Good morning. My name is Michael, and I will be your conference operator today. At this time, I would like to welcome everyone to the Flowserve Q4 2010 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the conference over to Mr. Paul Fehlman.

Thank you, operator. Good morning, and welcome to Flowserve's 2010 earnings conference call. Today's call is being webcast with our earnings presentation via our website at flowserve.com. Simply click on the Investor Relations tab to access the webcast and the accompanying presentation. For those of you that are listening to today's call through our dial-in phone number and also wish to follow along with the earnings presentation slides via our website, please click on the Click Here to Listen Via Phone icon at the bottom of the Event Details page. The webcast will be posted at flowserve.com for replay approximately two hours following the end of this call. The replay will stay on the site for on-demand review over the next few months. Joining us today are Mark Blinn, President and CEO of Flowserve; Tom Ferguson, President of the Flow Solutions Group; and Tom Pajonas, President of the Flow Control Division; as well as Dick Guiltinan, Senior Vice President of Finance and Chief Accounting Officer; and Dean Freeman, Senior Vice President of Finance and Treasurer. Following our commentary, we will begin the Q&A session. Regarding any forward-looking statements, I'll refer you to yesterday's earnings release and 10-K filing and today's earnings presentation slide deck for Flowserve's Safe Harbor Statement on this topic. All of this information can be found on Flowserve's website under the Investor Relations section. I encourage you to read these statements carefully with respect to our conference call this morning. The information in this conference call, including all statements by management plus their answers to questions related in any way to projections or other forward-looking statements, are subject to Flowserve's Safe Harbor. Now I'd like to turn it over to Mark to begin the formal presentation. Mark?

Thank you, Paul, and good morning, everyone. I'm pleased with our 2010 results and accomplishments. I'm particularly proud of how our employees have responded to a challenging environment over the last two years. Looking at our financial results in 2010, bookings were $4.2 billion, up 8.8% versus the prior year, and year-end backlog was $2.6 billion with a notable increase in aftermarket backlog. Earnings per share were $6.88, down 9.4% versus the prior year, and when you look at margins, we were able to largely offset price and volume headwinds through pricing discipline, realignment savings and cost management. Reported margins were 14.4% or 15.3% when you exclude the impact of realignment and Valbart. We remain focused on executing on our strategies in 2010. We formed the Engineered Product and Industrial Product Divisions to align with our markets and our customers' needs. We continue to invest in growth markets and improving our operating platform with expansions in the Middle East, India, China and Brazil, and we increased headcount in emerging regions. We acquired Valbart to address a key product gap in the growing oil and gas markets. We grew our aftermarket business, executing on our end-user strategies, and we drove a cost culture. We accomplished a lot in 2010, so you can see why I'm so proud of how our organization responded. As we look forward in 2011 over the near term, we expect that our long-cycle business will remain choppy and competitive. Also, we have seen our short cycle business volumes begin to improve, and as volumes continue to pick up, we expect the price will follow, which is important when you consider the increase in material costs. As we have talked about, we expect that the first half of 2011 results will be a tough compare in the first…

Thank you, Mark. Good morning, everyone. This is Dick Guiltinan, Chief Accounting Officer. Mark has touched on the full year highlights and Tom and Tom will cover the divisional operations in a moment. Let me add some comments on the consolidated financial results. Fourth quarter bookings grew 9.8% on a year-over-year basis and about 3% on a sequential basis over the third quarter. Sequentially, original equipment bookings were down 2% in the fourth quarter, while aftermarket bookings increased about 10%. Full year bookings growth was 8.8%. For the full year, original equipment bookings were up 8% and aftermarket bookings were up 10%. The book-to-bill ratio in the fourth quarter was 0.9, reflecting stable bookings and a very strong sales quarter. The full year book-to-bill was 1.05, resulting in consolidated backlog at year-end of approximately $2.6 billion, up about 9.4% over the year-end 2009. Sales for the fourth quarter decreased 4.9% on a year-over-year basis, but increased 17.4% on a sequential basis. The full year decline in sales was 7.6%. Gross margin performance in the fourth quarter of 33.7% reflected continuing competitive pricing and decreased absorption of manufacturing fixed cost. It was partially offset by sales mix shift, the higher-margin aftermarket sales in EPD and IPD, savings from continuous improvement programs, supply chain and realignment. Full year gross margin of 35% reflected the competitive pricing environment, partially offset by higher margins on certain shipments in the first half of 2010 that carried the remaining backlog of 2008 orders booked at more attractive pricing levels. The gross margins for the second half of 2010 better reflect the current pricing environment. For the full year, pricing pressures and the negative effect of lower sales on our absorption and fixed manufacturing costs were partially offset by a sales mix shift toward higher-margin aftermarket sales,…

