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 Q2 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Mike Mullin.

Good morning, and welcome to Flowserve's Second Quarter 2011 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 Events Details page. The webcast will be posted at flowserve.com for replay approximately 2 hours following the end of the call. The replay will stay on this 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, Finance and Treasurer. Following our commentary, we will begin the Q&A session. Regarding any forward-looking statements, I refer you to yesterday's earnings release and the 10-Q 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 our answers to questions related in any way to projections or other forward-looking statements, are subject to Flowserve's Safe Harbor. Now I would like to turn it over to Mark to begin the formal presentation. Mark?

Thank you, Mike, and good morning, everyone. Let me start by saying that I am pleased with our second quarter results. The first half of the year played out largely as we expected. With the exception of disruptions related to turmoil in the Middle East and North Africa, as well as the impact of the natural disaster in Japan on the nuclear power market. But the most important outcome, is that our employees were not harmed. In spite of these challenges, our employees remained focused on their commitment to customers, which delivered solid results to our shareholders. During the second quarter, we continued to see improvement in our short-cycle businesses, especially in our Flow Control Division. This is encouraging because short-cycle business improvement proceeds similar improvements in our long cycle business as part of our typical macro economic cycle. Additionally, our end-user strategy of growing our global QRC footprint and expanding our service capabilities is paying off. Strong second quarter aftermarket bookings, notably in our Engineered Product Division, represented a sequential bookings growth of 10% and is evidence of how well our strategies are working. From a long-term perspective, we are well positioned to meet the growing demands for additional infrastructure capacity in global markets through our long-cycle products. In the short term, our long-cycle engineered product business continues to contend with excess industry capacity and delays in the customer release of certain large infrastructure projects. However, certain aspects of our long cycle business appear to have begun to stabilize. Looking at our end markets, we see increasing momentum in the general industrial and chemical market, as well as stable opportunities in the power and the short cycle oil and gas end markets. Our bookings of $1.21 billion were up 6.8% over last year second quarter, which included a major…

Thank you, Mark. Good morning, everyone. This is Dick Guiltinan. Our second quarter EPS of $1.76 per share included an $0.18 impact from realignment costs, an accessed Spanish regulatory charge, which is subject to appeal. The $1.76 also includes about $0.07 of currency benefit. This EPS was also impacted by about $0.03 per share from the Middle East, North Africa turmoil. Our second quarter bookings grew 6.8% on a year-over-year basis and about 4% on a sequential basis over the first quarter. Year-over-year, original equipment bookings were up 9.2% in the second quarter. The increases were primarily attributable to strength in the oil and gas, chemicals and general industries. Original equipment bookings reflect continuing improvement in the short-cycle OE markets. The large long-cycle projects continue to be choppy and competitive. The comparison for the oil and gas bookings include a more than $80 million pipeline order in 2010, underscoring the choppiness of the large project opportunities. Aftermarket bookings of $473 million were up 3.3% year-over-year. This increase is driven by increased customer maintenance, and improved overall economic activity. The book-to-bill ratio in the second quarter was 1.08, reflecting a solid broad-based increase in bookings. The strong year-to-date bookings resulted in consolidate backlog of approximately $2.9 billion, up about 12% over the end of 2010. Turning to the bookings and industry outlook, which compares bookings performance for the year-to-date 2011 and 2010 by industry. You can see that much of the 2011 bookings performance was driven by chemical and general industries, which increased in both absolute and relative terms. Oil and Gas bookings also performed well, with the previously discussed $80 million pipeline order in 2010, affecting the comparisons in 2011. The bookings performance in the power sector was down, primarily because of the decrease in nuclear power generation awards as…

