Enviri Corp (NVRI) 2011 Q4 法說會逐字稿

Good morning. My name is Michelle and I will be your conference facilitator. At this time, I would like to welcome everyone to the Harsco Corporation fourth quarter earnings release conference call. (Operator Instructions) After the speaker's remarks, there will be a question and answer period. (Operator Instructions) Also, this telephone conference presentation and accompanying webcast, made on behalf of Harsco, are subject to copyright by Harsco and all rights are reserved. Harsco will be recording this teleconference. No other recordings or distributions of this telephone conference by any other party are permitted without express written consent of Harsco. Your participation indicates your agreement.

I would now like to introduce Mr. Sal Fazzolari, Chairman and CEO of Harsco Corporation. Mr. Fazzolari, you may begin your call.

Thank you very much. Good morning, everyone. I'd like to welcome you to Harsco's fourth quarter 2011 conference call. I have here with me today Gene Truett, our Vice President of Investor Relations and Steve Schnoor, our Chief Financial Officer. Before we begin this morning I will ask Gene to read the Safe Harbor statement. Gene?

Thank you Sal. Good morning everyone. As we do at the beginning of all of our calls, we just want to let you know that we will be having forward-looking statements in our discussions with you today. These statements relate to the future of our business, our operations, our results, economic expectations and other aspects relating to and affecting our business. While what we say today is based on our best information available, it is possible that the results could differ from what we tell you today. We've listed in our SEC statements reasons and risk factors that affect our businesses and these could be the reasons for any difference that could occur. We invite you to review the SEC filings at your convenience. I would like to remind you that replays of this call and related information are available on our website. Please take the time to access this information at your convenience. Sal?

Okay. Thank you, Gene. Our call this morning will commence with some brief comments from me about the fourth quarter and the year and as well as the outlook for 2012. Then I'll turn the call over to Steve for some brief comments and details on the fourth quarter and then, of course, we'll take your questions.

As noted in our press release this morning, we were certainly pleased with our fourth quarter operating results. All four business segments actually posted improved fourth quarter performance exceeding the prior year, of course, excluding the restructuring charge. Considering the continued end-market challenges that we faced in 2011, we were also pleased with the $1.38 in diluted earnings per share for the year and this is an improvement of some 50% from 2010 results, again, excluding all of the one-time charges.

Now, reflecting back on the year, we entered 2011 with cautious optimism and new momentum. At the end of 2010, we established a road map, as you may recall, at the December annual analyst conference to deliver $3 to $4 in earnings per share by 2015 and we looked forward to 2011 as a transition year to a new period of growth and relative stability for Harsco. While we enjoyed some success in 2011, the European debt crisis created an interim road block in the amount of growth we could achieve in the year. We responded; however, by changing our path as the year progressed so that we could remain true to our long-term 2015 EPS road map. We took a number of preemptive and substantive actions in 2011 to further drive our cost structures significantly lower so we could achieve two critical mile posts -- accelerate Harsco Infrastructures return to profitability and accelerate the return of Harsco Metals & Minerals to double digit operating margins. These proactive measures culminated in a fourth quarter restructuring charge that will carry over to 2012 as well.

With respect to 2012, we again expect double digit earnings growth, excluding the carry over restructuring charge as we build momentum towards our 2015 EPS road map of $3 to $4 per share. As such, we are reaffirming the earnings guidance for 2012 we provided last month in the range of $1.55 to $1.70 in diluted EPS from continuing operations. However, as we clearly stated in December, and as you may recall, the results for the first quarter of 2012 will be lower than those of the prior year due to several key factors that I will summarize in a moment. First, however, I want to emphasize that 2012 needs to be viewed as a year of three quarters of earnings progress -- year-over-year that is -- and not simply a year of totally dependent on the second half for growth. We expect our growth performance to be fairly balanced over the second, third, and fourth quarters. The second quarter is expected to show considerable sequential improvement over the first quarter.

