Good morning, my name is Jackie, and I will be your conference operator today. At this time, I would like welcome everyone to the Xylem Third Quarter 2013 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Phil De Sousa, head of Investor Relations. Please go ahead.

Thank you, Jackie. Good morning, everyone, and welcome to Xylem's Third Quarter 2013 Earnings Conference Call. With me today are Chief Executive Officer, Steve Loranger; and Chief Financial Officer, Michael Speetzen. They'll provide their perspective on Xylem's third quarter results and discuss the full year outlook for 2013. Following their prepared remarks, they will address questions related to information covered on the call. [Operator Instructions] We anticipate that today's call will last approximately 1 hour. As a reminder, this call and our webcast are accompanied by a slide presentation available in the investor section of our website at www.xyleminc.com. All references today will be on an adjusted basis, unless otherwise indicated. And non-GAAP financials are reconciled for you in the appendix section of the presentation. A replay of today's call will be available until Tuesday, November 12, at 6:00 p.m. Please note the replay number is (404) 537-3406. And the confirmation code is 72520515. Additionally, the call will be available for playback via the Investors section of our website, under the heading Presentations. With that said, please turn to Slide 2. We will make some forward-looking statements on today's call, including references to future events or developments that we anticipate will or may occur in the future. These statements are subject to future risks and uncertainties, such as those outlined in Xylem's annual report on Form 10-K and those described in subsequent reports as filed with the SEC. These remarks constitute forward-looking statements for purposes of the Safe Harbor Provision. Please note that the company undertakes no obligation to update such statements publicly to reflect subsequent events or circumstances, and actual results could differ materially from those anticipated. Now please turn to Slide 3, and I'll turn the call over to our CEO, Steven Loranger.

Thanks, Phil, and thank you all for joining us this morning. I'm now 50 days into my tenure at Xylem and I've managed to cover a lot of territory. Let me start by saying that I am thrilled by the dedicated team that we have here. And likewise, I'm very excited by the significant growth opportunities in front of us and especially, our team's performance in this third quarter. I'm going to offer a little more detail on what I've seen and how we're prioritizing in a moment, but let's first start with the third quarter results. We achieved revenue of $965 million, up organically for the first time since the third quarter of last year. We booked orders of $955 million, up 6% organically over 2012. Our view is that some market conditions are showing stabilization and we could see some slight improvement in the European public utility and industrial markets as we look ahead. While we are cautiously optimistic on these markets, we are very proud of our sales teams, who continue to drive hard in this environment. Their focused efforts, along with a slightly improved Europe, were significant factors behind the pickup in revenue and orders this quarter. Equally important is the progress we're making with improved operational performance. Our operating margin was up 330 basis points sequentially from the second quarter, or up 60 basis points year-over-year. This represents record margin performance for the business since spinning out from ITT 2 years ago. We clearly see the benefit derived from our earlier restructuring actions, and we are delivering better volume leverage. We also drove incremental improvement by executing on the second phase of our European realignment. And these activities have significantly lowered our tax rate. And we also think that our short-term focus on business accountability…

Thanks, Steve. Please go to Slide 4. Xylem's revenues were $965 million, up 4% from the prior year, primarily driven by 1% organic growth and an additional 2% from acquisitions. Let me provide some perspective on our revenue performance by end market and region. First, in our largest end market, Industrial, organic revenue was up 1%. Europe was up low single-digits due to increased demand for dewatering applications, driven by construction activity in Germany and mining strength in the Nordics. The U.S. was down low single-digits, as slow mining and construction markets were only partially offset by an uptick in demand for frac-ing dewatering applications. Public utilities also increased 1%, year-over-year, as growth in Asia Pac and Europe offset a low single-digit decline in the U.S. Consistent with past quarters, demand related to CapEx projects remained weak in developed markets, while continue to see stability in demand associated with MRO activities. As developing countries are at an earlier stage of building out and upgrading water and wastewater networks, we continue to see growth in CapEx-related projects, which, for example, is driving strong growth for us in China. Commercial building services revenue was up 8% compared to the same period in 2012, when revenues were down a similar magnitude. Promotional activities in the U.S. contributed to growth in the face of continued weak end market conditions. Increased construction activity drove favorable results in Europe, while we continued to see strong demand in emerging markets. Residential building services revenue was down 7% year-over-year, driven by a decline in the U.S. groundwater market and continued difficult market conditions in Southern Europe. And lastly, agricultural was up 2%, driven by strength in the Western U.S. states. Let me spend just a few minutes highlighting our overall geographic performance. Europe grew 1% organically, as strength…

