Illinois Tool Works Inc (ITW) 2008 Q4 法說會逐字稿

Good afternoon, and welcome to the ITW fourth quarter and year end 2008 earnings release conference call.

At this time, all participants are in a listen-only mode.

After the presentation, we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder today's call is being recorded.

If you have any objections please disconnect at this time.

I will now turn the meeting over to Mr.

John Brooklier, Vice President of Investor Relations.

Sir, you may begin.

Thank you.

Good afternoon, everybody.

Welcome to our fourth quarter 2008 conference call.

With me today is David Speer, our CEO; and Ron Kropp, our CFO.

Thanks for joining us.

At this point, David will make some brief remarks about what was a very difficult fourth quarter and what we expect to be a very difficult 2009.

David.

Thank you, John.

There is no question the fourth quarter provided a challenging environment for most industrial companies, and ITW was certainly included.

We saw our North American and international end markets further deteriorate as the quarter progressed, with accelerated declines in November and December.

You may recall those of you who were at our December 8, investor meeting in New York we updated and lowered our fourth quarter forecast at that time and we previewed our 2009 end market assumptions.

It is now clear the macro environment has weakened even further since that meeting.

Later in this call John will provide more specific macro and end market data when he reviews our operating segments.

Looking ahead, the vital question is how will ITW respond to what we believe will be a very challenging worldwide economy in 2009.

You have seen from our 2009 forecast we expect total Company revenues to decline in the range of minus 6 to minus 12% with base revenues at a similar level for the year.

Our full year 2009 forecast indicates at the midpoint a base revenue decline of 9% and an earnings decrease of 29%.

Our forecast has no expectation of any significant end market recovery during 2009.

While we can't control our end markets what we will focus on in 2009 is operating our Company as efficiently and as effectively as possible while identifying and funding long-term growth initiatives.

Our decentralized close to the customer business units, our 80/20 business process and our related toolbox programs as well as our deep experienced management team will all play critical roles in the upcoming year positioning the Company for the long term growth opportunities ahead.

Another key area of strength for us is our fundamentally sound capital structure.

With target debt to cap in the range of 25 to 30% with solid credit ratings and with strong free operating cash flows we have the flexibility to fund capital expenditures, dividends, and acquisitions as appropriate.

You may have noted that in the most recent quarter we produced free cash flow to net income conversion rates of 218% for the fourth quarter and 123% for the full year 2008.

And we have historically generated strong free cash flow in periods of economic downturns.

In summary, we anticipate an extremely challenging 2009 but we believe that given our long track record and our strong financial and management resources, we're well positioned to address the challenges ahead.

John, back to you.

Thanks, David.

Here's the agenda for today's call.

Ron will join us in just a moment to cover Q4 financial highlights.

I'll then come back to talk about operating highlights for our reporting segment.

Ron will then address our 2009 first quarter and full year earnings forecast as well as the associated assumptions.

Finally, we'll take your questions and as always we ask your cooperation per the one question, one follow-up question policy.

We are targeting a completion time of one hour or today's call.

First, the usual housekeeping items, please note that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation statements regarding operating performance, revenue growth, operating income, income from continuing operations, diluted income per share from continuing operations, use of free cash, end market conditions, and the Company's related forecast.

Important factors that could cause actual results to differ materially from the Company's expectations are set forth in our Form 10-Q for the 2008 third quarter and Form 10-K for 2007.

Finally, before we get to Ron, the telephone replay for this conference call is 203-369-0593.

No passcode is necessary.

The playback number will be available through 12:00 Midnight on February 12, 2009.

As always you can access our conference call PowerPoint presentation via the ITW.com website.

Enter the investor relations section and look for the events presentation tab.

Now let me introduce Ron Kropp who will cover the financial highlights for the quarter.

Thanks, John.

Good afternoon, everybody.

The overall results for this fourth quarter were as follows, revenues decreased 6% due to significantly lower base revenues and unfavorable currency translation.

Operating income was down 33% and margins were lower by 450 basis points.

Diluted income per share from continuing operations of $0.54 was 34% lower than last year.

But with our previous forecast range of $0.44 to $0.52 primarily due to lower tax rate which added $0.04.

In spite of the significantly lower income free operating cash flow was strong at $509 million or more than double our net income.

Now let's go to the details of our results.

Our 5.9% revenue decrease was primarily due to three factors.

First, base revenue was down 9.2%, which was unfavorable by 840 basis points versus third quarter.

We saw significant weakness across most of our end markets and geographies.

North American based revenues decreased 12.3% which was significantly worse than the 2.1% decrease from the third quarter.

International base revenues decreased 6.2% which was 740 basis points lower than the third quarter.

Europe decreased 8% while Asia Pacific only decreased 1%.

Secondly, currency translation decreased revenues by 4.5% which was 920 basis points lower than the third quarter currency effect.

Lastly, acquisitions added 7.8% to revenue growth which was 90 basis points higher than third quarter 2008 acquisition impact.

Operating margins for the fourth quarter of 11.3% were lower than last year by 450 basis points.

The base business margins were lower by 260 basis points primarily due to the lower sales volume.

The effect of price increase versus raw material costs had a minimal impact on base margins this quarter.

In addition, the lower margins of acquired companies diluted margins by 90 basis points and higher restructuring costs reduced margins by 80 basis points.

If I turn it back over to John he will provide more details on the operating results as he discusses the individual segments.

In the non-operating area interest expense was higher by $14 million as a result of overall higher debt levels in 2008 versus 2007 partially offset by lower interest rate on commercial paper.

Other non-operating income and expense in the fourth quarter was unfavorable versus the prior year by $19 million mainly due the lower investment income.

The fourth quarter effective tax rate of 23.9% was lower than last year by 180 basis points.

The full year 2008 tax rate of 27.75% was lower than the third quarter year to date rate of 28.5%.

For the full year the overall results were as follows.

Revenues increased 6.7% due to acquisitions and favorable impact of currency translation.

Operating income was down 4.5%.

Margins were lower by 180 basis points.

Diluted income per share from continuing operations of $3 .04 was 1% lower than last year.

And free operating cash flow was strong at $1.9 billion or 123% of net income.

Turning to the details for the full year, our 6.7% revenue increase was primarily due to three factors.

First, base revenue was down 2.5% with North America down 4.8% and international essentially flat.

Second, currency translation increased revenues by 2.8% with the favorable effect of the first three-quarters of the year being partially reversed in the fourth quarter.

Lastly, acquisitions added 6.5% to revenue growth.

Operating margins for the year of 14.7% were lower than last year by 180 basis points.

The base business margins were lower by 90 basis points primarily due to the lower sales volume.

n addition the lower margins of acquired companies diluted margins by 70 basis points and higher restructuring costs reduced margins by 20 basis points.

On the balance sheet, total invested capital decreased $1.2 billion from the third quarter primarily due to currency translation as a result of strengthening of the US dollar versus most of our major currencies.

