Good day, ladies and gentlemen, and welcome to the Colfax Corporation fourth quarter earnings conference call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Scott Brannan, please go ahead.

Thanks, and good morning to everyone, and thanks for joining us. My name is Scott Brannan, I’m Colfax’s Chief Financial Officer. With me on the call today is Clay Kiefaber, our President and CEO. Our earnings release is available on the Investor section of our website www.ColfaxCorp.com. We will also be using a slide presentation to supplement today’s call, which can also be found on the investor’s section of the Colfax website. Both the audio of this call and the slide presentation will be archived on the website later today and will be available until the next quarterly call. During this call, we’ll be making some forward-looking statements about our beliefs and estimates regarding future events and results. These forward-looking statements are subject to risk and uncertainty, including those set forth in our SEC filings. Actual results might differ materially from any forward-looking statements that we might make today. The forward-looking statements speak only as of today, and we do not assume any obligation or intend to update them except as required by law. With respect to any non-GAAP financial measures during the call today, the accompanying information required by SEC Reg G relating to those measures can be found in our press release, and in the supplemental slide presentation, in the investor’s section of the Colfax website. Further, projected adjusted net income per share reflects our revised definition beginning in 2012. Please refer to the supplemental slide presentation for a comparison to our 2011 adjusted net income and adjusted net income per share under the revised definition. I will be speaking about this in more detail later in the call. Now I’d like to turn it over to Clay.

Thanks, Scott. Good morning, everyone. This morning we’re going to cover 4 topics. Our fourth quarter results, our 2011 results, along with a recap of the year’s progress, our initial thoughts regarding the acquisition of Charter International, and finally our earnings guidance for 2012. I’ll handle the first 3, and then I’ll turn it over to Scott for the more detailed financials and the 2012 guidance, and then we’ll open it up for questions. We’re pleased to announce strong results for the full-year 2011 and a solid fourth quarter. Adjusted EPS for 2011 was $1.31, a 42% increase over 2010, driven by strong shipments and a continued improvement in productivity, slightly tempered by lower margin Marine shipments. Operating margins for our existing businesses expanded by approximately 160 basis points while we continue to restructure the operations. Net sales for the year were $693 million, an increase of 28% and 9% organically, while bookings were $683 million, an increase of 28% or 12% organically. We continue to make progress with working capital as well with the reduction from 19% of sales to 17% of sales at year end. For the fourth quarter, adjusted net income was $17.6 million or $0.40 a share, an increase of 4%, while net sales for the quarter were $178 million, an increase of 7%. Sales were strong in Power Generation, Oil and Gas, and General Industrial, relatively flat in Commercial Marine, and down in Defense. The overall increase was largely due to a 9% from the Roscoe and COT-Puritech acquisitions, partially offset by a 2% organic decrease. Orders for the quarter were $153 million, an organic increase of 9%, with growth in all end markets except general industrial. All of these results met our internal expectations. Now for an abridged update on our 5 end markets,…

Thanks, Clay. For the fourth quarter sales were $178 million up 7%, but down 2% on an organic basis. The gross profit margin of 34.6% was down slightly from the fourth quarter of 2010, primarily as a result of lower gross margin associated with the Rochor acquisition. Expenses of $25.3 million associated with the Charter transaction for the quarter, and $31.1 million year-to-date are not included in adjusted net income, as this acquisition is transformative and not part of our recurring business development efforts. SG&A expense, excluding the Charter cost I just mentioned, were up by approximately $2 million for the quarter, but this was primarily due to the additional operations cost of Rochor and COT-Puritech. As a percentage of sales, SG&A expenses, excluding in the Charter cost -- Charter acquisition related cost remains consistent with the fourth quarter of 2010 at 19%. All of these factors resulted in adjusted net income of $17.6 million or $0.40 a share, improving modestly compared to a very strong fourth quarter in 2010. On a full-year basis, sales were up 28%, 9% on an organic basis. Adjusted operating income was up 36%. Excluding the impact of the acquired businesses, margin on a full-year basis was up 160 basis points. These strong incremental margins are the result of the productivity improvement initiatives and the positive leverage of fixed cost at higher sales level. For the quarter, operating profit margins held relatively flat, despite a 2% organic sales decrease. This again reflects the productivity improvement achieved over the year and a favorable mix of products by end market. This is particularly noteworthy in that there were significantly less fixed cost leverage in the 2011 quarter as inventories were reduced $22 billion in the quarter. Although adjusted operating income were reporting 4.6 million in the fourth…

Thanks Scott, and now we’ll open the floor up to questions.

