Welcome to the National Oilwell Varco 2012 Third Quarter Earnings Conference Call. My name is Christine, and I'll be your operator for today's conference. [Operator Instructions] Please note today's conference is being recorded. I will now turn the call over to Chairman and Chief Executive Officer, Pete Miller. Sir, you may begin.

Thanks, Christine, and good morning and welcome to the National Oilwell Varco Third Quarter 2012 Earnings Conference Call. With me on this call today is Clay Williams, our CFO. Loren Singletary, our VP of Investor Relations, is normally on this call, but he is traveling today and will return when we do the call at the end of the year. Earlier today, we announced quarterly earnings of $612 million or $1.43 per share on record revenues of $5.3 billion. Included in this number are transaction costs of approximately $57 million pretax. Net income for the quarter, excluding the transaction charges, is $650 million or $1.52 per fully diluted share. We are very pleased with these results and we believe they reflect the continued excellent execution of our employees around the world and the demand for our products and services in all the areas of globe. Clay will expand upon these results in just a moment. Additionally, we announced new capital equipment orders of $2.3 billion or quarter-ending backlog of $11.7 billion, just below our record backlog that we achieved in the third quarter of 2008. The book-to-bill for this quarter was 1.2:1. I will address the backlog later in the call when I give an overview on operations. At this time, I will ask Clay to provide color on these results.

Thanks, Pete. Before we begin this discussion of National Oilwell Varco's financial results for its third quarter ended September 30, 2012, please note that some of the statements we make during this call may contain forecasts, projections and estimates, including, but not limited to, comments about our outlook for the company's business. These are forward-looking statements within the meaning of the federal securities laws based on limited information as of today, which is subject to change. They are subject to risks and uncertainties, and actual results may differ materially. No one should assume that these forward-looking statements remain valid later in the quarter or later in the year. I refer you to the latest Forms 10-K and 10-Q National Oilwell Varco has on file with the Securities and Exchange Commission for a more detailed discussion of the major risk factors affecting our business. Further information regarding these, as well as supplemental financial and operating information, may be found within our press release on our website at www.nov.com or in our filings with United States Securities and Exchange Commission. Later on in this call, we will answer your questions. [Operator Instructions] Turning to results. As Steve mentioned, National Oilwell Varco generated $1.43 per fully diluted share in earnings in its third quarter of 2012 on $5.3 billion in revenues. Excluding $57 million in pretax transaction charges or $0.09 a share, third quarter 2012 earnings were $1.52 per fully diluted share, up $0.06 per share or 4% from the second quarter and up $0.26 per share or 21% from the third quarter of 2011 excluding transaction charges from all periods. Operating profit ex-transaction charges was a record $946 million, up 4% from the second quarter and up 22% from the third quarter of last year. Below the operating profit line, we saw…

Thanks, Clay. Those of you who have listened to our calls in the past know that we have some fairly common themes. And I want to hit those themes again because I think they all really are staying with a lot of traction and they're really what's kind of dictating the business as we go forward. And those themes are essentially shales, the deepwater, the -- our international presence and the best-in-class technology. And as I look at these, on shales, the reality is it's all about efficiency today. When you look at the efficiency gains, if you've listened to some of the service companies on calls here the past couple of weeks or the past week or so, they've talked about the great gains that you're seeing in shales. A lot of those gains are because of the equipment that we manufacture. When you talk about the fit-for-purpose rigs, when you talk about downhole tools, our new bits, motors, frac spreads, different things like that, you're starting to see those efficiencies really, really come into focus a lot, and we are also starting to see much more of the international presence in shales -- we've always talked about that coming. It would be a little bit slower, but we believe, over the next couple of years, that's going to be a very attractive amount of business for NOV. The deepwater demand continues. As Clay pointed out, we had a good quarter of deepwater rigs. We expect, as we look to the future, there's still an awful lot of interest. And the bottom line is, with our unparalleled execution and our state-of-the-art equipment, we're positioned very, very well to benefit greatly as we look at this. And in addition to that, we're starting to see more drilling permits come on…

[Operator Instructions] The first question comes from Doug Becker from Bank of America.