Thanks, Dick. Good morning. I'm Tom Ferguson, President of the Flow Solutions Group, which encompasses the Engineered and Industrial Product Divisions. Generally speaking, I am pleased with the overall performance of the Flow Solutions Group during 2010. Our focus on our end user customers, operational excellence and strategic growth initiatives continue to provide a platform to drive bookings growth while generating solid sales and income performance. That said, I will admit we have several areas I'd like to see improve. We have continued to drive sales, price and discipline and carefully balance our project win rates and market share targets with factory loading considerations. We have continued to see pricing pressure in most OE sectors as many of our customers focus even more on first cost. We also made progress on improving our Industrial Product Division operational performance in the latter part of the year, but we still have work to do. For the Engineered Product Division, Q4 bookings growth of 12.3% was driven primarily by focusing on targeted strategic projects, seals and the aftermarket. Market activity levels in our core market sectors continue to be mixed. We were pleased with our aftermarket business, which strengthened despite continued constrained customer maintenance spending levels, particularly in North America and Europe. Our end user focus and Integrated Solutions Group initiative continue to offset the natural tendency of many customers to repair pumps themselves. As we've noted before, we are not a quarter-over-quarter business. We generally track more to half-over-half comparatives. So sales were down 10.8% in the fourth quarter, primarily due to the lower backlog entering the quarter, but also impacted by many customers pushing out delivery of equipment. Gross margin for the fourth quarter was up 130 basis points due primarily to a favorable aftermarket-to-OE mix. The impact of the low…

Thanks, Tom, and good morning, everyone. This is Tom Pajonas, President of the Flow Control Division. In summary, I am pleased to report solid performance for the fourth quarter and overall for the full year. While the market environment can best be described as choppy for 2010, our overall bookings on a constant dollar basis were up 16% compared to the 2009 fourth quarter and up 10.2% for the full year compared to the 2009, including our acquisition results. Sales increased sequentially in each of the four quarters throughout the year, with sales up 20% in Q4 versus prior 2009 Q4 on a constant currency basis and up 1.1% on a full year comparison. Excluding realignment, operating margin for the fourth quarter was 15.2%, which included the dilutive effects from our Valbart trunnion ball valve acquisition in July of 2010. Excluding both realignment charges and the acquisition effects, the base business had an operating margin of almost 18.6% for Q4 and 17.2% for the full year. The Flow Control Division reacted very well to the challenges in the 2010 market. In 2010, we saw real stagnation in the new chemical equipment market. We experienced the power market that was driven by increases in the nuclear business, with the coal-fired fossil business on hold in the developed regions. The mining and water businesses were also on hold, while the oil and gas business did not see the return of large scale projects until the second half of 2010. FCD was able to successfully navigate through these market dynamics and produce solid results while continuing to prepare for the future. Our continued efforts in low-cost sourcing and continuous improvement, as well as taking the necessary realignment and cost-control actions throughout the year, supported our position. Refocusing our business in district heating, pulp…

Thanks, Tom. So looking forward, our cash use priorities in 2011 will continue to be balanced and focused on capital deployment in the business to support our global growth initiatives and operating requirements. We will also return cash to shareholders and maintain full funding status of our U.S. pension plan. We continue to maintain a very disciplined and balanced approach to our uses of cash to drive sustainable growth, return value to shareholders and maintain a flexible capital structure. We're also reaffirming 2011 full year EPS in the target range of $7.10 to $8 per share. This includes approximately $5 million of programmed carryover realignment charges. And while we expect Valbart to be dilutive in the first half of the year, we do expect the acquisition to be accretive on a full year basis. Finally, as we mentioned before, our guidance is based on current FX rates. Turning to the final slide. As we think about the guidance, we reinforce the point that we faced earnings headwind and long-cycle competition, driving lower margin and backlog due to pricing, and we also anticipate a higher tax rate. This is partially offset by tailwinds and improved short cycle volumes, realignment, cost controls and operational efficiencies and the year-over-year improvement in our IPD and Valbart results. As we've talked about and as you've heard today, we believe that we've reacted appropriately to the market headwind dynamics and continue to position the company for sustainable growth and delivering shareholder value for the long term. I'll turn it over to Paul now.

