Good day, ladies and gentlemen, and welcome to the Q3 2013 SPX Corporation Earnings Conference Call. My name is Sheena, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And now I'd like to turn the call over to Mr. Ryan Taylor, Director of Investor Relations. Please proceed, sir.

Thank you, Sheena. Good morning, everyone. Thank you for joining us. With me on the call this morning are Chris Kearney, our Chairman, President and CEO of SPX; and Jeremy Smeltser, our Chief Financial Officer. Our earnings press release was issued earlier this morning and can be found on our website at spx.com. This morning's call is being webcast with a slide presentation that can be accessed in the Investor Relations section of our website. The webcast will be available until November 13. I encourage you to follow along with the webcast as we reference the detailed information on the slides. And in the appendix, we have provided reconciliations for all non-GAAP financial measures included in today's presentation. Portions of our presentation and comments are forward-looking and subject to Safe Harbor provisions. And please also note the risk factors in our most recent SEC filings. And with that, I'll turn the call over to Chris.

Thanks, Ryan, and good morning, everyone. Thanks for joining us today. As we've stated throughout the year, our primary focus is on operational improvement and reducing our cost base. I'm pleased with the continued progress we've made towards these commitments in the third quarter. We reported $1.40 of earnings per share, which exceeded our guidance range of $1.20 to $1.30 per share. This included $0.12 related to businesses we discontinued in the quarter. On a continuing operations basis, Q3 EPS increased 39% over the prior year, driven by our capital allocation actions, cost reduction initiatives and improved operating execution. In aggregate, our segment income margins expanded 70 points over the prior year and 140 points sequentially, highlighted by improved performance at our Flow and Industrial segments. We had a strong free cash flow quarter and are on track to end the year with approximately $625 million of cash on hand. Additionally, our backlog increased 3% sequentially, driven by an increase in large project awards for oil and gas pumps and food and beverage systems in our Flow segment. Strategically, we're transitioning to a new operational alignment designed to drive continued improvement in our performance and strengthen our foundation for future growth. During the quarter, we also made good progress on our restructuring plans and identified additional actions that we expect to execute in the fourth quarter that will further reduce our cost base. Additionally, we committed to a plan to divest certain non-Flow businesses and began reporting them as discontinued operations. These businesses were previously reported within our Industrial segment. Combined, they're targeting just over $200 million of sales this year at about a 15% operating profit margin. We expect to complete these divestitures within the next 12 months and intend to reduce our leverage and repurchase additional shares with…

Thanks, Chris. Good morning, everyone. I'll begin with earnings per share. Our EPS guidance range for the quarter was $1.20 to $1.30 per share. On a comparable basis, we reported $1.40 of EPS, $0.15 better than the midpoint of our guidance. These results included $0.12 of EPS from the businesses we moved to discontinued operations in the period. We exceeded our expectations primarily due to a $0.07 benefit from discrete tax items and a $0.05 benefit from segment income, which came in near the high end of our target range. On a continuing operations basis, we reported $1.28 of earnings per share, up 39% over the prior year period. Looking at the year-over-year growth drivers. Segment income increased $0.10 per share, as growth in Flow and Industrial offset the expected decline in Thermal segment income. Equity earnings increased $0.04 driven primarily by our EGS joint venture with Emerson Electric. And as a result of our capital allocation investments, the lower share count and lower pension expense combined to increase EPS by $0.20. Net other items were a $0.03 benefit. Looking at the segments, beginning with Flow. Flow reported $652 million of revenue for the quarter, up modestly over the prior year. Organic growth was driven by increased sales of components into the oil and gas markets in North America, Europe and the Middle East. This growth was offset by lower sales of food and beverage systems. Last year, we reported $28 million of revenue related to 3 large dairy projects in Asia Pacific. There were no projects of this size that contributed to Flow's Q3 2013 operating results. Segment income increased 6% over the prior year period to $83 million. Operating margin increased to 12.8%, up 80 points year-over-year and up 260 points sequentially. The margin improvement was driven by…

