect sustained activity in this segment over the coming years in these two regions of the world.

We also received an order from the applied innovation institute, a research and development company located in Switzerland to supply a DATUM C for a wind tunnel application.

Turn to the next slide please. These awards are strategically important because the compressor package will incorporate our recently acquired magnetic bearing technology. This will the first application of our magnetic bearing technology in the ICS product family. This compressor package will incorporate our DATUM C technology which is the foundation upon which the ICS or Integrated Compression System is built.

The ICS combines in a single casing separation and compression, and additionally, it integrates process cooling into a single, compact package for both top sides and ultimately we believe subsea applications. Because of its integrated totally enclosed configuration, the DATUM C compressor offers significant environmental benefits including emission free design, quiet operation, reduced footprint, no on-site leakage from shaft seals, and magnetic bearings that eliminate need for oil lubrication.

You may recall, we acquired magnetic bearing technology early last year through the acquisition of Synchrony, a product development company and at the time noted the strategic importance of being able to offer oil-free solutions in high-speed rotating equipment applications. This order for applied innovation marks our anticipated product launch.

Over time, we expect that the mag bearing technology used on this commercial project will be available across our entire product platform going forward. It also should be noted that the present ICS program with Statoil will incorporate the use of this same Synchrony-based bearing technology. Magnetic bearings can be used to replace any oil lubricated bearings used in turbomachinery such as DATUM centrifugal compressor product line as well as in our steam turbines. It should also be noted that this technology will open up an excellent opportunity in the aftermarket for retrofits as clients consider solutions that will help reduce the use of lubricants in their (lcoating) equipment installations.

Please turn to Slide 8, aftermarket products and service bookings of $1.5 billion were approximately 13% higher compared to 2011, which reflects the ongoing economic recovery in most regions, especially the Middle East and Latin America. The stronger U.S. dollar had an adverse impact on 2012 aftermarket bookings of approximately $65 million or 4% compared to 2011, such that in real terms the growth was approximately 17% year-over-year. Aftermarket bookings of $362 million for the fourth quarter were 8% higher than the corresponding period in 2011.

Please turn to Slide 9. Our backlog at the end of December of approximately $2.9 billion was at a record year ending level and was 15% higher compared to the end of 2011. The new unit backlog of $2.4 billion was up 14% versus a year ago and the aftermarket backlog of 575 million was up about 21%. Our backlog gives us a good start on 2013 as approximately $1.7 billion of the new unit backlog is scheduled for delivery this year.

I will have more to say about our outlook in a moment. But first I will turn the call over to Mark for a closer look at our fourth quarter financial results.

Mark E. Baldwin - EVP and CFO: Thank you, Vince, and good morning everyone. Please turn to Slide 10. Total revenues for the fourth quarter of 2012 of $844 million were up approximately 14% compared to $738 million for the fourth quarter of 2011. Revenues in the fourth quarter of 2012 would have been approximately $14 million higher by applying exchange rates from the corresponding period in 2011.

New unit revenues were $399 million for the fourth quarter 2012 compared to $343 million for the fourth quarter 2011, an increase of $56 million or approximately 16%. New unit revenues in the fourth quarter 2012 would have been approximately $4 million higher by applying exchange rates from the corresponding period in 2011.

Aftermarket parts and services revenues were about $445 million for the fourth quarter 2012 compared to $395 million for the fourth quarter 2011, an increase of $15 million or 13%. The increase in aftermarket revenues reflects the ongoing economic recovery in most geographic regions, particularly the Middle East and Latin America. Aftermarket revenues in the fourth quarter of 2012 would have been approximately $10 million higher by applying exchange rates from the corresponding period in 2011.

Turn to Slide 11, please. As I've previously mentioned, revenues for the fourth quarter were approximately $844 million, a record level. Cost of sales was $596 million for the fourth quarter 2012 compared to $509 million for the corresponding period in 2011. As a percentage of revenues, cost of sales was 70.5% for the fourth quarter 2012 compared to 68.9% for the fourth quarter 2011. The increase in cost of sales as a percentage of revenues was principally the result of a shift in mix from the Aftermarket segment to the New Unit segment as well as a change in mix within the new unit segment.

Selling and administrative expenses were $98 million for the three months ended December 31, 2012 compared to approximately $95 million for the corresponding period in 2011. The increase was due the $5 million of expenses we incurred associated with the previously disclosed Guascor realignment. As a percentage of revenue, selling and administrative expenses for the fourth quarter 2012 decreased to 11.7% from 12.8% in the corresponding period in 2011.

R&D expenses for the three months ended December 31, 2012 were approximately $13 million compared to $7 million for the corresponding period last year. The increase is consistent with our strategy to introduce and new and innovative products and technologies with a focus on key new product development.

Total operating income for the fourth quarter of 2012 was $138 million compared to operating income of $128 million for the fourth quarter of 2011. As a percentage of revenues, operating income for the fourth quarter of 2012 of 16.3% compared to 17.3% for the corresponding period in 2011.

Fourth quarter 2012 operating income increased compared with corresponding period in 2011 principally due to higher volumes. Fourth quarter 2012 operating income as a percentage of revenue decreased compared with the corresponding period in 2011 due to the previously mentioned overall shift in the mix of revenues to the new unit segment from the aftermarket segment, realignment expenses and higher R&D spending.

Interest expense net was approximately $12 million for the three month ended December 31, 2012 which compares to $17 million for the corresponding period in 2011. The decrease in interest expense is principally due the settlement of a long-standing dispute of our loan terms in one of our foreign subsidiaries which reduced the corresponding interest by approximately 3 million. This will not repeat, so our future run rate should not be based on our fourth quarter results.

Other expense net was 800,000 for the fourth quarter 2012 compared to other expense net of 4.3 million for the corresponding period last year. This line item consists principally of net currency gains and losses; gains and losses on tradable emission allowances and income and losses from equity investments. In the fourth quarter of 2012, the effective tax rate was approximately 34.5% which was slightly higher than expected due to the shift in the mix of our foreign earnings that countries with higher tax rates. We currently estimate a reduction in tax expense of approximately 4 million will be recorded in first quarter 2013 as a result of Congress passing the extenders bill on January 2, 2013 which will allow us to retroactively claim in R&E credit for 2012 and exclude from U.S. federal taxable income, certain income from foreign affiliates sometimes referred to as Subchapter F income for tax purposes. Accounting rules prohibit us from applying the change in law to the 2012 tax calculations since the law was enacted in January 2013.

