CIRCOR International, Inc.
Q4 2014 Earnings Call Transcript

Published: 18 Feb 2015

[Operator:]

Good day, ladies and gentlemen. Welcome to CIRCOR's International Fourth Quarter 2014 Financial Results Conference Call. Today's call will be recorded. At this time, all the participants have been placed in a listen-only mode. There will be an opportunity for questions and comments after the compared remarks. [Operator Instructions] I'll now turn the call over to Ms. Jamie Bernard from Sharon Merrill for opening remarks and introductions. Please go ahead.

[Jamie Bernard:]

Thank you, and good morning, everyone. On the call today is Scott Buckhout, CIRCOR's President and CEO; and Rajeev Bhalla, the company's Chief Financial Officer. The slides we'll be referring to today are available on CIRCOR's website at www.circor.com on the Webcasts & Presentations section of the Investors link. Please turn to Slide 2. Today's discussion contains forward-looking statements that identify future expectations. These expectations are subject to known and unknown risks, uncertainties and other factors. For a full discussion of these factors, the company advises you to review CIRCOR's Form 10-K and other SEC filings. The company's filings are available on its website at circor.com. Actual results could differ materially from those anticipated or implied by today's remarks. Any forward-looking statements only represent the company's views as of today, February 18, 2015. While CIRCOR may choose to update these forward-looking statements at a later date, the company specifically disclaims any duty to do so. On today's call, Management will often refer to adjusted operating income, adjusted operating margins, adjusted net income, adjusted EPS and free cash flow. These metrics exclude any pretax special charges and recoveries, restructuring inventory reserves and intangible impairments. The reconciliation of CIRCOR's non-GAAP metrics to the comparable GAAP measures are available in the financial tables of the earnings press release on CIRCOR's website. I will now turn the call over to Mr. Buckhout.

[Scott Buckhout:]

Thank you, Jamie, and good morning, everyone. We ended the year by growing the fourth quarter topline by 6% organically and delivering adjusted EPS of $1.08, up 14%. On the top line, we saw growth in most of our energy segments. Our fourth quarter adjusted operating margin came in at 9.6%. We dealt with a difficult situation in Brazil, resulting from the impact of the Brazilian Government's ongoing corruption investigation at Petrobras. Two of our larger Brazilian engineering and construction customers filed for bankruptcy, resulting in a charge for overdue receivables of $6.5 million, a 300 basis point margin impact in the quarter. Adjusting for this charge, CIRCOR's operating margin would have been 12.6%, a 100 basis point increase over the prior year's fourth quarter. This charge also reduced adjusted EPS by approximately $0.34 in the quarter. Rajeev will provide more detail on the drivers of the -- or GAAP and adjusted numbers in just a few minutes. For the full year, revenues were $841 million, down slightly versus prior year with adjusted operating margin at 10.2%, up 30 basis points. Adjusted EPS grew 16% to $3.72 and full year free cash flow was 115% of net income. As we previously discussed, two of the pillars in our strategy include positioning CIRCOR in markets that offer the best opportunities for growth and simplifying the company to remove complexity and cost. In line with this strategy, at the end of last year, we divested two businesses, Sagebrush Pipeline Equipment Company from our Energy Group and Cambridge Fluid Systems from our Aerospace and Defense Group. Neither business put our strategy of playing in attractive markets with differentiated products. The divestitures will simplify CIRCOR and allow us to focus on areas of the business that offer the most growth and margin opportunity going forward. Now I would like to take a few minutes to discuss our energy end markets given the dramatic drop in oil prices during the past few months. As background, about 37% of our consolidated revenue is in the upstream oil and gas segment. This includes most of our distributed valve and international projects businesses as well as part of our instrumentation and sampling business. In our short cycle distributed valve business, booking were up double-digits in the fourth quarter; however, we started to see quoting activity and orders decline as we enter 2015. A significant portion of this business is tied to North American rig counts, which have dropped by about 30% since the beginning of December. Consistent with what we experienced in past down cycles, we expect to see a revenue impact form lower end customer demand and distributor destocking. With our long cycle project business, we expect orders to be effective by lower global CapEx spending which is anticipated to be down approximately 20% in 2015. Depending on our first quarter order intake there could be a drag on our revenue in the back half of this year after we ship our current backlog. While we expect revenue from our upstream oil and gas businesses to be negatively impacted by oil prices, we anticipate differing levels of growth in the other 63% of our portfolio. For the large projects business, some regions are more sensitive to oil prices than others. We're seeing good quoting activity for upstream projects in Asia and midstream projects in the Middle East where schedules are currently staying on track. We continue to see good quoting activity for O&G projects. Power generation in Asia is showing strength. In North America, our sales team is spending a larger share of its time developing mid and downstream opportunities where market trends are more favorable. In aerospace and defense, we see increased production rates on both commercial and military fixed lean platforms. However, we don't expect this growth to offset the headwind from the exit of the structural landing gear product lines last year. Given the expected headwinds we're facing from the oil price decline, weakness in Europe and turmoil in Brazil, we're implementing a broad-based cost reduction program. This program will include restructuring actions to mitigate the impact of market dynamics on our earnings and to align our businesses with lower near-term demand. Accordingly, earlier this quarter, we started taking actions expected to generate approximately $8 million of annualized savings. We expect to complete these actions before the end of the second quarter. In addition to our restructuring actions, we will continue to implement our simplification strategy and operational excellence initiatives. We're making progress on many fronts including customer on time delivery, supplier delivery and quality, material savings and factory productivity. Before I turn the call over to Rajeev, I would like to note that we're excited to welcome a new Group President for CIRCOR Energy. Erik Wiik was formerly the Executive Vice President and Regional President of Aker Solutions North America. During Erik's 24 years at the company, he demonstrated a strong commercial orientation, consistently driving organic growth across multiple product platforms. Erik will join us on March 5 and we look forward to his contributions during this important time for our Energy Group. I would also like to take a moment to thank Wayne Robbins for his nine years of dedicated service to CIRCOR and wish him well in his retirement. Wayne's industry knowledge and business advice were invaluable to me as I transitioned into CIRCOR in 2013. We all appreciate his many contributions. With that, I'll turn the call over to Rajeev.

