Welcome to Flowserve's 2013 Earnings Conference Call. My name is Adrienne, and I'll be your operator for today's call. [Operator Instructions] I'll now turn the call over to Jay Roueche, Vice President, Treasurer, and Investor Relations.

Thank you, operator, and good morning, everyone. We appreciate your participation in today's call to discuss Flowserve Corporations' financial results for the fourth quarter and full year of 2013, which we announced yesterday afternoon in our press release and Form 10-K filing. Joining me on the call this morning are Mark Blinn, Flowserve's President and Chief Executive Officer; Tom Pajonas, Chief Operating Officer; and Mike Taff, Chief Financial Officer. Following our prepared comments, we will open the call to your questions, and instructions will be given at that time. Before turning the call over to Mark, I would like to remind you that this event is being webcast and an earnings slide presentation is available, both of which are accessible through our website at flowserve.com in the Investor Relations section. An audio replay will also be available on our website approximately 2 hours following the conclusion of the live call. Both the audio replay and the slide presentation will remain on our website for a period of time over the next few weeks. Finally, please note that today's call and the associated earnings material contain forward-looking statements that are based on forecasts, expectations and information available to management as of February 18, 2014. These statements involve numerous risks and uncertainties, including many that are beyond the company's control. As such, we encourage you to fully review our Safe Harbor disclosures contained in yesterday's press release and slide presentation, as well as in our filings with the Securities and Exchange Commission, including our Form 10-K filing for the year ending December 31, 2013. All of these documents are also accessible on our website in the Investor Relations section. Finally, please note, except to the extent required by applicable law, Flowserve undertakes no obligation and disclaims any duty to 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. Overall, I am pleased with our operating and financial results for the fourth quarter and the full year of 2013. Our employees remain the key to our performance, and we are all committed to delivering value for our customers and shareholders. We are One Flowserve continuing to build on our performance culture and challenging ourselves to consistently exceed our customers' expectations. Considering our results announced yesterday, we're essentially in line with the upper end of the range we provided a few weeks ago. Today, I will speak more to some themes and major strategies we've implemented, their impact on recent results and our expectations for improving performance in future periods. For several years now, we have focused on operating and financial improvements within the 4 walls of Flowserve, and that work continued in 2013 and will remain an area of focus in 2014 and beyond. These efforts have generated substantial returns with strong contributions to gross profit and operating income, driving the third consecutive year of double-digit EPS growth. One of our early internal strategies was One Flowserve. I have regularly referenced it, but its ongoing importance shouldn't be overlooked. As a pure-play Flow Control company, we increasingly recognize synergies between our segments and product offerings. Our progress and opportunities include: better utilization of our global network of Quick Response Centers, offering our full portfolio to key common customers; measuring performance metrics consistently across the organization; implementing best practices and operating with common processes; and leveraging our corporate functions and centers of excellence, like R&D and supply chain. While the propensity for further operational improvement remains, our progress on this initiative has already resulted in strong earnings leverage and margin expansion. During the year, our end markets experienced low but accelerating growth, and…

Thanks, Mark, and good morning, everyone. I am also proud of the operational progress we made in 2013 and over the last few years. Our operational strategies and initiatives, including One Flowserve, focus on the customer, disciplined process improvement and performance culture have driven synergies across our segments. The result of these initiatives are evident in our strong operating performance, which drove impressive gross and operating margin expansion for 2013 in spite of a lower aftermarket sales mix headwind. Our disciplined investment in the operating platform are delivering returns and demonstrating improvements in a number of areas, including quality with over 2,100 CIP trained employees, supply chain, our focus on the customer through our project manager process, our aftermarket service capabilities, product innovation, and our research and development process, project pursuit, including sales proposal initiatives, the new sales organization and focus on our global customers, and our asset utilization through our lead product and secondary product centers. Our central focus is developing a culture of performance that consistently delivers notable results. I am confident that propensity remains for an ongoing operational improvement. Opportunities remain to pull levers previously outlined and others across our broad product, geographic and industry exposures. Last quarter, I highlighted the reduction in our past-due backlog metric, as we drove it to the lowest quarter end levels since 2009. This solid performance demonstrated the impact of our ongoing operational excellence efforts. However, in our continuous improvement culture, we recognize that our work is never complete. I am pleased to report that during the fourth quarter, we made further advancements and reduced our past-due backlog percentage to near best-in-class levels at year end. This performance helped drive the related increase in inventory turns and generated real cash flow improvement. It also showed that by focusing on and managing…