[Operator Instructions] Our first question comes from Kevin Maczka of BB&T Capital Markets.

I guess I appreciate all the color on the 2012 guidance, but I’m still a bit confused; maybe you can help me. You did $1.31 in 2011, under the new definition you’re proposing, what were the earnings under that definition, and I’m trying to get the handle for how much growth you’re anticipating from the old core of Colfax and what the initial accretion is from the Charter?

Okay, let’s take them -- there’s several questions involved there. In the slide deck is a calculation of 2011 under the revised definition. Essentially, asbestos liability and defense cost is no long being adjusted out, so leaving that in 2011 would result in $1.12 per share as the 2011 comparable amount. In the slide deck, there’s a slide that gives a roll forward from the 2011 actuals, it’s labeled the 2012 Roll Forward. That identifies the significant improvements in the Colfax base business, which includes the impact of the 2011 acquisitions which is the COT-Puritech acquisition as well as the reduced amortization related to the [indiscernible] acquisition as well as the benefit from the restructuring programs that Clay touched on very briefly today, but that he’s talked about at length in the earlier conference calls earlier in the year. As far as Charter goes, or ESAB and Howden, as we prefer to refer to it, the expectations there are laid out on the roll forward slide. As I said before, unfortunately, we’re not all out to lay out the 2011 actual because the audit is not completed and we don’t have it in U.S. GAAP, but I think I can say broadly that there’s a -- it is a significant improvement in the baseline Charter acquisition compared to where the ESAB and Howden businesses will finish out in 2011. And I think if you look at information that’s out there on previous guidance, you can see the level of improvement that’s included in those numbers. As to accretion, the accretion will likely -- it’s at the higher end of our range, the accretion will be reasonably important to the contribution. The Colfax Fluid Handling business on its own would be near the lower end of the range.

Okay, got it. On the 100 million that you’re expecting to take out on the cost side over the next few years, I know some of your planned of course are not fully laid out and in place yet, but can you just give a little more color on that? Would that be heavily front-end loaded because there’s lots of low-hanging fruit in your opinion or would it be backend loaded because you really need time to have some plans kind of kick in over the next few years before you ultimately achieve that?

Kevin, it’s going to be a combination of those things, frankly. And let me just give you a little bit of better idea in terms of, especially as I’ve gone around and looked at things where we see the opportunities there. First of all, fundamentally with -- and I’m going to focus on ESAB right now because that’s where most of the opportunity is, but ESAB, one of the things that jumps out is the organizational structure. I mean, just starting with the lack of alignment overall for the organization and that’s something we’re spending a lot of time with the leadership team on right now because it’s been a very complex structure, one that’s set up more based on a tax basis and if you can imagine, almost by country, so that dictates a lot of functions that they have and some of the functional complexity. In addition to that, we found that it’s an organizational structure that basically inhibits things from getting executed. So that’s one of the areas just to simplify it as well as change that structure to move of a global functional structure if you will, which you know, you should be a bit familiar with in terms of what we do with fluid handling. So that’s one of the areas that we can actually reduce some costs, but also improve significantly the decision making and execution of the organization. In addition to that, fundamentally with ESAB, it’s just too much capacity and it’s in the wrong places in some cases. So we’re doing a lot of work on that right now. Vince is very, very focused on that and we see opportunity there. Global sourcing is another area that has really never taken hold. They had a global sourcing organization as well as the…

Okay, just one more for me, Clay. I appreciate that color. Strategically on ESAB, we know that some of your major competitors are still investing in growth and plan to do that. You talked about competing aggressively with them. But should we view this as a -- at least near-term a retrenchment in a way as you try to fix some of these organizational issues before you maybe can pursue more topline growth?