Accounts receivable DSO was 59.4 days versus 64.7 at the end of third quarter.

Inventory month on hand was 2.1 at the end of the quarter.

For the fourth quarter capital expenditures were $81 million, depreciation was $83 million.

ROIC declined 11.2% versus 17.3% last year as a result of lower base business income and dilutive impact of acquisitions.

On the financing side our debt increased $82 million from last quarter.

Our debt-to-capital ratio increased to 32% from 28% last quarter primarily due to the reduction of equity of $1.1 billion related to currency translation and pension adjustments.

Excluding the impact of those equity adjustments, the debt to cap at year end would have been 29%.

Shares outstanding at 12/31 were $499 million.

Note that the impact of options typically adds 2 million to 3 million shares of the diluted share calculation.

Our cash position decreased $125 million in fourth quarter as our free operating cash flow of $509 million was utilized for acquisitions of $223 million and dividends of $159 million.

In addition, we spent $399 million in the quarter to repurchase 12.4 million shares under our ongoing open ended program.

Regarding acquisitions we acquired 10 companies in the fourth quarter which have annual revenues of $154 million.

For the year we completed 50 deals with acquired revenues of more than $1.5 billion.

2008 was the third consecutive year that we transacted 50 or more acquisitions.

I will now turn it back over to John to provide more details on fourth quarter results.

Thank you, Ron.

Before I comment on the segments, let's share -- let's share data which underlies a very troubling economic environment.

If you recall the data we talked to you about at our early December investor meeting in New York City, we anticipated 2009 base revenues in a range of minus 5 to minus 10.

Clearly the macro data and end market trends have continued to deteriorate since that time.

We are now expecting both of our 2009 total Company revenues and base revenues to be in a range of minus 6% to minus 12%.

Here's the underlying data.

In North America industrial production ex technology moved from minus 6.1 in October to minus 10.2 in December 2008.

The RSM index also has trended down from 36.2% in November to 32.4% in December.

Notably, capacity utilization has dropped from 79.2% in December 2007 to 70.5% in December 2008.

And both the North American auto builds down 26% in Q4 and US housing starts down 41% in Q4, finished the quarter in far more negative territory than we expected some eight weeks ago.

Internationally the trends have moved in a similar negative direction.

Neurozone industrial production zone moved from minus 2.2% in October 2008 to minus 6.9% in December 2008.

The Neurozone purchasing managers index also has trended down from 41.1% October 2008 to 33.9% in December 2008.

Neurozone capacity utilization has also declined to 81.6% in Q4 2008.

Not surprisingly European auto builds fell 16% in Q4.

In summary, we expect many of these North American and international data points to continue to be negative in the first half of 2009.

Now, let's move to the next slide and review our fourth quarter reporting segment highlights beginning with industrial packaging segment revenues fell 9.2% in the quarter and operating income declined 50%.

Operating margins of 6.8% were 550 basis points lower than the year-ago period due to 370 basis points of base margin dilution and 140 basis points of dilution due to restructuring.

Translation also diluted margins 30 basis points.

The 9.2% drop in revenues consisted of the following.

Minus 5.7 from base, 2.4% from acquisitions and minus 5.9% from translation.

The industrial packaging segment's Q4 base revenues as noted decreased 5.7% after posting base revenue growth of 5.2% in Q3.

The sequential decline of base revenues is due principally to a notable fall-off in North American demand for industrial packaging, especially consumable related strapping product.

The North American industrial packaging business' base revenues declined 12.3% in Q4 and international industrial packaging fell at a rate of 1.2% in the quarter.

The only stand-out business in the segment continued to be the worldwide insulation unit which produced base revenue growth of 24.5% in the quarter.

And as noted in previous quarters, this business provides energy related insulation solutions for worldwide customers.

Including those in the refinery and natural gas plant sectors.

Moving to the next segment, power systems and electronics, in the fourth quarter segment revenues declined 9.6%.

And operating income fell 27.7%.

Operating margins of 15.4% were 380 basis points lower than the prior year period with base margins declining 220 basis points and acquisitions diluting margins 130 basis points in the quarter.

The 9.6% decrease in revenues consisted of the following.

Minus 10.8% from base revenues, 3.2% from acquisitions and minus 1.9% from translation.

The power systems electronic segment base revenues as noted fell 10.8% in the quarter which compared unfavorably to third quarter when segment base revenues actually grew 3.1%.

The major contributor to the base revenue decrease in Q4 was worldwide welding which saw base revenues decline 9%.

Notably, North American welding fell 15.7%, thanks largely to slowing in the construction and welding distribution end markets.

International welding fared better in the quarter, growing 9.4% overall and 18.7% in Asia Pacific.

The Asia Pacific growth is still being driven by demand in China for welding consumables and equipment for specialty markets such as energy, ship building, and shipping containers.

The other bit of good news in the segment, our ground power business which supplies at the gate power equipment for airplanes at commercial and military airports increased base revenues by 17.9% in the quarter.

Moving to our transportation segment, in Q4 segment revenues decreased 4.7% and operating income fell a dramatic 82.1%.

Operating margins of 3.1% were 1350 basis points lower than the year ago period due to unprecedented declines in North American and European auto production as well as dilution associated with acquisitions and restructuring.

Base margins accounted for 910 basis points of dilution in the quarter, acquisitions contributed 200 basis points of dilution while restructuring added another 170 basis points of dilution.

The 4.7% decrease in revenues consisted of the following.

Minus 20.3% from base revenues, 19.8% from acquisitions, and minus 4.2% from translation.

The transportation segment's base revenues declined 20.3% in the quarter which was dramatically more negative than the segments base revenue decrease of 9.6% in the third quarter.

Both of our North American and international automotive businesses produced significantly lower base revenues in Q4 largely due to major cuts in auto builds.

Our North American automotive base revenues declined 26.5%.

As North American combined Detroit three and new domestic builds fell a similar 26% in the quarter.

By category Detroit three builds were down 28% in Q4 with GM down 23%, Ford down 29%, and Chrysler down 37%.

Even the new domestic builds declined 22% in Q4.

This radically lower fourth quarter build translates into full year 2008 builds of minus 16 for combined Detroit three new domestics, with Detroit three builds down 21, and new domestic builds up -- I'm sorry, down 8%.

Internationally the build environment was also problematic.

Our Q4 automotive base revenue declined to 21.7% was a result of a 16% drop in auto builds in the quarter and negative penetration related to customer mix.

Key international (inaudible) to Q4 were as follows.

GM group down 39%, Renault group down 24%, Fiat down 21%, BMW down 18%, PSA down 15%, and Ford down 14%.

For full year 2008, international auto production dropped 3%.

Looking forward the prospects for 2009 North American and international auto builds continue to be difficult and currently we are estimating the 2009 total North American build to be somewhere in the vicinity of 10 million vehicles.