Thank you, Tom, and good morning, everyone. Mark and Tom have pretty well covered our operational overview and business outlook, so I will discuss our financial results in greater detail and then provide some color on our 2014 guidance. We finished the year strong with sales of nearly $1.4 billion in the fourth quarter. We grew revenue by over 5% on a constant currency basis. For the full year, constant currency revenues increased by 5%, or right in the middle of our 2013 revenue guidance range. Turning to margins. Even with the 2% mix shift towards original equipment and realignment charges, fourth quarter gross margins improved 20 basis points from the prior year to 33.9%. Excluding the impact of realignment, the improvement was 60 basis points compared to the prior year. For all of 2013, we delivered a gross margin improvement of 80 basis points despite a 1% OE mix shift. Excluding the impact of the fourth quarter's realignment charges and cost of sales, gross margins improved 90 basis points. Turning to SG&A. For the full year, it increased 10 basis points as a percentage of sales to 19.5%. However, looking at it more normalized, it was down 30 basis points after adjusting for the fourth quarter's discrete charges and the $14.3 million of SG&A benefits in 2012. This is an area we have focused on and we are pleased that over the last 3 years, our normalized SG&A spending has remained pretty flat. We believe opportunities remain in the system. And as such, we'll continue to work towards our goal of an SG&A percentage of 18% over the next few years. With gross profit improvement and our focus on SG&A, we delivered a 110 basis point improvement in operating margins during 2013 to 15.3%. At this level, we achieved…

Thanks, Mike. Operator, we have concluded our prepared remarks this morning and would now like to open the call for questions.

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

I just want to focus on the industrial products for a second. And the margin performance there was certainly better than we were looking for. You called it out in one of the -- on slide on the segment. I wanted to just get a little more granularity on where that business is going. You're moving up, you're getting pretty close to your target there. Do you see a runway beyond your initial target? I know you don't put guidance out there right now but can you give us a sense, because it sounds like you're getting there a little maybe quicker than certainly we thought you were going to. How much of that we saw in Q4 is permanent? How much of that maybe was driven by seasonality factor?

Well, first of all, Charlie, I'm glad to be on this side of this conversation because 2 years ago, we were telling you it was going slower than we anticipated. So it's been pretty much in line. And you, as you know, our focus has been on fixing this platform. So it's fair to say we have not run it as quickly as we could have because it wasn't where we needed it to be. And then the second thing is, when we get this thing to '14, to '15, then we can talk about where from there. We just -- we're focused on getting it there first. Q4, you can see in many of our divisions, typically, you get good fixed cost leverage. It tends to be our highest volume on the revenue side. So that will tend to benefit margins during that period of time. So it's really better to look at just the annual margins in terms of improvement because we do have seasonality in our business. If you think about it, we ship to a lot of national oil companies, parts around the world, where they have annual budgets and they either get the equipment in at the end of the year or they basically start all over. So that's what drives the seasonality. But we are pleased with the improvement. It was one of the reasons we were encouraged and brought Innomag into the platform because we think it's not where it needs to be, but it has certainly improved. And the other thing I can tell you, and it's very basic to our business, margin is an indication of how well we're executing or not executing for that matter. And when we execute well, our customers give us more orders. So what we're doing now is we're focused on growing that platform.

All right, I guess -- I mean, look kind of on the back of that. I mean, the Q4 bookings were up pretty strongly. If you can kind of -- and maybe you could do this for all 3 of the business segments, your top line guidance of 3% to 6% for the year, can you give us a sense of kind of, in line, above, below across the 3 segments?

Well, we don't break our revenue down by segment at all, Charlie. So let's just stick with the 3% to 6% across the board. I think the areas of focus that we talked about over the last couple of years, and it's pretty consistent, is our valve business has been operating very well and we're really driving for growth. And even last year, how do we optimize and better penetrate the markets. On IPD, there's still some improvement. We want to drive growth. On the EPD side, we're really focused on growing that aftermarket platform and the run rate and being very disciplined on these projects. And what I mean by that, just to give you some color, and I've made this comment before, you go back to 2010 and your focus was on absorption because you didn't know when your markets were coming. As we start to see them come, you can be much more disciplined and focused on making sure your backlog continues to progress over the period of time, especially when you have the run rate and aftermarket business that we do. It gives you the opportunity to be a little more flexible as to when you take these projects in. So as you think of our 3 platforms, solid operating, consistent operating business on the valve side, driving for growth, the same thing in IPD, and maintaining discipline in the project business in EPD, and really, all of our projects but driving that aftermarket growth.