[Operator Instructions] Our first question comes from the line of Deane Dray with Citi Research.

Steve, welcome back to the front lines.

Thank you, Deane. It's great to be back.

All right, so I wanted to hit you with the first question, and this is kind of like a high-quality problem, to have to answer this question. And it's, how would you characterize the upside this quarter? I mean, we've gotten some of the nitty-gritties in terms of where the upside is -- how it has been reported, but maybe you can characterize it. Is this too much conservativeness in the previous guidance? Is this a catch-up from some of the second quarter? And -- or are we at this meaningful inflection point where we're now seeing some projects being released?

Deane, the real answer to that question is all of the above. And we had a number of dynamics occurring, which came together nicely. First and foremost, I think that previously, Gretchen and the team have done a really nice job in the summertime of outlining the necessary cost reductions that were needed to make the third and fourth quarter, with a relatively sluggish top line. The teams executed against those cost benefits. So we certainly got every bit of what we're looking for. Second of all, there had been some ongoing restructuring, as you know, in the 2012, 2013, time frame, and that's coming through. We did see some slight favorability in markets, although we're not going to forecast any real trend here, these markets have been moving around. But certainly, the markets were a little bit favorable, but we also had our sales teams out there really working hard. We put a lot of pressure to go get the order and focus, and the teams did a good job. And then finally, there was certainly some conservatism. When the July forecast was announced, the team really wanted to make sure that we had a number that we could make. So it really was all of the above. You take a little conservatism out of it, and what I'm mostly pleased about, is just really the operating performance of the teams, both on the sales line and the operational execution line.

Great. And then just as a follow-up, make sure I understood some of the nuances here within the realignment. And if you could just clarify about Water Analytics. Because, Steve, when you put this business together back in ITT, you talked about the transportation -- or transport, treatment and test, the 3 Ts of water. And so analytics seems to be not one of the cornerstones within the 3 businesses. So just clarify where Water Analytics is.

Okay, fine. First of all, on transport and treatment and dewatering, the purpose of associating all those underneath the umbrella of what was water, wastewater and later water solutions, was less about the relatedness of operations and the product technology, and more about the ability for Water Solutions to enable access to a global market. So in the presence of our integrated front end, which is we've essentially migrated in most of our regions, we now can go back, with respect to running really, really efficient product businesses in those dimensions. Analytics or Test remain separate underneath Chris McIntire, and as part of this -- as it has been. So there's no change there. But as part of this, Chris has been doing an outstanding job, and there is some more relatedness with some of the treatment technology and some of the tests. And we invited Chris to be the leader over both of those franchises.

That's terrific, okay. That's still part of this. So we should think of it as part of the Treatment division?

Well, think about Chris McIntire as leading both the analytics/test and the treatment businesses now yes.

Okay, that makes all kinds of sense. And just a special shout-out, that's great to see Colin getting an operating role.

And we're thrilled by the change in leaderships. Operator?

Our next question comes from the line of Matt Summerville with KeyBanc.

I think, Mike, on Slide 10, you talked about the net cost savings in '13 being in the range of $14 million to $15 million. Based upon what you're doing this year and anything left over from '12, if you will, what would be the incremental cost saving benefits that we should expect for '14, based on stuff done as of year end -- as of the end of the year here?

