特靈科技 (TT) 2004 Q4 法說會逐字稿

Good day and welcome to the Ingersoll-Rand fourth quarter 2004 earnings conference call. This call is being recorded. With us today from the Company is the Chairman, President, and Chief Executive Officer, Mr. Herb Henkel; the Chief Financial Officer, Mr. Tim McLevish; and the Director of Investor Relations, Mr. Joseph Fimbianti. At this time for opening remarks I would like to turn the call over to Mr. Fimbianti. Please go ahead, sir.

Good morning this is Joe Fimbianti, I'm Director of Investor Relations for Ingersoll-Rand. Welcome to our fourth quarter, 2004 conference call. We released earnings at about 7:00 a.m. this morning, and this release should be posted on our website. As usual, I'd like to cover some housekeeping items before we begin. This morning, concurrent with our normal phone-in conference call, we'll be broadcasting the call through the public website. There you'll find the slide presentation for this call. To participate via the Web, go to www.irco.com, click on the yellow link on the lefthand side of the screen. Both the call and the presentation will be archived on our website and will be available late this afternoon.

Now, if you would please go to Slide No. 2. Before we begin, I'd like to remind everyone that there will be forward-looking discussions this morning which is covered by our Safe Harbor statement. Please refer to our September 30, 2004 Form 10-Q for the 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 Senior Vice President and Chief Financial Officer, and Rich Randall, Vice President and Controller. We'll start with formal presentations by Herb Henkel and Tim McLevish followed by a question-and-answer period. This morning, Tim's going to lead off with a reconciliation of our fourth quarter earnings. Herb will then give the overview. If you would please go to Slide No. 3. Tim?

Thanks, Joe. And good morning. Over the past several years, we have attempted to improve the simplicity and transparency of our financial reporting and believe we have made good progress to that end. The events that transpired during 2004 complicated these efforts and, therefore, our fourth quarter results require some additional explanation and clarification.

Our earnings from continued operations for the fourth quarter were $1.27. This is $0.01 above our previous guidance range of $1.16 to $1.20. Also reported in the fourth quarter were our ongoing legacy costs of $0.05, which is consistent with the previous quarters. Earnings from discontinued operations of $0.03 reflects the operating results of Dresser-Rand for the month of October and an accounting adjustment for Drilling Solutions. We also reported a $0.06 FISC tax benefit related to the Dresser-Rand and Drilling Solutions businesses. We received a 2004 CDSOA payment in the quarter of $0.06

Lastly, we booked the gain and sale of Dresser-Rand totaling $1.58. These adjustments for the quarter had a commensurate impact on the full-year is reflected on the slide. Herb will now take us through a report on our performance relative to our strategic priorities. Herb?

Thank you, Tim. And good morning, everyone. This morning we announced strong earnings growth for the 2004 fourth quarter and record earnings for the full-year. During our call today, I will discuss the elements of and recent milestones in executing our growth strategy and our forecast for 2005 first quarter and full-year.

Please go to Slide No. 4. Our strong performance in the fourth quarter and full-year reflects our ability to execute our core strategies and capitalize on improving market conditions. Over the past several quarters, most of our end markets have steadily improved. During the same time period, we have successfully generated revenue and earnings growth and market share gains driven by our innovative solutions. We've also continued to expand our recurring revenue stream. In addition, we continued to make significant progress in reducing costs and improving productivity and in adjusting pricing to offset cost increases.

Now, please go to Slide No. 5. We attribute this performance primarily to our success at executing the long-range strategy that we laid out in 2000 to drive our topline growth, improve our processes and cost structure, and to return greater value to our shareholders. In 2004, we also announced the last major business-line divestitures of Drilling Solutions and more recently Dresser-Rand. Since 2000, we have divested a number of cyclical low-growth asset-intensive businesses that together had total revenues of approximately $3.3 billion. With the sale of Dresser-Rand in October, we have now divested all of the businesses that did not meet our requirements for revenue and earnings growth and return on capital going-forward.

Please go to Slide No. 6. The sale of Dresser-Rand and Drilling Solutions are significant milestones in the history of our Company. With these transactions, we have substantially completed the transformation of our business from a heavy machinery and construction orientation, to a diversified industrial company. In the 1980s and '90s, over half of our revenue came from cyclical low-return businesses like automotive components, mining, and process. Today we generate our revenues across diverse markets and geographies.

