特靈科技 (TT) 2004 Q1 法說會逐字稿

Good day. Welcome to the Ingersoll-Rand first quarter 2004 earnings conference call. This call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over the to the director of Investor Relations, Mr. Joseph Simbionte. Please go ahead, sir.

Good morning. Welcome to the first quarter 2004 conference call. We released the earnings at 7:00 a.m. this morning, and the release is currently posted on our website.

I would like to cover house keeping items before we begin. This morning concurrent with our normal phone-in conference call we will be broadcasting the call through our public website. You will find on the website the slide presentation for the call. To participate via the web go to www.irco.com. Click on the yellow link in the center of the screen. Both the call and presentation will be archived on our website and will be available this afternoon.

If you would please, go to slide two. Before we begin, as always let me remind everyone that there will be forward-looking discussions this morning, which is covered by our Safe Harbor statement. Please refer to the December 31, 2003, form 10-K for details on the factors that may influence results.

Now, I'd like to introduce the participants on this morning's call. We have Herb Henkel, the Chairman, President, and CEO of Ingersoll-Rand; Tim McLevish, our SVP and CFO; and Rich Randall, VP and Controller. We will start with formal presentations by Herb Henkel and Tim McLevish followed by a question-and-answer period. Herb Henkel will start with an overview. If you would, please go to slide number three. Herb.

Thank you, Joe, and good morning, everyone. Welcome to our first quarter 2004 conference call.

This morning we reported net earnings of $1.02 per share, which includes both continuing and discontinued operations. Total earnings were much higher than our original expectations for the quarter as continuing operations were up 83% compared to last year. EPS from continuing operation of 94 cents per share increased by about 77% year-over-year. Discontinued operations for the quarter were about $14.5 million or 8 cents per share including the anti-dumping claims of $31.5 million, which had been deferred by U.S. customs from 2003's fourth quarter into the first quarter of 2004.

Now, please go to slide number four. End market strength and overall order activity level for the first quarter improved substantially compared to last year. This improvement builds on a gradual, yet steady growth and demand that we have seen in each of the past four quarters. During this period of improving market strength, our revenue base has grown faster than our end markets as we have gained market share through innovative products and solutions. We have also continued to expand our stream of recurring revenues. Our overall revenue growth was negatively impacted by a revenue decline of $108 million at Dresser-Rand. This reduction reflects the impact of our strategy to improve margins by eliminating sales of pass-through components that had zero margins and also to eliminate very low margin complete units. However, and I think this is very important for us, the underlying market demand at Dresser-Rand remains strong and orders were up about 30% in the first quarter compared to last year. The revenue decline at Dresser-Rand matched the strength of our other core businesses, which I'm pleased to report generated substantially higher revenues compared to last year. Excluding DR total revenues, our overall revenues were up 15% compared to last year. All of our business segments except for Dresser-Rand showed double-digit growth rates in the first quarter. Specifically, infrastructure was up 21% driven by more than a 30% increase in Bobcat sales and 20% improvement at road development. At Climate Control revenues were up 14% in the quarter as a result of strong growth by our transport and refrigeration business in North America and Europe and improved demand for display cases especially in Europe and Asia. Security and safety continues to perform impressively and revenues were up about 11% in the quarter. We had good activity in both the the commercial and residential markets featuring a 40% growth rate from our electronic access control and solutions business. Finally, the air and productivity solutions business was up about 11% in the quarter despite remaining sluggish North American industrial markets. Additionally, the order intake for the whole company was very strong in the first quarter. We were up 29% compared to last year. Order rates increased in all three months of the quarter compared to last year and were especially strong in March. We have a very, very solid backlog as a base as we enter the second quarter.

Now, please, go to slide number five. Driven by our excellent revenue growth, operating margins also improved in the first quarter. Margins also continued to benefit from ongoing efforts to continuously lower our cost base by adopting lean six sigma processes, leveraging global businesses, and by developing a competitive manufacturing foot footprint. As a result of these activities our operating margin improved to 10.3% compared to 7.5% last year, and we are making progress towards our stated 15% goal. During the quarter, we continued to execute long-range plan to drive growth and improve our processes. I would like to update you on progress we made in some important areas.

Now please, go to slide number six. First, focusing on dramatic growth. Two key areas of our growth have been product innovation and recurring revenue. You may recall that last year we successfully launched new products in all of our businesses, adding over $200 million to 2003 full-year revenues. We believe that we are on the right course to achieving our target for 2004 to again add over $200 million in additional revenues from this year's new products.

Now, please, go to slide number seven. Now I would like to update date you on some of our major products. The Nirvana line of air compressors added over $10 million to revenues in the quarter as the market continued to grow for this product's energy-saving technology. We introduced an oil-free version late in the fourth quarter of 2003 and booked the first orders in March of this year. We expect to do a full commercial launch of the entire range during the year with 75 to 100-horsepower in the second quarter and 50 to 60 horsepower units in the third quarter. We're also moving beyond Nirvana and have introduced several new large centrifical products. These products are targeted to specific geographic markets like China as well as fast growing end markets like plastic bottled blow molding. In December we introduced our new Unigy, which is the first to market compressor with a variable speed motor in the 7 to 15 horsepower category. The Unigy is a small, yet powerful, fully integrated unit that includes all major air compresses components in one integrated package. The new product has generated a thousand new orders in the first quarter, and we expect that it will enable us to gain three to six points of market share during 2004 in the light industrial market.

Now please, go to slide number eight. Bobcat has successfully introduced a number of new products in recent years. These new products have expanded our market-leading position in compact equipment, in large by replacing large, expensive, single-purpose pieces of equipment with flexible low cost tool carriers. Last year at Bobcat we launched 17 new products, adding over $100 million to sales. That success carried over for the first quarter with revenues up over 30% and orders up over 50% compared to last year. We have slated over 20 Bobcat new product introductions for 2004. While we do not expect 30 plus percent revenue growth for every quarter, the targeted new products and momentum from 2003 launches will certainly continue to drive Bobcat's top line and operating margins for 2004.

Now, please go to slide number nine. The Precedent product line was launched by Club Car in January. Despite a continuing lack uster golf cart market, the product has been a hit with customers. Orders for this new product line have driven Club Car orders up by 25% compared to last year.

