Good day, everyone and welcome to SPX Corporation Second Quarter 2008 Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the call over to VP of Finance, Mr. Jeremy Smeltser. Please go ahead, sir.

Thanks, Felicia. Good morning, everyone. Thank you for joining us. With me on the call this morning, as always, are Chris Kearney, Chairman, President and CEO of SPX; and Patrick O'Leary, our Chief Financial Officer. This morning's call is being webcast with a slide presentation which can be accessed on our website at www.spx.com in the Investor Relations section. This webcast will be available until August 13. You may wish to follow along with the webcast as we reference the detailed information on the slides. Please note that this slide presentation also includes supplemental schedules, which provide reconciliations for all non-GAAP financial measures referenced today. Our earnings press release was issued earlier this morning can also be found on our website. Before we continue, I would like to point out that portion of our presentation and comments are forward-looking and subject to Safe Harbor provisions. I would also refer you to the risk factors in our most recent SEC filings. With that, I'll turn the call over to Chris to begin.

Thanks, Jeremy and good morning everyone. Thanks for joining us as we report our second quarter earnings. Q2 marks another period of growth for SPX, with nearly all key financial metrics improving over last year's second quarter. The integration of APV remains on track and we continued to focus on our operating initiatives to drive growth and improvement throughout the business. Demand for our engineered products remained strong. This was highlighted in Q2, when we were awarded more than $500 million of orders to supply thermal equipment, supporting the energy infrastructure build in South Africa. I'll discuss this and other wins in more detail later during this call. We're also raising our full year earnings guidance today. Patrick will update you on our revised 2008 targets along with a detailed analysis of our segment results for Q2. After we conclude, we'll take your questions. Let's begin with the key financial highlights for Q2. EPS for the quarter was $1.70 up 37% year-over-year. Revenue grew 29% in the quarter, including 4% organic growth. Segment income margins increased 100 points to 13.4%. Free cash flow in the quarter was $22 million, and we're on track operationally to hit our target for the full year. Based on the strength of our second quarter and the continued strong order trends in our key businesses, we're raising our 2008, EPS guidance range $0.20 to $6.40 to $6.60 per share. Additionally, we're raising our full year free cash flow guidance to a range of $300 to $320 million. Taking a closer look at the consolidated results for the quarter, revenue was $1.6 billion, up 29% or $348 million over last year. Businesses acquired in 2007, accounted for 21% of the revenue growth, primarily driven by APV. Organic growth was 4%, highlighted by 14% organic growth from…

Thanks, Chris. Good morning, everyone. I'll provide you with more details on our updated guidance in a moment. First, I'll walk you through the segment results for Q2. Beginning with Flow, for the quarter, Flow reported revenue of $547 million or at nearly double the revenue from Q2 of last year. APV accounted for about 80% of the segment top line growth, reporting $217 million of revenue. Strong global demand in our core power, oil and gas and sanitary end markets grew at 14% organic growth in the period. Demand for SPX valves and pumps, due to final trends for oil and gas was strong globally. Sanitary demand was stronger for mixes and was particularly robust in the U.S. and Europe. Foreign currency fluctuations benefited revenues by 4%. Q2 segment income was $70 million, that's up 58% over last year and 12.8% of revenue. Operating margins are in the quarter, that's continued to strengthen, improving 140 points to 17.4%. This was driven by leverage on the organic growth and improvement from the operating initiatives. Dilution from APV was 460 points in the quarter. APV reported operating margins at 6%, significantly better than Q1 and its pre-acquisition performance. The integration of APV remains on track, through six months of the business has contributed $445 million of revenue, with about 3% operating margins, including the $7.5 million purchase accounting charge taken in Q1. APV is on pace to meet its full year target of $885 million to $900 million of the revenue, that was 5% operating margins. We have further integration actions planned for the second half of this year, that are expected drive margin expansion over the balance of 2008 and into 2009. The base Flow business has had solid growth through the first two quarters this year and all trends…

