雷神技術公司 (RTX) 2011 Q3 法說會逐字稿

Good morning, and welcome to the United Technologies third quarter conference call.

On the call today are Greg Hayes, Senior Vice President and Chief Financial Officer, and Akhil Johri, Vice President, Financial Planning and Investor Relations.

This call is being carried live on the internet, and there is a presentation available for download from UTC's home page at www.UTC.com.

The Company reminds listeners that the earnings and cash flow expectations and any other forward-looking statement provided in this call are subject to risks and uncertainties.

UTC's SEC filings, including it's 10-Q and 10-K reports provide details on important factors that could cause actual results to differ materially from those anticipated in the forward-looking statement.

Once the call becomes open for questions, we ask that you limit your first round of questions to two per caller to give everyone the opportunity to ask questions.

You may ask further questions by reinserting yourself into the queue, and then we will answer those questions as additional time permits.

Please go ahead, Mr.

Hayes.

Thank you, Javon, and good morning, everyone.

You guys saw the press release this morning; another solid quarter, 6% organic sales growth and orders generally in line with expectations, despite an uneven macro economic environment.

Earnings per share were $1.47 in the quarter, and that's up 13%, and free cash flow was robust at 132% of net income.

There's a lot of uncertainty and things to worry about in the world economy, and things like continued high unemployment in the US and Europe, a weak US housing sector, the banking crisis in Europe, the political impasse in DC, to name just a few.

But importantly, order rates across most of our businesses remain generally in line with our expectation for the year, sustained by continued strength in emerging markets, and a resilient commercial aerospace after market.

The developed economies have certainly slowed a bit over the past few months, and commercial construction markets remain particularly weak in the US and Europe, but the economies in China, India and Brazil although slowing slightly, are still delivering growth rates well above developed economies.

Also, airline traffic continues to hold up, and capacity discipline is expected to result in another profitable year for the airlines.

In addition, Boeing and Airbus, holding large backlogs, have both announced increases in their build rates, buoyed by emerging market demand and replacement of older less fuel efficient fleets.

So, uncertainty, clearly, but we've operated in this kind of uneven and uncertain economic environment before, and we know how to respond.

With a slower macro growth outlook, we're taking preemptive steps to position the business to grow earnings next year by taking out even more costs, even as we continue to invest in growth areas and in bringing new technologies to market.

So, we're increasing our restructuring estimate this year from $200 million previously to $300 million plus, while keeping to our commitment of restructuring equal to one-time items for the year.

We still see sales for this year around $58 billion, that's up about 7% from 2010, and with better than expected third quarter results, and only one quarter to go, we're once again increasing our EPS guidance.

We now expect 2011 EPS to be up 15% to $5.47 a share.

That's up from our previous guidance of $5.35 to $5.45.

The higher EPS outlook reflects benefits from lower interest costs, lower taxes, and higher profits at Sikorsky, partially offset by lower profit expectations at Fire & Security, and around $0.05 of deal costs related to the pending Goodrich acquisition.

On slide 2 now, turning to third quarter results.

As I mentioned, sales grew organically at 6%.

Carrier had another strong quarter with 9% organic growth, driven largely by continued strength in the Transicold business, and growth in the emerging markets.

And Sikorsky grew 21% organically, higher after market sales and more military aircraft shipments.

Earnings per share were $1.47, that's up 13%.

Restructuring expenses of $0.06 in the quarter were partially offset by $0.04 of net positive one-time items.

In comparison, restructuring and one-time items in last year's third quarter was a charge of $0.09.

So, excluding restructuring and one-time items in both third quarters, earnings per share increased this year by 7%.

Lastly, FX was a benefit of about $0.04 in the quarter.

Now, just the usual reminder that we are going to talk to our segment results, excluding restructuring and one-time items.

And on that basis, segment operating margins of 16.3% in the quarter was 10 basis points lower than last year.

This benefit from cost reduction and operating leverage from higher sales across the businesses were more than offset by higher E&D investments.

E&D was higher by $62 million versus last year's third quarter.

All of that increase was at Pratt Whitney, as they continue to develop four separate Geared Turbofan platforms.

As I mentioned earlier, free cash flow in the quarter was 132% of net income.

That's great performance, even as we contribute $156 million in cash to our domestic pension plans.

In addition, we also contributed $450 million of stock to the plans this past quarter.

Even at the current low interest rates, our domestic pension plans are now nearly 90% funded, and we don't see the need to make additional contributions to our domestic pension plans through at least the end of next year.

With year-to-date free cash flow at 109% of net income, we now expect free cash flow for the full-year to exceed net income.

We spent $675 million on share repurchase in the quarter, and this concludes our share buyback for the year with a total spend at $2.2 billion.

You'll recall that we decided to suspend share buyback for the next 12 months, as a result of the Goodrich transaction.

Okay, slide 3.

As you can see from these order trends, order trends are generally in line with expectations, with the exception of some weakness at Fire & Security.

Commercial aerospace after market remains solid, with Pratt & Whitney's large commercial engine spare orders up 3% for the quarter.

And that's on top of 35% growth in last year's third quarter.

Hamilton Sundstrand's commercial spare orders were up 24%.

That's after 13% growth last year.

Carrier's US residential HVAC orders increased mid single digits in the quarter.

However, we did see a shift in consumer buying patterns, with more and more customers opting for lower featured, lower efficiency products.

At Otis, new equipment orders were up 12% at constant currency, driven by emerging market growth.

And we continue to see strong growth in emerging markets, with the combined BRIC orders for the commercial businesses up a strong 23% this quarter.

So, despite a slowing world economy, we saw another good quarter with strong organic sales growth, solid earnings growth, and robust cash flows.

All while we continue to invest in these game-changing technologies.

I'll come back in a minute to talk about the remainder of 2011, and our outlook for 2012, but for now, let me turn it over to Akhil to take you through the business unit detail.

Thanks, Greg.

Turning to page 4, at Otis both sales and profits in the third quarter grew by 12%, with operating margin of 23.7%, in line with the prior year.

Foreign currency accounted for approximately 8 points of profit growth, and 7 points of sales growth.

New equipment sales in the quarter were up 9% at constant currency, led by strong growth in China and Russia.

Service sales were also up, with continued growth in contractual maintenance and repair.

The positive impact on operating profit from higher sales volume and some real estate gains was partially offset by new equipment pricing and commodity head wind.

As Greg said, new equipment orders increased 12% at constant currency, with continued strong growth in emerging markets led by China, where orders were up over 30%.

Orders in North America were flat, and were down low single digit in Europe.