Now, please go to Slide No. 7. Roughly half our revenues now come from the global markets of Security and Safety, and Climate Control. Our Industrial Solutions business, which generates about 40 percent of its business from higher margin parts and services in global markets is one of our highest return on capital businesses. In addition, Industrial Solutions continue to demonstrate its market leadership as an innovator. In 2003 and in 2004, Industrial Solutions launched several new solutions, such as the Nirvana and UNIGY Air Compressor technologies.

Our fourth business segment, which we call "Infrastructure" does not bear any resemblance to the other large heavy construction equipment manufacturers that we are often compared to. Most of Infrastructure's revenue, and roughly 24 percent of IR's total revenues are generated by Bobcat and Club Car. These 2 companies provide market-leading compact equipment that have a history of generating substantial growth through innovation and have high operating margins. In 2004, Bobcat revenues increased by 27 percent and Club Cars by 16 percent. They are less cyclical than heavy equipment companies and have higher historical growth rates, operating margins, and returns at on invested capital. They also have a bright future as the world continues to demand versatile, flexible, low-cost equipment.

Today, only 10 percent of our portfolio is made up of heavy machinery and equipment that serves road and highway construction, and maintenance. This business does not follow the same cycle as most heavy equipment markets and has excellent profit margin. We believe that future growth in Asia will help to balance the traditional cycles of the North American road developed market. Additionally, about 20 percent of the total revenue from our business is from after-market parts. As a result of these improvements, we now have a very solid $9.4 billion diversified industrial company targeting to be over $10 billion of revenue by the end of 2005. We believe the platforms we now have in place will allow for substantial future growth in earnings, cash flow, and ROIC.

Now, please go to Slide No. 8. In 2004, as our markets continue to recover, we achieved total revenue growth of approximately 14 percent, or about 11 percent, excluding currency. Our growth strategy is based on the development of innovative products and solutions, growing our stream of recurring revenues and integrating high return bolt-on acquisitions. Our continued investment in new products and technologies has been one of the prime reasons we continue to increase revenue growth and our share in markets. In 2003 and 2004 we successfully launched new products in each of our businesses. In 2004 innovation added over $500 million of total revenue growth and approximately $300 million of net revenue. By comparison, we generated a $200 million increase in 2003. Additionally, we are targeting to add another $250 million of revenue from innovations introduced in 2005.

Now, please go to Slide No. 9. Also during 2004, we continue to deliver on the go of growing our stream of recurring revenue. Our large installed base and powerful market-leading brands give us significant opportunity to expand these revenues, as well as profits. Recurring revenue totaled $1.9 billion for the year, an increase of approximately 9 percent, compared to 2003. Recurring revenue has doubled since 2000, and accounted for about 20 percent of total revenue for the year. All segments, except Climate Control had double-digit year-over-year improvements in recurring revenue. Climate Controls overall recurring revenue declined, compared to 2003 as several high-volume low-profit service contracts for 2003 were not renewed in 2004.

Now, please go to Slide No. 10. We also help fuel our ongoing growth by making several bolt-on acquisitions. We completed an important bolt-on acquisition with the January 2005 purchase of our remaining interest in CISA. An Italian-based security and safety company serving global markets. The total cash purchase price for CISA was approximately Euro 265 million and included the assumption of approximately Euro 200 million of debt. CISA manufactures a wide array of products that range from electronic locking systems and cylinders, to door openers and closers. It also markets safes and padlocks. The company, which has been in operation for nearly 80 years, is a strong, well-established business with innovative technology, competitive brands, and global market presence.

CISA's 2004 revenues were approximately $275 million with operating margins exceeding 15 percent. The acquisition of CISA expands the geographic reach of our security and safety business, and gives us an established and proven product platform to pursue global growth opportunities. We expect to add about 8 to $0.10 to earnings in 2005 from this acquisition. During 2005, we'll continue to make high value-added bolt-on acquisitions as part of our ongoing strategy. We believe our security and safety business, in particular, has considerable opportunity to expand globally through acquisitions that expand its solutions portfolio, as well as the geographic reach. We believe the platforms we have in place will support substantial future growth in earnings, margins, and ROIC. Therefore, we continue to not to make any large acquisitions that would add a new platform to our business.

Now, please go to Slide No. 11. Turning to the area of operational excellence, during the year, we continued to benefit from cost reductions associated with our productivity investments. Operating margins improved by 2.4 percentage points from the benefits of increased revenue growth and our ongoing efforts to drive down costs by adopting Lean Six Sigma and other continuous operating improvement processes. Price increases and surcharges, helped to partially offset the impact of material cost inflation, and Tim will discuss material costs and productivity in greater detail during his presentation.

