Welcome to the Flowserve Q3 2012 Earnings Conference Call. My name is Kim, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Mr. Mike Mullin. Mr. Mullin, you may begin.

Thank you, operator. Good morning, and welcome to Flowserve's Third Quarter 2012 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. The webcast will be posted at flowserve.com for replay approximately 2 hours following the end of the call. The replay will stay on the site for on-demand review over the next several months. Joining us today are Mark Blinn, President and CEO; Tom Pajonas, Chief Operating Officer; and Mike Taff, Chief Financial Officer. Following our commentary today, we will begin the Q&A session. Regarding any forward-looking statements, I refer you to yesterday's earnings release, 10-Q filing and today's presentation slide deck for Flowserve's Safe Harbor presentation statement on this topic. All of this information can be found at Flowserve's website under the Investor Relations section. We encourage you to read these statements carefully with respect to our conference call this morning. And now I'd like to turn it over to Mark to begin the formal presentation. Mark?

Thank you, Mike, and good morning, everyone. As everyone is likely aware, Hurricane Sandy continues to impact the upper East Coast of the United States. At Flowserve, our #1 priority is always safety. Many of our associates and operations are located in and near affected areas. Likewise, we know that a large portion of the financial community and many of you participating in today's call are facing these difficult conditions as well. We sincerely hope that everyone remains safe and out of harm's way. We want everyone on the East Coast to know that we are thinking of you and your families and wishing you well. Let me now begin our prepared remarks. I am pleased with our solid third quarter results, driven by operational progress resulting from our One Flowserve initiative, as well as the steps we have taken to improve our capital structure and ultimately, increase shareholder value. I am proud of Flowserve's strong culture of customer commitment and our employees' dedication in positioning the business to target and grow bookings in our diverse end markets. While our current outlook is somewhat cautious due to the soft macro conditions in Europe as well as moderating growth in Asia, which together have increased uncertainty in our end markets, we continue to focus on the items we can control to best position Flowserve to capture the infrastructure investment that is needed around the world, including our successful aftermarket business. This quarter, we delivered solid earnings growth in spite of significant currency headwinds. Mike will provide further details, but as you know, a strengthening dollar materially impacts our reported results since nearly 2/3 of our business is outside the U.S. and subject to currency translation. Our bookings growth of 2.3% or 9% when adjusted for currency, included our first large project…

Thanks, Mark, and good morning, everyone. As Mark discussed, we are pleased with our third quarter results, with bookings of $1.19 billion, up 2.3% versus prior year, despite the impact from a stronger U.S. dollar and the economic challenges facing Europe. Our consolidated book to bill was 1.02, driven by a solid aftermarket book to bill of 1.04. While we continue to see elevated levels of feed and pre-feed activity through the third quarter versus prior year, we now anticipate the larger megaproject orders shifting to the mid to second half of 2013. Turning to our year-to-date bookings by end market. We saw strength in the oil and gas, and chemical industries, along with modest growth in the general industries and water business. Regionally, the improvement has been concentrated in North America, Asia Pacific and Latin America, partially offset by lower bookings into the Middle East/Africa and to a lesser extent, Europe. Overall, the oil and gas business continues its broad-based, positive long-term outlook with North American pipeline business positively reacting to increased oil and gas transport activity. Other areas of pipeline project developments showing promise include the Middle East, Argentina and Colombia, with offshore platform work continuing in Brazil. In August, we had a grand opening of our $37 million Rio plant investment that allows Flowserve to expand our existing footprint in the Brazilian market, including a state-of-the-art test facility. In the power market, coal-fired plant opportunities in China and India remain on the horizon, as well as the potential for coal-to-gas conversion opportunities in the U.S. for both full and partial conversions. With the abundance of shale gas, combined cycle plants will bear the brunt of providing new capacity requirements. The chemical market has seen good growth year-to-date, particularly in China and the Middle East. Additional shale gas…