Yes, we’re going to focus, like I said, consistently leading up to this, we’re going to get the model right, Kevin, and we’ve got some very talented people that are focused on that right now and it’s not that, you know, we certainly aren’t going to take our eye off the growth. We have a very good understanding for the markets that we want to focus on, and providing some priorities to those. But we’re going to get the model right this year. We will be very aggressive on the restructuring side so that we hit the ground running, especially as we move into 2013 and beyond because you know, we know that we can put together a model that’s going to compete effectively out there.

Our next question is from John Inch of Bank of America.

I just want to focus on the core Colfax results, sort of big picture, I think just based on the strength in various verticals. Down 2% was a little disappointing. You know, I got the data, obviously, as we all did on the organic order trend, but what really happened in the quarter versus the trajectory? I realize there were tough compares, but you know, were there other things that perhaps you could call out? Were there, perhaps, for instance, distraction costs associated with Charter that just the core business hasn't been as focused or was December particularly weak, or just a little color would be helpful.

Yes, the businesses themselves, the end markets, John, when you take a look at those with the exception of what I talked about with the [indiscernible] is actually very, very strong when you look across the board. Let me just go through each one of those. I mean, commercial lean continues to exceed our expectations in terms of what’s out there. We certainly have improved the on time delivered and those kinds of things, so we expect that that will, you know, will bode well for the future for us as well as some other things that we’re working on there. Oil and gas is the one, we take a look at the sales that were down organically 12%, but I mean, overall, they’re up 24 basically driven by [ Orozco ]. But that’s one where I wouldn’t let that organic number fool you. I mean, there was a $10 million order in the fourth quarter of last year. We continue to see very, very robust patterns in terms of the kinds of projects that we’re working on and the reporting what’s going on out there. And again, the feedback from the field is -- it continues to be extremely strong and we continue to expand [ Orzo ] outside of their traditional markets. Oil and gas continues to be very, very robust. Power generation was a very pleasant surprise last year, we had to make up about $18 million from exiting the Middle East business. We do that with continued strength, as I commented on in the script that our OEM partners continue to see very, very strong business there as well, and just one of the orders that I referenced is proof of that. General industrial, to give a little bit more of a flavor on that, we saw some slowing in Europe, which we mentioned again. But it’s interesting, as I was taking a look at some of the data yesterday, the progressive cavity in Europe specifically those pumps that we offer and everything are running significantly ahead of last year and that feeds wastewater applications, which is general industrial and so we’re really excited about that particular tend. And by the way, that’s before market as well as aftermarket. And then China was, you know, was up for us as we put some different leadership in place there and we’re starting to drive that. And a lot of that actually goes back to the Allweiler product lines. So we like the impact that that has. We certainly are watching what’s going on in Europe right now, but like I said, we have seen a little bit of a slowing prior to the holidays but you know, right now, it’s about flat as I take a look at it with last year.

Specifically, December was a very solid month and we did not see any falloff in the last month.

In terms of the -- some additional -- there wasn’t anything in terms of diversion with the leadership and the resources that we had focused on that business, John. But I will tell you that we had -- we had some of the costs associated with, for example, the closing of [indiscernible] and the DCDs and some of the restructuring, along with the absorption that I mentioned and Rodale as we really were able to implement more of the finer elements of lean on the floor. But those are gone now in terms of [indiscernible] is shut down, the DCDs, we talked about. So we had some of those drags in the quarter if you will, but we don’t have those moving forward.

So Clay or Scott, what did Continental Europe do kind of on a constant currency basis or on an organic basis in the quarter versus last year or sequentially; however you want to characterize it?

We don’t actually have it across all the end markets and probably general industrial is the only one that’s short cycle and would give some read through to current activity. And that was actually up in Europe, but again not by as high of percentage as it has been in the earlier quarters, but the sales are still up and the orders are flattish for the quarter but they’re actually improving in the first quarter. So we don’t see, in the Fluid Handling business, a particularly sharp downturn in the European business.