Good morning. The core message today is that I am pleased with the performance of the Flow Solutions Group during a very challenging quarter. The second quarter was indicative of why we continued to say we are not a quarter-over-quarter business. While we continued to execute on our end-user customer focus, our strategic growth initiatives and driving bookings growth, we had to weather several external disruptions. During the quarter, we continued to face political disruptions in North Africa, compounded by dislocation in the Japanese market in the aftermath of the earthquake and the tsunami, and the current disruption in the global nuclear power market. Our project business remains choppy and competitive, and we continued to approach this market strategically in terms of balancing pricing discipline, project win rates and market share targets with factory loading considerations and long term business considerations. And while large project pricing remains very competitive, we have seen stabilization in the pricing environment and continue to exercise discipline and project selectivity. In our Industrial Product Division, we are gaining momentum on bookings and sales in our realigned operations, and we announced additional realignment efforts in our European operations as we have identified additional opportunities for meaningful structural improvement. For the Engineered Product Division, Q2 bookings fell around $43 million, or 6.8% on a tough comparison to the second quarter of 2010 when we booked a project in excess of $80 million and a very large ISG aftermarket job in the Middle East. Excluding those 2 projects, we would have shown growth on both original equipment and aftermarket. Activity levels in our core market sectors were mixed, as the chemical and general industry markets grew, as did in the power market other than nuclear, which is experiencing current softness in response to the Fukushima shutdown. We were…

Thanks, Tom, and good morning, everyone. This is Tom Pajonas, and I'm pleased to report very solid performance for the Flow Control Division. 2011 Q2 bookings for the valve business were up 35.4% versus prior-period, with strong showings in the oil and gas, chemical and general industry businesses. Revenue over the same comparison period was up 44%, with significant growth across all businesses and channels, including original equipment manufacturers, end-users, distributors and EPCs. Operating income comparison between Q2 2011 and Q2 2010 showed an increase of 41.9% with consolidated FCD operating margins at 15.5%. Excluding realignment and acquisition effects, the base business had an operating margin of 17%. Q2 bookings of $440 million were the highest of any quarterly bookings for that period of 2008 to 2011. These solid bookings give a healthy book-to-bill ratio of 1.14 and a total backlog of $769 million. Now let's review our industrial markets. In the chemical industry, we continued to see strengthening of the capital and MRO markets, as previously discussed in Q1. Many of our products are used in chemical plants producing chlorine, acidic acid and PTA. These are then used to produce textiles, plastics, rubber, PVC pipes and the automotive products, which are all forecasting higher demand. Customer site budgets in the chemical industry are being released again for MRO activities, as well as small capital projects for capacity increases and upgrades. In general, we are seeing an increase in North America and Western Europe activity. FCD's oil and gas business have seen a significant increase versus last year's comparison, as our growth initiatives in this area have seen results. While the oil and gas market has been choppy, we continued to see improved activity in the market. Activity in the Middle East and the BRIC countries, are 2 of the…

Thanks, Tom. Operator, we are ready to open the line for Q&A.

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

With respect to the self-inflicted delays and the customer delays, can you just be a little more granular on that, if you expect to make that up in third or fourth quarter this year? Or how far are those delays going? And a little more maybe on what the self-inflicted delays comprise?

Charlie, Dick Guiltinan. Yes, we've talked about project delays, some customer-related, some supply-based related, and some operational. If we have delays, they sit and they attract costs. Part of our processes is to look at kind of the overall project profitability as we look at those costs. And if we think there has been hit, we take the hit currently. So this quarter, we reflected some of the expected pain over those projects. Currently, we're working to clear those through the process, and get them through the -- into revenue and out of backlog as quickly as we can.

Okay. I go to the MRO question. There's now -- look at the bookings, the aftermarket mix shift on the year, and I look at gross margin. It would seem that the original equipment gross margin is year-over-year ahead hit of 400 to 450 basis points, which is probably due to the pricing. Am I looking at that correctly? And has that -- pricing at the larger products stabilize due to water [ph] is getting worse or better?

Look, Charlie, I think the pricing on that 2009, 2010 backlog flowing through, I think, continues to be the same story, very, very competitive. And if you're looking at that relative to last year, I think you need to remember the remaining bids of the 2008 favorable pricing flow-through last year. So in that comparison, we're getting a little bit of that old pricing as well. Further, if you think about it a bit, currency is a factor. We've had, as the dollar weakened over the last few quarters, some below-the-line benefits on our mark-to-market on our hedges. We've been saying that those positions were in backlog, and if they flowed through, we'd see some margin compression flowing through gross margin. Clearly, some of that margin compression is flowing through at this time. And then, if you're thinking about that overall EPD gross margin, there are some incremental -- or increased material costs as well.