[Rajeev Bhalla:]

Thanks, Scott. Let's move right to the segment results, starting with Energy on Slide 5. Energy sales of $172 million increased 6% over the prior year or 10% organically. This was primarily driven by double-digit growth in our North American short cycle businesses and high single-digit growth in our large international projects business. Foreign exchange reduced revenues by about $7 in the quarter. Energy's adjusted operating margin decreased 280 basis points to 14.3%, primarily due to the $6.5 million charge associated with the financially troubled Brazilian engineering and construction customers. Absent this adjustment, Energy's adjusted operating margin would have been 18%, up 90 basis points over the prior year, driven in large part by better pricing and the benefits from restructuring and productivity actions taken early in the year. For the Aerospace & Defense side, please turn to Slide 6. Aerospace & Defense revenues decreased 10% or 7% originally from the prior year to $46 million. This was primarily due to lower sales as exited the structuring landing gear product lines, partially offset by higher volume from our U.K. Navy business. Aerospace & Defense adjusted operating margin of 5.3% was in line with the expectations we outlined in our third quarter call and was 310 basis points lower in Q4 last year as we continue to manage the operational challenges in our California and French businesses. The savings from our restructuring actions helped mitigate the cost associated with the exit of the structural landing gear product lines. We expect margins to improve as we put these issues behind us. The impact of foreign currency was less than $2 million on the top line and not significant on the bottom line. Turn to Slide 7 for selected P&L items. Let me discuss the tax rate for a moment. During the year, we've been working to make operational changes to help increase our foreign source income and utilize foreign tax credits that had accumulated on our balance sheet. We were successful in the fourth quarter, resulting in a net benefit to our tax rate and a benefit to EPS of $0.21. This benefit took our all in tax rate to negative 8.2% for the quarter and 20% for the full year. We've utilized all of our existing foreign tax credits in the quarter. Further tax rate reductions would require that we generate new foreign tax credits in the future. So as a result, our first quarter 2015 tax rate is expected to be in the range of 26% to 27%. Corporate expenses were $1.4 million lower due in large part of lower compensation cost as well as cost control actions. In the quarter we took $12.9 million of special and impairment charges including restructuring charges of $2.6 million, a loss on divestitures of $4.1 million and a legal settlement of $6.2 million. For Q1 we anticipate special charges related to restructuring actions to be in the range of $3 to $3.3 million or $0.12 to $0.14 per share. Adjusted earnings per diluted share were $1.08 compared to $0.95 in the prior year. If you further adjust for the two significant items, the Brazilian accounts receivable adjustment and the foreign tax credit benefit, our Q4 2014 adjusted EPS would have been $0.13 higher at $1.21, which is 27% higher than the prior year, reflecting the strong operational performance from our energy segment. Turning to our cash flow and debt position on Slide 8, during the fourth quarter, we generated $22.3 million in free cash flow, which brings us to $58 million for the full year 2014 or 115% of net income. In December our Board of Directors authorized a share repurchase program of up to $75 million of outstanding common stock. Depending on market conditions, we will initiate the buyback when permitted under SEC rules and expect to complete the program this year. That brings us to our guidance. Given the number of moving pieces, let me provide you with a baseline for comparison purposes as shown on Slide 9. For the first quarter of 2014, the divested businesses generated $13 million of revenue and breakeven operating profit. In addition if you take the current exchange rate, especially for the euro, the year-over-year impact on the topline is an additional $12 million or $0.10 per share of headwind. So on a pro forma basis, Q1 2014 would reflect revenues of $186.2 million and adjusted EPS of $0.68 per share. Now for the first quarter of 2015, we expect revenue to be in the range of $155 million to $170 million, reflecting the impact on our short cycle businesses of the current market conditions we discussed earlier. We expect adjusted EPS in the range of $0.60 to $0.70 reflecting the earnings impact from lower revenue offset by margin expansion from simplification and productivity. With that, I'll turn it back over to Scott for a summary.