And we have Hamzah Mazari from Crédit Suisse on line with a question. Flavio S. Campos - Crédit Suisse AG, Research Division: This is Flavio, I'm standing in for Hamzah today. You guys touched a little bit on this on the EPC side, and on Middle East, as well. If you could give additional color on your visibility on the larger projects. And maybe any single timing about enrolling for bookings or any additional color on that?

Yes. Well, around the timing, I mean, we've been talking about these project opportunities since 2013. And so what you see is with the size and complexity of this, and I think you're hearing this from EPCs, what people are doing is measuring twice and cutting once before they execute on these. They are going to move forward with them and I think you consistently see that terminology when the awards are going to the EPC firms. But from us, again, they can move quarter-to-quarter. And so what we're talking about from our end is staying focused on growing aftermarket run rate business, make sure we're very disciplined because when these cycles come, as you saw back in 2006, '07 and '08, they're here for a period of time. And what you want to make sure is that when you're in that cycle, you don't have things in your backlog that you felt that you had to take at unfavorable economics. So that's the way we're approaching these cycles. Again, what I made in my initial comments was we -- if you think about the project business, really, with the exception of the Middle East, a little bit in '10 and '11, it's been fairly soft since the middle of 2008. And the fact is with cycles is they go down and they go up. We're due for an upswing. You're hearing it from EPCs, you're probably hearing it from our competition as well. When it will materialize, on what day or what quarter, can move especially as these things are very large and complex. But we're confident it will come. Until that point, we're going to continue to do what we're doing. Flavio S. Campos - Crédit Suisse AG, Research Division: That's great to hear. And just as a follow-up. If you could give us some detail on how pricing is doing right now and if you guys have a long-term outlook since that the industry is a little more rational right now, post acquisitions and maybe with the impact of larger projects absorbing some capacities. Just some color on pricing.

Well, I think our comment was that in the big projects, is certainly remain competitive. This is what you see on the front end of the market. Our competition is very good. It's very capable. And so they're seeing exactly the same thing. So it's really more looking at our industry. As these projects come in and capacity starts getting allocated to these project, the next thing that we'll tend to drive is price to a certain degree and then lead times in the business. But frankly, really, lead times are the last thing that owners want to push out. They want to get these facilities up and running. The longer they take to put together to assemble and ultimately, commission, the more cost attached it. That's just the way it is. So price tends to come in first. But if price starts to get a little out of whack, what they will do is start extending lead times. Flavio S. Campos - Crédit Suisse AG, Research Division: That makes sense. That's helpful. And just as a final question, a little more on the modeling side. What are you guys thinking about assumptions on FX and the impact of devaluation we had last year, which is baked in your guidance range? And if that affects the way you're looking at emerging markets are at all or not?

Yes. I mean, our guidance assumes basically FX neutral from what we said. So I mean, just depending on where that goes, it could be headwinds or tailwinds. But it's basically based on an FX neutral basis.

And we have Scott Graham from Jefferies on line with a question.

So I do have 2 questions for you. The one, I think is an easy one, and we flushed most of this out last night with your guys. But the backlog being down on a year-over-year basis for 5 straight quarters, Mark, Tom, the bookings have been kind of sluggish up until the fourth quarter. Is there anything more we should be reading into the backlog decline? Or is it more that just the last 6 or 7 quarters before this one where things were a little slow?

If you look at our bookings trend, actually, they trended down towards the end of 2012 and then trended up over the last 4 quarters. I think one way to look at our backlog and our comments around past due and legacy, if you look at our original equipment backlog end of '12 and end of '13, if you take out the legacy and past due, actually, original equipment backlog would have gone up. Keep in mind, past due and legacy backlog typically, it doesn't have any profit, doesn't have an economics to it because my comment around lead times and everything, by that time, if it's past due, the economics are usually gone. And actually, there's a cost associated with it. So if you look at our OE backlog, absent the legacy and past due, it actually went up year-over-year.