Thanks, Patrick. We are very pleased with our second quarter results and the continued improvement at SPX. Along with solid financial performance, our backlog increased 20% during the quarter. From June 2007, through June 2008, reported backlog is grown 62% to $3.7 billion, an all time high. As the backlog is grown, the size and length of the project has increased. We now have multiple contracts greater than a hundred million dollars expected to be realized over several years. Global demand for power and energy infrastructure has been the primary growth driver, particularly in our Thermal equipment and service business which now has a back log of $2 billion. As governments approved plans for two new large coal-fired power plants. The Medupi Power Station and project Bravo which has not yet been formally named are expected to add about 4.8 gigawatts of additional capacity each. Grossly 25% of South Africa's total plant expansion. During the quarter our Thermal business received more than $500 million of orders from Alstom to support Ascom power generation build out in South Africa. SPX has been contracted by Alstom to provide dry cooling systems for the six turbine islands on Project Bravo and feed water heaters on both Medupi Power Station and Project Bravo. In 2007 we were also contracted to provide over $200 million of critical thermal equipment to the Boiler Island on the Medupi Power Station. SPX now has more than $700 million of projects in the backlog to provide equipment in South Africa. Another big win during the quarter came in Europe, where we agreed to provide a $100 million cold end solution for five new geo-thermal plants to be built in Iceland. For this project our thermal group will engineer, design, manufacture and install steam condensing systems, utilizing multiple SPX heat…

The question-and-answer session will be conducted electronically. [Operator Instructions]. And our first question from Jeff Sprague with Citi investment.

Thanks good morning everyone.

Hi, good morning Jeff.

Quite impressive. Just a couple of questions, first on raw material obviously judging by the margin you are doing a great job staying ahead of the curve but you did call out a little bit as friction point. I am just wondering on the roll forward if you can give us some thoughts of where you stand and I guess most particularly you know Chris here mentioned a lot of these projects are now multi-year in nature and what you are doing or what you have been able to, to kind of protect yourselves there in those out years is you actually deliver on this big projects.

Sure. Well consistent with our recent experience Jeff, in Q2, we again we were able to offset inflation and commodity cost throughout all four segments. And our efforts in managing our supply chain and the discipline in structuring contracts continued to help us offset inflation and we expect that discipline in our process will continue going forward. Having said that continued inflation does remain a key risk as we as people or consistently the earnings estimates for the year, particularly in our short cycle flow business. In our Oriental raw material spend is about 60% of our total cost of sales. And our largest raw material spend annually is on steel. Copper is our second largest raw material spend in terms of total annual spend, but, we are pleased with how we handled it thus far this year which is consistent with the improvement we seen in our each of the last three years. And I think that focus, that discipline, that organization has begun to mature, it's going to help us as we go forward in time.

And the proper [ph] technique that we're using for these longer-term contracts and obviously in particular some fixed price contract is... cash payments from the customers, that we're passing on to the vendor network, and passing on those cash flows enable us to hold the line with the vendors to the extent possible, but in other parts of the business, we are being surcharged by the vendors with some of the raw materials, from that you can tell from the margins, we're passing those on directly to customers.

Okay, great. Could you elaborate a little bit on the competition in China obviously, there is a nice shift to the left, I guess to South Africa from China, but you guys have been talking about this for a while, has it intensified? Are you reorienting, what you go after in China and maybe a little color on how much backlog in business you still have ongoing in China?

Yes. Sure Jeff. There are local competitors online now in China until the competitive landscape as we've discussed before, has changed recently, it hasn't changed significantly or measurably from the last time, we talked. I might think it's just... it is a natural development that is expected frankly, and something that we're dealing with. I think the important thing to understand is that the global demand in power and energy and in broader global infrastructure for the products and services, we provide, is pretty dramatic and it's dramatic particularly in developing parts to the world, not only China where we still continued to be a significant player in that market, but you're absolutely right, South Africa, its huge. For us the Middle East is a strong developing market. And I think also important to note is that in the developed parts of the world, we're still seeing positive trends, particularly in replacement applications but with respect to China, I think its important to understand that we still are a significant player in that market.