Okay. One more and I'll get back in the queue. On the Flow Control Division, I think you mentioned 17% margin on the base business, is that -- that's excluding Valbart?

Yes. We try to normalize by excluding the margin dilutive effect of Valbart.

Your next question comes from the line of Mark Barbalato with Vertical Research Partners.

What's driving your view that the project activity is going to pick up in 2011 and 2012? Your comments seem to be incrementally more positive.

So, I mean simply put, look at the announcement. If you followed Dow's call yesterday about the large chemical project in the Middle East, these are things that we've seen on opportunities for a period of time. But, believe it or not, when there's unrest in the Middle East, that it can have the impact -- that actual maybe accelerating projects we're hearing now. But also around these global economic issues in Europe and in the United States, that impacts as to when people really give the sign as to whether these things are going -- when they're specifically going to go forward. Great example is what you heard yesterday. That was one of the projects we've been watching for a while. We've watch these, and have increasing confidence they're going to come online. As we've talked about for quite a long period of time, these projects are needed around the world, and they're needed as much for the local economies in a various set of reasons that we've talked about, whether it's Brazil, Russia, China, India, certainly, or the Middle East. So we knew there is going to be infrastructure spend. But these discussions tend to go from quarter-to-quarter. Their decisions tend to go from year-to-year, but we're getting better visibility now.

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

I was wondering if you could comment on -- this mention of selective bidding, and what does -- what do you mean by that? And how is it impacting pricing?

This is Tom Ferguson. The -- we have a very robust opportunity management processing system. And so we look at all facets of a project in terms of -- is it attractive from a customer standpoint? So is it a customer that tends to be loyal to buying their aftermarket from us? Is it located in an area where we have a QRC so we can provide good support? And then, obviously, the engineering firm involved and what kind of terms they usually deal with. And then, finally, we look at -- what is the load in that factory versus what is the market level price we're probably going to have to get to, to have a good shot at winning. And so that's been kind of rocking along for several quarters now. But -- so it's like anything. There's a lot of opportunities in the pipeline and some are attractive, some are less attractive. And we try to pick them around using all of those factors. And that's why it is a robust and selective bidding process.

And Robert, to my comments in my earlier statements, if you look over the last 3 years, you saw projects but you didn't know if they were going to push years. And so you're focused may tilt more towards load. But as we're coming in, in the environment now where we see the project opportunities, you can start to think relatively shorter term. And again, this isn't quarter-to-quarter, about how you load those factories and whether you want to keep some dry powder. So what that does tell you is, as -- as you see market opportunities over relatively short period of time, and we're talking a year, you can -- companies like ours and in our industry can become more selective.

Got you. So given that -- it sounds like you have more confidence about project activity coming in the back half, maybe you pulled back a little bit because you're not as urgently concerned about filling the capacity because you kind of have a little better visibility on better stocks in the next 6 to 12 months. Is that...

That's fair, and that's the way I would characterize the industry. I mean, that's certainly the away the industry operates and how we look at it. But let's remember some things that we've talked about before. It is still competitive. These big projects -- and I've referenced what you heard from one of the chemical companies yesterday, I can assure our industry was on top of that call as well. So these things do remain very competitive. And also think about -- whereas we've talked about before, as these -- as the market conditions change, in our order book, there'll be a lag effect because it is a long cycle as to when we'll start to see the benefit in our income statement.

Yes. You did also mention in the short cycle business, seeing some distributor restocking impact. Is that new? Has it accelerated? And is that something that's temporarily giving a boost?

I would say that the distributor restocking is continuing to trend from Q1. It is pretty robust across a wide range of markets, not just in one particular market. I would say it's increasing from the level of Q1. It's tough to say whether that's at the top end or it will continue up.

Your next question comes from the line of Scott Graham with Jefferies. R. Scott Graham - Jefferies & Company, Inc.: The aftermarket bookings organically, in both the Engineered Product and IPD, both were off just a little, but still off versus last quarter, which I thought that those bookings were better, if I recall correctly. Is there anything we should be reading into that? I didn't think that, that would be lumpy.

