Good day, ladies and gentlemen, and welcome to the Q4 2014 SPX Corporation Earnings and 2015 Financial Targets Conference Call. My name is Steve, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I'd like to turn the call over to Mr. Ryan Taylor, Director of Investor Relations. Please proceed, sir.

Thank you, Steve, and good morning, everyone. Thank you for joining us. With me on the call this morning are Chris Kearney, our Chairman, President and CEO of SPX; and Jeremy Smeltser, our Chief Financial Officer. Our Q4 earnings press release was issued this morning and can be found on our website at spx.com. This call is also being webcast with a slide presentation located in the Investor Relations section of our website. I highly encourage you to follow along with the details on the slides during the webcast. A replay of this webcast will be available on our website until March 31. As a reminder, portions of the presentation and our comments are forward-looking and subject to Safe Harbor provisions. Please also note the risk factors in our most recent SEC filings. The financial information presented today is on a continuing operations basis. And consistent with our 2014 guidance, we are presenting 2014 earnings per share and free cash flow on an adjusted basis to exclude certain items. In the appendix of today's presentation, we have provided reconciliations for all the non-GAAP and pro forma financial measures that we present this morning. Before I turn the call over to Chris, I just want to point out some notable items in our Q4 results that were not included in our Q4 guidance. Consistent with our year-end accounting policies, we recorded an $86 million charge to pension expense, primarily related to noncash mark-to-market pension adjustment. We also recorded $38 million of noncash charges generally related to our required annual impairment testing. During the quarter, we repatriated $92 million of cash from China and recorded the associated taxes. This was partially offset by unrelated, discrete tax benefits also recorded in the period. In our Thermal segment, we booked $25 million of additional…

Thanks, Ryan, and good morning, everyone. Thanks for joining us on the call today. Looking back on 2014, it was a milestone year for SPX. We successfully transitioned to our new operational alignment and executed a number of strategic actions, culminating with the announcement of our plan to spin the Flow business. We finished 2014 with solid operating performance in the fourth quarter, highlighted by strong free cash flow conversion across many of our businesses and impressive margin improvement in our Flow segment. As we begin 2015, reduced oil prices, strengthening of the dollar and the strengthening of the dollar clearly present headwinds growing -- to growing our top line. However, we still believe that we're well positioned with a diverse end market exposure to deliver organic revenue growth this year. And we expect the positive momentum in our operational initiatives to drive increased margins across all 3 segments in 2015. While we remain focused on continued operational improvement, we're also making good progress on our goal to separate SPX into 2 strong, independent companies. This is a unique opportunity to create shareholder value at both future companies, and we're committed to that goal. We're taking a proactive approach to restructuring and other actions that should strengthen our competitive position and improve our balance sheet so both future companies will be in the best possible position for financial success when we complete the spin. I'll begin this morning with a brief recap of our fourth quarter financial results and recent end market trends. Jeremy will take you through a detailed analysis of our Q4 results and 2015 targets, and I'll conclude with an update on the planned spin of Flow. As Ryan said, adjusted EPS was $2.36 per share in the quarter compared to our Q4 adjusted EPS guidance range…

Thanks, Chris. Good morning, everyone. I'll begin with earnings per share. For the fourth quarter, we reported a diluted loss per share from continuing operations of $0.78. As Ryan mentioned, this included some notable items not in our Q4 guidance, which I'll discuss in more detail. We recorded a charge to pension expense of $1.45, the largest component being the annual noncash mark-to-market adjustment. The mark-to-market charge was largely due to a reduction in discount rates and changes to our mortality rate assumptions, partially offset by better-than-expected returns on our plan's assets. We also recorded noncash impairment charges totaling $0.74 per share related to certain businesses within our Flow and Thermal segments. The 2 most notable write-downs were for our joint venture with Shanghai Electric and our ClydeUnion tradename, both driven by the recent macro developments affecting those businesses. During the quarter, we repatriated $92 million of cash from China and paid $19 million of U.S. and foreign withholding taxes, a fairly attractive rate. This resulted in $0.46 of income tax provision, which was partially offset by $0.36 of unrelated discrete tax benefits also recorded in the period. The charge related to the South Africa projects was a $0.46 impact to EPS. And we recorded $0.39 of cost associated with the spin-off of our Flow business. Excluding all these items, adjusted EPS for Q4 2014 was $2.36 per share. Revenue in the quarter was $1.28 billion, down 4% year-over-year due to currency and the South Africa projects. Currency was a 3% or $45 million headwind to revenue. Lower revenue related to the South Africa projects was also a 3% headwind. A portion of this decline was anticipated in our targets due to the natural ramp-down of the projects. We recognize revenue in these projects based on percentage of completion accounting.…