Now, please, go to slide number ten. Club Car has also recently introduced a new 4X4 rough terrain vehicle we call the XRT 1500 for both utility and recreational use. The product uses the Club Car Intel track system which engages and disengages four-wheel drive as conditions require, eliminating the need to stop, push buttons, or change gears. It is auto-sensing and is always ready to provide added power, traction, and control. The product line, which will be sold through both Bobcat and Club Car dealers, demonstrates how we are leveraging the Club Car product technology to move another step beyond our traditional golf market. We already received over 1,000 units for this product.

Now, let's go on to slide number 11. Our security and safety sector continues to take important new strides in product development, refreshing key platforms for traditional mechanical lock product and fill in the product pipeline for electronic access control market with several new innovative technologies. We continue to see increasing market acceptance for an upgraded version of our Schlage D-Lock since its launch in the fourth quarter of 2003. The upgraded Schlage D-Lock, which is 50% stronger and has fewer components for faster assembly than the prior model and is designed for demanding high-traffic environments such as airports, municipal buildings, and schools, D-Lock has been a market leader for roughly 60 years. A tradition of success we expect to continue with this new improved version. At the end of last year, our electronic access control businesses launched four new product lines including the new FingerKey DX, a robust and cost-effective fingerprint access control reader. This product was developed to secure highly sensitive areas of a facility accessed by a relatively small number of users. We expect that the FingerKey DX and other new security products we will introduce during the remainder of 2004 will bolster the strong revenue growth that our electronic access control business has generated in recent quarters. We also continue to be optimistic that the investments we have made in the port and vessel security market will position us favorably to capitalize on this growing global demand. Recently Ingersoll-Rand Maritime Solutions, an initiative that we launched in 2003 third quarter, won a major contract from one of the world's leading ship operators to develop network-driven security systems integrating Ingersoll-Rand access control, monitoring, and additional technologies. We expect this installation, which will be used to monitor traffic on three vessels, will demonstrate that the are Maritime security products and services are competitive and able to fulfill the most demanding customer requirements.

Please, go to slide number 12. In addition to revenue growth through innovation, we continue to deliver on our goal of growing our recurring revenue stream in the quarter. Our large installed base and powerful market-leading brands provide us with a significant opportunity to expand revenues and profits. Recurring revenues totalled about $576 million for the quarter, an increase of about 9% compared to 2003 and 20% above 2002 levels. Aftermarket activities increased for all of our sectors during the quarter. This was especially true at infrastructure where recurring revenue was up 11% compared to last year. Air Solutions' recurring revenues also increased by 11% during the quarter. Recurring revenues accounted for 49% of total revenues for the Air Solutions business. Additionally, this service business maintained its operating margins at well over 20% of sales while requiring minimal incremental investment.

Now please go to slide number 13. We also made a small bolton acquisition during the quarter to further grow the Air Solutions business. Eco Kompressoren, based in the Netherlands, distributes a broad range of equipment and services for the industrial markets. With this acquisition, we will be able to expand our position in a key European market, particularly in the electronics and food and beverage industry. This business expands our service-oriented solutions approach, which is an important driver of recurring revenue growth to a wide variety of new customers. We expect to make a number of other bolton acquisitions in 2004 to expand further our product lines and our global reach.

Now, please, go to slide number 14. Turning to operational excellence -- During the quarter, we remained focused on managing controllable costs, inventories, working capital, and customer service. This focus helped to improve operating margins in all of our businesses and increase our cash flow compared to last year. The value of the major restructuring of operations we completed during 2003 also became apparent during this quarter. We were able to generate almost $77 million of incremental operating earnings on $172 million of sales, yielding a contribution margin of about 45 cents on each dollar of incremental revenue. During the first quarter we experienced cost increases for a number of raw materials, most notably steel, copper and aluminum. Some of these increases were built into our original forecast for the quarter, and we were able to offset additional price pressure through our purchasing center of excellence. Despite our efforts to hold the line on pricing, we expect additional cost push from more metal prices for the balance of the year. Our businesses have instituted raw materials surcharges to customers, which are expected to largely offset vendor price increases. So far, we have had minimal problems with material availability. We are monitoring this situation closely and working with our vendors to ensure adequate supply of materials. We are continuing to work to reduce material and service costs throughout the company through our productivity initiatives.

During the quarter we took another important action to realign our portfolio of businesses by announcing the sale of the drilling solutions business. Four years ago when we began the process of thoroughly evaluating our business portfolio, we identified several businesses that were in markets that were unlikely to provide consistent growth opportunities required to achieve our corporate performance standards. Since then we have divested several businesses that did not meet our long-term strategy, including some that have been with the company many decades. During the quarter we continued to make progress in our lean branch initiatives in technician productivity, branch consolidation, and parts sourcing. We expect the results to continue to improve as this initiative progresses, enabling us to reach our profit improvement target of more than $25 million for the year. Our target remains to reach operating margins of 15% during the second half of 2004.

Now, please go to slide number 15. We are encouraged by our operating performance in the first quarter. We delivered very strong growth in our core businesses, and we were able to leverage that growth to make substantial improvements to our earnings. We are on target to deliver improved earnings and increase cash flow in the future. Our ability to execute our core strategies and large accounts for a consistent strong performance. These strategies have been focused on generating dramatic growth in global markets, investing in innovations that will provide the greatest value to our customers, and implementing processes to drive continuous improvement in the efficiency and production of our operations. We have also demonstrated our ability to grow recurring revenues, which is enhancing our operating margins and differentiating IR still further as an adept solution provider. Currently, I believe IR is on the right course to achieve our profit growth and our return on capital targets.

Tim McLevish will now cover IR's business unit performance in more detail. Tim?

Thank you, Herb, and good morning.

I would like to begin my discussion with the quarterly financial results. Please note that as a result of our announced intention to sell Drilling Solutions, the results of that business have been reclassified to discontinued operations net of tax for the first quarter of 2004 and all prior periods. Please turn to slide 16. Revenues for the first quarter were up 8% to $2.3 million. Excluding Dresser-Rand where we are executing our planned reduction of buyouts, revenues were up 15% compared to the prior year. The increase is attributable to double-digit growth in all of our other segments. Organic revenues were up 4% excluding the favorable impacts of currency and were up 11% when excluding Dresser-Rand. Operating income for the first quarter was $236.9 million, or 10.3% of revenues. Margins have increased by over two percentage points compared to prior years. These strong operating results were driven by revenue growth, price realization, and operational improvements.