Otis closed the quarter with a strong new equipment backlog, up 9% versus prior year at constant currency.

We remain confident in full-year profit growth of about $225 million at Otis, on high single-digit sales growth.

On slide 5, Carrier profits increased 13% on 8% higher sales.

Organic sales growth was 9%.

As expected, Transicold's first half organic growth rate of about 50% has moderated to high teens.

Similar to the second quarter, North America residential shipments were mixed, with split system units up mid teens, and gas furnaces down mid single digit.

Profit growth was driven by solid conversion in volume and continued good performance in our joint ventures, partially offset by commodity head wind.

Carrier posted a record Q3 operating margin of 12.7%, even as we saw a significant movement in the US residential business towards low margin entry level units.

Carrier remains on track with our prior guidance of profit growth of about $325 million on 10% organic sales growth.

UTC Fire & Security delivered profit growth of 8% in the quarter, on 5% higher sales.

Organic sales were up 2%.

Product businesses were up high single digit, and service and install businesses were down low single digit, due to continuing softness in the UK and America's businesses.

Third quarter orders were flat year-over-year organically.

Backlog continues to be strong, and is up approximately 15% organically, both year-over-year and from the beginning of the year.

Operating profit in the quarter grew 3% at constant currency.

Benefits from higher overall volumes, and a favorable litigation resolution were partially offset by continuing productivity challenges, and a very soft market in the UK.

With a slowdown in the order rates and continuing productivity issues, we now expect full-year sales at Fire & Security to be up mid single digits on 3% organic growth, and operating profit to be up approximately $100 million, instead of $150 million.

Turning to aerospace on slide 7, at Pratt & Whitney, sales were up slightly from the third quarter last year.

Sales from higher after market and increased large commercial engine deliveries were partially offset as expected by fewer military engine deliveries, lower Rocketdyne and power system sales, and unfavorable currency at Pratt Canada.

Large commercial engine spare sales were up about 10%.

Operating profit in the quarter was down 11%.

The benefits from net higher sales were more than offset by high E&D and unfavorable currency at Pratt Canada.

Restructuring savings offset higher pension costs.

Excluding E&D, operating margin was about flat.

We continue to expect Pratt's full-year operating profit to be down around $100 million, as we continue to invest in next generation product platforms.

Hamilton Sundstrand posted another solid quarter, with profit growth of 11% on 8% higher sales.

Sales growth continues to be led by the aerospace after market and industrials businesses, notably commercial spares were up more than 30% versus last year.

Aero [EM] sales were flattish, as commercial aero growth was offset by lower space and defense volumes.

Profit growth in the quarter reflects the benefit of higher after market and industrial sales and lower E&D, partially offset by lower military vehicle sales and higher new program warranty costs.

Operating margin was up 60 basis points year-over-year to 18.7%.

As Greg said, commercial spares orders increased 24% year-over-year with book-to-bill slightly above 1.

Industrial orders were up about 10% at constant currency.

Based on Hamilton Sundstrand's strong year-to-date performance, we now expect operating profit for the full-year to be up more than $100 million on high single-digit sales growth.

Turning to Sikorsky on slide 9, operating profit increased 34% on 21% higher sales.

During the quarter, Sikorsky shipped a total of 73 large aircraft, 9 more than the third quarter of 2010.

66 aircraft were based on military platforms and 7 commercial.

There were no deliveries of Canadian Maritime helicopters in the third quarter.

The contract requirement is for 4 additional aircraft in the fourth quarter, but customer discussions indicate that need may be only for 2 or 3 more.

Sales growth in the quarter was driven by higher international military aircraft deliveries and increased after-market volumes.

Solid conversion on net higher sales resulted in margin expansion of 110 basis points to 12.1%.

Of note, during the quarter Sikorsky delivered 3 S70i aircraft to it's Launch customer in the Middle East.

These deliveries mark the first for Sikorsky's international variant of the Black Hawk.

For the full-year at Sikorsky, we now expect profit growth of approximately $125 million on sales growth of high single digits.

With that, let me turn it over to Greg for wrap up.

Okay.

Thanks, Akhil.

It was another good quarter, of strong organic sales growth, earnings growth and cash flow.

All of that, in the face of a slowing world-wide economy.

We're very confident in our increased EPS guidance of $5.47 on $58 billion of sales for the year.

That's up 15%, earnings, and 7% sales growth.

That's the kind of performance you've come to expect from UTC.

As you know, we've announced some transformational news recently.

First of all, of course, the largest acquisition in our history, in fact one of the largest aerospace acquisitions ever, Goodrich Corporation.

It's a strategic transaction that will boost UTC's position in the aerospace systems sector, and will generate significant customer and shareholder value.

As you know, Goodrich products are complimentary to UTC's.

Our combined technologies will provide more intelligent, more electric, and more integrated products that customers are increasingly looking for.

Also, Goodrich has a stable and strong after market, with higher content on newer platforms, similar to Hamilton Sundstrand.

We're bringing together, two great companies.

As we said earlier, we expect this deal to close in mid 2012, and we would expect it will be accretive to EPS in 2013.

Last week, I'm sure you all saw, we also announced agreements with Rolls-Royce to acquire their share in the IAE joint venture, as well as to partner on future engines for mid-sized aircraft, most significantly utilizing Geared Turbofan technologies.

When this transaction closes, we'll likely consolidate IAE, which will result in incremental sales at Pratt Whitney in 2013 of over $1.5 billion, representing the remaining two-thirds of IAE.

We also expect an operating profit benefit in 2013 of $75 million to $100 million, which is largely Rolls-Royce's one-third share of IAE's profits, partially offset by the amortization of intangibles.

This deal will also streamline support for the A320 family of engines, enable a smoother transition of V2500s to the GTF platform, and provide significant long-term benefits to Pratt Whitney's after-market business from the increasing install base.

The new partnership agreement with Rolls-Royce is further validation of the game-changing GTF technologies.

In the meantime, the GTF development programs at Pratt remain on track, meeting all the key milestones and performance benefits of fuel efficiency, noise, and emissions.

Also, you'll see -- you probably saw, we announced two key organizational changes.

These changes will allow us to continue to drive growth and margin expansion on both the aerospace and commercial side of the business.

Our seasoned management team will build on the same agenda that's made us successful, portfolio transformation, offering integrated systems and solution to our customers, and continued cost reduction.

We talked about our increased guidance this year, and some transformational news.

But I'm sure what most of you are interested, of course, is what about 2012?

So, let's look at 2012, this is on, now, slide 11.

As always, a lot of puts and takes at this time of the year.

The outlook for some of our end market certainly feels weaker today than just a few weeks back.