Thank you, Tom, and good morning, everyone. Over the last several months, I have met with many of you to discuss our earnings risk profile and the benefits derived from our diverse end markets, geographies and short cycle and long cycle exposures. We view this diversified lower risk profile as a key differentiator for Flowserve that allows us to constantly make and meet commitments and return value to our shareholders. As we look at year-to-date bookings, our focus on end-user strategy and our critical application engineering solutions for our customers has enabled us to drive organic growth above market growth. This is evident in our growing bookings despite a challenging macroeconomic environment. Overall, year-to-date bookings increased $109 million, up 3.1% or 8.4% on a constant currency basis. We are pleased with this growth as we increased our aftermarket capture and grew our installed base above market growth. The increase was driven primarily by the oil and gas and chemical industries, which more than offset decreased bookings within the power industry. When we look at year-to-date sales numbers, the mix shifted 1% in favor of original equipment, which generally carries a lower margin than the aftermarket business and can pressure the margin profile. Sales increased $178 million over prior year, up 5.5% or 11.2% on a constant currency basis. At the end of last year, we had guided to top line revenue growth of 5% to 7% over 2011, and I am pleased that we are tracking in that range despite the stronger-than-expected currency headwinds through the first 9 months of the year. Turning to the financial results. Sales for the third quarter increased 3.9% year-over-year or almost 11% on a constant currency basis. The sales increase was primarily driven by original equipment sales in IPD and FCD. Gross margins were…

Thanks, Mike. Operator, we're ready to open the line for Q&A.

[Operator Instructions] And at this time, we have a question from Mike Halloran from Robert Baird. Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: So on the deferrals and the pushouts that you were talking about, could you discuss kind of the end markets that those are the most prevalent in? And how much of it is you're seeing the deferrals already versus expectations for deferrals based on customer commentary and things like that?

It think it's more of the latter in terms of -- we note -- we stay in close contact with these customers. You've seen a lot of these projects, oil and gas, some in the power, even some on the chemical side getting booked into the EMCs. But as that process goes along in the feed work and it moves to final bid stage, in talking to customers, you can just see they get pushed out a quarter or 2. This is -- we're not in a situation where we were when we talk about looking forward back in '08, not even close. But it's the same thing. You just kind of continue to have a dialogue. You know these things are coming forward. There's been a tremendous amount invested in them, and so we just stay in touch with our customers. Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: And if we would have talked last quarter, maybe the quarter before that, you would have said first half next year with some of these larger projects getting led out on the marketplace, it sounds like that's more mid to late next year expectation at this point?

Yes. Coming in last year about this time, we were targeting right around the end of this year, and then we saw them slip to Q1, and now we've seen them slip another quarter. So all in all, they've slipped 2, maybe 3 quarters since we started looking at these things last year. Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: That makes a lot of sense. And then an update on the One Flowserve concept and specifically, on some of the cost of quality initiatives that Mike and the team are pushing through with Tom, could you just provide an update there and specifically what the acceptance level looks like in the EPD and IPD pieces where a lot of the focus was being pushed?

Well, if you take a step back in general, these things certainly do take time, and that's why I made a comment, in my opening comments about work remains to be done. But I think what you've seen in IPD are some of the early signs of the impact of, really, Tom's leadership and his team. I think in general, if you look across our overall margins and our SG&A, you're starting to see some of the impact of the One Flowserve in our -- in that line in terms of fixed cost leverage overall in our business. But in looking forward, I'd still think driving through EPD as we get the legacy backlog and start getting the benefit from some of the discipline that they brought in, that is yet to come. Obviously, there's -- we see more margin improvement for IPD as well. And then also, if you look back and think around the FCD business starting to be able to leverage some of the capabilities we've seen over in IPD and EPD, that is yet to come as well. So there is definitely still work to be done. I think Tom spent a lot of time with the -- his organization that he laid out for you in the Analyst Day. They're getting a good cadence and getting some good momentum. Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: Makes sense. The last one for me then, just tax rate guidance, low end of the 28% to 30% range is where I think Mike said it was going to come in for the full year. That -- is that the -- I guess, the question's twofold. One, for the fourth quarter, if you're going to get a full year range in that low, low end of that range, it implies something north of 30%, so maybe just clarification on whether the fourth quarter guidance on the tax rate is closer to that low end and then also, what the appropriate level to think about is as you work through '13, '14 and beyond.

Yes, yes, I'd say, Mike, the lower -- for the fourth quarter, we'll be at the lower end of that tax range, that 28% to 30% range. Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: And then for 2013?

Yes, I'd -- we'll comment on 2013 in a quarter or so. Just remember, a lot of that, Mike, is driven by mix, domestic versus foreign. So last year, when you saw that higher tax rate, that was because we had strong performance in the United States. As we understand it now, the U.S. has now the highest tax jurisdiction.

Our next question comes from Charlie Brady from BMO Capital Markets.