Thanks, Dean. Operator, we're ready to open the lines for Q&A.

[Operator Instructions] Your first question comes from the line of Charles Brady with BMO Capital Markets.

This is actually Tom Brinkmann standing in for Charlie Brady. Just curious if you can talk about some of the specific initiatives you got going in the Industrial Products Division. Do you have any facilities targeted for consolidation? And how are you able to make the improvements in the fourth quarter in the margins when you had previously guided for improvement in 2011?

Generally, and Tom can fill in if I miss something here, what you saw in the fourth quarter and what we talked about was the benefit of increased volumes in the Industrial Products Division. And as Tom mentioned, we started to see some traction. But we also expected it was going to take a couple of quarters around the Industrial Products Division. I think some of initiatives that we've talked about is one around identifying product gaps, and as he mentioned, they're introducing a much-needed product in the chemical industry here over the sales meetings. The other thing is, as we talked about before, this basic division was embedded within the Pump Division in prior years and was really operating or tending around global processes, lending themselves to Engineered Products. And so a lot of the initiatives -- and there's a series around bringing global processes that lend themselves more to being highly distributed supply chain. So there is a series of initiatives that are really aimed towards orienting this division towards what it is, and it's in Industrial Products Division.

Also, just curious again on the IPD, it seems like that segment, in particular, is exposed to the chemical end markets, and I'm wondering if you're seeing some improvement there in terms of capital expenditure for larger projects?

This is Tom Ferguson. We are seeing more activity on the chemical side. We saw that tick up some last year, and that was one of the reasons we needed to do some product development, to make sure we can take better advantage of that. And then also, the other related industry is pulp and paper and mining ticking up as well. So a lot of that falls to our IPD piece. So we see that as positives.

Also, I'm just curious if you can break down the -- you talked about the $5 million of additional realignment expenses mostly in the first half. Is that going to be mostly in the first quarter or pretty split evenly between the first and second quarters?

Roughly half and half.

You talked about possible deferment of Middle East investments depending on the situation there. I guess at one point, how far in the future will you come to a decision point as to whether or not to go forward with the investments you've planned?

Well, I think, I mean, generally, we're watching this closely, and there's been no real change at this point in time. We do keep a close eye on it. But take a step back if there's persisted turmoil. What we talked about is you might see a delay in timing in the investments. But also, the underlying fundamentals are they're intact. If you think about it, that's where a lot of the oil reserves are. They're going to continue to invest. It's just a matter of when they get through this turmoil. So from our standpoint, we're watching it certainly closely. We also realized that what happens is if supply gets constrained from this region, it usually impacts price and thus, typically could bring on investment in other parts of the world. And that's the benefit of being globally diversified as we are. So we're watching it closely. What you're seeing is certain areas are being impacted, a lot of the areas where our assets are in our business haven't seen unrest at this point in time. But we'll keep an eye on it.

Your next question comes from the line of Robert Barry with UBS.

On the comment you made earlier about the first half '11 being below first half '10, is that on an EPS basis, and does it include or exclude currency and realignment impacts?

Well, I mean, it's really driven towards results overall in the business kind of at a high level. From a currency standpoint, what we talked about in our guidance was where the currency levels were when we gave it originally and basically are now. But also, we did call it out in terms of the realignment impact, and the continuing dilutive impact of Valbart do factor into basically that trend that we gave you.

But it is on an EPS basis that you're talking?

Yes. I mean, we did in relation to our EPS guidance, so it's EPS-related.

Is it possible to dimension the Valbart dilution that you're expecting in 2011?

Well, actually, in 2011, we said that it's going to be accretive overall to our business. If you take a step back, the way purchase accounting works and other things, it takes a couple of quarters to work your way through an acquisition of this type. And so we basically acquired it and got it up and running towards the end, in the third quarter and the fourth quarter, and there'll still be some impact during the first part of the year. But overall, we expect this to be accretive this year. We're real pleased with the acquisition. It's in a much needed opportunity in the oil and gas space. We're seeing it pull through other products as well around portfolio selling. It really leans towards a market that is very strong in the oil and gas. So we expect it to be accretive. This is what we anticipated with the business, and it's coming online.

