Jay Roueche - VP, IR & Treasurer Mark Blinn - President & CEO Tom Pajonas - EVP & COO Malcolm Platt - Interim CFO.

Mike Halloran - Robert Baird Charley Brady - BMO Joe Ritchie - Goldman Sachs Scott Graham - Jefferies Nathan Jones - Stifel Deane Dray - RBC Capital Markets Kevin Maczka - BB&T Capital Markets Robert Barry - Susquehanna Brian Konigsberg - Vertical Research Andrew Obin - Bank of America Merrill Lynch Chase Jacobson - William Blair Joe Giordano - Cowen David Rose - Wedbush Securities.

Welcome to the Flowserve's 2015 First Quarter Earnings Release Conference Call. [Operator Instructions]. I will now turn the call over to Jay Roueche, Vice President Investor Relations and Treasurer. Mr. Roueche, you may begin..

Thank you, Operator and good morning, everyone. We appreciate you joining us today to discuss Flowserve Corporation's first quarter 2015 financial results.

Joining me on the call this morning are Mark Blinn, Flowserve's President and Chief Executive Officer, Tom Pajonas, Executive Vice President and Chief Operating Officer and Malcolm Platt, our Interim Chief Financial Officer. Following our prepared comments, we will open the call to your questions and instructions will be given at that time.

While I expect most of you have reviewed our earnings materials by now, I will note that we filed our form 10-Q, issued a press release and prepared an earnings presentation and all of these materials are available on our website at Flowserve.com in the investor relations section.

Before I turn the call over to Mark, let me cover some housekeeping items. As a reminder, this event is being webcast and an audio replay will be available later today.

Please also be aware that this call and our associated earnings materials contain forward-looking statements which are based upon forecasts, expectations and other information available to management as of April 30, 2015.

These statements involve numerous risks and uncertainties including many that are beyond the company's control and except to the extent required by applicable law, Flowserve undertakes no obligation and disclaims any duty to update any of these forward-looking statements.

We encourage you to fully review our Safe Harbor disclosures contained in yesterday's press release, slide presentation and our form 10-Q as well as other filings with the Securities and Exchange Commission for additional information. Additionally, our earnings materials do and this call will include non-GAAP measures.

Among the non-GAAP figures cited include our adjusted earnings per share metric which excludes the impact of our recent SIHI acquisition, below the line currency effects, the Venezuelan currency remeasurement impact as well as certain other specific items.

We have reconciled our adjusted EPS as well as other adjusted metrics to our reported results prepared in accordance with generally accepted accounting principles in both our press release and in our earnings presentation. We encourage you to review those materials.

I will also note that our revised guidance metrics which reflect quarter end FX rates and current business conditions, are also on an adjusted basis and include numerous assumptions based on information available to management as of April 30, 2015.

With that, I would now like to turn the call over to Mark Blinn, Flowserve's President and Chief Executive Officer, for his prepared comments..

Thank you, Jay and good morning, everyone. Our first quarter 2015 results were challenged by a broad based capital spending decline originating in the oil and gas markets as well as currency headwinds caused by a stronger dollar.

Going into the quarter, we anticipated some customer hesitancy and reduced activity due to oil price volatility but did not foresee the full extent of the reaction both in our downstream and midstream markets as well as in other served industries. We also saw restrained spending in our customers' repair and maintenance budgets occur in the quarter.

This market slowdown was further compounded by economic and geopolitical conditions in Latin America and the Middle East and by strikes at several U.S. refineries. Specifically in March, we did not experience the typical uptick in activity that we usually see towards quarter end.

Reflecting these challenges our first quarter bookings, excluding SIHI, were down roughly 13% on a constant currency basis. As I mentioned, the strengthening U.S. dollar against most world currencies also provided a significant headwind in the quarter as roughly two-thirds of our revenue is generated outside the United States.

Looking out to the rest of the year, we expect maintenance and repair work to begin to improve from first quarter levels considering this activity cannot be delayed indefinitely. New project opportunities are expected to be very price competitive with fewer projects being released for bid and customers closely monitoring all project costs.

We believe our differentiated products and services will prove beneficial in this new bidding environment and we plan to remain thoughtful and disciplined. I should also note that while competition for new awards remains high, we have not had any material discussions about repricing our existing $2.7 billion backlog.

Considering the current market environment and quarter end FX rates, we have updated our 2015 guidance as indicated in our press release and earnings presentation. Malcolm will provide additional details on this shortly.

While current market conditions are challenging, I take confidence from the fact that we have successfully navigated similar cycles in the recent past. More importantly, Flowserve's operating platform is performing better than ever.

In fact, even in the face of tough market conditions, our first quarter's adjusted gross margin was flat with last year and better than the sequential quarter. We also carefully managed our SG&A spend which declined over $20 million from last year excluding the impact of the first quarter's adjustments and last year's divestiture.

This type of discipline that we have instilled in the organization over the last few years provides us the flexibility to successfully operate in current market conditions.

We're approaching every new award opportunity using a balanced approach considering price, low cost sourcing options, supply chain opportunities, lead time reductions and additional value add features such as our LifeCycle Advantage strategy.

Additionally, Flowserve's effort to expand its geographic and end market exposures over the last few years allows us to drive business towards areas with the greatest market and profit opportunity.

Our solid operational foundation also enables us to take advantage of market conditions that position Flowserve to be an even stronger flow control company, maintain solid margins and enhance our competitive position going forward.

To better align costs and improve long term efficiency we're targeting $100 million in investment to reduce high cost capacities and workforce levels that generates cost reductions of over $70 million in annual run-rate savings. This effort will include a reduction of approximately 5% of our global workforce.

We believe our cost savings initiatives will not impact Flowserve's ability to provide best-in-class customer service or limit our ability to capture new business opportunities. And the cost savings will better position us to achieve our long term goal of 18% SG&A expense as a percent of revenue.

Accelerating already existing manufacturing optimization combined with plans to further drive supply chain savings will further improve our long term competitive position. Manufacturing optimization is one of our core strategies and not a market reaction as these plans have been in development for quite some time.

As we have previously highlighted, we have made significant investments over the last several years developing a low cost manufacturing footprint, primarily in Asia and Latin America. These facilities are now preparing to take over for some of our higher cost facilities and we're using this time to accelerate our plans.

In addition to our cost saving initiatives, we're continuing to execute our growth strategies including targeting select end markets where we see opportunity such as Asia and power, chemical and aftermarket just to name a few examples.

Likewise, we're enhancing our go to market approach with our customers through aligned selling, expanded distribution sales and product bundling to better leverage our comprehensive flow control portfolio. Lastly, I will mention our R&D efforts and new product development program.