Just back on the project pushouts, I just want to make sure I'm clear. The projects, some of it has been pushed out. Is there any of that in the current backlog or bookings now or is that just stuff that has not been let that you thought was going to be let but now is pushed out?

Right, it's the latter. It's yet to be booked. So when we talk about -- when we're talking about project opportunities, that's remarks around future bookings.

Okay. Thanks for that clarification. And just on the EPD, because I know you -- in the prepared remarks, you said the legacy projects impacted margin by about 200 basis points or so. Can you just spell that out just for the EPD business itself? Because you, obviously, had pretty strong year-over-year flip on the OE aftermarket mix, which sounds like it's being masked -- the margin improvement is being masked by this legacy stuff.

Well, I think I'll jump in real quick. Mike's comments were -- most of the impact is in EPD but there is some in IPD as well, and even a small amount in FCD. If you recall, back in late 2010, early 2011, there were quite a few projects, big projects, that were led out in the Middle East that were very, very competitive, and all 3 of our units had participated in those. So that's some of what's coming through. And I'll remind you from my comments on the last earnings call, don't associate these with bad projects, associate them with the time in which they were bid and look forward and think about the aftermarket opportunities that they represent.

Right, right. On the dollar-to-dollar patent headwind, obviously, $0.15 to $0.25, obviously, in the fourth quarter of that. Can you split that between how much you're seeing those above or versus below the line in Q4?

Charlie, I'd say a majority of that's above the line, 80-plus percent.

Okay. So one more and I'll get back on the queue. On the DSO, driving that to the mid-60s. If you were to get to that level, or when you get to that level, I guess, how much -- can you quantify how much additional cash generation that implies?

It's about $13 million, $14 million a day.

Our next question comes from Hamzah Mazari from Credit Suisse. Hamzah Mazari - Crédit Suisse AG, Research Division: Just first question, you talked about the pushout of these projects not being similar to 2009. Maybe if you could talk about how investors should view current excess capacity in the marketplace. And if you do see these projects, maybe continue to get pushed out maybe early 2014, what do you think the impact on the pricing environment could look like?

Well, it is as you -- our capacity will look multiple years out, and we see these project opportunities as we've talked about before in infrastructure being available over the next couple of years. That's different if you're referring to back to 2009 as to when we didn't know when the cycle was going to abate. We've been through kind of a lower cycle over the last couple of years, and there is need for investment. So that's how capacity is going to look going forward in terms of the project opportunities. It's not going to -- capacity, especially on a long-cycle project, the focus is around 12 to 18 months in terms of being worried about absorption. And if so, if these things push out a quarter or 2, that's not going to have a significant impact. If the market were to come to a view that it could been over an 18-month period, then on the margin, that could start to impact pricing. But we don't see that at this point. Hamzah Mazari - Crédit Suisse AG, Research Division: That's very helpful. It makes sense. And then just a follow question on the aftermarket side, are you beginning to see more customers outsource? And maybe talk about what is driving that change from some of these customers doing this in-house and just your view there.

Yes, I mean, it's a long discussion, but I'll try to summarize it. Complexity, increased complexity, so the capabilities of customers, local machine shops and everything relative to that complexity is not there. And I think the second thing is you do have an aging population of engineers, particularly in the United States, where they are going to be looking to outsource that bandwidth to companies that can address the complexity and be a responsible rolling a business and then reliability in terms of responsiveness as well. So those are trends you're seeing in the aftermarket business. And you add to that a lot of our end-user strategies. This is moving way beyond where it was 20 years ago in terms of break, fix or just providing quick turn parts into efficiency, quality, reliability of these big, big projects. That's becoming increasingly important. And so as you look around the world, installed base is just that. It is there and permanent, and unless they shut it down, they always need to seek a way to optimize that capacity. And that's really where our end-user strategies are targeted.

Hamza, I would also add that as we start to see more maintenance monitoring taking place on these large projects in plants, we're going to see more of this trend continuing going forward.

Our next question comes from Scott Graham from Jefferies. R. Scott Graham - Jefferies & Company, Inc., Research Division: So I was wondering where you are seeing weakness in chemical. Is that North America and Europe?