Okay, okay. I had a feeling that that's what it is. And also, your focus on higher quality projects and all that dovetailing into that same thing. Next question was really about SG&A. And I think it was Mike that mentioned the goal continues to be 18% of sales. How much does the move of the EPD margin -- I'm sorry, the IPD margin to your goal? How much does that net you in SG&A benefit toward that goal?

Well, if you look at the results over the last couple of years, they've done an excellent job of really controlling those costs and holding them relatively flat. I think, as you look at our SG&A to achieve our objectives, Scott, a lot of the opportunity will be in the EPD side. Because while typically, the gross margins in large projects, because of the way they're bid and everything, are less than run rate and less than aftermarket they are large dollar amounts and you get good fixed cost leverage on the SG&A line. And I think you saw that a little bit in the third quarter of last year, where we had the good leverage on the G&A line in the EPD segment. So that's one that's more what I would call just the way financial presentation is. When you got strong top line growth from projects, even though the margins on big projects are less, you do get fixed cost leverage on the G&A line. In IPD, what that SG&A has been really on very, very good cost control, which is what you do when you're fixing the platform is you reassign those costs to their more optimal use. And that's what they've been doing. And on the FCD side, just a solidly run business. So you want to see SG&A grow, but not as quickly as the top line because what you're doing is you're adding sales folks. They've been adding aftermarket capabilities. So that's the way to think of SG&A across all 3. And then I think you and I had a discussion about this 8 years ago. I mean, on the corporate line, it's just staying focused that we hold those costs as constant as you've seen we've really done over the last 4 or 5 years. That's your SG&A story.

So it's really not a cost cut thing, it's more of a kind of maintain it where it is and let the revenue bring it down on a percent basis.

Yes and no. I mean, believe me, there's a lot of activity going on underneath that number where we are adding costs on the R&D side and taking cost out. So it's fair to say we are cutting costs in certain area. We don't go into them specifically. But we -- we're not in an environment where you saw back in '08, where our markets are going away from us and you don't invest in any future because you don't know when it's necessarily coming and you just cut costs. I think it's been more we have taken some costs out, but we have certainly invested in our R&D platform and other things as well to drive growth.

All right, that's great. I do, though, have one last question, if you don't mind.

No.

When we X out the charge this quarter from cost of sales it looks to me like your gross margin was up about roughly 100 basis points on a year-over-year basis. I just kind of wondering if you can give us something specific, great, but just sizes of the buckets would be helpful. How much of that 100 basis points in gross margin was mix versus One Flowserve with Tom Pajonas head -- manning that, how much of it was operating leverage? What items went the other way? Could you give us some ideas on what those buckets were and their sizes?

Yes. Actually, mix went against us, right? So you had a shift to more original equipment. And I think we talked about this years ago. If you look at the margin differential, 30 bps is probably a good proxy for what a 1% move in mix means, either way, if you just think about the margin differential. But I would say it's mostly really attributable to One Flowserve because what you haven't seen is necessarily big absorption gains that you see -- that we saw in 2008. You saw a lot of price and absorption during that period of time. That comes -- that is also a benefit when you get projects in as you absorb your factories better. But I would attribute it really to the One Flowserve and the efforts around that. And in that is going to be of course, improving, and improving is the operative word, execution, the quality of the backlogs, some of the things we talked about around the discipline, the focus on the run rate business. So that's really what's been driving it.

And we have Mike Halloran from Robert Baird on line with a question. Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: So on the, call it, the run rate business, obviously, a lot of focus has been on when these large projects are coming out. But that run rate business is a large chunk in your portfolio from the original equipment perspective. Maybe you could try to frame up what the opportunity looks like on a forward basis just in terms of how much replenishment opportunity is there from underinvestment and what some of the internal focuses have been to help drive that business high over the last couple of quarters?