Now, please go to Slide No. 12. We strengthened our balance sheet in 2004 by reducing our debt by $435 million and our debt-to-capital is at 24.2 percent. We are comfortably below our long-range target of about 35 percent. Net debt at the end of the year was only $175 million.

Now, please go to Slide No. 13. During 2004 we also generated 616 million of free cash flow, this is the 7th consecutive year of generating over $500 million in free cash flow, for a total of over $3.8 billion.

Now, please go to Slide No. 14. We are very encouraged by our operating performance in 2004. We delivered strong overall growth and we are able to leverage that growth to make substantial improvements to our operating margins, earnings, and return on capital. We are on target to deliver improved earnings and increased cash flow in the future. We remain committed to deploying our free cash flow and the proceeds from the Dresser-Rand sale to create shareholder value. We have a disciplined approach to acquisitions and only acquire businesses that will add value to our shareholders. Going-forward, we expect to spend an average of about $100 million for acquisitions per quarter in 2005. We intend to acquire new product lines and technologies, expand our geographic reach, and accelerate the growth of recurring revenue. Additionally, we will enhance the total return to shareholders through our dividend policy. We are targeting our dividend payment to be about 25 to 30 percent of our 3-year average pre-dividend pre-cash flow. We also expect our dividend yield to be consistent with other high-quality diversified industrial companies.

Finally, as we believe our common shares are undervalued we expect to continue to buyback more of our shares in the open market. Last year in August, the IR Board of Directors approved a 10 million share buyback. We have repurchased 1 million shares in the fourth quarter of 2004 for an annual total of about 5.3 million shares. In 2005, we have already purchased about 1 million additional shares in the month of January. We expect to repurchase the remaining 7 million shares during 2005.

In summary, we continue to successfully execute a sound long-term growth strategy. As we enter 2005, we are well-positioned to continue to deliver profitable growth, generate strong cash flow, and greater value for our shareholders. Tim McLevish will now cover IR's business unit performance in more detail. Tim?

Thank you, Herb. I'd like to begin my discussion with the quarterly financial results. Please note that due to the sale of Dresser-Rand the results of that business have been reclassified to discontinued operations net of tax for the fourth quarter of 2004 and for all prior periods.

Please turn to Slide 15. Revenues for the fourth quarter were in excess of $2.4 billion, up 9 percent from the comparable period in 2003. The increase is attributable to double-digit growth in our Infrastructure and Industrial Solutions segments, and solid growth in our Security and Safety segment. Excluding the favorable impact of currency, revenues increased 7 percent. The 2 percent currency impact on revenues was consistent across all of our reported segments. Operating income for the fourth quarter was $297.9 million up 71.3 million from 2003. This reflects a margin of 12.1 percent of revenue, up 2 percentage points from the prior-year. These continued strong operating results were driven by volume leverage, new product introductions, and operational improvements.

I would like to take a moment to discuss certain year-over-year items that are included in our reported results. The quarter included approximately $13 million of productivity investments. An increase of $5 million versus prior-year. In addition, the quarter included approximately $5 million of increased costs versus the prior-year associated with the mark-to-market of stock price-based liabilities. These increases were largely offset by approximately $9 million of currency benefits. Also affecting the quarter was the negative impact of approximately $49 million in raw material cost inflation. Mostly attributable to steel, non-ferrous metals, and plastics. The impact of these cost increases was offset by savings from our material productivity programs, product price increases, and price surcharges.

Moving down the income statement. Interest expense was $37 million, which was 3 million lower than the fourth quarter of 2003. The year-over-year improvement resulted from lower debt levels. Other income for the quarter was $800,000, which was comparable to the prior-year. Fourth quarter 2004, included approximately $7 million of interest income on our excess cash, while 2003 included approximately $8 million of gain from the sale of Timken shares received as a result of the Engineered Solutions sale.

Our fourth quarter effective tax rate was 15.1 percent, compared to 13.3 percent in 2003. The higher rate is due to the increase in our full-year earnings and to the disproportionate growth in earnings occurring in the U.S. tax jurisdiction which carries a higher statutory rate. Overall, this favorable rate reflects the benefits of our ongoing tax planning initiatives. Earnings from continuing operations for the fourth quarter were $222.3 million or $1.27 per share, which was at the upper-end of our guidance range. Earnings from discontinued operations were $292.9 million, or $1.68 for the quarter. Our total net earnings for the quarter were 515.2 million or $2.95.