And we're certainly looking at tighter DOD budgets, although longer term, we will benefit from being on the right platforms, such as the JSF, the 53K and the Black Hawk programs.

And international military markets still offer significant opportunities, despite the DOD budget cuts.

Okay.

Yields on ten-year corporates have come down.

Of course, that puts pressure on our pension expense.

At a discount rate of 5%, we'll see around $0.15 of head wind next year.

Not much we can do about interest rates, but we have done the tough things in sunsetting the US pension plan.

So a little time, and a small rise in interest rates, this problem is going to go away.

It will be in the rear view mirror.

We've talked in the past about E&D at Pratt peaking in 2012.

That will be a head wind for us next year.

Again, more detail on that in December.

Also assuming a mid-2012 close, the Goodrich transaction will be dilutive to earnings next year by about $0.30 to $0.40, from financing and other deal costs, accounting conformity, amortization of intangibles and restructuring costs.

Of course, we expect this deal to be solidly accretive in 2013 and beyond, as we start to realize the synergies and get some of the one-time costs behind us.

On FX, it remains a big unknown.

Just within the past few weeks, the US dollar has strengthened against most currencies.

The Euro as you know, went from $1.45 in late August to $1.32 in early October, and now it's back at $1.38.

Given this volatility, we'll make a call on FX rates for 2012 as we get closer to our outlook meeting in December.

And of course, you all know the impact FX can have on UTC earnings, both positive and negative -- really too early to make a call.

Of course, we know how to operate in uncertain times.

We're increasing restructuring in 2011, and this will generate additional savings in 2012.

And our companies are better positioned than ever to grow earnings with a strong after market, significant presence in emerging market, and high content in the growing commercial aerospace segment.

So, in spite of all the head winds, the uncertain economic environment, and the Goodrich-related dilution, we still expect earnings growth in 2012.

As is our normal practice, Louis will provide detailed guidance on 2012 at the December 15 Investor meeting in New York.

So, solid results year-to-date and we're confident on delivering our increased outlook of $5.47 a share, 15% earnings growth on 7% sales growth.

We see a strong trend in emerging market orders, even as developed markets have shown signs of weakness recently.

We stepped up our cost reduction efforts, and continue to drive margin expansion, not just this year, but into 2012 and beyond.

And as always, we're committed to grow earnings, even in a difficult environment.

We've got a seasoned management team, and we're focused on what we can control.

That's costs, and operational excellence.

So, with that, let's stop, and open up the call for questions.

Javon?

Thank you.

(Operator Instructions).

And first on the line, we have David Strauss with UBS.

Good morning.

Good morning, David.

Greg, you talked about ratcheting up for restructuring this year.

Can you give us a sense, any quantification of what kind of tailwind that would provide next year, not only the additional restructuring you're doing this year, but also the benefit of 2009, 2010 restructuring?

Yes, so again, we're going to take up restructuring from $200 million to $300 million plus.

We've got some good news coming on the tax line, and we see that we've got visibility to a gain on a disposition.

So, and restructuring equals gains for the year.

I think that's, first and foremost.

As I think about next year, we are going to see at least $200 million of tailwind from restructuring into 2011 -- I'm sorry -- into 2012.

We're going to do some additional restructuring at Sikorsky, as we size the business for the, what's happening in the marketplace.

I think as Geraud is also looking, along with Scott Buckhout at some additional reductions on the commercial side, as they bring those 2 businesses together.

So there's lots of things to do, and some of that's actually is going to be good short-term payback.

Okay.

And then as a follow-up, again, I'm thinking about next year.

I know FX is a moving target, but I think for Pratt Canada, that should be locked in at this point.

Can you talk about the headwind there?

And then from a commodity standpoint, given the move in copper and steel, what kind of tailwind that could provide next year?

David, this is Akhil.

For Pratt Canada, you are right, most of it is locked in.

We expect about a $50 million headwind next year, as the Canadian dollar was still stronger than US dollar, which is what we had hedged before.

On the commodities, we deliberately put it on a question mark column right now, because the copper goes down to close to $3.00, then wants to start to go back up.

We'll see how it all shakes out, and Louis will give greater guidance, in more detail in December.

I think it's important to note that in commodities, we have seen -- pricing has stuck on the Carrier side.

We have moved prices up on Otis as well, in response to some of these commodities.

So for the year, although it's still going to be a head wind of about $150 million, I think we've got about, what, 50% of our copper locked in for next year already.

So again, I think as these prices that Carrier announced, they take effect October 1, those stick -- it shouldn't be a huge head wind.

Okay.

And last one on the interest expense line, you had talked about, first it was going to be relatively flat, then $50 million lower.

It looks like it's going to be a lot lower now than 2010.

Yes, it is, David.

And some of it is -- if you recall, we talked about having an issuance of $1.5 billion early fourth quarter.

And now we are moving that out, because we don't -- we've cut back our share buyback, our cash flow is coming in stronger than we expected.

So that's all good news, and that's what we are reflecting in this increased guidance.

Right.

Thanks a lot.

David, thank you.

Next on the line, we have Jeffrey Sprague with Vertical Research.

Thank you.

Good morning, everyone.

Hi, Jeff.

Hi, just first on Goodrich, Greg, can you give us a little more granularity on the $0.30 to $0.40?

Certainly applaud for you taking it all in, and not ignoring it, if you will.

But how much of it is actually kind of deal-type noise versus kind of true, kind of economic restructuring?

Okay.

Well, let me try and give you the pieces here, as best that we can do it today.

And I just want to stress here that we're still -- these are preliminary numbers, because there's some big moving pieces like on the accounting conformity side.

But you're going to pick up about half a year of Goodrich earnings, assuming a late June close.

Then you've got about $200 million of actual deal costs, and that includes the integration teams.

So that's a cost.

Most of that goes away in year 2.

You're probably down to $25 million or so of just continuing integration teams.

You've also got interest on the new debt, which is about $200 million.

I think they have got about $70 million of interest on their old debt.

Accounting conformity, we're guessing on a full-year basis, it will be about $300 million in the first year, so half a year is $150 million.

Again, that's, remember, excess over average, is going to go away down there.

The pre-production E&D is going to go away.

We still need to work through the details, but let's say that's 150.

Intangible amortization is about $300 million.

200 of that's for inventory write-up.

We are going to write up their inventory, amortize their inventory turns, so that happens relatively quickly.

And then there's the customer intangibles, another $100 million of that, it's spread out over the next, I don't know, 10 or 15 years.

And, of course, you've got the equity issuance.