Now, more specifically to first quarter performance. Our current view is diluted earnings per share from continuing ops to be in the range of $0.01 to $0.06, and that compares with last year's $0.15. There is a confluence of factors adversely impacting our expected first quarter performance and I would like to summarize those for you. It's important to understand. First, Metals & Minerals last year posted their best performance in the first quarter. As opposed to this year where it is expected to be the worst quarter of the year, due principally to reduced steel production in Europe. In fact, I may be correct in saying that the first quarter of 2011 was one of the strongest quarters of the year for the steel industry in general. Second, Infrastructure continues to be negatively affected by poor end-market conditions in the, U.K. and Europe in general, as you well know. Third, pension costs. Our pension costs are substantially higher on a comparative basis year-over-year by about $2.5 million for the quarter and, obviously, on an annualized basis by about $10 million.

Fourth, the timing of rail shipments are the weakest in the first quarter of 2012 with the majority of the earnings expected more evenly over the remaining three quarters of the year. Thus, just like Metals & Minerals, the first quarter will be the weakest for rail as well.

Fifth and as expected, restructuring savings will begin to be realized in the second quarter and sequentially improving in importance -- to earnings, that is -- as the year progresses. I may also add that our restructuring initiatives are currently on plan.

And finally, the stronger dollar is also negatively impacting our translated results in the first quarter compared with last year's comparable period and the substantially higher tax rate will also negatively impact the fist quarter as well, which Steve will provide plenty of details on.

I would like to take a moment and recognize the strong performance of Harsco Industrial and Harsco Rail in 2011 and also point out the very strong performance of the Metals Group. Harsco Rail and Harsco Industrial recorded strong revenues and operating profits as they continue to capture new opportunities with global customers. Both businesses are benefiting from solid, well-run operating platforms and lean processes. We believe that both platforms are developing into strong global brands with solid growth prospects.

Excluding the Minerals part of the business, Metals posted a very strong year in operating income, which is being masked by the underperformance of the Minerals business in 2011. And this is something, obviously, we're working diligently to correct. I may also add that both Metals & Minerals combined for the year outperformed the prior year as well. So even with the weak performance in Minerals in 2011, the combined group outperformed 2010. So it's very important to note that as well and we believe, obviously, that 2012 will even show more improvement over that.

And finally, I'd like to mention that the Company repurchased about 287,000 shares in December and also, I may add, that I personally purchased 2,000 shares and swapped a ten-year option that was about to expire into an additional 6,000 shares. I will now turn the call over to Steve Schnoor, our CFO, who will give you more details on the quarter and then we'll take your questions. Steve?

Thank you, Sal, and good morning, everyone. As reported in this morning's press release, excluding previously announced pretax restructuring charges of $101 million and the non-cash, non-operating U.K. tax charge of $37 million, we recorded earnings per share from continuing operations of $0.36 for the fourth quarter. Results exceeded the fourth quarter 2010 earnings per share of $0.15, excluding restructuring charges, by 140%. Excluding the restructuring charge, all operating segments improved upon prior year fourth quarter sales and operating income. Fourth quarter consolidated sales of $793 million were 5% higher than last year. For the full year 2011, excluding restructuring charges, all operating segments, except Harsco Rail, exceeded 2010 sales and operating income. Harsco Rail was below the 2010 record results due to the timing of rail equipment shipments.

Full-year, 2011 consolidated sales of $3.3 billion exceeded 2010 by approximately 9%. The fourth quarter effective income tax rate of 13%, excluding the restructuring charges, was lower than last year's rate of 17%. The lower tax rate reflects a change in statutory income tax rates in certain international jurisdictions as well as other international tax benefits. For the year, the effective tax rate, excluding restructuring charges, was 21% compared with 25% for the year 2010. As previously indicated, the effective income tax rate for the full year 2012 is expected to be in the area of 27.5%. However, a much higher tax rate in the area of 50% is expected in the first quarter. This compares with 25% in the first quarter of 2011. The higher first quarter 2012 rate results from a lower UK tax benefit.

As previously announced at our Annual Analyst Conference in December, to ensure the continued successful transformation of our Infrastructure and Metals & Minerals businesses, especially in light of the European economy, we are executing a restructuring program which began in the fourth quarter and will continue through 2012. Total pretax restructuring charges are estimated at $200 million, to be recorded in both 2011 and 2012. We recorded a pretax restructuring charge of $101 million in the fourth quarter of 2011 with the balance of the charge to be recorded during 2012. Of the $101 million recorded in the fourth quarter of 2011, $88 million was recorded in the Infrastructure segment and $13 million in the Metals & Minerals segment. Of the $101 million fourth quarter charge, $67 million was non-cash. Approximately $112 million of the total $200 million charge to be recorded in both 2011 and 2012 is expected to be non-cash. The restructuring charge includes further streamlining of our European presence, exiting underperforming locations and rationalizing our worldwide asset base. Total 2012 savings are expected to be approximately $36 million with full annualized savings estimated in the area of $65 million beginning in 2013.

