Bradley Alexander John T. Gremp - Chairman and Chief Executive Officer Maryann T. Seaman - Chief Financial Officer and Senior Vice President Robert L. Potter - President Robert K. Cherry - Director of Investor Relations

Douglas L. Becker - BofA Merrill Lynch, Research Division Joseph D. Gibney - Capital One Southcoast, Inc., Research Division Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division William A. Herbert - Simmons & Company International, Research Division Edward Muztafago - Societe Generale Cross Asset Research David Anderson Waqar Syed - Goldman Sachs Group Inc., Research Division Robin E. Shoemaker - Citigroup Inc, Research Division Kurt Hallead - RBC Capital Markets, LLC, Research Division Darren Gacicia - Guggenheim Securities, LLC, Research Division William Sanchez - Howard Weil Incorporated, Research Division James C. West - Barclays Capital, Research Division Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division Collin Gerry - Raymond James & Associates, Inc., Research Division

Good morning, and welcome to the FMC Technologies Third Quarter 2012 Earnings Release Teleconference. [Operator Instructions] In the event of any technical difficulties during the call, we will post updates at www.fmctechnologies.com/earnings. Thank you. Your host is Brad Alexander, Director of Investor Relations. Mr. Alexander, you may begin your conference.

Thank you, Takisha. Good morning, and welcome to FMC Technologies Third Quarter 2012 Earnings Conference Call. Our news release and financial statements issued yesterday can be found on our website. I would like to caution you with respect to any forward-looking statements made during this call. Although these forward-looking statements are based on our current expectations, beliefs and assumptions regarding future developments and business conditions, they are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by these statements. Known material factors that could cause our actual results to differ from our projected results are described in our 10-K, our 10-Q, and other filings with the SEC. We wish to caution you not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any of our forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. I will now turn the call over to John Gremp, FMC Technologies' Chairman and CEO. John T. Gremp: Good morning. Welcome to our Third Quarter 2012 Conference Call. With me today are Maryann Seaman, our CFO; and Bob Potter, our President. I'll start by discussing the quarter. Maryann will provide specifics on our financial performance, and then we'll open up the call for your questions. Our third quarter revenue was $1.4 billion and operating profit was $181 million. Earnings were $0.41 per diluted share for the quarter. Looking at the overall market, subsea activity continues to show improvement, as industry tree orders to date have exceeded last year's total, and the backlog of all major equipment suppliers appears to be strong. The number of large projects continues to grow and over the next 15 months, we should see a large number of awards announced. Although the timing of awards is always difficult to predict, the strengthening subsea market is supporting more attractive project pricing. The U.S. onshore rig count fell roughly 7% sequentially in the third quarter. This occurred in spite of increased prices for dry gas and oil prices that remained around $90 per barrel for the last couple of months. This decline in activity was greater than we expected and had a more significant impact on our Surface Technologies results. Frac equipment ordered 9 to 12 months ago continues to enter the market, albeit at a much slower pace and as a result, this exasperates the oversupply situation and is depressing demand for new capital orders. In addition, as the market has moved away from high service intensity of the dry gas plays like the Haynesville Shale, we're now better able to see that equipment is not requiring replacement at the same rate we were previously experiencing. Looking at specific segment results, subsea revenue of $929 million was less than expected due primarily to the timing of supply chain deliveries, which impacts our revenue recognition. For the year, we believe our total subsea sales will approach $4 billion. Subsea margins of 12.4% increased again this quarter, as our project execution continues to improve. Our expectations are that this better performance will continue. Subsea inbounded 885 million of orders in the quarter with a total of 22 trees. This included the Statoil Gulfaks award we discussed during the second quarter call. Our subsea backlog now stands at $4.4 billion. We finished the third quarter with $3.2 billion of subsea orders inbounded year-to-date. During the last quarter call, we estimated $4 billion to $5 billion range for subsea awards that we expect to book in 2012. To reach the high-end of this range, which we still believe is likely, we would need a couple of the expected large projects to be awarded in the fourth quarter and not slip into 2013. We're encouraged the deepwater activity in the Gulf of Mexico continues to recover, as Shell, Exxon Mobil, BP and Anadarko are moving forward with several large projects. Our strong relationship with each of these customers will help sustain our market leadership position in this region. Globally, the growing number of aging subsea wells presents a promising market opportunity for well intervention services. Consistent with this trend and our strategy of growing our subsea services, we are currently constructing our fourth well intervention stack. This will likely be deployed in the basin outside of the North Sea such as the Gulf of Mexico, and will be part of the recently announced joint venture we formed with Edison Chouest Offshore. Regarding subsea processing, the Marlim deepwater separation system is now very close to beginning operations. The well in which system is installed is now flowing in a bypass mode. When the wells flow reaches a higher water cut, the system separator will be activated. Confirmation of this separator performing will allow for reinjection of water into the formation. We think Marlim's success will be a critical industry milestone, promoting wider acceptance of this technology, while advancing further oil-water separation solutions. Moving now to our Surface Technologies segment. Third quarter revenue was $363 million. Margins fell over 4% sequentially, as the North American market weakened more than we expected, and we experienced some sales weakness associated with delayed deliveries in Europe. Consistent with our shale growth strategy, we closed the acquisition of pure energy services earlier this month. Pure's flow back services are being integrated within our existing fracturing and manifold service business to deliver a package rental offering. Many of our customers have expressed their desire to see these services bundled, thus, reducing supplier interfaces and increasing operational efficiency. Combining