So we -- consistent with what we've talked in the past, there's a few components to that. First, the carryover restructuring is going to be in the range of about $15 million. In addition to that, as we guided, there were still some one-time spend costs that we were dealing with this year. The 2 biggest drivers being IT-related costs, as well as moving our corporate headquarters, and that's about $5 million. So those 2 items gave about $20 million. And then as we indicated in our last discussion, there's an additional $15 million related to the cost actions that we're taking here in the second half that will play out into 2014. And what I would say is, Steve talked to it a little bit in the upfront comments, we're continuing to work for more. I think the key component that we want to signal is, even with a flat top line in 2014, we feel confident we can deliver EPS growth in 2014.

And then just one sort of follow-up on what you're doing, at least in the near term, from a cost standpoint. I mean, have you cannibalized any growth investments? Have you substantially throttled back discretionary spending? Can you talk about maybe some of the more temporary levers you may or may not be pulling right now?

Yes, there's a couple of things. I mean, one, we're clearly seeing a lower level of inflation, and that has helped. I mean, we've gone from some just under 3% in the first quarter. We're down near around 2% in the third quarter. So there's a been little bit of help from that. But there's certainly been a mixture. I would say that there were some short-term measures that we took. Nothing, from my perspective, that's damaging the business. I think it was prudent cost management in light of a volatile top line. But we are also working right now to identify what are more permanent cost reductions, as we head into 2014, as Steve highlighted. We've got opportunities around global sourcing, we've got opportunities around the Lean and Six Sigma avenues relative to our business. And the other key point I'd make is we continue to invest in the business. As I mentioned in my prepared remarks, it continues to be a slight headwind relative to margin performance through the third quarter. So one thing we've made sure of is we're not going to do anything that damages the long-term potential of the company.

Your next question comes from the line of Scott Davis with Barclays.

Can you guys talk a little bit about what you're looking for in a new CEO? I mean, are you looking for a restructuring person? Are you looking for somebody with water experience? And just give us a sense of what type of profile you're looking for.

Well, first of all, the CEO search is well underway, and I don't have anything definitive to say there. But clearly, Xylem is a company that has just terrific global assets. You guys know about our technology, our market and customer reach around the world and some really, really good supply chains. And we think that clearly, the opportunities in front of the company are every bit as rich as they were when we created the spinout. So the notion about having a very, very strong global product business that can access these markets and become greater than the sum of the parts, is still in the front of our minds. And clearly, a CEO who has the leadership, the vision and the track record of experience in that dimension would be first and foremost.

Okay, fair point. When you think about, Steve, what's happened over the -- since the spinoff, clearly Xylem has been the most disappointing of the 3, and arguably had the most promise, really. What's gone wrong? Are you just behind -- did the restructuring come too late for the slow global macro? Just give us a sense of the playbook to kind of what went wrong, so we can get a better sense of what you're going to change in the near term.

Well, I think focusing on where we're going in the future is really responsive to that question. We clearly have had some challenges with these markets. And we have such a broad portfolio. I think what we do need to do is to focus and re-prioritize both our investments and growth activities in a way that can create more total value. As an example, we really do like the Flygt product line. That's been a fabulous product line. We're going to be increasing some investments in that to continue to drive competitive advantage in the transport segment. The same thing in the analytics and the emerging markets, as Mike had mentioned. The operative component there is to really prioritize those investments where they make -- where they matter the most to execute our vision around Let's Solve Water. So that's a big piece of, I think, where we need to go in the future. The second big piece really just has to do with the structure and efficiency of the company. I mean, with these markets, we have diluted operating margin, as you well know. And the team collectively have come to the conclusion that we simply need to get back up to the level of operating metrics, that we know that we're capable of, in a hurry. And so that really induces strategies like a global strategic sourcing organization of simplified and streamlined, product-line focused, an integrated front end that, quite frankly, not only is more capable than the independent selling organizations, but it can -- has the potential of being more efficient. And so that's a lot to talk about, but it has to do with de-leveling, organizational simplicity and clarification. And I think all those things are going to go into the operating efficiencies that we know are possible in front of us.

Your next question comes from the line of Brian Konigsberg with Vertical Research.