I would like to take a moment to discuss certain year-over-year items that are included in the quarterly results. The quarter included approximately $4 million of increased health and medical costs and $14.5 million of productivity investments offset by $11 million of currency benefits. Raw material cost increases were offset by savings from the sourcing productivity. With forecasted increasing prices of our key commodities, this will be a greater challenge in the quarters ahead. Prior year results include $2.2 million of productivity investments.

Moving down the income statement. Interest expense was $40.9 million compared to $50 million in last year's first quarter. Approximately $5 million of this reduction is related to retirement of $700 million in debt from the proceeds of the Engineered Solutions divestiture. The balance of the year-over-year improvement is related to our overall debt levels and lower interest rates. Other expenses for the quarter were $5.2 million compared to $6.6 million expensed in last year's first quarter. Our first quarter effective tax rate was 13.5% compared to a 12.9% range in the prior year. This range reflects the ongoing tax planning initiatives. Net earnings from continuing operations for the first quarter were $165 million, or 94 cents per share, which exceeded our first quarter guidance. Discontinued operations was 8 cents positive for the quarter. This consisted of legacy costs of previously divested businesses offset by proceeds by the 2003 CDSOA payment and profit from the Drilling Solutions business now recorded in discontinued operations. Our total net earnings for the quarter were $179.5 million or $1.02 per share compared to $153.2 million or 90 cents per share in the prior year's first quarter. The prior period included the gain on sale from the Engineered Solutions divestiture of $53.4 million after tax or 31 cents per share. These results exceeded our guidance of 81 cents to 91 cents due to strong revenue growth and operating performance that accelerated in the month of March.

Please turn to slide 17. Excluding Dresser-Rand, our 15% revenue growth showed increases in all major geographic regions. North America revenue is were up 13% and constituted approximately 65% of the total. The European served area revenue growth was 27%, over half of which was from the impact of currency. Asia Pacific experienced an increase of 5%, and Latin America experienced growth of 18%.

I would now like to take a few minutes to talk about the results of our businesses. Please turn to slide 18. The climate control segment, which consists of the market-leading brands Hussmann and Thermal King, reported revenues of $638 million. This represents an increase of 14% or 9% excluding currency compared to 2003. The growth reflected the strength in our truck, trailer, and bus markets. Operating income for the seconder was $58 million, representing an operating margin of 9.1%, up more than 4 percentage points from the prior year. The operating margin improvement was driven by volume leverage, price realization, and our productivity improvement program. Climate controlled America's revenue was up 12% due to strong growth in our Thermal King truck, trailer, and bus businesses. The continued positive trend in end markets for transport refrigeration combined with the introduction of new products is producing strong revenue growth in this business. Profit margins for the branch service operations continue to improve due to the benefits of our lean branch initiative. Climate control international revenues for the first quarter were up 18% year-over-year, 5% excluding the impact of currency. The european markets for truck and trailer and supermarket display cases showed a gains versus the prior year.

Please turn to slide 19. Air and productivity solutions reported first quarter revenues of $344 million, representing an 11% increase over prior year. Air Solutions reported a 14% growth in revenue or 9% excluding currency, driven by new product sales and increased aftermarket business. Recurring revenues were up 11% and constituted 49% of the total. Productivity solutions revenue was up 6% versus the prior year, while recurring revenues were up 9%. Operating margin for the segment was 9.8% of revenue, up from 6.8% last year. The year-over-year increase was attributable to volume leverage, new products and services, and the impact of our productivity improvement program.

Please turn to Slide 20. Dresser-Rand reported revenues for the quarter of $170 million compared to $278 million in 2003. Last year's revenue included $53 million in buyout components, which are sold or passed through to customers at no margin. The remainder of the revenue decrease relates to the planned reduction in business that did not meet our minimum profitability standards. As Herb mentioned, we are executing our plans to remove low margin business and to eliminate the related costs. Operating income was 4.9% of revenues versus prior year's 1.5%. The first quarter of 2004 including costs related to the -- to productivity investments offset by income from the closure of a legal matter. This improvement reflects the progress we are making to improve the profitability of this business. Dresser-Rand markets remain strong in the first quarter, and the bookings increased by 30% compared to similar periods in 2003.

Please turn to slide 21. The infrastructure segment reported first quarter revenues of $727 million, up 21% from 2003. Operating margins were 12.6% of revenues compared to 10.9% in the prior year. Bobcat revenues increased more than 30%, 28% excluding currency. The increase was attributable to strong North American markets, new product introductions and improved aftermarket sales. Road development revenues showed a 20% increase, 13% excluding currency. Club Car revenues were flat compared to the prior year. However, bookings in the first quarter increased by 25% versus 2003 due to strong demand in the -- for the new Precedent golf cart. Segment operating income improved to $91.6 million, or 12.6 of revenues compared to 65.1 million or 10.9% in 2003. The improvement was attributable to favorable business mix, successful new product introductions and leverage from increased volume.

Please turn to slide 22. Security and Safety continues to report strong results. This segment reported revenues of $415 million, up 11% from the prior year. Excluding the favorable impact of currency, revenue growth was 8%. The year-over-year increase was largely attributable to strong growth in residential and commercial hardware markets and growth in our electronic access and worldwide solutions business that exceeded 40% for the quarter. Operating margins were 17..4% compared to 18.9% last year. The margin decrease reflected the costs associated with several new product launches and impact of higher volumes in our solutions business.

Please turn to slide 23, and let's move on to the balance sheet. Our working capital management program continued to show good results. We finished quarter with our investment and working capital at 9.7% of revenues, which is favorable to our enterprise goal of 10%. We have continued to improve our inventory turns despite the normal build for our seasonally strong second quarter. The favorable working capital performance was largely attributable to an improvement in our inventory turns from 4.9% to 5.4%. We also showed improvement in our payable days, offset by a modest increase in days sales outstanding. At the end of the first quarter, our total debt was $2.3 billion, an improvement of $300 million compared to the first quarter of 2003. The improvement was the result of using our free cash flow to reduce debt levels. Debt to capital ratio at the end of the quarter was 33.5% compared to the prior year ratio of 41.3%. Capital expenditures were $23.6 million or 1% of revenues compared to the prior year of $24.7 million. Depreciation and amortization expense for the first quarter of 2004 was 48.9 million versus 50.3 million in 2003. There were two other notable items that impacted our balance sheet during the first quarter of the year. First, we purchased approximately $3.1 million -- 3.1 million shares of our stock under the stock repurchase program, and secondly we made a $50 million voluntary contribution to our pension plan.

Herb will now conclude our formal remarks with the outlook for the second quarter and full year 2004.

