Welcome to the Fourth Quarter 2014 Earnings Analyst Call. My name is Ellen, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note, that this conference is being recorded. I will now turn the call over to Brad Alexander. Mr. Alexander, you may begin.

Good morning. And welcome to FMC Technologies' fourth quarter 2014 earnings conference call. Our news release and financial statements issued yesterday can be found on our website. I would like to caution you with respect to any forward-looking statements made during this call. Although these forward-looking statements are based on our current expectations, beliefs and assumptions regarding future developments and business conditions, they are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by these statements. Known material factors that could cause our actual results to differ from our projected results are described in our 10-K, 10-Q and other filings with the SEC. We wish to caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any of our forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. I will now turn the call over to John Gremp, FMC Technologies' Chairman, President and CEO.

Good morning. Welcome to our fourth quarter 2014 conference call. With me today is Maryann Seaman, our CFO. I'll begin my comments today focusing on our performance both in the fourth quarter and for the full year. I’ll then discuss our current 2015 market outlook. Maryann will provide specifics on our quarterly and full year financial performance, and our financial outlook for 2015. And then we will open up the call for your questions. 2014 was a very successful year for FMC Technologies. We achieved record revenue and operating income in both our Subsea Technologies and our Surface Technologies segment. Company earnings were $0.72 per diluted share for the quarter and a record $2.72 for the year. This excludes the gain related to the sale of our Material Handling business and represents a 30% increase over our prior year performance. Maryann, will provide further detail on two items that impacted our earnings. Company revenue for the quarter was $2.2 billion taking our full year total to $7.9 billion, an 11% increase from 2013. In Subsea we successfully executed our significant backlog. Our focus on execution that began four years ago has greatly improved our ability to perform well at a much higher activity level. Subsea revenue, for example, is almost double over the same four-year period. We've also benefited from the growth of our Subsea Services business. The strategic focus we’ve placed on service has resulted in the development of a sustainable source of growth, while raising our margin profile. Again our focus on execution delivered solid fourth quarter Subsea margins at 14.5% and our full year margins averaged 14.2%, a 260 basis point improvement from last year. Fourth quarter Subsea orders totaled $1.7 billion, bringing our full year total to $5.5 billion. This resulted in a book-to-bill ratio of…

Thanks, John. Our fourth quarter diluted earnings per share were $0.72. Included in the quarterly results is $26 million or $0.09 per diluted share of foreign currency losses due to the further strengthening of the U.S. dollar. Fourth quarter operational performance was strong across all of our three segments. Subsea revenue was $1.4 with operating margins of 14.5%. Surface Technologies revenue was $584 million with operating margins of 19.9%. And Energy Infrastructure revenue was $138 million with operating margins of 9.9%. Other revenue and expenses included $25 million or $0.07 per diluted share of costs associated with actions taken to de-risk our defined benefit plan. These actions were forecasted. Let me provide further detail on the segment results. Subsea Technologies operating profit was $208 million in the fourth quarter. Operating profit improved 12% year-over-year when excluding the $23 million of recognized revenue and operating profit associated with an adjustment for Angolan withholding taxes included in our 2013 results. The improving margin profile of our backlog, along with the efficiencies gained from the actions we have taken to improve operational performance, played a significant role in our full year margin performance. Additionally, we have benefited from the continued growth of our Subsea services capabilities. Subsea inbound in 2014 was $5.5 billion and provides a solid base for 2015 revenues and profit. Surface Technologies generated fourth quarter operating profit of $116 million, as both our fluid control and surface wellhead businesses activity levels remained strong throughout most of the fourth quarter. Surface wellhead sales for both the fourth quarter and full year represent a new record. Fluid control fourth quarter operating income and margins were strong and sales remained at high levels through the majority of the quarter. However, completion services fourth quarter sales activity was flat sequentially and operating income was…

[Operator Instructions] The first question is from David Anderson with Barclays. Please go ahead.

Hi. Thanks. Good morning, John. I am not sure if I caught this, but did you put out a number for think about what the order book is going to look like for 2015? Did you even, I think, should I heard the range?

No, there was not a range. I specifically said that we did not expect 2015 Subsea inbound orders to be as strong as what we experienced in 2014, so we expect them to be less than what we saw in 2014.