Thanks, Jeremy. I will conclude with an update on the spin transaction. As illustrated on this slide, SPX has undergone a significant transformation over the last 15 years. Since the end of 2004, we divested over 20 businesses for gross proceeds of approximately $5 billion at an average EBITDA multiple of over 12x. This unlocked significant value for our shareholders. It also narrowed the focus of our company as we diversified away from our legacy automotive roots and expanded globally into diversified infrastructure markets. As a result, we repositioned our business in more attractive, long-term growth markets. In recent years, we concentrated on expanding our Flow business in attractive end markets and realigned our resources to better serve our global customer base. As a result of our transformation, Flow represents about 60% of our revenue and is concentrated in Power & Energy, Food & Beverage and Industrial Flow markets. And our infrastructure business represents about 40% of our revenue and is concentrated in power, HVAC and specialty infrastructure markets. We believe increased investment in all these secular end markets will be driven by population growth, the expanding middle class, and environmental and sustainability efforts benefiting both future companies. The next logical step in our transformation is the spin-off of our Flow business. The Future Flow Company will be named SPX, Flow Inc. and will be listed on the New York Stock Exchange under the ticker symbol F-L-O-W. Upon completion of the spin, I will serve as Chairman, President and CEO of SPX Flow; and Jeremy will serve as CFO. SPX Flow will be a pure-play flow company, well positioned in attractive secular growth markets, with a diverse global customer base. It will have a very broad offering of highly engineered components and integrated solutions with well-recognized brands. Its large installed…

[Operator Instructions] Please stand by for your first question which comes from the line of Shannon O'Callaghan.

Maybe a question on Food & Beverage first. I mean, you mentioned the dairy strength, particularly in Asia. Could you go through maybe a little bit more detail there, maybe at some of your other food and beverage markets? And also what's going on with margins in Food & Beverage? Is there an opportunity to improve those?

Yes. What I would tell you, Shannon, is that the plan under Marc's leadership has come together pretty nicely. The fundamental drivers in that business, which made it attractive to us in the first place, still exist. And that's particularly growth -- and growth in dairy products in the emerging markets and especially Asia Pacific, and particularly in China. So that's still driving a lot of growth and a lot of opportunity for us. Related to that, there are opportunities in Europe as well that we've talked about over the last year or so in terms of increasing production capacity, new production capacity, as the opportunity for those producers in Europe to export into that same growth market have been enabled. And so that's driving growth for it as well. But credit to Marc and his team, what they've done, in addition to being disciplined and selective about those system opportunities, is that they're really focused on component, aftermarket and service. And so what we expect to see over time, and what we expect to support margin growth and revenue growth in that business to come from is greater penetration in those areas and growth in those important aspects of the Food & Beverage segment. But we feel good about the order development in that business going into 2015 and feel good also about the outlook for that business for the full year.

I would say, Shannon, if you look at our 2015 margin expansion target for Flow, that's really primarily driven by Food & Beverage. We do expect margins to improve nicely there, offsetting a decline in Power & Energy, which you'd expect with 5% to 10% organic decline expectations on the top line.

Okay, that's helpful. And then maybe just on South Africa. I mean, another pretty sizable charge this quarter. Can you just explain a little bit this issue with being able to recoup some of those costs? And what are the chances you actually get that back and any of this reverses or vice versa that we have additional charges?

Sure. Happy to do that, Shannon. So the charge that we've taken in the quarter, I think, appropriately recognizes the risk and the challenges as we see them today. And that charge reflects the -- both the additional costs of us having to step up and step in to the shoes of some of our providers in order to get this project over the finish line, but I think also reasonably reflects what we view as risk of recovery from some of those distressed parties. That said, we're -- we feel good about our right to pursue recovery in those, but I think taking this charge is the appropriate thing to do, just being realistic about the risk and actually the cost of getting there. So I think the good news in South Africa is that as we have stepped up our effort to compensate for some of the struggling subcontractors, we have seen marked improvement and feel good about that. That said, the challenges inherent in this very complex project as we hopefully get closer to the finish line are still there, and those challenges are inherent and reflected in the charge that we announced today. So I think there's some important milestone events coming up. I think commissioning of the first unit in Medupi, which is now scheduled for the middle of this year, is a very important milestone. And I think when that happens, that can serve as a catalyst to accelerate completion of these projects. Understand the background against which we're doing this, and that is a very severe power shortage in South Africa and a very strong imperative to get these things done. So I think that is an important milestone in Medupi. I think if you look at the Kusile project, the increased progress, particularly on the air-cooled condensers, as we've had to step in and step up our effort to replace contractors who are struggling is likewise notable and I think, has been well received by the customers. So I think the actions that we've taken at this point in time are appropriate and put us in a better position going forward, not only in terms of the balance sheet, but in terms of our ability to get this thing done. I think the better news is that even though the completion dates continue to extend, we are, hopefully, closer to the end than the beginning of this with about $200 million in revenue accounting for potential adjustments going forward outlooked and about $70 million to $80 million of revenue outlooked in 2015. We'll begin to ramp down manufacturing in the first half of this year, focused now obviously on construction and commissioning. So it's been a difficult challenge, but I think Gene and his team have done a very nice job on their front. And I think we've done what's appropriate on ours.