flow back services with the rental of frac assets and working towards the addition of water treatment is part of our strategy that targets continued expansion in the shale markets. To summarize, I'm pleased with our improvement in subsea margins, and continue to expect Subsea Technologies to generate revenue approaching $4 billion. I'm also confident in the strength of the subsea market, and expect our inbound awards to exceed last year. In North America, however, we think our fluid control business could be impacted at a more pronounced level in both volume and margin than we last forecasted. Additionally, we're also seeing weakness in our North America surface wellhead business that will be partially offset with growing international activity. Maryann will now take you through some of the financial details in the quarter and for the full year. Maryann T. Seaman: Thanks, John. Subsea Technologies revenue in the quarter was $929 million. Subsea operating profit was $115 million in the quarter with an operating margin of 12.4%, reflecting continued improvement in our performance. Last quarter, excluding the $13.2 million benefit received related to purchase accounting treatment on the Schilling acquisition, Subsea Technologies margins were 10.2%. While volume in the third quarter was lower than expected, we still anticipate a sequential increase of at least $200 million, with margins in the range of 12% to 13% in the fourth quarter for Subsea Technologies. These expectations are consistent with the overall performance improvements we have been discussing for the last few quarters. This should result in full year Subsea Technologies operating margin of 11% to 12%, and take us into 2013 with our expectations of full year margins at or above 13%. We anticipate our full year subsea revenue to approach $4 billion, with a third consecutive year of strong inbound and a book-to-bill ratio that, again, exceeds 1.0. Surface Technologies operating margin for the third quarter was $58 million, a 13% decrease from the prior year quarter and a 32% sequential decrease. As anticipated, Fluid Control activity declined materially. Orders are now almost completely composed of repair and replacement items, and recent rig count declines are pressuring this market as well. In the surface wellhead business, activity is declining in the North American market, and we are seeing pricing pressure on our frac rental assets. Additionally, our international margins were negatively affected by Europe, where shipment delays impacted sales in the quarter. Orders for Surface Technologies for the quarter were $340 million, with almost 2/3 of this coming from our surface wellhead business. Surface wellhead orders were higher compared to last year, and continued to exhibit the strength of the international market. Backlog exited the quarter -- excuse me, backlog exiting the quarter stands at $555 million for this segment, down 3% sequentially due to reduced fluid control inbound. As we indicated last quarter, we thought our fluid control business was likely to see significantly less sales in the second half of this year. Our recent order flow has confirmed market weakness, and where we still expect declines in fluid control revenue, we are now also expecting reduced activity in our North American surface wellhead business to negatively impact fourth quarter segment results. Margins in the quarter were 15.8%. We believe for the full year, our Surface Technologies margins could now be in the range of 17% to 18%, given market volatility. This includes the contribution from Pure Energy Services in the fourth quarter, which we expect to be accretive to earnings. Energy Infrastructure operating profit for the third quarter was $8 million, down 45% year-over-year, with increased contract completion cost for direct drive systems and lower margin sales for separation systems. This segment was also impacted by unexpected sequential decrease in volume, as some delivery shifted into the fourth quarter. Now for the corporate items. Corporate expense in the quarter was $11.5 million. We expect a similar amount in the fourth quarter. Other revenue and expense net reflects expense of $29.3 million. This was above our guided range, as $10.1 million of this expense or approximately $0.04 per diluted share, was largely related to a mark-to-market adjustment for the 2013 earn-out associated with multiphase meters. Additionally, higher pension expense, primarily related to an executive retirement, had a greater impact on the quarter. This was included in our full year guidance, but increased due to changes in the discount rate reflected this quarter. We expect other revenue and expense net to range between $23 million and $25 million in the fourth quarter, as we anticipate $10 million to $11 million of additional charges in the fourth quarter or approximately $0.45 per diluted share, resulting from a charge to the Norway pension plan and transaction costs associated with the Pure acquisition. Our total estimate is subject to foreign currency fluctuations and the potential for additional mark-to-market adjustments related to multiphase meter during the earn-out period. Our third quarter tax rate was 26.1%. The rate would have been lower, exclusive of the impact from the MPM adjustment this quarter, which is not tax-deductible. We anticipate our 2012 tax rate to range between 26% and 27% for the full year. Capital spending this quarter was $91 million, primarily directed towards subsea. We estimate capital spending in 2012 will be approximately $400 million. We repurchased approximately 690,000 shares of common stock at an average price of $44.90 per share. At the end of the third quarter, we had net debt of $963 million. It is comprised of $566 million of cash and $1.5 billion of debt. We issued $800 million of unsecured notes. Historically, low interest rates allowed us to lock in favorable terms, and use the proceeds to repay outstanding commercial paper and indebtedness under our revolving credit facility. We averaged 240.7 million diluted shares outstanding in the quarter. So in summary, we believe our full year subsea operating margins will be in the range of 11% to 12%. Regarding the Surface Technologies segment, we are anticipating a further revenue decline in the second half of the year from lower fluid control sales, and are also expecting lower North America surface wellhead sales. We are accordingly adjusting our full year margin expectation to a range of a 17% to 18%. In our Energy Infrastructure segment, margins are likely to average between 7% to 8%, as fourth quarter improvement helps overcome the performance of the last few quarters. Lastly, nonoperating items in both the third and fourth quarter negatively impact our previous earnings guidance by approximately $0.10 per share. As a result of our outlook, we are adjusting our EPS guidance for the full year to a range of $1.85 to $1.95. Operator, you may now open up the call for questions.