And that would represent a decline of 21% versus 2008.

Internationally we're forecasting the build to be nearly 17 million vehicles or 20% lower than the prior year.

The only semblance of good news in the transportation segment was our auto aftermarket group of businesses where base revenues only declined 3.6% in the quarter.

Now let's move to the construction product segment.

In Q4, segment revenues fell 21.9% and operating income declined 51.6%.

Segment results were impacted by the further weakening of fundamentals and a wide array of North American and international construction categories.

Operating margins were 530 basis points lower than the year ago period as a result of a 370 basis point decline in base margins and 80 basis point decline due to translation, and a 50 basis point decline due to restructuring.

The 21.9% decrease in revenues consisted of the following.

Minus 14.6% from base revenues, 0.4% from acquisitions, and minus 7.7% from translation.

Breaking out construction segment, worldwide base revenues, it's a decrease of 14.6% in Q4.

That compares substantially to a substantial lift negative base revenues decline of 4.4% in the third quarter.

The main drivers of our more negative results encompassed more North American and international end markets.

In North America, construction based revenues declined 23.4% in Q4 versus the base revenue decrease of 6.2% in Q3.

In Q4 housing starts as well as commercial construction and renovation activity continued to decelerate.

First, our residential construction base revenues declined 29% as housing starts fell 41% in Q4.

Second, our commercial construction base revenues were down 16% in Q4 versus a 19% decline per the Dodge commercial index which is calculated on a square footage basis through December 2008.

Finally, our renovation based revenues declined 19% in the quarter mainly due to big box stores pulling down inventories to match very weak consumer demand.

Internationally base revenues showed sequential slowing in Q3 versus-- in Q4 versus Q3, construction international based revenues declined 10.5% in Q4 versus a decrease of 3.2% in Q3.

European based revenues were down 16.9% as construction declined over much of Europe.

Asia Pacific based revenues declined 1.6% in Q4 as Asia activities in North America -- I should say Australia, New Zealand based revenues were essentially flat.

Moving to our next segment, food equipment, in Q4, segment revenues declined 4.1% while operating income grew an impressive 9.6%.

Operating margins of 16.2% were 200 basis points higher than the year-ago period thanks to 230 basis points of margin improvement.

Restructuring diluted margins 40 basis points in the quarter, the components of the 4.1% decrease in revenues consisted of the following.

1.7% from base revenues minus 1.9% from acquisitions, and minus 3.9% from translation.

As noted earlier, food equipments worldwide base revenues grew 1.7% in the quarter.

A reversal from Q3 when base revenues declined 1.7%.

Base revenue expansion in Q4 was driven by international operations.

Food equipment Europe's base revenues grew 3% in the quarter while food equipment increased base revenues 6.4%.

In North America total based revenues declined 70 basis points in food, institutional based revenues fell 4% in the quarter.

Fundamentally demand from institutional customers, such as casual dining restaurants, airports and universities softened resulting in slowing equipment orders.

The better news, is that the North American service unit group grew base revenues 3.5% while the retail units increased base revenues 6.7% in Q4.

In our polymers and fluids segment, Q4 segment revenues increased 25.3% while operating income fell 11%.

Operating margins of 11.1% were 450 basis points lower than year ago period thanks to base margins declining 210 basis points and acquisitions diluting margins 210 basis points.

The 25.3% increase in segment revenues consisted of the following.

Minus 7.9% for base revenues.

38.2% from acquisitions, and minus 5.3% from translation.

The polymers and fluid segment base revenues declined 7.9% in the quarter as noted.

Base revenues which were negative across all product and geographic categories in the category showed significant sequential slowing from Q3 when base revenues grew at a rate of 3.5%.

Most of our businesses in this segment are tied to industrial end markets including MRO repair and by product worldwide polymers base revenues fell 7.8% and worldwide fluids declined 8% in Q4.

By geography base revenues for polymers decreased 9.1% internationally and fell 5.4% in North America, base revenues for fluids declined 14.7% in North America and 4.6% internationally.

Finally, in our all other segment, segment revenues declined 2.3%, and operating income dropped 16.5%.

Operating margins of 15.4% were 260 basis points lower than the year-ago period.

Base margins dropped 120 basis points in the quarter.

Acquisitions diluted margins 60 basis points and restructuring diluted margins another 60 basis points.

The 2.3% decline in segment revenues consisted of the following.

Minus 7.5% for base revenues, 8.5% from acquisitions, minus 3.3% from translation.

Moving to the next slide in Q4 the all other segment produced a base revenue decline of 7.5% versus a decrease of 0.7% in Q3.

The segment principally consists of four major reporting categories, test and measurement, consumer packaging, finishing, and industrial appliance products.

The breakout for each of these categories in Q4 were as follows.

Test and measurement worldwide base revenues increased 3% in Q4 and largely as a result of groups Asian operations.

In the consumer packaging area worldwide base revenues declined 7.6%, as weakening demand for graphic, spoils, and marketing products offset growth from the high core multipack and zip pack specialty consumer packaging businesses.

The finishing sub category worldwide base revenues fell 8.3% as falling demand for the industrial pay spray product both in North American and internationally offset growth in the (inaudible) businesses which provide specialty equipment for European and Asia customers.

Finally, industrial appliance products worldwide base revenue declined 14.5% due to slackening demand and related double-digit declines in the appliance area in particular.

With that said I will now turn the call over to Ron who will cover the 2009 first quarter and full year earnings forecast.

-- diluted income per share from continuing operations to be within a range of $1.84 to $2.48.

The low end of this range assumes a 12% decrease in total revenues and the high end of the range assumes a 6% decrease.

The midpoint of the EPS range of $2.16 would be 29% lower than 2008.

For the first quarter of '09 our forecasted earnings ranged $0.26 to $0.42 diluted income per share, continuing operations.

The total revenue decline expected to be in a range of 11% to 17%.

The midpoint of this range of $0.34 per share would be 51% lower than first quarter 2008.

Other assumptions included in this forecast are exchange rates holding at current levels, acquired revenues in the range of 400 million to $600 million, no share repurchase is currently planned for the year.

Restructuring costs of 60 million to $100 million, net non-operating expense which includes both interest and other non-operating income expense in a range of 90 million to $100 million for the year which is favorable versus 2008 by 47 million to $57 million.

Tax rate in the range of 27.75 to 28.25 for both the first quarter and the full year.

I will now turn it back over to John for the Q&A.

We'll now open the call for questions.

I remind you one more time we ask for one question and one follow-up per person.

(Operator Instructions) Our first question comes from Jamie Cook with Credit Suisse.

Good morning.

Good afternoon.

Sorry, good afternoon.

It's been a long day already.

Yes, it has.

My first question, you guys gave a -- your initial take at the analyst meeting in December of sort of by markets what you were forecasting in terms of industrial packaging power systems.

