FLS
#Well, right now we're ---+ we haven't changed our guidance in terms of the 40% to 50%.
But as we talked about in terms of our capital allocation priorities, we always look internally and organic first.
One of the things that we are very focused on is this restructuring, and that's where a lot of our cash will go to this year in terms of driving that.
So the priority is going to be our restructuring activities, our capital expenditures, which are anticipated to be more modest than last year but still important growth capital expenditures and then we're still sticking to our 40% to 50%.
No change there.
Yes.
We ---+ in the past couple of years, what we do is when we fund our internal initiatives and our priorities, we've over the last couple of years have returned the excess to our shareholders, which is very important.
So to the extent were those are going to be more cash utilization on important internal initiatives, that the likelihood is that we'll stick to our guidance.
Well, let's say all other things being equal and they aren't because of the restructuring, but let's just start generally with the way to think about it.
First, you look at the volumes.
The volumes in 2015 in terms of project activity were lower than in 2014.
The pricing environment in 2015 was more competitive than it was in 2014, not to the extent of what we saw in 2008 and 2009 because the pricing didn't get near those levels.
So those things flowed through ---+ started flowing through the P&L and last year and are reflective in our compares.
So you'll have absorption, which you address with some of your restructuring activities, and also the pricing environment which you also address with your restructuring activities.
But that's working its way through.
So the marginal impact, or the incremental impact starts to abate because you don't have as much project activity sitting in backlog.
As we look forward, in terms of that ---+ the profile there, so we do need to get at the absorption issue.
So the cost savings will focus on addressing the pricing environment, and also the volume environment that we're in.
And we're designing it to be very, very long term.
The other thing then is you start looking at mix.
If we start driving growth in the aftermarket business, start getting traction in the run rate business, then that can certainly support margins.
Those are the levers and those are really the dynamics around our margin profile.
But we've seen quite a bit of our project activity, certainly from 2014 go through the P&L and we're seeing 2015 now go through the P&L.
There wasn't a lot of project activity at the end of last year, by the way.
Mainly, it's LTI, the acceleration, like I said, of non-cash accrual really relates to a change in our retirement plan.
So accounting convention within a change and when we deploy, you have to actually pull that cause forward so really, it's essentially taking three years of cost and pulling it forward, s o you'll see a modest decline in our amortization of that over the next 36 months.
The majority of that sits in our corporate expense and then a portion of that is allocated down to the segments.
In terms of guidance, probably about I want to say about 50% of that was considered in our guidance and then real accounting adjustments were made in first quarter.
Slight; it's modest over the next three years in terms of reduction in amortization.
It takes ---+ what it does is it reduces its subsequent quarters.
It takes three years to kind of get in the full cycle of this so we'll see this impact in Q1 but it will be less significant but as <UNK> talked about, it is non-cash.
You're welcome.
So <UNK>, I think you said IPD and we haven't seen ---+ okay, no, we haven't seen the big price pressure in IPD.
What we did see was the reduction in oil and gas project activity.
So IPD has some project that can actually be repurposed for other processes as well.
But they were able to line it to the balance of the plant for some of these oil and gas larger projects.
What we saw was a decline in the bookings activity and these were ---+ these aren't huge but there could be $250,000 and above.
We saw significant decline in that year over year.
Offset by more penetration in some of our other industrial chemical applications and distribution.
where we've seen the pricing competitiveness now for really about nine months to a year, is in the EPD segment; it's ---+ a lot of it is in the OE portion of that.
Where we've seen the pricing impact; those are the big large projects, millions of dollar projects that are competitively bid.
Right.
I think the comment about project opportunity is competitively priced will apply to everything.
But the fact is, we ---+it was more volume than anything else in IPD.
Good questions on IPD; the point there is we have an opportunity to take the products that we have.
We've got a good product portfolio, and much better to penetrate the market, is what happens when you get these large project activities; is that it will tend to tilt the entire organization to focus on those.
We've certainly ---+ we've made some changes, not only the leadership of IPD, but in our channel-to-market approach in terms of our sales organization, our distribution leadership to focus on this and we've seen some traction.
So think of these ---+ think of those as we need to address markets better than we have before.
And that's what we intend on doing.
As <UNK> has indicated, previously on the EPD side.
On the IPD side, we also have had some project that we could have taken but for some of the terms and conditions which were extremely onerous.
That's a good question.
We're ---+ this what is much more removed than moved than we've seen in the past.
Because we're ---+ what we're doing is closing facilities and consolidating that into some of our higher performing facilities, even in the OECD countries.
So there's a lot of closures relative to what we've seen before, but then again, what we'll do is we may move the product into a lead product facility, into a mature market and a lot of the work goes into a lower-cost facility in some of the emerging parts of the world.
But this is really designed to position the Company long-term in the industry.
Things we've been literally had on the drawing board now for 2.5 years, we just accelerated it.
I think we've talked about a 30% of our physical capacity is getting taken out.
So actually, there's more square footage in a sense then there is resources.
And a lot of that is because we're building engineering and engineering centers in India to handle higher volumes.
What we're doing with the 30% take-out, what we don't want to do is not be able to address the markets when they become more robust.
So I think the way to think of it is, even though we're taking the physical capacity out, I believe we'll be able to handle at or higher level of volumes than we been able to handle before.
That's important; we want to be sure that we can address our markets because we still believe in the underlying secular drivers in the business.
You're talking about going for standardization.
Actually we work ---+ we welcome that.
We work very closely with some of our large customers to drive that because what it helps us do, is to streamline our manufacturing process, our ability to support it from an aftermarket standpoint but more importantly, turn to our supply chain and drive the value through there.
Keep in mind, standardization does not mean commoditization.
Standardization means we come ---+ we develop a common and expected set of process conditions, under which the equipment will operate.
That actually helps us be more efficient.
It also helps us get more of a share of the customers' wallet as well because when you develop and can deliver the standards, it works well.
I don't - - we don't look at that disfavorably at all; we actually encourage it in ---+ with our customers.
I would add, I mean, we've even gone as far as to put engineering talent in EPC facilities in order to drive that overall standardization strategy that they're ---+ that they've been embarking on over the last couple of years.
We aren't seeing necessarily the restocking yet.
What we talked about is we feel the destocking has abated and they're running just-in-time inventory.
Now that's important, because for that channel to be able to be successful, you've got to be able to deliver in a timely and efficient manner.
And if you look at FCD's performance over the couple of years, the fact that it has the margin profile that it does is reflective of their ability to respond to all customers' needs, particularly our distribution channel.
Now when I did make then comments is when we see some restocking occur that should be a tailwind for us but we have not seen that yet.
Well, it ---+ geo ---+ what we've talked about is that the base aftermarket business has shown some stabilization.
What we haven't seen that we saw in prior years were what we call the small aftermarket projects, some of the efficiency initiatives that some of our customers do.
They're still holding onto that spend at this point in time but we're confident they'll do it because it actually improves the return on their operations but it's been pretty much stable what we've seen across the board in terms of all the operations globally.
Many of these projects that went in, in 2014 and the beginning of 2015 are now going into a period where they need spares during the first two years' worth of operation.
So we are seeing some good activity relative to that in North America, Europe and Asia.
Obviously, Latin America is down given the whole political situation there so that looks ---+ I would say that looks promising.
And we're also seeing in North America, because of the deferrals of the maintenance, we are seeing some emergency repairs start to kick in.
Customers are coming in with very quick turnarounds so that business is now seeing a little bit different, I would say, driver in that business.
And our EMA maintenance business in terms of upgrades on Flood Control.
We mention desalinization and even the refineries are seeing some positive signs there.