Sequentially, they were up. Overall, the aftermarket order book was up 10%. If you're looking at the year-over-year comparison, we had a very strong Q2 last year. There was some pent-up demand. And I think, Tom actually referenced a fairly large strategic aftermarket order that we had. But overall, we're very comfortable with the way this aftermarket business is trending. Keeping in mind, the incremental installed base, it goes in around the world at any given time, is probably low-single digit, so it will be growing at the levels we've been able to grow, it shows that we're getting good market penetration. So nothing to read into that. R. Scott Graham - Jefferies & Company, Inc.: Okay, all right. And the $80 million booking non-repeat, that affected -- I'm just looking through your release here -- which business did that affect, I'm sorry?

Scott, it was -- it's Dick Guiltinan, the $80 million of the pipeline in order in EPD in oil and gas. R. Scott Graham - Jefferies & Company, Inc.: EPD. That's kind of where I wanted to ask you. So what you're saying here is that, that was an OE order, right?

Yes.

Yes. R. Scott Graham - Jefferies & Company, Inc.: So, if we look at the 284 versus the 229, that's actually a pretty big delta the other way when you x that out, is that -- am I doing the math right here?

Yes. I mean, that was an important project to us. We like those. And we don't want to suggest we x those out. But the fact is, in your compares and in my comments and in the press release, we talked about the fact that we didn't have really any large project orders. So that's one of the better indicators of the underlying market, is when you kind of look past these projects because they can certainly impact the quarter in terms of whether they are there, or whether they are not there, or whether they move from one quarter to the other. It's really the underlying business that gives you a better sense of the market trend. R. Scott Graham - Jefferies & Company, Inc.: Understood. So I guess the last question would be along the lines of some of your outlook statements, which in tone, appear to be incrementally more positive. And maybe I'm understating it with or around bookings, so -- and as well as around pricing. So if I were to maybe put that together, would it suggest that -- and I know you don't get into the bookings guidance business, I'm just asking if the second half, is it -- or are you more optimistic about your second half bookings today than you were, let's say, a quarter ago? That's kind of question one within that. And maybe question two, Mark, you have talked about some of the things that you are expecting to kind of bring the company back to a 16%, 16.5% peak operating margin that we saw a couple of years back. Has anything changed in your mind? Is that a number that -- I'm not asking when we would get there, but is that still a number that you're thinking that you can get back to with an improvement, not only in the booking cycle, but in the pricing cycle that you're now potentially seeing?

Wow, that's a double-guidance question that you asked on this call, Scott. Wow, I mean, normally, you'd just go for one. You're going for the fence. No, we -- I mean, my comments around the markets are just those and -- but they are long term. It -- and it's really driven around infrastructure spend. As we get over the back half of the year, a lot can depend on one project moving into next year versus this year. But just underlying that, we're seeing some improvement overall in the markets. And really, the emergence from the cycle that were -- has been roughly going around 3 years. That's not to say, that if there's another disruption, if you think over the couple of years, there's been quite a few disruptions in our industries, the oil spill in the Gulf, the things that we talked about this year. So I think, generally, what you heard in the tone was that -- like the announcement yesterday, we're getting better visibility on some of these projects that we know and have a sense are going to come online over the next 3 or 4 years because they need to. And I think the other thing is just the underlying industries while the global growth is slow and people have different views, it will drive spend. When you go back to the margins, what you and I talked about when we were together a couple of months ago is, when you look at where margins were, and I think you referenced that over a couple of years ago, what's changed, what's the same and what's different? I think what's changed, clearly, is the pricing environment and on -- particularly on large projects. They're competitive now. And we can't say whether it's going to…

Scott, it's Dick Guiltinan. Let me try the first one. I think, very clearly, we look at the receivables situation right now and recognize that to some degree, it's a matter of really working the blocking and tackling, making sure that they were working closely with our customers and driving to get us back off of that kind of 80-day DSO back to a kind of more normal rate like we saw last year, other quarters. Inventory, again, that's just continuing to drive our operational excellence and drive our execution on the backlog, and then driving turns again a little bit to lower level of turn right now relative to history. And that's our target to kind of get back there.