My first question, can you give us your updated view on those markets?

And then my second follow-up question, you talked about an acquisition, revenues for 2009.

I think you were forecasting the 400 million to $600 million range.

That was a little lighter than I expected.

I sort of assumed you would be more aggressive in this type of market environment so if you could give me your updated thoughts there?

Jamie, let me answer the questions on the end markets, I'll give you three or four of them to put the flavor on it, but certainly what we have seen as John pointed out in his second highlights, the continued deterioration in the macro data.

In auto, as an example, when we were together in New York in early December we were projecting the auto build to be down in the 12 to 14% range.

It now appears that the auto builds will be down globally internationally, that is Europe and North America in the 20% range.

So significant decline since we met in December.

We talked about housing at that time in North America.

We were projecting somewhere in the 700,000 to $750,000 range.

If you saw the numbers from December, the December actuals came in at an annualized rate of under 600, they were 550 so we expect the housing range now to be more in the 600 to perhaps 700 range so certainly weaker there.

John noted the industrial production numbers.

We talked about industrial production when we met with data that was through October which was minus 6%.

The final number for the year in North America came in at minus 10.

So clearly all of these indices have continued to show a continuing decline, and we have certainly seen that in the numbers that we experienced in the fourth quarter as you saw in our reported results and certainly don't anticipate any significant improvement in the near term.

Certainly the first quarter is the most difficult quarter from a comparable standpoint, and the trends that we've seen so far early in the year would indicate that we are going to continue to see these kinds of declines in those key markets.

Your question on acquisitions, yes, the range is about half of what the range was as we entered 2008.

And it is really reflective of what we think is occurring in the environment at the moment, which is, I think as we noted in New York, we have seen the activity levels from a seller standpoint pull back as clearly the market has moved to a low and most sellers don't want to sell at this point in the market.

My suspicion is that we'll see some improvement in this as the year unfolds, but with what we see today, and that's really how we strike our number for the year, by looking at our pipeline, that's what we realistically would assume based on current activity levels.

If we see a change the market clearly we update those numbers quarterly and we'll reflect that, but based on what we see today, that's why we I have a relatively small number by comparison to 2008 actual.

Next question comes from Eli Lustgarten of Longbow Securities.

Good afternoon.

Nice job in a tough environment.

One specific question on the outlook, not so much the numbers, but with automotive down so far, and construction down so far, and probably not recovering so quickly, have you looked at whether you have to size or restructure your operations to a new longer term environment?

At the same time, with all the big acquisitions that you made is there any impairment charge that has to be looked at given the change in the big market value and change in financial conditions that occurred?

Eli, let me answer the restructuring question.

I will ask Ron to answer your question on impairment.

We have been restructuring all along, certainly the auto and construction businesses would be at top of the list as those markets have been in a decline now, for this will be four years.

We have been trying to size our businesses along the way.

Clearly what we saw in Q4 and the data that we now see from both of those markets, more particularly probably in auto has changed dramatically.

So yes, in fact, we are in the process of continuing to right size our businesses.

The challenge at the moment is there's not a lot of great visibility in the market so what we thought were reasonably good numbers 60 days ago have proven to be not even numbers that are in the range any longer in terms of the auto builds.

As you would note we made significant restructuring charges in the fourth quarter of the year.

We have a range this year, 2009, of 60 million to $100 million.

So we will continue to spend money restructuring our businesses to right size them and try and strike the right balance between managing them to the current market environment but also recognizing that as these markets improve we want to be in a position to participate on the upside as well.

I'll let Ron answer the impairment question.

Regarding the impairment process, clearly as a result of getting worse, something that we're watching and looking at, we're required to test for impairment once a year, all businesses.

We do that in the first quarter each year.

We did that in the first quarter of '08.

But then during the year, what we do is we look for events and triggers that could trigger additional impairment test, and so we did look at a handful of businesses in the fourth quarter but from an impairment view we didn't record any impairment charges related to those, and as a reminder we're testing at the level of about 60 different sub segments and those sub segments include both recently acquired businesses as well as all time basis, (inaudible) a lot of investments.

So even if the recent acquisitions haven't performed as we would have expected given the environment that doesn't necessarily trigger a big impairment.

But we'll look at it again for all businesses in the first quarter of '09, right now we don't have really an estimate in the forecast for impairment for '09.

As a follow-up, we've had some huge margin declines in the quarter, big volumes.

Can we look for, get some guidance of what margin or profitability numbers can look like in the segment for -- for 2009, maybe on a more stable basis as opposed to the sharp impact that we're seeing in the fourth quarter and first quarter?

The margins clearly in the fourth quarter are a result of the volume declines.

We have typically incremental margins in that 40% range, and on the downside that's what we saw in the quarter.

I think the decrimental was 42% on the base business.

So looking into '09, clearly we'll continue to see the same kind of margin pressure we saw in the fourth quarter, so the expectation is, given the forecasted base revenue declines and the wide range, that the base margins will be down in that 200 to 300 basis point range, primarily due to volume.

All right.

Thank you.

Thank you.

Our next question comes from Henry Kirn of UBS.

You may ask your question.

Hi, guys.

If I can look on the positive side here, what markets do you think could pick up first as we bottom out and ultimately go to the next cycle?

What are the sign posts you are looking for to see when things turn around?

Well, I think if you look at the market share in North America, certainly the first ones to decline have been the housing and the auto markets.

Clearly as I mentioned earlier, housing has been -- this will be the fourth year of decline, 2009 that will be, and certainly we've seen a dramatic drop, I think this is the sixth year in a row that we've seen a drop in the auto build.

So I think if you are looking for early indicators of any kind of stability or bottom being reached, in my view it is going to occur when we see the housing market begin to turn which in my view doesn't turn until we see the foreclosure issue really get effectively addressed, and we see the value of existing homes stabilize in terms of pricing, and clearly we aren't there yet.

Data that came out today would indicate we're still seeing pretty dramatic drop, double-digit drop in housing prices.

So clearly the economy is, here in North America still largely based on the consumer, 65 to 70% of the GDP is consumer based.

And until we see the consumer be able to recover we're not going to see improvement in those markets which I think will be the earlier indicators before we see any general industrial recovery.

To David's point, I would add on the general industrial side I'd probably look at Sig Note, the industrial packaging businesses.

Clearly on the consumable side as production ramps up our consumable sales also ramp up in tandem.

Okay.

And what are your OEM customers telling you about how long the shutdowns are going to last?

Well, what are they telling us or what is happening?

Because those tend to be two different answers.

I guess the real answer is better.

Well, as an example, we shared with you in early December that we were facing two to three-week shutdowns.

Many of those turned into five to six-week shutdowns.

I think the OEMs are scrambling as well.

I think there's a distinct period here where visibility on any end market activity is really blurred, so it's difficult to get reliable data.

We're having to react to data almost daily so it is hard to get much of a head start on this.