Nevertheless the overall effective tax rate for 2012 was 33.7%, which is within in the range of our prior guidance of 32% to 34%. The 1.3 million of net income attributable to non-controlling interest recorded in the fourth quarter 2012 relates to our partner share of net income and net losses in consolidated entities that are not 100% owned by us. As you can see, at the bottom of this slide, net income attributable to Dresser-Rand for the fourth quarter was approximately $80 million or $1.05 per diluted common share. This compares with net income attributable to Dresser-Rand of $69 million or $0.91 per diluted share for the fourth quarter 2011.

Next Slide please. New unit operating income was $49 million for the fourth quarter 2012 compared to operating income of $44 million for the fourth quarter 2011. This segment's operating margin was 12.4% for the fourth quarter 2012 compared to 12.9% for the fourth quarter of 2011.

Standard variable margin or SVM for the period, which is an internal measure we use to analyze profit margin before period costs decreased approximately 160 basis points compared to the fourth quarter of 2012 due to a change in the mix of projects and the change in mix within the segment as major buyouts in the fourth quarter of 2012 made up a higher percentage of overall new unit revenues partially offset by the benefit of a cancelation fee.

Next Slide, please. Aftermarket operating income was approximately $124 million for the fourth quarter of 2012 compared to $109 million for the fourth quarter 2011. This segment's operating margin was 27.8% for the fourth quarter 2012 which was slightly higher than the fourth quarter 2011. A more favorable mix within the segment helped to improve our standard variable margin. This SVM improvement within the segment was largely offset by higher period costs.

Next Slide, please. Turning to cash flow, net cash provided by operating activities for full year 2012 was approximately $93 million compared to $108 million for the full year 2011. Cash provided by operating activities in 2012 was lower than 2011 because working capital consumed a significant amount of cash, which more than offset higher net income and lower pension contributions.

In 2012, our investment in working capital increased by approximately $224 million and we contributed $21 million to our pension plans in accordance with our funding policy.

Our pension contributions in 2011 totaled approximately $33 million. We currently expect to contribute approximately $15 million to our pension plans in 2013.

Turning to Slide 15 please. Net working capital at the end of the fourth quarter was $303 million which was approximately $224 million higher than where we ended last year. Let me point out changes in certain components of net working capital comparing the balances at the end of 2012 to those at the end of 2011.

Accounts receivable increased $89 million as a result of higher sales volume. Inventories net increased $144 million reflecting the higher backlog and inactive cash flow producing power facility held in inventory pending sales that is now targeted for later this year.

As noted, our working capital rose again in the fourth quarter. Net working capital in 2012 based on a 12 point average was approximately 5.8% of 2012 sales. This compares to an average of 1.6% for the period 2006 to 2011. On last quarter's call we sighted issues involving four major projects principally contributing to our increase in working capital. One of these projects relates to the previously mentioned power held in inventories, pending sale later this year.

The other three projects involved delayed payments all from national oil companies or NOC. The largest of these was substantially collected, but due to continuing business with these NOCs as well as other NOC clients, several new milestone billings are experiencing similar delayed collections. While we expect to be paid in for as has been our historical experience, our NOC business and corresponding payment behavior is a significant and growing portion of outstanding billings.

Next slide please. The shifting of our new unit bookings in 2012 more of the NOCs also skews our billings to regions where payment due dates are customarily longer and bureaucratic processes further delay payment of milestone billings. You can see on this slide the impact of these delayed milestones by looking at the ratio of the total – of progress payments and customer advance payments to gross inventory. Historically, the ratio is run about 90% and is now running at approximately 70%. This 20 percentage point difference on a 900 million gross inventory explains to 180 million of our net working capital increase. 2009 at 66% is an outlier and can be explained by the recession causing our clients to hit the pause button and our new unit orders being cut in half.

As a result of this change in mix of our new unit business to higher percentage of NOC work, we now expect our net working capital as a percentage of sales to increase from historically below 5% to 10% or below, which we believe is still reflective of a low capital intensity business as compared to other oil services and equipment manufacturers. Next slide please.

In 2012, net cash used in investing activities of $124 million compares to $346 million for 2011. Cash used in investing activities for 2012 includes capital expenditures of $73 million, which total approximately 2.7% of 2012 sales.

Also included in 2012 investing activities is approximately $49 million associated with the acquisition of Synchrony, and $12 million related to an additional equity investment in the non-controlling interest of Echogen Power Systems. Included in our investing activities last year was $284 million related to the acquisition of Guascor, and a $10 million initial investment to acquire a non-controlling interest in Echogen.

Financing activities provided cash of $27million in 2012. This compares to 2011 when financing activities used cash of $53 million which is a net amount resulting principally from the refinancing of our long-term debt and the stock buyback programs we effected last year.

Turn to Slide number 18 please. At the end of fourth quarter, our liquidity totaled approximately $354 million and consisted of approximately $123 million of cash and $231 million of available borrowings under our bank credit arrangements as we had outstanding borrowings of $315 million, and $220 million was used for outstanding letters of credit. At the end of the fourth quarter, we also had approximately $120 million of letters of credit and bank guarantees drawn under uncommitted bank lines.

Next Slide please. At the end of 2012, our net debt-to-capital ratio was approximately 42% and net debt to our last 12 months EBITDA was approximately 2.2 times. For more information about our results for 2012, please refer to our 10-K, which we filed last night with the SEC.

With that, I'll turn the call back to Vince for closing comments and to moderate our Q&A session.

Vincent R. Volpe Jr. - President and CEO: Thank you, Mark. Turn to Slide number 20 please. As previously mentioned, we are essentially reiterating guidance for bookings and our financial performance for this year. We expect bookings to increase in both segments from 2012 levels. We estimate new unit bookings to be in the range of $1.8 billion to $2 billion. Our end markets remained strong.

However, as I mentioned earlier, as a result of the high project activity engineer and resource constraints at the EPC and client levels and CapEx reduction efforts we have seen project awards being pushed out. Therefore, we currently forecast that our new unit bookings will be backend loaded well there is much as two-thirds potentially coming in the second half of the year.

With respect to the aftermarket, we expect bookings to be in the range of $1.6 billion to $1.8 billion. As to revenues, we expect total revenues of approximately $3.5 billion to $3.7 billion with new unit revenues at approximately 55% of the total, we expect our operating income to be in the range of $450 million to $530 million. We understand that this is a wide range, but at this point in time there is still uncertainly due on one hand to the variability in the timing and size of very large orders in the new unit segment and on the other hand heighted yield political risk especially in Latin America and Northern Africa which could have a more immediate impact on our aftermarket bookings of revenues.