We invest over $40 million annually in these efforts and they are generating solid returns. As our products and our customers' needs get more complex, Flowserve continues to distinguish itself from others by remaining an innovator and solution provider for the industry.

Flowserve is unique in having the most comprehensive suite of flow control products and services across our industry including our diversified business model and global network of quick response centers.

Despite this quarter's volatility, we believe our portfolio remains advantaged over time as we pursue our long term growth strategies and deliver on our customers' needs across the large and attractive end markets we serve. Similarly, we continue to apply equal rigor to our capital allocation policies and priorities.

Returning capital to our shareholders continues to be a high priority with over $100 million returned in the first quarter through dividends and share repurchases.

Since we announced our distribution policy in late 2011, we have returned almost $2 billion to our shareholders including share repurchases of almost 35 million shares at an average price below $48. At current prices, we continue to view Flowserve stock as an attractive investment and we'll continue to opportunistically repurchase shares.

Consistent with our strategy, we will also continue to evaluate potential inorganic opportunities leveraging our successful track record while maintaining our disciplined approach. I am truly excited about our new prospects with SIHI and its products.

As an update, the business is performing in line with expectations, Integration is progressing well and we have identified additional revenue and cost opportunities beyond our initial expectations.

We will evaluate any future inorganic opportunities against our disciplined standards and shareholder focus, adhering to established hurdles and evaluating potential acquisitions against further organic investment opportunities and additional returns of capital to our shareholders.

Finally, I want to mention how pleased I am with some of the recent additions to our team who will help us drive some of the initiatives we have discussed today. We're attracting outstanding industry talent to the Flowserve brand. We recently brought on experienced seasoned leaders for marketing, distribution and manufacturing optimization.

Additionally, I want to highlight the recent announcement of our new Chief Financial Officer. Karyn Ovelmen is a talented professional bringing solid financial leadership and strong operational orientation and experience in many of our customers' industries such as refining, chemical and plastics.

I know you will look forward to hearing from her in the near future as we welcome her to the Flowserve team starting June 1. Together, these new leaders will add tremendous value in helping drive our strategic and operational improvements forward to produce growth.

To wrap up my prepared remarks, we recognize the current state of the markets but we have successfully weathered through market cycles before and we have specific action plans well underway to position Flowserve for success in a challenging environment. We will be using this cycle as an opportunity to make Flowserve even stronger for the future.

I have confidence in the strength of our business model, our strategy and most importantly, our people who are focused on delivering meaningful value for our shareholders and customers. Let me now turn the call over to Tom..

Thanks, Mark and good morning, everyone. As Mark mentioned, we're continuing to drive our long term strategic initiatives while at the same time being responsive to our current market conditions. As such, we're accelerating some of our longer term initiatives as we rebalance priorities.

In this volatile market period, our strong operating platform, our diversified product and asset base that serves industrial infrastructure and our after-market capabilities, developed through our localization efforts, will help us emerge as a stronger company to better serve our client base.

The Flowserve business model has led to strong results and we continue to believe we have the right strategy in place for the long term.

To put the 2015 quarter performance in perspective, we began the year coming off a very strong Q4 2014 performance that saw increases in virtually all our industrial end markets and significant regional growth in North America, the Middle East and Latin America. In addition, our aftermarket bookings at over $550 million were at record levels.

This performance occurred despite a quarter where the oil price was in rapid decline. As we progress through Q1, in addition to a volatile oil market and currency challenges, there were a multitude of other factors that emerged late in the quarter.

We increasingly saw larger project work not materializing, increased macro uncertainty in China emerging, Latin America continuing to experience issues and a more uncertain Middle East environment.

Q1 bookings on a constant currency basis, finished down across all of our end industries and was down in all regions, with the exception of Middle East and Africa which was up 2.7%.

Uncertainty in upstream market increased and resulted in a general pause that also carried over in our mid and downstream oil and gas markets, as well as other served industries, as customers took time to assess their plants.

The pricing environment was characterized by fewer project opportunities, more customer initiated cost reduction pressures and cost pressures being driven deeper into the value chain. For instance, we saw over $150 million of project work originally expected for release to our industry shift from the first quarter to later in the year.

We also saw about $50 million of our ready to ship projects deferred by our customers to a later date as they were slow to accept product. We do see signs of some activity ahead as oil has stabilized, albeit at a lower level, but recognize the market will be competitive and not all industries will move in sync.

Customers will remain deliberate and driving value for them will be increasingly important. We have the capability to drive their short-term and long term value. The strong margin progression over the last four years demonstrates the success of our commitment to operational excellence.

Our operating performance remains at a high level which given adjusted gross margin of 35.3% for the quarter is flat with the prior year Q1 and up sequentially to Q4 2014, positions the operating divisions to address current business conditions.

While we continued investments in quality, new product development, project management and low cost sourcing, we will continue to drive top line and operating performance. Recent commitments include adding expertise in manufacturing optimization, growth oriented marketing, route to market distribution and alliance selling to name just a few.

Each of these furthers our strategic initiatives to deliver on our long term growth plans at attractive profitability levels. In response to market conditions and to improve margins and competitiveness, we're driving cost reductions and manufacturing optimization.

We have launched and are accelerating existing initiatives that identify targeted opportunities to improve absorption and reduce expense through the consolidation of our manufacturing footprint with increased capabilities in the emerging regions.

Our assets in China, India, Brazil and Mexico will begin to serve as core manufacturing centers to address many of our customers' long and short-term drivers. We still anticipate the aftermarket business to be more resilient as compared to the original equipment products.

In addition to the significant currency headwinds and customers tightly managing their maintenance budgets, the refinery strike that began in February affected the U.S. market and delayed scheduled plant maintenance as operators perform minimal maintenance.

In addition, we saw our large retrofit business also affected during this period as customers assessed their overall capital plans. Lower OE bookings also had negatively affected aftermarket this quarter as we saw decreased activity in spares tied to new units.

Even as we anticipate some of the deferred work to come back and improve from this quarter's level of aftermarket activity, we continue to execute on plans to increase our aftermarket capture through the further identification of installed base and increased localization efforts.

At the same time, we will be improving the capabilities of some existing facilities and in other cases, we'll look for opportunities to combine QRCs in overlapping regions. Growing our aftermarket remains a top priority and opportunity.

As Mark mentioned, we're also targeting growth through greater expansion into the power markets of Asia, better coverage in the chemical space and improved focus our distribution channels. The power market in China will be a longstanding opportunity.

Our plan is to localize various pump product lines to maximize our China power market potential in addition to the buildout of our new valve facility. The chemical market requires products with quick lead times and go to market strategies that are enhanced by establishing product portfolios and a distribution network to address customer needs.