Okay. Now you talked about kind of the three components within the Subsea Technologies division of orders that -- we have the backlog revenue, book in turn and services revenue. I was wondering if you could just kind of help us understand kind of how you think those three components kind of work out really kind of over the next 18 months. Does the services revenue, I mean, is that -- I know we have a partner to the light well intervention which I would thing to hold up. So is the decline in services kind of more related to the installation on the backlog portion -- on the revenue or backlog and also could you just comment on the 55% on turnover ratios. Does that -- are you still thinking that 55, it’s sounds like that’s little bit lower than you’re originally thinking?

Yeah. Dave, let me talk about service and let Maryann talk about the conversion rates. Actually our Subsea services inbound in the fourth quarter was the highest for the year. We actually believe the Subsea service number will hold up quite well. Where we’re going to see a falloff is in the North Sea and you've heard some of the actions that Statoil has taken. So we see a -- if there is going to be a falloff in services, it will come in the North Sea. But by and large we think the Subsea services, which is a strong margin business for us is actually going to hold up pretty well other than the comments in the North Sea, it’s going to hold up pretty well in 2015. I’ll let Maryann talk about the conversion rate.

Yeah, David. And so as you know, we’ve got backlog sitting at about 5.8. We’re expecting conversion somewhere in and about 50% to 53%. As we look at the service business year-over-year, initially we were expecting some stronger service revenues from 2014. Our first quarter will be soft and we're seeing that being impacted as your question earlier coming really from light well intervention. The installation still remains pretty strong. So about 53% conversion and then Subsea service is about flattish and then the balance is a small book in turn assumption just sort of given what John said somewhat of the uncertainty around 2015.

The next question is from Bill Herbert with Simmons & Company. Please go ahead.

Thank you. Good morning. John and Maryann, can you talk about use of free cash flow and as it relates to the buyback. The buyback in the fourth quarter was probably the biggest I have seen in several years. And based on my model with estimates which were quite a bit lower than the Street, can you still generate very healthy free cash flow? So can we talk about capital allocation and commitment to the buyback? Should we see more assertive repurchase activity relative to the past few years?

Bill, this is John. I’ll make a general comment and then turn over to MaryAnn. We were pleased with our free cash flow in 2014. We made good improvements in working capital and obviously we had the earnings. You know that a lot of the investments we made over the last four years increasing our capacity are starting to wind down. So it made sense that our free cash flow which we successfully generated in 2014 would be directed at the stock buybacks where we believe the stocks has been undervalued. So that was the thinking there. I think you go forward in 2015, MaryAnn commented in her comments that we see CapEx appropriately down. And we expect with the revenue number and our continued improvement in working capital that we’ll continue to generate strong cash flow going forward. And as long as the stock price remains where it is and we will continue to be as undervalued, I would expect and do expect that our buybacks going forward will probably look more like it is in 2014. I’ll let MaryAnn comment though more on the free cash flow and use of cash.

Okay.

Yeah. Good morning Bill. So clearly, as John said we're expecting even with the estimates that we’ve just provided with stronger cash flow and improved cash flow performance in 2015 over 2014, you’re right. Your memory is correct. This is the largest buyback that we’ve done since 2007, 2008, little bit difference in the price. We purchased a little over 15.7 million shares in ‘07 and a little over 11.4 million shares in 2008. So we continue to see this as a very opportunistic way to return cash to shareholders and given the valuation right now, we believe strongly in the share repurchase. We’re sitting on about 8 million shares remaining at the end of the year on our authorization.

Very good. And then secondly, with regard to Brazil, all the turmoil that's taking place with Petrobras, should we be concerned about the Petrobras backlog at this stage or do you see that kind of converting at a relatively orderly pace going forward?

Bill, we believe our Petrobras backlog is secure. Our execution performance on that backlog has been excellent. Our relationship with Petrobras, I think, has ever been stronger. And that's not going to change. There is clearly uncertainty within the Petrobras organization. Everybody is well aware of that and how it plays out, we will see. With the backlog secure, our relationship remains strong. Don't envision -- I mean I'm sure there will be some moving around of the backlog a little bit but right now the backlog is secure. And our relationship with Petrobras remain strong and I don’t envision that change

Then next question is from Ole Slorer with Morgan Stanley. Please go ahead.