Maybe first, just with Mike, just trying to get a better sense of how the quarter, particularly in infrastructure, Water Infrastructure, progressed sequentially. You had decent or modest top line growth on a quarter-over-quarter basis, and the drop-through to operating profit was just pretty extraordinary. I know you had sequentially, I think, you were suggesting $10 million, $11 million or so of incremental restructuring benefits hitting Q3 versus Q2. But even kind of removing that, you're looking at close to 100% drop-through of the revenue. Maybe can you just talk about were there other factors, what the other contributing factors were there, so we get a sense of how that played out.

Actually, this gets back to, I think, one of the questions that was asked earlier in terms of the conservatism in the forecast. I guess a couple of comments I'd make is, when we put our guidance out after second quarter, the one thing we were looking at is we were looking at July results, which were relatively weak and supported a -- obviously, a much lower view of the trajectory we were headed on. So I think the first statement I'd make is the momentum started to build towards the end of July. And then clearly, as we got into August, it got a little bit more difficult to see, just given the dynamics that go on in Europe. But it was clear that we were pulsing at a level that would suggest that we were going to have stronger revenue performance. I think given the dynamics we were facing, one of the things that we did is not only did we have the cost actions identified, we had outlined what we called an EPS assurance plan. So essentially, we had identified additional cost activity to basically go and execute if the revenue didn't materialize. So essentially, we ran a scenario that said, what if we're flat sequentially for the first to second half? What would we need to do to ensure that we got to our EPS range? So when I look at what happened in the third quarter, we got the revenue growth that was targeted, albeit, it came a little bit late in the quarter. And we also executed on the additional cost actions, and so you got the double benefit of those. And then you're obviously correct in the restructuring kicked in substantially in the third quarter, and we've been signaling that throughout the first half relative to all the activities that we undertook in the first and second quarter, relative to primarily what is our European realignment.

Okay. And then just secondly, Q4 revenues at $965 million. So flat sequentially. I think typically, we've seen over the last several years when you roll everything up, you did have anywhere between a 5% and a 15% uptick on a sequential basis, but you're looking for flat now. Is that -- and also I think you've spoken before about the utility and municipal spending being very Q4 loaded. Is that some conservatism there, or was there some pull forward of revenue into Q3 from Q4? If you could touch on it, that would be helpful.

Yes. I wouldn't characterize it as a pull forward, but definitely, we saw a very strong third quarter. Quite frankly, it was actually opposite of what we've typically seen, which is third quarter drops from the second quarter. So admittedly, there is a little bit of conservatism in the fourth quarter. If you look at the upper end of our range, it's more indicative of what you would typically see in terms of the seasonality uplift. The one comment I would make is, our backlog position going into the fourth quarter has increased about 13% from what we had going into the third quarter. So that's obviously a very good indicator and gives us confidence. But at the same time, as Steve highlighted, these markets have been volatile. We've been dealing with this for the past 1.5 year, and it's too early to call it a trend. We're optimistic and we'll continue to drive, and if it's there, we're going to get it.

Your next question comes from the line of Kevin Maczka with BB&T Capital Markets. Kevin R. Maczka - BB&T Capital Markets, Research Division: Can we just go back to visibility, in general, that you have and the forecasting issues, Steve, that you mentioned? I understand having a conservative forecast coming off a bad June and early July, like you did as we went into Q3. But are there actual forecasting issues that you had that have now been fixed? I think you mentioned Europe in the context of your new management change. But can you just address that? What's different or improved that allows you, going forward, to have better visibility and then allows investors to have more confidence in the guidance that you're giving?

Well, thank you. The forecasting issues that I talked about were principally in the creation of an integrated regional business and the integrated front end, particularly in Europe, to some degree in some of the other regions. Where in order to make that effective and put the accountability out at the point of sale, there was a lot of moving parts internally on the forecast with respect to things like transfer pricing and cost allocations. And so we just finished about 9 months of organizational change in that area, which made it difficult to see as clearly as we wanted to. We've had outstanding actual cost and revenue visibility, but that's always where we're looking. So quite frankly, it was just a lot of financial discipline, some blocking and tackling, refining of formats and processes and understanding of things like cost allocations and transfer pricing levels that, to some degree, have been -- with good financial work with Mike and his team, have just kind of gone through the system. So not that we are finished in that area, but we do feel better. Mike, do you want to add to that?