Relative to the $0.16 of pressure it exerted in the back half of 2010, I mean, is it going to be more or less than that in the first half of 2011?

What I don't want to do is start getting into reporting it as a separate entity. I think what we did is we wanted to help you understand, and we'll continue to do that and report out the impact of acquiring an asset. But overall, let me just say this is a good business. And we'll work through the acquisition impact of this over what I think is a short-term and look to the long-term opportunity in the oil and gas market.

I guess where I'm going with the question, and maybe the bigger picture question, is just kind of understanding the cadence of moving from what seem to be a very pretty strong fourth quarter. I mean, operating margins on an adjusted basis at 16.2% were the best you've seen all year. It sounds like now for the next couple of quarters, we're going to drop down very materially, and then in the back half, rebound quite materially. I was wondering, can you maybe just help walk us through that cadence? I mean, how much of it is just the cadence of the volume flowing in 4Q, one-half, back half, versus some of the other factors playing a role there like the Valbart dilution?

Well, I think generally, we talked about this on the third quarter call. And as we said, when we were talking about Q3 and its absorption levels, we also pointed out that traditionally, the first quarter in our business tends to be a lower absorption as well. And that is the cadence and has historically been the cadence of our business altogether. I think that combined with the fact that in the year-over-year compares, we had lower margin backlog in the long-cycle business coming into this year. That's basically what we're, in effect, talking about. There is some carryover realignment impact, but you used the word materially. We didn't in overall. We're just saying that what we expect is in the first half of this year, with some of the things that we've talked about, the realignment, bringing Valbart up as you do when you acquire business like this, the absorption issues that that would have an impact. And if you take a step back, what you saw -- being in the long-cycle business, what happened in '09 tends to delay when it starts to impact your P&L as we've talked about before. You're starting to see that work through. And then as we look forward, some of the things we talked about with the short-cycle volumes, you see those pick up, and that's what gives you more positive trend going into 2011 and really into 2012.

On the raw materials, you pointed that out on your slide as one of the headwinds, on Slide 23. Is it possible to dimension that materials pressure and how much of it you think you can offset?

Well, generally, what we talked overall in our business is in the long-cycle business, the way, in effect, you put a bid together as you consider the price of materials and oftentimes secure that component, which has the material cost embedded in it contemporaneous with bidding projects. So you use that discipline to basically try to lock in your economics overall. Where we'll tend to see more of an impact in materials is in our short-cycle business, where you have stock that you buy, that you produce into ultimately is finished product. And so that's where you have to manage. That is also an area where you typically have the ability to take quicker price action as well. So we'll manage through it as we managed through it before. This is not new, overall, to our business. As a matter of fact, if you look in '07 and in the beginning of '08, we had far more dramatic moves in material cost, and it's just a matter of making sure you stay very disciplined on how you bid long-term projects, which is what we do. And to your question, that is how we mitigate it or how we address it. And over the short-cycle business is using your discipline to make sure you're taking the right price action overall in the business. Having said that, even in the short cycle, we do have bar stock. So if there is a significant increase over a very short period of time, it can have a relatively short-term impact on margins overall on our business. Haven't seen a lot of moves necessarily recently, but they've certainly moved up since the middle part of last year.

Your next question comes from the line of Scott Graham with Jefferies. R. Scott Graham - Jefferies & Company, Inc.: First of all, I want to make sure I understand the raw materials dynamics here. Now I know that when you book an item, you turn around and buy the materials for that same booking, which really kind of minimizes the impact of the raw materials versus pricing, that dynamic. At the same time, pricing in some of these longer-cycle projects has been an issue for the company. So I'm kind of wondering how you manage through that.

Well, really, our project pursuit process that Tom has talked about -- Scott, whether the margins in the long-term projects are being competed by a competitor on materials, it's really around using the same process altogether. And for example, let's look at copper. Copper is a motor or a driver -- basically, wound copper has high copper content. So typically, what we'll do when we go and build up the bid to the ultimate customer is we'll go out and price the motor, the driver associated with that. So you use that discipline in trying to relate your input cost to your overall project pricing. So that's how that discipline works on these long-cycle projects. And if you think about it, a lot of what we procure on a long-cycle engineered piece equipment is going to be casting, which has material cost in it, a motor, which has material cost. But you can see the general theme there is oftentimes, the direct material cost is being taken on by our supplier. R. Scott Graham - Jefferies & Company, Inc.: And Mark, you're taking me down kind of the path that I want to go here. I know how tight you guys are and how responsible you are with terms and conditions and booking profitable business. I take it then with now several consecutive quarters of organic bookings improvement in the Engineered Product business that you're essentially satisfied that in that environment, which has been a raw materials inflation environment, that you are getting the pricing that would be requisite with the margins that you would consider a minimum. Is that a fair statement?