Please turn to Slide 16. Our 9 percent revenue growth reflects increases in most of our major geographic regions. North American revenues were up 13 percent and constituted approximately 66 percent of the total. European revenues were up 5 percent; all of which was from the impact of currency. Latin America grew 6 percent, while Asia/Pacific experienced the decrease of 4 percent, largely attributable to a slowdown in our China business.

I would now like to take a few minutes to talk about the results of our businesses. Please turn to Slide 17. The Climate Control segment, which consists of the market-leading brands Hussmann and Thermo King, reported fourth quarter revenues of $734 million, this represents a decrease of 2 percent compared to 2003. Strong revenue growth in our transport business was offset by declines in our sea-going container, display case, and service businesses.

Operating income for the segment was $81 million, representing an operating margin of 11 percent, up 1.5 percentage points from the prior-year. The operating margin improvement was driven by favorable product mix and the benefits of our business integration program. Climate Control America's revenue was down 1 percent due to a modest decline in our display case volume and the elimination of unprofitable service contracts; mostly offset by continued strength in our Thermo King truck and trailer businesses. Climate Control international revenues for the quarter were down 5 percent year-over-year. European truck and trailer volume increases were offset by a slowdown in our container business, and lower display case revenues versus the prior-year. Revenues in Asia/Pacific improved slightly. Driven primarily by improved growth for bus and truck markets.

Please turn to Slide 18. The Industrial Solutions segment reported fourth quarter revenues of $423 million, a 17 percent increase over prior-year. Air Solutions revenue grew by 15 percent, driven by new product sales and increased after-market business. Recurring revenues were up 13 percent, and constituted 46 percent of the total. Productivity Solutions revenues were up 15 percent versus prior-year, due largely to strength in the industrial assembly markets and new product introductions. Operating margins for this segment was 13.5 percent of revenue, up from 10.6 percent last year. The year-over-year increase was attributable to strong revenue leverage, new product margins, and the benefits of our productivity improvement program.

Please turn to Slide 19. The Infrastructure segment reported fourth quarter revenues of $844 million, up 20 percent from 2003. Revenues for each business in the segment improved by strong double-digit rates and finished the year with continued strength and order backlog. Operating margins were 13.1 percent of revenues compared to 10.7 percent in the prior-year. Bobcat revenues increased 21 percent. The increase was attributable to strong North American markets, new product introductions and the strength of the parts and the attachment businesses.

Club Car revenues were up 16 percent from the prior-year, largely due to strong growth from the new President golf car and new vehicle introductions. Road development revenues increased 27 percent. Largely driven by strong North American markets. Segment operating income improved to $111 million or 13.1 percent of revenues, compared to 10.7 percent in 2003. The improvement was due to leverage from increased volume, new product introductions, and productivity improvements. These strong results overcame the negative $24 million impact of raw material price increases in the quarter.

Please turn to Slide 20. The Security and Safety segment continues to report strong results. Revenues of $458 million were up 6 percent from the prior-year. The increase was largely attributable to continued strength in North America residential markets and new product introductions. Additionally, we continued to see good growth in our electronic access controlled businesses. Operating margins for the quarter were 20.5 percent, compared to 20.8 percent last year. These strong margins reflect a favorable product and geographic mix, new product introductions and revenue leverage, which largely offset the adverse impact of material cost inflation.

Please turn to Slide 21. Now, let's move on to the balance sheet. Our Working Capital Management Program produced good results, we finished the quarter with our investment of working capital at 8.1 percent of revenue, which is within our target range below 10 percent. Our working capital performance was impacted by a deterioration in inventory turns. In the quarter, we increased our inventory levels based on an anticipated strong first quarter in 2005, and accelerated our raw material purchases to ensure material availability. Days sales outstanding and days payables were essentially unchanged year-over-year.

At the end of the fourth quarter our total debt was $1.9 billion, a reduction of over 400 million compared to the fourth quarter of 2003. Our debt-to-capital ratio at the end of the quarter was approximately 24 percent, which is a reduction of over 9 percentage points relative to the prior-year. Capital expenditures for 2004 were $108 million or about 1 percent of revenue, compared to prior-year's $100 million. Depreciation and amortization expense for the year was $174 million, versus 169 million in 2003. We are pleased with the continued progress made in improving our balance sheet as it continues to provide a solid foundation to support the strategy of our Company.

In order to meet the requirements of Sarbanes -- of Section 404 of the Sarbanes-Oxley Act of 2002 the Company has been undergoing a comprehensive effort of documenting, evaluating the design, and testing the effectiveness of our system of internal controls. During this process, which the Company started in early 2003, we have made improvements in the design and operation of our internal controls surrounding financial reporting. While the evaluation process has not yet finalized, the Company expects to meet the timing requirements of the Act and include Management's report of internal control with the filing of our 10-K in March. Herb will now conclude our formal remarks with the outlook for the full-year and first quarter of 2005.