Thanks, Jeremy. So the actions we're taking this year are now expected to benefit earnings per share by approximately $1.10 on an annualized basis. About $0.65 of this benefit is assumed on our EPS target for this year with an incremental $0.45 of benefit expected to be realized in 2014. Our top priority is improving the operational performance across all of our businesses. Building out the progress we made on this front in the second quarter, Q3 segment margins improved 140 points sequentially and 70 points versus the prior year. The benefit of our restructuring and integration actions began to materialize in our Q3 financial results. And we're executing additional actions that are intended to reduce our cost structure going forward. We're targeting double-digit EPS growth in Q4, driven by our capital allocation actions and improved margin performance. We remain in a solid financial position with $625 million of projected cash on hand at year end, as well as expected divestiture proceeds. As I mentioned in my opening remarks, divestitures continue to be a key part of our strategy as we move towards a pure-play flow company. So that concludes my prepared remarks. And at this time, we'll be happy to take questions.

[Operator Instructions] Your first question comes from the line of Shannon O'Callaghan.

Chris, on the better ClydeU margins, I mean, finally the nice snap there. I mean, maybe a little more color on what you finally saw show up there. I mean, I know a lot of it was the restructuring you did last quarter. But maybe a little more color on what benefited you this quarter, and then just talk about the additional restructuring you're talking about doing there in 4Q. And what's left to do to get that business kind of where you want it?

Yes, sure. We're happy obviously with the progress that we've made and now seeing those efforts bear fruit. So if you go back to the first half of the year, in the first half, ClydeUnion was essentially breakeven, excluding the $5 million of charges that we recorded in Q1 on the legacy backlog. And we think now that the cost reductions that we've affected Union's cost basis, and that's evidenced by the sequential margins. And on the order front, we're very encouraged by the order intake and we believe we're building a higher-quality backlog than the one certainly that we acquired. So our focus on ClydeUnion this year has been on integrating it and improving the return profile. The 2013 restructuring actions that are specific to that business, as we've mentioned now several times, are expected to result in a headcount reduction of about 400 people and that one facility closure here in the U.S. So again, as evidenced by our Q3 performance, Shannon, I think the restructuring actions, the discipline on new order acceptance are clearly driving the margin improvement that we saw in Q3. And our goal going forward is to continue to improve their annual operating margins to 10% or better. And we're expecting them to be around 10% for the second half of the year. And based on end-market dynamics, particularly in oil and gas, we think there's great potential for revenue growth and an opportunity to leverage the actions that we've obviously taken so far. And again, as I mentioned, the orders we're taking this year have been higher quality and lower complexity, so we feel good about the business that's coming in, and particularly, the nice OE orders that we're seeing related to those North Sea projects that we talked about. So I think as we go forward, continue to be diligent in terms of improving the cost structure, getting the benefit of the restructuring that we've done and maintain a good balance of revenue mix between OE and aftermarket orders, which I think is critical to the success of the business going forward. But obviously pleased with the progress that we've made and reported on Q3, and I think more opportunity going forward.

Okay, great. And then just on the free cash flow, I mean, your guidance actually up a little bit on free cash. I assume that though actually removes the cash from the businesses going away. So I mean, it was much stronger in the quarter and looks better for the year. Can you just go through a little bit more? I mean, you mentioned some working capital improvements. I mean, how much of this is unusual catch-up from the ClydeU issues? And how much of it is sort of sustainable free cash strength?

Yes. I mean, I do think it's sustainable. I think last year was an anomaly for us. I expect us to get back into 100% conversion as the gold standard or better frankly with some of the noncash expense that we have. I think if you look at the guidance change, we did remove cash flow from the discontinued businesses, which was about $15 million. Our capital spending in the budget came down a bit, you'll notice, in the reconciliation slides, which is just a couple of discrete projects moving to the right. But the working capital performance, particularly in Q3, was strong across the businesses, and we expect that to continue into Q4.

Your next question comes from Nigel Coe.

