Circor International Inc (CIR) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the CIRCOR International third quarter 2009 financial results conference call. Today's call will be recorded. At this time, all participants have been placed in a listen-only mode. There will be an opportunity for questions and comments after the prepared remarks. (Operator Instructions). I'll now turn the call over to Mr. David Calusdian from Sharon Merrill Associates for opening remarks and introductions. Please go ahead, sir.

Thank you and good morning, everyone. Welcome to CIRCOR International's third quarter 2009 conference call. On the call today is Bill Higgins, the Company's Chairman and CEO; and Fred Burditt, the Company's CFO. The slides we'll be referring to today are available on CIRCOR's website at www.circor.com, on the Investor Relations page.

Today's discussion contains forward-looking statements that identify future expectations. These expectations are subject to known and unknown risks, uncertainties, and other factors. For a full discussion of these factors, the Company advises you to review CIRCOR's 2008 Form 10-K and other SEC filings.

All of the Company's filings are available on its website at circor.com. Actual results could differ materially from those anticipated or implied by today's remarks. Any forward-looking statements only represent the Company's views as of today, October 29, 2009. While CIRCOR may choose to update these forward-looking statements at a later date, the Company specifically disclaims any duty to do so.

I will now turn the call over to Bill Higgins, CEO for CIRCOR.

Thank you, David and good morning, everybody. During today's call, I'll start with providing some financial highlights for the quarter; then Fred will cover other details on the numbers and our segment performance. And after that, I'll provide you with some perspective on what we see in the end markets going forward and we will take questions.

So, let me start with -- [go] and turn to slide three in our presentation and we'll begin.

And looking at the performance from a high level, we reported $144.3 million in revenues for the quarter, slightly higher than our guidance range. EPS of $0.49 was significantly above the high-end of our guidance range due to lower-than-expected asbestos charges and other non-operating items. And segment-adjusted operating margin which excludes special and asbestos charges for the third quarter declined to 11.3% from 18.1% last year, on a 31% decrease in sales compared with the third quarter a year ago.

Some of our end markets, as you know, continue to be down more than 50%, such as our North American Short-Cycle business where we lost significant volume and operating leverage. We continue -- the teams continue to focus on our quality of earnings initiatives, reducing our cost structure, driving operational improvements with Lean, and expanding our low-cost operations and growth in emerging markets.

Excluding acquisitions, we've reduced the CIRCOR's total workforce by approximately 17% year-to-date, and to put this in perspective, this includes approximately a 30% reduction in our workforce in the Energy segment, where we've seen the greatest decline in volume. We also continue to consolidate facilities to help reduce our cost structure. At the same time we reduce costs, we continue to invest in strategic initiatives such as developing low-cost global sourcing and manufacturing in emerging markets. We continue to build global sales capability in emerging markets, and both these will help reduce our cost structure as well as better position us for future growth and higher profitability.

From a bookings perspective, we received total orders of $143.6 million in the third quarter of 2009. This represented a decrease of 13% compared with the third quarter a year ago and a 15% sequential decrease compared with the second quarter of this year. The sequential decrease is primarily because we booked -- in Q2, we booked large longer-term orders for both Middle East Energy projects as well as the Military Aerospace Business.

Our backlog at the end of the third quarter was $297.9 million, about flat sequentially with the second quarter of this year, but down significantly from the $401.6 million we had at the end of the third quarter of 2008. So with that, I will turn the presentation over to Fred.

Thanks, Bill. Please turn to slide four, which shows our consolidated financial results for CIRCOR. Consolidated revenues for the third quarter of 2009 were $144.3 million, as Bill mentioned, down 31% from the third quarter of '08. The decline consisted of 30% organic reduction and a 3% reduction resulting from currency, partially offset by a positive 2% contribution from acquisitions.

Organically by segment, Instrumentation and Thermal Fluid Controls revenues declined 14%, and Energy revenues declined 46% in the third quarter of '09 versus last year. Operating income in the third quarter was $10.6 million, down 63% from the third quarter of '08 and down 2% from the second quarter of '09. Net income was $8.4 million, down 58% from the third quarter of '08, but up 9% sequentially.