Thank you, Tim. Please go to Slide 22. During the last several years we demonstrated that our business model is working, that our strategy is on target. In 2005, we expect to build on a momentum generated in recent years and improve our operating performance across each of our businesses. Activity in most of our end markets continued to experience strong demand as we closed out 2004. And our orders were up about 7 percent compared to the fourth quarter of 2003, with double-digit year-over-year growth in both November and December. From our recent order pattern, we see continued strength in most of our worldwide markets. Based on these trends, we are expecting organic revenue growth of between 6 and 8 percent for total IR for full-year 2005. This does not include our recent acquisition of CISA, which would add about 3 percentage points to revenue growth. We're continuing to focus on minimizing the impact of material cost increases, making permanent reductions in our operating cost structure, productivity gains, and increasing our working capital turns. Operating margins will improve from higher volumes and operating cost reductions. Additionally, our full-year forecast is based on the tax rate of approximately 15 percent.

Now, please go to Slide No. 23. Earnings from continuing operations for 2005 are forecast to be $5.65 to $5.95 per share. An increase of 20 percent to 26 percent, compared to $4.73 in 2004. The operating improvements of $1.07 to $1.37 of EPS are primarily made up of higher volumes due to better market conditions, price increases, share gains, and new product introductions. It also includes productivity savings for the year. We also continue to invest in growth initiatives during 2005 with projected incremental spending equal to about $0.35 per share. Foreign exchange gains, a lower share count and lower interest expense should add about $0.20 per share to earnings. We also expect costs from discontinued operations to remain at about $0.05 per share each quarter or $0.20 for the total year. This brings us to a total of $5.45 to $5.75 per share from total operations.

For 2004, the comparable full-year earnings from total operations was $4.57, which consists of $4.73 from continuing and $0.17 from the legacy cost of discontinued operations. Our baseline plan for 2005 leaves us with undeployed cash of about $1 billion and a strong underleveraged balance sheet. This cash will be available for additional high-value bolt-on acquisitions, investments in growth initiatives, and further share repurchases.

Now, please go to Slide 24. For the first quarter of 2005, we're projecting an organic revenue growth rate of approximately 9 percent. Currency and the CISA acquisition will add about 3 additional percentage points of growth, for a total of about 12 percent. For Climate Control, we're expecting revenue growth of 4 percent to 6 percent. Transport refrigeration will maintain it's upward momentum in key North American and European markets. The stationery business will continue to experience sluggish demand as major supermarket customers in North America limit their capital expenditures. However, Wal-Mart is expected to be a bright spot for the stationery business. In 2004, our activity at Wal-Mart was up over 20 percent, compared to the prior-year, and we expect at least an additional 20 percent increase in 2005. We don't have any vital information on the illusive long-term contract, but we do expect to gain significant additional business throughout the year.

Industrial Solution orders were up in the double-digit range as we close 2004 and we expect revenue growth of approximately 8 percent to 10 percent for the first quarter of 2005. Sales of complete units in North America, which typically improve in the latter stages of the business cycle are starting to accelerate after several years of lackluster demand. New product sales, renewed growth in Asia, and higher recurring revenues are also driving the revenue increase. The Infrastructure business remains very strong. And all the businesses in the sector had double-digit order improvements in the fourth quarter. Revenues are projected to be up 12 to 15 percent in the first quarter at Bobcat, Club Car, and at road and utility equipment.

Security and Safety business trends remain positive in the fourth quarter in both the traditional hardware and the electronic security business, as orders were up in the high single-digit range. End market growth is expected to continue during the first quarter of 2005 and organic revenues are forecasted to expand by 6 to 8 percent. The CISA acquisition is also expected to add approximately $60 million of revenue to Security and Safety first quarter results. And total Security and Safety revenues, including CISA are expected to increase by over 20 percent compared to 2004.

Now, please go to Slide 25. The higher revenue, combined with improved productivity will drive substantial earnings growth. For the first quarter 2005, continuing operations are expected to improve by 25 to 36 percent to a range of $1.15 to $1.25 per share. This compares to EPS of $0.92 for the first quarter of 2004. First quarter 2005 total EPS are expected to be between $1.10 to $1.20 per share, including $0.05 of cost from discontinued operations.