Yes, we still have a big backlog in the Chinese market. We're in total, use that contracts over 40 profile [ph] launches and we're still winning orders in that market and we're exploring other ways to collaborate with Chinese suppliers.

That was 40, Patrick?

Yes. We've done over 40% of them at this point. And the rest is kind a split between in progress and yet to be started. But if you look at the numbers in the aggregate, over the next 12 to 24 months, obviously there will be a shift in geography, away from Asia towards Africa.

Just a quick housekeeping line I'll pass it on, it looks like industrial backlog was restated or something for Q1. What was going on there?

Really, Jeff, we just had a wrong number on our presentation, so we restated it for purposes of Q1, and the Q2 filing and that number should be adjusted in your filing as well.

Great. Thank you.

Thanks, Jeff.

Our next question comes from John Inch with Merrill Lynch.

Thank you. Good morning.

Hi, good morning John.

Morning, Just to pickup on Jeff's point. The first quarter industrial backlog, that had nothing to do with disk copying, the vibration or filtration businesses that what.--

No, it did not John.

Okay. Do you guys... its interesting, you called out transformer delays but in the industrial margins, were still seven points above last year. Now, if... my question is a mix shift that rich on stuff like broadcast and solar, and that suggest even though you are on such a higher base, you're going to continue to see sort of an acceleration in margins in the second half '08, in that segment, where you've seen another years. Is that still delay to think about this business?

Well, with respect to transformers, transformers was still, the biggest driver of margin improvements. So we're still benefiting from the mix up and the rise in prices on those products reflecting dramatic increase in raw material cost there. So, what we're trying to bring out on the total and the fuller guidance is that, is the all of the other industrial businesses are doing well, and are showing for the full year, our revenue growth and margin improvement, in this particular strength in some of the businesses I called in the remarks, solar obviously which we discussed in the last call, hydraulic tools and then broadcast equipment are particularly strong. So you will see our stronger organic growth as the next few months progress along with the impact of the timing difference from the transformers we were unable to ship at the end of Q2.

But if anything your mix should still be helped in the back half as transformers improve, right.

It should.

Flow, Patrick, up 14% yet you have some pretty tough comps, was there any kind of demand put forward in that business or may be what actually happens as the quarter progress that you mention...

No, really, it really is just this timing and shipment. If you actually look at the overall Flow business, one, it is our fourth of lets say double digit organic growth. So we are building on a very large base and so that organic growth rate is not indicative of the growth rate for the year. We are still looking at organic growth in Flow 9% to 10%, for the year. So it's simply timing of the way certain projects came out and

Fine that pulls a little forward from the third quarter, Patrick?

Basically you are not going to see the same sort of forcing the same organic growth over the whole period.

Yes, John this is Jeremy, we did have some good, some heavy big project shipments in Q2, that could have kind of fall on each quarter. So actually what you saw [indiscernible] is that we raised the full year organic, with Flow to 7% to 8%, which will be below the Q2 run-rate, Patrick's explained. So what we are saying is, we should be modeling the Q2 run-rate to continue, throughout each quarter.

And you can see that with the field packed with such a high organic growth quarter on the back log.

May be just lastly, with the weakening U.S. auto environment, I mean you guys have done a fantastic job of keeping your profits up, but you did... I see you tweaked it down a little bit, are there additional cost actions you can take in that business to domestically, are we sort of add up pretty lean run rate. I think we closed the plants, just give us may be a sense of other additional actions you could take to preserve profitability?

We have taken additional actions in Japan there and note the actions are manifesting themselves. It's a little poignant. The margin run-rate in that business. There is a combination of things here. We have taken significant actions in terms of restructuring our footprint in United States. And that started at end of last year and moved into the first half of this year and we are seeing that benefits roll through. But as that business expands its global foot print particularly with greater emphasis on the Asian market, I think that will help the cost addition as well. I think the important thing to remember about this segment as I said in the past is that it is an evolving global business and you can see just by the nature of kind of contracts that we're developing in that business like the one we announced today with or discussed again today with John Deere, we are becoming a much bigger global provider. And as we establish those relationships to support those global OEMs around the world, both automotive and non-automotive, we will continue to structure our business appropriately to support those customers in cost defective way. Which I think we will continue to emphasize shift to lower cost countries for manufacturing to support them.

