Welcome to the Flowserve Q1 2013 Earnings Call. My name is Dawn, and I will be your operator for today's call. [Operator Instructions] I will now turn the call over to Jay Roueche. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you participating in our call to discuss the financial results of Flowserve Corporation for the first quarter of 2013, which we announced yesterday through our press release and Form 10-Q filing. Joining me on the call this morning are Mark Blinn, Flowserve's President and Chief Executive Officer; Tom Pajonas, Chief Operating Officer; Mike Taff, Chief Financial Officer; and Mike Mullin, our Director of Investor Relations. Following our prepared comments this morning, we will open up the call for your questions, and directions will be given at that time. Before we begin, I would like to remind you that today's call is being webcast and an earnings slide presentation is available, both of which are accessible through our website at www.flowserve.com in the Investor Relations section. An audio replay will also be available on our website in approximately 2 hours following the end of today's live call. This replay and the slide presentation will remain on the website for a period of time over the coming weeks. Finally, please note that today's call and the associated earnings materials contain forward-looking statements that are based upon information available to management as of April 25, 2013. These statements involve certain risks and uncertainties, many of which are beyond the company's control. We encourage you to fully review our safe harbor disclosures contained in yesterday's press release and slide presentation, as well as our filings with the Securities and Exchange Commission for more information. Each of these documents can be found on Flowserve's website under the Investor Relations section. And please note, except to the extent required by applicable law, Flowserve undertakes no obligation and disclaims any duty to publicly update any of today's forward-looking statements. I would now like to turn the call over to Mark Blinn, Flowserve's President and Chief Executive Officer, for his prepared comments.

Thank you, Jay, and good morning, everyone. I am pleased with the operating and financial results for the first quarter. This performance highlights our employees' continued dedication to discipline growth, operational excellence and cost control, which provided solid margins and produced earnings leveraged from all segments. Together, these factors enable us to deliver on our commitments to both customers and shareholders. Earnings of $2.01 per share this quarter were solid, and I am proud of the operating improvements we have made and continue to make, which positions us to deliver on our full year targets. First quarter bookings of approximately $1.2 billion were down slightly year-over-year, reflecting a continued focus on run rate and aftermarket business. We had strong sequential improvement as bookings improved by 9.9%, despite the continuation of macro uncertainty, in particular, in Europe. Our solid bookings demonstrate the benefit of our diverse end market and geographic exposures. Similar to the last quarter, the aftermarket business remained somewhat muted, as some refiners continued to defer maintenance to keep their operations running to take advantage of current strong margins. The original equipment business continued this quarter with smaller-sized projects, and we continued to see the larger project activity progressing towards the final investment decision, which we expect to begin in the latter half of 2013. The solid margin performance this quarter from each division was largely the internal return generated on last year's internal focus in our One Flowserve initiative, which leveraged process expertise across the business. Tom will cover the operating improvement progress. But in short, this performance gives me confidence that our strategic focus on profitably growing the business while simultaneously controlling cost, will continue to deliver long-term value for shareholders. I have previously mentioned and can again assure you that opportunities remain available inside the company…

Thanks, Mark, and good morning, everyone. As Mark discussed, the internal focus on operational improvements we made last year built momentum in the business and underscored my expectations for capturing additional opportunities for improvement during 2013. Operationally, the first quarter was solid, as we continued to focus on the customer, on-time delivery, quality and supplier development. Our One Flowserve initiatives have leveraged global competencies across our operating units in project management, low-cost sourcing and information technology, to name a few, and opportunities for further improvement remain. The progress we've seen in the gross and operating margins in EPD and IPD is encouraging, as we've worked on increasing the efficiency of our factories and look to be well positioned for the latter cycle projects, as they work through the bidding phase and near final investment decision. We will maintain our discipline and selectivity in our project pursue teams, and we expect to see continued improvement in the quality of our backlog. And FCD, it remains focused on top line growth, delivering solid bookings and revenue growth in the first quarter, while achieving high levels of operating performance. Our strong team of black belts and green belts remains deployed throughout the organization to further drive efficiency and cost improvements. SG&A leverage remains a constant focus as evidenced by the reduction in SG&A as a percentage of revenue this quarter, excluding AIL transaction cost of $1.7 million in 2013 and the net gain on the sale of our real assets of $10.4 million in 2012. Let me now turn to our markets and outlook. Overall, we were pleased with the quarter's book-to-bill of 1.09. As Mark mentioned, we saw solid sequential bookings growth of 9.9%. As expected, small-to-midsized projects continue to support our OE bookings, as we have yet to see the release…