[Operator Instructions] And our first question comes from the line of Doug Becker with Bank of America. Douglas L. Becker - BofA Merrill Lynch, Research Division: 5 billion of inbound orders still seem likely. It is contingent, some of the larger awards. Just want to get your thoughts on the gene [ph] in particular and the Petrobras subsea manifolds work that seems to be out there. John T. Gremp: On both of those projects, we targeted, then we think we're well-positioned. Obviously, we would have liked those awards to be announced earlier than they have been so far. But we still believe that they're both likely to be announced this year or we are running out of year, so it could possibly slip into 2013, but right now, we believe that they'll still be announced this year. Douglas L. Becker - BofA Merrill Lynch, Research Division: Okay. And then about the $200 million of revenue growth that we see or you see in terms of subsea, what's the risk to that, particularly, given some of the, I guess, supply chain delivery issues that we saw in the third quarter? How comfortable are you in that materializing? John T. Gremp: Right. Doug, as you know, percent complete, revenue recognition is driven primarily by costs incurred over 2/3 of our cost to any subsea project come from the supply chain. So to the extent that the supply chain receipts materialize in the fourth quarter, we'll be able to hit that approaching $4 billion sales revenue number. Now the -- with regard to the risk, historically, the fourth quarter has been our strongest quarter, in part, because the suppliers want to finish out the year strong. So historically, the fourth quarter has been strong. Secondly, we have this -- it's in the backlog, so there's no backlog risk. It's just a matter of supply chain receipt showing up. And then finally, as you saw on the margin improvement, we have been making progress in execution improvement, and that bodes well for our fourth quarter percent complete going up. So sure, there's risk. The supply chain is starting to become constrained, as these big subsea awards are being announced. But again, typically or historically, the fourth quarter has been strong, driven in part by higher supply chain receipts, and that's what we'd expect in the fourth quarter. Douglas L. Becker - BofA Merrill Lynch, Research Division: And that leads kind of to my follow-up question just -- is there upside to the margins there? Posting 12.4% margins on lower revenue growth seems to auger pretty well that if you see a $200 million increase in revenue, fixed cost absorption could actually see something maybe north of that 13% that you had alluded to? John T. Gremp: Yes, with the exception of mix, we had very favorable mix in the third quarter, and as you know, our backlog is made up of a variety of margins for different projects. And the way in which they flow through the P&L is based on where the project is in terms of its revenue recognition curve, and we hit kind of the sweet spot in the third quarter with regard to favorable margin mix flowing through the P&L. In the fourth quarter, we've got some projects that will hit that steeper percent completion curve with a little lower margins. So I think that would -- we believe that would possibly offset any leverage we might get for the higher revenue in the fourth quarter.

And our next question comes from Joe Gibney with Capital One. Joseph D. Gibney - Capital One Southcoast, Inc., Research Division: John, I was wondering if you could talk a little bit about broader well intervention strategy, and you referenced constructing the fourth well intervention stack. I know that the focus strategically has been more on sort of Riserless Light Well Intervention. Just curious, as you look down the road with your agreement with Suez, are you looking more at heavy well intervention? Just kind of curious of your thoughts there. John T. Gremp: Well, we're -- Joe, we're really very focused on expanding our successful well intervention services that we've been doing in the North Sea for over 8 years. We've got 3 contracts, as you know, 2 with Statoil, 1 with BP. The Statoil contract in the first quarter were extended for another 5 years with another option. The equipment is working extremely well, and what we've been trying to do is to expand that success beyond the North Sea. And the Suez joint venture and the 4 stack is really designed to do that. So I would say, clearly, our focus is on leveraging the very successful well intervention services we're doing in the North Sea with other parts of the world, and our JV with Suez will allow us to do it. Joseph D. Gibney - Capital One Southcoast, Inc., Research Division: Okay, helpful. And Maryann, just trying to get a sense of when the headwind on other expense begins to abate a little bit relative to -- I know you've got the mark-to-market adjustments on earn out, but more specifically, some of the pension expense headwinds that are flowing through again in the fourth quarter. Is your expectation return to sort of more normalized other expense levels there exiting the year? Just appreciate your comments on that. Maryann T. Seaman: Yes, sure. So a couple of things with respect to pension expense. In this quarter, we have settlement charges associated with an executive retirement. And again, while it was forecast over the full year, because of the change in the discount rate, we actually saw that increase slightly. We take it in the quarter obviously. In the fourth quarter, we're actually making a change to our Norwegian pension, i.e., taking it from a DB plan to a DC plan. So at the result, we have a charge associated with the curtailment. So those 2 are, if you will, unique items. Having said that, going forward for next year in 2013, while we haven't provided guidance, the impact of the discount rate on our normal pension expense, we are likely to see a fairly significant increase year-over-year as a result of that discount rate increasing. Absent that, nothing else abnormal that we are projecting. With -- as it relates to MPM, we are in the earn-out period. It is 2012 and 2013, so you would expect that we would see some activity here as we complete the 2012 estimate and of course proceed to 2013. But again, that could go in the other direction as well, as their forecast doesn't happen as it's initiated now.

And our next question comes from Joe Hill with Tudor Pickering. Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: I just had a couple of questions. The first of which relates to the guidance. You've got what I'd assume to be the midpoint of the fourth quarter range, implying $0.62 fourth quarter number. You just had $0.46 operating. Can you kind of walk us to how you get there? Maryann T. Seaman: Yes, sure. We continue to see, as we talked about the strength in subsea and we would expect obviously to see improvement in the top line and the margins between 11% to 12%. Where we see the change year-over-year and sequentially, really, is coming from the North American operations in Surface Technologies. And so just depending on where that market goes is really where we see the greatest volatility in the fourth quarter EPS estimate. And then, of course, we do have the incremental charges, as I explained in OID [ph], which will further have an impact in the fourth quarter and that's worth about $0.04 to $0.05. Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Okay, Maryann, just looking at the numbers, are you guys calling for an improvement in Surface Tech topline? Maryann T. Seaman: In Surface Technologies' total top line? Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Yes, for Q4? Maryann T. Seaman: Yes, that's correct. And again, keep in mind that we've got the addition of Pure in the fourth quarter. John T. Gremp: Joe, this is John. The other thing that's helping us a little bit, but did not help us as much, and Maryann mentioned in her comments, is that we -- and we've said at an earlier call, although we were expecting the decline in Surface North America, we expected some partial offset from stronger international surface wellhead business. That didn't happen to the extent we expect in the third quarter because Europe surface wellhead deliveries were off. We clearly expect the surface wellhead international business to improve in the fourth quarter. Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division: Okay, that's very helpful. And then, finally, I'm just going to ask a different take on Doug's question. John, as your supply chain becomes constrained, are you guys at risk for margin compression due to playing catch-up to hit your delivery dates? Or is there enough padding in the system to allow for that? John T. Gremp: Well, Joe, that's why we are so focused on execution. If the engineering drawings get out on time, if we plan this properly, we should be able to mitigate, and that's our whole plan, is to mitigate the effects of a constrained supply chain. We're already anticipating that the supply-chain is going to be constrained because of the level of subsea activity, and we've been working, really, for the past 2 years to try to mitigate that. I think an example, just to be anecdotal here, an example is that our global subsea supply chain group has grown up from 20 people at the end of 2010 to over 80. That's an example of us getting ready to manage the supply chain differently in this high-growth environment. Fortunately, we have a lot of visibility because we have these alliances and partnerships, so we know well in advance the kind of work that we're going to get from Shell and BP, Statoil and Anadarko, and we can plan for that. We can buy capacity from our big forging shops, for example, well in advance. So if we do that as we hope we will, we should be able to mitigate the supply chain risk, but clearly, it's there, and there's risks associated with that.

