William Sanchez (Howard Weil Inc.): What is the lead time for delivery of capital equipment?
Peter D. Kinnear: It depends on the complexity of the equipment, probably three to six months, something like that.
Dan Pickering (Tudor Pickering): Would you expect to see any meaningful reduction in corporate costs or is this going to be something where the cost structure remains relatively unchanged?
William H. Schumann, III: There will be some minor reductions in the corporate expense line and in what we call other income net, reflecting reduced costs in that area too. Expect us to go back to 2006 levels in corporate expense and a little bit under $10 million a quarter in OID, excluding these fluctuations that we’re seeing in foreign exchange.
Dan Pickering (Tudor Pickering): As you look at 2009 and 2010, do we anticipate, the market to grow faster, are going to have any lumps in here, is it pretty steady growth?
Peter D. Kinnear: We are still pretty optimistic with the rig additions coming in and it really depends on the mix of what the rig is going to do and whether they deploy it on already discovered fields that they can start to bring out production.
Dan Pickering (Tudor Pickering): Are you seeing any sort of change in behavior in the kind of ways that the customers interact with you?
Peter D. Kinnear: Well, the trend for these alliances is an indication that the subsea is a critical technology for them. They want to team up with some of them.
They want to form this partnership for capacity, and so that they can get priority and make sure that they can deliver these big developments on time. So, yes it is a growing trend and we have been very successful in signing up a number of our clients to do that.
Kurt Hallead (RBC Capital Markets): What can you do from a company standpoint to potentially drive higher margins in that business if you head out into 2009?
Peter D. Kinnear: Well two points, one is pricing and second is got be our internal execution on these projects in terms of, making sure that we fully understand our big costs and then when we turn around to buy materials, so we can get the materials and internal execution in the factories to meet the cost targets.
Most of our bids tend to be fixed price. If it is a high, high content of new, technology, we tend to push for cost plus in those so that we, if it is a complicated execution, we do not risk margin there, but it is a matter of pricing and execution.
Kurt Hallead (RBC Capital Markets): Would you say at this point that the pricing that you have in backlog would indicate a continued expansion in margins as you head out into 2009?
Peter D. Kinnear: We have been trying to increase our margins and prices and I think we have been successful. We have ramped up over the last year, 100 to 200 basis points in margins and we would expect to try to continue that trend into 2009.
We have not rolled up our budgets or anything yet. So it is a little early to see exactly how it is going to fall and we have over 50 to 60 projects in the backlog and that is why we go through a detailed roll-up of all those projects as we go forward and certainly we will give you an indication of that going forward.
Kurt Hallead (RBC Capital Markets): How do you see the higher margins in energy production?
William H. Schumann, III: Most of the increase in margin went from 19 to 19.5 in the quarter over 2007 came from the measurement business and loading systems business.
They have really had outstanding years. Their execution has been much improved and most of the margin increase, so the margin increase so you see is really coming from those businesses and we expect to be able to maintain that through the rest of the year.
Kurt Hallead (RBC Capital Markets): And how big are those businesses relative basis, thinking about on a revenue scale?
William H. Schumann, III: If you look at the segment, fluid control in round numbers is 40% of the segment. So, we are talking about 60% of the segment in the other four businesses.
|