Thank you, Tom, and good morning, everyone. Following Mark and Tom's operational overview of the first quarter and business outlook for the remainder of the year, let me discuss in greater detail our financial results. While we encountered $0.24 per share of currency headwind this quarter and experienced a less than a complete recovery in our markets as Tom outlined, we did begin 2013 with a very solid first quarter. Our sales of over $1.1 billion represented a 2% year-over-year increase, or almost 3% on a constant currency basis, and consisted of approximately 58% original equipment and 42% aftermarket, essentially the same mix as last year's quarter. I was particularly pleased that gross margin improved approximately 60 basis points to 34% as compared to last year's first quarter, and an increase of 70 basis points, sequentially. This level is the highest we've obtained since the first quarter of 2011. While we were impacted by some remaining legacy backlog shipments, the margin improvement we delivered was aided by revenue flow through and is further validation of our project selection discipline, operational improvements and ongoing aftermarket focus. EPD's gross margin of 34.9% was the highest in 2 years and a sequential improvement of 130 basis points. We are clearly pleased with this trend, although we do expect it to be dampened somewhat in the 2013 second quarter, as we expect an increased percentage of OE activity creating a mix shift. Turning to SG&A. It's not an easy compare. As reported, SG&A to sales increased as compared to last year's first quarter by 80 basis points to 21.4%. However, last year's $10.4 million gain on sale of operating assets lowered that period's SG&A amount and approximately $1.7 million of JV-related transaction expenses increased the 2013 expense. Excluding these items, SG&A dollars were flat…

Thank you, Mike. Dawn, we have now concluded this morning's prepared remarks. If you are ready, we would now like to begin the question-and-answer session.

[Operator Instructions] Our first question comes from Charlie Brady from BMO Capital Markets.

Just on the commentary on the mix in second quarter. I'm just trying to square that up. The EPD had a pretty substantial shift towards aftermarket bookings in Q1 by about 900 bps, which generally, I'd assume, would be a positive for margin. But I'm trying to square that with your commentary on mix shift being negative to margin in Q2.

Well, the -- I mean, if you look, first of all, year-over-year in terms of the mix shift, that can be and it was a handful of projects that were there last year in Q1 that may not have been there. So I mean, don't read too much into that. Really, the theme around EPD and the overall business is the underlying run rate business has seen steady growth, including aftermarket. Now to your question around the second quarter. If you look historically, Q2, and to a greater degree, Q4, tend to be when a lot of our projects go out the door, a lot of the OE. These are some of the larger, longer cycle. So while aftermarket remains somewhat steady, although you do see higher levels at the end of the year as many of our foreign customers try to get all that MRO aftermarket in before the end of the year. Because keep in mind, in Mexico, in certain parts of the year, they rebudget every year. So there is a little bit of seasonality to that market. But for the most part, you see that kind of run through steadily. What will change from quarter-to-quarter is going to be the number of projects that are shipped out. And historically, we've always seen that in Q4, a lot of projects go out the door. What that means is in Q1, there's fewer projects that goes. So it tends to shift back to more aftermarket mix and then tilt towards the OE side in the second quarter. That help?

Yes, it does. So we should expect Q3 this year, do you think, to be the highest margin quarter?

I'm sorry, what was your...

Should we expect Q3 then, to be the highest margin quarter, kind of given what your backlog looks like and kind of timing of shipments then?

Yes, I mean, Charlie, I don't want to start pegging margins quarter-to-quarter because literally, that can change as to when a shipment goes from 1 quarter to the next. That's really why it's tough to sit here and drill down margins quarter-by-quarter overall in our business. And really, it's better to look at rolling 3-, 4-quarter trends. But I think some of the themes around our margin, first of all, we were pleased with the way the margins came out in the first quarter this year. And I think the most important message we want to convey is, when you looked at operating margins over the last couple of years, a lot of it has been a cost leverage story. This time, you're starting to see the operational improvements. And that's what we're focused on in our business. I mean, you look at our revenue guidance for the year and you can see it's mid-single digit. So a lot of the -- as we drive the earnings this year, certainly, there's a top line component to it. But a lot of that is just driving improvement in our business, which we'll really be able to leverage in the outgoing years, as these projects start to come in, as we grow our business, as we start to capitalize on some of the markets, like India now that we have really direct access to. So think of it that way in terms of improving the business is what's driving the margin. You're seeing it in the gross margin profile as well. So as you kind of look through the year, couple of things around margins is that the OE mix, how that comes back and forth, that will impact it. That's okay, right? It's still earnings overall in our business. The improving business, as we get additional traction on our operational excellence, we will start to realize the value continued over our -- as our backlog, our improving backlog over the course of the year comes through. That's what's going to drive more margins. We're going to focus on cost leverage as well. And then, in the out years, we're going to start capitalizing on what was your good revenue opportunities as well.