Yes, I guess the only thing I'd add is the organizational change that Steve talked about, I think, puts us closer to the point of impact and being able to see the inner workings of the business. Because the thing I'll go back to is, we are improving visibility and our ability to have good financial discipline, but our business is heavy short-cycle. And so it's important for us to be close to those trends to understand what's going on in the marketplace on a real time. And we go into any given quarter with less than 50% of our shipments sitting in backlog. And so I think that's always an important piece to keep in mind. But I think the discipline, the financial changes that we've made, I think the organizational change that Steve announced, is going to put everything closer to the point of impact, and I think we'll have a lot greater visibility and accountability. Kevin R. Maczka - BB&T Capital Markets, Research Division: Okay. And if I can just follow up. In terms of the short-cycle nature, Mike, I think last quarter, we were still talking about de-stocking at your distributors and that's a big chunk of your business, seeing smaller orders and less frequent orders and therefore, you're carrying more inventory. So in the context of your bookings being better now and the momentum starting to build in late July, are you seeing any notable change on that front?

I wouldn't say any notable change. I would say, in our dewatering business, we saw the distributors start to restock. We had been dealing with them de-stocking for the past couple of quarters. And I think that's shown up in the positive results we've seen in our dewatering business, which is -- has been on a nice, steady growth trajectory. And I'd say, in our commercial segment, there's clearly been a strong performance there. Resi continues to be -- it was down for us here in the third quarter. The groundwater market, we're primarily servicing the well water market, as well as boiler circulators, and we've seen a little bit of downward movement there. But I wouldn't characterize that we've seen some big shift, and I would not anticipate, in the near term, seeing the distributors go back into a significant restocking mode.

You next question comes from the line of Chip Moore with Canaccord.

With increased emphasis on redeploying some capital back to shareholders, can you just talk about how that impacts your thoughts around M&A? And then as you look out at longer-term targets, if you do see acquisitions coming in at less than that, call it, 2.4% range or organic growth a little below, do you think you can make that up through better execution and operating performance here?

Well, most certainly, we think the very best acquisition that we have in front of us right now is Xylem's stock. So you can expect us to continue to deploy there. Also, we have had some operating concerns, as we've been talking about the whole call, and we thought it prudent to take a pause on some of the actual acquisitions. We're continuing to cultivate and we still have a rich pipeline. And to the note of your question, yes, with respect to some of the operating metrics we're forecasting in free cash flow generation, we will be able to continue to redeploy capital in the share repurchase and generate capacity for the acquisitions. And we expect, over the next quarter or so, as things settle down, we'll get back into the market. We're actually committed to meeting our long-term targets that you're all aware of in terms of operating margin, EPS and ROIC. So that's all highly intact.

Our next question comes from the line of David Rose with Wedbush Securities.

I was hoping I could follow up a little bit on Europe, sort of the upside surprise for the quarter for -- at least for us. Maybe you can walk us through in terms of the -- what you're seeing in Europe. Were a large number of orders just released? Was there a push? And then maybe you could talk about, I think you've implied that there was a push for orders in September. Was that Europe, was it across the board? And what's the implication for margins going forward? Was that at the expense of margins, or is it really kind of what we've been seeing?