[Scott Buckhout:]

Thank you, Rajeev. Let me sum up by leaving you with a few key thoughts. First as we proceed into 2015 during a time of high volatility in some of our energy end markets, we're focused on those things that we control. We're focused on managing our cost base and executing on our operational excellence and simplification initiatives. We expect that these efforts, which are transforming CIRCOR from a holding company to a world-class operating company will yield better than peer organic growth and further margin expansion both now and when we come out of the cycle. Second, we're managing the business for the long term. We'll continue to invest in organic growth initiatives throughout the cycle. We remain committed to the go-to-market initiatives launched last year, including regional expansion and making CIRCOR easier to do business with. In addition, we will continue to invest in new product development in line with our long term strategy. Our strong balance sheet and available financing facility could allow us to capitalize on attractive M&A opportunities in this market as well. The Senior Leadership team is spending more time exploring potential M&A opportunities. Overall, we will be striving to outperform our peers and effectively manage the business through the cycle. We view the current downturn as an opportunity to structurally address our cost profile and take share from our competitors. We fully expect to exit the cycle as a more competitive and better positioned company. And finally we have a strong and experienced team that is committed to delivering on our objectives regardless of where we are in the cycle. We remain focused on creating shareholder value through growth, margin expansion, strong cash flow and disciplined capital deployment. With that, Rajeev and I are available to take your questions.

[Operator:]

Thank you. Ladies and gentlemen, at this time, we'll be conduction a question-and-answer session. [Operator Instructions] Our first question is coming from the line of Nathan Jones with Stifel. Please proceed with your question.

[Nathan Jones:]

Good morning, Scott, Rajeev.

[Scott Buckhout:]

Good morning, Nathan. How are you?

[Nathan Jones:]

Well thanks. How are you guys?

[Scott Buckhout:]

Good.

[Rajeev Bhalla:]

Good.

[Nathan Jones:]

Obviously a pretty difficult environment from an end demand perspective at the moment. Can you talk about the current restructuring program that you're putting in and give us a little more specific to the extent you can and then talk about what if that is structural cost versus temporary cost for when demand comes back, that cost might need to be taken back in.

[Rajeev Bhalla:]

Sure Nathan, let me start with that. The restructuring program involves both groups here. So as Scott mentioned in his opening remarks, it is broad based. So it does cover both the Energy Group as well as the Aerospace Group and it will involve looking across the Board at the demand and associated capacity and therefore the workforce that's required to kind of meet the lower demand. From a specific question relative to volume versus structural, it's about half, half, its 50-50 kind of volume driven if 50 structural driven and the key thing to keep in mind is what our plan is that when the cycle does turn, that we have a much leaner, more efficient operation that can drive that incremental volume through without adding a lot more head. So that's a key driver here.