We will continue to update you on these initiatives as we progress. Looking at our end markets, during the first quarter on a constant currency basis and excluding SIHI for a clean comparison, the oil and gas bookings declined over 16%.

We saw large project activity slow significantly by customers even in the mid and downstream areas reevaluated their investment plans in this new low price oil environment. Additionally, refiners taking advantage of improved spreads combined with the previously discussed U.S.

workers' strike, created incremental challenges in this key downstream market. Looking at the other oil and gas regions, Latin America headwinds continued as Petrobras worked through their issues and the financial crisis of Venezuela constrained Petrovesa.

In the near term, Mexico remains an opportunity as foreign investment comes into play in Mexico's oil and gas business. In Middle East and Africa, oil and gas bookings were up 2.7% continuing the growth we experienced in 2014, albeit at more modest levels.

National oil companies in this region appeared to delay less of their investment decisions versus the multinationals which delayed significantly more. We have also seen increases in our proposal activity in the latter part of the quarter, particularly in the Middle East which supports some of the above statements on an ongoing basis.

As we discussed last quarter, with most of our oil and gas exposure in the mid and downstream markets and with our customers' maintenance and repair activities, we believe as the year progresses that various aspects of the market should begin to approach a less volatile and more normal level.

As part of additional proposal activity we have experienced lately appears to validate that some projects in the industry are beginning to move forward though timing at competitive environment remains less certain. In the chemical market, first quarter bookings decreased roughly 14% versus a strong compare in 2014.

We continue to expect ethylene expansion in North America with the derivative plants related to the new capacity expected to come online over the next few years. Although the current strong dollar is partially offsetting the advantages of the low cost U.S. natural gas and may be a cause for a delay in some derivative plants.

Middle East chemical expansion efforts looks to be a potential in the future as well. In January 2015, we increased our chemical presence substantially with the acquisition of SIHI. The integration process of the business is progressing well. We're accelerating realignment efforts and have identified opportunities beyond our initial plans.

For instance, we have seen substantial opportunities in providing systems for flare gas required by new environmental regulations. Our power market bookings were down 14% versus prior years' quarter.

While the rollover of activity into Q1 was slow, coal retirements and low-cost natural gas are driving the momentum for combined cycle plants in North America. Asia continues to invest in fossil based plants where our increased local capabilities improve our competitiveness. In March, China began improving new nuclear plans, the first since 2011.

We have been providing nuclear products on reactors currently under construction for some time and view the recent shift in policy as an important opportunity. Nuclear power remains in transition for China, Russia and South Korea see continued development and there are even discussions of new capacity in some regions of Europe.

India's new proposed agreement with the U.S. that will limit nuclear suppliers' liability could potentially be a meaningful catalyst for work in that country. Following the new safety standards, Japan is getting closer to restarting a portion of its nuclear capacity which has been idle since 2011.

General industries was down 14.7% with distribution and developed business also down versus the prior quarter. This is an area where we have added additional capability in terms of resources and strategic direction.

In summary, Flowserve has a strong global footprint, localized aftermarket capability, a diverse product portfolio and a strong operating platform. The investments in manufacturing optimization, quality and new product development will drive future opportunities. We believe that our core business is performing and provides us with a solid base.

Also that we have experienced navigating similar market conditions and that we have solid long term strategic plans in place in terms of manufacturing optimization and growth plans.

We will continue to execute these long term strategies while accelerating others and at the same time increase our focus in accelerating our short-term initiatives to respond to the current market conditions including cost reductions.

We will balance these initiatives with a view towards driving profitable growth for the long term value of our shareholders. With that overview, let me now turn it over to Malcolm..

Thank you, Tom and good morning, everyone. Mark and Tom discussed our operational overview, strategic plans and business outlook in detail so let me finish with a quick discussion of our financial results. Flowserve began 2015 with sales over $1 billion in the first quarter which included approximately $67 million from our recent SIHI acquisition.

Turning to margins, excluding the negative impact of SIHI resulting from purchase price accounting and realignment as well as a modest amount in the Venezuelan remeasurement, adjusted gross margins were flat with year ago levels at 35.3% to affirming our operational performance remains on track.

Again excluding SIHI as well as last year's benefit from our Noval gain on sale, SG&A dollars decreased year-over-year by approximately $21 million continuing to reflect Flowserve's commitment to cost containment.

Turning to our adjusted operating margins, the year-over-year reduction is largely due to reduced sales, excluding SIHI's impact and the other adjustments as well as the benefit we received last year from the gain on sale of Noval, operating margins declined 40 basis points.

Our GAAP first quarter tax rate of nearly 50% is elevated due to the non-deductibility of the Venezuelan remeasurement and certain exit taxes associated with the SIHI integration. Adjusted for SIHI, Venezuela and other discrete items, our adjusted tax rate was in line with our guidance at 30.1%.

Turning to cash flows, as is typically the case, the first quarter was a seasonal user of cash. Increasing our cash generation remains a priority with our long term goal to consistently generate free cash flow near our net income level.

Our capital expenditures for the quarter were elevated to almost $84 million as some of our planned 2014 spending on the new Chinese valve facility slipped into 2015 and we also had an opportunity to purchase a long term license which will provide good opportunities to increase our aftermarket business both in addition to our regular organic investments.

These investments are examples of our continued commitment and the investment in attractive organic opportunities for long term growth. Returning capital to shareholders is a key priority for Flowserve and in the first quarter we returned over $100 million to shareholders through dividends and share repurchases.

At quarter end, approximately $384 million remained available under our current share repurchase plan authorized for this purpose. We continue to have the financial flexibility necessary to pursue our initiatives. During the first quarter, we raised EUR500 million of seven year senior notes in the European markets that's an attractive 1.25% coupon.

Use of proceeds were to fund the SIHI acquisition as well as our general corporate purposes. This additional funding increased our gross leverage ratio to 2 times EBITDA or 1.6 times on a net of cash basis. Further, it creates a natural hedge with our SIHI purchase and other Euro entities.

Primary working capital as a percentage of our trailing 12 month sales, improved modestly to 26.6% versus 27.7% a year ago. Our effort to improve our working capital continues to be an area of major emphasis.

As Mark mentioned, we have revised our 2015 guidance ranges primarily due to additional expected FX headwinds as well as the current market environment. From an FX standpoint, we now expect a 10% revenue headwind and a $0.40 EPS impact for the year as compared to full-year 2014 results.

We now see 2015 revenues down 8% to 12% year-over-year not including the revenues from our SIHI acquisition. On a constant currency basis, this new guidance equates to revenues in the range of down 2% to up 2% and is supported by the 11% constant currency backlog billed during 2014.