In our discussion today, I want to remind you we often refer to adjusted operating income and adjusted operating margins. These metrics excluding -- exclude any pre-tax special charges as well as pre-tax charges associated with the asbestos affecting the Company's Leslie Controls subsidiary. There is a reconciliation of our adjusted non-GAAP operating income and net income to the comparable GAAP measures available in the financial tables of our financial press release and are available in our website.

The consolidated adjusted operating income decreased 63% in the third quarter of '08 to $12.1 million. On a sequential basis, adjusted operating income was down 15%. The primary drivers of the year-over-year decline have been the lower overall volume and associated operating leverage, unfavorable pricing pressure and product mix, severance costs and negative currency impacts, which have been partially offset by our reduced labor and material cost, and a slight benefit due to earnings from acquisitions.

Now our segment performance, we'll begin with the Energy Products on slide five. For the third quarter, Energy segment orders declined 12% compared to third quarter of '08, primarily due to the 50% drop in rig counts on a year-over-year basis affecting our North American Short-Cycle business. This was partially offset by an increase in project orders year-over-year, as project orders in 2008 were very depressed.

On a sequential basis, orders fell 24%, mostly as a result of large international project energy orders booked in the second quarter of '09. On a positive note also, Q3 was 20% above the first quarter of '09. For the third quarter, Energy segment revenues came in at $61.2 million, down 46% year-over-year from a record $112.4 million revenues a year ago. The 46% decline includes a negative 2% FX impact. The organic decline of 44% was due to both Short-Cycle declines driven by the decrease in rig counts in excess of 50%, as well as a decline in large international projects, as our record backlog came down from last year.

Backlog at the end of the third quarter was $114.1 million, which is 51% lower than the same period last year and down 6% sequentially. The segment's adjusted operating margin was 10.9% in the third quarter, compared with 23.2% in Q3 last year and 12.3% for Q2 this year. The year-over-year and sequential declines are primarily due to the rapid drop in Short-Cycle volume, unfavorable pricing and product mix we're seeing for large international projects, as well as cost incurred to reduce our workforce. This is partially offset by lower material prices and reduced labor costs.

Now, turning to slide six, and the Instrumentation and Thermal Fluids segment. Orders in this segment were down 13% from the third quarter of '08 and down 8% sequentially from the second quarter. The sequential decrease is due to long-term aerospace landing gear orders we booked in the second quarter of '09 that we will begin shipping in 2011.

Revenues declined 14% to $83.1 million in Q3 '09, from $96.3 million in the third quarter of '08 and were down 5% compared with Q2 '09. On a year-over-year basis, the 14% decline included growth from acquisitions of 4%, which was more than offset by a volume decline of 14% and lower foreign exchange rates of 3%. On a sequential basis, the decline was broad in nature across many of our flow technology end markets.

We ended the third quarter with segment backlog of $183.7 million, an 8% increase in the third quarter of '08 and a 3% increase in the sequential second quarter of '09. The year-over-year increase primarily reflects acquisitions. The segment's adjusted operating margin was 11.6%, compared with 12.3% in the third quarter of '08 and 11.8% in Q2 '09. The year-over-year and sequential decreases were due to lower sales volume leverage and unfavorable foreign currency adjustments, partially offset by lower material and labor costs.

Now, let's turn to slide seven for additional details of the P&L after segment performance. Asbestos charges were $2 million, down from $3.8 million in the third quarter of '08, primarily as a result of lower indemnity charges as both the number of new claims decreased and the average cost per resolve claim in the quarter were more favorable than the third quarter of 2008.

Corporate expenses decreased slightly by 700 -- $0.7 million, due primarily to lower pension expense and lower professional fees. Net interest expense was higher in the third quarter of '09 by approximately $0.2 million, primarily due to higher cost associated with our new unsecured credit agreement that we concluded at the beginning of Q3 and due to a lower interest earned on short-term investments. Other income/expense was on income of $1 million, up from $0.3 million in the last year, primarily due to foreign exchange gains. And our effective tax rate for the quarter came in at 25%, compared with 32% for Q3 '08, due to lower tax rate in overall income as well -- the lower tax rate is due to reduced overall income as well as a higher percentage of revenue in lower tax jurisdictions.