I think a couple additional facts that are helpful for everybody is over the life of the projects, in total, we still remain modestly profitable after this charge. And another probably important fact is, from a cash perspective, about half -- roughly half of the charge that we took, essentially, has already been spent with the rest cost in the future.

And your next question is from the line of Nigel Coe.

Just wanted to -- just a quick follow-up on Shannon's question on the charge in South Africa. So as you ramp down the manufacturing and move into the construction phases of that project, does the risk of further charges dissipate accordingly?

Well, I think the charge that we've taken today is correct given what we know today and the challenges and the risk that we see. That said, Nigel, there's not been a lot of straightaway in this project, and there still are complexities getting things done in the construction and the commissioning phase. But again, to reiterate what I said in response to Shannon's question, while it's been painful and this charge is significant, we feel better about the control that we have over what we're doing and our ability to help steer this thing to completion. That said, this is -- these are very, very large, complex projects with a lot of other parties involved and a lot of things, frankly, that are not within direct control. But we're focused on the things, obviously, that we control and what we can do to best execute them and how to account for it appropriately.

I do want to clarify as well, Nigel, it's not that we're moving from manufacturing to construction now. They've been overlapping for an extended period of time. In fact, remember, we talked about in the Q3 call that Medupi 6 was actually oil-fired. It was supposed be fired up completely in December, but it was oil-fired, just not coal-fired. So that unit is actually complete, though being tweaked. But if you look at the ACC side, as Chris mentioned on Kusile, the first 3 units are essentially up in the air. So the construction has been going on for quite some time. So it's not kind of a point-in-time switch, I guess, is my point.

Okay, that's helpful. Let's move onto guidance. I think the broad framework for '15 is probably consistent with what people were thinking, but probably 1Q margins are coming in quite a bit weaker than people expected. So certainly, what we expected. And you mentioned the mix within both Thermal and Industrial. And I'm seeing [ph] the industrial mix to transformers. But can you maybe just put a finer point on the mix impact you've seen in 1Q?

Sure. I mean, in Industrial, actually, the bigger issue year-over-year, driving something different than probably what you'd expect is the fare collection sales being down year-over-year. So we do expect the recovery for the year, but it's more in second quarter and on than it is the first quarter based on the timing that we see from our customers today. And at Thermal, slightly unfavorable mix of project backlog, specifically for Q1 versus last year. And really, for Thermal, remember, we're only doing about 10% of their full year's revenue in the first quarter, so it just moves the needle very quickly at that low level of revenue.

Okay. And then just, finally, within the oil and gas, you talked about it down 5% to 10% for the full year. Can you just remind us where your Power & Energy margins are in relation to the 14% average for the segment? And what kind of [indiscernible] margins are you seeing on that Power & Energy decline?

Sure. Yes, they are -- the Power & Energy margins, as we've talked about, are higher than the segment average. They're the highest in total. So it is hurting us fairly dramatically on the top line. And the same thing as it relates to currency as well for the power and energy business because they're at a higher margin.

Your next question comes from the line of Jeff Sprague.

Just a couple quick things. Just looking at some of the guide components. Jeremy, on interest expense, specifically, in your appendix, you're guiding $69 million. It looks like the underlying interest expense x the bond charge was 12.5 or so. So your kind of run rate, $50 million. I know there's some refinancing and things that are going to go on. But can you just kind of bridge us from what looks like a $50 million kind of run rate at year-end to kind of the $69 million guide that you're using?