Indeed, since the timing of our previous guidance, there has been a devaluation in Venezuela, a conflict in Libya and other Northern African countries where we do considerable aftermarket business. Traditionally booking for the combined Venezuela, Libya, Algeria, Tunisia, Egypt and a few other Northern African countries subject to geopolitical risk totaled approximately $170 million. Any interruption even if only short-term in nature may have an almost immediate impact on the approximately $1 billion of book and ship required in the aftermarket this year.

In light of this, we presently and I repeat presently have a bias towards the lower half of the aforementioned operating income guidance range.

For financial modeling services and purposes, we also provide the following assumptions for 2013. New unit operating margins to be approximately 10% reflecting the relative value of new unit revenue to total revenues and the associative allocation of fixed-cost to the new unit segment. Net unit revenues represented 48% of total revenues in 2012 and are expected to increase to approximately 55% of total revenues in 2013; two, aftermarket operating margins to be in the range of 23% to 25%; three, unallocated expense is expected to be approximately $120 million to $130 million. For 2013, R&D expenses are expected to increase from approximately $30 million in 2011 to approximately $50 million – excuse me $30 million in 2012 to be approximately $50 million in 2013. Core interest expense is expected to be approximately $60 million, five other income and expense net is expected to be approximately $10 million which represents the estimated impact of the recent devaluation of Venezuela bolivar and the losses from equity investments principally our investments in Ramgen Power Systems and Echogen Power Systems both of which are development companies working on exciting new technologies such as supersonic shockwave compression and innovative heat to electricity power generation systems. Six, the effective tax rate is estimated for 2013 to be approximately 32% to 34%. Seven, approximately $7 million of non-controlling interest related to our partner share of net income in consolidated entities that are now 100% owned by us. Eight, diluted shares outstanding are expected to be approximately 77 million to 78 million. And nine, finally, given the rapidly changing geopolitical landscape in the future we plan to provide initial full year guidance on our fourth quarter when we have greater visibility for both segments.

Turn to Slide number 21 please. I wanted to share with you some insights into our first quarter outlook. Let me start by pointing out that our business has a seasonal pattern that is continuing. For example, our first quarter operating income for the last eight years was only 14% of the full year. And if were to exclude 2010, which because of the recession was a bit of an outlier, the average is 12%. At present, we expect the first quarter 2013 operating income to be between $60 million and $70 million, which would represent between 12% to 14% of the midpoint of the guidance range. This is consistent with historical performance. There are two items that will impact first quarter results below the operating income line. First, the recent devaluation of the bolivar I mentioned earlier. We estimate the impact will reduce pre-tax income by approximately $4 million. Second, as previously discussed, we currently estimate a reduction in tax expense of approximately $4 million will be recorded in the first quarter 2013 in connection with the recently passed Extenders Bill.

Turn to Slide number 23, please. Before opening the line for questions, I wanted to reflect a moment on the progress we have made as a Company. I would say that our journey to-date has been a success. Since we have gone public in 2005, we have grown revenues at more than 12% compounded annually. More importantly, we've been able to create significant shareholder value in both absolute and relative terms.

As you can see on this slide, during this period of time, Dresser-Rand achieved a total shareholder return of 177% compared to the OSX which was up 32% and Dow which was up 24%. We believe this level of performance can continue. The underlying fundamentals of our served markets and our ability to extract value have never been stronger. We have a great opportunity ahead of us. Our markets which extend beyond traditional oil and gas are strong and our backlog is at a record level. We believe we have sustainable competitive strengths.

Additionally, we have initiatives underway to accelerate growth through technology platform extensions and infrastructure investments. We had a solid strategic plan and an outstanding group of employees across our Company to help ensure we successfully execute this plan. Thank you for attention.

At this point, we'll open the line for questions.

Transcript Call Date 03/01/2013

Operator: James West, Barclays Capital.

James West - Barclays: Vince couple of years ago at your Analyst Day, you had outlined a scenario where Dresser would get to some $4 billion in revenue and about $700 million in op income in '14. Understanding that '13 has some moving parts to it and you outlined a lot of those in your prepared remarks, is that still an achievable level of revenue and income for '14?

Vincent R. Volpe Jr. - President and CEO: I think James, I would say, yes. I think it's achievable, I think part of depends on currency, if you currency adjust those numbers from time that we made the projections in 2010, there is a significant change in – I don't know if Mark's got the number of the top of his head but, it's I think on the operating income line, it's – I don't know $20 million to $40 million or $50 million. It's a pretty big number right, so whatever that is, you know we can go back and look at it and so I think in terms of the fundamental business change, if you see you've got a business that you think is going to be sort of in the mid 3 billion this year on revenue, 2013, and you believe that you are going to book more than you are going to ship which is what we're forecasting, that means you are going to build backlog again. I don't think that's it's an unreasonable, I don't think it's an unreasonable view. And, the other thing, you got to look at is, if you don't hit it right on the spot, you might hit it a month later on the trailing12-month basis. So, broadly speaking, I think the target is still achievable.

James West - Barclays: Then just a follow-up from me, the projects that got pushed from 4Q into the middle of the year, I know you talked about engineering delays there and other issues. Are these offshore projects or onshore project, could you give some color there and maybe perhaps what regions of the world you are seeing those delays?

Vincent R. Volpe Jr. - President and CEO: They are offshore. At least one of them is in the North Sea, one of them was in – there were really four project streams and it was between 150 million and 200 million, and they are all offshore and you got – I think had pretty good spread on them; one is in the Asia Pacific, one is in the Gulf of Mexico, and two in the North Sea. I just want to build on the math. We have provided guidance that says up to two-thirds of our bookings maybe in the second half of the year, I didn't say two thirds of the bookings will be in the second half of the year. There is a difference. We've seen these projects move out, that's between $150 million and $200 million of business and four jobs. I don't know if that's a proxy for other stuff moving out. We think those have moved out about six months and so you should – I think we are exercising a bit of caution, okay. I do think that the first quarter will be sort of on the order of magnitude of Q4, so in terms of what you expect in Q1 these things moved out for most part passed the first quarter. Second quarter maybe same order of magnitude or maybe better, so let's not give up on Q2 being strong but we are sort in the interest of caution right now we don't know if this a proxy for bottlenecks in other places where projects are being executed or in fact the other projects will go you know sort of when we expect them to go. And the final thing I would say, to reiterate all four of those projects we strongly believe are going to be for Dresser-Rand. So, this is not about these projects going away or going away from Dresser-Rand, it is strictly movement.