Thanks very much.

Our next question from John Baliotti with FTN Midwest Securities.

Hi, good morning.

Hey, good morning, John.

Hey, John.

Hi guys. Its interesting you said that the China as a competitor in terms of affecting organic growth, but you are, but thermal margins continue to go up and I guess can we infer that, that's obviously, price is not a leverage that you are using there, that you are sticking your guns in terms of higher competing?

It is John, I think I would restate a couple of important things to remember, because I think, first of all we are proud of progress that we made in that segment. We're having full year margin targets for thermal by 30 points, between 10.6% and 11.1%, which those reflected its significant improvement made in Q2. Drew [ph] and his team have just done a terrific job, improving both the contract structure and execution against those contracts which again reflects our commitments to lean and they have also done a nice job managing rising material costs. We've made some specific improvements throughout... through the lean initiative, and we think importantly that there is still a lot more opportunity on that front. The large projects in this market are typically awarded through an open bid process, it does remain competitive, the large project nature of the business does create some lumpiness, as we've seen in terms of organic growth quarter-to-quarter. But we are confident that over the next two to three years, we'll be able to accomplish our long-term target margins of 11% to 13%. We've made terrific progress not only in getting closer to that long-term target margin, but seeing better consistency, quarter-over-quarter. So, it's a result of the combination of all those things.

Right, and I'm not sure if you pointed this out, but obviously ratio for your core and second quarter was little bit low than the first quarter, but I don't know if you... I maybe missed it that, your second quarter last year was the significantly harder, comparison like the 2.5 times harder than the first quarter of last year?

That's exactly.

It was very high.

Right.

Exactly right.

In terms of APV, it's sounds like it's progressing nicely and in sometimes when you see, its also set a good growth in sanitary, I know APV is predominantly sanitary and sometimes when you're seeing growth, sometimes that's maybe a little bit harder to do some integration stuff, that you don't want to disrupt, but, how is that, how do you kind of balance all that. Is that obviously you take the growth, but it doesn't seem to be an impediment to improving that business?

No, it doesn't and I guess I would describe it this way John, it's no different in the way we treat, our view in the rest of our business is probably a little more intense, because there is some work to do there, what I would tell you about APV is that... all the reasons that underscored our divide on that business have proven to be true, and we are very pleased with the acquisition. We're particularly pleased with the presence on the opportunity that, that business, gives us for the same kind of sanitary process equipment, demand in growing, and developing markets that we see in other developed parts of the world, where we previously had an established presence. So we're in a consistently and in tandem with approaching those growth opportunities, consistently focus on lean improvement opportunities, right size and structure that organization, so that we can get at the margin improvement that we believe is their. And what I would tell you is to date; one, there are no surprises; two, we are very pleased with what that brings to those segment and we are excited about the prospects of that business going forward, particularly the opportunity it brings us in developing market.

Thanks very much.

Thanks, John.

Our next question comes from Shannon O'Callahan with Lehman Brothers.

Morning guys.

Good morning, Shannon.

Hi, Shannon. How are you?

Good. So, on the... can you fill out what you're seeing in the developed markets a little bit, more for thermal in terms of this replacement demand and I mean guess I'm assuming its mainly on the wet side, that you're seeing. Are you seeing more of the conversion to dry or any other solutions and is that something picking up or it's sort of remaining as strong as it's been?

I would say the pace has probably picked up somewhat, we're seeing good quoting activity, across the Board, it's not only wet, Shannon its wet and dry. And as we talked about in the past, there is a very aged infrastructure and there is increasing demand on that structure, both in Europe and in the United States and so... logic will tell you that, that needs to happen and I think we are seeing it happen. Customers continued to look for way to improve efficiency in their power generation capacity, we think we have the technology and the product we help them do that and so lot of the cooling activity that we're seeing, is related to just that.