We've assumed in the math here, you're going to do a $4 billion equity issuance, about 50 million shares.

That costs about $0.15.

So those are all the pieces.

I think by the time we get to December with Louis, we'll have a little better feel for that.

We'll have some of the stuff nailed down, in terms of the timing of the debt and all that, but the -- kind of broadly where we are.

Are there any substantial deal costs with closing the IAE deal?

Will that deal be modestly accretive post closing, or is it dilutive in 2012?

No, it should be modestly -- and I say, modestly accretive.

The fact is we're not borrowing any money.

We're not using any bankers.

And I tell you, issuing debt and using bankers is very expensive.

So we're not going to do that with the IAE transaction.

We're going use foreign cash.

And we'll have -- we'll see just a little bit of good news at Pratt Whitney next year.

Again, probably a mid year close there.

And maybe just $0.01 or so of accretion.

Okay.

And finally for me, and I'll pass it on.

Could you just speak to China demand, kind of step back larger, across all UTC?

I mean, obviously the Otis orders look pretty good.

It sounds like HVAC is decent.

Just the whole state of play there, kind of the tensions in the country, on the potential of slowing demand versus the reality of the fact that, there's still quite a bit of activity, and how you see things playing out over, say, the next 2 to 4 quarters there?

It's interesting.

We all read, of course, saw that GDP slowed down all the way to 9.1% here.

We haven't really seen it.

I told the guys yesterday, we haven't seen a stop sign or even a yield sign, in terms of the growth.

We're continuing to make very good traction.

Otis orders were up like 30% -- north of 30%.

I think Carrier was almost 20% up.

The only place where we've seen any sign of weakness was really at Fire & Security.

And a little bit at our Sullair, which is the Hamilton industrial business, that compressor business.

And those are really infrastructure projects where we've seen a little bit of a slide to the right.

But in terms of the commercial construction, the social housing, and the effects of the urbanization trends, those all continue on pace.

So feel very good there, really for the next year on China.

And look, it will no doubt slow down, if the world economy slows down.

But these macro trends that have existed for the last 10 years around urbanization continue.

Right?

I mean the west is still growing, if not on the east, and we're participating in all those markets.

All right.

Thank you very much.

Thanks, Jeff.

Our next question comes from the line of Cai von Rumohr with Cowen & Company.

Yes, thank you, and good quarter.

So maybe give us a little bit more color on Rolls.

I mean, they talk of this deal adding 220 US, if converted.

You talk of it adding, what was it, $80 million to $100 million in op profit.

Maybe walk us through the pieces there?

And is that number a full-year number?

Is it before amortization?

How much is amortization?

Okay.

Let me -- again, the deal here is a little bit complex.

And it's -- unfortunately the accounting makes it even more so.

But if you think about this, Cai, we paid $1.5 billion for the collaboration rights associated with Pratt's -- or I'm sorry -- with Rolls' investment in IAE.

So we get that 33%.

And we're going to pay them $1.5 billion at close.

The second piece of the deal, is we're going pay flight hour payments over the next 15 years.

And in return for those flight hour payments, we're going to get the intellectual property and the engine designs, and the right to produce all of those parts that Rolls is currently producing.

All of that gets hung up on the balance sheet as an intangible that will build up, and we'll amortize that over the life of the program.

So we'll see, as I said, very modest next year accretion of about $0.01.

The following year, we get about 75 to 100.

Again, that's all-in after amortization.

So -- and it gets more and more accretive every year.

And again, as you stop the engine deliveries on the V2500 in 2015, 2016, it becomes even more accretive, because then all you have is an after market stream for the next 30 years.

So I think -- we're paid a fair price, but this is a great return on this.

And it's really just about monetizing the -- what is going to be a great after-market stream on the V.

Importantly, I think, what really sets this deal apart for us, is that Rolls-Royce has validated the GTF technology.

The fact is, the next midsize aircraft, whatever that will be, we are going to be in a partnership with Rolls.

And we're going to use the GTF as the baseline configuration.

And that, of course, is a big turnaround from where we were just a few years ago.

I think it's important -- I think -- the IAE joint venture, our relationship with Rolls has certainly morphed over time, it's much better today.

And I think this deal is just a further personification of that.

One of the benefits, Cai, is the smooth transition, as Greg mentioned, for moving the customers from the classic 320s today to these NEOs.

And I think that is another big positive to this whole transaction.

Now, clearly, with the growth in the after market annuity, it's a great deal.

But maybe help us understand, roughly how much is the amortization likely to be on an annual basis?

Is it straight line?

Roughly how much is the cost of the OEM engines to Rolls, those kind of questions, so we get a sense of the leverage in the out years?

Cai, I don't think we want to get into those details.

It was a private transaction, and I can probably help you a little bit more afterwards.

But that's --

I'll tell you, we're still, of course, working through all this with regulatory authorities too, Cai.

I think as we get closer to the deal close and everything is done, we'll have a better view of all this.

We still have to value all of the intangibles.

But you can think about, we're going to be building that intangible over 15 years and amortizing it out.

It will build up.

So you are not going to see straight line amortization, but we can get you those details as we get closer to the deal close.

Okay.

And then the last one, you talked about kind of issuing 50 million shares, but really kind of going through your cash flow, it would look like you could get away with less.

Kind of tell us kind of what's the range, in terms of the size of the equity offering, and kind of flexibility you have, if the stock price is a little lower as it is today?

Yes, it's -- as part of this whole transaction with the rating agencies, we've modeled in the 25% equity issuance of some form.

Be that a straight equity issuance, or be it some combination of mandatory converts or equity.

The fact is, we're not going to issue stock at $75.00 a share.

That's significantly undervalued.

It's why we didn't use stock in the pricing of the deal.

We're going to be opportunistic about this, in terms of when we issue the equity, and how much equity and what form that takes.

In terms of using foreign cash, clearly, if we can bring cash back from overseas, if we see a change in the tax law that makes it more efficient, it reduces the need for equity.

And if you think about it, at the end of the deal, we going to have debt to caps -- it's going to move from 32% to, call it 48%.

Right?

That was the ratio that we agreed to, with the rating agencies.

That's why I think Moody's has reaffirmed our rating, and why we continue to have the A1 P1 on the commercial paper.

Now, if we bring cash back from overseas, it reduces the amount of debt.

It will also proportionately reduce the amount of equity, so that we can keep it in line.

It's not dollar for dollar, but it's just proportionate, trying to keep that debt to equity.

I think what's really important though is, if the law changes, and we are able to tap into that foreign cash -- 60% of our cash is overseas, it allows to us do a lot more investing here in the US.

Terrific.