Operator: Robin Shoemaker, Citi

Robin Shoemaker - Citi: I wanted to ask you, if you experienced in the fourth quarter any new unit shipment delays, where which might have been either of your own account or customers that requested delayed delivery of new units?

Vincent R. Volpe Jr. - President and CEO: We executed as we expected we would, we had a conversation a year ago about things that moved out and the issue around motors and generators, that has been solved. I'm happy to report. We don’t have project management issue that we had last year as it relates to that commodity or any other commodities for that matter. So, I'm very pleased to report that that's behind us. So, we understand that we have an accounting policy that has been read thoroughly and we believe it's correct, but nonetheless it's pretty harsh when it comes to recognizing revenue. We baked that into our comments the best we can and so we pretty much got we expected, Robin. In terms of shipments some things slipped out, some things got pulled in, but broadly speaking we forecast $140 million in operating income which is an awfully big quarter. We came in within about 1% or 2% of that in terms of what we actually achieved. I know there some out there, that may look at that as a miss, but I guess, my question back to you, is if we would have exceeded the number by a couple of millions, instead of being a couple of million short on a $140 million, would you have considered really a beat, I wouldn't have. I think what I'm saying is, the quarter is pretty much in line from an earnings standpoint of what we expected. No major project issues, no major project management issues, yeah, we've got clients pushing and they don’t want to sign this sheet of paper or that sheet of paper. We had one, listen to this, we delivered this, this was worth couple of million bucks. We delivered what needed to be delivered. Part of the deliver term was to open an insurance policy in favor of the – or to have an insurance policy in favor of the client, we did. So that was fine. We just never gave the client the piece of paper that said so, and so when it go to our internal controls, we were not able to recognize revenue, be we literally didn't have a customer piece of paper. So, that's stuff happens. There is a lot of complexity in this business and there is a lot of complexity of the revenue recognition, but fundamentally we did what we expected we would do from an earnings and shipment standpoint and we're very pleased with the results.

Robin Shoemaker - Citi: It's just the recent – the prompted question is some other equipment manufacturers have said, have cited some delays which in deliveries which had more to do with the customer actually requesting a delay either because of the manpower constraints or they just weren't ready to take delivery, but it sounds like that's really not the case – that's not applicable to what you are saying?

Vincent R. Volpe Jr. - President and CEO: Sometimes that happens but normally when it does we try and find an arrangement where customer takes title and the unit goes into storage because our stuff is pretty long-lead and so they give themselves a buffer, we principally deliver on time which means for them a lot of times it's early and so there are times when things need to go into storage. The customers are usually pretty good about taking delivery. Every now and again you get kind of a bad customer out there that want to find reasons and he will come in and send a bunch of inspectors in to find a wire that's bare or something, but for the most part customers are pretty good.

Robin Shoemaker - Citi: My other question has to do with the new unit margin guidance, and just generally the question is if back in 2009 and '10 when you had 13.5% new unit margins is that still achievable and is now this kind of 10% level where you've been in '11, '12 and now '13. Is that really more representative of the kind of bookings you have now in the competitive environment versus those years when you had significantly higher new unit margins?

Vincent R. Volpe Jr. - President and CEO: Let me answer your first question first which is those margins are achievable. What we did in '09 and '10 are achievable. The road there is going to be somewhat different than it was before. What happened in '09 and '10 was we had – pricing was stable and we had a drop in – we had contracts in hand, the recession hit we had a drop in material cost that we are able to benefit from. We were able to go back to our suppliers before giving them order and saying I know you committed to 100, but now it is going to be 90 or 80 as you are priced because everything is dropped. Meanwhile we still had the full price from the customer. So, that was one thing that helped us and gave us a little bit of tailwind in that '09-'10 period because '08 was at 11%. The other thing was the mix of new units the after-market was different and so we had – largely 50% of our volume was aftermarket and so what's happening now is the new unit business is growing a little bit faster because we've got some of these larger projects, there is more of what we call these major buyouts in them. And so we've got two things going on in our business right now; one is higher mix of new units versus aftermarket. Let me give you a data point, okay. Had we have the same variable margins that we had in 2012, but with the mix that we had in 2011 of units versus aftermarket our unit margins would have been about 70 basis points or 80 basis points higher than they were just based on the mix, okay. So, that's just under 1 percentage point with nothing changing other than you take some money away from the aftermarket and you give it to the units. The second piece is, inside the new unit business, you have got significant what we call buyouts where we put 10% profit margin on top of those buyouts and so as that number grows that has a somewhat dilutive effect on the total whereas the margins – the gross margins or the variable margins on what we fabricate in-house are somewhat higher. So, you got two things sort of working against you. So, however, I still come back to, yes, I believe, we can get through the numbers that we were at in the past sort of the 13%, 13.5% range whatever those were. Maybe even at some point of time higher who knows the way there though is different. The way there is operating leverage and I also think that it should not go unnoticed that we are spending a lot of money in expense right now in R&D, we are continuing to build out our IT infrastructure which is expensive and we're going to do that for another year or two. So, I think, what will happen is operating leverage will continue to pull us up. We're not going to add new factories or a lot of square meters or square feet. We're going to continue to lean our processes out. We've got good manufacturing flexibility. We will get operating leverage. And those margins will come back over time.

Operator: Jeff Spittel, Global Hunter Securities.

Jeff Spittel - Global Hunter Securities: Could we start off Vice with your new units booking expectation for the year and speak a little bit about what percentage of that you would expect to come from offshore production infrastructure and then maybe whatever color you can provide on what component of that FPSO it might represent?

Vincent R. Volpe Jr. - President and CEO: Well, if I use the inquiries Jeff as a sort of option we're going to book, I think we've got as an example our inquiries were up 20% year-over-year formal inquiries and so you know as people get to (EBGBs) about the fact that we were light in the fourth quarter on bookings, the formal inquiry level is up 20% year-over-year. That is a very concrete proxy for next year's activity and the upstream activity was up over 30% year-over-year. Now, in terms of our forecast which we know is wrong, it always changes right from now to the end of the year, we've roughly got about half of our business so called between 40% and 50% coming from the upstream and then we've got the other two principal pieces which is downstream and midstream sort of divided equally amongst them with the environmental services slightly below that. So, I would say – well hold on, let me correct myself. We've got a little bit 40% and 45% on upstream, at this time the actual percentage is – so let give them to you between 40% and 45% upstream, 10% to 15% midstream that could be a little higher, downstream between 15% and 20%, environment services between 25% and 30% and then other is makes up the rest. So, again principally upstream and the preponderance of that would be (floaters), Jeff.