Maybe just starting off on PSS. Revenues really seem to be hanging in there well in light of what the rig count's doing. You did highlight that there could be some margin pressure in the fourth quarter. I just wanted to calibrate what you're thinking about in terms of rig activity in North America and how that should -- relationship should be with revenues as we go forward?

Yes, Doug, we think, I guess -- I mean, and first let me qualify, I don't think our crystal ball is any better than anyone else's. But in terms of the next quarter or 2, a little bit more the same. We're hearing specific plans of customers, in Canada for instance, trimming drilling programs, more cuts to come in North America. The flip side is though we see continued growth overseas and so net-net, I can't tell you if that ends up in net increase or not. But call it flat to maybe a little bit of a downward bias in terms of activity. The nature of our PS&S business, though may be just a little bit different than what a lot of investors perceive in that, it is more manufacturing than other service businesses that may be viewed as comparable or peers. And that's one of the things I tried to highlight in my comments, about 3/4 of PS&S is actually manufacturing of consumables and short-lived capital. And so what that does, in a way, is to just delay by maybe a month or 2 kind of the effect of a downturn in activity and when we see it in PS&S. Some of the businesses are services and they are very rig-count driven and we fill it in rig time, but others have a little bit of a backlog, maybe a few weeks of orders that help us kind of buffer that. So that enabled PS&S to post pretty good revenues. They were down 3% sequentially in Q3, and kind of forestall a downturn in sales. But Q4, we're calling for maybe a little more of the same, I would say flat to maybe down slightly.

And also, Doug, one of the things that's good about our PS&S side, when I talked about the efficiency gains and a lot of the wells being drilled, while the demand for rigs is declining a little bit, the efficiency gains and the footage being drilled is still pretty -- is still pretty good. And a lot of the tools that we're putting in there, whether they're Helios drilling bits or whether our -- they're our new downhole motors, are really doing very, very well. So there's -- it's kind of a 2-sided coin right there, but we do have some positive things because of those efficiency gains.

That makes sense. So if newest rig count were to kind of flatten out as we go into 2013, international presumably still improving, would you expect margins to still be kind of around the 20% level or actually improve?

I think, if we have growth overseas, that's a good foundation for margin expansion as we kind of move to through 2013. And so, if North America just hangs in there and stabilizes, we can certainly -- we've got terrific managers who are good at managing the cost side of the equation here, and then with little growth overseas and we see the same sorts of adoption of new technologies of these new products blossom in shale plays overseas, that's -- you're moving from 1 continent to another 5 or 6, that's a pretty good tailwind in 2013 to drive margins a little higher towards the end of the year.

Okay. And then, Pete, I think I know the answer to this, but Clay was mentioning the potential of a new paradigm for rig orders, just more stable. And I guess I'd argue, all else equal, this should mean higher multiples for the stock. What does this make you think about capital allocation? Does it make share repurchases more attractive in your eyes, or you still tend to focus more in the acquisition and dividend angle?

Doug, I think our -- we're going to probably continue more on the M&A and the dividend issue, but we look at everything all the time. I mean, whenever we have a Board meeting, we review with our Board strategically where we are and what the best allocation of capital is. And I've got an awfully good Board and astute Board, and I think they will chime in and give us our guidance as well. But I would say right now, we still believe we do emanate very, very well and we'll continue to look at that and, of course, our dividend payments will remain there. But you're right, I think that as we take a look at this new paradigm, what we believe is there, we also believe that we do deserve a higher multiple. So I will certainly not argue with you on that one. But again, as I tell everybody, everything is always on the table for us, it's just a matter of what the best determination is at that point in time.

We've -- I think the key thing here is we've used both acquisitions, as well as capital investments internally to support our customers to meet their needs. We've seen rising demand across a lot of our businesses. And throughout Rig Technology and PS&S both, as well as some businesses and distribution, we've deployed a lot of capital or CapEx. Our plan was the CapEx move up very sharply in 2012. We're actually probably going to under spend what we budgeted for simply because our eyes are a little bit bigger than our stomach. But the capital is available there to grow these businesses and we are happy to put it to work to take care of our customers.