Now, turning to cash flow on slide eight, in the third quarter, the Company generated $11.2 million of free cash flow, compared with $17.9 million in the second quarter of 2009 and a negative $2.1 million in Q3 of '08. We define free cash flow as net cash from operating activities, less capital expenditures and dividends paid.

Our capital expenditures decreased year-over-year to $1.6 million from $3.9 million in the third quarter last year. Our capital spending is primarily focused on new product development and Lean initiatives. Our balance sheet remains in a very strong position. Our debt-to-equity ratio was 3% for the quarter, compared to 5% in the fourth quarter of 2008. And in the third quarter, total debt decreased by $12.8 million to $9.7 million versus $22.5 million in the third quarter of '08.

With that, let me pass the floor back to Bill, who'll review our end market assumptions and our outlook.

Thanks, Fred. Please turn to slide number nine. Let's start with our largest end market, Energy Projects in the Middle East. As we've said for our few quarters now, quoting activity continues in the Middle East and we are winning orders because of the increased competition and available capacity; however, we're seeing increased price pressure. And although projects continue to be released, this is still a lumpy business and we have limited visibility going forward.

Regarding our Short-Cycle business, rig counts are off in general over 50% from their highs; seemed to have stabilized. Distributors are still burning off excess inventory in the channel and we expect that to continue into next year and I'll come back to some more color on that a little bit later. So, while orders declines have slowed, we still have limited visibility.

Before we talk about Pipeline Equipment and Services, let me make a couple of points on our recent acquisition of Pipeline Engineering. In the first couple of days of the quarter, we acquired Pipeline Engineering & Supply Co. in the UK and Pipeline Engineering is a turnkey manufacturer of a full range of products and services to assist in the pipeline industry of cleaning and pipeline integrity, flow assurance in the oil and gas industry and has annual revenues of approximately $30 million.

With this acquisition, we now have one of the broadest portfolios of pipeline solution offering. Pipeline Engineering in the UK is highly complementary to our Sagebrush Pipeline Equipment business. Geographically, Pipeline Engineering's footprint covers Europe, Africa and the Middle East, and this is a great complement to Sagebrush, which has been focused on the United States market. We plan to leverage Pipeline Engineering customer relationships and supplier list and compete worldwide in energy solutions in the pipeline industry.

Now back to the markets, in pipeline markets, we do see steady demand internationally and North America. However quoting activity continues but capital spending has been largely put on hold. We expect an eventual upturn in bookings but it's difficult to say exactly when that will be in the North American pipeline market. In aerospace, while military demand is steady, the commercial side of the business continues to be weak.

On the defense side, which accounts for about a little over half of our aerospace revenues, we're well positioned with the backbone of our program being on the Boeing Chinook CH-47 helicopter and we've recently won additional military contracts. For example, the F-16 Nose Wheel Steering Actuator which we've just announced.

The commercial side of aerospace continues to be weak. The business jet aviation market has been particularly hard hit. As we all know, build rates and spares have fallen significantly in 2009 and commercial aerospace business, driven largely by airline passenger traffic, is at an all-time low and we expect the commercial side of the aerospace business to continue to be soft into next year as well not just in the commercial transport side but also in the OEM production. In the longer run, however, we continue to win new programs as we announced earlier, the A350 XWB, the extra wide body Landing Gear Actuation system we won and these types of wins on future programs position us well for the future.

Moving on to HVAC and steam-related markets where the environment continues to be similar to how it's been this year. We're seeing little evidence of new construction in North America. Our MRO business is steady, driven by repairs and upgrades in maintenance on existing systems. There are growth opportunities in emerging markets, particularly as we expand our presence in geographies such as China, India, Latin America.