In the fourth quarter, a non-cash, non-operating tax reserve of $37 million was recorded against UK deferred tax assets. This results from the recent results of our UK Infrastructure business as well as associated restructuring charges. Accounting rules require that this reserve be recorded as income despite most of the deferred tax asset being originally recorded in equity. As the UK business recovers over the next few years, as we expect, the charges will be reversed into income.

I will now review our cash flows and liquidity position and then discussion performance of each business segment. Fourth quarter cash from operations was $114 million excluding cash paid for restructuring activities. Cash from operations for the year was $321 million, excluding cash paid for restructuring. Cash from operations was lower than 2010 due to the timing of working capital turnover. Certain significant cash receipts occurred in December 2010 that normally would have occurred in early 2011. Additionally, due to bank holidays in certain countries in late December in 2011, a substantial amount of cash was received in the first week in January 2012 that was expected to be received in 2011.

Due to such fluctuations and timing of cash receipts, it is relevant to consider the average cash from operations over several periods as a true performance indicator for the Company. For example, in 2010 and 2011, we averaged $370 million in cash from operations per year, excluding restructuring payments. Since 2008, we have averaged $440 million in cash from operations per year. This is indicative of our cash generation power.

Discretionary cash flows for the year were $167 million. That is defined as cash from operations plus cash from asset sales less maintenance capital expenditures. Discretionary cash flow provides us with the flexibility for multiple potential uses including dividends, debt pay-down, growth capex and so on.

In the last year, we have significantly reduced our bad-debt expense to only 0.24% of revenues. This is an indication of the stability of our customer base and the associated cash flows. Capital expenditures increased compared with 2010 due to required funding for renewal of contracts and previously announced incremental growth projects in our Metals & Minerals business. It is important to note that cash from asset sales also increased in 2011 to $43 million, compared with $23 million in 2010. Such asset sales are a routine part of our business and the cash is used to offset capital expenditures. Thus it is appropriate to recognize that our net capex in 2011 was $270 million.

Our debt to total capital ratio as of December 31 was 42.7%. This compares with 38% as of September 30. The higher ratio at year-end results from the restructuring charges and an increased pension liability due to lower discount rates, which also lowered our shareholders equity. Despite that, our balance sheet remains in good shape providing us with substantial financial flexibility. Net debt to capital was 39.2% as of December 31, 2011. At December 31, 2010, net debt to net capital was 34.1%, the lowest level since at least 1998. From a historical perspective, in 2005, as an example, our debt to capital ratio was 50.4% and our net debt to capital ration was 47.2%. So you can see that our balance sheet has improved over that time period. As you may know, our revolving credit facility matures at the end of 2012. We are currently working with our bankers to renew that facility, most likely in the first quarter.

Let's now review the fourth quarter performance of each business group. Fourth quarter sales of the Harsco Metals & Minerals segment was slightly higher than last year. Operating income, excluding restructuring charges and operating margins, were also higher than last year due principally to income from new contracts in India, China and elsewhere. Additionally, income was higher in the roofing granules and abrasives business. Partially offsetting that was continuing -- was continued lower volume of our US stainless steel customers. In the fourth quarter we recorded a restructuring charge of approximately $13 million in the Metals & Minerals segment. In the fourth quarter of 2011, steel production of our mills site customers was sequentially lower than the third quarter of 2011, but higher than the fourth quarter of 2010. The $12.1 million operating loss, excluding restructuring charges, for Harsco Infrastructure in the fourth quarter was lower than a $14.4 million operating loss in the fourth quarter 2010. Results in the quarter reflect improved performance in Germany, the Middle East and Latin America and continued weakness in the UK.

The rental equipment utilization rate in the fourth quarter was 57% compared with 55.8% in the fourth quarter of 2010 and approximately equal to third quarter 2011. To provide a valid year-on-year comparison going forward, beginning in the first quarter 2012 utilization rates will be adjusted to the equipment rationalization that occurred as part of the restructuring. Rental rates in the fourth quarter were slightly higher than the fourth quarter of 2010 and approximately equal to the third quarter of 2011.