Next question comes from Brad Handler from Jefferies & Company. Brad Handler - Jefferies & Company, Inc., Research Division: A couple of unrelated things, please, and I guess they are probably both pretty quick. The first is, I guess I was surprised -- I know you tend not to talk about specific rigs and so, I'm just going to ask you to reach however you can. But I was a little surprised that the orders this quarter included 5 rigs from Brazil. Maybe it's almost that it didn't include other things. So I was sort of anticipating less from Brazil and more from the rest of the world. If there's any color you can add to that, to the timing of how that plays out and maybe suggestions about your anticipation for Q4 or Q1 in that context, I'd appreciate it.

Sure, Brad. As we've talked many, many times, the timing of the backlog is always a very interesting phenomena. And we cut it off. We basically -- if we don't have an order by the 30th of September, that's that. And a lot of the times, what you'll see, what people will be making announcements about, we're going to do this or we're going to do that. We also don't put anything notional on our backlog. It's got to be -- its got to have a signed document and it's got money with it normally as well. And so, a lot of the things that you read about, that people say we're ordering, they aren't necessarily ordered last quarter and they'll push out into another quarter. And that's one of the reasons that we've -- we talk about this all the time about -- as you take a look at backlog, you really have to look at it over a more extended period because, again, if that date's certain that we always cut things off. And I think, if you look over the last 4, 5 quarters, you can see that we've always been over -- I can't remember the last quarter that we weren't over a 1:1 book-to-bill, but new orders have stayed very, very, very steady and we feel very good about where we're going into the future.

Yes. Actually, 8 out of the last 9 quarters, I think, our book-to-bill was in excess of 1. In this quarter, we had record revenue out of backlog and orders exceeded that by 20%. So 120% of record revenue book-to-bill is pretty strong. Brad Handler - Jefferies & Company, Inc., Research Division: Absolutely. No question about it. I guess, I was -- well maybe a constructive question, just to ask, were the 5 -- were the 5 coming out of the Sete, Brazil orders?

Yes. That's -- yes. Brad Handler - Jefferies & Company, Inc., Research Division: Okay. All right, Fair enough. The unrelated follow-up, if you may -- if I may is, maybe just a little help on the distribution guidance. In third quarter, how much of the quarter included CE Franklin, as well as Wilson?

We had a full quarter Wilson and almost a full quarter CE Franklin. Brad Handler - Jefferies & Company, Inc., Research Division: Almost. Okay. So in other words...

You're getting a pretty good window in sort of a go-forward capability of Distribution & Transmission. And the other point on that too, and I mentioned this in my comments, but the mix shifted towards North America, which is slowing a little bit. So that's the headwind in Q4 baked into the guidance on Distribution & Transmission I gave a few minutes ago. Brad Handler - Jefferies & Company, Inc., Research Division: Got it. I understand. All right, so it's a pretty straight comparison quarter-on-quarter. Okay. Very good.

The next question comes from Jim Crandell from Dahlman Rose. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: Pete and Clay. Just to follow up on that last question, that was my exact question too. I had expected these BrasFELS orders to fall into the fourth quarter and beyond. I didn't think you were near. Are we talking about the BrasFELS orders when you say yes from Sete?

Jim, we -- you know us when it comes orders. We always let our customer kind of tell you what it is. In this particular case, they are from Sete. I mean, that's pretty well known because Sete is doing just about everything there. But we always defer to our customers to talk about that. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: So BrasFELS hasn't ordered any rigs through you or they would come through Sete as well?