I think the anticipation in terms of where this ends up is when we start to see some of these inventory levels move off the car lots, and we start to see car loans be able to be made again and other triggers if you will depending on end markets, but the OEMs are still dealing with pretty imperfect information themselves as well.

Thanks a lot.

Thank you.

Next question comes from Mark Koznarek of Cleveland Research.

A question on the acquired revenues this year over $1.5 billion.

And I'm wondering if you could characterize effectively what kind of margin improvement should we expect on that slug of revenues for next year that might help offset some of the downdraft in the base part of the business?

Well, as you know, acquisitions for the first several years are actually dilutive to our margins, so we would expect that would be the case as we move into next year as well.

The businesses last year, I don't have the exact numbers, but the acquired pre amortization margins would have been in the 8% range, and we would expect over time for those margins to march up into the 15 to 16% range.

Normally over a four to five-year period.

We won't see much lift out of margins in the first year because we have a lot of amortization that takes place, and we would expect we'll see obviously dilution from that standpoint.

So I think next year in our base plan with the acquisitions we have planned we have overall impact of acquisitions is dilutive in our margin outlook by somewhere around 50 to 75 basis points.

And that would compare to what this past year?

I have to ask Ron to answer that question.

That was 70 basis points for the full year.

So about the same.

Okay.

And then as the follow-up, could you discuss price versus cost in the quarter, how that performed, and then what are your expectations for '09?

Yes, overall, it varies by segment, but overall for the Company, we saw much less impact price versus cost in the fourth quarter, was only about 30 basis points negative to margins.

Last quarter, remember, it was 110 basis points.

So as we said last quarter, we expect to see some raw material costs going down.

We saw that in some segments fairly significantly.

We put price increases in place throughout the year.

We have given some of those back, but we kept some of them as well.

So negative 30 basis points for the quarter.

Looking at 2009, right now, as we have looked at the numbers, it looks like it's going to have a pretty minimal impact, almost flat for 2009, especially given the expected continued decline in some of the key raw materials we have.

By flat, Ron, do you mean it is going to be neutral to not a negative to margin?

That's right.

Okay.

Thanks.

Our next question comes from Andy Casey of Wachovia Securities.

You may ask your question.

Thanks.

Good afternoon, everybody.

Andy.

Couple questions.

First, guidance implies obviously a pretty weak first half with some sort of bottom, and then flatter second half year-over-year performance.

If that's the correct read, is that driven by an expectation that distributor inventory liquidation ends sometime in the first half and the markets that you serve kind of don't do much relative to what they did in the second half of last year?

Yes, Andy, I think clearly we would expect, as you accurately point out, the first quarter in particular, the most difficult quarter for sure.

The second quarter difficult, but not quite as bad what is we expect to see in the first quarter, and I think a lot of that is in fact, related to a couple things.

First of all, the visibility.

These markets in many cases are still in a declining rate, and secondly, as you point out, there's been a fair amount of destocking going on.

Certainly in any markets that are served with indirect channels through distribution.

The second half of the year, obviously the comparables are also somewhat easier so the comparison rates you would expect them to not be as bad in the second half of the year.

The first quarter clearly is the most difficult comparable, so I would say that our view is that the destocking that's been taking place would largely be behind us by probably sometime in the second quarter.

But hard to get a read on that exactly by end market, but I think directionally that's certainly what we would expect to see.

Okay, thanks, David.

And then kind of a different, if I can dig into Mark's price question, are you seeing any competitive price pressure, and if so, which segments?

Not so much the price give back relative to the input costs but any segments where you see competitors really trying to go after share with price?

Not anything notable at the moment, but I expect that with the dramatic decrease we've seen in some of the commodity costs that that likely will occur.

We certainly expect that as these commodity costs come down that we, like many will be in a position that we'll have to share those declines with our customers.

So we have factored that into our outlook as best we can at the moment but I can't say there's been any particular segment or area that is notable at the moment, but clearly as this develops and goes forward we obviously keep a close eye on that.

Okay.

Thank you very much.

Thank you.

Our next question comes from Ann Duignan of JPMorgan.

Hi, guys, it's Ann.

Just curious, following-up on Andy's question which particular sectors might you be thinking in the back of your mind where you might start to see competitive pressures first?

Well, I think the commodity prices, Ann, that have dropped the greatest are steel, so certainly steel is a primary raw material for us in our fastener businesses, both in the automotive and construction segments and certainly it's a primary raw material for us in our signal business.

So those would probably be the areas that I would expect to see at least initially the most pressure as those costs have dropped the most and obviously we recognize that we've been through these kinds of run-ups and declines in the past.

So I think we have a pretty good handle on what we need to expect and how to manage that but I would expect to see it there first and in certain grades of plastic we've seen, likewise, some fairly dramatic declines in some grades of plastic recently as well so I would expect -- and those would cross a number of different businesses of ours, consumer packaging as well as automotive and other segments as well where we use plastic as a primary raw material.

Okay, that's helpful.

And as my follow-up, then, back in October, you guys had talked about the inability of some of your smaller customers, particularly in something like foodservice, to access credit.

Can you talk about the health of your small customers out there in general across some of your different businesses?

Back then it was just like they couldn't get financing to bay equipment, but I have to believe that their financial well being is failing by the day.

Can you talk a little bit across your different businesses where you think the greatest risk to the health of your customers may lie and where we might start to see some secular changes in demand?

Well, certainly nothing has changed to the good since October, Ann.

Things have gotten, if anything, more difficult for the small and medium size channel players and distributors.

Their access to capital and their capability to be able to use it effectively in a business has clearly been limited.

So that remains a major source of concern, and the purchasing decisions that they make and also how we look at -- how we manage our relationships with them.

So it's a much more active topic, which indicates to me that the liquidity issues that a lot of the original TARP funds were supposed to help address clearly haven't played out, at least in those business segments.

In terms of areas that would be most highlighted, I guess the best area to highlight is to look at areas like building materials supply, auto dealers, et cetera, while we don't sell auto dealers, clearly auto dealers are having trouble getting financing for their customers.

That's putting pressure all the way up the chain which has led to these even more dramatic declines in the auto build numbers, and the stacks of inventory.

On the building material side, same kind of situation.

So you've got the various players in the channel that don't have an even flow or even access to liquidity which is creating obviously concern.

So lots of angst around spending liquidity, it's available for those that have it, and it's led to obviously an even more dramatic decline and probably even more aggressive destocking than you would normally see which I think has led to an even greater inability or a greater problem in terms of visibility in the near term.

It is an active topic, and credit worthiness is an active topic, and as you would realize a lot of these customers don't have formal credit ratings so it's something we really have to pay close attention to.

Okay, first question was just a clarification of Andy's.

My real question.

Nice try there, Ann.

Just a real quick one.

Do you think you are competitively advantaged or disadvantaged given your decentralization?