Our next question comes from Bill Herbert with Simmons and Company. William A. Herbert - Simmons & Company International, Research Division: To surface, once again, not surprisingly. With regard to margins, it sounds like we're looking at an exit rate margin in the fourth quarter of 12% to 13%, is that correct? Maryann T. Seaman: In -- for subsea, we expect... William A. Herbert - Simmons & Company International, Research Division: No, Surface Technologies. Maryann T. Seaman: Oh, yes, I'm sorry. No, no, it would be higher in the fourth quarter. William A. Herbert - Simmons & Company International, Research Division: Okay. You were talking 17%. I'll go back and refigure my math here, but it's going to be lower quarter-on-quarter in the fourth quarter, correct? Maryann T. Seaman: That's correct. William A. Herbert - Simmons & Company International, Research Division: Okay, got it. And then have you given thought with regard to the incorporation of Pure and what economic reality appears to be with regard to the fluid control business and adjusting domestic surface wellhead, what normalized margins for Surface Technologies look like going forward? John T. Gremp: We don't build the Pure margins relative to Surface Technologies. They look about the same. As you know, we have -- the surface technology margins are high relative to our general FTI margins, and the Pure margins are consistent with those. So we shouldn't see, really, any degradation or substantial improvement with the addition of Pure in terms of the margins. They'll mirror pretty much what we get in the original Surface Technologies segment. William A. Herbert - Simmons & Company International, Research Division: But I guess, the question is a bit little different, John, in terms of -- and perhaps maybe the environment is too fluid. No pun intended here, but assuming that we have relatively flattish E&P capital spending relative to current rig count, flat to up or flat to down, I mean, depending on WTI and E&P cash flows and also gas. What are you guys envisioning for Surface Technologies' margin going forward in that environment? John T. Gremp: Okay, I understand the question a little bit better now. When -- our fluid control business, historically, hasn't had a lot of margin degradation even in the down cycles. There will be some, but it won't be significant like you would see, say, with the pressure pumpers and others active in the industry. So we're not anticipating a big degradation. There will be absorption and that sort of thing which would drive the margins down from last quarter's guidance that Maryann gave in the 18 to 20 range, down to the 17, 18 range. Further degradation of margins, going forward, nothing really significant. There would have been some, but they'd be relatively modest. Clearly, not what you saw in second quarter versus third quarter. We do not expect to see the degradation in margins in Surface Technologies going forward. William A. Herbert - Simmons & Company International, Research Division: So at this juncture, is it prudent to assume that, essentially, margins for surface overall are going to kind of hang out in the low teens area on a structural basis, going forward, or give us some help on that front? Maryann T. Seaman: Yes, I think -- it's Maryann. I think you'll probably see mid-teenish kinds of margins, probably similar to what you're seeing more like the back half of this year than what you've seen in the first half of the year. William A. Herbert - Simmons & Company International, Research Division: Okay. Last one for me. And I know you're probably not going to get explicit about this, but would it be imprudent to think that -- about subsea margins in 2013 being higher than exit rate 2012? John T. Gremp: Yes, slightly. I mean, remember, we've said that the pricing improvement that we expect is not going to really occur until 2014, but you can't -- but we know that the revenue, and the top line will be higher in '13 versus '12, and there's opportunities for leverage. Now as was mentioned earlier in the Q&A, there is some risk. We're going to be executing in an environment, where there's going to be constraints, particularly with the supply chain. And if that wasn't managed well, we could have some margin degradation, but I think it's very reasonable to expect going to 2013, we'll see some modest improvement as a result to higher top line revenue and our ability to leverage it.

And our next question comes from Ed Muztafago with Society General. Edward Muztafago - Societe Generale Cross Asset Research: About infrastructure, and you noted a couple of things there, the lower margin products from separation and direct drive, and I guess, one, just wondering, are these -- is this a structural change in the segment due to the acquisition of direct drive? Or are these just discrete projects that will flow out? And then you also mentioned some slippage in terms of, I guess, sales into the fourth quarter, and so I'm just wondering how we should sort of think about the margins for that segment? Should we see some material expansion going into the fourth quarter? John T. Gremp: Yes, Ed, it's the latter. These are discrete projects that affected the third quarter. We fully expect Energy Infrastructure performance to improve in the fourth quarter as a result of timing. Edward Muztafago - Societe Generale Cross Asset Research: And can you talk at all as to what you sort of think about in terms of a normalized margin for that segment? Maryann T. Seaman: Yes, sure, it's Maryann. DDS this year and even last year has had R&D expenses, as you know, as we focus on the work related to developing the pump with a motor for subsea processing, and it's been important. As we move into 2013, we would see a decline of that R&D expense within DDS. So we would expect to see probably 150 basis point improvement into 2013 over normalized margins in that segment. Edward Muztafago - Societe Generale Cross Asset Research: Okay. Thanks, Maryann, that's very helpful. And then as a second question, I wanted to sort of follow-up on your pricing commentary in subsea. It seems to be a little bit decidedly more positive than what you guys were saying before. I think what you indicated in the last conference call and some of your recent conference presentations was that you were seeing a more sort of disciplined bidding process amongst your competitors, but it sounded to me like you're suggesting that subsea pricing is now starting to move higher. Is that correct? John T. Gremp: Yes, it is. We're certain with another quarter, and watching the market environment, we are more confident that pricing will improve. I would just remind you there haven't been that many awards. There weren't that many awards in the third quarter. I certainly feel a lot better if the awards that were actually announced have higher pricing. But absent that, what we're seeing is less competitive intensity. When you see a bid over the last 2 or 3 years, all 4 of the equipment suppliers went after a bid all the way to the bitter end. What we see now in the bidding process is a couple of the bidders falling away, and there's only 2 that follow the bidding process all the way through the end. To me, that's a precursor to a less intense pricing environment. Now we know how we're pricing, and we're clearly raising prices on the bids that we're submitting. Again, I'd feel a little better if those awards were announced to us at higher pricing, so we'll see that in this quarter and in the next quarter that the pricing improvement that we are expecting actually is happening. All the environment is sound and what we're seeing is that the competitive intensity is lessening, and all you have to do is look at the backlog of the various suppliers. Each of our competitors have more trees in backlog than they've had in the last 3 years, which would suggest the backlogs are filling up, driving a different kind of competitive intensity that we're now starting to see. Edward Muztafago - Societe Generale Cross Asset Research: Sure. And I mean, you're definitively moving pricing higher, so I think there is no reason to suspect that your competitors are behaving any differently if they're becoming less competitive in the overall bidding process.