Jeff Spittel - Global Hunter Securities: And then modeling question on Q1. There is a lot going on in both segments anything you could do to help us out in terms of moving parts that are going to impact the segment operating margins in the first quarter specifically?

Mark E. Baldwin - EVP and CFO: Jeff, this is Mark. One thing historically that first quarter has been a slower quarter, that's why we are guiding 60 to 70. Our fixed cost are spread roughly 25% per quarter and (indiscernible) period cost. And therefore the overall margins for the first quarter are going to be lower because of those fixed cost being spread ratably than our overall full year guidance, Jeff, is all I would say right now.

Operator: David Anderson, JPMorgan.

J. David Anderson - JPMorgan: Vince, I was curious on your guidance you were talking about, the low end about 35% growth in operating margins up to 60%. Can you help us understand what the variables are; is it particular kind of region or is it part of the segment that kind of – is that big swing factor there?

Vincent R. Volpe Jr. - President and CEO: I know it is huge range, let me repeat that. And I will also tell you that we have a path for both of those endpoints, both the high end and the low end, and that's why we reiterated the range. I know I led you right now to the bottom half because of the some of the things I have talked about, but we didn't change the range from what we said before, we believe in that range. What gets you to the bottom part? If you get significant delays in some of the new unit work, a lot of the new unit stuff we book now isn't going to shift this year anyway even we booked at January 1st, it would go January 1, 2014 or later. But you do get absorptions from that stuff in terms of (hours), okay. So, there isn't help there of what we call the capacity cost complement which I will go into to get absorption. The other thing is, there is certain part of the business, single-stage steam turbines, high-speed sub-delivery (indiscernible) separable compressors and gas engines and gas and diesel engines on Guascor line those products can turn in three to six months depending on what the project is and the cycle times on those projects. So if that stuff – if we don't book that stuff early in the year or if we book it early in the year that from the new unit standpoint contributes to getting towards the higher end of the range. If you don't book that stuff even if we book it and if we book it in the last month of the year, we're not going to ship it. So, there is book and ship opportunity in units. The other thing in units is, there is a couple of jobs we're working on that maybe actually percentage completion jobs when we finally get the accountants to put the stamp on them. And so there would be some earnings that would actually come from those projects during the course of the year; if A, the accountants do deem them to be a POC jobs it would of course spill out on that; and B, that we book them fairly early in the year. So, those are two new unit components that if they go right that contributes sort of top end and if we completely miss them that gets us a little bit closer to bottom-end. I would say the bigger piece is in the aftermarket. So, we've got $1.7 billion to $1.9 billion laid out for you, okay. We think Q1 we're going to be somewhere around $400 million, which is not a bad start. That's sort of at the low-end, but it's in the ball game in terms of the run rate. If we do that and if do a little bit better in Q2, that's very helpful, and this is where the – kind of where the caution has worked its way into the conversation. If something happens and we have to pull everybody out of Libya, Libya is not really stable right now. Our people are still there. We think they are safe. They are in the southern part. But we have to pull them out of there. Libya is a pretty big deal, and some of these other countries are also. And the day you pull those back out, you stop invoicing. We've got $1 billion of book and ship to do. Is there something right now that says I am going to have to take them out? No. Is there something right now that say Venezuelan business is going to dry up? No. So, we're exercising some caution here, because reality is, things can happen quickly. And if we have significant amount or there can be a little bit of trouble, right. I mean, that's why there is a range there. We can still hit (4.70, 4.90) or whatever with a little trouble, but if things really sort of go to hell in a handbasket on us in several of these countries at the same time, then you are really looking at the bottom end of the range. And it happens quickly, right. And if it happens July 1st, it's going to matter for 2013. So, again Q1, don't see it, don't expect it. Think we're going to have a good strong first quarter and aftermarket booking which is really important. And the rest of the year is likewise. But things can change quickly. Aftermarket, sudden upset can move the needle quickly, and we do need to get some of these standard products booked early on in the year. If those two things go well, we got to shot at the higher end of the range, and if they go against us we're looking at the lower half – lower part of the range.

J. David Anderson - JPMorgan: You clarified the aftermarket booking range is $1.6 billion to $1.8 billion

Vincent R. Volpe Jr. - President and CEO: So, 400 million is right degree. It gets us right into the bottom of the range.

J. David Anderson - JPMorgan: What percentage of backlog converts into revenue in 2013, what do you think that is right now?

Mark E. Baldwin - EVP and CFO: On the new unit backlog, $1.7 billion of the $2.4 billion.

J. David Anderson - JPMorgan: Is that a bigger or smaller percentage say last year or in 2012?

Vincent R. Volpe Jr. - President and CEO: It is consistent.

J. David Anderson - JPMorgan: Consistent, okay. I am also curious about your statement. Mark, you mentioned on – I just want to make sure I heard you right. Why don't you clarify a little bit? You said higher percentage of NOC clients is kind of contributing some of the higher working capital. Can you just expand upon that a little bit more in terms of how your customer base is shifting? Is that a new unit, is that an after-market. Can you kind of explain maybe some of the dynamics between how that customer base is shifting a bit on here?

Mark E. Baldwin - EVP and CFO: Every year we do what we call a long range plan. And we have been seeing that as these new fields, as the new areas of hydrocarbons they are in areas where the governments want to control that. So (indiscernible), Angola is there, the Petrobras is there, the Petronas is there. So, we've been planning and seeing that they are going to have a bigger influence. Well, now we are winning some or more of that business as a percentage of our – and it is all new unit, by the way, David, right now to answer one of your questions. So, we are seeing a shift in the mix. Yes, we are still getting the IOC business, but the mix is shifting. We've been seeing it operationally and that's one of the reasons why we open the second headquarters three years ago. And what we've been quite fully anticipate is all the bureaucratic processes of getting those milestone payments paid. So, at the end of the third quarter, we had three NOC clients that were late in bureaucratic processes of getting paid, it is now 6 or 7. And that's what contributed to fourth quarter delay, David.