[Nathan Jones:]

See never waste a good process right.

[Rajeev Bhalla:]

Bingo.

[Nathan Jones:]

Thinking about obviously, everyone can map rig count straight down for demand, can you talk about the impact you're expecting to have from destocking in the channel to the extent you're aware of where you're distribute as inventories are and what they might need to be taken down and what impact you're expecting from that?

[Rajeev Bhalla:]

Yes, I think maybe this is I'll start one level up from that and then I'll get directly into your question. If you look at our upstream business in general, it's roughly say directionally around $300 million goes into upstream. About two thirds of that is in North America, where we're expecting the impact of oil prices to be much more severe in North America than what we see outside of North America and then particularly in short cycle, which is where you're going. When we look at what’s happening we look at past cycles back in 2008, 2009 timeframe when we try to gauge rig counts, well counts and what that means for own volume and own demand, we get a pretty wide range of what could happen. So as we look into Q1 right now and the trajectory we’re looking at right now, we’re expecting our short cycle North American business to be down on orders not necessarily revenue, but on orders in the range of 20% in Q1. I’d be reluctant to go out beyond that Nathan because we just -- things can happen so quickly here. I think we’re all trying to understand exactly what’s going to happen. I think for us, we’re expecting about a 20% reduction in orders for Q1 based on what we’re seeing and that would be the destocking and just the end demand, the combined impact.

[Nathan Jones:]

I think it’s totally fair to not want to go out further than Q1 at the moment given how rapidly things are changing. If we just move over of the Aerospace business for a minute, I know there's been some issues there. Can you talk about how close we’re to getting through those issues and to a point where the Aerospace business can begin to grow again?

[Scott Buckhout:]

Yeah. So, yes I can talk about that. If you look at Q3 and Q4, we were absorbing the impact of exiting the structural landing gear business. And there were lots of things happening kind of underneath the surface but we were certainly taking a reduced margin in the back half of last year as a result of this exit. We’ve largely completed the exit of that business in the fourth quarter last year. That the impact of the exit of landing gear our margins would have been high-single digits and steady see margins mid-single digits. So as we come into 2015, you should expect to see our margins improve here in Q1 and beyond. So, I would expect say mid-to-high-single digits in Q1 for Aerospace and defense in total. And then as you know from our Investor Day we think this is a mid-teens business. And so that’s ultimately where we’re headed here.

[Rajeev Bhalla:]

Just to add to that Nathan, just keep in mind we do see a little bit of top line headwind year-over-year given the exit of the landing gear business here. So we had it for the first six months of 2014 and so you’re going to have a little bit of a tougher compare in the first quarter here.

[Nathan Jones:]

Thanks guys. I’ll jump back in queue.

[Scott Buckhout:]

Perfect. Thanks.

[Operator:]

Thank you. Our next question is coming from the line of Kevin Maczka with BB&T Capital Markets. Please proceed with your questions.

[Kevin Maczka:]

Thanks. Good morning.

[Scott Buckhout:]

Good morning, Kevin.

[Rajeev Bhalla:]

Good morning, Kevin.

[Kevin Maczka:]

Can I just continue on that Aero question. So we have -- we’ve exited landing gear, we know about that. We have a divestiture here. Is that about $30 million of total for the year of revenue that we don’t have in '15 that we did have in '14?

[Rajeev Bhalla:]

Yeah, you’re looking at about $15 million or so relative to the landing gear year-over-year impact. And you’re looking at about another $12 million or so from the divested business.

[Kevin Maczka:]

Okay. And so your view on the -- excluding those two items, the underlying business, you got the new programs that you want that are ramping, some other things going on that you mentioned, what kind of growth is reasonable to expect in the underlying Aero top line?

[Rajeev Bhalla:]

You should see some growth there as we start to ramp up on some of those programs like the A350 and also on the military side. But we’re looking at kind of low single-digits at this point.

[Kevin Maczka:]

Got it. And then shifting over to energy so rigs are down 30% off the peak, you’re expecting your orders to be down 20% in Q1. Scott, did I hear your comment right that even the long cycle, the project business you’re looking at CapEx trends down 20% in the New Year and you think your business ought to track that as well, is that fair?