Please go to Slide No. 26. This ends our formal remarks, I'd like to open the floor to your questions. Thank you.

[OPERATOR INSTRUCTIONS]. We will take our first question from Joel Tiss with Lehman Brothers. Please go ahead.

Hi, guys. How are you doing?

Good morning, Joel.

Nice quarter. I'll just bolt both of my questions together and make it easier. What is in the discontinued operations that's dragging through in '05? And can you also give us a sense of why free cash flow is expected to be flat 2005 versus '04? Thank you.

Well, discontinued operations as you recall, is pretty consistent, about $0.20 of earnings impact per year negative, about $0.05 per quarter. It is really items included in legacy, discontinued operations that continue on into the future. Product liabilities would be included in that. That's why it continues. So it's not really, let's say, a business that will fade out on, Joel, it's ongoing liabilities that we continue to see going in there. Any of our asbestos claims would be running through that category as well.

Okay, is it the pension from the Drilling business that you sold?

No. If you recall, this is consistent from the past. It is -- there's a little bit of increment from Drill, and a little bit of increment from Dresser-Rand, but this is pretty consistent with what we've seen in the past. It doesn't include pension. It would include some retiree medical claims, for instance, and that type of thing.

Okay.

So, perhaps some, environmental cleanup in addition to normal reserves.

In answer to your cash flow question, Joel, clearly, we're going to see increased earnings over 2005 over 2004, commensurate with increase, the increase in revenues, we'll see some increase in working capital to support that business. We do see about $75 million worth of increase in capital expense in 2005 versus 2004. And as you recall, we increase dividends mid 2004, and so we'll have the full-year impact in 2005 relative to the increased dividend.

Thank you.

Those are the major pieces of it.

Thanks.

We will take our next question from Andy Casey with Prudential Equity Group. Please go ahead

Good morning.

Hi, Andy.

Of the $0.20 of benefit that you're including with, among other things, the shared count reduction. Can you give us a sense of what option delusion headwind you're going to be facing in '05?

Well, that's a crystal ball, Andy, let's see if I can dust it off for you. Our experience last year is that we had over 3 million shares. And so I would have to forecast that, it's obviously one of the self-fulfilling stock goes well north, and then the increase. But right now in our estimates, we're assuming that we have as many as 2.5 to 3 million more shares that will be exercised during 2005.

Okay. Thanks. And then on a follow-up, can you give us a sense. It doesn't sound like you're seeing anything in this category, but can you give us a sense if any of your markets saw any sort of tax related pull forward and demand during 4Q? Thanks.

Yes, when we looked at ours, I would say to you, that if they were it was minimal in the areas of compact equipment. It didn't apply to very large road machinery type things. So I think what we saw with the order level, that really was what confirmed it to me, Andy. Is that with the order level we saw in November and December for deliveries after that time frame. We didn't see any real significant pullout. We see continued demand going-forward.

Thank you very much.

We will take our next question from Gary McManus with J.P. Morgan. Please go ahead.

Good morning, everyone.

Good morning.

Just on the share repurchase, the -- are we assuming, you said you were going to finish the 7 million by the year, I mean you've already done a million. So can we assume like 2 million shares per quarter buyback on average? Or do you think you are going to do the 7 million well before the end of the year?

Gary, I'd like to leave it on a basis of that we're going to go finish up the 7 that we have, and then we'll go back to our Board and say yes to what we think the ongoing requirements should be addressed like. So I wouldn't do it on a straight-line basis, I would do this more early on, rather than later on.

So a million a month at like you did in January, maybe is the best guess for the run rate?

Well, I'm going to let you do your own forecast. But I'd say that's probably not too far off.

Okay. A second, I was glad to see the Security and Safety margins go back up to 20 percent after being quite a bit lower than that earlier in 2004. And let's ignore CISA for a second. Is that 20 percent margins now sustainable in '05 for the Security and Safety business?

Well, if you look at our numbers when we go to full-year-type impact. I would say to you is that we're really saying full-year -- we [almost] talked about this being around an 18 percent full-year all the time growing double-digit type business going-forward. And the addition of CISA, although we'll have obviously some initial implementation integration-type cost, I don't think it's going to change that significantly. So our target would be that the first quarter probably would be more in the 17 some odd percent range. And full-year will continue to be somewhere around 18. So that's up about a point from where we finished 2004.

Okay. CISA only had 60 million the first quarter, but 285 for the year. That's just because you didn't own it for the first month; is that right? Is there any seasonality in that business?

Not at the [stub] period that you have in there partly.

Okay. Great, thank you.