Vincent R. Volpe Jr. - President and CEO: Let me try and put parenthesis around this thing though. We are still negotiating other than one contract we took which was a big contract within NOC where we knowingly took, we took – we have no progress payments on that job, but I got to tell you, the return is significantly higher than our cost of capital. So, it was a really good economic. It was a great economic decision, and we said to them, you guys are crazy doing this, you can borrow cheaper than we can, but nonetheless that's the way they wanted to do. With that exception, the rest of them are basically giving us our terms. They are just not paying us, okay, and not because they are deadbeats, it's because of the bureaucracy and so if you guys think that we're accepting this that would not be an accurate assessment. We are absolutely engaged in conversation on – in at least three different continents that I am aware of on how we're going to streamline things and get these payments processed a little more quickly, but the reality is there is certain amount of bureaucracy, you cannot get away from that the international oil companies just don’t have. So, I think we've now seen it and I think what important here is we don’t believe that this is going to generate further. We think – if you look at a use of cash as a change in net working capital. So, now we think we've seen the change. And we think that now the sort of the plateau has moved from below 5% to below 10%. Largely up maybe 5 percentage points and we think where it's going to sit. We're going to try like to crazy to work it down in the future, but I think at least for 2013 and probably '14, that's going to be more like '11, that's the bad news. The good news is we’re going to keep after it and try and improve it and the other good news is there shouldn’t be a big change now in net working capital from year-to-year. So, I don’t think you'll see net working capital change as a drain on cash which will allow us to generate more free cash flow in '13 and beyond.

Operator: Jeff Tillery, Tudor, Pickering, Holt & Co.

Jeff Tillery - Tudor, Pickering, Holt & Co.: As you think about the revenue ramp into '13 and beyond, could you just give some color as to how you are thinking about the biggest challenges in terms of either taxing your system working with your vendors and what not, because even at kind of the low end of the range for '13, a little bit above what stated kind of the record fourth quarter. So, could you just give us color on how you are thinking about the challenges for '13, to get product out the door?

Vincent R. Volpe Jr. - President and CEO: Sure. I think we believe that we've got the internal capacity that we need. We think we've got the supply chain in place. We continue to work with the supply chain, but we're not in '13 as we've laid things out, we don't believe – we think that there is lot of work. We don't believe that we have any major capacity issues. The things, the business that's driving the volume is the turbo business, turbo compressors and large generator sets that are gas turbine driven. Those projects – the bottlenecks are ability to build rotors for turbo compressors and basically the test capabilities. We believe we've identified the capacity on the outside to supplement our inside capacity – internal on rotors. So, that's check number one and we've been working on that for like the last three years, right. We've understood that this kind of continuing to be an issue. From a test capability standpoint, we have a lot of test capability in Olean, we have a lot of test capability in Le Havre and we have a lot of test capability in Norway. We also have the opportunity to use a very – an excellent supplier that we've been working with for the last couple of years as a partner, Samsung Techwin. They are taking part of load, they have got capacity, spare capacity, they can stock this up, and we also have the ability if we need to actually increase the test capability in Norway over time and without an enormous investment. So, I think it looks like a lot, it is a lot. A lot of what's in these numbers by the way are buyouts that we don't build, okay, so we don't need actually to build. When you look at sort of total numbers of units, it's not nearly as scary as it looks when you look at the dollar volume, because of these buyouts big gas turbines, which is where the growth is coming, but I think it's rigorous. There is really only those two areas and so as from a management standpoint lots of what needs to be done, but when we look at really critical bottlenecks, we don't have to add new factories. We don't have to crank up our supply chain by an order of magnitude. So, we think we know it needs to be done and we're highly confident, we can get to that sort of mid-$3 billion sales number this year.

Jeff Tillery - Tudor, Pickering, Holt & Co.: My second question is just, the aftermarket performance in 2012, if I look at incremental margins things kind of more normal what I would expect for that business, 35% incremental margin. So, I think about the past for the next couple of years. Is there any reason to think that we should vary very much from what we saw in 2012 in terms of seeing that incremental profitability?

Vincent R. Volpe Jr. - President and CEO: No.

Operator: Igor Levi, Morgan Stanley.

Igor Levi - Morgan Stanley: So, looks like your new technologies are gaining traction with the first award using a magnetic bearing technology, so I was hope you could talk a bit about the conversations you are having with customers and the timing of potential awards for other technologies like that ICS, CAES or the (ramp presser)?

Vincent R. Volpe Jr. - President and CEO: Sure. That's pretty broad question, Igor, but I think as far as mag bearings are concerned now we’ve got this order plus we've got the project with Statoil which is also using on mag bearings. And I can tell you we're also putting mag bearings in a small steam turbine where we have a plan to do that this year. So, we are covering that sort of at three different levels. Once we get a unit out and running that is going to take off. We just had a management meeting this past week. One of our guys made the statement, we probably also look at our mag bearing as the base offering now going forward rather than an alternative solution, because it takes the oil out in many cases. The CapEx is about a wash between having a mag bearing with a mag bearing system and saving on the whole lube oil console that you no longer need now, because you don’t have oil in the reservoir and oil at other stuff. So, I think that we've got to get the units running and so I think within two years, you're going to see a significant increase in mag bearing business coming from Dresser-Rand. What we're not counting on, but I think will happen is, I think our margins will improve and I think that our share may even pick up, because I don’t see our competitors with the same class and capability as it relates to magnetic bearings, particularly the design that we have. We tested it on a navy program for a steam turbine and the mag bearing was magnificent. It was absolutely, it tested beautifully. The navy has never seen anything like it. So, we’re really proud of that. The ICS, this year we're building the unit. We now have the Statoil project which is 12-megawatt unit. We are now finally starting up P-18. It's a little early to give you data, but at least we're starting it now. So, that will start to acquire some traction and on the PEMEX order that we booked this past year, we're supplying 218-megawatt units that are ICS units also. So, my belief again is that we get some renting time on those, we get the qualification from Statoil, we get the verification on the PEMEX job that those are working and so again over the next year or two, you are going to start to see a proliferation in bookings on a product line where our margins will improve. That's not a guess, that's for sure and perhaps our margin will pick up, so that's that one. Echogen and Ramgen both going through extensive testing this year. I think that you will start to – I think you can see a potential introduction end of next year in both of those. We have successfully run Echogen. We know that the process works. We've got some more work to do on some of the components, but the process fundamentally works has been verified. On Ramgen, we had achieved good efficiencies but not what we're after yet. We've got our unit now that will run and has got a stable operating range, so more work to do there, but I think we get sort of the end of 2013, we're going to be ready to market that or early '14 market that product platform also. So, I think those are sort of the main units that you covered. The one that I would add that maybe the shortest cycle time of all is the VX and this is very exciting, and again I don't want to hype this, but we're not – I believe that we could get orders as early as this year. This is where we're talking about nominally 6,000 very small LNG facilities, liquefaction facilities that can go right at the well head or right at the – at the pipeline station. We can liquefy the gas and we can transport it. It can be used for vehicles, for vehicle fleets, it can be used for locomotives, it can be used for powering engines that are driving fractioning pumps, so there is a variety of uses for it. These are sort of 6,000 gallon a day plants. We believe that the process will work. We are going to try and verify this summer and try and get at least the prototype unit built. Let's remember that it is Guascor engine, a MOS high speed separable compressor which is a new product line that's just been launched. We've got 600 units in backlog now, and it is (indiscernible) controls. And so we've got high degree content. These packages I think – or let me give you sort of the in line I think within the next two to three years this could be a $200 million business. So, this isn't just about starting to launch a product, this is about really moving the needle here in fairly short order and I think that there is a chance that we will start booking orders by the end of the year, whether or not they show up on our P&L this year that's probably unlikely, I wouldn't bake that into anybody's model. But I think there is a high probability that we will book some units before the end of the year. So, we are spending a lot in R&D, and we are spending a lot not just in our expense line, but also in terms of buying some of this technology that we capitalize. I think it is a really good investment. I could give you a couple of percentage points higher returns right now if I wanted to, we will spend a $20 million more this year in R&D than we spent in 2012. We just think that's the right thing to do for the long term. We want to make sure that that separation between the Dresser-Rand and total shareholder return and the rest of the market continues to grow.