Thank you. I wonder whether you could share with us, the kind of discussions that you’re having with your key customers at the moment. They made it very clear that they want to bring their cost down and in the process of that take your pound of flesh out of the oil field services industry. So to what extent are you negotiating delays of projects in your backlog? To what extent, are you -- aiming for price rebates and to what extent are you trying to negotiate with them to change or standardize their work practices so they can take ultimately costs out for better execution?

Good morning, Ole. First of all, you can appreciate that we are engaged with all our customers, particularly our partner relationships. I don’t think there is a single one who we haven't had exactly the kind of conversations that that you are discussing. But let me describe the nature of them. First of all, we believe our Subsea backlog is very secure. There have been no conversations about the delaying deliveries, no cancellations, nothing of the nature. The conversations are very direct given the -- remember some of these conversations, I talked about in the last quarter have been going on for over a year and that's the declining returns for E&P companies for several years is a huge concern to our customers. That's now heightened and those conversations are more intense with the change in oil price. Our customers are telling us that they need to make a step change in the development cost of their deepwater portfolio. They realize -- with our customers realize there’s lot of pricing pressure, they realize they can't get there just by talking about price discounts and so forth. We need to be talking about something more substantial which means we’ve got to start working in the industry as a whole, needs to start working differently. The conversation centered around standardization. As you know our company has been particularly successful in driving FMC standards for our partners, most notably in the achievement last year of getting four operators to agree on a single spec for next-generation high pressure, high temperature equipment. I think the acceptance of standards by our customer is now greater than it's ever been as a result of their determination to drive down costs. And we think we are in a terrific position to offer the kinds of low cost…

Thanks for that, John. I would imagine that there is going to some relative winners and losers. And other than the alliances, what it is that makes you confident that this is just not going to be a general cost-reduction across the whole industry but something that you can really as an organization benefit from relative to your peer groups but beyond our alliances, which of course give you a tremendous head start?

Right. What gives me confidence is as you pointed out in your earlier comments, we're engaged in open discussions unlike anything before and the conversations we are having with our customers is about a recognition that we have to have a step change in cost. It can’t be incremental. It can't be 5%. It can't be a 10% savings. And I think they recognized that if the kind of traditional or in a down cycle, let's squeeze costs you can get there. And so there's no -- we need to talk about that. We know there is going to be some pricing pressure. We know everybody needs to sharpen their pencil but if the conversation isn't more than that, they know they won't be able to improve the returns. And that's what gives me confidence that the operators are likely to adopt at a faster pace some of the alternative approaches that we are proposing. And as you said, our alliances give us the entry to have those conversations with these customers.

The next question is from Douglas Becker with Bank of America. Please go ahead.

Thanks. John, appreciate your expectations for orders to be down in 2015 for Subsea, just given the industry backdrop. Is there still potential for Bonga to be awarded this year and if that’s the case, would we see orders up if that played out?

Right. Let me just kind of take it from the top, Doug. A quarter ago, I talked about the long list of projects that long list of project projects, it still exists. Projects haven't been completely shelved. Project teams haven't been asked to stand down. They are still being worked. Some of these projects are proceeding and you saw that in our fourth quarter inbound. There were three projects. One or two of them -- really, we were expecting to happen in 2015 and they got accelerated into 2014. There are other projects, even some in West Africa like Bonga that appear to be proceeding. But we should expect that virtually all of the projects on this extensive list that we originally thought would be inbound in 2015 are going to be reevaluated. The pace of that reevaluation, it’s unknown. I mean, they are going to be reevaluated. I think based on the operators’ intent to try to improve their economics I'd like to think that most of them are going to go forward. But the timing of that reevaluation means that some orders are going to still land in 2015. But others are going to end up in 2016, as each of the operators go through this valuation process. So to answer a more specific question, yes, it's possible that Bonga continues to proceed at the pace we've been watching it and gets awarded in 2015. But it's also likely other projects that have been proceeding along are going to go through a revaluation process and if that revaluation process takes longer, those projects could very well move from ‘15 into ’16.

That's helpful. If we think a little bit longer-term, has anything changed from more of a secular standpoint in terms of the growth that you’d expect for trees more broadly Subsea equipment? Could we see a compound annual growth rate in the high single digits for orders on a secular basis?