Yes. The way Brazil's working right now, Jim -- and we've kind of talked a lot about this. Sete is actually the people that are ordering rigs, and then the customers, they come to us when we work with them. And so, the ultimate customer on those is, in fact, Sete. There's -- the bottom on it, to put Brazil in context, there is more rigs to come out of Brazil yet. There's still some that have not been -- orders have not been placed and we would expect those orders to be placed probably in the next quarter to half a year. So it could be Q4 2012, could be Q1 of 2013. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: Okay, good. That's what I needed.

I mean, I think that's probably what you really wanted to get to, so [indiscernible] there. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: And Pete, are you having any discussions today with customers that haven't ordered rigs before? People that might not be in the business. And we're talking ultra-deepwater rigs here. Are there likely to be some new ultra-deep rig orders coming from other companies or investors in the business?

Yes. Jim, I think the potential is there. If you kind of go back and look historically, and you think about what Seadrill did and people like Pacific, and DryShips and folks like that back in the '05, '06 timeframe, I think there'll be some others that will come out. But today, it's probably being driven much more by, what I would call, your traditional players. When you take a look at the Atwood Oceanics and the Rowans and the Diamonds of the world that are actually out there with those rigs today, there will be some nontraditional folks out there. But a lot of our emphasis today is really on some of those. Those more traditional, conventional players. James D. Crandell - Dahlman Rose & Company, LLC, Research Division: Pete, and my last question, you know that I think that competing with National Oilwell Varco in deepwater rig orders is probably about the most challenging thing any company could ever undertake. And in that context, do you think you're at risk at all to losing any of your traditional customers to a new player for deepwater rig packages?

Jim, I like the way we do things. This is a complex business and I think a lot of people don't really realize the complexities associated with what it is we're doing, because we do it quite well. We've got a bunch of people that really know how to get it done. The key, all this stuff is execution. I listened to a couple of calls earlier. People talk about supply change -- challenges and different things like that. There's -- you've got to really know how to do those things. And if you look at our track record over this -- over the past 6 or 7 years, on being able to deliver these things on time, on budget, that's pretty darn attractive to our customers. And so, we think the best defense against anything is just to continue to execute and execute flawlessly. And if we can do that, we like where we are.

The next question comes from James West from Barclays.

Guys, or Clay, really, in your comments, you talked about, on deepwater, this new industrial paradigm and how the deepwater drillers are starting to really embrace this new era. Are you suggesting that we could see a deepwater driller or a series of deepwater drillers come out and say something along the lines of, "We're going to build a couple of deepwater rigs per year for the next decade." Or are you just kind of commenting that it will be more the same this kind of, "We got a contract for a new build rig and let me order another one."

Yes. I'm not sure if they're going to come out and talk in those precise terms and for that kind of time period. I guess my comments are more around I get the feeling that they're more comfortable with a certain level of building, that the projects are going pretty well. They're able to finance them, They're able to contract these rigs at attractive day rates. There -- I think there's a growing level of comfort in rig building that wasn't there 3, 4, 5, 10 years ago, and that's more what I'm referring to. Strategically, I can't tell you and they're not sharing with us something that long-range, although internally, they may be considering it. But I just get the sense that they buy into this idea that worldwide production is going to continue to shift more and more into deepwater. That's the new frontier for the 21st century. It takes a lot of rigs to make that happen, and that their internal organizational effort and financing efforts going into new build rigs is working pretty well. And we saw this on the land side maybe a few years earlier with drillers like H&P. They set up a system internally, for instance, in that case, to build flex [ph] rigs. And once they got it up and running, it worked pretty well. You sort of develop a more systematic process around building these rigs, the rig design, staffing the rigs, training crews, financing the rigs. And I think that's what's at work amongst the more established drillers now. It's that it's become a more systematic process, they're comfortable with it. Strategically, it's a great path to earnings growth and a great path to deployment of capital for their shareholders and just a kind of a more steady-state world. Let me, though -- also point out though that we get the fact this is always going to be a cyclical business and we're always going to be subject to external factors like the availability of credits, steel cost, shipyard slots, et cetera, et cetera. So this is going to have some volatility in it. The point I'm trying to make is, what's really changed and what we're trying to highlight is that perhaps the strategic thinking of our customers has -- is evolving and shifting in a positive way for NOV.