Thank you, Tim.

Please, go to slide number 24. Activity in most of our major industrial and construction end markets continue to improve during the first quarter. Our order pattern was also very strong. As I said before it was up 29% compared to last year. From this recent order pattern, we see a growing recovery in most North American and European markets and continued strength and growth in Asia. Based on these anticipated improvements, we forecast our second quarter 2004 earnings from total operations to increase to between $1.20 and $1.30 per share. This reflects a 50% improvement in earnings compared to the second quarter of 2003. The second quarter forecast also includes a cost of 1 cent per share from discontinued operations. We expect revenue growth between 8% and 10% for most of our major business for the quarter with the exception of Dresser-Rand where the elimination of low margin projects and buyout components will cause a decline in year-over-year revenues similar to what we had h in the first quarter. However, Dresser-Rand profits are expected to continue to improve when compared to last year. The second quarter earnings forecast includes an expected tax benefit of $13 million. This benefit will be largely offset by approximately 10 to $12 million of productivity costs. About $8.2 million of these costs are related to a plant closure and a discontinuation of a plumbing fixture product line by our security and safety sector.

Now please go to slide number 25. We are increasing our full-year diluted EPS forecast from total operations to $4.35 to $4.50. This represents a 30-35% increase when compared to $3.34 from total operations in 2003. The new forecast midpoint is 45 cents per share above our previous guidance for 2004 that we gave to you in January. The full year 2004 forecast excludes the gain on the sale of the drilling solutions business, which we expect to close mid-year 2004. Operating margin will continue to improve as the year progresses due to higher sales volumes and operating efficiencies. Free cash flow from operations is expected to approximate $550 million. All in all, 2004 will be a good year for IR.

Now please go to slide number 26. This concludes our formal remarks. I would like now to open up the floor for your questions. Thank you.

Yes, sir. Thank you. If you would like to ask a question, please do so by pressing the star key followed by the digit one on your touch-tone telephone. If you are on a speaker phone, please be sure that the mute function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow-up question. Once again, please press star one on your touch-tone telephone to ask a question. And we will pause for just a moment to give everyone an opportunity to signal for questions. And we will take our first question from David Raso of Smith Barney. Please, go ahead.

Hi. Good morning. My question centers around trying to get a feel for the orders then being translated into revenue. First, maybe Tim could help me on the balance sheet. The receivables -- I know we have restated some things with the drilling business, but first quarter '03 -- maybe I don't have the right accounts receivable number exactly, but it looks like the last couple quarter's receivables have grown much faster than sales. If you look at what was reported in the first quarter last year versus just reported. I mean the inventory was up very large. I mean that's why the receivable were up over 20%. Can you help me understand, are a lot of orders coming in with long lead times? Or, for example, your Dresser-Rand guidance in the second quarter, it kind of shows again the core business. Even excluding the buyout, you're still going to be down probably over 20%, but the orders are up 30% at Dresser. I know it is a long lead-time business. But can you help me understand the bigger picture orders to revenues?

Yeah. I mean, actually, if you, on a comparable basis, David, days sales outstanding is pretty comparable to actually moderately better. You saw we lost a couple of days relative to the first quarter of last year, but generally we have been showing progress. The big disconnect you're probably seeing is, if you recall during last year we terminated our receivables securitization program, so for practical purposes we added $240 million to our balance sheet, and that should account for really the difference you are seeing.

Okay. And regarding the orders rolling out next couple of quarters, now the revenue forecast for the second quarter is not much different than the 11% you put up this quarter core excluding Dresser. But when you said 8 to10% second quarter, does that include currency?

The 8-10% that we see for the second quarter, yeah, it would include some currency benefit.

Okay. So the core growth you are implying 11% goes down to -- I mean the currency benefits might diminish -- is going to be small to euro.

That's exactly right.

But still you're probably going to core then of more 5, 6%, 7%?

Probably 6 to 8%.

All right. Thank you very much.

Thanks, day David.

We will take your next question from Ann Duignan of Bear Stearns. Please, go ahead.

Hi, good morning.

Good morning, Ann.

My question is around really the variable compensation as reported in the proxy statement. I know it is not directly related to this quarter's performance, but we couldn't help but notice that variable compensation for the top five executives reached $10.7 million in 2003, which is up 130% over 2002. In fact, Herb, your bonus reached $6.4 million, 2.1 higher than Jeff [Inlow's] and four times that of Glenn [Barton's]. Do you expect any change this year to the performance factors as laid out by the compensation committee in 2003? Or should we forecast variable comp at the 2003 rate going forward?

Personally speaking, obviously I wish it would continue, but what you are looking at is, what happens when you wind up having 40 plus percent increases on a year-over-year basis and where we were coming from. As we looked at the variable comp plans for 2004, they were, just as in 2003, set up to reflect the expectations of improvement and then how do we perform relative to that improvement. I would encourage you to go back and look and see what happened in 2001 and 2002 as my variable comp approached zero. So I think it demonstrates in terms of this is that our plan pays for results or doesn't pay based on what your output is. And so to the degree that we were able to exceed our plans this year compared to how we did, you know, last year, I think you would have the similar corresponding payout level. Up if you make it happen, down if you don't.

And can you describe any of the new performance measurements that are in place. Has ROIC been raised or ROE or or free cash flow?

Actually, as you know, as we discussed over the years is that what we have is our weighting is by earnings and cash flow and ROIC, and they are really equally weighted as we go forward. And we have year-over-year improvement targets that the comp committee and board sets and then how we perform relative to that.

And you can't describe to us any of the absolute numbers? For example, ROIC threshold last year was 9.8%. Is that going -- is the expectation higher this year?

Absolutely. We are talking about double-digit increases are required just to even get to target level, let alone exceed it.

Well, I know. I was going to say if there was no change and if the rates were still as low as last year's, then I would be sending in my resume. I guess what you are telling me is hold off, that the hurdles have been set pretty high for this year.

Every single year they end up going up. Our stated goal long term is to get to 15% margin, ROICs of over 15%, and the cash flow numbers are there. So every year we wind up having double digit increases that is consistent with what we tell you we want to improve our earnings from a year-over-year basis.

So we should look at last year as a point of inflection, really, not a signal that ongoing there is a --

I strongly encourage you look back and see what happened in 2001, 2002, and 2003, and then you see the direct correlation to shareholders wealth creation and mine.

Okay. Thanks, Eric.