Is it easier or harder when you've got 800 businesses to pull costs out and pull inventories down?

Just 30 seconds.

I think it's an advantage in pulling inventories down.

In fact, if you look at the numbers Ron talked about, in spite of the weak fourth quarter and th dramatic declines our overall dollar investment in inventory went down by $150 million in the fourth quarter and that includes some acquisitions that we did that came to us in the third and fourth quarter with some pretty hefty inventory levels.

So our ability to manage inventory down during these kind of downturns is pretty well developed you have seen in past downturns and we fully expect we'll see it here as well.

Obviously the MOH number for the fourth quarter doesn't fully reflect that and that's largely by the fact that the declines occurred dramatically in November and December.

We weren't fully prepared for that.

I would expect to see, though, a fairly healthy reduction in inventory levels as we move forward.

That's 30 second.

Thank you.

Our next question comes from John Inch of Merrill Lynch.

Thank you.

Good afternoon.

So, first question, I guess, just comes to sort of the broader assumptions with respect to earnings per share over the course of the year, particularly considering that you are dialing back M&A pretty substantially and you're not doing share repurchase.

So if you kind of take the midpoint of your first quarter range, $0.34, and historically it looks like the first quarter has been 20 to 25% of the year you multiply that by four to five times, you get basically $1.50 for the year.

So what's the difference between the first quarter run, David or Ron, versus sort of the low end of your range?

Why is the range not even lower?

What are you expecting to get better, basically?

Well, certainly sequentially things get better in terms of the base revenues as the year unfolds.

The most dramatic decline in the range for the first quarter is minus 11 to minus 17.

The range for the year is minus 6 to minus 12.

So clearly as we progress through the year by the time you get to the third and fourth quarter we're talking about single digit year on year declines.

So obviously we expect significantly stronger earnings as a result of those declines being less.

The head wind in currency also becomes much less in the latter part of the year, certainly in the fourth quarter, and that has an impact as well.

So the first two quarters is a significant impact on currency.

So for the year, the impact on earnings for the year for translation alone is 7%.

Most of that occurring in the first two quarters.

David, I understand the premise that comps get easier.

I think you started out with the discussion by saying that you are not assuming any kind of recovery.

So I mean, are the earnings really going to get better just because the comps get better or is there something else going on?

Certainly the impact of the restructuring programs that we've put in place begin to pay off on these numbers as well.

So while we spent the money now and we're spending money at the end of last year's, we'll begin to see some improvement in the margins as a result of that as well and we had some fairly significant price cost head winds as you recall that occurred during this year that have been put back in balance.

Ron made the comment earlier that we expect that to be flat.

We had 110 or 120-basis-point differential in the third quarter alone this year.

So that's another significant element.

So it's cost, it's the pay off, if you will, of the restructuring that we've spent, and I think it's effectively managing.

In some cases we get a minor lift out of some of the acquisitions in terms of margins, but it's a lot of things, but the biggest element is that the base revenue declines on a sequential basis are not as great.

Okay, so there's no way you see this first quarter somehow being annualized?

I'm just trying to get -- you're pretty confident in that.

The follow-up is disc ops.

I just was curious about the divestiture process, disc ops lost $0.08 in the quarter.

I'm not sure if that was operational or write-down, but obviously with the environment was -- is there any type of risk you have to bring these properties back on to your books?

Maybe talk a little bit about that process and what's going on there.

Well, there's always a risk that -- I mean, obviously if they don't get sold they come back on to your books.

We're in the midst of running processes on several businesses as we've talked about in the past, and at the stage we're committed to running those processes out.

But obviously it's difficult to sit here and predict what those processes will yield.

We're not -- we're certainly not in the position to be able to talk about where any of those stand finitely, but they're in discontinued operations, they're being held for sale, and that's, in fact, the plan.

We have nothing at this moment that would indicate we're going to do anything differently.

I will let Ron speak to the $0.08, because that is specific to some charges we took in the quarter.

For the quarter, disc ops was a loss of $40 million or so.

Included in there is a loss, estimated loss on the sale of the software held for sale of about $60 million.

So absent that, the regular operating result, decorative surfaces and the other businesses in there were still positive.

I'm sorry, was that a write-down or was it an actual operating loss?

Write-down, John.

Thanks very much.

Our next question comes from Daniel Dowd of Bernstein.

If you end up doing the low end of your guidance range in EPS for the year and you only acquire $500 million in revenue with no share repurchases how much cash do you anticipate having on your balance sheet by the end of '09?

Well, I think the better question is probably what is our debt level.

Typically the cash is deployed overseas, and any excess cash flow is plowed back into paying down commercial paper.

But the free cash typically in normal times runs about 1 to 1 net income.

In recessionary times, as we've looked at, and you have seen some of that this quarter as well, we tend to do better than that.

If we look back at '01 to '03, and it was something like in the range of 120 to 130% of net income.

So on the low end of the range, you are talking probably in that $1 billion range net income.

So it will be -- free cash flow will be north of that, $500 million in acquisition, $600 million in dividend.

I would say that our debt level probably stays about where it is now.

So in effect, the share repurchase shutdown is an effort just to reduce the short-term debt?

Or keep it the same.

I think the thing to remember, we started the year at 19% debt to cap.

Two years ago it was something like 13%.

And we set out a target range of our debt to cap of 20 to 30%, and we've been using the share repurchase as well as some strong acquisition activity to increase that, obviously.

We had a strong acquisition year this year of $1.5 billion of acquired revenues, and we did 1.4 billion of share repurchases, so this was a catch-up year to get us into that range.

In fact, we're at the top of the range absent the equity adjustments.

And so now we're in more of a maintenance mode.

So we will be using the share repurchase kind of as the third resort to use the free cash flow after dividends and acquisitions, and based on the forecast and the expected acquisition levels and what we expect to pay in dividends it looks like we wouldn't need to do any share repurchases to stay at that high end of the range.

Clearly if results get better, we'll have some extra cash flow, if acquisitions aren't $500 million we would have some as well.

So share repurchases is really used to balance out the free cash flow versus our target leverage.

And I would just add to that, Dan, I think that as we look at the year, I hope that we'll be in a position to do more acquisitions than what we've got in this guidance, but certainly with the guidance we've provided, and you certainly have looked at the low end of the range, what Ron is saying is at the low end of the range we maintain our debt to cap.

At the high end of the range, obviously the debt to cap drops.

I would hope that the deployment of free cash would be used more for acquisitions next year, but I think we've got ourselves positioned properly from a share repurchase standpoint so it didn't make any sense for us to provide guidance as though we were going to continue that based on the range of our forecast for 2009.

Okay.

That's very helpful.

And I recognize this may actually be quite difficult to sell commerce and decorative surfaces in this environment, but if you do?

Well, we obviously didn't project any cash flow from sales because we don't do that.