And your next question comes from David Anderson with JPMorgan.

John, a question on your service business, back to that. In the past, when the rig count is falling, we haven't seen the surface -- the margins fall as much as we've seen here. So I'm just trying to figure out what's different here. One thing I'm starting to hear is on the customer side about inventory overhang, we heard some issues last quarter about that, also hearing about some of the smaller pressure pumping companies not kind of deferring some of the maintenance or is it rig count? Can you just kind of help me understand some of the drivers there because we haven't seen as much of a drop before? And I'm also trying to understand how much we can snap back, and how should we be thinking about that recovery? Robert L. Potter: Yes, this is Bob. In addition to the rig count, you got to remember that -- and we've talked about this stuff before about service pressure pumping intensity, which is a lot less in the liquid-directed plays than it had been in the gas-directed play. So we're certainly generating less revenue and of course, as importantly, less repair parts. We're not replacing equipment as much as we were when we were more heavily into the gas-directed plays with much higher frac intensity. Edward Muztafago - Societe Generale Cross Asset Research: So another part that was on your frac pumps as well, can you talk about that business? I assume kind of all new orders for frac pumps is kind of falling away, so are we just looking at your maintenance and... Robert L. Potter: That's right. I think that we're going to probably shift something on the order of 2/3 of what we had originally planned in terms of whole pumps. But in contrast, our fluid end business, which is the expendable component of the pressure pump is actually greater. It's greater than what it had been. So we are seeing it in terms of the repair and replacement business, not -- and as you pointed out, not in the capital spending or horsepower addition portion of our business.

So I guess I'm just kind of wondering, the margin degradation we saw, how much of that is due to cost absorption? Is it -- because I know we did some -- you guys did some expansions about a year ago or so, so is it partly to that? So as activity level picks up, do we just snap back to that kind of 19%? I mean, I guess, that's one thing I'm trying to understand. Robert L. Potter: It's a little bit of that, but as we've talked before, we are doing a pretty good job of finding ways to utilize the additional capacity that we put in place in a couple of different ways, reeling in subcontract that we have been doing, as well as looking for opportunities to do work for our subsea business, which is in need of greater capacity.

And our next question comes from Waqar Syed with Goldman Sachs. Waqar Syed - Goldman Sachs Group Inc., Research Division: Questions regarding the Subsea business. You mentioned the supply chain being constrained. Is that a global issue or is that more in certain specific regions? Could you expand on that a little bit? John T. Gremp: Generally, it's global. The one area where it wouldn't be is in Brazil, where local content is required. But right now, clearly, the supply chain constraints that we anticipate would be global. Waqar Syed - Goldman Sachs Group Inc., Research Division: Is it also a lot more in West Africa and Angola, Nigeria with the results, so local content issues? John T. Gremp: Local content required in West Africa right now is mostly the local content of the value add that we provide, plus fabrication. So when you're talking about forgings or OEM components, those aren't sourced in West Africa. Waqar Syed - Goldman Sachs Group Inc., Research Division: Okay. And then could you give us an update on the CLOV project? Is it all behind us? Or how much of that could still show up in terms of cost issues? Maryann T. Seaman: Yes, it's Maryann. On the CLOV project, we're a little bit more than 50% complete, and we are continuing to meet all of our customer need dates. We'll see a contribution coming from CLOV in the fourth quarter, and we should complete that project by the end of 2013, but again, more than 50% complete, and continuing to meet customer need dates.