We will take the next question to Joel Tiss of Lehman Brothers. Please, go ahead.

Hi, guys, how are you doing?

Hi, Joe.

Hi, Joe.

I wonder if you could just give us a little bit of sense of, you know, revenue wise, operating profit wise by division or as far as you are comfortable on how you get to your 15% EBIT margins in the second half, because that is a pretty big step up from where we are today. And just a little bit of help there. Thank you.

I was talking about strictly the aftermarket business as we put together in the lean branch initiative, not the overall company numbers.

Okay. And can you also talk a little bit about why the margins were down in the security and safety business?

Yeah. As I pointed out, there were really three things that were going on. Number one is that we continued to see very robust 40% type growth in our electronic access control business, and that was business that is in the low teens compared to our mechanical lock which is in the low 20s. So that gives you the traditional shift as a result of that activity. Simultaneously we also launched several new products into the security and safety business in the Americas where we had startup costs during the first quarter which approximated $5 million. We launched also our Maritime Solutions business where I commented on the fact that we wound up having approximately -- well, three shifts that we got going. And so if you look at the overall activity, add back in the one-time costs that we wound up incurring, it would take the margins back up again north of 19%.

Our margins are, in our basic mechanical business in North America are actually up from the prior year.

Okay. Thanks. Then the last --

The goal, Joe, continues to be how do I drive this as a 10 plus percent year-over-year growth engine going forward for multiple years? That is what we are investing in.

Okay. Thank you. And last, can you give us a sense of what -- what you are planning to do with your beautiful balance sheet and the proceeds from your drill business?

Well, as we had discussed in the past, I said as we clearly continue to look at bolton acquisitions, more product line extension ,and global reach -- and we mentioned that was in the span of several hundreds of millions of dollars, we hope, for the whole year. We talked about looking at the options of stock repurchase, and we are obviously looking also at our dividend policy.

All right. Thank you.

We will take our next question from Joanna Shatney of Goldman Sachs. Please go ahead.

Hi. I appreciate the color on the input prices, but could you talk a little more about which businesses are experiencing the most difficult input cost creep? And could you just talk, kind of, how the surcharges are being implemented through the different channels and how receptive customers are from an OE side of things and from the dealer channels?

What I see on the raw material increases, they really come in two different categories. One, when is comes to the steel, that is mostly prevalent when we look at the infrastructure, specifically at road development/Bobcat. The thick plate seems to have more pressure and availability to it than does the thin sheet metal. The second category that we have to look at is copper. We consume quite a bit of copper in our climate control when we are making the coils for our refrigeration-type units. And so we are seeing on the display case side there and also from the Thermal King piece some price pressures coming in that area. The magnitude of the numbers similar to what we talked about back in February is that we were talking about something which runs about 40-45 million for the full year. Pretty evenly spread between steal, copper, aluminum. And as regard to the price ability to pass through surcharges as we had noted that in our infrastructure businesses we implemented a surcharge which is probably netting about 1 to 1.5%, which nicely covers, if you will, the balance of the cost structure.

And that is what you got in the first quarter?

Yeah. That is what we have got effective in the first quarter. If you look through, it is running us at about one, and we expect the full year impact to actually grow to about 1.5.

As you ratchet up your forecast and need more steel, aluminum, and copper, how does that $40 million to $45 million change? Do you feel like you are safe with that, given where prices are?

In the range, if I go to the upper end it goes up to 50 or 53 million. Again, I said, remember we are not really that raw material sensitive. We have a lot more components that we have to deal with. So the upper end of the range that we are looking at is just north of $50 million incremental costs, which obviously eats into what we were targeting to gain over $100 million again of year-over-year productivity improvement.

Okay. You may not even see it if your leverage continues this way. So thanks very much.

The gross margin obviously helps a lot as you look at the upside on the increment on revenue.

Thanks.

And we will go next to John Mcginty of CS First Boston. Please, go ahead.

Good morning.

Hi, John.

Hi. I was wondering if you could help us out. The first quarter orders overall were up 29%. You talked about the revenue ex-Dresser-Rand being up 15% and broke that down for us. Could you kind of break down into the core pieces proportionally where the orders were up? And then is that -- that the first quarter comparison of last year was easy? In other words, given the strength in orders and the more conservative sales forecasts going forward, is it just that you are hitting tougher comps or you are expecting orders to slow? Could you kind of break it down and then talk about it year-over-year?

I think you are really right on to it, John. I think the best way, let me give you a baseline as I remember it. We we compare our 2003 results to 2002 without restructuring, the first quarter we were about 26%, 2002 to 2003. We were up 35% in the second quarter and up over 55% in the third and over 54% in the fourth. So clearly, as you said, the order line is going up compared to where we were 2003 and 2002 numbers. That is one piece.

Um-h'm.

The second part, is that when we look at our bookings, you know, we are conservative, maybe, but I'm concerned. We see at this time of the year our second quarter, especially the April/May time as being the heaviest shipment months that there are in many of our seasonal businesses in infrastructure and golf carts and so on. So the booking level of plus 29%, which was strong, at Bobcat, which was very strong. Our road machinery was very strong at Club Car. We expect that to taper off as we wind up getting into the second part of the second quarter. And our 29% increase really winds up being -- remember your backlog at this point in time reflects, usually, less than one month of total revenues on hand. So it is more after barometer rather than a shippable backlog to get you through the entire quarter.

That is a very fair comment. But in the same regard we are at the 20th of April, and what have you seen in the first three weeks? Again, it is anecdotal. It is not, you know, as complete. But have you seen any slowdown in fact from -- I haven't seen anything that suggests slowdown anywhere.

No, John, we have not, and again, you know, three months does not a quarter make.

Yep.

But you're , right. We continue to see -- to me, as I said, the first quarter of 2004 was a continuation of the increased strength we saw throughout 2003. And the second quarter so far looks like a continuation of the first quarter. It hasn't grown more than the first quarter, but it certainly feels comparable to that.

Okay. And then just as a follow-up could you talk about the outlook for Dresser-Rand orders over the balance of the year and where you would expect them to be coming from, you know, geographically by type of business or just give us some kind of flavor? Was that 30%, do you think that is maintainable? I mean, perhaps since that is more order, you now, order sensitive than -- than, you know, some of the shorter lead time stuff?