Industrial Markets are soft in general but somewhat stabilizing in North America and Europe. OEM business driven by capital spending continues to be weak, with more steady demand coming from MRO maintenance, repair business. We have seen a pickup in semiconductor activities. We know that's largely driven by semiconductor LED production in China and Asia, although this is a smaller part of our overall business.

In the Power Generation markets, demand is steady in the US and Europe for maintenance, repair, upgrade type work. We expect to see growth in emerging markets such as China and India continue in those markets where we provide higher pressure, more engineered products such valves on turbine systems that require higher safety and reliability.

In the Chemical and Refining end markets, the chemical markets remain weak and petrochemical activity continues, especially in emerging markets around the world.

Our Navy business, our maritime, has been steady. We expect it will be stable in -- as we go into 2010, particularly due to the aircraft carrier program we won in 2008 and begin shipping at the end of this year.

Process end markets continue to be down significantly due to the decline in capital spending; however, those industries will continue to invest in maintenance and upkeep to keep their existing processes running.

So this brings us to our expectations going forward and while visibility is very limited, a vast majority of our end markets, we believe the ongoing global recession will continue to negatively affect us. We are a late-cycle business, as we look at our financial results for the fourth quarter and going into 2010. So we are disappointed with the fourth quarter outlook, particularly with the convergence of negative factors in energy and let me add a little bit color to that, as Fred and I mentioned it earlier.

Distributors in our Short-Cycle North American business continued to de-stock and while the rate has slowed down, we haven't yet seen like -- we could call as a bottom or a floor, although we are cautiously optimistic that we're seeing such a slow drop in that rate. We're getting there. Yes, the short-cycle orders and if you cut through the 50% drop we've seen in rig activity in general, it's been harder hit in the North American natural gas markets, where we play more significantly and where we have a larger mix of products.

And if you were to peel that piece out, we can show as we look at our order bookings drop of in excess of 65% that's related to that North American natural gas market. So, it is a pretty tough market environment we're working through. Our teams are aggressively adjusting the cost structure as we have been all year and as we've talked about in prior quarters. In addition to that, the project business has been facing price pressures internationally as more supply is available and companies are more competitive in general.

So we see these factors pulling our Energy segment margins down into single-digits in the fourth quarter. Our teams are working hard, as I mentioned, to adjust to the lower demand environment. The drop of the magnitude we've been looking at in the Short-Cycle business though takes more than a couple of two or three quarters to adjust and we're doing what we need to get there.

We are consolidating the facilities. We've got four consolidate -- facilities we're consolidating to two. In Oklahoma, we're completing the move of most of our machining to China, which follows a lot of what we talked about in the past of moving assembly over there and building supply operations in a very well-run operation in China.

In addition, we're increasing the use of India and China for material sourcing to help offset the price pressure we're seeing. So we anticipate these fourth quarter and first quarter 2010 moves and other quality of earnings actions will enable us to get back to double-digit operating margins in the Energy by the middle of 2010 even at the lower volumes we're currently seeing. So a lot of good work going on and it's going to take us a little bit of time to get through that.

We are also consolidating the facilities within our aerospace business to help offset the continuing commercial aerospace degradation. And as I mentioned before, on the flip side, we're winning programs and we're investing in growth and Lean, so building a stronger foundation for the future in addition to the reduction of the fixed cost and cost structure.

Expenses associated with our consolidation and other cost reduction activities were estimated in the range of $2 million to $2.5 million in the fourth quarter. With that said, we expect revenues for the fourth quarter of 2009 to be in the range of $153 million to $162 million, and earnings excluding special charges, but including asbestos charges to be in the range of $0.17 to $0.23 per diluted share.

So before we go to questions, I'd like to leave you with a couple of final key thoughts. And first, as Fred noted, we have a strong balance sheet and that enables us to capitalize on acquisition opportunities. In the third quarter, we acquired Pipeline Engineering, which gives us a great portfolio -- a broad portfolio in the pipeline solutions global market.