And just on the industrial business, it looks like the chemical end market for those guys was more positive than I would have thought. Where are you seeing the strength in chemical on the industrial pumps?

Tom?

Yes, I mean, a lot of the chemical business, obviously, is taking place in the U.S. driven by the low-cost natural gas. And we're also seeing some good chemical business based on the Middle East product diversification and again, because of the low cost on natural gas prices.

All right. One more and I'll get off. Can you just give what the actual share count was, ending share count at the quarter rather than just the average for the quarter?

Yes, Mike?

The actual share count at the end of the quarter was 47.9 million shares outstanding.

Our next question comes from Hamzah Mazari from Crédit Suisse. Hamzah Mazari - Crédit Suisse AG, Research Division: The first question is just on the aftermarket business. Aside from refining, where else are you seeing deferred maintenance? And what's your internal expectation of when that gets released? And sticking with the aftermarket, if you could talk about your ability to also service other rotating equipment aside from your core offering?

Sure. I mean, that's -- going to the last one, that's of course, one of our strategies and why we like having the seal pump and auxiliary portfolio to go in and touch rotating equipment. And what I mean, by that is, if you're a standalone seal company, you're basically looking at the seal component in terms of repair. If you're a pump company, you're looking at basically the shaft, the rotors, the impellers in aspect to the pump. We have multiple opportunities to go in and touch that piece of equipment and offer a broad service offering. So that is definitely, certainly one of our strategies, is taking care of our equipment and going in and also taking care of other equipment as well. When you look at some of the aftermarket trends currently, and Tom called out, we've seen this before where refining spreads merit just running them flat out. And I think what we also saw before during that period of time is you can't do that forever. So it's really going to be pent-up demand. Where I think demand may take longer to come back is going to be in some of the upgrade and repair work in Europe. And they are maintaining their equipment. We've been in that business for a period of time. But some of the ISG upgrade opportunities in Europe really depend more when the sentiment starts to improve there. But for the most part, we're pleased with the way we've been able to grow the business. I'll go back to -- if you look at the net incremental installed base around the world in any given year, our aftermarket growth is well above that. Hamzah Mazari - Crédit Suisse AG, Research Division: Got you. And just second question on just -- you talked about selective bidding. And you spoke about that a few quarters ago as well. Could you maybe comment on the competitive environment you're seeing out there on some of the long cycle and maybe also short-cycle work and how pricing is trending? And do you expect any significant pricing benefit once some of these large projects begin to materialize and some of the excess capacity gets absorbed?

Yes, I mean, Hamzah, let me just take it back a couple of years. I mean, this, on the long cycle side, if you recall, this market turned down in 2009. And during that period of time, you saw a number of things occurred. Recently in the press, more around the Korean E&C firms, very aggressive in the Middle East in 2010, early 2011. That impacted the market. Some of the competitors, which I think are now more in strategic hands, impacted the market. But the fact is that our markets, our long-cycle and project markets declined in '09 and have not really firmed up to the levels that you saw in '06, '07, '08 yet. We see that on the horizon. What has happened is, I think, people have focused more and rationalized their capacity. The competitors are in very good strategic hands. A lot of the impact to the Korean contractors has worked through the system. You're starting to see it in their P&Ls right now. And so there is the opportunity to be selective in the markets. And that's what we started doing last year. So that has kind of driven what I'd say is, what we talked about is stability and, I'd say, rational pricing. It's still competitive, particularly in the power industry, if you look across industries. But what happens going forward is the capacity is now positioned for the opportunities that are on the horizon, right? It's not endless capacity. And so as those opportunities start to come out, even in the power industry, what you'll see is pricing will start to increase overall. So a lot of it is going to be driven by what we see in the opportunities towards the back half of the year. Again, I'll say, I -- we don't necessarily build our strategic models on the type of pricing environment we saw in '07 and '08, which you saw because of, really, the backlog and the cycle times carried us almost into 2011. But we really don't need that to drive to our commitments. We're going to get good leverage out of price. And what's very important to us right now is to have our operations positioned to be able to respond quickly and leverage, not only revenue, but any kind of price benefit we get in the revenue going forward. Hamzah Mazari - Crédit Suisse AG, Research Division: Great. That's very helpful. And just last question. Do you guys have any product gaps in your portfolio? Or is that all behind you? I know you had something in IPD a while back, but that's behind you. How should we think about that?