I think what we are seeing a disproportionate amount of orders in the first half of the year compared to what I expect we would see in the second half. Our full-year forecast for Dresser remains that it will be about a billion dollar revenue type business. So it has a seasonal build that you normally see, and that is part of the orders that are in-house already. And we see a good build in both what we have as the after-curing recovery. So really, it isn't that much geographic on-scene activity. Whether it is Venezuela-based, or whether it is based over in the Mid-East, we are seeing it pretty well spread across the entire world. The biggest piece for us is how much aftermarket. We are really getting into more book and ship type activity that now represents over 50% of the revenue. So for us, our forecast remains that Dresser is about a billion dollars revenue business for a year, accomplishing about $100 million of operating income by the time the year it done.

Thank you.

Typical lead times for orders from completes at Dresser-Rand is probably nine months. So what we are seeing in the strength in orders in the first quarter of this year will manifest itself as revenues in the first quarter of next year.

So at this point, the first -- at this point essentially for all practical purposes other than the book and ship business, which is a function of oil prices, activity, and so on, the year is pretty well locked in. I mean, you have got to deliver on the 50% that is shorter lead time, but, I mean, at least in terms of the big picture you don't have to expect anything else.

Yeah. So what we're saying, John, is that the order level in the first quarter is what makes me confident that the fourth quarter improvement we were forecasting is real.

Exactly. Thank you very much.

Sure. Thank you, John.

And we will go next no Gary McManus of J.P. Morgan. Please, go ahead.

Hi, Herb.

Hi, Gary.

I'm trying to kind of reconstruct a cash flow. You know, you gave net income. I got D&A and capital spending and dividends, and debt really didn't change that much from the end of the year. So, there was like $400 million that was unaccounted for. You know, so what I am asking is kind of maybe give me some of that major items. You know, you said you repurchased 3.1 million shares. What was the dollar amount used for that? And I assume there was offset with, you now, stock option, you know, exercises. And you said $50 million pension, so I got that. But, you know, how much was working capital up on a cash basis?

We purchased -- we did have exercise of stock options which contributed about $50 million. We repurchased shares -- 3.1million shares. It cost us about a little over $200 million. That may account for your difference. That was a modest increase from year end in the working capital reflective of the increase in sales.

I'm not sure where you were finding the delta. Does that get you where you need to get, Gary?

Well, I mean, if I look at net income plus depreciation and capex and dividends debt didn't change that much, that's like $180 million source. And I look at your cash balance; it went down like $220 million. So it was like a $400 million delta. And again, I got 200 million, I guess, for the share buyback. It looks like the pension contribution is offset by the option exercises. So it seems to me like working capital should have been up $200 million, or there is other stuff missing, whether it is restructuring or -- currency couldn't be that big a deal. I'm having a hard time figuring out why your cash balance went down $200 million from the end of the year.

Well, we do have -- we did -- the natural working capital builds in the first quarter is about $200 million.

Okay. I thought you -- I thought you just said that working capital wasn't a big increase in the quarter.

I said it was a normal increase -- days sales outstanding, days inventory on hand, and days payable remained comparable.

I don't want that. I don't want those ratios. I want the cash impact on working capital in the first quarter.

That was about $200 million use.

You would say that it normal buildup?

Yes.

Okay.

Again, look at ratios, and the ratios help. If you actually look at a, for instance, inventory on a forward-looking sales you would find that it is very much in line.

Okay. In the -- just a clarification. The 8-10% growth in the second quarter is ex-Dresser-Rand; is that , right.

That is correct.

And that is -- that is a bit of a slowdown from the first quarter, right? Where it was up, whatever, 14-15% ex-Dresser-Rand, even though orders are up 29%. I know this was kind of asked before, but I'm wondering why the revenue growth is so much below the order growth?

Our expectation, Gary, is the fact that as we wind up getting through the May and June that we will see the orders slowing down from the current level that they are at. And again, as I said, as the year-over-year comps go up significantly, I said before in the first half of the year they were actually running the 25-30% and second half of the year to well over 50%. So it is really that comparison that I'm talking about.

The orders were so strong in the second half of the year you're suggesting that the revenues weren't (INAUDIBLE). I mean, how can orders continue to grow ex of the revenue growth?

I expect in terms of the orders, as I said, during the second quarter will actually slow down from what they were running at in the first quarter. I do not expect that to see a 29% increase; I expect that to drop down to where it will be more along the lines of 5-10%.

Okay, thanks.

We will go next to Barry Bannister of Legg Mason. Please, go ahead.

Good morning.

Good morning, Barry.

Was the prior business under the prior management just grossly over capitalized on the fixed asset side? I ask that because even though the three quarters of your business is still OE, you're managing the capital spend at 1% of sales and half of depreciation and don't see any change in that. So what is going on?

What I would say to you, Barry, is that the biggest thing that I would look at is the leaning out of the plants, and has to do with cycle time. Products that were traditionally five, ten, years ago, whatever, made that took maybe six weeks to build, now we wind up making it in six hours. And so when you have the asset velocity, I mean the stuff going through the plant -- I was out in Bismark last week, and we can take orders there in the morning and ship it in the afternoon. That was the process we did not have. That was a manufacturing philosophy we didn't have years ago, and it is that kind of a change which takes the through-put and increases it. Remember saying that we took out 29 plants. And when I do my plant utilization right now, which I deem as being 24 hours a day, not one shift and being six days a week, not five, we are actually running at only about 40% capacity where we are today. So I think, really, the lean six sigma stuff that we put in and are putting through to where we are not forecasting, that we are actually pushing, you know, as a result of demand that has been created, that just significantly improves the productivity of the plants.

Okay. Thanks. And did you earlier, in response to Joel's question, say that the base mechanical lock set business had an increase in margins year-over-year? Because the total business was about 170 basis points below four-year average for its operating margin. And I'm trying to figure out with all the growth in electronic access if we will permanently be below the old averages in terms of the operating margin in security and safety.

I would say that long-term, three-, five-year horizon, that we will be, not north of 20-some-odd percent, we will be somewhere in the upper teens. I think that is a sustainable margin for this overall business with the mix. What you're seeing, really, for us right now is we are making lots of investments and putting people and solutions in place, and we need to get the volume up to be able to leverage that better. The North American mechanical lock has been in the low 20% -- 22, 23% margin. That is really not changing. That has driven an awful lot off of continued cost-effectiveness, cost reductions.

So what you're hoping for is higher turns on lower margins.