Thank you very much.

Thanks, Cai.

Our next question comes from the line of Heidi Wood with Morgan Stanley.

Yes, Greg, nice quarter.

I'll join the chorus on that one.

You're -- on the Goodrich deal, obviously, we recognize you're paying for technology, but also for people.

Can you -- concern, of course, is that people can walk out the door.

Can you talk about how you're handling the potential loss of talent with Goodrich, given this 9-month period of uncertainty where, obviously, Goodrich talent is susceptible to being poached?

How do you and Goodrich management kind of help working together to kind of prevent that, and keep people steady -as-she-goes, while we go through this kind of 9-month period of question mark?

It's a great question, Heidi.

And I think it is something I know that Marshall Larson and Elaine are working on.

We're going to have, bring 2 great companies together, as I said.

And we've got great people at both companies, and the key here is to retain the great people in those businesses.

I think, again, we're going to work -- I know that Tom Bowler and HR guys are working with their HR folks to make sure that we've got the right incentives in place, so that we don't lose the talent.

Elaine and Marshall are going through identifying what the new organizational structure is going to look like.

The sooner we get this deal closed, the easier it's going to be.

It's all really about the people.

Great technology, but without the people, it doesn't mean anything.

They have got a performance culture.

We've got a performance culture.

We're going to merge the 2 of them together.

Heidi, the best example I gave to this question is Greg Hayes himself.

He came through an acquisition, and look where he is at UTC.

UTC offers great opportunities for people who perform.

(Laughter).

But are you guys able to get in front of these guys, and talk about retention guarantees or things that?

Again, obviously when we see large deals like that, one of the worst things that we've seen commonly happen, is the poaching of kind of the best, the best talent during that period.

Heidi, all I can tell you is, we think that UTC is a great place to work.

And I think it's Elaine and Marshall's job in the coming months to make sure we convince the Goodrich folks and the Hamilton folks, that there's a great future here.

And, look, it's always a risk, but it's certainly on the radar screen, and we're working with the people.

And we can't do very much.

We just filed Hart-Scott-Rodino this past week.

We are just doing the regulatory filings.

As much as we can, we are just reaching out to people, and making sure they know they are an important part of the future, these great businesses.

Are you getting any color on whether this deal could potentially close sooner, or can you make that case, that it helps make sure that you retain more of the company, if you could close sooner?

No, look, it's really -- we just filed Hart-Scott.

So we'll see in 30 days, we'll hear back from Justice.

And then we've got the European and Asian filings to do.

I think it's -- we're going to stick to kind of the June closing time frame here.

And if it's better, sooner is better, no doubt for many, many reasons, people being one of the big things.

But we'll work through this as quickly as we can.

And then one final question on it.

And it's just a nit, but are there any terms and conditions in the deal concerning how Goodrich does, kind of better or worse during this period, because obviously management had kind of a high sense of how they were going to do.

You've done your best due diligence, but if they don't do quite as well, is there any repricing potential?

No.

The fact -- look, they are a public company.

They have got shareholders they have got to satisfy.

They have got a performance culture.

They are, as I said, they are going to make their numbers that they committed to.

We feel very confident in the forecast that they showed us, both for this year, and the next.

I think they will release earnings here in the coming week or so.

And I think it will probably be just about in line with what everybody expects.

And I think I know the answer to this question, Greg, but one last final thought on my part.

The CSeries, obviously, we see what's happening in the news there.

Can you talk about what this means, in terms of any additional head wind this might portend for GTF on the NEO?

Does R&D change on that?[

I'm sorry, Heidi, were you talking about the CSeries, in terms of the schedule or?

Well, just in terms of, there may be a question as to its future, obviously.

But I think that there was some leveraging that you were expecting to happen on what you were doing on CSeries that could translate into NEO, and that may not necessarily be intact.

So --

Look, there are different engines, although they have the same essential [cores], just scaled up from the CSeries to the NEO.

But that's really the extent of the synergies, in terms of the test data, and in terms of the design.

So look, we think the CSeries is still going to be successful.

We haven't seen a lot of orders recently, but we still think long-term, this is going to be a great airplane in its niche, which is 105 to 130 seats.

It's fuel efficient, it's got great technology, and it's going to be successful.

And really, there's -- look, it's going to be out there.

We're on time with the engine.

We expect, I think to have it certified by the end of next year for entry into service in 2013 still.

So we're still going the full speed ahead.

Okay, great.

Thanks very much.

Our next question comes from the line of Shannon O'Callaghan with Nomura.

Good morning, guys.

Good morning, Shannon.

Can you talk a little bit what the order trends were in the Transicold business, on the container and the reefer side?

Sure, Shannon.

I think the truck/trailer side has seen some reduction in orders, which is not surprising.

I think some of the fleets, large fleets in the US, booked big orders early in the year, and have now slowed down.

So we have seen significant reduction in the North America truck trailer orders on a year-over-year basis, although year to date, still very strong.

At Europe, truck trailer slightly down year-over-year as well, although the containers continued to remain very strong and we're almost 2 X what the orders were last year in the third quarter.

Now compares there, are likely to get tougher in Q4, but so far, so good.

Okay.

Maybe a little bit more about what's going on at Fire & Security, and also what you kind of hope to accomplish with the consolidation of Fire & Security and Carrier?

The combo with Carrier and Fire & Security's going to create an $18 billion business.

It's going to be headed up by Geraud.

And I think the key for that combination was really this focus on building controls.

You guys will recall the IBS integrated building system strategy that Louis been talking about for a couple years.

This is really the end game of that strategy, how it's going to play out.

We have created a controls business under Mark Barry I believe at Carrier, or at the -- we call it the climate controls and security systems, CCSS.

And I think that the controls is the lynch pin of this whole thing.

At the same time, we're going to run the play book that we've run at Carrier for the last 3 years.

There's going to be portfolio transformation opportunities.

There is going to be cost synergies, and it's going to be a great business on a consolidated basis.

I mean, we took 2 very good businesses, and we put them together.

Importantly, we're still on track I think for the margin targets that Louis laid out.

It was 12% for Carrier, and 15% for F&S.

We're still going to get there next year, on a consolidated basis.

Yes, I mean it kind of looks like Carrier is running ahead, and Fire & Security behind.

I mean that -- is it fair to say the consolidated comes a little bit more from Carrier beating, and Fire & Security missing?

Look, I think we have an opportunity next year for F&S to get to the 15% on a stand-alone basis.

Part of that was through portfolio rationalization, part of it also is from a recovery in some of our markets.

If you think about the $15 million drop we've just taken at the guidance at F&S, really the key there, was our market in the UK.