And again, our focus in Fluid Handling is, we’ve emphasized in the past more on those Northern European countries, plus in the case of Germany, remember, they shipped to China in a lot of cases and that’s certainly some of what we’ve seen of late.

Okay, so just to be clear, the softness in Europe, based on your order pattern and trajectory in the quarter, and I guess what you’ve seen today, you don’t expect further deterioration necessarily sequentially in the first half of this year, it just sounds like things are softening a little bit but they’re kind of in a holding pattern, is that fair?

I think that’s a fair assessment.

Clay or Scott, what’s your sort of trajectory as you were thinking about for debt pay down? You historically articulated that you wanted to be relatively aggressively deleveraging here. How should we think about that in so far as say the 2012, you know, how much cash are we diverting to debt pay down as part of the guide or just over the coming couple of years?

Well, I think it’s easier to answer the second question. Over the coming few years, our stated goal is to get down to an investment grade credit profile, which would require that -- a significant portion of our free cash flow be used to pay down debt. We are sitting on a lot of cash right now. We’re going to be cautious with that and to the extent that we don’t need it over the course of the year. We would probably make a significant pay down at the end of the year. But we are being cautious for 2012. I think we can certainly say that looking out a little longer than that that our goal is to aggressively pay the debt down, de-leverage the balance sheet with a target of being an investment-grade type of credit.

Right, while continuing to do some bolt-on acquisitions. The thing I’d say about 2012 is, John, we’re going to go as fast as we can in terms of a lot of the opportunities for improvement they have, especially in working capital. But remember, we’re going to be very aggressive on the restructuring front as well. So we want to get that behind us as fast as possible.

Yes, and it’s not like the debt is that expensive. So just to be clear, the ‘12 guidance, Scott, does not include significant debt pay down, which could be an option, but right now you’re planning to do that more towards the end of ‘12, is that…

That’s correct. There’s a guidance, the guidance assumes it will be paid down at the end of the year.

Okay, so that makes -- that makes sense. Just last, I guess, on the guide, you’re sort of assuming a 20% to 22% fall through from the change of delta in organic sales. Is there some reason why that’s not higher? Is that because of the high consumable component of ESAB or are you just being conservative there?

I don’t think we’re being conservative. I think the first -- both ESAB and Howden have a more significant material component to their cost of sales than the Fluid Handling business does. So that the 30% kind of flow through we have on the Fluid Handling business, we can’t achieve that level at ESAB and Howden because of the significant material component of cost of sales. So that’s the reason that the guide is lower than what we see in the Fluid Handling business.

If I could just squeeze one more in. ITW had very strong welding results and it sort of sounds like, Scott, in your comments for ESAB, not nearly as robust. Obviously, it’s not, they’re not completely comparable, but it’s still a data point. I mean, is ITW and perceptively linking them, have they just been taking that much share from ESAB or you know, how would you characterize ESAB’s Wilding’s sort of position today? I realize you called out strengths in emerging markets, ITW has very good European results as well. Is there anything you could say on that?

Well, ITW’s a very, very different business. They have a much larger proportion of business that’s equipment related versus consumables. So you know probably the better comparison would be Lincoln. But in terms of share, we’d have to go by markets to really understand what’s going on. And those are some of the elements that we’re getting into as we dig deeper, John, into the organization. It’s not something where we can just say Europe or even South America. I mean, we need to understand almost by country what’s going on. But those, you know, those are the things that we’ll be getting into over the next 90 to 100 days.

Our next question is from Jeff Hammond of KeyBanc Capital Markets.

Can you give us -- it doesn’t look like you’re counting on any year 1 cost savings in the guidance. Can you walk us through just how you are getting to the $98 million interest expense, because that is a higher number than I had been thinking about? Is there some non-cash or deferred financing cost or anything in there?

I’ll take that one. There are 3 main components to our interest expense. One is the cash interest expense, which is a LIBOR-based expense, which would only calculate out to something in the low 70s. The major element is the deferred cost. The underwriting fee, the OID on both the Term A and the Term B, as well as the legal expense; that adds about a percent to the interest rate on the effective interest method. So, there is roughly another $18 million of expense that relates to the amortization of those costs. And then lastly, across the whole business, although the Howden business is the largest user of it, we have an excess of $300 million in performance bonds and bank guarantees for pre-payment that don’t show up as funded debt, but do carry an interest charge. The 3 of those components together make up the amount in the guidance.