Harsco Rail results in the fourth quarter was significantly higher than 2010. The better results reflect higher machine and spare parts shipments in 2011. The higher margins reflect the increased volume, especially the increased spare parts shipment.

Harsco Industrial continued to perform well. Sales and operating income were higher than the fourth quarter of 2010. Operating margins were lower than last year due to higher commodity prices. That completes my comments and I will now turn the call back to Sal.

Thanks, Steve. We would now be pleased to take your questions.

(Operator Instructions)

Your first question comes from Jeff Hammond from KeyBanc Capital Markets. Your line is open.

Hi. Good morning, guys. This is Brett Linzey filling in for Jeff.

Good morning.

Good morning. Yes, just a question on Infrastructure. As you look across the different pockets of the business, where are you seeing strengths -- it sounds like the UK is still pretty soft. And then maybe just an update in terms of bidding and quoting activity on some of the other ancillary markets that you guys have been competing on for the last couple quarters.

Yes, good question. As we -- I think I even may have commented on this at the last conference call, if you look at the geographic balance of the business and take it in big bites, Latin America, the Middle East and the Asia Pac are all doing relatively well. They're all profitable. They're all doing well and they're gaining momentum as we go into 2012. North America is stable. We're essentially at break-even last year and we expect North America to be profitable in 2012. So it's really all about Europe and particularly the UK. But even if you break Europe down, Germany, which is one of our biggest countries is doing well, it's making money, continuing to do well. France is one of our largest countries -- same thing, doing well. It's principally the UK, the countries that we're exiting and obviously we'll be out of those as the year progresses. It will really be isolated to one country and that's it. And we're hopeful to make some substantive progress in the UK as well. Now as far as quoting activity, we had actually a very good January. We were able to book some pretty good orders throughout the globe and a lot of those, thank God, were construction type orders in the forming side. You know, rental business. And they were scattered not only throughout the emerging markets, but also a few wins in Europe as well.

So hopefully, we can gain some momentum as the year progresses in that business. It's going to be a tough first quarter. I'm sure this question may come up and I'll just be preemptive about it. We look at the first quarter for Infrastructure, where -- it's going to be essentially flat with last year's first quarter. And that of course excludes any restructuring charges. So year-over-year -- and the reason it's going to be flat is because if you look at last year -- actually last year Europe, excluding the UK, actually did pretty well in the first quarter. And that was before -- obviously the European crisis really hit in the summer. So you have all those ins and outs but on balance, Infrastructure is going to be flat.

Okay. Maybe sticking with Infrastructure, just in terms of break even, I mean is this something that's achievable in the second quarter or are you assuming this is more of a back half even.

The view -- and we've articulated is that our goal is to break even for the year. Certainly you will see progress in the second quarter. I'm not ready to predict that the business will be a break even in the second quarter, but for the year, we are working very hard to deliver a year of break even.

Okay. Great. I'll go ahead and jump back in the queue. Thanks, guys.

You're welcome.

Your next question comes from Mike Wherley from Janney Capital. Your line is open.

Good morning, guys.

Good morning, Mike.

I was just wondering if you could talk a little bit about the margins in Metals & Minerals. It seems to be a little bit stronger than we were expecting.

Yes. Good question. I was hoping someone would ask that. We did make some good progress. As I indicated, if you look at the Metals side of the business particularly, we had a very good year despite all the turbulence out there. And so it's just executing on new contracts, cost reductions, and being more selective on contracts. We're starting to exit contracts that are just not delivering their return on capital. And we will fix the Minerals thing. So -- and then with the restructuring actions we started in Q4, again as I've pointed out, the mile post for us is to get this business back to double digit margins. Now in 2012, we expect this business to be around the 9% area and on our way to 10% by 2013. So that's the goal. That's what we're working towards. And you'll see sequential improvement in that business. As I indicated, Q1 is going to be their weakest quarter of the year due to shutdowns in Europe. We're still seeing quite a few mills that have not come back or they're operating at very low levels. And secondly, continuing problems we're seeing with the stainless steel side in the US where nobody's buying appliances, unfortunately.

Okay. And what exactly did you do with the restructuring charges in Metals & Minerals?