Okay. That's very helpful, Clay. And then one last kind of unrelated follow-up from me. On the M&A side of the business, obviously, Robbins & Myers, a big transaction for you. I know you guys are still focused on M&A along with dividends, not share buybacks necessarily. But are you comfortable with that scale of a transaction given the series of transactions you've made over the last couple of quarters, plus Robbins & Myers probably come into fruition and close in at some point later this year or early next year.

We put a lot of capital to work through acquisitions in 2012. And as a result of that, our folks are very, very busy. They have a day job in that they devote a lot of effort into taking care of our customers. And in addition to that, they're integrating all these new businesses as well. So we've been very, very busy. In the long run, yes, we -- as Pete mentioned earlier, we view that as an important strategic initiative at NOV. We think we're good at integrating businesses and buying businesses, and so, we want to continue to deploy capital through that pipeline, and we'll see what 2013 holds.

Next question comes from Robin Shoemaker from Citi.

Pete and Clay, wanted to just clarify a couple of things. On these Brazilian orders, were these complete packages, rig equipment packages, including BOPs?

I can't -- I don't recall. I don't know if it's -- they were good orders, Robin.

They were good orders.

Okay. Well the first 7 that you booked, I guess a year ago, were -- included BOP systems.

They did, they did. Pretty sure [ph] I think this does, but I don't know that for sure.

Okay. And on the -- are these very long lead time kind of -- these are long backlog items, right, as are the original 7 there. Are these like for rigs that will be completed in 2016 or '17?

Yes, Robin. I mean, obviously, in the timeframe that we're talking about here, it's going to be a little bit longer than what you're doing in Korea because these shipyards are dealing with a little bit more of a learning curve, but you start recognizing revenues earlier than that. But I would say most of these deliveries are in the 4-year timeframe.

Right. And I think you've commented before like in this kind of rig construction cycle, margins on Rig Tech are -- you've kind of guided to mid-20s versus high-20s in the last rig construction cycle. And is that still your view that the margins that are -- you're achieving in Rig Technology sales are a little lower than in the past cycle?

Yes. Robin, that's a good question and probably worth taking a couple of minutes to speak to the factors. There's a lot of factors at work there in 2012, 2013 that a little different than what we saw in 2007, 2008, which is kind our prior peak as part of the cycle. So to start with, pricing has never returned to where it was early 2008. We're probably 6%, 7%, 8% lower on drilling equipment packages than we were winning in 2008 today. And the reasons for that is it's a little bit different world in the sense that, if you remember back '07, '08, the very capable shipyards are building rigs had very -- they were pretty filled up with other vessels and had very few slots to devote to building drilling rigs. Today, there's a lot of idle quayside [ph] space amongst the most capable rigs in Asia, and there's less urgency in the system as a result of that. And so the drillers, I think, can order more at their leisure, and so they can put more energy into beating up their DEP providers like NOV. And so, it's kind of a little slower pace of orders and less urgency that's kept pricing down a little bit. We also face price competition out there. As Pete mentioned, I think we have the best execution and we still command premiums, when it -- premium prices when it comes to our kit, but we've got a lot of competitors shooting at us and bidding below us. And so, that's made a little bit of a difference, too. But pricing is down from 2008, that's number one. Number two is, we've talked a lot on previous calls about the fact that the shipyards are delivering rigs faster than they used…

And, Robin, to also demonstrate the wonderful execution of NOV, after I've said that I wasn't sure on the BOPs, I just did get some emails that said "Yes, in fact, those rigs in Brazil include the BOPs." So that should answer that question for you as well.

That concludes today's question-and-answer session. I'll now turn the call back for final remarks.

Thank you, Christine. And I appreciate everybody who dialed in today, and I look forward to talking to you on our next call for the year-ending results of 2012. Thank you very, very much.

Thank you for participating in the National Oilwell Varco 2012 Third Quarter Earnings Conference Call. This concludes the conference for today. You may all disconnect at this time.