Operator: Jonathan Donnel, Howard Weil.

Jonathan Donnel - Howard Weil: Vince, you had mentioned that there is a potential for you all to potentially do some percentage of completion accounting on some new unit awards. I was wondering if you could maybe give us some more detail of maybe what types of awards does it would be or maybe the prospects of that actually coming to fruition here?

Vincent R. Volpe Jr. - President and CEO: Well, the prospects are high. We've got fundamental agreement on one now. John, it's going to be stuff that goes beyond just building straight equipment. A straight equipment job, even if it's a really big job, it's still a straight equipment job. And so that's why, I've been complaining about it, okay, but nobody seems to be listening, (indiscernible) with users shut on that, okay. I don’t care if it's big or not, it's the same kind of stuff that we've already respond to the SEC there is a contract completed accounting deal. But where you start getting into extended scope, where are you supplying coolers and scrubbers or perhaps the building in which the pipeline compressor goes or maybe when you are selling complete installation services along with the contract rather than on a separate order. Those types of things are the things that we're considering. So, we're not going to go back to the SEC and say we made a mistake, because we don't think we did. But we are going to look at these contract by contract prospectively and where there is new and different types of activities that what we did before and jobs that are on pretty long cycle times also. There we'll look at percentage completion and I think that's the – so I think this year, there is one job that's we're going to do it on, that we made a decision and that job already is more or less baked into the guidance. There may be one, there is at least two other jobs that we're seriously considering, okay, for this year. That right now, not in the guidance. Now, two jobs is not going to move this thing $30 million, okay. But we make our operating earnings $1 million at a time or sometimes $100,000 at a time, so every little bit helps. So, there is a couple of on the docket. But there need to be different types of jobs than straight equipment purchases which is what we've had in the past.

Jonathan Donnel - Howard Weil: So, this wouldn’t be something where you would necessarily be having a new treatment for existing backlog it would be for perspective orders only?

Vincent R. Volpe Jr. - President and CEO: Well, there is a couple of jobs. There is one job in backlog, which right now could be converted and we booked it fairly late in the year last year, we booked it midyear, but we didn't have a lot of 'costs' want to it, and so if we decide to convert it to a POC job percentage or completion job, the impact on 2012 results were not material, there is not cause of restatement in 2012 and there really wasn't much in 2012 to begin with. So, I know if that goes on further what happens to it, but the reality is that could be a re-class and it won't have any impact on 2012, in February in 2012 numbers. So, there is one that could be reclassified.

Operator: Tom Curran, Wells Fargo.

Tom Curran - Wells Fargo: I've been in and out of the call, so forgive me, if I revisit some of the topics that have already been fairly explored, but I just want to start with revisiting the initial 2014 target, $4 billion in revenue and I believe it was $700 million in companywide operating income. At this point with the newly introduced lower half bias for 2013, just based on that context today, what realistically do you think should be your targets for 2014?

Vincent R. Volpe Jr. - President and CEO: Well, I got to be honest with you, we're not thinking about them. To be brutally honest with you, James has asked the question frontend to the call, James West asked the question, can you achieve them in, I just sort of talk through, I don't know if you heard that or not and said, well, we are going to be in the mid 3 billion right now in 2013 and we believe that we are going to build backlog again this year. We think we are going to book more than we ship. And so I don't think it is unreasonable for us to say that we can sort of get there. There is this thing of currency from 2010 and we haven't quantified it, you know what it could be $40 million, I am picking the number out of the air, translation of currency impact between the dollar, the euro and the yen and whatever all other currencies we deal in versus what the values are today. So, adjusting for that, that would be one thing you'd adjust for, but I am not negotiating the new number now, right because I actually haven't thought too much about it. But just (this early) I think that what we talked about in 2010 into 2014 timeframe is not unrealistic.

Tom Curran - Wells Fargo: I actually kind of find it reassuring that you are so focused right now on the near term. I guess, next question would be when it comes to the 150 million worth of projects of the new unit side that have slipped. Is that the entirety of the projects you referred to in the press release or are there others in addition to those? And then specifically for that 150 million what would you have expected to be the average EBIT margin associated with them?

Vincent R. Volpe Jr. - President and CEO: Well, they are nominally on a – let me start with that. Nominally there are sort of 10% jobs, right. If our segment margin is 10%, now there maybe – there is always a discussion where incremental margins which we don't get into. But those projects actually add up to 180 million. We said about $150 million, it's actually $180 million, and so just under $200 million, those projects, because they were right in front of us in closing, we've got very specific feedbacks from the clients in terms of all their planning on purchasing them, okay, and so what we said was, alright, if that happened on these jobs, it clearly happen on others in first quarter or the second quarter. So, we just have now sort of said even in the absence of other data, let's move stuff out, okay. So, we think that the first quarter will be light, second quarter, we know less about and as the years goes on we know less and less about it. So, we just made this assumption that everything shifted, so there is something we thought we book at the end of the year, which still we may book it at the end of the year, we just move that out from 2014. We just used these four projects as a proxy for everything is going to ship, which maybe a bit of an oversimplification, but we decided we would air on the side of conservatism. I do think that Q1 will be about same order of magnitude as Q4 bookings on units. Q2 is a little bit of a question mark and so for now we are going to keep your expectations lower and perhaps will exceed them. I don't know if that covers all of your questions, but this probably not…

Mark E. Baldwin - EVP and CFO: Tom, this is Mark. I just want to clarify, when we are talking about the $150 million of slip outs…

Vincent R. Volpe Jr. - President and CEO: Those are bookings, that's what I want to clarify because…

Tom Curran - Wells Fargo: That's what I assumed. Thank you for sort of explaining that domino effect assumption you've made. Last one for me, one of your long time archrivals has recently been described by an analyst as a (laterally ship), they have acknowledged to market share rose within the energy division for them for turbo machinery and have even started cutting jobs. As a result of that are you seeing any opportunity to exploit the problems you are having?