Okay, and then what year 1 cost savings are we counting on from restructuring on Charter? And maybe just along those lines, speak to what benefits you are baking in or counting on from all of the restructuring that Charter had been doing pre-deal closing?

The programs that Charter initiated that you probably read about last year, those were expected to produce about $20 million of margin improvement in 2012 and another $30 million, I think, in 2013, so, we built in about $50 million in restructuring costs for the projects in our guidance.

So, that's what is built in to the current projections. We have also built in some additional things that we were able to identify as we got together. But in addition to that, Jeff, what we are doing, again, to emphasize going back to within the next 90-100 days, we will be able to provide a lot more clarity in terms of what some of those areas are and as well as the benefits for them. The thing I will continue to point out, though, is we are going to take 2012 and get very, very aggressive about restructuring and set this up so the run rate at the end of the year and going into 2013 and the business model itself, puts us in a position to compete for the long-term.

Okay, so it sounds like your $100 million is a ‘13-‘14 dynamic.

Yes, mostly -- I think that's a fair assessment.

Our next question is from Jason Feldman of UBS.

I think I heard earlier that you said Charter had made substantial work in capital progress prior to the closing of the deal, that they got close to the 19% target. How much working capital opportunity do you see going forward? Is that going to be a material source of cash over the next couple of years?

Yes. There is a significant opportunity for improvement there, and that's something that, again, we will have more meaningful guidance on that within the next 90-100 days. But just to sort of point out how we look at things differently, with regard with ESAB, the entire model has been set up really based on finished goods’ inventory, and the response frankly, to the customer base really hasn’t been all that good and we knew that when we did the diligence. So, our model is going to be more about starting with the customer, understanding exactly what that requirement is, and then putting in the best value-added process in terms of being able to respond to that. Sometimes, that may involve just a little bit of inventory with a very quick response from a manufacturing and supply chain standpoint, sometimes it may require that we -- it may not require that kind of inventory. So those are the kinds of things that we are going through as we evaluate this process and the model that is in place there. But I see significant opportunity for improvement and working capital there. Plus, we have some opportunity at Howden as well.

Okay, and from a longer-term prospective as well, I understand, ESAB certainly has challenges in the near term; I think Charter identified organic revenue targets across the cycle of 10% for ESAB and 10% plus for Howden. Are those numbers, based on what you know today that you see today, as feasible?

Again, what number did you say -- organic, what?

Organic revenue growth CAGRs across the cycle -- I think 10% for ESAB and 10% plus for Howden.

Yes, the Howden numbers that we put out there, I think are representative of what we think right now. Remember, that is a very long-cycled business, but certainly a significant pick up last year and we continue to see opportunity with the end markets there. I think once we get the model right for ESAB that you can expect us to compete very effectively in the market and grow the business at higher levels than what we have projected in there right now.

Yes, ESAB was up to 18% last year; it was a very strong year. So we certainly think given the different markets that they are exposed to, that something along those lines will be achievable. We have not done a specific study yet to validate that Charter assertion, but it certainly seems reasonable based on what we know.

Our next question is from Michael Halloran with Robert W. Baird.

Just in the interest of time, I just want to make sure I understand the guidance and assumption. Scott, I think you said earlier that if it is just fluid you are at the low end of the guidance and then the rest of the guidance basically makes up the accretion from the Charter deal. Is that the way to think about it at this point or did I mishear that?

No, you heard correctly.

All right, great. That’s all I needed guys, appreciate it.

Our next question is from Cliff Ransom of Ransom Research.

First of all, congratulations on some of these talent additions. I’ve known Vince and Jerry for a very long time and they’re absolutely first rate. You did not need to hear that from me, but I wanted to say thank you. Can you kind of go back to 35,000 ft and tell us what is going to be different about CBS, both under the new management team of a couple of years ago, I guess the beginning of last year, and with the addition of the ESAB and Howden assets than it was in the previous decade under equity groups and rails ownership. Can you just give us a sense what the major differences will be?