Yes. I might have missed it, but can you just lay out which businesses you discontinued? And yes, they seemed like pretty good margin operations, so I'm just wondering what drove these to be kind of at the forefront of your non-Flow asset disposals.

Well, obviously, we can't speak to the specific businesses while it is in process. And we'll obviously and clearly talk about it in more detail as those transactions complete. And as I said in my comments, Nigel, we expect that to happen certainly within the next 12 months. But what I can say generally is it's a logical continuation of our focus on building the company around the Flow businesses. And as in the past, I think we've been opportunistic and successful in terms of finding opportunities to divest those businesses that are noncore to that strategy. And as we've said all along, we think the businesses in that Industrial segment are all great businesses and are successful in the various niche markets that they serve. And what we're doing there is consistent with everything we've done in the past. And as those transactions get completed, we'll talk about them in more detail.

Okay. And Chris, you mentioned the proceeds, the full processes to release debt and also to buy back more stocks. So it sounds like there's a bias towards returning capital to shareholders rather than acquisitions. And I'm wondering about, as you go through this portfolio rationalization, does that bias remain?

Well, I think clearly that's what our focus is on the short term. And I think there is -- there's clearly a need, an opportunity for us to mitigate the dilution from the sale of these assets. And we can do that through a combination of debt reduction and share repurchases. But in the short term, that's clearly where our focus is with respect to capital allocation.

And then Jeremy, on the 4Q guidance, the share count of 46 million, that's about 1 million higher than the 3Q share count. I'm just wondering why that is.

I think that's actually just the dilutive impact of shares coming in year-over-year, Nigel. But I can give you a more specific answer after I look into it.

Our next question from the line of John Baliotti.

Chris, it's nice to see continuing trends in power transformers, and obviously fare collection's helping. I was wondering, could you talk about the trends, kind of what the mix looked like in terms of the transformers, maybe large, medium and kind of where you sit in terms of your utilization of the facilities?

Sure. What I would tell you, John, is that we are still largely a medium power transformer provider. And we had a plan, as you know, to ramp up our large power facility. And what we've said was that in 2014, 2015, we expect that facility to hit stride with respect to the capacity that we had targeted in that facility when we made the capital investment. And what I would tell you, John, is that we're right on track for doing that. I think there's been really great focus in the transformer business, frankly led by Dave Kowalski and his team to really focus on improving operational performance, being more efficient, being better from a complete engineering standpoint. So I think that we've seen a more elongated recovery in this cycle than we have in past cycles, and we talked about that a lot. But with the focus that we have internally on improving those operations and with the volume that's flowing through the factory in both medium and large power, with the focus in the right place where we've had it, even at prices obviously below where prices were in the last peak, we think we can get better performance out of that business, and hopefully, better performance over a longer, sustained period of time. Medium to long term, we still like the dynamics of that business in that market a lot because we think the demand is there by virtue of the aged infrastructure and the need to continue to replace that. But right now, we're focused on being more competitive and more profitable as we get that volume through the factory. So still mostly largely medium power, but in large, ramping up right on schedule with where we expect it to be.

So that bodes well long term because if you're not obviously, and there's no reason to expect you to be fully utilizing the facilities and pricing is probably still somewhat early in its traditional ramp, given the progression already, that's a good sign that after this quarter.

Yes, we think so. We absolutely think so. And we think we'll continue to improve this year. There's opportunity out there. It's a competitive market. But as I indicated and Jeremy as well, we're seeing pricing stable. We're seeing volume remain steady. And in that environment, we think we can do better and we think the business can do better and we think we can be very competitive but still see better margins as we are seeing out of the business.

Our next question comes from the line of Jeff Sprague.

Just back to the divestitures. I'm just a little confused on your posture. If you didn't want to disadvantage yourself in the sale process, I would think you'd just kind of sit on these and not put them into discounts [ph] until you've got something. The bankers and employees are going to know what assets are for sale, so I'm not sure why you won't share that with us at this point.