Yes, so let me talk just a little about the -- I'd say, the overarching dynamics around Europe. I mean, we certainly had seen some dynamics, as I talked about in the last call, around public utilities pulling back. And as evidenced by our overall aftermarket performance, which was up low single-digits, we've seen a return to, well, say, a more normal pattern around the break fix, the operating maintenance, from a public utility standpoint. In the industrial side, I think there was a de-cycling there in the first half, and I think with more positive signs in Europe, in general, we've seen things -- I wouldn't say that I'd call it a recovery. I would say things are just starting to move again. And then certainly, the construction market has been favorable, specifically in areas like Germany. And that's helped our commercial business, as well as our dewatering business as we look at those dynamics. From a margin standpoint, I guess I'd say a couple of things. One, with the recovery in Europe, that's actually helped because as I mentioned, we've got impacted pretty heavily in the second quarter, given our fixed cost structure in Europe, which is, on average, 7 to 10 points higher from an SG&A standpoint because of our direct selling channel. Obviously, with the return of volume in Europe, that helps us more than cover those costs, and you saw that come through in the third quarter results. The one dynamic we are facing, which we talked a little bit about in my prepared remarks, is pricing. That is causing some top line pressure to the tune of about 30, 40 basis points in the third quarter. I don't think that it's anything atypical of what the competitors are seeing either. So I don't think there's any distortions in the market, nor do I think we've done anything to gain volume. But I do think that's going to continue to be a headwind for us. I think just given the overcapacity across public utility in the industrial space, that's going to continue to weigh a little bit on margins. But as Steve indicated, we've got ample opportunity to go out and drive improvements in our sourcing, in our Lean, value-based, Six Sigma. So we'll be able to go out and use that as an advantage to offset some of those headwinds.

Mike, that's helpful. And I was also trying to see if there was any sort of -- and I think you made some commentary around potential pull forward, but when you -- when Steve mentioned the push for orders in September, did that mean at lower margins, were there some sort of special terms? Was anything unusual or different that took place in September that would have taken place in any other month?

We had some marketing initiatives. Like in our standard care and mixer lines, we introduced some new products and went out with some attractive new programs. But for the most part, I'm just going to say it was disciplined blocking and tackling, and getting the sales teams focused on winning more. Colin and Joe Vesey and the team have been driving a program called Find More, Win More and Keep More, which is just a series of classic, good, strong marketing activities. And they've been deploying that, and I think we've got some benefit from it.

Did you see the momentum continue in October?

Yes, we've seen -- the comment I gave you about October is our performance from a booking standpoint has roughly been in line with the guidance that we've provided. So we've not seen anything substantially shipped in the month of October.

Your next question comes from the line of Jim Krapfel with Morningstar.

How much industry overcapacity do you think there is in public utilities and industrial? In other words, how much demand do you think would have to improve to bring pricing back to more normalized levels?

It's hard to say that, but it's got to be several percentage points. If you just -- one way to think about it is, you go back to the 2007, 2008 timeframe and figure that the industry was probably at pretty full capacity at that point in time. And you could sort of subtract from that, what the gross markets have done since then, and probably divide that difference in half to get to the answer to your question. The half being that companies have taken out some capacity on these downsides, but not all of that.

And, Jim, the only thing I'd add to that is if you look at just the U.S. water and wastewater spend as a proxy for what Steve was just walking through, it's down to levels that go back to say, 2004. And so, I think that gives you an indication of what we need to start to happen, which is essentially, we'd need to start to see fully embodied projects released. That's meaning, not just treatment projects, but projects that include transport products, pumping primarily.

Our final question comes from the line of Stewart Scharf with S&P Capital IQ. Stewart Scharf - S&P Capital IQ Equity Research: You have obviously leading positions in many markets: transport, industrial, water, tests, building services, and regarding the pricing. And are there any of those areas where demand might be more inelastic, where customers you have a relationship with, where they'll stay and not base their decisions totally on price?

Yes, I think -- and Stewart, I think you have to almost take it segment-by-segment. I'd say that our applied water business probably has a little bit tighter curve. When you look at our Flygt business, our direct selling channel, I think gives us some ability to leverage. But again, I'm going to point back to the overcapacity in the industry, I think, has put all the competitors in a position where every bit is being competitively quoted. And so I think that's putting some pressure from a top line standpoint. Clearly, from a project business perspective, given the fact that projects are down some 15% to 20% from the height, pricing is extremely competitive and quite frankly, the fact that things are not converting from bid to actual order is indicative of the fact that folks want to have another 1 or 2 looks at pricing.