Well, I mean, Innomag is a great example. That's -- those are basically sealless pumps. They apply to the chemical industry. And they're just -- think of them as smaller projects, replacement OE. You know ever to a certain degree the MRO, as we call it on the valve side, that when one fails or needs repair, they just replace it. So there's been a lot of focus on that. And that's where we really focus and we have the opportunity to improve our distribution channel. So that's one of the things that we are really starting to put some effort in right now to drive that run rate business, as well as Tom alluded to one of the things we did last year is we're putting additional focus and resources and structure around our sales organization to create the right incentives for folks to really go and drive some of those smaller opportunities because if you think about any organizations where there's large projects, history indicates that the sales organization is typically tilted towards the big projects because that's the larger dollar amounts, that's where you can fill your quotas quicker. So what we've been doing is focus on our channels to market, both internal and external, to drive that. But I will go back to some of these things. Execution remains a key because if you're replacing a piece of equipment, they need it on time and if they don't, they'll go to somebody else. So a lot of these things we've been doing have been trying to drive that business. And I think part of it around the sales organization that I talked about, is just create a culture that recognizes and rewards that. Michael Halloran - Robert W. Baird & Co. Incorporated, Research Division: Makes sense. And then on the aftermarket side, obviously, healthy growth there. Comps were a little bit easier. But just curious if there's any change in your shifting dynamics there in terms of your ability to go out and capture non-Flowserve aftermarket business. Or conversely, if you're seeing any increased competition of folks trying to come in and capture your stuff.

The competition has always been there. We've got, as I said, good competitors. They have service capabilities. We maintain still the best opportunity out there is going to be the customer, is to do the things like we did in the Dow Benelux a little over a year ago is, to go and get those mandates, those opportunities to help them with their uptime. I think the only trend I talked about in my comments that we saw last year was some sluggishness in North America, which is one of the bigger aftermarket regions.

And we have Nathan Jones from Stifel on line with a question. Nathan Jones - Stifel, Nicolaus & Company, Incorporated, Research Division: If I could just focus in a little bit on the CapEx side. Your CapEx numbers have been pretty elevated for quite a number of years now. And I understand that's investment in organic growth and take great returns in there. Can you talk about how much further opportunity there is to continue to invest in -- at elevated levels in organic growth?

Yes, Nathan, this is Tom. I would say there's a lot of opportunities on certainly, the CapEx supply to R&D in terms of selling materials and coatings, diagnostics. We do a lot of efficiency CapEx also in our plants relative to the equipment. We spent a lot of time on making sure that our safety numbers are also -- are world-class. So we invest consistently in that particular area. In addition, we are continuing to add ERP systems as we look at centralizing more -- some more of those particular areas and also business intelligence CapEx in the business. And I would say, we still continue to have a lot of opportunities in the CapEx area with that $130 million to $135 million spend that we've been able to maintain over the last couple of years.

So, Nathan, one of the things to think about, with the exception of safety, which we think has an infinite return, we look for a 15 plus internal rate of return on our capital expenditures. So be it a new facility in China and India, which we opened one last year and we'll open one this year, Brazil was in 2012. The QRCs that we've added. So we've added hard assets to drive revenue. When we look at some of the things that Tom talked about in terms of R&D, we're looking to invest in these to drive revenue and growth and we expect a return on them. So I think your way of looking at our capital expenditures is the levels we spend it indicate the level of opportunity we think we have to provide that in excess of 15% internal rate of return to our shareholders. Again, save [ph] and except safety because safety is good business.

Yes, Nathan, the other thing to keep in mind is, we talk about this a lot, I mean, I'd say well north of 50% of that's been rated is really growth related. So from that, we have pretty minimal, what I'd call, kind of maintenance capital requirements here at Flowserve. So always think of sort of a large piece of that as growth related. Nathan Jones - Stifel, Nicolaus & Company, Incorporated, Research Division: That's good color. On the past-due backlog, where are you at with that now? And is it possible to quantify what the margin impact was in 2013?

Well, as Tom talked about, we're near what good levels will be. I mean, there's still opportunity for improvement in the past-due backlog. And I think we talked about levels that were 7% plus at one point in time and we were closer to 4% at year-end. So we saw good improvement there. There's still improvement -- opportunity for improvement. I think the way to think about it is that's typically business that has little or no gross margin associated with it. And so there's still the SG&A component to it. So the -- specifically, quantifying the margin, I honestly don't have those numbers with me right now. But they do have a margin impact year-over-year. We saw it from '12 to -- '11 to '12 and then '12 to '13. Nathan Jones - Stifel, Nicolaus & Company, Incorporated, Research Division: So it will obviously, be a tailwind for '14?

Yes, we still had some past due and legacy backlog in 2013. So part of the opportunity in '14 is we cleared a lot of that last year. Nathan Jones - Stifel, Nicolaus & Company, Incorporated, Research Division: Great. And one quick one for Tom Pajonas. Could you just talk about what activity you're seeing in the pipeline markets, specifically outside the U.S.?