Sure.

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

Good morning.

Hi, Joanna.

Can we look into the order rates a little bit. You've talked about the orders being up 7 percent in the fourth quarter and double-digit in November, December. What kind of happened in October, I guess you saw resurgence or was it just the Climate Control businesses that had a really tough start to the quarter?

Yes, I'd tell you that if you look through it, we started off the fourth quarter with Climate Control being a tough place, Industrial being quite strong, and Infrastructure being up even stronger. And it continued to build as the quarter progressed.

And could you just give us, I guess, the stripped out numbers if you took out Climate Control? Were we double-digit for the rest of Ingersoll-Rand for the fourth quarter?

Yes. I would tell you that our actual intake level was off almost double-digit at Climate Control, so you can see how much that would have an impact on Rand.

Okay. And Tim, I think in the last conference call you talked about having the full-year '04 raw material costing around 130 million. How does -- is the 140 you're talking about for '05 just pure incremental and that, of course, is going to be offset with both price and productivity, or will the net of all 3 of those things be a plus year-over-year?

I would say year-over-year, yes, it's an incremental 140 in 2005 from 2004's levels, and our expectation is, we will offset it if -- it will be very close to just offsetting. There won't be a lot of addition from price increases and productivity.

In that area, I guess, Joanna, we've taken I would say, more of a conservative approach. Maybe what I've heard compared to others. There are some that are forecasting that -- if I could just use raw material steel as being the barometer -- we started off 2004 with about 275, $285 a ton for hot rolled. We wound up at over 750. Our numbers really would reflect it being flat to up slightly for 2005. Some people, okay, some analyst-types in the steel industry say that you can target it to be as low as $440 in the fourth quarter. That would be a pleasant surprise, and it would actually reflect why I've got $0.30, if you will, of bandwidth now in our projections rather than 25 more relative to what I see is variability in raw material. So going in we're taking it more flat, slightly up, compared to what some have going down in the second half of the year.

Okay. Great. Thanks.

Okay we will take our next question from David Raso with Smith Barney. Please go ahead.

Hi, good morning. Two question. One, the balance sheet usage and one, on the core growth. First on the balance sheet, just where you target your debt-to-cap level, the room you have on the balance sheet plus your annual free cash flow, after the CapEx. If you look at that 3.5 to $4 billion, you takeout what you've spoken of acquisitions this year; about 400 million -- a 100 per quarter. Even if you do the 8 million shares, you even bump the dividend up to where you're going to end the year at a run rate of 27.5 percent of your last 3-year-average net income. You still have over $2 billion to play with on the balance sheet.

I just want to get your perspective on the best use of that cash. It seems like you're clear about no large acquisitions and maybe there is a need to save some things for a rainy day. But $2 billion, you could take out -- even after the repo you spoke of -- another 15 percent of the shares. I'm just trying to understand where you are with that kind of room on the balance sheet psychologically?

Well, psychologically, David, is that I already have an umbrella, and I'm not looking to buy a lot more. What we really want to -- that's why I teed it up as -- what we're giving you is a plan, that if implemented as we described or what I said to you in my comments, is that we would windup with an underleveraged balance sheet and depending on what assumptions you make on the price of the shares you buyback, somewhere between 800 million and $1 billion of cash in the balance as well. That gives us the opportunity to make significant improvements in our bolt-on acquisitions.

I would like to find another 2 or 3 CISAs candidly. But I also want to find a better price point that makes it reasonable. What I'm finding now is I'm looking at lots of them that are in their size, but frankly they're just overpriced and I can't get a good return based on what expectations the pricings are right now. So I would rather not make preemptive purchases at real significant premiums, I'd rather frankly wait a little bit if I need to in order to go get them at a better value.

The share buyback clearly is one way of returning value, which we said before, we have really stepped that up. And as we continue to see long-term confidence in our earnings growth, I think that will be an area where you see continued activity from ourselves as our Board approves more share repurchase going-forward. The dividend, if we do the math based on what I said on the predividend cash, that would show that we're going to probably increase of, again, significant double-digit-type increase [indiscernible].

So it's really the sum of all of those. But what I want to hear is, to the -- what I'd like you to hear from me is the fact that we have opportunities to do bolt-ons. We see lots of organic growth opportunities. We are, as we speak -- I just came back from China, where we are at this point in time looking seriously at opening up a couple of Bobcats of Shanghai, [Shangqiu], and so on, because I think we have to build a channel over there.