Primarily, over in Europe. I mean, what you're seeing in Europe, even relative to where we were a year ago, is weakness almost in all of our sectors as they kind of work through their financial issues and their uncertainty themselves. In the United States, you still have a market, a chemical market, that's out there, but we're lapping pretty tough compares. There was a big growth last year in the U.S. chemical industry. So as we look forward, there certainly is softness, but there's opportunities to bid projects. There's one in the Middle East. There's opportunities here in the United States that are going to give us opportunities going forward. R. Scott Graham - Jefferies & Company, Inc., Research Division: Okay, great. Could you also give us an update on where some of the Korean EPCs are showing up around the world as you go out and bid?

Well, they're -- they bid very actively in the Middle East in '09, '10, '11, and it actually consumed quite a bit of their capacity, so we don't see them moving as quickly as they did before. And you're starting to see that more in the Westerns now that they're reporting some of their project opportunities. They are still fairly active in the power industry. They have been. We expect they will continue to be.

For instance, we're seeing some of the Koreans now looking at the U.K. nuclear market and potentially getting into that market also. R. Scott Graham - Jefferies & Company, Inc., Research Division: All right. That's helpful. So the year is tracking pretty much as you guys said from the beginning, which is great. I'm just wondering, the fourth quarter guidance is still kind of, why, and I'm wondering what kind of -- the thinking is behind the lower end, the things that transpire there versus some of the things that come to fruition on the higher end, is it something internal? Is it timing of shipments? Maybe you can lay that out a little bit for us.

I'll summarize real quick. I mean, the big thing is currency, Scott. You saw $0.30 impact in this quarter, 12% below the line. You saw 17% below the line in the second quarter, and then there is volatility in our tax rate. I think what you've seen has been pretty consistent in our performance this year, it's good leverage on our sales in the operating income line. R. Scott Graham - Jefferies & Company, Inc., Research Division: Right, okay. But then, to that end, since it is -- if it is internal, then if we were to just stay status quo from here on currencies, not that they will, of course, but the guidance that Mike provided there on what you guys are expecting for the fourth quarter, does that land you -- if it stays status quo, does that land you toward the higher end, toward the lower end or is that something going right in the middle?

Well, I mean, Scott, we're not going to comment on a precise number there. I mean, I think that's really the kind of the purpose of the range. I will note, obviously, that the midpoint did increase $0.05, so we do feel good about the year. We think Q4 will be a strong quarter as it has traditionally been for the company. But as Mark said, if you ask me what was one of the things that surprised me in Q3, it would have been currency. We certainly weren't forecasting $0.12 below the line, much less $0.18 above the line. So I'd say the $0.50 range just gives us a little bit of cushion for some potential volatility, not only in the euro, but other currencies that we're seeing in Mexico, Latin America, in India and other regions of the world where we operate. R. Scott Graham - Jefferies & Company, Inc., Research Division: Great. Last question, a simple one, could you give us the end-of-quarter share count?

End-of-quarter fully diluted share count was 51 285. On the phase of the 10-Q as of October 23, it was 49 9. R. Scott Graham - Jefferies & Company, Inc., Research Division: Wait, well can you just-- maybe I'm misunderstanding. You're saying the end-of-quarter share count versus the phase of the 10-Q -- oh, I see. I'm sorry for the optional share. I get it, sorry.

No, no. The Q has to bring down the share count to the date of the filing, which is beyond the end of the quarter, which would've included some share repurchasing activity in the first 23 days of October.

Our next question comes from Brian Konigsberg from Vertical Research.

Just back to the project slippages, just trying to get a sense, I don't know if you said, but where -- within which markets exactly are you seeing the slippages? I think you were insinuating that it was downstream, but I was curious if there was other markets that are showing some of that slippage as well. And also, on the downstream, particularly in the U.S., I know some of these petrochem projects are starting to hit EPC. Are people -- I'm just kind of curious, the nature of the pushout, is it people reconsidering the economics of these projects, is it really logistics, because of the size of the projects? If you could just a little more color on that, it'd be appreciated.

Yes, I would say, first of all, primarily on the oil and gas side of the business, and even though the long-term trends are looking good, it's more on the refining business than on the upstream production and transportation. The upstream production and transportation business is not where that pushout is occurring. The pushout is occurring for a couple of different regions -- reasons, just we probably got a little bit of a pause going on relative to what's going on with the oil prices worldwide and project financing and a few other issues. But we're talking about the oil and gas business and on the refining side of the business. But as we mentioned, we're still confident these things are going to go forward. There's been a tremendous amount invested in them.