I think that business is down earnings about $60 million year-over-year.

We've seen some big market issues, as the government and the UK has contracted spending.

We've seen some margin, and we've seen some productivity issues.

That's really the problem.

I think again, we'll get that issue behind us.

Once we do that, and we focus on the -- some of the portfolio transformation issues at F&S, in terms of culling out some of the under performers, we're still feel confident we can get to 15% on F&S.

And final one, is transforming that portfolio going to be some additional divestitures?

Or I mean, or is there going to be an acquisition component to this, given your desire to build more into the building automation side of things?

I think yes to both sides.

I think obviously, there's some opportunities there to cull the portfolio at F&S.

Geraud and team have just started working with Scott and his team on that.

And I think they have got some ideas already.

We'll hear more about that in the coming months.

But also, Mark Barry's controls business is an opportunity for acquisition over the medium term here.

So I think, it's both things we'll be doing.

Okay.

Thanks, guys.

Thanks.

Our next question comes from Robert Stallard with Royal Bank of Canada.

Good morning.

Good morning.

Greg, I was wondering if we could talk about aerospace after market?

Clearly, contrasting results on the orders between Sundstrand and Pratt.

I was wondering if you could talk about what the underlying drivers are here, and whether it is just comps year-on-year?

Well, comps is a big thing, right?

Pratt was up 35% in orders last year the third quarter, up 3% this year.

Hamilton was up, I think 13% last year, up 24% this year.

If you dissect the Hamilton orders though, what you see is that the parts business, kind of that ongoing recurring spare parts, was up about 10%.

So pretty -- not nearly the robust 24% that we talked about.

It was really provisioning on 787 that drove the order growth at Hamilton.

And again, this is the long-awaited payback for that big investment we made in the 787.

And that's going to drive growth at Hamilton next year as well.

This is really just the start of the provisioning cycle on the 787.

And do you expect the sort of numbers between these 2 divisions to maybe converge going forward?

Because they also (inaudible)?

Unfortunately, I think the businesses are just fundamentally different.

Hamilton is on every platform out there.

And they, obviously, as you see the new aircraft come to market, they are getting C provisioning orders, they are going to see parts for every commercial aircraft out there.

Pratt is a little bit more limited.

I mean you'll see growth, obviously from the V2500 fleet.

You've got the 4000s out there, you've got some 2000s.

But you would expect I think stronger growth in the after market at Hamilton in the coming years, as opposed to Pratt.

We'll start to see again the V 2500 pick up even more strongly, now that we've got the Rolls-Royce share.

And then the GTF at the end of this decade will pick up significantly.

The other thing to keep in mind is Pratt spares are also driven by the cycle time on the engines.

And then they come in for overhauls.

So I think that does drive the timing of the spares a little differently, based on the profile of the engines coming in for repair work.

Okay.

And then on the industrial side, Greg, it does look like some of your shorter cycle industries have weakened on the order front in the third quarter.

Do you expect this deteriorating trend to continue into the fourth quarter?

Actually, if you think about it, orders at the industrial businesses in the third quarter, we're up about 11% at constant currency.

Sullair was up 8, I think Sundyne was up strongly.

Milton Roy was up nicely, so all of the businesses on the industrial side of Hamilton were good.

On the commercial side of the business, I think you're going to see, again, fairly decent order trends from the emerging markets.

The US, we're not seeing anything here, right?

And on the commercial construction side.

Europe, nothing much on the commercial construction side in the Euro zone.

We are seeing strong growth, of course, from Russia and Poland and those markets.

But Europe, not much.

But again, all kind of in line with what we had expected for the year.

Okay.

Thanks very much.

Thanks, Robert.

Our next question comes from the line of Howard Rubel with Jefferies.

Thank you very much.

To go back to something you talked about, Greg, earlier, in terms of repositioning and sort of a focus, you've done 2 large deals in a short order of time, and you've hinted at some divestitures.

Is this just going to be a different effort at reshaping United Technologies' portfolio?

These deals, although they got announced within a couple of weeks ago, were really have been in the works for well over a year.

And I think Louis and the rest of the senior management team, we've been looking at the entire portfolio here.

And this is really just part of the overall strategy at UTC, which we want to have the growth businesses in growth markets.

And I think we're positioning the Company to be exactly that.

And this portfolio analysis is not a 1-time event.

It's something that we're going to continue to do, continue to look at opportunities, both on the acquisition and the divestiture side to better position UTC for long-term growth.

No, that's what I gather.

And hence, also the management changes in terms of, focus and emphasis.

I guess that's all part of it.

It is indeed.

Just 2 small items.

1 is, can you talk a little bit about the Maritime patrol helicopter, and sort of what are the issues?

This has been an ongoing challenge to get it right.

I mean, they frankly -- and then just one other item, and you can answer that, is you had a small -- what was the size of the real estate gain at Otis?

Real estate gain at Otis was how much?

About $15 million, Howard, the real estate gains at Otis, about $0.01.

About a penny.

As far as the CMH, look, we have an agreement with the Canadian government, we're to deliver 6 interim configuration aircraft this year.

The final configuration aircraft will be delivered starting at the middle of next year.

We've had some issues with software glitches.

We'd had some other issues, but the helicopters are ready to be delivered.

I think it's just a question of aligning the customer requirements right now.

I know Jeff and the team have been working with their friends on this for quite some time, and we have the helicopters.

They are being built down in Stratford, they are ready to ship.

It's just a question of what the customer needs at this point.

I mean, I still don't understand what that means.

I mean, are we going to see larger losses because of the further delays?

And you can just -- and that's the good news, is we're going to get them behind us this year, and next year, more profitability?

No, I think in fact, we lose, I don't know, $10 million, $12 million, a copy on these helicopters.

And that's not really changing, in terms of the timing of the deliveries.

You're still going to see head wind next year and into 2013, as you deliver the remainder of the 28 helicopters.

Okay.

Thank you, gentlemen.

Sure.

Our next question comes from Julian Mitchell with Credit Suisse.

Thanks.

Yes, I just had a question on your commercial businesses.

I mean, you mentioned that in Carrier you had seen some trading down.

I just wondered more broadly, obviously if the volume outlook in commercial for low level, if it's managing to deteriorate further in developed economies?

You mentioned pricing earlier.

But if you see volumes weaken, and you see a mix shift, you worry that pricing generally, when you look at what your competitors are saying and doing, are you worried that pricing generally may start to moderate in the coming months as you see volume soften and commodities have leveled out?

To be clear, I don't think we expect to see volumes softening any more than they already are.