Our adjusted EPS also excludes SIHI and also below the line currency impacts as well as other specific one-time events such as the quarter's Venezuelan remeasurement, future realignment and the like. Our revised adjusted EPS range is now $3.25 to $3.65 reflecting the $0.40 year-over-year FX headwind as well as current market conditions.

Similar to recent years, 2015 should reflect our traditional seasonality with earnings more weighted to the second half of the year. While performing in line with our expectations, SIHI follows a similar trend. We continue to expect the first half of the year will experience the largest year-over-year comparable FX challenge due to the stronger U.S.

dollar. We continue to expect that SIHI will have an approximate $0.25 dilutive impact on GAAP EPS in 2015. With over half the total expected one-time costs occurring in the seasonally lightest quarter, we took a disproportionate amount of SIHI's delusion in Q1.

Finally, with the first quarter's high level of capital expenditures, we now expect to invest $170 million to $180 million during 2015. At this level, we will continue to profitably grow our business organically and to further increase our capabilities around the world. Let me now return the call to Jay..

Thanks, Malcolm. Operator, we have now concluded our prepared remarks and we would like to open the call up to questions from our audience..

[Operator Instructions]. Our first question comes from Mike Halloran from Robert W. Baird. Please go ahead..

So first on the restructuring announcements.

Could you just give us some help on how the benefits, those $70 million worth of benefits flow through? I am assuming a portion of it is this year but the majority of it is next year with the full run-rate at some time next year or into 2016?.

That's about right. As we talked about, a lot of these in our mature markets and it takes time to implement them but we do expect to see some this year depending on implementation and get to run-rate during the course of next year. Mike, let me jump in real quick.

We lost power in our main room and had to move so we had a bunch of people shuffling around so sorry for the disturbance..

No problem at all. Then on the downstream decision making process. Obviously, you saw some of the upstream oil related pressures shift into the downstream side.

What do you think reinvigorates that decision making process for some of your client base as it stands today? The discussion is not going to be as connected to oil price machinations as it is on the upstream side.

What are the conversations like today and how is that thought process materializing from here?.

Well it's really I think the long term plans are still in place for mid and downstream. On the upstream you can variablize it easier. If you look at what can occur in our market is, think about where we were in February and March and half the pundits were saying oil was going to be at 30. The other half said it was going to go back to 80.

At that point in time, it's difficult to implement an investment decision. I think what reinvigorates it is some stability and visibility in oil prices. Keep in mind, in certain regions of the world even at current levels, it makes sense to put additional capacity on.

So if you think about that from a project standpoint and then you step back again and look at what happens on some of our run-rate and aftermarket business, again, the environment we're in in the first quarter is people are uncertain about their capital budgets. If you look at the integrated oil companies, they're focused on cash flow.

What that will cause folks to do is wait and see and develop their budget and certainly defer maintenance. We saw that in the beginning of 2009 but you can't defer it forever. So we do expect that to stabilize over a period of time.

Again, in our industry, a couple of months doesn't change things but if you look at some of the project development opportunities in the Middle East, they need to bring those things online. So we think the discussion starts to normalize and stabilize when people have visibility into oil prices, there is some stability.

But when you see the volatile reactions and people don't know where oil is going over the short term, it pays - you see it in all industries, they wait. As a matter of fact, we did that in our own business. We were trying to see how the first quarter panned out. We held on some decisions. These are long term decisions..

One follow-up there. You referenced the aftermarket side and the deferred maintenance.

How long can customers realistically defer that maintenance and can you put that in the context of what you did see in that 2009 time frame and then also what customers are telling you today?.

On the maintenance side, it really comes down to a safety issue. For those aspects of the basic maintenance and operating condition, you can defer it for months but you can't defer it for quarters and years especially around safety issues.

The other aspect of that Tom talked about, if you talk about the upgrades or the focus on efficiency, in any market people are going to look for ways to get more yield out of downstream. Keep in mind a lot of our - where aftermarket falls short in the mid and downstream business is where they shut a facility. We did see that happen in 2009.

It's not like an oil well where they cap the oil well or shut the oil well for a period of time or the production platform. They continue to operate these downstream facilities in good times and bad.

In good times and bad they're looking for ways of course to keep them maintained and operating for safety purposes but also, they're looking for ways to drive additional efficiency. As we look out, we can see and have seen before, where budgets - again, think about the environment that the oil and gas industry was in and it did spill over.

They're saying we don't know where oil is going. Let's just wait and see. You also had the refinery strikes. People were uncertain as to how budgets were going to get allocated, particularly in integrated oil companies. So you can see that they'll defer it for that period of time.

Also, we have seen when refinery spreads increase significantly they try to run them a little longer to capture some of the benefits. So even in that type of environment they will defer but you can't defer in perpetuity..

Our next question comes from Charley Brady from BMO. Please go ahead..

On your comment on the increased focus capture rate on the installed base, that's something you guys have talked about in the past.

I am wondering can you remind us where you are today on what you think your capture it on your own install base is and what you are doing really to go after that and where you think you can get to over time?.

We have been consistently below 40%, 45% on the capture rate except for in our seal business, it's higher. If you think about it and look at our legacy and heritage brands and how often these products can be at the market, years and years and years of installed base.

Part of what we need to do is a sales person can only call on a facility with our installed base if he knows it's there. One of the efforts that we've been doing is to inventory and category that installed base. That's part of the investment we have already made.

That is people, that is systems and it takes time to inventory that and then you roll it into the sales organization end-user sales plans. So that's one of the things that we're doing. Also, some of the systems we developed and the conversations around efficiency and upgrades.

But one of the big initiatives right now is just to go out and catalog our installed base. We have years and years of installed base around the world that we aren't servicing right now..

I will go back on the prior question on the $100 million in investment, did you say that you expect the full run-rate in 2016 or are you getting most of the run-rate and full run-rate in 2017?.

Well, we'll see a lot of it, a substantial amount in 2016. Again, keep in mind where we're implementing these takes time. There are things you have to work through to implement them. I think as you take a step back and look at the actions that we're taking, these are things that really position this company long term.

And if you think about it and Tom referenced this, we're getting after our under absorption, we're getting after manufacturing cost, we're driving additional volume in some of our new state of the art facilities. This is really repositioning our business and we think this is what our customers are going to demand over time.

As we take a step back and look at this market and I think I have talked about this before, when factories are loaded and you are producing, it's very difficult to move product capabilities or actually shut a facility down during that period of time.

What we do is we look at our long range planning and take the opportunity now to start to move some of our product capabilities to some of our higher volume low-cost parts of the world.