Well, I mean, we do. We've, I think, Hamzah, you and I have talked about the safety valve, but the time and market to develop it is difficult. So I think we have a pretty broad product portfolio. I think it's definitely linked and interconnected in terms of how we go to market. And I think that's certainly an advantage for our customers, our sales organization and really, our ability to leverage it. Having said that, one of the areas of our, what I'd call operational excellence recently, has been to really get a clear line of sight of our R&D organization to continue to develop, not only on product gaps, product enhancements, but also technology advancements, monitoring and things in and around the product. So I -- do we have everything we want? No. And are we going to continue to pursue either technological advancements, additional capabilities to products, developing products? I mean, we have a lot of base technology, Hamzah, that we can adapt for different applications. And we think that's a real opportunity. So it goes back to the buy versus build. You've seen us buy some. We've actually built quite a bit. Most notable one we talked about was the ISO chemical pump, but there's certainly been other things. And then what we want to do is take the products that we have and adapt them to additional applications. The basic technology existed in Flowserve that we adapted for the thermal solar application. So we are not sitting still.

Our next question comes from Scott Graham from Jefferies. R. Scott Graham - Jefferies & Company, Inc., Research Division: So I was just wondering, a question for Tom Pajonas. If you could -- I know what your margin aspirations are for the next year or so. And I was wondering if we could maybe hear from you. You've been on the job now for about a year and kind of -- if you were to unbundle those margin aspirations by kind of maybe just look at the productivity side, which I assume is higher than the margin expansion that you're thinking because of some offsets. But I just kind of wondering where -- what you're thinking on what the company's ongoing productivity benefit should be and where that will come from?

Yes, when we talked about the margin enhancement, we kind of talk about the propensity in the business. And we use that word quite often. I mean, if I take a look at the points of leverage, and they are points that we haven't yet cleared all of them. But first and foremost, I look at the on-time delivery. So the more throughput I can get through my factories, I can increase the gross margin on the business. We take a look at the quality. So my first-pass yield, whether it be engineering or supply chain or manufacturing first-pass yield, is something that we're working on as a leverage point. The next one that we're working on is sourcing. Not necessarily sourcing just low cost, but sourcing in order to improve the throughput and the cycle time through our facility, again, another overall leverage point. We recently have brought in a Vice President of Projects from the project management organization EPCs, in order to lever that point in terms of our project management capabilities, i.e. problem solving and making sure that we get through a problem quickly, change control process. Again, another leverage point. So there's, I would say, Scott, there's a lot of what would appear to be small incremental leverage points. But when you start working on these in a process and leverage these together, we're looking at some good propensity in the gross margin line. R. Scott Graham - Jefferies & Company, Inc., Research Division: Yes, those sounded all like gross margin things. And at some point, do you expect to maybe quantify what the annual could be?

Well, I mean, I think what we have done, Scott, is -- Mike talked about that last year in terms of operating margins and our targets to improve them 150 to 250 basis points. And as we develop further and make progress, if we have any changes to that, we'll certainly let you know. But I go back, there is a frame of reference. Look at the FCD business relative to its competition in its market. Look at its gross margins, operating margins, have been very steady. And we talked about this before. We think that the IPD business certainly has the underlying capabilities to get to those type of metrics. And then on the EPD side, it -- there is certainly an element of reduced cycle time and what I'd call operational excellence, aftermarket growth overall in that business, which has a high margin profile, and then to a lesser extent, to the question earlier, around the pricing environment that exists. What I want to say, Scott, is we've put out -- we've talked about this, the 150 to 250. We don't in any way want to suggest we're just going to stop there. R. Scott Graham - Jefferies & Company, Inc., Research Division: No, never thought that. All right. So I want to maybe talk a little bit about the bookings. And I know that you were up against a bit of a comp, particularly what I would the stacked comp, the 2012 and 2011. But I just want to make sure that, that's kind of what it is. And I know in speaking with Mike and Jay last night, that there were some -- a couple of bookings, sort of mid-sized bookings in the first quarter of last year. But I just want to frame my question this way, is that we've had capital spending growth in the oil and gas and chemical markets around the world now for more than 2 years. And certainly, on the oil and gas side, you don't benefit from that until it starts to really move away from the wellhead. I get all that. What I'm wondering is that the declines in organic bookings the last couple of quarters, that it's nothing more than a comps issue. What I'm saying is, you have -- you feel very good about the pre-FEED and the FEED in a lot of project releases coming forward. I think, we're all an agreement on that. What I'm wondering is that the bookings have kind of got you here, that type of capital spending, that, that in fact is not weakening, that it's really just a comp issue?