If you think about Carrier's residential business here in the US, I think the total market for split systems is about 4.7.

It's been kind of banging along the bottom there for the last 2 or 3 years.

We haven't really seen any growth.

At the same time, as commodities have increased, I think we have seen some pricing traction.

But the real issue there, in the business, is voice to consumer sentiment.

Last year, we had stimulus-related benefits, rebates that allowed customers to trade up to higher efficiency units.

The stimulus is gone.

Those tax credits are gone, so because of the consumer sentiment here in the US, consumers are only buying what they need to buy, and they are buying entry level lower featured products.

And so, think about the business in the US, I think we were up about 8% in the quarter in terms of units.

But total sales were flat because, again, you've traded down.

So now 75% of what we're selling is entry level SEER 13.

So, look, it's hard to imagine it's going to get any worse than this.

There's still 93 or 94 million air conditioners out there in service today that have to be replaced.

There's not much going on in the housing market.

We don't expect a growth in housing.

At the same time, we've got a good position in terms of costs, continue to take costs out of the business, continue to drive margins in that business.

And when the market recovers, and it will, we'll be in great position to get great operating leverage there.

Thanks.

And then if I'm comparing the new equipment orders organically for Otis and commercial HVAC, Otis has been outgrowing the HVAC orders the last sort of 6 months or so.

Do you think that's sustainable for any particular reason, in terms of geographic weighting or new products or anything else?

Yes, it's really -- it's all about China.

Right.

If you think about what Otis' position in China, you saw 30% orders growth right there.

Carrier saw about just under 20% growth in orders -- and it's just the market position that Otis has is just phenomenal.

We've got about just north of I think 22%, 23% market share, we go-to-market at 4 different price points in the China market.

And then they have got a very strong team in place in China.

Carrier, good team.

They have got good market position.

But I think, again, just because of the weighting and the size of the Otis China business, it's going to drive higher growth there.

I think one other factor, Julian, is in China, the orders benefit from social housing, which is more of residential type of air conditioning.

So like for like, while Otis benefits from the residential sort of social housing, Carrier does not.

So I think that is part of the difference as well.

Thanks a lot.

And then just one final one.

You mentioned some of the restructuring going into SIkorsky.

On the commercial side, though, both Bell this morning and Eurocopter last month have sounded very positive about what's going on there.

So can you give an update on the different trends in Sikorsky?

I think, again, what we're seeing on the military side, Black Hawk production has probably peaked this year, and will probably stay about flat into next year.

Where we are seeing growth on the military is on the international side.

I think we shipped 3 of the first 3 S70is out of Mielec this quarter in fact.

On the commercial side, order trends have not been great.

Right now, again, we're transitioning from the S76C++ to the 76D.

I think we'll have that aircraft certified mid year, next year.

We would expect orders to pick up.

But in the interim, I think we'll be done delivering S76s here at the end of the year.

S92 continues to sell well for the oil and gas fleet.

And I think it will be a good story, but it's not going to be a great high growth story for next year.

Okay, thanks.

Our next question comes from the line of Terry Darling with Goldman Sachs.

It's early, and we're not going to steal any thunder from December here, but just wonder if you could tie up all of the changes to the 2012 puts and takes landscape, and give us a sense whether you think 10% plus is excluding Goodrich and IAE, is still a reasonable place to be thinking at this point?

We're targeting 10% earnings growth, Terry, for the businesses.

I think again, the 2 big question marks we have right now, really are around FX and pension, and what happens there.

But the base business is I think, we're going to continue to push them to get towards 10%, and we're doing the restructuring now.

We're doing whatever we can to try and make sure that that happens.

You've got these big kind of unknowns though around FX, and what's going on in terms of the developed economies and the macro environment.

I would tell you, ex Goodrich dilution next year, we're going to outperform the peers.

We've taken the hard action, we've done what we needed to do on the pension side, we right-sized the business.

And so, I think again, you'll be happy I think, with the guidance that Louis provides in what is a very tough economic environment.

Okay.

That's helpful.

In terms of -- you made a comment.

We've talked a lot about different specifics.

I just want to make sure we're clear on your earlier comment that just in the last few weeks, you've seen some incremental weakness in end markets.

Are you talking about sort of the truck markets there?

Could you be clear with us, in terms of which end markets you're really thinking about in that particular comment?

I think it's -- I look at the carrier and residential business in the US.

And we had a very strong start to the third quarter.

I think July was good, and then August things started to slow down, and even a little further in September.

Truck/trailer is the same kind of phenomenon.

There was a lot of early ordering, and so we've seen the orders pull back in the truck/trailer in the North American market.

And I think, again, it's just -- as we're seeing consumer sentiment in the US and in Europe, given the banking crisis in Europe, consumers are pulling back and not spending.

Okay.

And then just lastly, on the DOD spending outlook for 2012, has anything changed with your thinking there?

No, I think it's all about, as we had expected.

I think we'll wait and see what the super committee comes up with here.

We're hopeful that the folks in Washington are going to be able to come together, and come up with a reasonable plan with the deficit, and hold the defense spending in line.

But the worst thing that could happen is stalemate, of course, is super committee, because the DOD budget cuts would be huge.

I don't think anybody wants that to happen.

I don't think anybody is going to let that happen.

And is that like you are a little more optimistic on the international sales, defense sales next year?

Or am I reading too much into that?

No, I think it's a just continuation of what Jeff's been talking about for the last couple years.

We positioned the business to have a great product offering.

That's the Black Hawk in a low cost manufacturing location, and continues to get traction.

There's orders out there for Turkey.

There's orders out there for Singapore, for Saudi.

I think there's lots of opportunities.

Okay, great.

Thanks very much.

Thanks.

Our next question comes from the line of Myles Walton with Deutsche Bank.

Thanks, good morning.

Good morning.

Back to the Rolls agreement for a second, does the relationship essentially between you 2 remain stale, until there's actually a platform to pursue?

Or is Rolls going to start to share in the core R&D that you would have ongoing for the next gen the GTF?

I think, they will continue to be part of the IAE joint venture, because they are going to continue to supply their share of the engine for some period of time until it transitions to us.

In terms of investment in the next generation platform, we're both going to go down the path of making sure we've got the best possible technology when that platform becomes visible.

We're going to be investing, of course, in the gear.

They are going to be investing in other core parts of the engine.

So when the thing does come together, we both have the latest and best technology to offer.

Are you pursuing dual architectures, or similar architectures with split responsibility?

No, I think it's going to be a GTF architecture.

This is not going to be a three-spool engine.

This is going to be GTF, and it's going to be a single platform.