I think for some time, we've been estimating that the future growth rate of conventional Subsea equipment would be in the high single digits. And again as I said, based on the project list, based on the inventory of undeveloped deepwater discoveries, those growth rates are quite achievable. It's not going to be a smooth linear line and so we are going to see some volatility in that growth rate and a lots going to depend again on the pace of which these products are reevaluated and they're allowed to proceed and get sanctioned obviously in a different design concept. But the pace at which they get reevaluated and they get sanctioned will get us back on that growth curve. But, again just looking at inventory of deepwater discoveries that have to be developed, that high single-digit growth rate is still achievable in the deepwater sector.

The next question is from Bill Sanchez with Howard Weil. Please go ahead.

Thanks. Good morning. Maryann, I wanted to circle back on the conversion out of backlog in Subsea this year and the percentage you outlined on the call. FMC’s historically been around 60%. I know ‘14 was expected to be a lower year just given some of the longer lead time orders booked in 2013. I guess I'm a little surprised as to the percentage being as low as it is in ‘15. Maybe could you talk a little bit more about that? Is FX having an impact on that to some extent and could you give us an idea should -- I know ’16 is still ways out but the conversion factor, should we see that moving back to more of a 60% level in ’16, if you can help us with that, it would be appreciated?

Sure, Bill. So, first of all, you're right. Historically, we have seen higher conversion rates. But keep in mind part of that conversion rate has to do with the size of the backlog and the make-up of the backlog. But the greatest component of our backlog right now is actually Petrobras and as you know that Petrobras business has a longer tail. So in part about the conversion for this year, we are actually seeing a little bit of slowing coming out of Petrobras, what was initially going to be in 2015. It has asked us now to shift a small portion of that into 2016. So no overall change in the total but rather a shifting from ‘15 into ’16, point one. You talked about the FX conversion that $300 million that I talked about really had to do with looking at the average rates in 2014 to 2015. So that $300 million is really off of our previous estimates. And then our Subsea service business, we are expecting it to be a little bit slower. We know one of our customers largely in the North Sea has expressed some OpEx slowing and we are seeing some slowing of that as well. Go on to ‘16 as you say, obviously it will depend on the timing and size of 2014. And if we can get -- depending on the timing of when that order comes in, we certainly can see revenues in Subsea in 2016. Again, depending on the timing of that inbound to be flattish with 2015. If we are fortunate enough to see towards the back half of the year, as John talked about all of the reworking of those projects come to fruition then there certainly is an opportunity to see growth in that 2016 Subsea revenue number.

Okay. Mary, can you help us just in terms of the first quarter Subsea margin expectation? I know we typically see some seasonality in the North Sea and shore cycle businesses if you will, I guess affecting that margin negatively. Order of magnitude, fourth quarter, first quarter, any overall expectation of 15% average, I’m still assuming you are going to be down in 1Q with some sort of recovery into Q4.

Yeah, Bill. I think sort of what you saw happening in prior year changes. So, Q4 2013 to Q1 of ‘14 will be a similar profile to what we would expect to happen here. So, although we do not have two of the light well intervention stacks like we had last year for recertification, we are seeing some slower activity in the first quarter. So you can assume a similar profile in Q1 of this year like you saw Q1 of last year.

The next question is from Scott Gruber with Citigroup. Please go ahead.

Yes. Good morning. I want to follow-up on the Ole’s question regarding improving the cost structure offshore. How long do you think it will take for the industry to make those step function changes in project development efficiency? When I think about on the one-hand, cycle times are long in the deepwater but on the other hand, it’s simply a case of survival for some companies. So, John, how do you think about timing with regard to those step function changes?

Scott, in our conversations with our partners, there is a real sense of urgency. They are anxious to get on with developing their deepwater portfolio. And so I think you are going to and based on the reaction we’ve seen, we’ve seen our partners after proposing some of our ideas whether it’s technology or a different business model, essentially almost on the spot make a decision that they are going to rework their project around that different approach. I know one example on some new technology. The project was very close to being sanctioned. All of the design concepts had been largely decided then and the head of the Subsea organization had a chance to review our proposed technology. And essentially within weeks, they made the decision to adopt that new technology. So that’s just an example but it gives you -- it sort of illustrates the urgency in which the operators realize they have to rework these projects. So this isn’t about years. And we saw that even last year, even before the decline in oil. You saw Total's Block 32 Kaombo project. It wasn’t years that it took them to rework those projects. It was -- I think in that case just a quarter or two. So, I think given the urgency now and their openness to change, I think the operators are prepared. I hope they are prepared and I think the way they’re signaling to us is they’re prepared to make this step change decisions fairly quickly.