That's a core part of what we're doing right now is accelerating some of the plans that we've laid in place to really reposition this company to be even more competitive in the markets and take advantage of when things start to cycle up. They always do.

We have been through many cycles and one thing we know for sure is that this industry has a good secular underpinning and the markets will cycle back. There are some aspects of it that are more short-term and you can tend to realize those benefits quicker but as we look out we see this as a great opportunity to improve this business.

And what that will mean long term is we'll be more competitive, we think we can take more share, we'll drive more margins in the business. I think another distinction to keep in mind is the $100 million and the SIHI efforts are separate in terms of the way you look at them from a financial standpoint.

But they are integrated in terms of how we're going to implement them and look at our global capacity..

Our next question comes from Joe Ritchie from Goldman Sachs. Please go ahead..

So Mark, just curious on the restructuring.

How much of the $100 million in costs and the related $70 million benefit, how much of that is new versus plans that you already had in place? Then specifically across the business units, where do you see the biggest opportunity?.

Two-thirds of it is really pulling for our strategic plans in terms of that cost. About a third of it is what I'd say is more short-term market reaction. Having said that, we're also designing that component to be sustainable and long term. What I mean by that is, it's more than just variablizing headcount to the market which we have done some of that.

We continue to do some of that outside of this program. We do have a lot of temporaries that we use to variablize in market increases and decreases. That's separate from what we're talking about. So two-thirds of this is really designed to reposition the business longer term.

What was the second part of your question, Joe?.

Just specifically, what business units do you expect to benefit most from it?.

Okay. A lot of this is going to be a lot of our engineered capacity. If you look at the legacy and the history of Flowserve, a lot of the businesses have been in the mature markets, a lot of the engineered capacity. That's the type of capacity we have been building in the emerging parts of the world.

As you have heard us talk before, we have gotten those plants up and running mainly to serve those local markets. That's the way we like to set up new facilities.

Build the facility, build the capabilities, build the leadership team and then over time, you migrate products into those facilities to serve the local markets and then also to serve and support markets around the world. So what we have done is we made a significant amount of investment over the last four or five years in these facilities.

They take a while to get up and running. These things don't come up or go down very, very quickly. A lot of this is going to be in our engineered and if you look in - but it's across all three segments. Really, we're going to be taking the opportunity to really improve all three segments of our business..

And then maybe one follow up on the organic growth. You started off the year down three. The guidance is about flat at the midpoint for the entire year. Two questions there. One, where did you see the biggest change in your guidance? Because the number was closer to plus 6 before.

Was it upstream, midstream, downstream? And then secondly, how much of the business that you were unable to ship this quarter do you expect to ship and is included in getting closer to the flat guidance for the year?.

So currency aside, the adjustment on the revenue has been, one, we came into the year with on a constant currency basis, 11% incremental backlog. That's what, in a sense at the point in time gave us confidence around our growth. If you think about that constant currency was almost $300 million.

Obviously, there has been a currency impact on the existing backlog and any future bookings that come in. As we look forward, a lot of the decrease was around market conditions. What we see now is people will push off their decisions.

As to my comment earlier, the refineries that need to be built in the Middle East need to be built there and we fully expect that they will be implemented. We do understand as markets are in the current condition it becomes more competitive, so most of the decrease is driven by market conditions.

The other thing in terms of when you look at a year in our business, as things start to move out, both from a booking standpoint and a revenue standpoint, we now expect that those things will start to move into next year. So those are really the two aspects that we see impacting the revenue guidance. Primarily, it's the market.

And it's just - Joe, it's the way we see the market right now. What's happened in the market is we have seen some normalization in the aftermarket side. There are projects out there but nobody is rushing to get them to market. So we'll just have to wait and see.

In general, when you look at what can drive this, people need to see some stability in oil markets and certainly the currency markets as well, because while there is tremendous volatility and they don't know where things are going to move they're going to sit and wait.

We saw this again, back in 2009 and then again the oil and gas market came on fairly strong for the reasons that we think long term there is going to be spend in the oil and gas market. Hydrocarbons are finite. Consumption will go up over a period of time. People are urbanizing. They need more power, more energy.

All these things are going to drive our markets long term but when you see a disruption like you have seen oil being cut in half and even a little bit further over the short term, people are going to pause..

Our next question comes from Scott Graham from Jefferies. Please go ahead..

I want to also speak to the organic guidance because you know I guess what I am looking at is the bookings versus past history and believe me I know that there is nothing linear about bookings and sales. But we really haven't seen the level of sales come through versus the bookings. It's been actually fairly nonlinear.

If I look back after - excluding this quarter, three out of the five previous quarters organic bookings were up double digits and into the teens. Obviously, on an organic sales basis we didn't see anything near that type of level of sales growth in the last six quarters.

So why would we think that an increase in organic backlog by 11% is going to produce kind of a different dynamic than what we have seen? Obviously we have seen a lot of pushouts.

So why do we think that we can get to a flattish organic in this environment even knowing that the bookings that we have seen in the backlog have continued to get pushed out on the delivery side?.

Scott, I think that's it. When the book-to-bill is greater than one over periods of time you are building backlog and that supports sales growth and future periods. So what you see, it's a leading indicator.

Book-to-bill greater than one will tend to drive, all things being equal, tend to drive sales up and then book-to-bill less than one obviously, will drive sales down over that period of time. But there are other factors.

One of the things and this is really a credit to our operations, is that we've been executing better, more available and on time delivery. Now increasingly we find that when our product is available, the facility is not necessarily ready for our product. I think we have seen that fairly consistently over the last four or five quarters.

That's not a bad thing. That means we're keeping our customers happy. That's the aspect of what Tom has been talking about is we see things spill over to the subsequent quarter. For reasons of execution, we hope that continues because that's certainly a good thing.

As you look at our guidance, I think Scott, really the driver in terms of where we're, if you think we're too aggressive on our guidance is going to be that constant currency backlog. Obviously, if the markets deteriorate further from here, that's certainly going to put pressure on our revenues, absolutely.

Obviously, if they increase as well, this is all currency aside, it could have the other affect..

So I'm assuming that you are obviously very privy to all of the delivery schedule dates for what you have in the backlog, but that you also took a haircut on that number for the 2015 guidance, yes?.

When we look at things again, this is a point in time and they can change, but absolutely. We look at our plans. We look at our delivery plans. We know what the dates are that we need to deliver to our customers. And a lot of our forecasting, it comes from the bottom up, anticipates that.

Of course, we'll sit and try to maybe work that a little bit in terms of market conditions but for the most part, we try to keep the rigor around what we're hearing from our sites because they are the closest to the customer..