Brian, I'd say just spending the last 6-years-plus before coming to Flowserve in the EMC business, that's something we see routinely. So the EMCs are-- similar to what you're hearing from EMCs as well, not unusual for these large multi-billion dollar projects to move to the right as they're just going through their pre-FEED and FEED activity. So I'd say no cause for alarm, just wanted to update you on when we thought we would be seeing some of these projects going to market and actually hitting our books. Before we're saying Q1, now I think what we're saying is Q2, Q3 timeframe next year.

Got you. And just on EPD, you talked about higher selling costs, maybe just a little color on what that entails. And is that likely to continue into Q4 of next year. If you could quantify it, it'd be good.

I think it's more just an investment -- primarily, around our end user strategy and some of the aftermarket business, we've had some investment in selling costs. And to some extent, Lawrence had some selling costs within -- being in the consolidated results for our full year.

Can you quantify the amount of headwind you saw in the quarter? And is that expected to continue or no?

It wasn't headwind. I think what is was saying is we had some increased selling costs to support our aftermarket business and our seal business. And then also, you're just seeing the add of Lawrence Pumps in there, too, year-over-year.

Okay, I got you. And then just lastly for Mike, so you guys did raise a lot of debt during the quarter, obviously, allocating it to buyback. At $1.2 billion, are you kind of settled with that debt balance for now or do you anticipate you might have some increase in the next few quarters or so?

Well, we're -- I'd say we're at the lower end of our target range of 1.2x debt to EBITDA. As you know, we said we want to operate in that 1x to 2x range. So we will continue to monitor that. I mean, at the end of the day though, as we talked about, we firmly believe our job is to allocate capital to the most accretive method possible and all, and that's really a decision we'll make quarter in and quarter out.

Our next question comes from Nathan Jones from Stifel, Nicolaus. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Could I just get a clarification on the share count there? You said 51 285 was the end-of-quarter diluted share count. The 49 9 on the cover is a basic share count, correct?

That's correct. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Okay. So I was just making sure you hadn't bought back 1.3 million shares in the last 23 days.

I don't think so. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Okay, cool. And I guess a question for Tom, FCD has had a couple of negative order quarters in a row. I know a fairly large portion of that goes through distribution. Have you seen any impact there from distributor de-stocking or OEM de-stocking, for that matter?

The distribution business has held up quite nicely in the year-over-year compare and sequentially. I would say that the distribution is one of those businesses that is more prone to more GDP-type changes in the marketplace, but it's held up quite nicely. As a matter fact on the sales side, the sales distribution business was up very slightly year-over-year. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: So what do you attribute the bookings weakness in FCD then?

I mean, we had a very tough compare. I mean, we have one of the highest bookings last year. It's almost $409 million, so that's one of the reasons. But with some softening on the chemical side of the business, we did have, as I mentioned, some good district heating in Russia. We did, again, have some good aftermarket business on the nuclear side. And then the oil and gas business on the -- let's say, shorter-term business was down slightly. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Great. And Mike, on that balance sheet, you're talking about 1x to 2x gross debt to EBITDA. But at the pace you're going to complete this buyback by the second half of next year, you're only going to be spending about as much cash flow as you're generating, if that much, and your net leverage is probably down closer to 0.5 turn or something like that. Isn't it more realistic to focus on what your net leverage is?

Well, I mean, I think you can focus on multiple metrics. I think we just -- we chose to focus on the growth metric. But I will tell you that there's a lot of opportunities out there for investments, and we continue to monitor those inorganic or bolt-on type opportunities out there. We're seeing various deals on a quarterly basis. Obviously, we haven't done anything this year, to date, but that doesn't mean we won't and all with the right fit, with the right synergies and all. So we'll just -- as I said before, we'll continue to monitor capital deployment in the most accretive ways.

Nathan, one of the reasons we don't look at it net is there is a frictional element to cash that's overseas. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Okay, that's fair. And I guess seeing as we're talking about M&A, how is the pipeline looking at the moment?

Well, I mean, we're active out there looking for things that fit. I mean, we like things like Lawrence Pumps that we had last year. It's something we can integrate fairly quickly and provide a return to our shareholders, so it's good. You've seen some assets change hands in the marketplace, and so we certainly keep an eye out for things. But what we want to do is make sure we evaluate all of these things in terms of what's the best return for our shareholders. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And if I could just slip one more in, I'm going to see if I can get anything out of you about next year. I understand currency has been a significant drag on the actual dollar bookings numbers. Year-to-date, orders are up about 3% over last year and backlog's up about the same amount. Is that 3% order in backlog growth rate kind of the way we should be thinking about an organic revenue growth as a baseline for 2013?