Obviously if those do close there will be significant cash that will come from those deals and we'll evaluate as we do every quarter, we'll evaluate the use of those cash proceeds.

So if, in fact, that happens during the year, or whatever quarter it would happen in, then we in fact would recalculate and reproject, if you will, what we would plan to use the free cash flow for.

I would tell you, however, that even if we had that information today I'm not sure I would take much of a different position than what we're taking because I really think that the acquisition environment will come out of this pause at some time during the year, perhaps by the middle of the year, I would expect that to be a much more proactive period for us from an acquisition standpoint.

That's very helpful, guys.

Thank you.

Our next question comes from Robert Wertheimer of Morgan Stanley.

Thank you.

My question is on the backlog you have now on acquisitions is there any better pricing evident in that backlog?

It wasn't exactly evident in your 4Q acquisition so the number wasn't that high.

I know you're not doing that many, so that's great.

I'm just wondering if you are seeing better pricing on the deals you are looking to go through on?

Well, I would say that we repriced a number of deals during the fourth quarter, some of which went away as a result, some didn't, and I would say the things in the pipeline today are definitely priced at lower EBITDA multiples than what we saw in 2008 for sure.

But I think that's also one of the reasons why there's this pause I'm talking about.

I think sellers are just adjusting to the fact that you are not going to be getting 7 to 8 times EBITDA for businesses as you were able to do last year.

I think there's some adjustment period going on in that regard.

There's also the question of even if you had somebody who is willing to pay you that level of EBITDA, do they have the liquidity to close deals.

So I think that's changed the sort of acquisition landscape for the near term.

But certainly we have definitely seen the valuations come down.

Our valuations have definitely come down as a result of most target companies have come down.

So it's a double impact, right.

The multiples come down, in terms of what the businesses are worth, and their earnings or EBITDA numbers have come down likewise.

Exactly.

That's the beautiful part of the business you are in.

What's the from multiple and the to multiple?

I would expect -- we don't have a lot of data to give you precise numbers but I would expect that over time you would see this be a change of 1.5 to 2 times EBITDA reduction in multiples.

Fantastic.

And if I get a follow-up, accounts payable, accrued expenses came in a bit.

Why did that happen?

Are your suppliers trying to use you as a source of funds?

Are you getting anything out of that or was that a choice on your part?

Well, couple things.

One, currency translation had a role in that.

Foreign amounts come down because of that and we saw big drop in currency during the quarter.

Secondly, there was, obviously as the quarter went on and we got into December and we saw things deteriorate, we didn't buy a lot of inventory, so--.

Hello?

Actually, one moment.

We've lost our conference leader's line.

It will be just a moment.

Please stay connected.

Please stand by, your conference will resume momentarily.

Please stand by.

Hello.

Sir, your line is open.

You may continue.

We're on the call now?

Yes, sir.

As we were saying, first of all, we want to assure everybody we did pay our phone bill here this month.

We were talking about?

Waiting for the next question.

I think Rob Wertheimer was the last questioner on.

We'll take another question.

Yes, we do have a party waiting.

Robert McCarthy of Robert Baird you may ask your question.

I'm not sure my question is good enough for all this.

So you are the one that did this, McCarthy?

I had nothing to do with it.

I'm sorry, go ahead.

Restructuring expenses, 60 million to $100 million.

Usually range, of course, has to do with the fact that you don't know how many businesses you will buy and at what pace you will initiate programs and what you'll acquire, but this range looks a little bigger than that.

That's sort of my observation that I would like you to respond to.

Then as you are doing that could you help us with how we should expect to see the year start?

If 60 is the low end, do we see 30 or 40 in the first quarter?

Rob, let me answer that question.

First of all, that number doesn't include any significant restructurings we do with acquisitions.

So acquired businesses, that's not included.

These are really businesses that we've owned for more than a year.

I would expect that we will spend in the first quarter a disproportionate rate, probably some where in the 30 million to $40 million range in the first quarter.

Okay.

And the high end of the range is based on the low end or the high end of the decline, if you will.

So if we think things will decline more dramatically, which would be towards the minus 12% annual number, you would see us spend close to $100 million mark.

Is that a -- David, is that something that you reach a decision point on, like at the end of the first quarter?

We'll reach a decision point on as sort of as things unfold, but generally we take a really hard look at it at the end of the quarter, but it's really based on the individual businesses and looking at their near term environment and what they think they're managing towards, and trying to get themselves positioned for that appropriately.

So it's not a perfect science, and the timing is not always perfect, but it is looked at very rigorously.

We look at projects throughout the quarter, so it's not like we wait to the end of the quarter, then ask for input.

So we've already seen several restructuring projects come through.

We've seen more than several come through in January, so it's an ongoing process.

Thanks.

Wanted to follow-up.

There were a couple questions that talked about the idea of inventory destocking.

I wonder if you could speak to perhaps one or two businesses where you saw a particularly severe effect and where that might suggest that the, kind of revenue comparison organically, base revenue growth that we saw in the fourth quarter, might be an exaggerated statement of what's really going on in the end market.

Sure.

Well, certainly what we've seen in the construction channel has been dramatic in terms of destocking as those numbers have plummeted further.

They have been exacerbated in that group as well by what's gone on with the big boxes.

Huge destocking going on with the big boxes.

In fact, in some of the stores you can't find some of our products even on the shelf at the moment.

So those are clear destocking decisions that have been made around probably meeting year-end inventory targets or other objectives, I don't know.

Okay, even though, in that business, you are handily beating the end market growth comparisons?

Correct.

Go on, please.

Exactly.

That's probably one I would highlight at the top of the list because we sell almost exclusively through indirect channels in the construction field.

And so we see t happen there very dramatically and generally very quickly.

What about something like welding?

Welding, there's definitely been destocking going on in welding in the fourth quarter, and certainly the pullback of that environment, as John detailed in the segment numbers we've seen definitely a pull-back in inventory.

Most of the equipment we sell in North America moves through a distribution channel, and those channel players are under the same pressures as everybody else from a working capital standpoint, and they have seen things drop at their customer level, so now you begin to see not only the drop at the customer level but now running off stock levels.

Can you give us an idea of how much of your business in industrial packaging and welding goes through independent distribution?

Oh, in welding it would be 90% plus.

Industrial packaging, probably north of 80.

Thanks a lot, David.

Very helpful.

You are welcome.

Thank you.

Our next question comes from Joel Tiss of Buckingham Research.

Thanks for hanging with us here.

No problem.

Now you have to answer everybody's question.

We'll be on until 3:00, right.

Exactly.

Just one clarification.

It seems to me that if in January all the customers went away, there's not going to be -- that ought to help the second half, or that ought to help the quarterly numbers be a little bit better as we move through the year.

Isn't that fair?

That's fair.

All right.

Anyway--?

Understand also, Joel, that in some markets, the customer hasn't come back into the market yet.