Yes. I think what you're seeing in the back -- in the appendix actually excludes interest income for our credit agreement calculations. So it's kind of -- it's not the GAAP income statement numbers. So that's probably the big disconnect there. As it relates to the income statement, what I would expect is -- with no financing transactions, which isn't what's going to happen. But if there were no financing transactions, I'd expect interest expense to be relatively flat from a GAAP perspective, excluding the onetime events like bond consent and the early extinguishment of debt charges in '14, so in the low 60s range all-in. But the reality is probably in late Q2, we will execute new credit facilities for both companies, and so there'll be right-offs of previously deferred financing costs, et cetera, et cetera, which are just difficult to predict in total.

Okay, that's helpful. And I was just wondering, just on the guide, in aggregate, just want to make sure I have it clear about Thermal in the base. Is the deltas for 2015 off the 2014 base? Does that 2014 base include or exclude the charges from Thermal in Q4?

Yes. So when you look at Chart 16, which gives the targets by segment, that is increases that include the charges in 2014. So that's GAAP. And then in my comments, what we said is Thermal core is more like 50 points of margin improvement, 40 to 50 points of margin improvement, excluding the impact of those charges in 2014, as compared to the 270 points of margin improvement on the GAAP front for Thermal.

And then just one last one on transformers, and I'll move on. So it sounded like margins did improve in the quarter. Was it -- I think, it's down revenues or certainly down units and up margins. But you characterized pricing as stable. So is there some inherent underlying margin improvement on restructuring or mix or other factors going on in that business?

Year-over-year in Q4, perhaps, a bit in mix. I mentioned the high Q4 revenue in 2013, and a lot of that revenue was large power shipments that were essentially built by the end of Q3 and just recognized revenue in Q4 without a lot of profit. In general, in the business, as I said, profitability relatively stable, given pricing relatively stable, but modest improvements expected in 2015. Continuing to work on our design cost and trying to get our cost down for like units and certainly also focused on the supply chain. But as we mentioned in our long-term target update, starting to reflect a more moderate longer-term environment there.

Your next question comes from the line of Mike Halloran. Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: So just following up on that. Lead times for that division currently are at, what, 8- to 10-month lead times? Maybe you could just help me out with what a typical lead time would look like for when you'd start seeing pricing come through at least a little bit more than where you guys are now. Or maybe a better way to put it, utilization levels from an industry perspective, where are those lead times from an interim perspective, where are those? And how do those compare?

Yes. I mean, on medium power, Mike, I would say that when the whole industry is in the 8- to 10-month range in the past, we've started to see price move more quickly. Industry utilization, very difficult data to get. We do more closely just monitor competitor lead times in the open-market bids that we do. But I would tell you, there's a couple of other folks that we're consistently seeing with similar lead times to us, but there's still a number of players we're seeing more down in the, I'd say, on average, 6-month range, maybe even 5 to 6 months. So seeing some movement but not probably enough movement to be moving pricing yet. Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: And then on the oil and gas guidance or the power and energy guidance, could you just help me with the components of that guidance just to make sure I understand how are you thinking about the aftermarket versus downstream, upstream, midstream pieces? And where are those kind of slide on the spectrum from a contraction perspective?

I'm not sure I followed, Mike. I'm sorry. Could you repeat the question? Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: Yes, just could you go through the pieces of your -- what was it, down 5% to 10% Power & Energy? Where does the upstream side for you fall from a contraction perspective? How you're thinking about aftermarket and the power pieces, the regular power pieces as well?

Yes. I mean, what we would expect in the upstream, despite that we don't have really direct drilling equipment, we still expect the upstream to be down more than the 5% to 10% organically. In the midstream, we're seeing some customer delays, but the backlog is also strong, so probably right in that range. And then as Chris mentioned in his comments, on the downstream side and the gas side, we actually, in the first quarter, are getting some decent orders. So we're optimistic that, that might be more low to mid-single-digit decline. We're certainly not expecting, in our full year figures, any increase in the price of oil. I just don't think that would be a prudent thing to do right now. Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: And from an aftermarket perspective, any sense that customers are pulling back there or even adding to that piece as they maybe defer and have to do a little bit more on the maintenance side?

Yes. I think Q4 was lighter than we expected and particularly, November and December. But the team feels that, that's more kind of an industry freeze given the very rapid changes and kind of no certainty of where the bottom was. Realistically, our team feels like aftermarket should be steady to potentially improving for us from a market share perspective given all the investments that we're making in service centers and the like.

And your next question comes from the line of Julian Mitchell. Julian Mitchell - Crédit Suisse AG, Research Division: Just a question on the organic growth guidance because for Q1, I guess, you're guiding for organic sales to be down about 3%; and for the year, you're saying, at the mid-point, they're up maybe 2%. Q1 has the easiest comp, and you also highlighted the reason for the big drop in Q1 is Power & Energy, which probably doesn't get better after Q1. So I just wanted to sort of understand maybe it's something in the backlog timing, but why would organic growth accelerate off a tougher comp for the rest of the year?