Understood. The other question that I had was about the margin development that kind of gets you to the midpoint of the guidance range. Obviously, we'd be looking at margins to on a year-over-year basis look better going forward than they did in the first quarter and I understand the first quarter the $150 million of sales, I understand all of that.

But was there anything other than that in the first quarter where it was a pretty weak margin number that we saw in the quarter.

Was there anything other than the push backs of sales that impacted the quarter? Was there anything, mix or even some pricing? Because obviously, the guidance does contemplate an improvement in the year-over-year comparisons and margin going forward..

You know, Scott, you and I have come a long way when we're saying 13.8% margins in the first quarter are low. To that point, I think if you see one of the things that drove it is lower fixed cost leverage in our business.

So part of what we get around SG&A leverage and we really haven't seen that for the last five quarters, is top line drives that fixed cost leverage in the business. So part of it is we do expect on a comparative basis relative to Q1, if you look at our revenue guidance, to get some of that fixed cost leverage as well.

There are continuing efforts around operational improvements. But the other thing to keep in mind, aside from the $100 million we talked about, we haven't been sitting still in the first quarter.

We've been pulling levers around some costs, managing costs very tightly relative to where we were last year, all with a desire to drive margins in our business. Those are really the three things, but I think the important thing is, don't just look at the $100 million in isolation.

We're doing other things to make sure that we try to drive growth in our business and margin improvement, comparative margin improvement, in our business..

Our next question comes from Nathan Jones from Stifel. Please go ahead..

If we could just go over to the inorganic opportunities that you alluded to a little bit in your prepared comments, I know over the last few years you'd been looking to focus internally and then the SIHI came along and you bought that.

With the $100 million in restructuring, where do you feel like the bandwidth is to take on additional inorganic growth at this point?.

That is absolutely a factor we consider in terms of when we look at an opportunity is the ability to execute and integrate it. As I've referenced at a high level and Tom did specifically, a lot of the issues around the $100 million we've brought in some notable talent to help us execute that.

What I would say is excluding businesses that are busy integrating right now, I mean IPD is busy on an integration, we think there's certainly bandwidth if we see a good opportunity.

I think that's probably the important thing to note, is the way we see the inorganic market right now is memories are long in terms of the pricing environment of last summer and it takes a while for that to work its way through the system and so, if you look at and we have certainly seen this before. So, we consider the bandwidth.

We consider the pricing environment. We also consider the alternatives of allocation to capital. If you look at the $100 million with the $70 million return that is a great return on that investment. And honestly, if we see more opportunities like that in our business we will prioritize that.

We also see a good opportunity and we have continued to return value to our shareholders. So we'll balance all of those at the end of the day but bandwidth is something we'd consider and when we look over all at our businesses. For example, you look at our valve business, it's certainly fragmented. They have been executing at a high level.

I'd say bandwidth is available there..

Okay and just on the Venezuela devaluation, is that all remeasuring the balance sheet non-cash?.

Yes, it is. Some of it was above the line because you have to take lower cost to market adjustment. But I think you have seen other multinationals do this as well. It's mostly non-cash..

Our next question comes from Deane Dray from RBC Capital Markets. Please go ahead..

I was hoping you could expand on the comment that's in the release that you are seeing customers focused on price competition. I know you said that there has been no backlog repricing, that's real important and that's good to see.

Just maybe within the business that you're booking this quarter, are there price concessions in there?.

As we look at opportunities, absolutely. Our customers are certainly very savvy and they say we see the market environment right now. We see that these companies want to fill their factories book business in and we're going to take advantage of that. We saw this last time.

It actually persisted from a very price strength in our industry at the end of 2008 to it flipped very quickly in 2009 and persisted for about a 1.5 years during that period of time. That's certainly what customers do. Keep in mind Deane, at the end of the day, they do value quality. Lead times are very, very important in the business as well.

So for the most part, our customers understand the ability to deliver a quality product that meets the process conditions that you can support over a period of time but I definitely don't want to ignore the fact that price comes in. My comment earlier is okay, that's the market. We need to respond. We need to drive price out of our business.

Part of this realignment strategy is to do just that, to further drive to our low cost manufacturing so we can respond on price not only in this environment but when the markets have more pricing power for our industry to be able to drive more margin in the business..

Deane, I would add to that, that we have been approached by several customers and we have approached several customer in terms of taking the overall cost out of the value chain itself.

Things like cycle time reduction, while that may not result in a product cost reduction on our side, it could result in a significant change for the customer as we work through specifications available with them, as we work through product simplification and take out time in their overall schedule.

We're also looking at project bundling that will cut down on their overall project spend and project time which will bring their overall cycle time down. There is more ways to get at that value added other than just cost although there is general cost pressure across the industry..

Are any of your non U.S.

competitors now using the stronger dollar as a weapon and how they compete for business?.

You know, as you look - a lot of our costs where we manufacture are basically in Euros. I mean, they're in other currencies as well. That's the benefit of having a global footprint. We have the ability to do work in low cost regions of the world or there are certainly other parts of the world.

I would tell you Deane, if you look at currency movements, over the short-term they do impact multinationals but over long term things balance out.

What I mean by that is if you think about where we were four or five years ago, the Euro at 150, it was very difficult even in a good market at that point in time, for our European facilities to compete in the global arena. Now look where the Euro is right now. It's easier for them to compete. That's the way things work over the long term.

But typically as a multinational industrial you have to get over the year-over-year compare on the currency..

Our next question comes from Kevin Maczka from BB&T Capital Markets. Please go ahead..

Can we just go back to SIHI for a minute? I understand why you are stripping that out of the guide for the year because with the one-time purchase accounting and other costs it will be $0.25 diluted. But I think that business last year was doing about $350 million growing mid-single digits.

Can you just give an update on your expectations there for the year? Is it being impacted in terms of the bookings rate the same way that the base business is?.

You saw the bookings in the first quarter. In general, they are certainly being impacted by currency as our other businesses are as well. Again, we just acquired this business. Part of the reason we acquired it is we thought we could grow and think we can grow their top line opportunities but we need to get that thing online and driven.

So we see the opportunity to grow the business over the short-term. It too has been affected by the markets as well. I mean it's a leading provider of vacuum pumps into the chemical industry which was impacted short-term during that period of time. It is not immune from our markets.

What we think we can do over the next couple quarters is drive some of the growth opportunities we saw by having our global sales platform. So the way I will say is it is on plan. It is as we expected over on the business.

I really don't want to start breaking out any sub businesses or anything and start guiding revenue from that point in time especially when we're only two, three months into the acquisition at this point. But I can tell you, relative to our expectations, the integration is on track.