No. What I am actually looking for in turns is that we are going to be able to, when we take the software business that we are now combining with the electronic access control hardware, that that has gross margins north of 85%. So what we need to do is to leverage and get more software through so that I wind of driving that kind of solution business also back up into the 17-18% level. We're talking about the U.S.. Our profitability in Europe at this point in time is lower. That is really the piece that I need to improve to be able to make the 18-20% margin sustainable going forward. That right now is a single-digit profit level there.

So it is a blades and razors business longer term.

Yeah. It really is. And as I said, I think the key piece for us is to add to it the software element, which has, I think, very attractive gross margins very low asset intensity. Once you write the software, boy it is easy to go and to put it into a lot of the hardware. Like what we do now, we introduced this Maritime program. Well it has the same access control as we leverage out of schools and out of hospitals. So we need to find more vertical markets around the world to go to.

Okay. Thanks.

We will go next to Andrew Obin of Merrill Lynch. Please, go ahead.

Good morning. I have a question on Hussmann.. In the press release you noted some improvement in shipments. Does this mean that we are seeing kind of pickup in the capex across the industry or it just one time.

One of the things, Andrew, that we had is that with the west coast large supermarket chains on strike, a lot of the projects had been held up and delayed. And what we saw finally as we entered into March in the first quarter is that some of the refurbs were released by the stores that had been on strike and had now settled. So we actually saw an increase of, I think it was about 3% year-over-year on the case goods side. I expect that to continue to strengthen as we wind up seeing more flow-through from the activity of the large chains that had been held up because of the strike. Plus, we continue to make good progress on our Wal-Mart penetration for what will be the biggest growth, I think, supermarket chain is there.

We are starting to see some signs at least that some of the large chains to free up their capital expenditures and refurbish their stores.

Any update on the Wal-Mart order?

Yeah, I guess I would say to you there has been no formal announcement made. What we are reacting to this point in time it is the quote activity level and the number of stores that we are getting from them, which continues to increase. I think the best way to describe our activity so far, Andrew, is that as of March of this year we have done as much business with them as we did in all 2003. So I would have to be an optimist and say that bodes well for when this announcement is. There is a very large annual trade show called FMI, which takes place out at McCormick on the first and second of May. Maybe that is the time to do it. I give up trying to forecast. I have been wrong for nine months. At this point in time, I think I better stop while I'm ahead.

Okay. A follow-up question. What has been your experience with your supply chain as you are ramping up your production volumes?

I'm sorry. Would you repeat that, please. I didn't catch it.

What has been your experience with your supply chain as you guys are ramping up your production volume? Any glitches there?

Well, I think what we have had is we have had a few more moments of anxiety on availability than you would have where you had longer term. And, candidly, we caused some of the anxiety. We did not, for instance, at Bobcat forecast as much of an increase. So we were doing pullups for the suppliers. And I would tell you that many, most of them have been reacting heroicly. We have been paying some premiums to get that work done, but I think in general a thing is there has been a lot more anxiety with the reduced lead-time reduction and ability for them to react to us.

You don't envision any bottlenecks if you ramp up?

No. As I said, so far, as I mentioned before, we have not seen that. If this were to continue at a 30-40% rate -- that would be a great problem to have. I think it would eventually cause some issues with the supply chains. But for what we are seeing right now, we feel confident that we are able to manage our way through it, not cause outages for our customers.

Thank you very much.

And we will go next to Andy Casey of Prudential Equity. Please, go ahead.

Thank you. Good afternoon, I guess.

Hello, Andy.

Just a follow-up on Bobcat -- Most of my questions have been answered. Going into the quarter you had an annual quarter that really did not include, if I recall correctly, any rental channel replacement. Are you seeing that, and is that one of the major reasons that you are upping your forecast for the full year? Or is that still not included in the forecast? Thanks.

When I look at the large U.S. rental accounts, our overall activity with them is up somewhere in the 20 some odd percent to 25% type basis. But you're talking about $100 million number, so the needle moves full year, Andy, by somewhere in the $25 million type range. So it is not that -- on a couple billion dollar business, that is not the key driver. The real growth that we have talked about is going through the traditional Bobcat dealer channels.

Thank you.

And we'll go next to Robert McCarthy of Robert W. Baird. Please, go ahead.

That's Baird. Hi, Herb.

I thought you guys were medical devices. How are you doing, Robert?

Not lately. I would like to ask you about recurring revenue, Herb. I want to make sure that I'm understanding definitionally what you're talking about. First quarter climate control recurring revenue was 27% of the total. I gather that includes parts business at ThermoKing.

Yes.

You mentioned that the Hussmann case business was up 3%. I gather that was a North American figure or Americas figure.

That was an overall number.

That was an overall?

Yes.

Okay. With all the attention on what you're trying to do in lean branch, can you give us an idea of what the recurring revenue portion of Hussmann did in the quarter? Growth and profitability?

The growth on the service business was relatively flat as we, like in Dresser-Rand, walked away from some contracts that we found that were not as attractive as we would have liked them to be. Our profitability improved by another couple of margin points from where they were. We are about 3% up from where last year in the fourth was. So we continue to see the ability to basically increase our profitability between 1 .5 and 1% per month as we sort of go forward. And at that run rate we should be getting to the 15% level by the end of the year. Now included in that is the parts, service, as well as the installation business.

For the Hussmann side of the house?

That's correct. And on the Thermal King side, what you have is parts, which we wind up selling through the Thermal King dealer network. So there is no service work, per se, there.

Okay. And the flatness in service revenue. Your description of business that was relatively unattractive, is this a function of competitive factors? Was it just an unusual mix of potential customers?

I would refer to it as crummy pricing on our part. What we wound up doing is we put some fixed cost models out there, and what we found in terms of that is we actually were doing the service work that we did not have the profitability that we hoped we were making. It seems that when you have a fixed cost you're more likely to call me come out and do stuff than if you pay for time and materials. I know that sounds obvious, but believe it or not we learned that the hard way.

So it may take but wouldn't be unreasonable to think that growth on that side of the business would be relatively weak this year as you sort of clean out the revenue pipeline.

Weak in the fact that I expect it to be some where in the upper single digits rather than being double digit, yes.

The other question I wanted to ask was about the $14.5 million of productivity investments during the quarter. Could you give us an idea of how those were weighted across the businesses? I'm assuming a big portion of that would have been Dresser-Rand.

Dresser-Rand is a component. It is probably half of it, a little less. Probably 40% of it infrastructure. Investment and a variety of things. Industrial solutions, which includes Dresser-Rand, is probably somewhere 40% of it, the rest spread between climate control and security and safety.