I think down on the second one, we're going to -- as we have kind of balanced our 3 primary constituencies, that's our customers, our employees and our shareholders, and a part of it is, there has been and there still is, to a certain degree, value and optionality around cash in the markets that we're in, in the environments we'll be in and the opportunities that are out there. But we're also sensitive to the fact that we need to manage those constituencies well by giving returns to the shareholder, both direct and indirect. And what I mean is, dividend and share repurchase. But also making sure we can invest in, certainly, organic opportunities and externals as well. So we'll review that, and you know, Scott, our typical cadence is, we really to look at that balance sheet at the year end when we do a lot of our strategic planning and our capital planning. And that's what we talk about at the beginning of the year when we do that. So that's not to say, we won't think about that before then, we think about it constantly, but that's typically our cadence.

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

Mark, I just want to clarify something I thought I heard you say, which was that -- did you say that some of what was being worked off of the backlog continued to be some of the prior, more attractively-priced projects that were still coming through? Did I hear you say that?

No. Now we actually -- I think our commentary has been those prior, those -- let's just call them '08 pricing for nomenclature, those are gone. And that's really more in the year-over-year compare, Wendy.

Okay. And again, how long do you expect this less favorably priced business to penalize the margin? What should we be expecting?

Well, it's going to be around what are the delivery times on the projects that we've talked about. They've certainly come in. But I think on the long cycle highly competitive projects, which is a portion of our long cycle business, we can see the effect of that going into at this point, the middle part of next year. Now one caveat to that, Wendy, is on some large projects. If the pricing environment were to change at some point in the future, large projects we do, percentage of completions, so there will be some aspect that will come through quicker. But generally, if you just think of it on a cash basis, that we think -- when we talk about the long cycle and particularly, the large project business, that pricing starting to improve or whatever it is, when we talk about that at that point, there is roughly -- there is going to be about a year lag in general. There might be some percentage of completion that comes through. And where you see the immediate benefit, obviously, is in the aftermarket and the short-cycle business as well, that will tend to come quicker.

Okay, okay. And Dick, a working capital question. First, can you just describe the difference between a project delay and a customer driven delay? And if you could tell us whether those were a meaningful part of the working capital increase?

Yes, Wendy. In some instances, yes, customers will either be slow in scheduling inspections or slow in releasing the final project on the basis of documentation or other matters. And we just need to work with them as careful as we can to get our documentation absolutely to their requirement and work through getting them to release the shipments. So we've seen some of those delays and a little bit of that is sitting in finished goods. Some of the other project delays in some instances, supply chain issues and as we went through the process of -- the supply base kind of consolidated due to the financial downturn now as demand starts ramping back up, some of the supply base is struggling, both in terms of performance, as well as on-time deliveries. So some of the supply-base delays are related there. And then in some instances, we just have to get the projects out and that we've been delayed internally for our reasons.

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

Question on the -- in the IPD group. I think in the queue, you mentioned that there were some operating inefficiencies that also impact margins there. I was wondering if you can expand on that a little bit?

Yes. Jamie, it's Dick. I think -- just like we talked about with EPD, some project delays, I think there were a small number of IPD kind of -- same kind of delays.

Okay. And is that -- so I know last year, when there were some hiccups, there were some lost bookings, was that -- did that happen again this quarter, or was it more just a one-off in certain projects?

I think, just as Tom talked about a little bit of legacy issue, I think as we've gone through the overall realignment process and gone through that effort, there have been some delays and that's impacted us.

I think, simply put, what you're hearing is we are pleased certainly with our operations. There are some that need to improve, and those are the ones that we're specifically calling out to you.

And can you quantify the impacts of margins to that segment on some of that? I know you did it for like the Middle East in some of those, is there a number you can help us with?