[Scott Buckhout:]

So I wouldn’t say it that way. Yeah, we’re expecting that global CapEx would be down 20% for the full year. I don’t think you’re going to see a deterioration in our orders in Q1 for our large project business. And in fact it might even see a little bit of growth in large projects. We will -- we do expect -- we’re not going to escape the downturn of the market overall. But I don’t think we’re going to see a significant drop in orders here in the first quarter. In fact, I think you’ll see a little bit of growth. We’re seeing some favorable trends that we’re capitalizing on that so far we're pretty successful here and that’s in Southeast Asia. We’re having some success in midstream. We’re having some success in power. So we feel pretty good about the first quarter for large projects, but we’re trying to be cautious here knowing that the overall environment will eventually catch up. So we’re expecting that we’ll see some delays after this quarter.

[Rajeev Bhalla:]

And also just to add to that, when you look at the Middle East a lot of those projects are at this point staying on track and that is midstream as well as some on the downstream side. So Scott talked about orders on the top line. We would expect the same kind of -- if I look at it year-over-year Kevin, from a large project standpoint flat to slightly up is what we would expect, because obviously we’re delivering the backlog.

[Kevin Maczka:]

Rajiv that's the first quarter comment, flat to slightly up where the backlog is still supporting in the first quarter?

[Rajeev Bhalla:]

Correct, yeah.

[Kevin Maczka:]

Okay. And then what about on price both on short cycle and projects, because last downturn I think there were some pretty meaningful compression there?

[Rajeev Bhalla:]

So I’ll start with projects. So far we’re starting to feel the pressure of the anticipated downturn. So we have not been -- I mean, there are certain multiple levels of pricing pressure. Right now we’re seeing pressure on new projects. They’re more competitive. We’re being to quote more times. But the activity is still pretty good and we’ve been able to navigate our way into some situations where it’s not as much pressure as in some areas than others. We’re not being asked to re-quote any business that we’ve won that hasn’t happened yet, but could as things evolve here. So we’re seeing new projects. We’re seeing some pricing and increasing competition. On the distributed valve, the short cycle businesses, we’re not seeing the pricing pressure yet, but we’re anticipating that we will start seeing that soon.

[Kevin Maczka:]

Okay, great and just finally from me, anybody else that you’re worried about in terms of customer bankruptcies, whether it be in Brazil or even elsewhere?

[Rajeev Bhalla:]

Yeah, clearly the Brazil situation is a difficult one Kevin. At this point we feel that we’re appropriately reserved relative to the exposure on the balance sheet for Brazil, but we’re watching that very closely day to day. The other parts of our business look fine at this point, but it is something that we’re watching.

[Kevin Maczka:]

Okay. Great. Thank you.

[Scott Buckhout:]

Thank you.

[Operator:]

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

[Charles Brady:]

Hi, thanks good morning, guys.

[Scott Buckhout:]

Good morning, Charley.

[Rajeev Bhalla:]

Good morning, Charley.

[Charles Brady:]

Just with respect -- I want make sure I am clear on something, on one of your comments about the short cycle energy business into Q1 expecting orders to be down around 20%, but not seeing a similar revenue decline. I guess I’m just trying to square that up given the short by definition short cycle nature of that business is it because some of the stuff is actually stretching beyond that into Q2 so you're not feeling the impact, but it comes later or can you just kind of square that up for me?

[Scott Buckhout:]

Yeah sure, we do have a wide range of lead times all of them relatively short, compared to our engineered valve business. We could be shipping product next day or we could be shipping product three or four months later. So when you average it out, we do enter the year with a decent backlog. If you look at our book-to-bill, in our short cycle business in Q4 it was significantly over one. And so we’ll be burning off a lot of that in Q1. So that’s why you see a bit of a lag between revenue in Q1 and orders in Q1.

[Rajeev Bhalla:]

So you would see 20% on orders and we’re thinking it’s probably 10% to 15% on the top line relative to the short cycle North American business.

[Charles Brady:]

Okay. Good, that’s helpful. And then just with respect to the Aerospace business, if we -- on a pro forma basis for the divested businesses you exited business Q1 apples-to-apples would you expect Aerospace defense revenues to be up year-on-year?

[Rajeev Bhalla:]

On apples-to-apples, it should be flat.