It's principally people. It's offices and those kind of things. We did during the course of the year -- did exit a few contracts, but that was in the other numbers. But as far as specifically to the restructuring, the focus was on SG&A.

Okay. And then just going back to Industrial, since that has been a strong segment in the past couple of quarters, I'm just wondering are there some more legs there or is that going to taper off this year? How do you see that?

No, no, they're going to post, hopefully, a record 2012. We have high expectations of that group for 2012. You know that business is doing extremely well and we are now positioning that business globally. So that was a business that historically only focused on the US and pretty much ignored the rest of the world. Last year, we successfully started up our business in Brazil, China, and Australia. We are looking to expand this year to the Middle East and possibly one other site in Asia as well. So that business of being globalized so to give better balance regarding any potential cycles -- and its lean practices. We haven't talked much about lean but both our Rail and our Industrial businesses, the lean impact is dramatic. It's really helping the performance of that business. I don't want to understate that at all. And we're becoming more of an important solutions provider to our customers as we -- as they expand across the globe, particularly our Air-X-Changers businesses. We're pending customers now globally as they tap into the natural gas markets throughout the globe.

Okay. Thanks a lot.

You're welcome.

Your next question comes from Scott Graham from Jeffries. Your line is open. Scott Graham, your line is open.

Scott, are you there?

No.

(Operator Instructions)

Your next question comes from Bryce Humphreys from BB&T Capital Markets. Your line is open.

Hi, guys. It's Bryce at BB&T calling for Rob.

Good morning.

Another question on Infrastructure. Aside from your restructuring efforts, and asset sales efforts to reduce your footprint, are there any other operators, your competitors, doing the same things, rationalizing assets, taking capacity out of the market?

We've seen a few companies that, I believe one or two actually filed for bankruptcy, but unfortunately nowadays nobody goes out of business. Some private equity guys, from what I understand, have picked them up. We know that particularly the ones that are focused more on the construction side as opposed to the industrial maintenance side -- the industrial maintenance guys are doing okay. But the ones that are focused solely on the construction side -- and as you'll recall, we have a balance between the industrial maintenance and the construction. We're one of the few companies that are actually balanced that way. But -- so that's about all we can tell you is really they're not going away unfortunately.

Okay. That's helpful. In the Rail business regarding margins, up really strongly year-over-year and even more sequentially, can you discuss the reason for the strong performance in the quarter? And is that 23% sustainable?

No. I mean as far as we've been saying, sustainable margins for -- and you're going to get quarter where they have higher than normal and sometimes a little lower than normal, but we've been saying the high teens is a more sustainable rate for that business.

Okay.

Particularly what happened in the fourth quarter. Again, lean is having a huge impact on this business. They're doing very well. But we had a very good mix of orders and that is really what drove the margins in Q4. A mix of orders with parts, shipments, equipment to the overseas market and so forth.

Okay. And then maybe one last one if I could, regarding capital allocation. Would you discuss your thoughts on continued share buybacks versus growth projects say in Metals & Minerals?

Well, two comments on that. One is that we always, try to run a very balanced view with respect to our use of discretionary cash. Also, I may add, as you may or may not recall, the first quarter historically -- and actually the first half -- cash flow-wise, is our weakest period. We generate substantially most of our cash in the second half of the year.

Right.

So I'll leave it at that.

Got you. Okay. Thank you very much.

You're welcome.

(Operator Instructions)

Your next question comes from Glenn Wortman from Sidoti and Company. Your line is open.

Good morning.

Good morning, Glenn.

Just two questions. Following the restructuring actions, can you just break down your European exposure by country, if possible?

Yes, Steve, do you want to maybe give a little color and I could give a little color on that. Are you referring to both Metals & Minerals and Infrastructure or principally Infrastructure?

I guess Metals & Minerals, Infrastructure -- you know, Company-wide.

Just to set the broad stage, you know about 39% of our revenues come from Western Europe. Okay. So it's a broad statement. Our biggest countries are the UK, Holland, Germany, France, okay? And Poland. Those are our five biggest -- actually, three of the five, France, Germany and Poland are doing okay. They're making money. There's no issue there. There's actually very little to none as far as restructuring there. The majority of the restructuring in Europe centers around the UK, Holland, some of the other countries that we're exiting that we have not actually mentioned by name, and I don't know if we want to do that yet, but -- and so we'll be out of those anyway. So what we're going to be left with really is the UK. And where we're working -- and that's just, again, on the Infrastructure side. On the Metal side, the UK is doing fine. Now we have a few selective slowdowns in mills and that kind of stuff but the UK business in metals is doing fine and they're making money and so forth. So it's really Infrastructure and keeps getting back to the UK and the countries we're exiting. Steve, I don't know if you want to add anything to that.