We tend not to try to break down plant -- we look at, obviously, plant-by-plant, and cost of sales, SG&A line. But we don't do that externally. I think the thing to focus more on IPD is where we're going to take the margins to. We did tell you it was going to take some time. So while you referenced the term hiccup last year, keep in mind, when we're making all the changes we're making, there'll be some impact on operations. But we see they are going to improve as well. And also, I think the other commentary, just to help is Dick's remarks, and it was primarily in EPD around some of these project delays and how we take the negative impact of that and really bring it forward into the quarter. And as -- really, you have to kind of look forward on those things. So we do see that as we get the backlog out that we've talked about, which a lot of it is sitting there. Some of it, as I mentioned, in my comments, is delayed. As we drive that out, a lot of these issues will clear over the remaining of the year.

Your next question comes from the line of Hamzah Mazari with Crédit Suisse. Christopher Parkinson - Crédit Suisse AG: This is Chris Parkinson on behalf of Hamzah. Just a quick question. You mentioned pricing was firming a bit in some of your bidding activities. So when these projects do return, can you give a little bit more color on how margins will progress as some excess capacities absorb over time, particularly as you've made significant efforts to enhance your operating structure?

Well, I think to Wendy's question earlier, on the large project long-cycle, you will get some benefit from absorption and everything like that. But it will take roughly a year before those go through. And keep in mind, that's not all of our OE business. So from time to time, folks say are the supplies to the 60% of your business on your 60-40 mix, or whatever it is. Really, this is more of the large projects within EPD. They have some long cycle and some short cycle business as well. A lot of the FCD business is more short cycle, although they do have some projects. I think what -- on the shorter cycle, it's obviously quicker because the price -- the bid price or the booking to revenue is a lot quicker. So those will move through. But in general, what you'll see is that as -- the contribution of the large projects will take a period of time, from the time the market changes for you to start seeing that in the margin flow-through. The short cycle business will tend to give you the lift, not only in the pricing, but in the absorption as well because those are high-volume facilities that really can benefit from the absorption or more sensitive to absorption up and down. Then you've got the aftermarket business. That's just good solid business that you grow the top line, and it will accrete margins because it's a high-margin business. And then the remaining focus on the -- what I'd call the fixed cost structures, so that we can cascade those increased revenues in that improvement across more of a fixed-cost structure. Christopher Parkinson - Crédit Suisse AG: Perfect. And just to kind of a -- a second derivative question on that, as far as the aftermarket is concerned, can you give us a little more color on the growing importance of having aftermarket capabilities within the regions when you're bidding for these larger projects, particularly in emerging markets, let's say, Saudi Arabia, Brazil and so on and so forth?

Yes. This is Tom Ferguson. It's absolutely critical. It's something we've used over the years to help differentiate ourselves. But it helps in many ways. One, it allows us to provide service to the customers in places like Saudi Arabia, so especially to Aramco; in Mexico, to Pemex; in Brazil, to Petrobras; in China, to Sinopec, those kinds of things. And I -- so I think, whether that gets highly evaluated in -- on a project that's a lump sum turnkey with the EPCs or not, it definitely gets us on the approved vendor list. It allows us to work the service aspects of a project. And then to ensure that it starts up well and that we've got resources on the ground to improve the start up of the facility. And then finally, in the longer term, it allows us to continually offer them new solutions to get not just parts out of the installed base, but to get the large portion of the aftermarket that comes from repair, and then continually upgrade that equipment over its life cycle. So more and more our customers are looking at that and saying, "We need you on the ground with us because we don't have as much capability as we used to have." And they want to focus on producing oil or on producing refined oil products or chemicals. So it's continuing to increase in importance.

Your next question comes from the line of William Bremer with Maxim Group.

My first question deals with the aftermarket. Let's stay there. Can you give us some color on the aftermarket in terms of pricing? Very nice growth that you specified throughout the call, but we're seeing a lot of your competitors gunning for this business. Are you able to hold pricing in your aftermarket?

It's shown to be a relatively stable pricing business over a number of cycles.

Great, okay. And then going into -- the industrial IPD segment. Margins, 4.3%, you're targeting 14% to 15% over time. How can we look at these operating margins over the next few quarters here? Is this the base at this point? Are we going to be pulling back and seeing a little bit of an upswing here?