And do you think the overall yield on those efforts and aggregating from a higher level can improve project economics in the 20%, 25% range, at least similar, if not in access of what the shale producers are targeting onshore in the U.S.?

I definitely believe that we’re in that range and the operators are looking for numbers of that magnitude. I think anything significantly less than that, we’re talking about incremental change and that’s not going to do it. And I think that’s what the industry is coming to grips with and it’s what our company understands. Just rolling up our sleeves, working harder, we have to look even beyond the -- how we define scope of work because we’ve got to get at the total fuel cost if we’re going to make these significant changes that people are looking for and that are needed in order to improve the returns.

The next question is from Jeffrey Campbell with Tuohy Brothers. Please go ahead.

Good morning. First, I want to ask you. Yesterday, Statoil indicated that it had chosen an unmanned wellhead platform concept for its Phase 1 development of the Oseberg project, citing cost reduction versus Subsea. These occur to me as sort of a regression from the earlier days when putting as much production as possible on the seabed we are seeing a as money saver. Is this a unique instance limited to the North Sea or could this be part of a larger trend?

I think it's unique. I don't think it is part of a larger trend. Statoil has been quite consistent in their vision for their future and that's everything on the seabed. That hasn't changed and then our recent comments, our conversations with the Statoil that remains intact. So, I would say that's definitely a unique situation and not the vision that Statoil has expressed to us.

Okay. Good. That’s helpful. And further on trying to reduce project costs. Some of the industries have suggested that potentially large fields should be developed more incrementally to reach production sooner as with managing costs. Is there any evidence of this sort of thinking in your conversations with your clients?

Yes. We worked on one project with one of our partners and the original project design had significant upfront investment, particularly around the infrastructure and preparation for future phases. And they reworked that project by taking those investments for future phases, leaned down to just the requirements for Phase 1. It made a step change in the investments and improved the returns, so they could proceed with that project. So, I think that's definitely one of the different approaches that the industry has to take.

The next question is from Byron Pope with Tudor, Pickering, Holt. Please go ahead.

Good morning.

Good morning, Bryon.

John, thinking about your leadership position in the deepwater Gulf of Mexico, it certainly sounded like the Subsea service is part of your exposure there should hold up fairly well. And clearly, the long-term JDA will progress. I’m just curious as to what your customers are thinking in terms of 2015 activity, as some of that booked internal work that you tend to get in the deepwater Gulf of Mexico and how you feel about the outlook there?

Well, with regard to services, Byron, in the Gulf of Mexico, we think it’s going to hold up because remember we've got almost $6 billion of Subsea backlog that’s going to get delivered and it has to get installed. So that's why we're pretty confident. I mean, other than as Maryann mentioned, other than that the North Sea situation, this equipments going to be delivered and it’s going to be installed. So that help support solid Gulf of Mexico service revenue related to the backlog of equipment that has to be installed. But we’re also quite confident based on the conversations we’re having with customers. And as you know, our fourth light well intervention stack is en route as we speak to the Gulf of Mexico. We've had really good customer acceptance of the idea. We didn't expect any long-term contracts or pre-commitments just the nature of the Gulf of Mexico. But we’re quite confident that once the vessel and the stack are available, which will happen in the second quarter, they will be signing contracts. That system is very compelling to the operators and based on their reaction to that system entering the Gulf of Mexico. We’re confident that will contribute to revenue -- service revenue growth in 2015. And then non-service, but our partners and as you’ve suggested that we do have a very strong market position, mostly driven by our partners in the Gulf of Mexico, with the Gulf of Mexico's large adjusting infrastructure, it's common for there to be smaller project awards, satellite well step outs. Now they’ll come under the same scrutiny as a large project with regard to improving returns, but probably not as intense. And we’re hopeful that the smaller projects in the Gulf of Mexico will in fact materialize in 2015. They tend to be a little bit shorter cycle in terms of the awards. And therefore -- and probably they will be able to, if they even go through a revaluation process, it will probably a little bit faster than big multibillion-dollar project. So you combine all that and we’re pretty confident the Gulf of Mexico in all our regions will probably hold up as well or better than other parts of the world.