We have seen some additional revenue opportunities in the business and some cost opportunities as well. Again, being in Europe, these things will certainly take time but we have actually seen the opportunity to take some of our capacity and leverage theirs as well..

In terms of accretion, Mark, I think your original view and I don't know that you have changed it, was that it would be accretive immediately in 2015 but it's of course $0.25 dilutive with all the onetime costs up front.

Is that still at least the way to be thinking about this? Excluding the one timer that this is a nicely accretive deal this year and then it grows after that if things go well?.

The underlying business is profitable, if that's your question, absent all the purchase accounting and the realignment costs associated with it. The underlying business is profitable. It too, like us, tends to have a slow start in the beginning of the year, our entire industry does and ramp up towards the end of the year.

So it will have the same cadence. We hope to change and enhance that cadence in years to come as we drive more sales through our sales organization but the underlying business is profitable..

Our next question comes from Robert Barry from Susquehanna. Please go ahead..

So I just wanted to start with a follow up on the guidance question. It looks like the midpoint of the constant currency revenue came down by about 6 points but the midpoint of the earnings guidance ex the currency adjustment only came down $0.15 which seems like somewhat of a disconnect unless there is material margin improvement.

I was curious about how you explain that?.

One of the comments I made is around the earnings side there are things we're doing below revenue line to drive earnings. I think the levers that we pull over on the business. Another thing to keep in mind is part of the revenue impact is in project original equipment which tends to be lower margin overall in our business.

Those are two of the aspects as well. So if you look at it, we have been responding overall and we do anticipate that if the original equipment comes down we'll see more aftermarket mix in our business..

Got you. When you say below the line, are you referring to things like repos, stock repurchase..

No, sorry. I am talking about below the revenue line. You said hey, here is what's going on the revenue line tell me how you get down to the bottom. And I said, we're doing a lot of work starting at cost of sales through SG&A and certainly, our repurchase plan does as well all the way to the EPS line..

Got you. Maybe just a little bit bigger picture. Many of the other pump and valve players with oil and gas exposure started to see weakness earlier in Q4 even through Q1 and it sounds like you really just started to see it in a material way in March. I was curious how you would explain that lag..

Well as Tom referenced in his comments, we saw a strong Q4 overall in the business and typically, we often expect a slower start in January and February in our industry, particularly if you look at some of the national oil companies around the world. Often their budgets aren't approved into January or February.

It's just the way their political system works in the business. So often times, historically, we have seen good upticks in March and we're anticipating some of that and it didn't come through.

Again Robert, I think as I've said earlier, is if you think what was occurring in February and well into March is there was a lot of volatility and uncertainty around the price of oil and an investment decision and a budget $30 which is half the pundits we're saying, versus $80 is significantly different and so they'll hold in that part of the business.

But part of it is we saw a strong Q4 in our business..

Our next question comes from Brian Konigsberg from Vertical Research. Please go ahead..

Yes, so actually most of my questions have been answered, maybe just a little bit more on the aftermarket. Are you seeing any increased competition on that end of the business or is there any trends towards in sourcing of some of that work potentially to save in the near-term? I don't know if the customer base has that capability or not.

If they do, have you seen any of that happen?.

Not really. Over time we actually expect that they're going to continue to outsource. A lot of it is because some of the engineering talent frankly, in the mature markets is retiring as we have been looking at that and our ability to be able to respond quickly.

Really the reason they will in source is either they feel like they have the critical mass to support a maintenance group or they're concerned that they can't get the responsiveness from an external provider over all in the business. But we haven't seen any in sourcing. That wasn't really what impacted the business overall.

Again, it was more only maintenance that we really saw that was done what was had to be done. Optional maintenance and the efficiency upgrades, those were curved back. Again, just the other things is if you look at the refinery strike, that will certainly slow down spend significantly around maintenance..

Maybe secondly on the orders, so down 13%.

Can you quantify how much of that decline was driven purely by price?.

Most of that was volume in terms of activity. There was some price impact over all the business but most of that was volume, Brian..

Our next question comes from Andrew Obin from Bank of America. Please go ahead..

The first question on these refinery maintenance pushouts because we ever been told that some of these pushouts actually are going to materialize during the summer or fall simply because to your point you can't really not maintain refineries.

Can you quantify what kind of pick up you are going to see over the next couple quarters from some of the pushouts actually happening?.

Yes. Last thing I want to do is start guidance specifically on our aftermarket other than to say if you look over time, it has been relatively stable. You have seen whereas Tom talked about, commission spares and I think I have referenced these before.

Part of our aftermarket business is when you sell a new project, you sell spares that will sit there when they start up the facility because things naturally need to be replaced during that period of time. But you're right, it is a deferral around maintenance and they will not defer into perpetuity.

I can tell you, you have seen where if refinery spreads GAAP out real quick, they'll try to extended run-time because that's profit. They're going to take advantage of the profit while they can. If there is big uncertainty they'll defer it as much as they can.

Having said that, they can only go so far because then it becomes - basic maintenance becomes an operational or a safety issue..

The other comment what we're hearing a lot from big energy companies and then percolating down to companies is the fact that there is a little bit of a cash flow. There is something of a cash crunch in the energy industry for various reasons.

How do you guys respond to that in terms of your service model? How can you accommodate your customers to keep the market share and maybe to grow the market share in this environment? Are there any changes that you are making to the terms of your service projects, not necessarily pricing, but what else are you doing to accommodate your customer base? Thank you..

Sure. If you look on the cash side, the cash they're conserving and rationalizing tends to be on the large capital projects. That's where the big dollars are. The big dollars are not in maintenance aftermarket and then you think about also retrofits and upgrades. Those are comparatively small in terms of the large projects.

If you think about our aftermarket business, from time to time, like we saw in the first quarter last year, you will see a notable $6 million, $7 million upgrade package. For the most part these are small ticket items. The projects are the big ticket items.

If you are hearing it from E&Cs and you're hearing it from customers, those are both in the areas where you are seeing the big ticket items. What they will do is look in terms of their cash deployment and when those will ultimately come online and that's how they manage our cash.

They've been doing that now, some of the integrateds, have been rationalizing cash for probably about the last year..

One of the things that obviously we can do is work on the lead times. We can bring the overall project lead times down through some of the things that I previously mentioned. That would help in the overall cash position hanging that cash out there over a longer period of time..

Our next question comes from Chase Jacobson from William Blair. Please go ahead..

Just one housekeeping, did you give the organic backlog, excluding the SIHI contribution, on the constant currency basis?.

I think in some of our comments, it would be in the press release, we told you rolling it from Q4 the impact of currency and the impact of SIHI. I think they in effect offset each other..