Yes, Bill, the only guidance we really want to give on IPD is margins, is the ones we've talked about in our target at 2015. And what you -- but what -- notably, what you've seen in this quarter was the additional charge we took in connection with our European operations. And as Tom commented, there's a little more that's left as we complete that effort. But if you're looking at the margin for this quarter, one of the primary impacts was that charge.

Right, okay. And we'll have another $1.3 million hit in the next quarter there. And this next question is for Tom Pajonas. Tom, in terms of pricing for your segment, what are you seeing out there?

Well, I mean, it's variable, very similar to what Tom has described on, let's say, the more longer cycle business of ours, it's still choppy and very price competitive. And we expect that to continue. As Mark described on the aftermarket, that tends to be a little bit more stable, and we're able to get that value-added because we have those feed-in services on the ground next to the customers. So I would say, on the aftermarket, stable pricing. And in terms of, let's say, the other shorter-term business, we have mixed results. We have material pressure that does come into play. You heard also a little bit about the supply base capacity that's starting to get a little bit tight around the world. So those things will continue to come into play and will have an effect on the short term, as well as the longer term business.

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

I just want to -- a quick follow up on the realignment charges. Is that all going to fall -- remaining into Q3 or will slip into Q4? And can you remind us what your original guidance was for total realignment costs because that's gone up, right, with the IPD European restructuring?

Yes. Charlie, it's Dick. The original -- the first 2 programs approximated $92 million. We've spent about $88.5 million so far. There's a little bit to bleed through in the last couple of quarters of this year. And because there've been a facility relocation, there'll be a little bit that bleeds across into the following year. On the new IPD incremental cost, I think it would be maybe fair to say at this point, we're still in consultation with the works council. So I don't think it's -- if I can clearly say kind of when that cost flows through at this point.

If your question was around this year's guidance, I think we were -- original, we're roughly around $5 million. And so what you see in connection with the IPD is additional to that. It was not contemplated in the original guidance.

That's kind of what I was getting to. So your guidance is unchanged, but effectively, it embeds more realignment expense than you originally had.

Yes. I mean, to your point, there's things we anticipated and didn't anticipate. What we obviously didn't anticipate was some of the charges we talked about and the -- and this additional realignment. Flip side is, we've gotten a translational benefit from currency. The one thing I will remind you, and Dick made this point, is the below-the-line benefit we get in currency, comes -- there's an offset in backlog. And that will come through the P&L. So it's not a one -- necessarily a onetime benefit. It has an offset in the backlog, which when the dollar weakens, what it will do is, it will compress margins, gross margins, because it goes right through cost of sales. So I think as you kind of think about -- because we anticipate that people are -- think about -- help me think about where you are in January and where you are now, we didn't anticipate certainly the headwinds in North Africa. Those weren't contemplated as well. So we've overcome quite a few things this year. We've certainly gotten a translational benefit, not the mark, because that will come back through. But we've gotten a translational benefit from currency. Those are really the puts and takes at a high level. This was not in our guidance, originally.

Your next question comes from Robert Barry with UBS.

Just a quick one. Last quarter, you suggested that the M&A pipeline was getting more active and you seemed to be getting more active looking at it. Could you just update us on that please?

It's more of the same. I mean, there's certainly some opportunities out there. We just want to make sure we're thorough and selective. As we look back, I'll reference the one we made roughly a year ago, the Valbart acquisition, we're real pleased with that. I know it's had some impact on margins and everything like that. It's a lot -- the way you account it for business when you bring on and how you bring it on. But I think Tom's comments are the most important. It has given him a good leg into the oil and gas business. And that business itself has -- he's been able to grow it. And that's why you make these a strategic acquisitions.

And is it something of that scale that you'd be most likely to look at, or would you look at larger things as well?

Well, we look at the, really, the full range. It -- the driver is going to be around our strategic intent, which you saw on our presentation in January. But then, we also look at really, issues around bandwidth and integration. So that's really our criteria. What we do in -- towards the end is look at the size of it and really how we're going to finance it. It's really going to be more around product opportunities, strategic fit. And that really relates to a whole range of potential opportunities out there.

At this time, there are no further questions. I'd like to turn the call back to Mike Mullin.

Thank you, Michael, and thank you, all, for joining us today.

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