Well, you're right. I mean, materials have fluctuated over a period of time, and we've stayed disciplined in our pricing. But keep in mind, it's been certainly choppy and competitive. That's remained in fact. But we view this discipline consistently when materials were lower, and since they've moved up, that's a fair statement. R. Scott Graham - Jefferies & Company, Inc.: My other question has to do with Valbart, which, I think, looks like an acquisition that really plugs a hole in Tom's business. But I'm also guessing that you didn't think that this thing was going to be dilutive for the first four quarters that you owned it. So I'm wondering, what is this thinking on Valbart with this dilution, which seems to continue to gnaw at the earnings a little bit?

Well, if you looked at our original disclosure, we did anticipate that it would be overall dilutive in 2010 and accretive in 2011. So we certainly anticipated it. I think we went through kind of in detail the impact of purchase accounting in our last call. But the net effect is -- the way the rules are now for the most part, your profit and backlog acquired in gross margin is basically written off, and that's oversimplification. So basically, what you're sitting there is with unabsorbed SG&A in a business where you acquire substantial amount of backlog as we did. So there was integration costs and everything overall in the business. And the theme we've talked about is consistently looking at these acquisitions certainly long term. So as I mentioned before, a trunnion-mounted ball valve can often, in some of these packages, be one of the bigger offerings, but also there's a significant amount of control valves. So as we've been able to, and we've already seen good opportunities, look at some of the projects around the world, we've been able to pull through our control valves. It helped us in some of the alliances that we've gotten in. So it is as expected, overall, on the acquisition. And I'd say it's certainly on track. But the way the purchase accounting rules work, we're going to spend money on integrating this thing because we're going to keep it long term. R. Scott Graham - Jefferies & Company, Inc.: I guess the only thing I was thinking, Mark, very simply was I didn't expect it to be accretive into the first half of 2011, particularly since it sounds to me like the inventory turn has taken place, the purchase accounting is more behind you than in front of you, if not a lot more. So all this, the first half of the year essentially, I think I'm hearing you saying that it's integration costs that you guys were expecting to realize, and then that kind of ends at the end of 2Q, and then you get some nice accretion after that.

Yes, that's fair. We still have some of the original backlog, as Dick talked about the purchase accounting through, but we still have some of the acquired backlogs. So there's that and just bringing it up and online. But that's fair.

Your next question comes from the line of Hamzah Mazari with Credit Suisse. Hamzah Mazari - Crédit Suisse AG: The first one, maybe for Mark, given your balance sheet right now, how are you thinking about maybe getting into some of the adjacent product categories, like rotating equipment? And just talk about your appetite there to increase your content per project essentially and whether you're looking at larger deals or tuck-ins? Or how should we think about your appetite there? Obviously, you're reinvesting in the business organically, but if you could just touch on that?

Sure. I mean, when we acquired the seal systems a number of years ago, that was a good example of an adjacency overall. If you look at a pump skid, we're trying to capture more the value proposition of the customer. So we do certainly look at those. We look at adjacencies in our business, where we can really drive a lot of our processes, our manufacturing capabilities, our sales capabilities and importantly, the aftermarket capabilities as well. We also look at the product gaps as we talked about Valbart before, but that was clearly something that gave Tom and his team the platform to really grow in the only gas market where they had not participated at the levels that they needed to in prior periods. In terms of size, really, as we take a step back and look at it, we're going to consider, really, what I'd say is a risk-adjusted return overall in the business as we consider these because what we want to do is make sure we get a cash-on-cash return over the life of the investment. And you know as well as I do, oftentimes, in the larger acquisitions, it's difficult to get line of sight directly on the assets that are strategic overall to our business. Having said that, that doesn't mean something won't come in front of us. We do evaluate a lot of opportunities. So I wouldn't say that we're necessarily insisting on just within a range X to Y overall in the business. We're really going to look at it in terms of the risks of integration, the opportunities overall in the industry, the product gaps it may fill, the adjacencies that we can leverage across our aftermarket business. And I think you've seen that in two examples recently, and over the last couple of years, Valbart was a product gap that we saw could pull things through and drive in an industry that we think has a long-term investment profile. CALDER was a technology that enabled us to leverage our existing capabilities and provide what we call a wire-to-wire capability in the desalination process. A theme you've seen in both of these is complexity, high engineering content. So that's kind of a backdrop of how we look at these acquisitions. Hamzah Mazari - Crédit Suisse AG: And then maybe, Mark, if you can touch on -- help the investors maybe understand the long-term dynamic in your market in terms of excess capacity out there, given the demand environment you're seeing right now. And longer term, do you expect that to be absorbed over time? And then as you look at your manufacturing footprint, it seems that these are early days and you're trying to export low-cost manufacturing -- where can that go? If you can just touch on that.