Our next question comes from Robin Shoemaker with Citi. Robin E. Shoemaker - Citigroup Inc, Research Division: Wanted to ask, Bob was talking about the aftermarket and the replacement market. I think you'd said that you were seeing -- on the last call, you expected to see a lot of cannibalization of idle fracturing equipment, and at the end of that process, you start to see a little more normalized replacement in aftermarket activity on the fluid control side. So is that still your expectation? Is that actually what you see today? Robert L. Potter: It is. I mean, the pressure pumpers are certainly idling horsepower as we speak, and that's their normal process. They'll cannibalize the equipment that we provide first, and then ultimately have to replace that. We'll probably see that begin to occur more actively in 2013. Robin E. Shoemaker - Citigroup Inc, Research Division: Okay. My other question has to do with subsea processing. Big Blue has been talking a lot lately about subsea processing, and just wanted to get your comments or updates with regards to what you see as the projects that are coming with respect to boosting and subsea separation in 2013 and the size of the market compared to where it is today or where it has been in 2012? John T. Gremp: Robin, I think we've said that like most developing new market segments, the demand is going to be pretty lumpy, as operators begin to adopt this new technology, and that's certainly what we saw or are seeing in 2012 with, really, just a handful of subsea processing projects awarded. But looking further out in 2013, there's more than 8 names subsea processing projects. The ones that are coming up in 2013 are more boosting oriented as opposed to separation, although there's a couple of separation projects. But then looking beyond that into 2014, you get another 8 to 10 name projects, and it swings back to the majority of those that involve separation so -- and these are -- all these projects won't necessarily go forward, but that's very encouraging that the market is developing as we expected it to in terms of the material size. It's every bit of what we've been forecasting. It's just -- it's lumpy, and sometimes, they'll be a lot of boosting-only projects. In other times, there'll be boosting and separation. Again, that's what we're seeing in 2013 and 2014. So I'd say the market is developing even better than what we hoped. When you look at the number of operators, it keeps growing that are either interested in the technology, forming special R&D projects or joint industry projects or actually going ahead and selecting subsea processing as part of their development plans. So I think it's definitely developing the way we envision, if not, more so. And 2013 and 2014, based on the list of named projects, should be very strong for subsea processing. Robin E. Shoemaker - Citigroup Inc, Research Division: Yes, and just following on that, on the competitive landscape with regard to who your -- I mean, obviously, very, very strong early leader in this niche, but just if you would comment on what you see maybe evolving in the competitive landscape for that type of subsea opportunity? . John T. Gremp: Well, because the market is so attractive, we would expect all the subsea suppliers, including nontraditional subsea suppliers to be very interested in the markets just because of its size. Up until now, as you pointed out, we're the only company that has been successful in subsea separation. But we would envision, going forward, that others, who are -- and presumably developing similar technology would begin to bid and ultimately, participate in this market. On the boosting side, in terms of multiphase helico-axial pump, Schlumberger, for example, or Framo, has that capability, and they actually have commercial applications of the multiphase pump. We will now be entering that market with a successful qualification of our multiphase helico-axial pump, which was qualified earlier this year, and we're now participating in bids for the first time against Framo. So we'll now participate in that part of the segment, going forward, and again, I'm not aware of any other supplier that's working on a multiphase helico-axial pump, although, presumably, the other suppliers are thinking about how to participate in this exciting new market.

Our next question comes from Kurt Hallead with RBC Capital Markets. Kurt Hallead - RBC Capital Markets, LLC, Research Division: So I just -- on the subsea dynamic, it looks like the visibility continues to increase, heading out into 2013, get better pricing, better margins, so on and so forth. You indicated that in order to get an upend to your order intake, you need a couple of large projects. I was under the impression that it was really only 1 large project that needed to be booked here in the fourth quarter and that was Egina. Do have any updates on what you may think the project timing for Egina may be? John T. Gremp: Again, we expect -- we still expect Egina to be awarded this year, but as I referred to earlier, we are running out of years. So it's possible to slip it right now, no, we believe that Egina would be awarded this year. Kurt Hallead - RBC Capital Markets, LLC, Research Division: Okay. And then just -- I know you hit a lot already on the surface element of it and went through a lot of specifics on that front. How would you gauge the -- I think based on your commentary, we can infer that you're looking at maybe the fourth quarter as being the trough margin point for surface. Is that a right inference on my part or not? Maryann T. Seaman: Kurt, it's Maryann. So for surface wellhead, yes, for sure. We see some benefit coming out of the international market, so yes.

Our next question comes from Darren Gacicia with Guggenheim. Darren Gacicia - Guggenheim Securities, LLC, Research Division: I wanted to jump in -- from what I understood, you've guided the fourth quarter for subsea margins between 12% and 13%. And if I'm not mistaken, for next year, you said kind of 13% or higher on average for '13? Is that correct? John T. Gremp: Yes, Maryann's comments could be '13 -- subsea margins are going to be at '13 level for next year and again, we -- in my earlier comment, we said there's an opportunity for improvement as the top line revenue grows, and there's opportunities for leverage. Darren Gacicia - Guggenheim Securities, LLC, Research Division: Got you because it would strike me -- if you look at sort of the waves of deliveries coming next year, just from a sheer kind of asset turns and asset utilization side from you guys on the manufacturing front, especially if the supply chain issues sort of smooth through, that you should be getting a bigger backlog conversion next year, maybe than you did on average on this year, is that a fair assessment? John T. Gremp: No, not really because earlier this year, we received a $1.5 billion Petrobras multiyear contract for pre-salt trees, which we booked almost $1 billion. That goes over 4 years. So you've got -- if you look at our backlog, it's heavily -- it's got a big piece of that pre-salt in it, and that will not -- that will be delivered over 4 years. So it would be a mistake to -- from where we were in 2012 assume that the conversion rate would be higher because we didn't have that in our backlog. So no, you wouldn't want to do that. Darren Gacicia - Guggenheim Securities, LLC, Research Division: Got you. Would you say that you get a little help from mix? It seems like if you have projects booked kind of in maybe 2010 and whatnot, there were maybe done at slightly lower pricing and then at the margin, you're getting better pricing. Would you assume that mix starts to help you next year on the margin front? John T. Gremp: Well, I'd be careful. There's not going to be a mix improvement because of pricing. Pricing is not really going to flow through the P&L until 2014, so I would be -- I wouldn't want to be too optimistic on mix. Darren Gacicia - Guggenheim Securities, LLC, Research Division: If I could have one -- go ahead. Maryann T. Seaman: Oh, I'm sorry. We do, however, get the benefit of -- as these projects are logged in toward more in the close that have -- they were essentially 10% of our revenue in 2012. So as they continue to complete and flush through, we will see some benefit, obviously, of not having those lower margin projects in 2013. Darren Gacicia - Guggenheim Securities, LLC, Research Division: Got you. And one last one if I could, so on the surface side, if you look at the run rate of what you did on the revenue in the third quarter and you say you're slightly down next quarter, but that maybe kind of the bottom, what's the -- can we expect -- if on a flat, say, rig count, on average, next year, can we expect the same basic run rate at this quarter for maybe the average of 13? Maryann T. Seaman: It's a little early for us to give 2013 guidance as you know, but I think it's a reasonable place to start if you look at kind of what the run rate would be in the last quarter of the year.