I mean, there's a lot of our business that comes in during the current year, particularly as you look at our aftermarket business and some of our shorter-cycle business as well. So it's not necessarily all long lead time type projects that you can use that to map revenue for next year. And some of it, as you look next year, is going to be what the impact of currency is. It could still provide an additional headwind to us next year. But our focus is on, and I made this in my comment, the market growth opportunities that are out there in general and how we participate. One of the things that we talked about was we see opportunity in oil and gas, power relatively stable and the chemical markets some softness, but with opportunity in there. And then what we do to drive share gain in those particular sectors as well and then the benefit that we expect to see in terms of some of these larger long lead time projects that are out there. So keep in mind, if we book a big project towards the end of the next year, typically we won't see the revenues until the following year. But that's -- probably the best way to think in terms of our revenue is what our markets are going to provide, driving our aftermarket growth, as you've seen us do up to this point and focus on share gain. We also have the benefit -- we'll get the incremental benefit of Lawrence Pumps growing some of our other acquisitions, some of our product introductions as well. We've been spending money on R&D. So what you're getting a very short synopsis of kind of how we go through our planning process and think about how we're going to grow our business next year.

Our next question comes from Robert Barry from UBS.

I just want to comment in the deck about expecting the legacy backlog to be removed as a margin issue in 2013. I mean, just order of magnitude, is that about a 200-basis-point tailwind?

Yes, we've talked about it during the course of the year, 100 to 200 basis points if we walk through. And I think Mike's comments for this quarter were 200, so it's a good way to think about it.

And just given the way it's tracking, I mean, would it be fair to say that the biggest year-over-year delta from that stress would be kind of weighted to the first half, where the absence of that stress on the margins?

No, it'd actually be more towards the end because you're -- it started out and actually, the pace of shipping, it has increased during the course of the year. And then also, we talked about, on the last call, some of these things were waiting on basically some supplies from some suppliers, if they don't come in, in the end of year, it could go over into the first quarter of next year. But for the most part, we will have executed on this legacy backlog in 2012.

Okay. Another question on margins in EPD, I think there was some mention of higher selling-related expenses there, and I just wanted to drill down on what that was, if that was sales force investment or what it is and then how long it's going to stay elevated.

Well, it is a couple of things. When you talk about these long lead time projects that are -- we expect to see next year, you have to start building some of the capabilities to support bidding those and executing on those, so that's one area. Another area is we've seen good growth in our seal business, and a lot of that is because of the sales force we've dedicated to it as well. And then finally in our end-user strategies aftermarket, a lot of which is in EPD, we've invested in some resources and including QRCs, folks basically on the ground to drive that business as well, and I think the last thing in the SG&A line is just the inclusion of the Lawrence Pumps' SG&A year-over-year.

Got you, got you. Okay. And then just a couple of housekeeping items. The interest expense, of course, that surprisingly tracked higher this quarter. I mean, just for modeling purposes going forward, is the 3Q level or maybe a little bit higher kind of level we should be using quarterly?

Yes, and I think it's pretty fair. But the range we're at for this quarter is directly in line with what you'll see kind of in future quarters.

You did have -- as Mike mentioned, you did have that deal cost in there. Just keep that in mind, Robert.

I'm sorry, how much was that?

$1.4 million.

That's $1.4 million, but also you'll have a full quarter of the volumes in there as well next quarter, so kind of I'd say directionally where we are for this quarter would be where we will be for Q4 as well.

Okay. And then just finally on the repo activity, I think you did just over $100 million this quarter. Is that what the expectation would be for fourth quarter as well?

Yes, I think we'll be in that. We may be slightly higher. I'd say we'll kind of be in that 120 to 140 range or so for Q4.

Our next question comes from Sid Panda from for RBC Markets.

The first question I had was regarding the share buyback. Earlier, you had said that it will be completed in the 6 to 12 months' timeframe. And now the press release says 2013. So has there been some moderation in the plan to buy back shares in 2013?

No, I'd say no moderation. I mean, we're pretty much right on schedule. We talked about last quarter in the conference call that we'd be in the 200 to 240 range for the next 6 months. This quarter, we purchased $101 million. And as I just mentioned, I think next quarter or Q4, you'll see us in the 120 to 140 range.