Okay. And then, just a second unrelated question, as I think about the organizational changes that you put through in the U.S. surface business, well, surface wellhead business about a year ago? I'm assuming that that the reductions to headcount is just reacting to the activity as opposed to necessarily changing the strategy in terms of how you approach the U.S surface wellhead business going forward coming out of the downturn?

Absolutely. We and I think both, Maryann and I covered that in our comments, Byron. We’re going to take early and significant action, but we’re not going to jeopardize the strategy we’ve put in place and one important strategy for us is our approach to the North America land market. The reorganization that we did a year ago was pivotal for that change. The new technologies that we’re introducing, the acquisition of Flowback Services year and a half ago, these are all part of our strategy to strengthen our position to differentiate ourselves in the North America land business and that doesn't change. I mean, there will be a recovery and during that recovery we want to emerge stronger and we've taken steps to implement our strategy to do just that. So these headcount reductions really are independent out there responding to the downturn in the market.

The next question is from Rob MacKenzie with Iberia Capital. Please go ahead.

Good morning. I guess question for you John. Coming back to the pricing question a little bit? Can you give us a feeling for how much you expect just give up in terms of pricing concessions and how much of that maybe offset by concessions you get from your vendors, as well as commentary as to how we should see that play out in terms of timing?

Well, so far we haven't seen much, but there have been many awards that have been made. But just like the last downturn, we expect some pricing pressure and greater competitiveness as we stare at some softness in the market. Let start though, let start with our backlog. I said in my prepared remarks that not only do we have strong inbound orders in the book-to-bill of 1.2 in the quarter. We also increased our margin and backlog. So for FMC, we haven't seen a decline in margins. Clearly, our customers are asking for concessions and discounts but they understand that there is limit to that and we’re having conversations with them. But I don't expect significant concessions particularly on the orders that we’ve received. Going forward, the competitive environment is going to be a little tougher and we’ll see the impact of the slower market in the pricing of bids that are tendered. Having said that just like last time, we will see the supply chain cost come down and we'll see that partially offset some of the pricing pressure. And hopefully we’ll be able to hold onto our strong margins that have been represented in our backlog for the last year and half.

Great. Thanks. My follow-up is I guess on 50 years to the Surface business, if I may a little bit, focusing on fluid control. I don’t know we’ve talked a lot about that this quarter or this call. One of your bigger customers, Baker Hughes, is going to be acquired by Halliburton who I believe does a lot of their own fluid control internally. How do you thinking about, A, how that’s affects your business going forward after the downturn, and B, that’s been North American levered. Do you expect to see additional drivers they’re helping to drive that segment in the next up cycle?

I’ll start with the Baker Hughes and Halliburton. Both companies are important to FMC. I’m sure Halliburton makes their own well service pump. But most of the treating iron, the Weco/Chiksan product line is bought from FMC and has been for decade. So Halliburton remains an important customer of FMC. BJ Services before they were required by the Baker Hughes was an important customer to FMC as well. Again, we are selling them treating iron, swivel joints, Weco/Chiksan product line. But we also had made roads with Baker Hughes in terms of our well service pump. Remember the well service pump is a small part. We were relatively new to the industry in the well service pump. So it’s not a big portion of our business. That’s going to be Halliburton decision how they inaugurate Baker Hughes into Halliburton and what they do in terms of rationalizing the equipment that they use. But on the primary product of fluid control, the flow line, we sell to both the company. So I think the way we look at it is there maybe some downside just in the consolidation of the two companies but there could very well be upside. Going forward, when we get to our recovery, our fluid control business recognized the importance of improving efficiency and developing shale, the developing product and services to do just that. And I think fluid control will continue to contribute to the successful development of shale and improving the cost contingencies as they contribute to the industry. So I think they will be part of the changes that has to take place in shale to improve efficiency.

The next question is from Kurt Hallead with RBC Capital Markets. Please go ahead.