We've got some interesting bids out for rebuilds in the U.S. market and historically generally speaking, rebuild is somewhat more profitable for us than new construction.

Okay great. And then on the Flow business, can you just give a little more flavor I guess by I mean you mentioned sanitary I mean, can you give a little more flavor by vertical. What you're seeing over the strongest areas and maybe geographically as well?

Oil and gas very strong, mining very strong and strong at the U.S. strong in Europe, we got demand in Asia, South Africa obviously we are participating more directly in the local Asian Market with APV and it is a period of time where we are strong pretty much in all of the product lines and all of the geography. Then you can see that in strong developed margin in the core business and a lot of progress by the team, it's not taken their eye off the ball on the core business, not withstanding the challenges of APV integration.

Okay, and I mean I guess you say your expectations for the core business in terms of the market potential that business has taken a notch up from what you used to think?

We're obviously operating you know on some quarters above the high ends, of our previous target range of 15% to 17%. On annualized basis we kind of at the top end. But I think that as we get to the end of the year and go into '09 we will reevaluate that.

Yes, I mean our long term revenue growth target for this mix of businesses in Flow is still 3% to 5%. So operating an elevated revenue level after three years of decent organic growth. So don't forget that the size of the business also is now substantially larger than it was.

Right, okay. And then just one more, I guess from the leverage point, getting back into the target range here, what's the global acquisition pipe line working like? Or do you think this is more over time to do another decent sized acquisition or is the pricing still probably more likely to maintain share rate [ph]?

Well I think... on the acquisition side Shannon, I think clearly that there will continue to be attractive opportunity to supplement the growth in our three core growth platforms. But we are going to continue to apply the same disciplined capital allocation process that we have done over 3.5 years. And that same process applies whether its acquisition opportunities or share repurchases, but yes I think there are certainly other opportunities to expand our businesses, particularly Flow, in Test and Measurement that will give us a better geographic presence in some of the attractive growth markets and particularly some of the attractive developing markets. And in terms of filling out product offerings as those were certainly there as well. So we are going to... we have very discipline processors around the capital allocation methodology, that will continue. It's an ongoing process, it's dynamic and we will see where we are in second half of the year.

Yes obviously strategic fit is more important than size. We found some relatively small businesses, that have been super fits with our core activities. I think that will continue to be the case and frankly first, particularly to some of the smaller to medium sized businesses, prices are more larger [ph] than they were, lets say again in a half ago, with the absence of small players [ph] in the market. And so we will leap into [ph] in there now. We'll compare the benefit to our shareholders, of acquisitions versus share repurchases and make the decision accordingly.

Okay, great. Thanks a lot, guys. Great, job.

Okay, thanks, Shannon, we appreciate it.

[Operator Instructions] And we'll take our next question Deane Dray with Goldman Sachs.

Thank you. Just following up on that last point. You managed the buy back program and as you resumed buy backs, just a sense of how opportunistic you expect... I mean you got a sizeable cash position today? And what's your attitude towards putting up to work?

It's just as I said in response to the last question, Deane, we will look at that opportunity relative to other attractive acquisition opportunities and we will make the best decision.

And the size of the program?

That will be communicated at the appropriate time.

The existing program in place?

Basically revolves around our leverage strategy that we described. So we are not describing a program size. What we have been doing effectively is following a buy-back strategy in accordance with the leverage of 1.5 to 2 times above that range, we are paying down debt within that range. We're committed under our credit agreements to buy equity. And we have been announcing our 10(b)5-1 plans for the company, to enable the company to consistently execute on the buy-back and so I would expect going forward and as we make decisions with respect to the available capital... we would do as we've done in the past which is communicate that clearly to the market.

And that's.--

As a reminder, for the broader audience from a technical perspective, our Board authorization is inline with our credit facility, which provides for unlimited repurchases, when we're below 2.5 times growth. And so really to Patrick and Chris has pointed its really based on our management's capital allocation methodology.

Right. That's helpful, clarification Jeremy. And Patrick, the tax rate at 34% is there still room to go there?