And our next question comes from Bill Sanchez with Howard Weil. William Sanchez - Howard Weil Incorporated, Research Division: Just another question as related to subsea revenues as we think about next year. How dependent -- clearly, I think everyone has modeled the expectation of up revenues in total versus '12. But I'm just curious, just given the percentage completion accounting around your subsea business as a whole, does it really matter, John, at this point, whether or not -- as you think about '13 revenues in total, whether or not Egina comes in, say, fourth quarter versus 1Q? Because I'd imagine there's still going to be some of that that's going to booked regardless of a 2-month slip for example. Does that radically change how you guys would view your percentage growth in '13 subsea versus '12? John T. Gremp: Yes, Bill, good point. No, it does not matter. Obviously, if a project like Egina or Petrobras manifolds or something, say, arrives 6 months earlier, then it would make a difference because we get much further down the percent complete, S-curve, as we call it, but whether we get a big project in December or February isn't going to make much of a difference at all in terms of 2013 revenue recognition. William Sanchez - Howard Weil Incorporated, Research Division: Okay, so you have a pretty good sense right now of what kind of top line growth is going to be in subsea, I would take it, at this point for '13 versus '12? Is that fair? John T. Gremp: Yes, we would expect 2013 top line subsea revenue to continue to grow in 2013 because we go into the year with higher backlog. William Sanchez - Howard Weil Incorporated, Research Division: Sure, okay. And then just one follow-up as it relates to the guidance again. Maryann, I think it was mentioned earlier in talking about the $185 million to $195 million. I think someone mentioned that the third quarter assumption was $0.46 as opposed to the $0.41 that you reported, which would have meant, again, just excluding that MPM acquisition. Is that correct in terms of the guidance you guys are looking at that way? Or is it $0.41, third quarter, and then we just build up from there? Maryann T. Seaman: My guidance to $185 million to the $195 million includes all of the costs associated with MPM. So I haven't excluded it in any of my guidance. So the $185 million assumes the MPM adjustment that we took in Q3 and in Q2. William Sanchez - Howard Weil Incorporated, Research Division: Okay, it does assume it, okay. Maryann T. Seaman: Correct, it does assume it. So, Bill, just to be clear, when we talk about going from our previous guidance $210 million, $220 million, down to $185 million, $195 million, kind of that other expense item, there's about $0.10 between Q3 and Q4 that's attributed to below the line items, the OID [ph], pension expense, MPM, the cost associated with the Pure transaction. So there's $0.10 of other income in deduction in that guidance. And just to be clear, though, also in the event we were to have to take another MPM adjustment, it is not included in my guidance. William Sanchez - Howard Weil Incorporated, Research Division: Right. But, I guess, as we should be thinking about what the true third quarter number is, the pension expense, since it's going to be recurring again, it sounds like, in the fourth quarter. MPM, I think you told us, certainly, to exclude it in 2Q and you're telling us to exclude it again, we should be working off of a $0.46 number as we think about 3Q? Okay. Maryann T. Seaman: You got it.

And our next question comes from James West with Barclays. James C. West - Barclays Capital, Research Division: I want to go back to kind of big picture question for you here, and Robin kind of alluded to it. But that's, of course, Schlumberger, talking more about subsea, focusing more on processing. How are you guys thinking about some of the -- I guess, call it, somewhat nontraditional players coming into the processing businesses? Is this is a competitive threat? Is it just a validation of your kind of view of the market and is this an opportunity either to partner, to JV or just a company that could help accelerate the market growth and processing? John T. Gremp: Well, first, James, I think it validates our belief in the size and potential of subsea processing market. So a company like Schlumberger would not be interested in as an -- a capital equipment manufacturer if they didn't see that this is a highly potential market. In terms of a threat, we compete against Schlumberger today against Framo, and it's actually the opposite. I mean, we're -- we weren't competing against Framo because we didn't have a pump, but now with the successful qualification of our helico-axial pump, we'll be providing competition to Schlumberger where it didn't exist before. So I think it validates it. I think we had no illusions about having a really more competitive environment than we've seen up until now. We expected more competition and not to be for the last 5 years the only supplier of subsea separation systems. So I think it validates that. I believe very confidently in our strategy, which really evolves from the close partnerships we have with companies like Petrobras and Statoil, where they envision the subsea oil field of the future in the next couple of decades, having all the functionality on the seabed and companies like FMC being the integrator of all that equipment on the subsea. That's our strategy. It's our customers, our long-term strategy, and that's what we're working towards. James C. West - Barclays Capital, Research Division: Okay. But do you think that having more participants, I mean, given that maybe you won't have 100% of the market, going forward, but that it actually helps accelerate the market growth. I mean, the market growth is already pretty strong in general, but do you think this accelerates it further? John T. Gremp: I don't know about accelerating it because we, in the oilfield service sector, the E&P companies have always desired competition. So we knew that there would be competition. We never believed for a minute that we would be the only subsea separation and subsea boosting supplier. So I don't know that it accelerates. So I think it does validate it, but I don't know it accelerates it. I mean, what accelerates it will be success in Marlim, for example, getting companies to see that in a commercial application that this technology works, and it delivers the compelling value through reservoir recovery, production increasing, lowering costs and so forth. So I think that's what's going to accelerate, is the successful adoption in the industry, and that can only come from successful applications. James C. West - Barclays Capital, Research Division: Okay, fair enough. One last question for me on the joint venture with Suez. Why did you guys choose to go to joint venture route here rather than what you've done in the North Sea, which I believe you're leasing some assets there with Island offshore? John T. Gremp: Yes, each market was going to be different, and we knew that in the North Sea, where we had a higher concentration with -- really, with Statoil and with BP of a large volume of older subsea wells. We could sign up longer-term contracts with those operators, and form an alliance-type relationship, which is a little less structured than what we're forming with Suez. But we thought to pursue markets outside of the North Sea, where it's not going to be maybe a straightforward in terms of 1 or 2 operators being the only customer, that we needed a little different structure. So that's kind of what that's about is a structure we thought was more ideally suited for the different markets outside of the North Sea. James C. West - Barclays Capital, Research Division: And it's suited most likely -- the Gulf of Mexico, I think you said that earlier, most likely the Gulf. John T. Gremp: Well, clearly, that's a real opportunity. I mean, there's a large population of subsea wells, and they're aging in the Gulf of Mexico. But it could also be applicable to Brazil and West Africa. So I wouldn't rule out any of these, I mean, the first one where we get the most commitments from operators is where it's going to go.