Well, we've talked about capacity chasing price overall in our industry, and it will tend to fill. Now will it go to the constrained levels that you saw in 2008? We don't know. But it does tend to fill up, as you're starting to see in some of the engineering and contracting firms. In their comments over the recent periods, you've seen that some of them have started to increase capacity utilization. Same thing that happens in our industry as well. I'm trying to remember your second question. Hamzah Mazari - Crédit Suisse AG: Just on low-cost manufacturing footprint?

We certainly still have some opportunity, some of the strategies as you've seen. We've expanded quite a bit, as we've talked about, in China, India, Brazil and those regions of the world, and those are not only to serve those critical local markets because local presence is important there. But also, we can use those facilities with a tremendous amount of experience to do some of our basic manufacturing or core manufacturing on some of our products, and the finished work can be done in other regions of the world. So that's an initiative that was really kicked off probably within the last 12 to 18 months, and it takes some time. We've talked about that is our kind of lead product strategy. And so we definitely have some opportunity to continue to drive more efficient manufacturing, more leveraged use of our engineering resources worldwide and also to take advantage of some of the competencies we have even on our mature markets and leverage them more. Hamzah Mazari - Crédit Suisse AG: On the IPD division, you guys printed a 9.4% margin unadjusted. Could you help us understand the run rate there if we back out the higher volume that got pushed from Q3 into Q4? Does that margin look more like 7%, or is that the right number to use if we back out the additional deliveries?

I think the simplest way to look at it without kind of an attribution breakout is that a lot of the benefit, and we talked about this as you saw sequentially from Q3 to Q4, was primarily going to be volume-related. And as Tom talked about, he's starting to see some improvements, but overall in the business, these are getting traction. But we talked about this before. It was a lot about getting the team in place and starting to drive the processes, keeping in mind they had to get a lot of things out the door. And so what you saw sequentially was mostly volume-related.

Your next question comes from the line of Wendy Caplan with SunTrust.

Tom Ferguson, you talked about looking at large projects. I'm wondering how are you thinking about the pursuit of projects here. I mean, are we trying to go to the larger end because in part, we're avoiding some of the competition that tends to be lower end because they can't compete where you compete? Is that how we should think about that?

Wendy, this is Tom Ferguson. We don't really avoid anything. I think we have a very robust process to look at all the opportunities, and in many ways, we like more the run rates stuff because we tend to think that's where we have better visibility and more opportunity to use our strong end user coverage to pull those types of activities in. Most people go towards the large projects, and I think the point I was trying to make, we see more those opportunities out there, which tends to bode well in the longer term as the later cycle activities start to improve. So it's really kind of -- we like all the business, but I have a hard time differentiating margins between, say, run rate and the large, mega projects.

We've been hearing about issues, Tom, about some of the project business that has less attractive margin. When does that finally go through the P&L?

You mean in our long-cycle business? Well, we're starting to see it kind of come through the P&L towards the end of '09 and wind through in the middle part. On a lot of that long cycle, I mean, much of it will still persist during 2011.

And Mark, when you talk about new products and you go through the process in terms of the make-or-buy decision, it looks to me like you don't spend a whole lot in terms of R&D, less than 1% of sales has been the kind of trend. How should we think about that in terms of -- are these more evolutionary products that don't require a whole lot of R&D spend? How should we think about that if you wouldn't mind?

We do have a lot of R&D that is in association with the project, and so it will be capitalized into cost of sales and SG&A as opposed to broken out as R&D. So a lot of these products we're developing with the customer for a specific application.