Second, we've hired a new Vice President of Business Development to help oversee the Company's M&A strategy. AJ Sharma is a seasoned executive and has extensive cross-border experience in Asia, Europe and North America, can help us grow the business globally. And finally, we believe the investments we're making, particularly in our strategic initiatives and acquisitions and Lean and low-cost manufacturing sourcing to position us to become a stronger Company going forward.

So with that, Fred and I will take your questions.

Thank you. Ladies and gentlemen, we'll now be conducting a question-and-answer session. (Operator Instructions). Thank you. Our first question is from the line of Kevin Maczka with BB&T Capital Markets. Please proceed with your question.

Good morning.

Good morning

Good morning, Kevin.

Bill, I guess I am a little bit confused on the guidance for Q4 and hopefully, you can help with that, but with everything you just said about the pressures facing your Energy business, I guess it's understandable your comment about going down to single-digit margins in that business, but I would have thought with all that said, maybe we wouldn't have the sequential revenue up-tick that you're forecasting here for the total Company. So can you just maybe help me understand, are we looking at a normal seasonal up-tick in revenues in Q4 and maybe a much larger-than-normal drop-off as we get out into Q1?

I don't know it's so much seasonal. There is an up-tick in revenue that comes from the most recent acquisition of Pipeline Engineering in the UK, so that's part of the revenue up-tick. And that probably accounts for, what, Fred, $7 million or so?

Yes, $7 million, $8 million we have in there for Pipeline.

Okay and then --?

And there's a little bit of currency from the last time on a run rate.

Yes. So I assume you're specifically referring to Energy or are you talking about the Company in total?

Well, I mean both. I am interested in Energy, but then the next question of course is ITFC, if you're looking for the normal sequential up-tick there as well?

Yes, there's a little bit of seasonality we look for in Instrumentation and Thermal Fluids area and the heat-related businesses -- steam and heat-related businesses. And as we look at -- we mentioned that there seems to be a little bit of stability in Europe and the US for the -- some of the end markets that we serve there and trying to understand where those markets bottomed some -- depending upon the different market and the different business product lines, it looks like some of them may have bottomed somewhere in the middle of this year, some earlier, possibly March, April time frame, some later into Q2, Q3.

Okay and then, is the $2.5 million charge included -- is that a special charge that you've excluded here and how much asbestos is baked into this number?

In the forecast, Kevin, we -- this is not a special charge, we would call it internally, our non-recurring charge is $2 million to $2.5 million. So it's in our guidance and from an asbestos -- similar to the last couple of quarters, we have a $4 million asbestos number in our guidance.

Okay and then, in terms of the backlog, I guess my question there is how much of the backlog you have now is business that you plan to ship either within 2010 or maybe the next four quarters versus stuff that you've booked that's planned for 2011, '12 and beyond?

Well, the businesses that we have orders that would go out that far are pretty much our Aerospace business and a little bit of our Navy business. So those are the only two that we would have something out into 2011.

That's got to be a smaller piece.

Yes, it's a fairly small piece of our total backlog of the $300 million backlog.

Yes. It's got to be less than 10% of the total backlog.

Okay, because I guess where I am going is, if -- in Energy, for example, if you're down $46 million in revenues this quarter, and backlog is down about $50 million, should we be looking for more -- it sounds like we should be looking for more down $40 million, down $50 million type quarters going forward with your comments about the de-stocking and the pricing pressure?

I think what you'll see is a couple of dynamics, certainly on the Short-Cycle business until we get through sort of all of Q1 next year, that's when the comps start to get back to normal comps. On the project business, it's very lumpy; it's always been lumpy. We had very low orders the end of last year. We've had fairly decent orders this year. So it's -- on a quarter-by-quarter basis, I can't really give you an answer.

Maybe another way to think of it, is I try and -- I am trying to see where we have enough data that we can say we've defined a bottom and have come off of it and that's a little bit of a struggle with the visibility. The project-related businesses looks like so far that the earlier part of this year may have defined that floor and we will have to see. And if you recall, we had pretty low bookings in the fourth quarter and the first quarter of this year in the project business.