Yes. Well, there's a competitive process around those assets, Jeff. And there's obviously a judgment to be made as those processes begin and where we see indications with respect to our determining them to be noncontinued -- or discontinued businesses going forward. And so that will play out over time. It's just not in our best interest to be talking about that or about those businesses specifically while that process is going on. But it will unfold over time and become clear.

Right. So it's not as if you just decided you want to sell them and we're starting today. There's been a process that's been going on at least through the quarter, which...

There's been a process that's been ongoing. And we're clearly in a position where we believe it's the right thing to do to discontinue them.

Right, got it. And just on share repurchase, you do have some additional flexibility, and it sounds like you want to replace some of this dilution with share repurchase. What is your posture on maybe getting a little running start, if you will, and getting in some of the divestiture proceeds to kind of mitigate the dilutive impact?

Right. Well, we've got $55 million remaining from our prior commitment, which we expect to continue and to execute here in the short term. And then with respect to the cash that we project to be available to us from our continuing operations, and in addition, the cash of these asset sales, we will have additional -- in a better position to know what those net proceeds are, we'll be in a better position to determine what additional share repurchases we would want to do.

Yes. I think we're in stage one of our planning process, Jeff, for next year. And as that continues and we see how the cash flow develops, that will be happening at the same time as our strongest cash flow quarter here in Q4 is happening. So we will look at potentially accelerating potentially doing additional. And as is always the case, if we raise that target, we will make a public announcement so that everybody is aware at the same time.

Great. And then just finally for me, Jeremy, you laid out in the slides some of the carryover tailwinds on the actions into 2014. And pension is not one of them. Maybe there's not a tailwind per se on your funding actions, but can you give us any color on what other tailwinds you possibly expect because of asset performance or changes in discount rate? Is there anything here that we should be aware of into 2014?

Yes. I mean, what I would say is the more traditional metrics that you'd be looking at to look for pension tailwind really don't apply now at this point now that we are funded to the level that we are. So the contribution we made earlier this year got us to 100% funded or a little bit better now frankly on an accounting basis. And with that, what we will do is be more conservative on the asset side and potentially look to, over time, move some of those liabilities off the books. And so the expense that you see in 2013 frankly represents our service cost on the pension side. And I think it should remain stable as we go forward. If we expect that to change significantly, we'll come out. But I wouldn't be looking for additional lower pension expense year-over-year in 2014.

Your next question comes from the line of Julian Mitchell. Julian Mitchell - Crédit Suisse AG, Research Division: Yes. I just wanted to focus on the Flow Tech margins because, I guess, all the EBIT growth year-on-year seemed to be at Clyde. So the margins within Flow, excluding Clyde's, are sort of flattish and SG&A was up a decent amount year-on-year. So I just wondered what -- if you could talk about the margin trends x Clyde there.

Yes. I think where we're still seeing margins below where we would expect them to be is in the systems business. We had a lower volume level in Q3, as we mentioned, globally in food and beverage systems. So that's the key driver. I think the North American operations continue to operate at a steady, very high level. We've started seeing some level of improvement in the EMEA operations. But APAC in food and beverage systems are where we're not seeing an increase in margins at this point. So that's probably the key variable that you're missing. Julian Mitchell - Crédit Suisse AG, Research Division: Got it. And then just looking at the backlog at Flow, a lot of talk around sort of systems wins and orders in food and beverage and so forth. How do you think that's affecting the margins looking out? Or is the sense that even within the systems, you're also seeing kind of better margins in your backlog now?

Yes. Well, part of what's going on in the systems business, Julian, is analogous to the focus we've taken on the front end of the business in ClydeUnion in terms of the order selection process and terms and conditions around those contracts and obviously, ultimately pricing. As that business has matured, we've grown it pretty rapidly. As that business has matured, we have gotten better focus frankly around the sweet spots with respect to our technology and our abilities. And as we have been more disciplined about the process in that business, much like ClydeUnion, we have -- I think, we're getting a better quality of input in terms of the orders that we're taking. Julian Mitchell - Crédit Suisse AG, Research Division: Great. And then lastly, on the Thermal business, it sounds like most of the extra restructuring is happening within Flow, but the Thermal top line continues to fall. And I guess, next year, you have another big drop in the South Africa business. Is this sort of -- is there any sort of shift on the Thermal cost reduction because you're seeing the backlog stable x South Africa? Or what's happening there?