No, no. It is more of a comp issue. I mean, I'll, I think, allude the, what you referred to. If you look at Q1 comps over the last 2 years, 2011, we had a significant booking for the Yanbu Export Refinery in that quarter. I think it approached $80 million, and we had some other ones. And again, those were those Middle East projects that were extremely competitive but certainly strategic to us. And that project actually is now what we call in our legacy backlog, for lack of a better term. When you look at last year, the real big quarter that we had was the one we called out in Q3. But we did have a couple of them that were bid in '11 and booked in '12. One in Asia, one in Europe. And so -- and these projects can kind of come and go. This quarter, they were actually relatively small, which we would expect on the forefront of some of this FEED work that's coming out. So my point is, the underlying market trend relative to the run rate business and the aftermarket has been steadily increasing. That doesn't vary a lot from 1 -- necessarily 1 year to next. It will basically reflect underlying trends overall in the business. We think -- the other thing is we've been able to capture more with our additional product offering. So a long way of saying, the underlying run rate business, we've seen good steady improvement, and I think that has to do with how we're executing into the markets and the underlying market. But -- and you and I talked about this in March, things do come and go within segments. So for example, FCD had a very strong oil and gas quarter this quarter. And a lot of that is capitalizing on Valbart, but also because it had little presence in that. So it can move within segments. As you and I talked about, the power industry has certainly been competitive. I think that's going to be one where we're going to need to see capacity start to get chewed up. And -- but the oil and gas business has -- we've seen continued investment, a lot of it upstream. We'll start to see it move more downstream. There's different stories in different parts of the world. But we're still encouraged with, really, the industry. Does that help? R. Scott Graham - Jefferies & Company, Inc., Research Division: That's great. No, that all helps for sure. I just want to maybe ask this one last quick one. I asked this at the analyst meeting as well. You guys are still thinking that because of the shipments of the improved backlog margins, the aftermarket and what have you, and the timing of the project releases, you're still thinking sort of 40,000 feet, that 2013 is kind of more margin-driven earnings than '14, and '14 is more top line driven earnings than '13.

It may not. That was my comment earlier. That's actually very well put, Scott. What we talked about this year straight out is, our earnings growth is going to be a lot of what we call within the 4 walls, improvement in the business. We do have guidance that has revenue growth out there. But frankly, it's, on a constant currency basis, it's not to the level that you've seen over the last couple of years. So as you look at this year and the compares year-over-year, it's a lot about improving the operations and in the business, which is great because we have a lot of that within our control. And obviously, we get a benefit from share count as well. To the flip side, obviously, we're going to have headwinds from tax and interest expense as you kind of walk through the P&L. But you're right, and so it's really a -- an improvement of the operations into also, to an extent, the share count, which we like because we feel that's within our control. But we do have confidence in our markets over the medium and long term, that we're going to get that revenue growth. I do expect there'll be continued operational improvements that go into next year as well. Because we're not going to just rest at improved levels. We think we have opportunities to really get this business at a very high performing level.

Our next question comes from Nick Prendergast from BB&T Capital Markets. Nicholas V. Prendergast - BB&T Capital Markets, Research Division: I was wondering if we could kind of piggyback on some of these bookings questions. I was hoping perhaps you could give some additional commentary about the cadence of your bookings as we move through the quarter. And did you see it start slow and accelerate or maybe the opposite? Just some commentary along those lines would be really helpful.

Well, certainly, in Q1, January, there's a lot of people on vacation, coming off the holidays around the world for various and sundry reasons. So it does tend to start out slow. I mean, it's the same thing you see in the summer, particularly in Europe, in the Middle East when either there's a religious event or people are on holiday. So there is a somewhat of a cadence overall to the bookings. But our point, there wasn't anything notably different from any other prior periods that we've seen in terms of the cadence this quarter. Nicholas V. Prendergast - BB&T Capital Markets, Research Division: Okay, understood. And I guess, as a follow-up, I guess, you call your run rate business. Presumably, that's kind of your small and medium, not your large project business. We saw a decent ramp sequentially in that Q1 over Q4. And you managed to do that without any major projects announcements. How do you see, I guess, this run rate business as we progress throughout the year? I mean, I guess what I'm really trying to say is, you seem pretty confident that bookings ramp in the second half of the year. Does that entirely hinge on large project announcements or do you need your run rate business to continue doing as well as it is or perhaps accelerate?

I mean, our focus when we talked about the latter half of the year is really related to large projects. Nicholas V. Prendergast - BB&T Capital Markets, Research Division: Okay. So does that -- I assume that just kind of greatly outweighs the run rate?