Finally, Mark, the whole issue of the Middle East and North Africa, can you share with us some of what your customers are saying about the situation there? And have you experienced any issues at this point? Given that it seems to be spreading every day, are there certain areas that we would be more worried about than others?

Well, from our standpoint, we haven't seen an impact on the operations and certainly not our folks. Everybody is doing fine, which is important to us. I can tell you, with some of our large customers there, for the most part, it's been business as usual. But they're certainly keeping an eye on things. So as I mentioned before, it's kind of early to tell. A lot of the regions in there right now, there is some business. But as best we can tell, it hadn't had an impact to Saudi Arabia and the Emirates, which is where a lot of the investment is right now. But we're certainly watching this carefully.

Your next question comes from the line of Jamie Sullivan with RBC Capital Markets.

It's Michael Salinsky filling in for Jamie today. Let me just turn quickly back to Valbart. I guess, can you tell us if the Valbart backlog, as you work through it, is it going to be getting better in the same rate or the same way that the rest of the business will? Or is it going to be getting better a little bit slower than the rest of the business will or any better, faster?

Well, let's talk about the business overall in general. I mean, if you looked when we announced the acquisition, it was roughly a 20% margin business back in 2008, 2009. A strong period of time in the industry, but overall, when you look at the product itself, it's a very highly engineered piece of equipment. It is critical. It's tantamount to what I'd call a safety piece of equipment, for example, on a pipeline. Those typically tend to command high margins because there's a limited group of suppliers that can do it. So overall, when we look at the Valbart business, we think it has the type of margin profiles that Tom Pajonas and his team had been able to see overall in the business.

And would you say that demand in the Valbart area, in that business, has that progressed, has that improved? Has that come in as good as you expected, or has it really gotten any better or any worse since you first bought the business?

We're happy with it. We're definitely pleased with the way demand is coming in that business.

And then you also mentioned in your press release, you mentioned somewhat higher tax rate in 2011. I was wondering if you could tell us whether that's going to be due to maybe a fall in gross domestic mix, whether there are any onetime items in there, or anything [indiscernible] between the first half and the second half?

Michael, this is Dick Guiltinan. I think we've said consistently we kind of estimate our structural tax rate somewhere between 28% and 30%, and that may be affected by kind of resolution of tax audits, lapses of statutes of limitation in any particular quarter. So our current experience, our current tax planning indicates for 2011 kind of a target rate of 28%. Having said that, just remember there's increasing revenue-raising activities in various jurisdictions, and that could put pressure on the rate. And as the U.S. recovers, the source of taxable income may change, and that also might pressure the rate. But right now, our guidance is low end of our normal range of 28% to 30%.

Any plans in 2011 to open up any new QRCs, or are you planning to generate most of your growth in your current footprint?

No. We've got, I would say, a solid investment profile for this year, and that does include QRCs and investment in other capacity in emerging markets. That's an important point. If you look over the last couple of years, when many other companies pulled back, we continued significant investment in our business. As we see these markets through 2015, we've seen this opportunities. We continue to and we want to make sure we're well positioned to take advantage of it. So expect continued investment.

But you can't really maybe quantify for us what you're thinking as far as the range, a certain percent of growth in the QRCs?

In the QRCs, we haven't specifically listed those out. I mean, we always have a handful that we're in process to get put in the ground, and it's a matter of how quickly we're going to deploy that capital. Overall, I think we've talked about capital investment. Dick, what is the amount we talked about for this year?

I think we said between $120 million to $130 million for the year.

So that's actually ticked up a little bit from last year.

[Operator Instructions] Your next question comes from the line of William Bremer with Maxim Group.

Can you give us a little idea, a little color on what's happening right now on pricing in your Flow Solutions Group? What's happening there? I know you're working through lower backlog price, but is pricing moderating? Is it down, say, 50 basis points? Can you just give us a little more color on what you're seeing out there currently?

It's kind of remained competitive for the last -- probably for the last year, year and a half, it's remained competitive and choppy. And that means on the long cycle, it can go from project to project in terms of the pricing opportunity. In the other aspect around it, the short-cycle business, as we mentioned, we are seeing volume start to pick up, and we anticipate that price will follow.

And at this time, there are no further questions. I'd like to turn the call over to Mr. Paul Fehlman.

Great. Thank you, Mike. I'd like to remind everybody that this webcast will be available on the website for replay in approximately two hours, and thanks to everyone for joining us on the call today.

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