So they are sharing in the core R&D, starting as soon as this agreement is done?

Well, as soon as we have visibility to what the next aircraft is going to be.

Okay, okay.

And then on Sikorsky, the guidance of $25 million increase in EBITDA, is that -_ from Akhil's comments, it sounded like potentially a couple of the CHPs are shifting out.

Is that essentially what's causing that, or is it better performance as well?

And I guess, are you expecting the same number of CHP, or has that number slipped out?

No, I think, Myles, you're exactly right.

It is the shifting of the 2 CMHP if you will, that is what we have taken into account in our forecast here.

Their operating performance even without that is pretty good, as-is.

So I think they are tracking well towards delivering on the market expansion and the growth in the profits that we were expecting.

And this shift will probably not impact 2012 as such.

It may move to on 2013, in terms of the deliveries that if -- that we miss, if any this year.

Got it.

And last one, Hamilton's spare book-to-bill, is it below one?

Slightly above one.

Slightly above.

Above one, yes.

Okay, thanks, guys.

Thank you.

Javon

Hello?

Javon, do we have any other calls?

Yes, sir.

Any other questions?

Our next question comes from Joe Nadol.

Thanks, good morning, guys.

You're very busy.

(Laughter).

Just a couple of follow-ups here.

Just on Fire & Security, the -- between productivity and demand, which is the bigger impact on your numbers?

And could you just speak a bit more specifically, if possible, about what you're referring to with productivity?

Is there one facility that's underperforming in the UK, et cetera?

Yes, if you think about the $50 million drop, about half of that is actually from lower volumes.

Orders were essentially flat here in Q3.

We expected I think a 5% or so, organic growth for the year.

We're not going to see that.

So that's the biggest piece of this.

You also got a little bit of bad news on FX versus our last look.

Then you've got the UK issue.

The productivity issue is not just UK.

It's really the field organization, where we had expected significant productivity benefits from all of the restructuring actions.

We just haven't seen any -- the traction we had expected to see in the field, in the installation and service businesses.

And the UK market is tough.

We've recognized that for the year.

It's worse than what we had expected.

We're focused on it.

These operational issues, they happen.

We know how to fix these things.

I think that's what Geraud, and Scott and the team are focused on right now, is fixing the field productivity issues, and fixing the issues that we've got in terms of performance.

Because, look, it happens.

It's unfortunate, but we are on top of it, and they are going to get it fixed.

Okay.

In both of these businesses that are coming together, Carrier and F&S, you're looking at -- I'm sure there's going to be some integration from a top level standpoint, in terms of overhead.

At the same time, you're looking at divestitures from within, it seems to me at least within both businesses, certainly on Carrier, still working on the international residential.

And with F&S, you've implied there is some opportunities.

In terms of a chicken/egg situation, which is coming first?

Are you really starting now and looking at divestitures, or are you going to bring the whole thing together, and then look at pairing some of the businesses off?

No, I think we have been looking at this portfolio transformation at F&S really for the last year or so.

So we're closer on that than you might think.

Timing wise, Carrier is further down the pipe, in terms of some of its divestiture opportunities, and they are continuing to work some of those things.

And so I would expect you'll see fourth quarter this year, early into next year, hopefully the conclusion of that portfolio transformation.

And then it will start to pick up I would think at, on the F&S side of the business in the second half of next year.

Okay.

And Joe, if you recall, we been doing stuff at F&S as well.

The manned guarding business, which is the low margin has been out of the portfolio pretty much now over the last few years.

So it is something they have been focused on, but Geroud's additional oversight, I think we'll get probably some more things done faster.

Okay.

And then finally, you may have given this, I may have missed it, but in terms of the pension next year for the overall company, if current rates kind of stay where they are, what's the head wind?

It's about $0.15.

That's at a 5% discount rate, that assumes I think, 3% return on assets this year.

So we'll see.

For every 10 basis point change in the discount rate, that costs us about $20 million of expense.

You guys can do the math.

We'll see where we are on December 31.

Unfortunately, there's nothing to do until then.

Right.

Okay, that's helpful.

Thanks.

Thanks, Joe.

And sir, our final question comes from Deane Dray with Citi Investment.

Thank you.

Good morning, everyone.

Just a couple clean up questions.

The first is the, the Otis China escalator problem.

Has that all been resolved?

Yes, I think in terms of the root cause, we certainly have understood that.

We understood that right away with the supplier issue with the bolt that was undersized.

I think, again, we're still working with the authorities in Beijing to make sure that they understand our quality control processes are intact.

And it's never going to happen again.

It's an unfortunate incident, but again, like any problem we find, we get to the root cause.

We get it solved and make sure it doesn't happen again.

Great.

And I might have missed this, but the expectations for the fourth quarter and the price costs, how does that net out?

You said Carrier's facing some additional head winds this quarter.

What's the expectation?

I think next quarter you would see the benefit of pricing.

The commodities are still a head wind.

So I think net-net, we'll still see a little bit of head wind, but is going to be a lot less than what we've seen in the third quarter.

Okay.

And last one, back on residential Carrier.

Greg, you talked about the mix shift and the focus on buyers towards the lower end 13 SEER, but it also raises the question of whether you're at a disadvantage in not having a lower price point brand to begin with.

So [whether] good, better, best, you're skewed towards the better, best brands with Carrier.

In fact, we do have 3 brands.

If you think about it, Carrier is the premier brand out there, and its the higher efficiency products.

You have Bryant and you have Payne at the entry level.

I think Payne at that price point competes very, very effectively.

In fact, that's where we've seen most of the growth, is coming at that low entry line, Payne.

Again, it can meet -- it's got a great cost footprint, and it's very competitive on the low end.

So I don't think we've lost any share.

In fact, we probably have maybe picked up a little bit, as we've been able to leverage that low end brand.

And Carrier has the scale.

As you know, they are the market leaders, and they have the scale to bring the cost down, and they continue to work on that every day.

Great.

Thank you.

Sir, and I just it over to you guys for any closing remarks.

Okay.

Thanks, Javon.

And thanks, everybody for listening.

So another solid quarter, and we're confident in our improved 2011 outlook.

And we're positioning UTC for 2012 with increased restructuring this year, and commitment to grow earnings even in this tough macro environment.

And beyond 2012, we've aggressively invested in strategic deals to transform the business, and we've continued to invest in strategic technologies to grow the business over the long-term.

So thanks all, for listening.

I'll remind everybody that we'll be in New York on December 15, for an evening with Louis to talk about 2012 in detail.

Have a great day.

Thanks.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the program.

You may all disconnect.

Everyone have a great day.