I think with respect to 2008, that's the rate we're using the model right now, I think in the longer-term, I think there is room for the rate to come down. We need to get through the APV integration and organizational restructuring overtime; I do think that you'll see some improvements in the tax rate.

Great and then just a last question on backlog, I mean you see backlog at thermal up to $2 billion and Flow continues to build backlog as well. What's happening at the margin, I mean there are couple of dynamics, one is customer's less apt to give orders if their backlog is going to get pushed out or the deliveries kind of be pushed out further, and they are less apt to actually give you an order. So you'll see that tailing down, there were any push-outs cancellation, changes in lead time and so forth, just color at the margin of what you expect?

Yes, what I've seen that dynamic at all being, it's point to remember that a large part of that backlog about $2 billion of it is in thermal those are projects that's are spaced that over several years. Lean has really helped us improve lead times and to meet the demand on customers. So I think that has certainly helped us alleviate any kind of stress that you alluded to.

And with respect the competitors, you can say that our backlog development, is actually very consistent with the way the backlog of our competitors is developing as well.

Great. Thank you.

Yes. Thank you.

Our next question comes from Nigel Coe with Deutsche Bank.

Thanks. Good morning.

Hey, good morning, Nigel.

Hey, just to follow up on Deane's question on the backlog, but through the feeling backlog to be in the dollars. You mentioned this amortization over several years. Can you give some sense on, when you expect the ship that between... maybe '09, 2010, 2011?

I think it depend to this different geography. If you look at the South Africa backlog that's building, and that will space out over several years in the 2011, and beyond the some cases, but the other dynamics that's going on here Nigel, as I mentioned in my comments is that we're seeing more large contracts, $100 million are over as part of that backlog, which represent by themselves, some pretty large project. So that's a different dynamic than we've seen in the years past in the business.

Sure. And based on what you can see right now, I mean, are there any sort of... similar size contracts coming up that could popping the backlog, maybe this side is 2000, 2008?

Well we think those markets that are supporting growth are robust, there is more activity as I again alluded to you in my comments. We expect continued growth in those developing markets around the world and we don't see any evidence of that changing.

Okay and then on APV, obviously the margins very good, running ahead of your full year target. Where do you think that goes by the end of the year?

At this point, is really not going to change our guidance for the year, which is really sort of 5%, which gets us on by $900 million of revenue to be, somewhere around five times accretive to our overall model, obviously we get a little further into the year, we'll have a better idea of exit markings [ph], we have other integrations actions to take place and we'll give you much more specific guidance on the impacts for the overall flow although we get the '09 guidance in January.

And just to clarify that 5% that includes the 1Q accounting adjustments?

Yes, exactly.

Okay. And then look to the 3Q guidance. I think you're looking for margins to be down 20 to 40 bits in the 3Q. Can you just talk about that what's driving that decline in special lines of the encouraging trends, before this quarter?

Well, obviously in the thermal segment, it's a very much about project mix and the development of revenue and margins is not linear and then APV as the overwriting margin impact for Q3, I think a better way to look at the second half for the year is, we are running the first half at the segment level at about 12.6 margins and we are running the second half for the year at about 13.6. So obviously within each segment there are puts and takes based on the project nature of some of these businesses. And we have got a different organic growth profile quarter-by-quarter, as you can see. So the expectation in aggregate for earnings are obviously higher than the last time we talked and we are quite comfortable with the way we have got, the second half expectations set.

Okay and then just one final one, quick one. Special charges, you moved that up from $15 million to $20 million for the full year, would they be head count reductions?

Basically, what they are doing in helping us make further progress on shared services and lien and it's a mix we are closing a number of areas that we have accounting activity. We are migrating within the segments much more towards shared service and we starting to look at shared service activities across the segments for the company. So that's a primary driver that increased of $5 million of restructuring charge.

Okay and what sort of pay back do you expect in that activity?

We have used the same pay back criteria as we do for any investment, we used our EBA tools and typically we see a pay back somewhere in the twelve months range.

And the other thing that I would mention that part of that additional restructuring charge is we're relocating some of the segment team here to Charlotte to be co-located with corporate management team and that is a part of it too, Nigel.