Okay. I'll take a look back at that. And then just one more on the pricing competition. You have given good color on it but I was just curious if you are seeing any specific competitors go after price a little bit more aggressively? I know you saw it in the last cycle.

So you guys are pretty disciplined but I am just curious if there is any market share risk? If there are any domestic or international competitors taking it more aggressively than others?.

We do see competitors from time to time and for different reasons be very competitive on price. That does occur as it did last time. In general, what I'd say is most of our mature competitors seem to be fairly rational overall in the business.

I think we have talked about, years ago there was a competitor that was in a sense up for sale and owned by private equity and they filled a lot of their backlog. But for the most part we have seen reasonable behavior. What does that mean? That can apply to us as well.

You look at absorption in your factories and you make a tradeoff between do I want to absorb it or do I want to rationalize the facility over that period of time? Sometimes to absorb it you have to go aggressively after a project. Another example is, on one of the Middle East projects that we booked years ago it was very, very competitive.

We were able to get it, secure the pumps and the seals in the business and I can tell you, it still pays a very strong aftermarket annuity. I think what I am pointing out is in general, this environment will cause people to be more aggressive on price.

Part of the message you are hearing from us is we will stay balanced and disciplined and take advantage and take the opportunity to really start driving cost out of our system, manufacturing costs, out of our system long term..

Our next question comes from Joe Giordano from Cowen..

To follow on what you just said, how would you judge the margin inherent in your incremental backlog that you are building today versus what's flowing through currently based on what you booked last year?.

Well you should expect overall the projects, the margin is going to be less than it was before all other things being equal. How do we offset some of that? We turn to our supply chain. We're still continuing to improve our operating platform. We do things like take under absorption out of our business, drive costs out of our business.

I want to make sure the message is clear. We're not just letting the market drive us. We can't control it but we can respond to it. But you should expect when projects become more competitive, all other things being equal, impact margins.

If you look at the aftermarket business, that's held relatively stable high level margins consistently through cycles. We don't expect that to change.

Then the run-rate business can be impacted on the margin side but a lot of that is being able to respond very, very quickly and respond not only to delivery times, the process conditions and be responsive. But the run-rate business is not immune from having margin pressure in a down environment..

One more question on aftermarket more strategic and we talked about in sourcing earlier. Part of your strategy and you've talked about it a lot in the last couple of quarters, has been going after your existing customers and trying to take that business that they're currently doing in house and to me that seems like a really [Technical Difficulty]..

I can't hear Joe..

Can you guys hear me?.

I can hear you now..

Sorry. What you've said in the last couple quarters on aftermarket and your strategy of actually going after your customers' business that they are doing in house and that seems particularly poignant today when I assume most of your customers are very wary of fixed cost.

And I was wondering if you've seen any, if that's been a good development recently?.

That's been a continuing development. I think what we're trying to do to accelerate that and this was in response to the first or second question, is we have to know where our product is to go and take advantage of it.

So there are a lot of customers that we aren't serving that are either doing their own maintenance, it could be a local machine shop that's taking care of these products. We need to know where they are and where the product is, what type of product it is to go and actually call on them.

So that's part of the investment that we're making right now in terms of capturing that. But on a continuous basis we're looking for ways to get customers to provide us with the ability to service the equipment and not only does it come in the form of an alliance agreement where we'll take on a multi-year obligation to do that or just the one off.

Go in and calling on the customer. We have engineers that go on site that say look, I can bring some efficiency. It is not just repairing and maintaining it. It's also going in and saying we can improve the efficiency of the operation of this overall facility because if you think about our equipment, our equipment drives the facility.

It's what energizes the flow control process. In effect, controls the flow control process and also protects the environment in terms of our ceiling solutions..

I mean we fundamentally believe that we have a lot of opportunities in the reliability and availability aspect of the customers' plants.

So we have plans in monitoring and diagnostics, asset management, optimization programs and then as Mark mentioned, the whole area about establishing the databases in terms of where our products are and categorizing that in many of our plants around the world. That will present another opportunity.

And then a third aspect, is on the sales side where we're driving account based sales programs in the aftermarket similar to what we have done in the new equipment side of the business over the last couple of years. We're going to be doing that on the aftermarket side of the business..

Our next question comes from David Rose from Wedbush Securities. Please go ahead..

Just two quick ones, most of mine have been answered.

If we can go to the CapEx side, what was the component for new way air bearings license? And what does it mean for you?.

Are you talking about in our cash flow statement, the additional CapEx?.

Right..

One of those was the bearings but we also entered into another license agreement really to enhance our aftermarket opportunities to get access to products so we can provide aftermarket services. So you saw the bearings one. That's a real opportunity around our ceiling solutions but we also entered into another one. Some of them we put press releases.

Sometimes some of our partners and everything like that are more sensitive about that but that's basically what you saw..

So there were two transactions.

And ballpark combined those versus the China plant expansion?.

Yes, you also saw that as well. If you look at our CapEx this year, a big part of it was those licensing relationships we talked about that drive revenue growth. Also our China expansion, both on the valve side but also in the China power that we talked about earlier and expansion in India and Latin America.

So we're to this point, we're certainly aware of our markets but we're leaning into them and taking advantage of the opportunity to drive and create even more low cost capacity for our business long term. And you should expect that we're accelerating plans now to migrate into that capacity and we will continue do that over the years to come.

That's how we position this business to be more competitive..

And maybe just a last one, given where you are in the quarter, this is seasonally a down quarter in terms of cash flow, but you have also made an acquisition. I think you are at the highest debt to cap in quite some time.

What do you expect the debt to cap ratio to be at year end?.

Well I mean obviously, you can model out our cash flow and look over where we going to be over the period of time and we expect to generate cash as we have historically. And the other aspect of it is return value to our shareholders as well.

So in general, we think at this point we're kind of at the top end of the range but we're also, to your point, where we're in the year where we're drawing most cash out of our system and it will end to generate and it will take that leverage down. Specifically, where it's going to be can depend on a number of things.

It will be just really around our capital allocation policies. If we see opportunity to drive value for our shareholders through capital allocation we will take advantage of that and that will impact our leverage ratio. The important thing to remember is, you look at the deal we did, the European deal, we have access to the capital markets.

We've got a very, very strong balance sheet. This is what you want to see. You want a company that's positioning itself in these type of markets, is to have a strong balance sheet, a good operating platform, a strong leadership organization and the ability to lean into these markets and take advantage and reposition the business.

That's what we're doing..

Thank you, ladies and gentlemen. We have reached our allotted time. This concludes today's conference. Thank you for participating. You may now disconnect..