Yes. I mean, in general, across all 3 segments, it's really about the longer-cycle projects in the backlogs, which just have very light revenue in Q1 as compared to the rest of the year. It's really, Julian, not a view on our part to an improving macro environment after Q1. It's project timing pretty much across the board. And as I mentioned, the shorter cycle P&E orders were pretty light in November and December, which is impacting pretty dramatically, the first part of Q1 for that part of Flow. Julian Mitchell - Crédit Suisse AG, Research Division: And how much of the year is kind of sales guidance is in your backlog today?

Yes. It's in the high 50s, relatively consistent with our history. Julian Mitchell - Crédit Suisse AG, Research Division: And then lastly on transformers. You talked a little bit about a change in assumptions for medium-term kind of pricing in the industry and the effect that, that had on the segment medium- or long-term margin guide. Has that change in price assumption led to any change in your strategy around the use of the new capacity that you brought on a couple of years ago?

I would say it's impacting it somewhat, and Chris has some thoughts to share on it as well. What I would say here on the short term, something we've been talking about for quite a while is that we can use the expanded facility or expanded portion of the facility for a higher mix of medium power units if we choose to, and that impact is what we're choosing to do for our mix in 2015.

Yes. And Jeremy is right, Julian. I have consistently challenged our team to take advantage of the flexibility that we've created there, right, and that is to balance the load of medium to large power with whatever are the most attractive opportunities. And I think they're doing that, and I think they're frankly doing that better now. And so the nice thing about the production capacity, particularly, at Waukesha, is that we do, in fact, have that flexibility. So as we sit here today with essentially 3 quarters of the year booked, and as they plan to fill out the year by filling the factories in Q4, they're approaching it with that in mind; and looking across both markets, large and medium, to find the most attractive opportunities. And so they're in a position where they can be more selective, as we said in our comments today.

And your next question comes from the line of Robert Barry.

Just actually wanted to follow up on the earlier question about deriving the outlook for Power & Energy. I mean, to what extent would you say the assumptions there are still somewhat of a moving target? And to the extent they are, how did you think about forecasting that down 5% to 10%?

Well, certainly a difficult time for us and all of our peer companies to be forecasting revenues for oil and gas related end markets right now. I mean, our approach is we take just like we do at currency, here's the current rates, here's the current pricing in oil. We canvass the customer base. We're very close with our customers on the upstream and the midstream, in particular. And we try to forecast based on current short-cycle rates and what we're hearing from our customers and what's in the backlog, and we'll update every 90 days as best we can.

And how have the trends been? I mean, are the delays still kind of mounting? Or has there been pockets of stability? How would you characterize it?

Yes. I wouldn't characterize them, Robert, as mounting. My take on this is that we saw enormous volatility in the fourth quarter and coming into this year. And what we've seen with the price of oil over the last several weeks, at least, is that we're straddling $50, and it seems to have become a little more stabilized. And the way I see that playing out is, to the extent it does stabilize with less volatility in whatever range it may stabilize in, I think there are parts of our end markets that recover more quickly, and I think Jeremy alluded to this in an answer to a previous question. I think that first happens in the aftermarket, right, and some of the downstream opportunities. And so I think there was a broad shock to the system with the precipitous drop in prices. What I would tell you is I think the market and particularly, our customers are digesting that. I think, again, to the extent we have stability within a tighter range, then I think you start to see from the aftermarket, things starting to stabilize. That's the way I would see it playing out.

Okay, great. That's a very helpful color. Maybe just lastly for me, a question about Asia. You mentioned slowing in Flow Industrial and also in power gen. To what extent would you attribute that to slowing in the end markets versus just the SPX-specific factors?

Yes. I don't -- I wouldn't point specifically to SPX-specific factors. I think from a power perspective, you're seeing a general slowing, which reflects likely an economy that's slowing more quickly than what you're seeing in headline data. That's my take on what we're seeing and hearing in the power industry. We have a pretty good look into the power industry with our relationship with Shanghai Electric, and they seem to be tightening their belts as well. So that's probably the bigger focus. I mean, we certainly are going through change, in Asia Pacific and in China, specifically, as we take our end market approach to running the business into Asia Pacific this year. So we have, I would say, a highlighted focus on our commercial success in Asia this year that we hope we'll get some market share as we go through the middle of the year, but our expectations are not for an accelerating Chinese economy this year.