Okay. Thank you.

The consumers where the industrial solutions including specifically Dresser and in infrastructure.

Got it. Thanks.

And we will go next to David Bleustein of UBS.

Good afternoon, guys.

Hello, David.

In prior conference calls, you have indicated that the tax rate might drift higher, but so far it hasn't. Do you still expect it to eventually rise higher, or is 14% the rate to target in '05?

If you actually go back to what we said, we said 14% plus or minus two. And at 13.5 for the quarter, I think we are right within that range.

I have got in my notes could get as high as 20 over the next couple of years.

Over the next number of years we could go to 20; that's correct. But we're anticipating -- obviously with the 13.5% rate this quarter, that is a reflection of what we expect the full year rate to be on a normalized basis, because Herb mentioned in his comments that we expect to receive a tax benefit sometime in the second or third quarter of this year. Actually, we are baking into the forecast about a $13 million benefit from a prior year payment, and that obviously will drop our second quarter rate. Our expectation is that the full year rate will be somewhere in 12.5% range.

Okay. Terrific. Herb, can you walk through where you are in terms of capacity utilization to the largest plants in each of the business units? You mentioned 40 overall. But where are you above and where are you below it?

If I look at where we are at this time point in time in higher utilizations, it would clearly in the Bobcat facility in North Dakota. We are there at this point in time looking at how we wind up running full second shifts compared to having full shifts and partial second shifts. And we have moved into our combined facility in [Chipmansburg] for road machinery, and now in terms of there, I'd say we are slightly above but not anywhere near as close to capacity as we are at North Dakota. We continue to move things from security and safety into multiple plants. so that actually is going down rather than up. So all in all, if I were to look at where we would be looking at, it would probably be in Bobcat specifically. And if Club Car continues to see 25% year-over-year improvements because of the Precedent, we may wind up needing to go and set up an additional assembly line for them. But those are the only places that I would tell you right now that are actually close to even requiring any kind of capital investment whatsoever.

Okay. And you mentioned the large reduction, a significant reduction in lead times. Tough question to answer, but what percentage of the total value added is now purchased components kind of today broadly speaking versus where you were at this point last cycle?

I think, you know, I just -- the number off the top, David, is probably somewhere around 20-25% is what I would look at as being purchased, and we were probably last time around less than 10%.

Okay. And then last question. Actually that is good enough. It is late. Thanks a lot, guys.

David, can I just answer and finish on the tax rate. Please anticipate that a portion of the $13 million will go in to operating income related tax rate, and a portion will be embedded within discontinued operations because probably half of those benefits are related to the businesses that we previously divested.

Okay. And what I was really looking for was a crack at '05. I mean I understand the 14% and 13.5 and I understand the 12.5 but --.

14 plus or minus two is probably a pretty good number.

Terrific, Tim. Thanks.

And we will go next to Mark Koznarek of Midwest Research. Please, go ahead.

That was pretty close. [ LAUGHTER ] It is Midwest. Come on. Thanks.

Did you hear what she did with mine, Mark?

All right. We are all in company together. What is the full year outlook for Bobcat? Maybe I missed that, including the new product initiatives.

When we look at Bobcat, I would say to you on a full-year revenue type basis, think along the lines of 15 plus percent increase year-over-year.

And that would include another roughly 100 million of new product benefit?

That's correct.

Okay.

Think of it along the lines of being 1.5 a nice round number to remember.

Okay. And the size of the Air Solution acquisition on a revenue basis?

Less than $10 million.

Small.

Very small. That's why I said it is very small. But I would say it is one of those that it gives us a base from which we can really grow that part of the world.

Okay. And then security and safety, will there there be ongoing launch costs for the remainder of the year, or is this really it and it balances back by mix?

What we said, Marc is that included in the second quarter is that what we had -- we set up for the first half of the year some new product launches, many of which happened in the first quarter. We also set up a divestiture of what is called a broadway plumbing line. That is another $10 million type plumbing fixture business that we are getting out of. And in addition to that is we are also shutting down door-O-matic sliding door business, which is in Chicago and moving it down into Indianapolis. That is what cost us the $8 million in the second quarter. Then from there on, I would say, it is more of what I would call business as usual. We will continue to invest in things, but the margin should return back to the kind of levels that we are used to.

Okay. And then finally, what is the expected restructuring expense for the remainder of the year?

We had talked that we were really talking about somewhere between 8 to 12 million a quarter. Sort of a typical number for us to run at. I think that looks like it is -- it is always that many kind of improvements which have good pay backs. You know, two years or less. So I expect that level to be about there.

Okay. Thanks very much.

Operator, we will take one more question, please.

And we will take that question from Jeff Hammond of Key Bank Capital Market. Please, go ahead.

Hi. Good afternoon. Could you provide the order contribution from ThermoKing in the quarter if you look at 29%?

Yeah. Let me just give you some direction on things on here. The North American trailer pretty well reflected what was going on in the upper markets out there, so we're talking 25-30% type increases. European trailer, frankly, was even stronger than that, which was up over 50% on a year-over-year basis. And Asia Pacific, which is a very small number was in the same boat. American truck was up also 40 some odd percent. European truck, up single digits. The ones where we saw some reduction were actually over in Asia Pacific where truck was off. So I think if you look through our container business, that is probably the one that had the biggest decrease because when you compared it to last year we had some very, very large orders that were included therein. So that was actually a negative number by 30%.

Over all it is up about --

When you add up all the numbers, is that with what you come up with a number up 15% year-over-year.

Okay. Great. And then just a quick clarification on the Dresser-Rand, you know, billion dollar in revenue is shooting for that 100 million of operating profit.

Correct.

Is that in the guidance?

Yes.

Okay. Thanks.

As a matter of fact, when we put -- when we made the call in January, we reflected that as being the overall game plan of taking out $433 million of revenue and increasing the profitability by almost double from where it was last year.

Perfect. Thank you.

Sure.

And that --

Everyone, we're going to be wrapping up the call now. Thank you very much for joining us. There will be an instant replay of today's conference call available at approximately 3:00 p.m., and it will be available until April 27. The call in number is as follows: 888-203-1112, and the pass code is 748344. International code is 719-457-0820. The audio and the slides from today's conference call will be archived on our website. And finally, the transcript of the conference call will be available on the Ingersoll-Rand website next week. Please call me -- again, this is Joe Simbionte -- if you have any additional questions at 201-573-3113. That concludes our call. Thank you very much.

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