A couple of different things. And you really do have to think about South Africa separately from the rest of the business. So on South Africa, we have plans in place and have for a while [indiscernible] Africa as the project progresses and the volume ramps down. And so we'll continue to do that. We've had some of that this year. We'll likely budget for some of that again next year to be ahead of that revenue decline. On the rest of the world, we've obviously had a lot of change in the business already over the last 2 quarters. We continue to make some changes in the structure in Q3 and in Q4. And I would expect again that pending how the Q4 order profile comes across, there could be additional actions for next year. So I think we certainly have exhausted all opportunities. It will certainly be, in my mind, revenue-driven.

Our next question comes from the line of Nathan Jones. Ladies and gentlemen, my apologies. We seem to have an issue with the Q&A section of the call today. [Operator Instructions] Our first question now comes from Nathan Jones. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: First, I'd like to talk a little bit about capital allocation there. You're looking at the $0.42 of earnings from discontinued operations, which is roughly 10%. 10% dilution there, 10% share repurchase would imply 4 million, 4.5 million shares. Is that kind of the right way to think about how you're thinking about offsetting the dilution from discontinued ops?

I wouldn't, Nathan. I'd really think that it'll be -- that decision, in particular, will be based on the proceeds from those asset sales on a net basis. And also as I mentioned, starting with remaining at least leverage-neutral, so there'll be some debt reduction there. So just based on the proceeds, it's actually likely that these actions will be somewhat dilutive to EPS on a net basis on an annual basis. But that is not the primary focus we have right now. We're certainly more focused strategically on moving towards the Flow side of the business. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Fair enough. I wonder if you could give some more color on kind of the changes that you've had in the operational alignment, 3 new end-market focus groups within Flow, a President at global manufacturing, a Chief Commercial Officer. Can you talk about kind of what their roles are and how you expect that to improve operations, improve the bottom line, improve the [indiscernible] line?

Sure, I'd be happy to, Nathan. So if you think about the growth of the Flow segment and how outsized it has become relative to the rest of the company, there has been sort of a natural growth progression along the 3 verticals, right? So power and energy, food and beverage and Industrial. And when you look at those 3 end-market platforms within Flow, they are of relatively equal size with great opportunity to grow. As we have grown the Flow business over the past 10 years, and we have grown it through acquisition and natural organic growth, we had developed a regional structure for that business that we felt like wasn't an efficient way to directly connect with our customers and frankly coordinate our operations around the globe. And so what seemed more natural for us was to organize these 3 businesses globally with the customer and the end market in mind. And then with Ross Skelton overlaying the entire company now as the Chief Commercial Officer, he can help coordinate strategies and customer activity across those 3 verticals. And likewise, David Kowalski, I think, can take a global and more universal view towards the manufacturing operations around the world, and instead of compartmentalizing decisions about how we achieve efficiency in those operations, do it on a more global basis. And so we thought that we were at a point in our evolution around Flow where it made sense do that. And we clearly had developed the leadership talent to be able to do that. And as I mentioned in my comments, in my opening comments today, that was a natural succession plan that we had behind Don's retirement. And so the folks that we've got in all those jobs are tried, true, developed. The end-market leaders have all had great global experience. And Dave is a terrific manufacturing guy, and I think will drive a lot of continued improvement in a more even way across the business. And likewise, I think what Ross will help us get to is avoiding the sort of silo effect that can typically happen, and I believe actually did happen in some of the old segment structure approach that we had. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And just one more, if I can get it on Clyde. You talked about delayed revenue recognition at Clyde and in transformers. And I think you specifically said that transformers was customer-driven delays, but you didn't say what it was at Clyde. Are they also customer-driven delays? Or is there -- there's been some execution issues on some discrete projects or anything that's delaying that revenue recognition?