Our next question comes from Stephen Gengaro with Sterne Agee. Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division: Two questions. One -- and Maryann, this is just for clarity purposes because I think I'm hearing 2 different things. The guidance is based on sort of $1.29, year-to-date, is that right? Maryann T. Seaman: That's correct. Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division: Okay. I just wanted to make sure, okay. And then my second question, it pertains to sort of your frame agreements and pricing, and how should we think about subsea prices move? How much will the frame agreements gets impacted on price versus the spot market business? How does that interaction generally work? John T. Gremp: Well, most of our frame agreements have escalation clauses. So as costs increase with -- as the market tightens, they'll be picked up in the frame agreements. But in terms of pricing, our frame agreements, they're all different, but they almost always involve renegotiation of the pricing, either on a project-by-project basis or by an annual basis. So let me go under those negotiations. We start with the market price, and our partners have a lot of visibility on market pricing, even though maybe we're their sole-source, they're nonoperating partners in other projects, and so they can see the market price for subsea equipment. And so we'll start in these renegotiations from the market price, and so they'll be adjusted over time to start to reflect the market price. Now keep in mind, our margins with our frame agreement partners tend to be better because we're selling standard equipment and our execution challenges are less because we're doing things over and over again, so we tend to have better margins because our costs are in better position with our frame agreement partners. But the frame contracts all include renegotiation of prices either on a project basis or annually, and they reflect the current conditions in the market.

And our final question comes from Collin Gerry with Raymond James. Collin Gerry - Raymond James & Associates, Inc., Research Division: I think most of the modeling questions have been covered. I had more of a strategic question. Historically, and correct me if I'm wrong, but I tend to think of FMC as a little bit less vertically integrated, I'm thinking, on the subsea side. And with kind of some of the supply chain issues that are mentioned on this call, just sort of the secular growth you see in that space, I was just wondering if in your comp structure if it's worth the capital at this point to start bringing some of that margin capture in-house, in other words, whether it be on the forging side or some of the higher-end materials that are required if a more vertically integrated approach is in discussion? John T. Gremp: First, with regard to how we look vertically integrated versus the other subsea equipment suppliers, we look very similar to them. I think the only exception that I could think of might be drill -- they have a forge shop, but they're not really a -- they don't really compete with us and such. The other area is Cameron has a ball valve, is vertically integrated on their ball valve, which is one component of the manifold, but beyond that, we all look about the same. Now for the second part of your question, is there an advantage to us considering vertical integration and in certain areas, there is. But by and large no. We take our strategy of letting our suppliers do what they do best, and we focus on what we do best. But to protect their capacity, particularly, in an environment -- rapidly growing environment like we have today, we want to do more to manage our partner supplier, so that we can ensure capacity. I think by and large, you wouldn't see a big shift on our part in terms of vertical integration because I just don't think the value is there. And by the way, I think it further distracts us, and I don't think there's a big opportunity to improve margin substantially by doing that. There are a couple of areas though where it makes sense, for example, in Brazil, where we know the supply chain is going to be constrained, and we've actually began in-sourcing some of the critical supply chain components, but that wasn't so much for improving margin through vertical integration. It was to protect capacity, and we'll continue to do that anywhere in the world, and we think that's a better option than more closely managing our partner suppliers. Collin Gerry - Raymond James & Associates, Inc., Research Division: Well, you make that sound very logical. It makes a ton of sense. I guess, the other strategic question I have is with the acquisition of Pure, I think you mentioned being able to rent more on their production infrastructure side of the shale plays. You've got the manifold and trees and now more in the flow back side. I would imagine there's a lot of bits and pieces that kind of -- would fit in between that. From a capital deployment perspective, how active should we think FMC is in the M&A market for the next couple of years building that platform? John T. Gremp: Actually, there isn't that many pieces between a Pure services and what we provide, and that's one of their reasons Pure was so attractive. It is exactly adjacent, if you will, to the service that we provide. And the next area that we're interested in is in separation, and we have that technology through the separation business we bought 4 years ago. So I'm not saying there is another M&A opportunity, and we certainly -- we would certainly pursue them just as we did Pure, but there isn't really that we can see that many pieces left in terms of the bundling of the services, and the one area that we think is really interesting is adding separation to the flow back services, not only primary separation but also water polishing and secondary separation, and we've got that capability through the separation business we bought. So no, I don't think the acquisition of Pure begs for a whole bunch of more M&A, although, we'll certainly do it just like we did with Pure, but we are excited. We're very excited now that we've got Pure, and we're looking at it more closely. The opportunities for synergies actually appear to be greater than what we thought, and we're pretty excited about continuing to expand our participation in the shale play services. Collin Gerry - Raymond James & Associates, Inc., Research Division: Well, especially in light of what you said with the separation side, being almost an organic potential, it kind of opens, I would imagine, a lot of doors for you guys. John T. Gremp: We hope so. Robert K. Cherry: This concludes our third quarter conference call. A replay of our call will be available on our website, beginning at approximately 2:00 p.m. Eastern Time today. We will conduct our fourth quarter 2012 conference call in February 13 at 9:00 a.m. Eastern Time. If you have any further questions, please feel free to contact me. Thank you for joining us. Takisha, you may now end the call.

This does conclude today's conference call. Thanks for your participation. You may now disconnect.