Well, I mean, it's not a matter of whether -- I mean, yes, that's probably a fair term. I mean, these things are notable and sizable. For example, let's go back to Q3 of last year. We had that $70 million booking in IPD. And you could see how that impacted their year-over-year comps. So these things are fairly lumpy and come through. And believe me, they can slip easy from June 30 to July 1. In the grand scheme of things, that has really no impact to the energy infrastructure world. It does to you because you won't see it. But that's kind of a way of thinking about it. And I can even tell you to the energy infrastructure world, if it goes from June to September, it's not that important. Nicholas V. Prendergast - BB&T Capital Markets, Research Division: Sure, sure, I understand. All right. And then, I guess, shifting gears to your share repurchase plans. It looks likes you're keeping the pace somewhere around $150 million or so in quarter 2 just like Q1. How do you see that playing out as we move beyond Q2 into your $750 million authorization?

Well, what we did is we committed to $1 billion program. And we -- when we commit to things, we want to execute them. So we're going to wrap that up here in the second quarter for the most part. And then when we talked about is we're going to go back to our previously announced policy, which was the 40% -- the 50% of trailing earnings. That's both share repurchase and dividend. So -- and we're not market timers. We just tend to go into the market. Sometimes we're limited to when we can go into the market. But for the most part, we just try to be as systematic as we can about it.

Our next question comes from Brian Konigsberg from Vertical Research.

Hey, actually, just following up again on some of the previous questions. But again, from kind of the 40,000-foot view, just thinking about the balance between the mix that you've been talking now with OE and some of the backlog bleeding through, and the low priced backlog being gone, hopefully, by the end of this year. So just conceptually, I know you don't want to give exact guidance, and you won't. But when we're thinking about 2014, I mean, is that going to be a year where we should expect to see very challenged incremental margins because you are saying that you're going to get large bookings late in 2013? Presumably, that will be realized in '14. It should be balanced a bit by low-margin backlog being out of the picture and also, some of the operational items that you talked about. But is the mix profile just going to significantly outweigh these other components and we should expect the conversion is going to be less than normal?

You're right. I mean, we certainly don't want to give margin guidance going into 2014 at this point. But I'd -- let me see if I can parse through your question. As these orders come in for the large projects, keep in mind, sometimes they're in -- we use percentage of completion accounting. But the fact is, these projects take a while. So they don't all show up as OE mix shift in any one period. Having said that, and if you look back into 2007, '08 and to a certain degree, '09, you can see, although our aftermarket book of business is a lot bigger than it was then, you did see significant mix shift with some of these very large projects coming through. I think we got as high as almost 70%. And that will impact gross margins, all other things being equal. But our commentary also is the -- in my prepared comments, we're continuing to see the improvement in our operations. So it's not a job that's complete. So we expect to see continued benefits. Some of these things take a couple of years, right? And so we're going to continue to see benefits in terms of our improved operations. But a lot of it drives on the gross margin side, continue to focus on our fixed cost leverage. So there's going to be a number of moving parts there. Just keep in mind, when these big orders come in, we don't take them in and ship them out in a subsequent period. They take a while. So their impacting in this mix shift, tends to be somewhat muted by basically the cycle time of that coming through. But they can, as they build up and time moves, they can start to drive mix shift in our business. And let me remind you, they also drive earnings. So you're talking about -- so what's the good news around -- because everybody gets focused on mix shift. But what does that mean? Well, sure, we could see OE go up 300, 400, 500, 600 basis points. We've seen it move up more. But you don't necessarily see SG&A go up at that level, as well. So you get fixed cost leverage overall in the business. We get better absorption in our facilities. There's a lot of good things that come with these projects, not to mention the aftermarket component of what we call commissions bearers and then the annuity stream that we get after these things go, get commissioned and go into service. So I just don't want people to react to mix shift. Mix shift, for the right reasons, is a great thing for our company.

And following on, so the commentary you had about just absorption of capacity in the market. I'm just thinking more about -- and I fully appreciate that. But thinking about more near-term as, obviously, you're saying that you do have confidence on these larger projects will break free in the second half of the year. Obviously, you're not the only one that's pursuing these projects. Do you anticipate kind of in, early on, with the first grouping of projects has actually emerged, those are going to be more sensitive to price. So I'm sure you and your competitors are trying to leverage off these trends. Should we be concerned that pricing actually could take a dip down before they start to improve as capacity gets absorbed?