Okay. And the next question I had was on the DSO and working capital targets. Could you give some specific examples of steps being taken to reach the DSO goals? You talked about an expert being brought in and some steps being implemented. Could you elaborate on that a bit?

Yes, I'd say overall as it relates to just the working capital project in general, we did have a specialized consultant work with us this quarter with a number of our black belts and go out and visit several of our large sites. I'd say the results and findings were kind of threefold. One was revising some of our existing processes, implementing some new procedures and also, just some cultural issues among the operations and all. I think we addressed those overall. You'll start seeing some improvements. So now we're kind of going from the assessment phase to the implementation phase. We'll start that in the latter part of the Q4, and that will carry us through a longer period of time into next year as we implement these recommendations.

Our next question comes from David Rose from Wedbush Securities.

I think virtually everything's been answered. I have 2 follow-up ones, though. One, just to be clear, no orders have been canceled. Is that correct?

That's correct.

Okay. Secondly, the cash flow statement implies, based on the third quarter, that about $3.7 million was the FX impact -- noncash FX impact. You'd mentioned the balance sheet valuation has an impact below the line. So that $3.7 million, how much of that was below the line?

Mike?

I'm not sure...

Or maybe I can rephrase that. On the balance sheet revaluation or the below 9 -- below-the-line number, how much of it was actually a noncash impact for you?

On below the line, I mean, typically when you're marking the balance sheet or any one of your hedges, it's noncash.

Right, so virtually all of it's noncash.

Yes. Think of it as noncash. David, let me clean something up from earlier. We do have, from time to time, immaterial cancellations in our projects. They're very, very, very small.

Okay, and the market hasn't suggested a material change?

No, no, no.

Okay, perfect. I just wanted to clarify that. Okay, so we can look at that -- of $3.7 million noncash item then, how would that be divided between above the line and below the line?

I'm not sure, David. Let us -- we'll get back to you on that.

Okay. And then lastly on that FX front, with the new treasurer in place, what sort of steps can we see to kind of control that volatility in the below-the-line number? I mean, can you intimate what you plan to do for next year?

That's a great question. That's something we're going to look at. I mean, that's certainly a big challenge we have when you have really 2/3 of your business that occurs outside of North America, and so we are going to review our overall hedging policies and make sure we're doing everything we can do to preserve all the economic value possible in our interim business.

Keep in mind, David, I mean these hedges are designed to actually reduce cash flow volatility and cash earnings volatility. The reason the volatility is created is typically the hedged asset is sitting in backlog, and you have to mark the hedges every quarter, that's just the rules. So when the accounting rules changed 10 years ago to where you -- around hedge accounting, you had to start marking your hedges every quarter. So what I want to definitely convey is we do -- we run these programs to mitigate risk and to basically hedge the economics of a project that can take 1 year to 1.5 years for us to process through and ultimately collect the cash. So it's -- I think there's going to be volatility typically, and you see it in other companies as well, as long as you see there's tremendous volatility of dollars relative to foreign currencies.

Our next question comes from William Bremer from Maxim Group.

You called out the pipeline business, specifically in North America, as favorable for not only Lawrence Pumps, but your valve division as well. Can you provide some additional color there and really your exposure to underlying pipe, primarily long haul?

Well, I think, I mean, what you're seeing is a tremendous amount of investment in midstream. The legacy piping business was typically around natural gas, but increasingly now what you're seeing is increased piping into the liquid parts of the world. That's gas to liquids are actually oil movement around the world, larger storage facilities. And this investment, which is installed based on the midstream side, presents opportunities. Really, broad-based opportunities in the valve business, to your comment earlier, because whether it's gas or liquid, we have the opportunity on the valve side. But as there's more investment on the liquids, that's where you have rotating equipment.

Got you. And then given the midstream going into downstream, which is your bread and butter, if these potential projects that you're talking about continually do get pushed out, is it possible, maybe in a quarter or so, if we don't see them really come to fruition, that we do get an announced increase in -- announcement on additional restructuring initiative?

I mean, no, we're -- we don't want to certainly comment on anything like that at this point in time. What we're doing here is we're sitting here thinking about how to invest in our business. We'll always look for ways to improve it, Bill, always in any instance. But what we see right now and we're still confident that these projects are going to move forward.

We have reached the allotted time for the question-and-answer session. I will now turn the call back to Mr. Mike Mullin for closing remarks.

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

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.