Some of our premier brands, such as Flygt, we probably can get some good price just simply because we represent some very high quality. But with the question earlier about some slight overcapacity in these markets, we've got great competitors out there that we're very respectful of and everyone's working hard. So price is going to continue to be an issue. But that just merely underscores the comments I made earlier about the necessity for us to drive higher levels of operating efficiencies. What I mentioned this global strategic sourcing group we're going to be establishing, that is in part in effect now, but we're going to make a holistic global group out of it. We're going to be able to substantially improve our net productivity in the areas of sourcing. That'll start adjusting our cost base in ways that are going to address some of the front end pressures. So that's why we're working on that side of the equation as well. Well, with that -- operator, is there anybody else in the queue?

We do have a follow-up question from the line of David Rose with Wedbush Securities.

I'm sorry, I did have a follow-up question on your inventories, the jump in inventories for the quarter. Can you just give us a little bit more color if that was raw materials, finished goods, was it in Europe, where did it come from? It's kind of a big jump.

Yes, I mean, there's a couple of areas, but I'd say, we're -- as I've indicated in the past, I mean we've probably impacted our inventory turns by 0.2, 0.3, in an effort to make sure that we can deal with what has been relatively volatile dynamics around the inventory delivery requirements. So it's pretty equally weighted across the businesses. And from a geography standpoint, David, I don't know that I could isolate it to one particular area. It is an area of focus. I mean, Steve and I, clearly, are not happy with the inventory, and broadly, the working capital levels that we're at today. So it's a key area of focus for us. We're going to continue to monitor it. And hopefully, as the market starts to return to some level of growth, that'll give us a little bit of pressure to be able to take some of that inventory out of the system as lead times start to move back into something that's more reasonable versus the very short nature that they are today.

And just to be clear, if the business was a -- started to get little bit better than you expected, I would have assumed that you would have been running pretty lean on inventory, given your guidance. So was there some sort of makeup at the very end and as you've got inventory out?

Well, I mean, like I said, we started to see order rates improving in the month of August. And I'd say that the teams were moving quickly to make sure that they were able to satisfy the promotions that we were putting out into the marketplace, as well as to support to Find, Win, Keep initiative that we had underway. So I think in light of what was a pretty disappointing level of performance in Q2, we were doing everything we could to make sure that if an order came in, we were in a position to satisfy it.

Okay. So the 90% free cash flow conversion seems fairly reasonable then, by year end?

Yes, I think so. I mean, we had some dynamics with the way the receivables came in at the end of the quarter. But that's not too out of the normal for what we see at the third quarter point.

That was our final question. I'd like to turn the floor back over to Steven Loranger for any additional or closing remarks.

Well, thank you. And let me summarize what I hope everyone has ultimately taken away from this call. We do have a lot of work in progress. We're going to stay focused on doing the basics well. And clearly, we've got a lot of work in front of us. We have faced some real challenges and those challenges are not going to subside anytime in the future, but we do have the foundations, the tools and the global assets. We've got some great technology, premium brands, terrific applications, expertise with comprehensive selling and distribution channels. And I can tell you, we've got some of the greatest, talented employees of any company in our space. So we've got these assets and collectively, we will eventually overcome some of these challenges and help realize our vision. We do have 3 priorities right now. First and foremost, it should come as no surprise, we've got the entire organization working to achieve the 2013 commitments. Second, we are prioritizing our strategic initiatives to drive more top line growth, as I outlined. And finally, we're focusing both our strategy and our operating framework to accelerate and increase shareholder value, not only in 2013 and beyond. So we've taken some decisive actions to improve our performance in the face of these ongoing challenges. And I believe there's a lot that we can still do to perform better and grow faster across the businesses. And our commitment, as you would expect, is we will move as quickly as we can to make all of that happen. So with that, I want to thank you for your participation and we look forward to talking with you next quarter.

Thank you. This concludes today's conference call. You may now disconnect.