That pretty much sums it up.

Okay. And then just one bright spot in construction lately has been multifamily housing construction in the US. Can you just maybe discuss any exposure you have there, maybe what percentage of sales for your Infrastructure segment derives from multifamily?

Yes. Not much. We had some back in 2008 but we've gotten out of most of that. Our business in North America is focused roughly 50% on industrial maintenance. We operate quite a bit in the power sector, the energy sector, and then the other 50% is in construction but we're focusing more and more now on the big infrastructure project or the civils -- whatever you want to call them. So we're going after the airports and the bridges and the tunnels, water treatment, those kind of things and not so much the condominiums and apartments and so forth. Although we do some of that but it's very limited.

Okay.

Yes, Glenn, I think a couple of important things there. We always look to top off in that industry where it's appropriate. It also -- I would say its fair to say it's the lower end of our value proposition of the core values we offer of degree of equipment, of engineering expertise, of site management of E&D, erect and dismantle labor, et cetera -- and it still tends to be a bit on the more competitive on pricing point of view side of the market. So when you get down to less value added, because more price competitive the more value added, the better can you do.

See, that applied more, Glenn, to the UK. We had a pretty sizable exposure to that in the UK. And that's the rationization plan that's going on in the UK is we've been shutting all those branches down and we're refocusing the UK business pretty much almost like the US business where it's industrial maintenance and formwork, more towards the big complex engineering projects.

Okay. Thank you very much.

Your next question comes again from Scott Graham. Your line is open.

Hi. Can you hear me this time?

Yes, we can.

We were worried about you.

Yes, well, me too. I'm having technical issues this morning. So just want -- I had two questions for you. I think that the first quarter guidance, which is indicative that you guys think you'll be profitable in the face of this litany of head winds, including what I did not expect is a 50% tax rate. Is it possible that -- well maybe ask it this way in the positive way -- what drives first quarter profits if Infrastructure, M&M and Rail are all down year-over-year?

Well, one thing, Scott, obviously is the Industrial's going to have a good first quarter so that helps. Rail, although it's going to be down, it's going to be okay. It's not going to be great, but it's going to be down year-over-year, so that helps. Our Metals & Minerals are still not bad. I mean it's going to be down from the very strong first quarter of last year, but it's still going to be a pretty decent quarter. And then cost savings, dramatic cost savings throughout the Company -- and that's the reason it's only going to be $0.01 to $0.06 as opposed to $0.15 last year.

Look, I'm just -- I think that's a good number given those head winds. My next question is -- you know I've asked this question before, you know? The Company has signed on a lot of new business in the Metals & Minerals business and obviously in 2011 you signed on some business and there was a pretty meaningful cash flow impact. I'm just kind of wondering how you're managing that for 2012, particularly, you guys are about to execute the largest contract in the Company's history. How are you managing cash flow while still keeping the customer happy?

Scott, I'll just make one comment and then I want to let Steve give you some more details on that. But, Scott, I'll just say that 2012 is all about earnings and cash flow. The senior management team is very focused. They're very committed to delivering as much cash as we possibly can and obviously delivering our earnings for this year. And hopefully nothing's going to get in our way, irrespective of what the head winds are, the markets are. We believe we are in control of our own destiny. And we're taking things in our own hands. That's why we took these very preemptive and substantive actions last year to ensure that we can continue - remember - we're heading towards our march towards the 2015 EPS goal. And I think we're still on track. We've had some things get in the way, but the customer is very important. And we're not going to lose sight of that. And I can assure you, Galdino and Ivor and the two Scotts are very focused on each of our customers and particularly on the Metals & Minerals because quite a bit of capex is going in there. As you know, we are starting up this year in China the largest contract in the history of the Company. That's on track. Everything is progressing as planned and we will have revenues coming in the fourth quarter. So we're optimistic about that. And that will have a pretty good contribution in 2013. India is also in the start up phase as well. And that will contribute to 2013 more than 2012. And so we think we're very positioned and focused on the customers and we're being, again, very selective on projects. Steve, I don't know if you want to make some comments about this?