I would say, certainly, the U.S. is probably the most prolific in the pipeline area right now. But good pipeline activities still exist in Russia, as well as in China. So those are the, I would say, the 2 primary areas. And to a lesser extent, but still there in Latin America.

And we have Andrew Obin from Bank of America on line with a question.

Just a question in terms of just backorder growth -- backlog growth. We've been getting calls from investors concerned about slowdown on CapEx, oil and gas CapEx. The fear is that this is somehow going to be a replay of what we've seen in mining. And I was just wondering, how much visibility do you have in terms of your bookings growth throughout 2014? And just the second question is, we have been hearing from some oil and gas equipment companies that they do actually expect maybe a pause in orders in 2014. And how does it relate to your business, which I understand is a different business, but still, we'd love to hear what you think about it.

Well, I mean, when you look at the oil and gas industry for us, a lot of what we do is supporting existing capabilities. So our run rate and our aftermarket business, which represents about 80% of our business. In terms of the new projects that you're seeing out there, I mean, you've heard the commentary around the energy market, LNG, chemical is energy as well in my view because of the feedstock is going to be natural gas, which leads to the pipelines and other production capabilities around that and also, around the world. I mean, when you go and look at areas around the world, and there was some commentary even Tom made, some of the infrastructure needs to be upgraded and repaired. They are still adding some capacity in different parts of the world. Low natural gas and oil production in the United States. So it depends on what the oil equipment is. But ours is kind of -- if you think about Flow Control, it's really basic to a process. So some equipment may be a marginal enhancement around the process or a specific complex application, which could be marginalized for a short period of time. But when you look at ours, ours is very basic to core of the process itself. So when we see these facilities come on or the pipelines being built, we know that's going to create demand for our product down the road.

I'll just add one -- just add a few specifics on the back of Mark's comments. I mean, there's a lot of activity in LNG in the U.S. and Canada. We've spent 5 project in Canada alone, 4 in the U.S. that have been granted licenses out of about 20 proposed export terminals. So that looks pretty good. And this whole area about LNG and transportation business could create opportunities for natural gas in North America. European refineries are going through some changes right now on that side of the business. But as the other question came up on the pipeline, the pipeline growth is pretty good in the U.S., Russia, as well as China still. And we're still seeing good Middle East oil and gas. Brazil, offshore, oil and gas. And Russia, oil and gas business in general. So we've got projects out there in the oil and gas side. And you've heard some of the EPC comments from some of their investor calls, they've got good order growth on the oil and gas side also.

And just a question, just a follow-up on in terms of M&A. You have been more rational than some of your competitors in terms of what you guys are willing to pay. Do you feel you're at a disadvantage with your more disciplined approach and just more -- a little bit more color on the M&A market, just given how excited people are about Flow these days.

Right, well I mean we're disciplined, I wouldn't necessarily say more rational. Think about some of the other transactions that have occurred. I mean, they've gone to financial sponsors hands and the financial sponsors have the opportunity to use leverage and to drive return. So for them, that's very rational. Some of the strategic moves over the last couple of years have been some assets that have traded hands because they needed that product base, that platform. So it had strategic value, which encouraged them to pay a higher price. I certainly can't argue with that. When we look at M&A opportunities, one thing to keep in mind is we have a very broad product portfolio set. So what we're looking to do is fill in between those opportunities, and that will also dictate ultimately the price that we pay for it. But for any company, if it's strategic and you can create the type of returns that make sense for your shareholders, then you'll pay that appropriate price for that. And for those that are really looking to focus and get into the flow control industry, to them, that makes sense.

Then can you feel you can operate to pretty low in this environment and still be able to source quality deals?

Yes, we definitely do.

And we have Steve Fisher from UBS on line with a question.

As you guys think about 2014, which of your initiatives do you expect to produce the most incremental improvement, be it on-time delivery, cost of quality, low-cost sourcing? It sounds like past-due backlog has already had the biggest incremental impact or a big one. So what about the rest of them?

Well, I mean, it's -- there's a lot of ones that have ongoing benefits. I mean, I think the improving execution you're seeing, we still don't have all of our facilities to where they need to be. Some of them have quite a bit of work to do. And that not only provides opportunities in terms of efficiency or margin improvement in that facility, but also you'll find customers willing to give more work when they can execute well. And then the other thing is depending on market dynamics, I mean, we may pull different levers. So I don't want to just say this is what is set on stone right now to what we're going to do and we're not going to change course. But going back, and I hate to give you a broad answer, but it is really the way we think about these things. Kind of our suite of One Flowserve initiatives that we put in place, that type environment, that type of culture takes really years to build into a business. We're only 2 years into it. And we're starting some other initiatives as well. So what I'd say looking broadly is I think the focus on the 4 walls was a big contributor last year and it's certainly going to be a big contributor this year.