Vincent R. Volpe Jr. - President and CEO: Well, I don't know who is. So, you can us tell us that some time ways offline and I don't think we want to…

Tom Curran - Wells Fargo: Job cuts are being made in Germany.

Vincent R. Volpe Jr. - President and CEO: Okay, when you say explain be more specific, I don't want to answer too much of an open-ended question. But in terms of day-to-day execution of the business, we have very strong offerings you know that and we've got, we've done very well in the midstream, which I suspect maybe the Company you're talking about against these folks. Particularly, in Central Europe and we're going to stick with that. We just stick to our netting, I mean, I think for every guy that's not doing well there is another guy out there that is doing well and so it sound like competition is crumbling around, that's okay. Our competitors in some cases have never been strong. We just know that we've got to stick with technology, we've got a stick our infrastructure build outs, I mean as always we do that, we are going to continue I think maintain the position that we occupy. The other thing is, we're not share driven, never have been at least not for the last 13 years. We like the fact that we have really strong share, but it's because of our value proposition not because we cut price to get jobs. We don't think that's a good idea. We try and sell our stuff at a premium. Does that answer the question around the word exploit or something helpful.

Tom Curran - Wells Fargo: Yes. That was helpful.

Operator: Jase Scott, Johnson Rice & Company.

John Scott IV - Johnson Rice & Company: Sorry to harp on the ballpark 24 teen numbers but that $700 million of operating income that would exclude un-allocable expense right?

Vincent R. Volpe Jr. - President and CEO: Well that would include them.

John Scott IV - Johnson Rice & Company: See, if you include them, that's about 17.5% operating income margin and you know you all did about 12.5% this year. I was just thinking about how you get that kind of margin improvement over the next two year. I know you talked about R&D, but you know what else can we think about there?

Vincent R. Volpe Jr. - President and CEO: Well the first thing is, you know you probably again, as I said couple of times, I'm not sure what the impact on currency is, but you probably need to factor that in at some point in time and so 700 maybe somewhat – maybe 660. I'm making this up. I really don't know.

John Scott IV - Johnson Rice & Company: Right.

Vincent R. Volpe Jr. - President and CEO: So, that takes part of the challenge away. What we said was, we were going to invest for about a three year period at an unusual rate today and then it would ramp down. So, if we do that, you start to see the ramping down coming in '14/'15, you may get – that also helps you get higher volume and lower actually some of it, some of the spending is actually – it doesn't increase at the same rate or even in some cases comes down. So, when we get there and we're not there yet, we'll make a decision as to whether or not we wanted to come down or if we think we can continue to accelerate in '16, '17 and '18 by maintaining the spend that we may choose to do that also. But theoretically if you go back, you got really read what we said in 2010, it was about three years of significant increase in CapEx and capacity cost and fixed cost spending to build infrastructure to do development work and so forth and then that would taper down and you get the benefit from a higher sales and significantly greater leverage. So, you definitely need more operating leverage. What we don’t think will happen is that the variable margin on either the new business or the aftermarket business, we don’t think that will go up significantly. So, you have to get it from operating leverage, higher volume not necessarily from lower cost of goods sold as a percentage of total. I mean, it may happen, but we're not counting on that.

Operator: Julien Laurent, Natixis.

Julien Laurent - Natixis: Just a quick question about Brazil, do you see any big flagship contract coming on your radar screen in the coming years for multi-FPSO contract? Second question, if I may, on Venezuela devaluation effect, I was wondering if you are offsetting in bolivar there or in dollar?

Vincent R. Volpe Jr. - President and CEO: Sure. I'll take the first question, and I'll let Mark our CFO take the second question. In terms of flagship orders, we don’t think our order are flagship, some are flashier than others. We expect that there will be sort of a steady diet of work coming out of Brazil. They have really been off real couple of chunks here in the last two and half three years in terms of our class of equipment. So, we don’t expect to see eight vessels at a time being brought like they did with us, but we do think they'll continue to be on FPSO here and there and that will need to added and so my view of this is, we'll see work and it will be steady coming out of Brazil, but I don’t think we'll see huge – I don’t think we'll see another $500 million, $600 million, $700 million order being let here in the next year or so. Mark?

Mark E. Baldwin - EVP and CFO: Julian, the second part of your question around Venezuela. We really have two fundamental parts of our business in dealing with Venezuela. One is we have a local service and repair facility all that business is conducted in bolivars. And what we were suggesting is that when you take the valuation that occurred earlier this year, we estimate that in the first quarter that will impact on that repair and service facilities the exposed assets to the devaluation about a $4 million translation loss that will be recorded below the line of the operating income line and other income expense. The other part of our business, which frankly is a bigger part of it from operating income standpoint is selling parts in dollars in hard currency to (indiscernible). And so I would say the preponderance of our business in terms of what shows up on our income statement is sold in dollars. Let me just – I want to come back – we've gotten the question three different times on '14. I want to reiterate that we have not focused at all on '14, and sort of this whole issue around currency and I'll sort of just total these numbers off the top of my head. For those of you that are really focused on that. We will provide information as we get a little further along. I do want to reiterate that we're going to take the benefit of being a little smarter by waiting until the fourth quarter call this year before we provide guidance for 2014. But for those of you that are really focused on modeling, don't forget that in 2008 and 2009, we were between 15% and 15.5% operating income as a company and that's not an insignificant number. From now until over the next couple of years our (D&A) will continue to roll-off the business from the acquisitions that we made before. We don't have any huge big acquisitions planned in the near future and we do believe that our volume will continue to roll, will continue to generate leverage. I stand by all the other comments I made on 2014, but I wanted to just remind people we have been north of 15% in the not so distant past.

Blaise Derrico - Director, IR: I want to thank everybody for joining the call. This is Blaise Derrico. You can reach me by phone, my number is at the bottom of the earnings news release and I look forward to continuing the dialog. Everybody, have a great day and enjoy the weekend. Thank you.

Operator: Thank you. Ladies and gentlemen, this concludes the conference for today. You may all disconnect and have a wonderful day.