I mean, you -- a lot of our competitors have to have conversations with you around our margins as well, especially when you get to some of the more highly engineered. Keep in mind, when you get into some of these complex applications, the competitive landscape starts to narrow. So there's certainly an aspect to that. And we saw a real difficult pricing environment in '10 and 2011, and we saw, as we called, some stability there. Unless there's a fear, like you saw in 2009, that the bottom was going to fall out of the industry and that capacity was going to become significantly under-absorbed, typically, our business doesn't start dropping price out. Now sometimes, you'll have a competitor try to aggressively get a position in the market, a number of things that have occurred that can have a temporary impact. I'll go back to my comment earlier. We saw this. You saw it in the Middle East in '10 and '11 with the large EMCs. And ultimately, that will reflect itself in the financial results. So I mean, that's how I think we talked about being disciplined and I can tell you a lot of our competitors are very thoughtful. They're careful as to how they allocate their capacity as well. They like to win projects as much as we do and they're good competitors. But it's not like our industry has huge flex capacity and can ramp capacity up and down like you can in some of the more commodity industries where you can just have additional runs. I mean, a lot of our products have tremendous engineering content to them.

Our next question comes from William Bremer from Maxim Group.

Tom, this one's for you. You called out the pipeline arena. We do know Lawrence brings you to the table on some of the larger scale oil sands, valve exposure there. Can you give us a sense what you guys are seeing, especially in the back half? And if you are on some of these larger pipelines for the long haul, that seem to be coming along here?

The pipeline business has been a good business for us in 2012. And we are continuing to see some good pipeline business going forward, both in the developed, as well as in the emerging markets. It's also good business in terms of the aftermarket business, as people will try to put more through the existing pipes, maybe even change the viscosity and materials of things like this. So I would say the pipeline activity has really come in, in 2012, and it's seeing good progress in a number of areas in 2013.

Would this be an area that you would consider some bolt-on acquisitions to expand your product line?

Sure. I mean, this -- it's really how we fit. When you think about our strategic approach to acquisitions, we look at market-to-market opportunities. And we think that infrastructure is going to continue, especially with all these fines in what you'd call the remote parts of the United States, be it North Dakota secondary recovery, complex recovery because typically, you have to get the resource to a centralized distribution location, which tends to be in Oklahoma, Gulf Coast region, wherever they're ultimately going to move it. And the piping industry basically helps supply meet demand. And we think that with the supply opportunities in the United States and the demand, certainly, domestic and potentially, international. I mean, they've talked about that, having terminals down the Gulf Coast region are going to lead to more energy infrastructure spend. And I don't think this necessarily going to be unique to the United States. I think we're just ahead of the curve.

And Mark or Tom, what's the timing of from when you receive an order to potentially when it's shipped on some of these larger pipeline projects? Just give us a sense, a ballpark. I mean, on the shale stuff, I could visualize that. But on the longer aspects and bigger ticketed pipelines, what's like the time line from order to shipment?

We probably could be talking somewhere around 18, maybe 20, 22 or 21 weeks, something like this. It depends on the size of the, obviously, the pump. Obviously, a little bit less in terms of the industrial products for that. But that's probably a good number to use.

Our next question comes from Jamie Sullivan from RBC Capital.

Just a question on the revenues. First, I think you basically reiterated the 4% to 6% growth before FX for this year. Just wondering what, at current rates, what the FX impacts would be on revenues for translation this year?

We saw, in the first quarter, it was about a 90 basis point impact, I think, in the currency. And I'm not sure what our -- I think our -- obviously, the average currency was a little below what we put out in our guidance. But that's the best number we have right now. I mean, Jamie, it's really tough to call these currencies because it seems when any government speaks, there tends to be a lot of volatility in the pairings of currency. You saw that certainly happen here in the United States right at the [indiscernible]. But as to the impact in the first quarter, it was about 90 bps.

Right. Okay. And then, I guess, just a follow-up with some of the questions on bookings and margins. So basically, the expectation we have now is bookings should likely pick up throughout '13, as based on the opportunities that are out there, and you'll continue to expand margins and hit the target that you've laid out through next year. I guess, Mark, it sounds like what you're saying is the industry's in a different point now where capacity is essentially less. So despite the competition on those large projects, where pricing would typically be more intense, that it's more rational and you don't see the industry providing any barrier to you hitting the targets that you've laid out with that setup.

No. No, I don't. I mean, in '09 and '10, the industry didn't know where the bottom was. And so you want to make sure you fill your factories. And the industry was certainly being impacted by what was going on in the Middle East. And the industry was fragmented, the same assets were in there, but participating at different levels for different reasons. If you look at our industry now, they see the same thing we do, is medium- to long-term prospects in the energy industry. And the last thing you want to do is fill up your capacity with poor quality work or things that don't make sense when the opportunity does arise. Because you can't just drop a project you don't want and put the one in there that you do.

Right, okay. And then one last one on the capital allocation, the dividends and buybacks returning to 40% to 50% after 2Q. Just wondering how we should think about that? You'll obviously hit that number for '13 by 2Q. Should we think about the second half on a rolling 2-year basis? Just will you continue to buy back shares in the second half?