I think it's a combination, Nathan, of those 2 items. And I would say that on the execution side, it's really about timeliness versus additional cost. So we're not terribly concerned about those projects and we expect them to come out and be shipped over the coming couple of quarters.

Your next question comes from the line of Scott Davis.

Couple [ph] nitpicky questions here, and then more of a big picture. But have you commented at all on the tax base of the assets that you put in discontinued ops? I mean, are we talking about major tax leakage here? Or has this stuff largely already been written down? I mean, not written down, but the sell price probably equates somewhere around value.

Yes. I mean, we haven't talked specifically about book or tax basis in the assets, Scott, and we won't until we close. But it's fair to say that on the Industrial side of the company that we have some fairly low basis out there. And also, as you think about the tax rate, the North America -- Industrial segments, primarily North America, and so those businesses typically have a higher tax rate as well.

Okay. And that's helpful. And then when you think -- and this is for you, Chris. I mean, when you think about the last several quarters, you more aggressively said moving more towards a pure-play flow company. What do you think is the right timing for us to think about when will SPX be a pure-play flow company? I mean, if I had to make an observation, I'd say it seems like it's taking a little longer than many of us would have thought to sell some noncore assets here in what seems to be a fairly liquid M&A environment. So what is the timing that you think makes the most sense for us to think about you moving towards that? And I guess, another kind of obvious question is what does your largest shareholder want you to do? I mean, we know you have a fairly involved large shareholder, and so they may have a view of their own, too. So maybe you can help us understand that.

Yes. Well, first of all, Scott, I mean, we've made, I think, great strides during the time certainly that I've been in this job in terms of moving the company largely towards becoming a flow company so that now it represents more than half the company's total revenue and more than 60% of the company's earnings. We don't have a timetable. We tried to be opportunistic, as we have found opportunities both on the acquisition side and opportunities on the divestiture side. And I think if you look at the track record with respect to divestitures, I think the prices that we've been able to get for those noncore assets and the return for our investors, I think, has actually been quite good. But I think we've been pretty disciplined about that process. I don't disagree that the environment for selling assets is good and witnessed by the fact that we've got assets in play right now. And we've stated a commitment to continue that effort around building a pure-play flow business. And with respect to shareholder reaction, I think the shareholder reaction to the strategy across the board from the top on down has been good. I think when you see the earnings development of our Flow business over the last 7 or 8 years, I believe it validates the strategy. And when we look at the growth opportunity for those 3 vertical platforms around the world, we're absolutely committed and convinced that, that is the place to be. And in the short term, we think there's an opportunity to really get better improvement -- or excuse me, to get better performance out of those businesses. And I think over the last 2 quarters, you've seen the result of our commitment to get there. So I can't tell you a timeframe, but what I can tell you is that we're committed to the strategy and we'll be consistent with that strategy going forward.

Okay, that's fair. And then last, when you think about Thermal, once South Africa rolls off, is there a risk that you're going to have to take a goodwill write-down to reflect maybe the new realities of that business?

I'm not sure I follow the question, Scott, as it relates to South Africa.

Well, I mean, is there a potential impairment in asset base, I should say, if you -- once those revenues roll off and there's not a big enough backlog to back-fill, I mean, I would assume that you're going to have some excess equipment or plant equipment sitting around that you might have to get rid of.

Yes. I mean, based on the current environment, I don't see that as a significant risk. I mean, if things change dramatically from where we expect them to be, it's something we would have to look at. But I don't see that as a major risk. This is obviously a project we have had in our backlog for a long time. We've been planning for it. The assets have been discrete. Some of our customers actually have funded some of the investment that we've had to make. And those projects have been profitable and recovered what we've invested many times over. So we feel pretty comfortable.

This is Ryan. We're actually at our time limit for the call, a little bit past actually, so we're going to have to cut it off here. I apologize to those that are still in the queue. But I'll be available throughout the day to answer any follow-up questions that might be necessary. We appreciate everybody's time, and thanks for listening.

Thank you for joining today's conference. This concludes the presentation. And you may now disconnect, and have a good day.