Okay. And then it sounds -- it doesn't sound like your approach to selectivity changes in 2014 versus what it was in 2013. But I guess, to what extent do you expect the need to be selective to change in 2014?

My comments earlier is you're always hopefully selective, it's just what are you choosing against? And my remarks earlier around 2010, you're selectivity was focused on absorption because a large engineering facility that isn't absorbed can get very, very expensive. So your selectivity and your variables that you look at around do change over a period of time, as you move into what are you seeing market opportunities coming for a period of time. And remember, the projects -- I'll just go back and you don't have the benefit of history, but some of the projects we took in '06, '07, '08, lasted in our business in some form or fashion all the way almost to 2011. So when we are selective, we need to think multiyears in terms of how this thing is going to play out. But I think now where we are, what we talked about is making sure that we're maintaining or improving our backlog, that we are where we are need to be, and that is be aggressive where we see a good long-term aftermarket opportunity, where we can take advantage of our LPO/SPO strategy, where we've got a good relationship, broad relationship with a customer across our 3 platforms and we want to make sure we really leverage it, those are going to be the variables that come in around selectivity.

And we have Brian Konigsberg from Vertical Research in line with a question.

So I just want to actually come back to, I think it was a question that Andrew asked about, just kind of concern about oil and gas CapEx and how it might relate to pricing. So you discussed some of the large projects were very competitive at the very start, which is not very surprising. But how much do you think that is coming from project to owners just being a lot more concerned about what they're paying for equipment and spending on their projects wanting to get the most bang for their buck, just given that there are, I guess, more constraints on CapEx than there had been before.

Well, I mean, I think that's issue we talked about. It's not just a concern in general, it's the size and complexity of these projects. They want to make sure -- you used the term getting the most bang for their buck. I mean, keep in mind, at times that's lowest cost and particularly, you see a lot of that in the Middle East. But in other parts of the world, that's around efficiency, making sure the process conditions are right, making sure you have the right support long term. So what I want to suggest is they are certainly competitive, but they want to make sure that you can deliver a quality product on time because they -- in the world, you may pay less for a piece of equipment, but if it doesn't work, it is worthless to you. So I think you're absolutely right, is what they're seeing is the size and complexity of these projects and they're just being very thoughtful. They need them, they need the infrastructure, but they're just being very thoughtful, and that's what tends in these cycles to kind of push things out. What you saw -- the reason it ran up so quickly, so fast back in '07 and '08, is you all of a sudden saw all the material cost and all these commodity costs spike so quickly. And what was happening during that period of time is these folks would budget these projects at X and the next time they went through a budget effort not too long afterwards, it was 1.5, 2x. And so they had to rush to market because they were concerned that 2x could go to 4x. And you saw that with kind of the commodity boom at that point in time. And this one, what you're seeing is the commodities are elevated. Certainly, oil is. Commodities justifying spend and infrastructure. But they can certainly be very thoughtful. That's not a bad thing for our industry because when you see a spike up like you saw a number of years ago, they start splitting orders. It -- they start extending lead times. Those -- that's how the market responds. So we see a fairly orderly move is for everybody. Do we all wish it would have been sooner? We certainly do. But we also understand why these things take time. Meanwhile, as we made in our comments, what we're going to do is continue to focus on what we can. The 4 walls, driving the run rate, driving the aftermarket business, which has really been the primary contributor to our earnings.

Fair enough. And just on the projects that actually have been led from the EPC perspective. Obviously, they are fairly large. And I think you can argue on average, they are larger than what we saw last cycle. How quickly do you think that will absorb industry capacity among your peers and start to make it a more attractive kind of good process for you to get involved?

Yes, that's a good point. It depends on the pace at which they come and the lead time. I think what you'll see is they're going to try to keep the lead time short so that the project costs don't increase. And I think as these projects start to roll, and we've seen some, they've certainly been competitive more recently. But it doesn't take too long for the industry to try to allocate the capacity. Having said that, we've added capacity in certain regions of the world. A lot of that to address the opportunities there. But still, that represents capacity under our LPO/SPO we can use around the world. So it's -- I think it's a little bit of -- it's a broader market than it was 6, 7 years ago because your buyers are now stronger in China and other parts of the world. And so it's a broader base that's going to drive the spend. But I think as you see this, what's going to happen is they're try to keep their lead times down, and that will start utilizing our industry's capacity. It really depends on the pace at which they come on.