[Charles Brady:]

Got it., Okay, that’s all I had guys. Thanks.

[Rajeev Bhalla:]

No problem.

[Scott Buckhout:]

Thank you.

[Operator:]

Thank you. The next question is coming from the line of Joe Radigan with KeyBanc. Please proceed with your questions.

[Joe Radigan:]

Hi good morning guys.

[Rajeev Bhalla:]

Good morning.

[Joe Radigan:]

First on the energy business, you talked about a little bit of pricing pressure that you’re seeing on the project side. How is the margin profile of the orders that are being booked in the backlog today relative to what is in backlog already? I am just trying to get a sense for how we should think about the margins progression in that energy segment?

[Scott Buckhout:]

So if you look at our backlog, the backlog that we booked in Q4 it’s more or less in line with what we’ve been seeing over the last year, year and half. So no material change to margins booked in the backlog. And I think even quarter to date we haven't seen any change to margins in that business. Having said that, we’re anticipating we will see the pricing pressure and we’ll have an impact on margins as we move further into 2015. But as of this point in time, if you just took a snapshot, our margin in backlog is more or less the same as it has been over the last year, year and half.

[Joe Radigan:]

Okay. And then on the short cycle valve piece, I believe that’s one of the areas where you invested and expanding the sales force. Have you adjusted plans there at all or considering the current market conditions or is that -- you view that as an opportunity that continue to invest and perhaps take some share there?

[Scott Buckhout:]

So it’s the later. We will continue to invest in growth through the cycle. We’re more than offsetting investments in growth with cost reduction elsewhere both structural and volume related cost, but particularly on the short side. So it’s certainly not one for one, but yeah, we’re not going to pull back on the growth investments that we started last year and in fact there are some new investments that we’re going to be making this year. So we really are focused on exiting the cycle much stronger, taking share and we’re focused on the long-term here so.

[Rajeev Bhalla:]

And just to add to that Joe, we’re going to fund it. This is going to -- we’re going to make sure from a restructuring and cost reduction perspective that it’s affordable because if it isn’t affordable, we’ll adjust accordingly.

[Joe Radigan:]

Okay. And then last question in terms of M&A, you’ve talked about wanting to do some inorganic -- grow inorganically. Can you talk about the pipeline there? Are you seeing seller expectations come in at all given sort of the dislocation in the market or is that putting everything on hold?

[Scott Buckhout:]

Well, we’re a lot more active externally now than we were 12 months ago than we were even six months ago. We are I’d say the pipeline is I’m spending and personally spending a significant amount of my time on this. In terms of expectations, I’d say it varies. Some companies I think the closer they are at upstream, the more adaptable they are in terms of expectations, but we’re still early in the cycle as well and some of the others that we find interesting haven’t changed their expectation in the least bit. So I don’t want to overplay expectations here, but other than to say we’re spending a decent amount of time on this and we do see it as an opportunity to use the balance sheet that we’ve got and make some big strategic moves that could be interesting for shareholders.

[Joe Radigan:]

Right, thanks Scott thanks Rajiv.

[Rajeev Bhalla:]

Yes, no problem Joe, and before we take the next question, I just wanted to clarify a comment that Charley, hopefully you're still listening here, when we’re talking pro forma with respect to Aerospace and defense, I should have noted that we’re actually going to be down given the fact that we got out of the landing gear business especially the Chinook contract. So to just correct what I just said a few minutes ago it’s not going to be flat. It should be actually down pro forma to pro forma Q1 to Q1.

[Operator:]

Thank you. Our next question is coming from the line of John Franzreb with Sidoti & Company. Please proceed with your question.

[John Franzreb:]

Good morning, guys.

[Rajeev Bhalla:]

Good morning, John.

[John Franzreb:]

Regarding the restructuring actions, can you just remind me if we’ve completed all the prior ones and the new ones that you announced today? That’s all that we have in place at this point?

[Rajeev Bhalla:]

Yes John, sure. So yes the answer is yes. All of the 2013 actions are done. And the 2014 action with respect to the cost take out is done as well. And if you recall, the 2014 actions we’re reinvesting that money and that is largely done as well. So as I look at the run rate for the 2014 actions, the savings and the investment offset with respect to the 2015 P&L recall that when we talked about the 2013 actions, it was a total $9 million of annualized run rate savings of which we realized $7 million in 2014. So there’s an incremental $2 million that falls into 2015 and then as you look at the announcement we just made now for the $8 million, there will be about five of that that falls into 2015. So you should expect restructuring benefits in the aggregate of $7 million.