Hey, good morning.

Good morning, Kurt.

Hello. I had a great color. And I want to kind of get your perspective -- collective perspective and do comparison in contrast on how you mentioned some element about margin and pricing and potential dynamics in 2015 as you booked these orders, cost reduction by the customer base all that stuff. You compare what you expect to see maybe in ‘15 and ‘16 to what transpired in 2009 and 2010, because I know as we all look back and do this comparison that the margin pressure and the pricing pressure are very severe in that period. So can you help us what’s your view of what’s going to happen vis-à-vis what happened in 2008, 2009?

Right. I think it make a lot of sense to look back to last downturn and it serves as an example of what we can expect. So I would say, Kurt, particularly on those projects that are tendered, this one would be outside of our partnerships. We are going to see competitive pressure that will drive the pricing down. I think it looks a lot like what we experienced in the 2009 and 2010. I think some of the differences to comparing contrast, I think we have more partnerships today, more alliances, more frame agreement today than we did in 2008 and 2009. And it’s in the context of those partnerships not that there weren’t pricing concession in those partnerships, but the nature is very different. Because those projects are tendered, so we get to negotiate any changes in the pricing structure. And that has a real effect on margins, a positive one, I would say in the context of negotiating with the partner. So we have more partnerships going into this. I would say our relationships with our key customers is also stronger because of our execution performance. And that’s helpful when you’re going into a downturn and negotiating prices. And then finally our own performance. You remember, I think you remember in 2010 and 2011 we were struggling with growth. And that had an impact on our ability to execute, had an impact on our cost. Remember we had a lot of people, a brand-new people that weren’t as efficient. We go into this downturn very differently than we did in 2009 and 2010. Our execution performance has never been better. Our relationship with our customers has never been better. And the maturity of the investments that we made in those 2009-2010 is very different. Those new employees that we brought on in 2010 and 2011, now have three and four years of experience behind them. Their efficiency levels are much higher than they were when we went through that last downturn. The investments we made in processes and capacity, those are all behind us now. We are operating successfully, performing well at an activity level, that’s almost double of what we were four years ago. And that’s going to matter in terms of our net earnings, because our execution is going to be better. Our cost base is going to be -- structure is going to be better. So we go, although 2008 and 2009, what we learned from that downturn, I think it will be an example, what we are going to experience this time. We go into this downturn very differently.

Got it. That’s a great color. John, thanks. Now one other follow-up if I may on the surface run. Could you just give us refresher on what percent of the business in 2014 was international surface versus North America?

Yeah. So our international surface business could have been rough numbers here for 2014, it’s about 45% of the total of Surface Technologies, the balance being largely North America.

Our last question will come from Marshall Adkins with Raymond James. Please go ahead.

Good morning, Maryann. Thank you again for the detail. Just one clarification start out with. You mentioned the sequential Subsea margins in Q1 are going to have a profile similar to Q1 of last year. I presume you’re meaning the degradation in margins of roughly 200 basis points is going to be similar or not, that the margins will be similar to Q1. Did I follow that correctly?

You followed that correctly, yes. I was talking about the degradation from sequentially. You're absolutely, correct.

Right. Well, that’s sort of I want to make sure. Last question for the call. You guys have had a heck of an improvement over the last two years improving efficiencies and improving throughput, et cetera, et cetera. With this downturn help me understand what happens to those efficiencies, do they continue to get better or do we get somewhat less efficient as you’re laying off people and things like that?

Marshall, this is John. No, we absolutely believe that the efficiency improvements that we made particularly in Subsea over the last 3 to 4 years not only are they sustainable, but were going to be able to continue to build on them. In my prepared remarks, I talked about this downturn is an opportunity for us to really improve our cost base, streamline the organization. And we’re going to take full advantage of this opportunity. So our expectation is the improvements what we made not only are they sustainable, but we build on them going through this downturn.

I will now turn the call over to Brad Alexander for their closing remarks.

This concludes our fourth quarter conference call. A replay of our call will be available on our website, beginning at approximately 2:00 PM Eastern today. We will conduct our first quarter 2015 conference call on April 22 at 9:00 AM Eastern time. If you have any further questions, please feel free to contact me. Thank you for joining us. Ellen, you may now conclude the call.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.