And I would add to that. I mean, you basically are going to look at 3 areas, as Mark has kind of already alluded to, you always look at the engineering area. You look at the supply base and you look at the construction piece. Depending on regionally, how things are concentrated, you could have overcapacity in any one of those or under capacity. So it will depend -- the goals are the generally 3 areas that are indicators for you.

If I could sneak one last in, just for Mike. So just on the working capital initiatives. With a large cycle in front of us, obviously, that would typically require working capital build, not a reduction. So how difficult is it going to be to achieve your targets over the next couple of years, given the cycle is really only just starting?

Yes. Brian, a lot of that just depends on how well we do on the front end. I mean, a part this whole front end project when we talk about our selectivity and discipline, not only is it relates to the margin in the project, it also relates to the terms and conditions. And part of those terms and conditions is -- are the cash flows associated with those projects. So it's on us to do a good job of negotiating those terms upfront, to make sure that these large projects require advanced procurement, that we say, at worst-case, even cash flow. So that's something that Tom's group and the legal group have done of great job on putting some new initiatives in place as we look to these projects. And also, working with finance and operations and legal. We'll work hard to make sure we try to get terms that are agreeable to both us and the customer.

And further that, just to be clear. I mean, our goal is to have an improved working capital efficiency platform versus the last cycle. But to your point, when the cycle builds, depending on how quickly it does, it tends to tap your balance sheet. And then when the cycle turns down, as you saw in 2009, it'll tend to liquidate. But -- and you saw that in the last cycle. But I think what we want to make sure as clear is we want to have a more disciplined, efficient process relative to the last cycle.

And your last question comes from Chase Jacobson from William Blair. Chase Jacobson - William Blair & Company L.L.C., Research Division: Can you just remind us on these big chemical projects, what the lead times are, what the normal lead times are and how long it takes from the time of award until we start seeing the revenue hit the income statement?

Yes, if you take a look at, let's say, some very large projects, if you define it that way, from one, EPC gets an award to one. Flowserve gets a PL, could be anywhere from 6 months to 1 year. And then on these very large projects, if you're looking at a pump, it could be 18 to 24 months between PO and shipment. Keep in mind also that depending on the job, you also may be doing percentage of completion accounting so that you are taking revenues and operating income through those projects if it's percentage of completion. That then varies depending on when you go to medium, then those things coming down by 30%, 40% on the medium projects. But that's the order of range that we talked about on the very large projects. Chase Jacobson - William Blair & Company L.L.C., Research Division: Okay, that's helpful. So based on that and looking at some of these ethylene projects and when they're expected to start up, I know you guys have been talking about having visibility into them for a while. But it seems like they should be coming pretty soon. You also talked about competition. Are you aware of any of these that have already been let to any of your competitors? Or they're still all out there as a Flowserve opportunity?

Well, just to give you some maybe specifics. In Q4 alone, there have been several ethylene projects that have been announced, one in Baytown, Texas, one in Louisiana, one in Ingleside, Texas and another one Point Comfort, Texas. So we're starting to see these ethylene projects in the U.S. come pretty good. And again, you're beginning to see other areas on the oil and gas side worldwide. Some of the big EPCs have announced projects now in Kuwait and Oman. You've got some desal areas. I know it's not chemical but again, we're starting to see some of those announcements come out, and then you can add onto that the timeframe that we just gave you on the large projects, for when we -- potentially if we're successful winning the bid could see those projects.

So I mean, they do take a while to come to us. What you typically see are some of the longer lead items that go out first. They get bid first. And for us, the pumps are in the middle of the way and the valves come afterwards. And then the other -- your other question is we have, we do and we will continue to always have competition out there that will be bidding on projects as well.

We have now reached our allotted time. I will now turn the call back to Jay Roueche for final comments.

Again, we thank you all for participating in today's call and for your interest in Flowserve. We look forward to seeing many of you at upcoming investor events, including our Analyst Day. If you have any follow-up questions or were left in the queue, please call Mike Mullin or me. And with that, operator, we have concluded today's call.

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