The Short-Cycle business, while I mentioned significant drops when you look at year-over-year, the sequential de-stocking that we are seeing now is less than, I'll say sort of a 10% kind of sequential drop. So while it still in normal terms would be significant, it's far less than it was. So I -- as we survey our channel partners, we are looking at, there is still, at least to the end of this year, to work through that de-stocking to get their inventory turns where they are. So I don't know if that helps from a color standpoint.

It does, Bill. Thanks a lot, I'll get back in line.

Our next question is from the line of Charles Brady with BMO Capital Markets. Please proceed with your question.

Hey, thanks, good morning. First point, I just want to clarify the charges, so that $4 million asbestos and the $2 million to $2.5 million in restructuring that is not considered special charges and is included in that $0.17 to $0.23 guided range?

That is correct.

Okay. Could you just speak to the pricing pressures with a little more granularity as to sort of how much pricing pressure you are seeing and are you seeing it on the Instrumentation side? You've obviously got a fairly large competitor out there that has the ability to kind of keep a ceiling on prices if they want to. Are they being rational or are they trying to put some pressure on that?

On the Instrumentation side, we have seen some price pressure, but I think companies in most of those businesses, we've seen a little bit of pricing pressure in Europe there, but most of the activity and a focus of most of our competitors, we believe, has been in more of the sort of the cost-cutting mode. On the Energy side, I think the pricing pressure we've seen so far is in the project business, just with everybody having available capacity and supply out there, and that's probably more than we anticipated.

Maybe how much are prices being pushed down, broadly speaking, not necessarily specific to you but if you look across the industry, 2%, 5%?

As we -- we said last year, or actually this year about 300 basis points in the Energy segment probably based on what we saw at the end of last year. It's probably at least double that, it's probably around 600 basis points at least in the margin area.

Okay, thanks. And just in terms of tax rate we ought to be using going into fourth quarter?

The tax rate is favorable in the fourth quarter. We have in our guidance is an 18% tax rate.

Okay, thanks very much.

Yeah.

Thanks, Charles.

Our next question is from the line of Michael Schneider with Robert W. Baird. Please proceed with your question.

Good morning, guys.

Hi, Mike.

Hi, Mike.

Maybe first just on the asbestos assumption, so this quarter came in substantially lower than we thought and yet you're baking in $4 million for Q4, so that the trends and the data you saw in Q3, we shouldn't extrapolate going forward in terms of average claim size and number of claims?

Mike, we're still in the -- we have nothing that's really changed from what we said before, this animal goes up and down lumpier than our project orders. So based on sort of a longer-term trend, we just feel the $4 million directionally right. But we're not -- as we've said in the past, we don't know that.

Okay. And then on the large pipeline business, can you give us a sense -- I know pricing is down and awards are down substantially, but we hear from other players that the quote activity and their tender backlog is at or near record levels. I guess one, is that your experience is in terms of number of outstanding quotes? And then two, do you think these are realistic bids and ultimately come to fruition or as one competitor put it, is this just all busy work at this point to keep the engineers and quoting departments busy?

Well, I mean, I guess our take on it is, it's not -- we don't view it as at record levels. It is that they are at healthy levels and activity continues. I don't know that we expect to see the number of large -- really large project awards we've seen historically. I think we will see fewer of those, but I do think that we'll see more of a mix of awards.

And what do you sense shakes in particular the Middle East loose for you because crude is back near $80 and nat gas has doubled at least domestically and is rising globally? What is that you hear from your major customers that prevents them from finally sending out the awards?

I can't say that there is anything specific that we know that prevents them from sending out the awards.

Okay. And then the power market seems to be the strongest market globally and you call it out as such especially in the emerging markets. What is your exposure at this point overseas in the power market in terms of revenue or sales force et cetera? I am trying to understand just what -- where the opportunity is now and what the future opportunity is?

It's a lot -- Mike, it's a lot less than I'd like it be. We do sell directly overseas but most of our sales overseas are export, either direct or with our partners that go on -- products that go on turbines or other start-up or boiler systems that go around power plants. So what we are trying to work on is getting a better foothold in the emerging markets and our manufacturing and sales footprint is relatively small globally.