[John Franzreb:]

Okay. And none of those previous benefits were part of divested operations, Rajeev?

[Rajeev Bhalla:]

Correct.

[John Franzreb:]

Okay. And I might have missed this, how much exposures do you have in total to Brazil?

[Rajeev Bhalla:]

From a revenue standpoint and it’s small, it’s less than $20 million, with Milan it actually varies a lot.

[Scott Buckhout:]

That’s a good point, I was looking at just specific in Brazil, but obviously our Milan business sells into Brazil as well. So that would be a little higher there. So the Brazil for Brazil is around 20% and then it’s really hard for us to give an exact number, because lot of large -- I would say, some large projects that we sell go into Brazil as well. So say some -- the base is 20% it could be as high as high as 30% depending on how many projects we sell into Brazil.

[John Franzreb:]

And now Scott, I think you referenced 2008 and 2009 as what you’re looking back to the severity of the downturn. From what I recall the order intake fell rather significantly back then and then it kind of gradually moved north quarter by quarter but it took off the year. It seems -- you seem to be suggesting that you don’t expect that kind of a meaningful drop off in this cycle time. Am I just mishearing what you’re saying or should we be looking for maybe that big drop off in coming quarters?

[Scott Buckhout:]

We’re anticipating right -- I don’t want to try to predict the future here, this is difficult, but we’re anticipating that it will be as deep as it was back then as deep down and we’re also expecting and maybe we should say hoping that it will recover faster as well. I think if you look how capacity is coming out of the market in North America, I think it can come back into the market just as quickly if and when prices get to the right level. So in terms of the downturn itself, the curve if you will of orders and revenue going down, we’re assuming it will be just as bad as it was back in 2009.

[John Franzreb:]

Okay. Thank you very much.

[Scott Buckhout:]

No problem.

[Operator:]

[Operator Instructions] Our next question is a follow-up coming from the line of Nathan Jones with Stifel. Please proceed with your question.

[Nathan Jones:]

Hi guys. So Rajiv on the Aerospace business you’re saying it would have been flat if excluded the landing gear business from 1Q last year?

[Rajeev Bhalla:]

Yeah that was what I was trying to correct when -- there were too many pro forma adjustments there Nathan so.

[Nathan Jones:]

Yes. No worries. Just wanted to make sure everybody was clear on that. So on the International Energy business, you talked about Q1 being flat to slightly up, supported by the backlog. You have got at least a couple of quarters of revenue in that backlog. Does Q2 in that business that you do have visibility in there continue to hold up in that kind of flat range into the second quarter, and you wouldn't expect to see the drop off in that business until at least the third quarter?

[Rajeev Bhalla:]

Well, I think maybe the way to answer that is you know the lead times, we’ve talked about that in the past. So our backlog supports a significant portion of the revenue in the first quarter and the second quarter. And that we’d say that the current backlog starts to take a significantly less -- lower portion of the revenue that we hope to have in Q3 and Q4.

[Nathan Jones:]

Okay. That's helpful. And then, on the Brazil customers that have gone bankrupt, did you have any contracts to supply them in the future, or is there nothing in the backlog that would have gone to them?

[Rajeev Bhalla:]

No, we did and we adjusted it out of backlog. So there were some orders that were in backlog that I took out. So the yearend backlogs have been adjusted with respect to those customers.

[Nathan Jones:]

So there’s no exposure in the backlog there at the moment?

[Rajeev Bhalla:]

Correct.

[Nathan Jones:]

Okay I think that was it from me. Thanks very much.

[Rajeev Bhalla:]

Terrific. Thanks Nathan.

[Scott Buckhout:]

Thanks Nathan.

[Operator:]

Thank you. There are no further questions at this time. I would now like to turn the floor back over to Mr. Scott Buckhout for any additional concluding comments.

[Scott Buckhout:]

I would like to thank everybody for joining the call and we look forward to talking again soon. Thank you.

[Rajeev Bhalla:]

Thank you.

[Operator:]

Thank you, ladies and gentlemen this does conclude our conference call. Thank you for joining us today.