Sure, Cliff. It starts with the expectation that, that is the way we are going to run the business, and that is what we are going to go to versus more of a budget kind of mentality. I think Howden is a great example. We are able to go up and do the training prior to Christmas and it was a wonderful reception. Here is a very sound business, very methodical in their approach and then we introduced the concept of breakthrough thinking and how you actually deploy that throughout the organization. And as a result to that, they have done a top level X matrix, they have their action plans in place. And then in addition to that, consistent with what I’ve said in the last couple of months in terms of segmenting these businesses, we put them in touch with a retired Danaher executive who was able to work with them and help them establish the meeting cadence and those kinds of things and how to actually deploy it. So we are going to do nothing but strengthen it -- not just strengthen it, obviously introduce it there, but then make it stronger and stronger. The whole team up there, they are all engineers so they get that. They really understand how to deploy it down to the point of input action plan where obviously, if you get off track you got to deal with the counter measures and problem solving and those kinds of things. So I am really excited about the reception that we have there. Obviously, with ESAB, I am going to personally drive that. Ken and Vince and Gary obviously all have expertise and experience in terms of driving that, so we really are going to turbo charge that effort throughout the organization. Teach it, but deploy it effectively so that again, we start with breakthrough thinking then specifically, how are we going to drive that? What are we working on and are we deploying our resources in the right way? Then, again, if we are off track, coming up with counter measures and then getting back on track. Then, even within fluid handling, we feel we can take it to a higher level. While we have improved the margins and we have improved that business certainly with some additions from an acquisition standpoint, we believe that we can get even more disciplined in terms of driving CBS throughout the organization. So we are setting higher standards and expectation levels all the way down to the detail of Kaizen events, for example. What should they drive in cost production? What should they drive in terms of working capital improvement? If we are going to deploy resources on that, ensuring that we get those kinds of results.

Should I assume that your efforts to attack what I call the transactional side of the lean world; FI and OP, new product development. will those be big influences in 2012, or will they more likely wait until a later period?

No, we cannot wait, Cliff. We have got significant opportunities, especially ESAB. Ken is finding all sorts of opportunity there, and we know that we are out of sync in some of the target markets on product development. A great example is they used to have product development down in Brazil or in South America. They took it out of that, centralized it. It's not that I would have an issue with that where you can consolidate resources and come up with it, but what they forgot about was continuing to understand what the customers in that market place needed from an equipment standpoint and making sure that they understood that voice and they actually provided those products. So, you can look for us to get very, very aggressive in terms of understanding the regional market needs, and then being able to respond in a much quicker fashion. I thought it was interesting that one of the sessions, the review sessions with some of the engineers in product development in Sweden, they were talking about a specific project and showing it as green, for example, and yet it has been late. It was supposed to be due in 2008, and they talked about how it takes a significant amount of years, basically -- 3 to 4 years, to execute something. That is just not the way that we are going to do things. Ken sets a much higher expectation in terms of making it happen. We ought to be able to introduce products in 9 to 12 months to respond to the market, for example. So it is definitely going to require the application of Lean and CBS to make those kinds of things happen.

Our next question is from Jeff Hammond of KeyBanc Capital Market.

Just a follow up, here. So on the guidance, are you using -- it seems like you are double [ daying ] yourself for the preferreds, is that fair? You are including the preferreds in your share count, and you are including the dividend?

That is correct. That is the requirement at U.S. GAAP.

Okay. And just on the segment reporting, are we looking at 3 segments or are we combining fluid and Howden?

We are planning on having 2 reporting segments in the first quarter.

And is it fair to say it is your base Colfax plus Howden and then ESAB?

I think that is fair to say, yes.

I am showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Brannan for any further remarks.

Thanks, everyone for joining us today and we certainly look forward to speaking to you again soon at the next quarter. Thank you.

Ladies and Gentlemen, thank you for your participation. This concludes the presentation. You may disconnect, and have a wonderful day.