Okay. And then can you just speak to cancellations, specifically by segment, in terms of just what percent of the backlog is suffering cancellations at this point or is it indeed fairly minimal?

It's fairly minimal. There is a couple of places where we watch for; Aerospace would be one where orders are booked, particularly for OEM production out pretty far. And we saw earlier in the year cancellations in the business jet environment. We are watching closely, for instance, the Navy programs and government programs going forward depending on what governments around the world do. But it's a relatively small portion of the overall backlog.

Okay. And specifically the 787 program, as you mentioned Aerospace, if indeed it takes its first flight this year, is there a meaningful catalyst to revenue in 2010 as it relates to that business?

Unfortunately, there is not. We have a little bit of content on the 787 but that -- all that development was done at least half a dozen years ago when we weren't as strong as we are today in Aerospace wins.

Okay. All right, thanks, guys.

Mike, just before you leave it, just -- I want to put a little color on asbestos. It's not all bad. I mean we had a good quarter. I think some of the things we have been doing from a defense perspective over the last year, we are seeing some signs in the indemnity side that some of that's working. I can't predict the future yet with it, but it was a positive quarter for us, and we feel that way.

Okay, thank you.

Okay.

Thank you.

(Operator Instructions). Our next question is from Michael Salinsky with RBC Capital Markets. Please proceed with your question, sir.

Good morning. I was wondering if you could tell us a little bit about the cadence of orders throughout the quarter. They were increasing or constant or decreasing, as well as how order performance has done so far in the fourth quarter?

Any specific business or just in total?

I prefer to see it by business but either way.

In the Energy business, the project orders have been relatively steady, I mean a little bit up and down. Our last quarter was better than this most recent quarter, but this -- as Fred noted in the highlights, this quarter is higher than the first quarter of 2009. The Instrumentation -- the Short-Cycle business and Energy orders, as I mentioned, is -- it's hard to see. I mean it still has been declining less so, it's hard to see -- and when it turns, it can turn relatively quickly. And the Instrumentation and Thermal Fluid orders also sequentially have -- and in backlog have grown.

Okay. And then secondly, on the acquisition front, I know you've had one recently, what do you see going forward in the acquisition environment? Do you think it's getting any better? Are sellers capitulating or -- are they getting more willing to sell or you're still seeing some counterparties reluctant to go forward?

Okay. You're specifically referring to the M&A activity out there?

Yes.

Sorry, I missed the begin of what you said. Okay. I don't know I talk to people that say there is more activity out there. There doesn't seem to be a lot of deals that have been concluded yet. So it's really hard to call. I mean we are continuing to talk to people. We believe that using the balance sheet is the right way for us to grow in addition to the Lean and operational improvements we're making on the organic business. The right acquisitions that fit strategically or we can consolidate within the businesses that we have today would make a lot of sense for us. So we are out there talking to people and continue to. I think there is a couple of spaces that are ahead of others. I think aerospace is late to the downmarket, so in some of the ways. So it's a little bit, I think later in what we're going to see evolve there. I was just recently at the Business Aviation Exposition down in Orlando and it's pretty pessimistic outlook on the business jet outlook for at least 2010 and beyond. But it hasn't seemed to have triggered a lot of consolidation discussions yet. But I think people are expecting that to happen.

Okay, great. And then finally, on the cost cutting side in 2010, is there a lot more you can do there if sales continue to sort of stay negative to sort of keep your ['04 margins] in line?

Well, what we've been doing consistently (inaudible) is having the most sober look at the market demand where we are today. We're not anticipating the markets to come back up. We're adjusting our cost structure at the reality of the current markets and we're going to continue to do that, so that we can build a cost structure where we can grow and be profitable in 2010.

Okay. Thanks, guys.

Thank you.

At this time, we've reached the end of the Q&A session. I'll now turn the conference back over to Mr. Bill Higgins for any closing or additional remarks.

We appreciate your time today and look forward to speaking to you at our next quarter's call. Thank you, everybody.

And that concludes our conference call. Thank you for joining us today.