Yes. First of all, we're extremely focused on maximizing cash from operations. As I mentioned in my comments before, we have averaged over $400 million over the last several years. And our intention is to get it back to that. So we're working the balance sheet very, very hard. As far as the capex goes, we're very focused on basically only those projects which, first of all, exceed our cost of capital and the highest return projects. We have plenty of opportunities available to us. But the key thing is following our strategies. The highest return projects and emerging markets, reducing customer concentration, reducing concentration in Europe and things such as that. The other thing we -- as I mentioned also, is the opportunity to -- with the restructuring helping us offset some of that capital expenditure is the sale of assets -- the non core assets. So that'll be also part of our strategy. As far as the joint venture, we also -- we are -- with TISCO, we do have a 60% ownership, 40% partner which provides us with an offset. The key thing here with everything we're doing is to remain extremely disciplined in our capital allocation approach. That's part of my job and that's just part of what I'm assuring is going to happen.

Scott, one other thing, too, Steve reminded me when he talked about TISCO. In our Metals & Minerals business, we are pursuing projects with joint venture partners. And we think that's a great way to mitigate risk. It's a great way to reduce the actual cash outflow so we can have our cake and eat it too in essence. And I think the TISCO model's a very good model where we still control the business but our partners contributing 40%, 45%. Everyone's different, obviously, as you can appreciate. But nonetheless, the point is that to share the cash flow burden, if you will, with our partners and we have some very good partners not only in China but also in the Middle East. And that's really the future model so when you see additional announcements, and you will see some additional announcements this year, for example, where we think we're going to win a couple more contracts in India, for example, possibly another one in China and one or two others in key markets. All those are going to be funded in part by our joint venture partners. So it's a very important distinction there. Now you have to watch the ins and outs on a cash flow statement but nonetheless, on the net, net basis the cash comes in.

Very good. Thanks very much.

You're welcome.

(Operator Instructions)

Your next question comes from Tim Hayes from Davenport and Company. Your line is open.

Good morning.

Good morning, Tim.

Two questions on the rental rates and Infrastructure. How are those trending? Or I guess what's your expectations for Q1 rental rates versus what you saw in Q4?

We expect the rental rates to be pretty much stable as to where they are and where they've been the last several quarters. So, no, and we don't see a significant increase and that's one of the reasons why we took the restructuring was to make sure that we get those cost savings and get the earnings. But the rental rates are pretty stable.

Is it stable also in Europe or is there any erosion there?

Obviously, Tim, this is Gene, we're talking about weighted average -- any average is made up of a bit of highs, a bit of lows. But I think that generally we're more conscious of not chasing business and that's why we've rationalized equipment, that's why we have a second stage of an aggressive cost restructuring program so that we don't feel compelled to do that. So I think that clearly one talks about an average but the average can be made up of the extreme highs and extreme lows. Everything's near the average.

Okay. And then on the pension expense, how much of the increase of -- or the higher $2.5 million that you're going to see in the first quarter, how is that allocated between the segments and corporate?

That's pretty much -- most of that pension expense is on Metals & Minerals and Infrastructure and it's mostly in the UK. And it's pretty much in the UK, that's another reason why we've got an issue in the UK.

Yes, it's probably $1 million each roughly -- if I remember right -- and about $0.5 million at corporate. Or something like that in rough numbers.

Again, that will be $2.5 million a quarter.

Right. About $10 per year -- equal to the quarters.

Okay. That's helpful. Thank you.

Thanks, Tim.

I have no further questions in queue. Mr. Fazzolari, I turn the call back over to you for closing remarks.

Thank you very much. Well, in closing, while we expect 2012 will bring its share of challenges as we navigate this still uncertain economic environment, particularly in Europe as all of you well know. We do, again, expect to show, as I mentioned earlier, double digit earnings growth, of course, excluding the carry over restructuring charges for the year.

We do believe that the additional investments in restructuring, both our Infrastructure and our Metals & Minerals platforms will further improve the earnings of both businesses and yield permanent improvements and operating efficiencies and yield lower break-even costs. I'd like to thank you for your ongoing support and thank you for joining us on the call today.

This concludes today's conference call. You may now disconnect.