Yes. That's, I mean, that's the way to look at it. The billion-dollar program was just that. It was a program that was in addition to our underlying stated policy.

Our next question comes from Nathan Jones from Stifel. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Just a couple of follow-ups to previous questions. First, on one Hamzah asked earlier on, the deferred maintenance, particularly in refining. You said that you don't think that can go on forever. We've been talking about it for 2 or 3 quarters now. How much longer do think that could go on before they require that maintenance to be done?

I can just tell you what we -- I think we saw this back in 2007, and it ran about 3 quarters. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Okay. So you think we're going to be getting pretty close to the end of that now?

Yes. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And, Mark, you've been talking about the ramp-up of the OE projects in the second half of 2013, also, for 2 or 3 quarters now. Is there a difference in your level of confidence in that, say now versus 2 quarters ago? Are you more confident that it's going to happen? Is there a little more doubt around it or any change in your degree of confidence on the ramp in the back half of the year?

Well, I mean, as you see these things kind of move through the process, of course, they give you increased confidence. As you see them on the drawing board for longer, you know there are expenses and costs and efforts related to them, which gives you more confidence as well. But we can't -- we saw this, again, back in 2009. I hate to go back to there, but we knew these projects were going to go online when the whole world thought they were going to go away. We know they'll come on, but they can move. I can tell you, originally, when we were sitting in 2011, we thought a lot of these projects were going to come on early part of this year, maybe as early as the latter part of last year. And we've seen some solid move. So they can move. But as you get closer, right, when you're 1 year, 1.5 year out, the movement is less critical. As you start moving through the pre-FEED, the FEED, the bid for the long-lead-time items and everything, the timing, the ability to really move it becomes much more challenging overall in the business. And again, back in the really strong markets, we saw them move, basically, because they had to rebudget these projects because everything had gone up so much in cost. But as we get closer, we do get more confident, one, because we've seen more cost attached to those projects. We also know that there's a cadence building up to it. We get a sense that some of the longer-lead-time things have been ordered on the project. That gives you increased confidence. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Okay. I'll think that I'll take that as a little increase in confidence. And can you just quantify where you are on the past-due backlog and what's left of the legacy low-priced backlog and when that's expected to clear?

Well, I mean, the legacy we saw, most of it go out last year. We have some this year, and that will move through the course of this year. It'll have less of an impact than it did last year. In the past, too, we've seen that certainly improve. But frankly, we've seen some more of that be created. We are ramping it down. And -- but that underpins my comment earlier is, we are seeing, we are working on operational improvement. We're not complete. And I think there's some things we can get at fairly quickly that Tom's talked about. And there's things we're going to continue to work on for a long time.

Our next question comes from David Rose from Wedbush Securities.

Just as a follow-up question, really, for Tom, if I may. On the points of leverage that you mentioned, were there any points of leverage in the quarter where you achieved greater than expectations? You're encouraged by the 34% margin, the gross margin? So can you provide a little bit more color in terms of where you get a bit more leverage and a little bit less leverage than you would have liked?

Yes, I'm not sure it would be by an absolute number. But I think we're pretty -- based on the programs we've got in place, we have a very solid, I would say, quality program where we're looking at all the different leverage points that contribute to cost of pro quality. So warranty, rework, scrap, liquidated damages, i.e. on-time delivery relative to those items, we're spending a lot of time on that effort, which really, is just the basic core execution of the business. So we're really encouraged by, I would say, the traction that we're seeing in that area. And then I would say the second area related to project management is we're going through, we're training the entire organization on problem solving, to be able to -- when an issue does come up, to get that through the system as quickly as possible, which then gets into the working capital and issues and a number of other things that we have ongoing. So we're pretty excited about those 2 pieces, specifically. I mean, obviously, other things like sourcing, initiatives, supplier development. Mark mentioned we're getting a lot of traction in our research and technology process that we revamped and are treating that more like a project. So every research project is treated just like a contract project with a return on investment and a schedule and a budget and so on. So we're really driving those things. And there's not any one thing, but I would say it's an integrated process across several.

I think the things that probably had a more notable impact in the quarter versus the comp last year was probably just discipline on the front to a certain degree and some improved on the operations. But there's a lot still on the table.

Ladies and gentlemen, we have reached our allotted time for today's program. I will now turn the call back to Jay for closing remarks.

Thank you, Dawn. And again, we appreciate everyone for participating in today's call. We also look forward to seeing many of you at the various upcoming investor events and conferences. If you have any follow-up questions, please don't hesitate to call Mike Mullin or me. And Dawn, with that, we have now concluded this morning's call.

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