Okay, that's helpful, thanks.

And we have a follow question from Jeff Sprague with Citi Investment.

Yes thanks. Just a couple little minor things. Can you give us just a little bit more color on what's going on in solar in the quarter, how much it grew and if there is kind of a back log forming in that piece of the business?

It continues to grow at a pretty rapid pace. I mean its up double-digit margins in the quarter, Jeff, I don't have exact numbers... somebody will get that to you... but the back log is up as well. So the demand continues and we continue to add capacity and to look for additional capacity to meet those demand both here and in Asia. And it's a pretty high growth little business. They did book another large solar contract in this quarter. So the momentum continues there, its double digit, we will give you exact growth rate on. Try and follow up with [indiscernible]

Okay, great and also just on transformers, obviously ABB is buying Coleman, I just wonder if you guys had interest in that, if you think it shifts the competitive landscape at all. May be it's good news for consolidation, but is that something you had some interest in?

Yes, I can't really comment on that Jeff, and nor can I comment on what it does to change the competitive landscape. We are going to continue to be a premier provider in the market and compete effectively as we have in the past, just based on the product quality and reputation we have in the markets. So what we are, we are not going to concern ourselves with that.

And just one final on kind of this whole share repurchase question, as minimum place holders should we kind of assume you offset the share creep on a go forward basis even if there is some deal activity going on?

It's obviously not appropriate for us to comment in about specific share repurchase activity at this point. But you can tell that we have a fairly significant capacity developing with the cash flow, we expect in the second half and we really do need to compare the acquisition growth opportunities with the share repurchase to see what is in fact the best economic returns.

Great. Thanks a lot.

Great. Thanks, Jeff.

And we have another follow up question from John Inch with Merrill Lynch.

Thanks. Just a quick follow up, Chris or Patrick shared services initiatives, I know it's too early in the process but have you seen any kind of a net benefit from that in the quarter. So, how much and then Chris or Patrick I mean what ultimately, do you think its going to be the potential margin opportunity from these sorts of opportunities for these initiatives, I mean overall for the company?

It's really too early in the process, John. I think we clearly believe that we will see margin improvement overtime, we think this is probably a three year process to really get to get where we need to be. And a lot of is just driven around... it certainly improving margins in the company but creating a... to create a less complicated smoother structure in the company, with greater critical mass around things like back office support and manufacturing for the business. And so I think the theory makes a lot of sense too, but I think it's way too early to predict the impact, but we're pretty locked in and convinced it's the right thing to do.

Yes, we've not changed our view that 50 points of margin improvements for the whole company is a realistic goal for the continued implementation of the lean and migration toward shift services. So we see this as evolutionary to our existing targets and the individual margin targets for the segments are still 14 to 16 at Flow, 11 to 13 at Thermal, 13 to 15 at Test and over 20 at Industrial. And so we are enjoying more than the 50 points of margin improvement in the core now from... probably from the benefit of strong top line growth. We need these initiatives to be implied so we can sustain other margin improvement that we've been achieving on the core business.

And then otherwise, recently I've been on South Africa but it's the Middle East still a significant emerging opportunity are call it by one contract maybe a little bit of color I mean. Could Middle East be as biggest not bigger than South Africa, and maybe just a little kind of color in the timing?

It can give certainly been significant for us. We believe one of the additional collateral benefits that we got, with the APV acquisition is the much greater presence in the Middle East and we can hopefully leverage that sales channel in presence for the rest of our process business and likewise with our thermal equipment and services segment, we think there will continue to be attractive opportunities for us in the Middle East, not only in power and energy, but in Test, chemical as well. So yes, we think it will be important and we also think South America will continue to be an important market for us in the sanitary and process business.

Thanks, Chris.

Okay, thanks. John.

Thanks, John and thanks Felicia. I believe that's the last question in our queue and we're out of time. So thanks, everybody for joining us today and for your questions. Ryan and I will be in the office all day today for any follow ups. Have a great day.

And that concludes today's teleconference. Thank you for your participation. Have a good day.