So there are still markets where the customers are still on the sidelines, and I would put the auto business in that -- clearly in that category.

If you look at the shutdowns that occurred in December remember, December for us in international is the first month of the new year.

You look at the continued closures that occurred, in January in the auto business in Europe, some of those plants have been shut for nearly two months.

That's my only question.

Is the inventory getting clean -- just because they are not producing anything is the inventory going down, or they're not selling anything, even though they're not producing the inventories are not really getting adjusted?

If you look at North America, I believe the last numbers we saw in sales, show that despite of the dramatic decline in production that there was even a more dramatic decline in sales.

So I don't think we've seen any significant reduction at least through the end of the year.

Based on what we're seeing so far in terms of build rates for the first quarter I would expect that we would see some drop in inventories at the auto manufacturers as a result of the latest build data we're seeing, but again I can't tell that you that precisely because obviously a lot has to unfold but certainly the sale of vehicles is the big variable there, and there's still pressure here in North America, particularly obviously in the US, is the credit available for people to get car loans.

And that's been a big issue.

And how about in other end markets in construction in some of the areas?

Are you seeing any pull-through?

In terms of -- I'm sorry?

The same question.

Even though they're not producing, are the inventories dropping?

I think in the case of construction, we're seeing many bare shelves.

We're seeing people running hand to mouth.

So I think it's probably any uptick in activity will be seen much quicker there as a result.

I think the destocking in most of our construction businesses has been underway for some time.

The one variable I would say is in the renovation category where the big boxes are the predominant supply chain, and they have made some dramatic reductions in inventory that are not reflective of necessarily the end sales levels.

Okay.

That's helpful.

Thank you.

Our next question comes from Shannon O'Callaghan of Barclays Capital.

Good afternoon, guys.

Shannon.

Hey, so you mentioned things got tougher since the meeting.

Can you give a little more color or base revenue numbers on November, December, and what you are seeing in January?

Well, the month of December base went to minus 14.

Which was a little bit more negative than we had anticipated at the meeting, and that's an all-in number.

As for January, we don't have a fix on that number but we're certainly expecting it to be some where in that vicinity.

Yes, the early trends we have for January, and again, as John said, we don't have all the data in, but would certainly indicate the same kind of, relative same kind of sales levels that we saw in December, and certainly with the plant closures we've talked about, and reduced hours at a number of customers and end markets we would expect to see probably a similar mid teen reduction in base numbers for January.

Okay.

So I mean, we've got 4Q was down 34%, and we've got 1Q down 40 to 63%, right?

What's worse in 1Q versus what you already saw in 4Q just that there's three bad months of down mid teens?

Remember, in Q4 we had the benefit of a relatively strong October, and then things started to really roll over in November, December, so we're looking at three pretty negative months in terms of January, February, March, with some pretty steep comps on a year-over-year basis.

Translation also gets much worse in the first quarter.

Okay.

And just the last quick one from me is on restructuring you gave the cost number.

What kind of savings are you expecting from what you do in '09 and what you already did in '08?

What do you expect to hit in '09?

Well, the general savings that we see, the payback, if you will, on these restructurings is somewhere in the nine to 12-month range all in, so the restructuring we would expect to see would be relatively in the same range as the dollars we're spending within a 12-month period.

We spent $63 million in 2008, and obviously the range we've given here is 60 to 100, so you can kind of do the math on that.

Okay.

Great.

Thanks, guys.

Thank you.

Our final question comes from John Inch of Merrill Lynch.

You may ask your question.

You are double dipping here, John.

I'm back in the queue.

Okay.

So the sale of your equity, that was a fairly massive sequential decline.

I guess the bulk of that was foreign currency.

Is there any sort of a debt rating implication with any of this, and does any of this dovetail back into again, your decision not to buy back as much stock in the earlier part of this year or dramatically curtail the share repurchase?

Well, so the equity reduction of $1.1 billion, about 700 million of that was currency, and the other $400 million or so was related to pension adjustments, and that's adjusting the pension plans for investment reduction, and liability changes.

So the way we have looked at our leverage is on debt to cap which obviously is a factor in equity, and so without those adjustments, we'd be at 29% to 32.

We are in -- we're always in discussions with the rating agencies around ratings.

Right now we're at AA minus the both, and we're on watch with both.

So could it have an impact?

Maybe.

Probably, the bigger thing that they're probably looking at is just what is the impact of the reduced results in 2009 and, the effect of how much cash we can general rate, et cetera.

So there could be an impact, but right now, we're at AA minus.

We're not managing it to a credit rating, John, but I think if you look at the way that Ron described it, 29% without these impacts is really the way I would look at it, which would have been the high end of our range anyway.

So I think the cautiousness in how we're presenting acquisitions is based on the market environment, nothing other than that.

If the market environment were better, I would be very comfortable providing a higher range, therefore implying a higher debt to cap as a result.

But I think we're really telegraphing here that the acquisition world is a bit cautious at the moment, a little bit hard to predict, and I think, secondly, we're at the high end of the range that we had set that we wanted to be at, and we want to use any leverage above that really for acquisitions, not for share repurchase.

Okay.

So nothing to do -- nothing to do with, for instance, liquidity issues or the fact that maybe a lot of your cash is sitting overseas and you can't use it for share repurchase or anything like that.

No, not at all.

Lastly, food equipment and Asian welding are the stars of the portfolio.

How are you thinking about those businesses and their resilience as we're kind of going through this?

I'm perhaps a little more concerned about Asian welding, just given ship building trends globally and stuff like that, but maybe you could still talk to both of them and why they're doing so much better and if you think it can prevail.

Certainly Asia welding, those are bigger projects, longer term.

They don't stop quickly.

And their infrastructure projects, certainly the energy project that we're talking about, or infrastructure projects that are well underway and aren't going to stop.

Pipelines and processing plants.

So I think they have a fairly good runway still in front of them.

I think the food equipment, I think it's been a question of timing.

I think we will see some slowing of the food equipment, there's no question.

We have done much, much better than the market in that regard and some of it is due to the way we've positioned ourselves in some of the markets, some new product introductions and some good work we have done in recent acquisitions, particularly on the international side.

But I do expect we'll see some negative trends in the food equipment business as we approach the first half of the year.

Certainly their end markets are under pressure, and I expect we'll see that reflected in the service numbers, or, excuse me, in the equipment numbers.

As John pointed out in his segment commentary our service numbers actually went up which is what we would expect to see as equipment sales go under pressure, people will be in a position where the equipment they have will need more service, so it's not a full offset but at least it's partial offset.

And what's the mix of service to equipment again, David?

It's about two thirds/one third equipment to service.

Thanks very much.

Okay, well, thanks for bearing with us during the call for this expanded ITW call.

We apologize for the seven-minute gap, and we will be talking to you next quarter.

Thanks.

That concludes today's conference.

You may disconnect at this time.