So we see some real growth opportunities that we will require. 2005 is the first time I can remember in several years where we're actually adding capacity. We're building now a logistics center in Bismarck for Bobcat. We're reopening a plant we had closed down in the Carlton area of Georgia, to go do more attachments. We're building a big development center in the Czech Republic. So I see really the ongoing all of those things. Nothing dramatic, earth shattering, just continued steady all across the board in all 3 areas.

The thing is though your CapEx numbers already reflect some of those capacity expansion --.

That's right, that's why it's up to 150, 175. But I'm saying, I think what you -- what I look at on it, David, is that I want to make sure what we do is have the ability to have [indiscernible] implementation. It does me no good to throw a bunch of stuff on the wall. What I want to be able to do is to go into absorb, whether it's a new factory, whether it's an acquisition, or so on. So I'd rather have a steady level of activity that we can really implement successfully. And right now you're absolutely right, it shows we're in a position to step up that. And I want to make sure we do it in areas that really have pay back and not just make us bigger in the short-term.

Is it fair to say Management is more of a share repurchase Management than a dividend Management when it comes to big chunks of the cash being utilized?

I think there's a balance between them, but I would say that's structurally correct. Yes, because you have to look dividend [indiscernible] in my mind is, I don't see the benefit to shareholder of one-time of big special dividend-type stuff. That doesn't make any sense to me. It's not a long-term sustainable thing. So I think you see that continuing to grow at a sustained rate where the share buyback obviously has a beaded impact and a continuous impact.

And lastly on the core growth, the 68 percent number for '05 is pretty strong. But geographically it looks like the growth rate flowed a great deal outside of North America, and clearly some of its currency year-over-year is becoming less of a benefit. So I understand that's part of the issue, but when you look at core growth 6 to 8 percent. Can you help us a little bit geographically how that breaks down?

Yes, I would say to you that the U.S. fits right into that range, okay? That is in that 6 to 8 percent-type range. Asia/Pacific as we see in terms of -- the variety between what's going in the Southeast and versus that -- we actually see that also, only at this point in time, in the same kind of 6 to 8 percent range. We don't see the double-digit. We need to get that regrowing with the additional solutions that are there. A big part of that is going to be what we're seeing as a reduction in container business coming out of China. When I look at Latin America, we look at that as relatively flat. Now, it's a small number for us, so it doesn't move things a lot. And then Europe actually for us, obviously with the addition of CISA and so on, is going to be up double-digit.

So the CISA is in the core growth, 6 to 8 percent?

No, what I'm saying -- but if you take that and then you add CISA on top of that it will wind up -- it's going to go up. So our total number there is still around 10 percent for Europe.

But at the end of the day, that's implying an acceleration in Europe which just came in flat ex-currency?

Yes. And what I'm saying is, when we look at the full-year forecast what we're really seeing at this point in time is very strong growth in Infrastructure, Industrial, as well as Security and Safety. And I think in Climate Control, we also see some up side. Climate Control numbers in 2004 in Europe was significantly impacted by a Tesco contract that we did not renew. That is really, I think, almost 100 percent of the total decrease that was there. Now going-forward with that already out of the pipeline, we actually see the stuff going up, and there's no FX in our 2005 number either.

Okay. Thank you very much.

Sure.

We will take our next question from Mark Koznarek with Midwest Research. Please go ahead.

Hi, good morning.

Hi, Mark.

Let's see, I think we just touched on what I wanted to ask you about, which was the rank order in the growth. You just mentioned Infrastructure than Industrial, Security and Safety, and the Climate Control in that order; is that --?

That's about right.

And then the other piece was that the recurring revenue drop -- you just mentioned the Tesco contract -- is the cleaning up of this Climate Control recurring revenue complete as of year-end or is there still pruning that's going to occur in '05?

We cleaned the trash in 2004. It actually, at this point in time when I look at it I don't see any further ones that are there.

We should be back into growth motive for that business in 2005.

And you said, Herb, that that recurring revenue for Climate Control was down double-digit because of this?

Yes, it is essentially off. When you add the pieces from the large contracts, we had Ralph set in the West Coast, there are just several like that that come to mind. So what we had is that -- where we actually had some very large regional, or even larger than that contracts, what we found when we had in there was some fixed pricing stuff, they were just not providing a return. We were better off walking away from them, unless the customer's willing to step up what they were paying us for the services. We decided to let someone else suffer the misery instead of us. It's done, Mark, for 2000 -- going into 2005.

All right. So, for '05 then what would be a reasonable, clean taste, growth outlook? You know, absent until the puts and takes that have been going on.

And I'm sorry, you -- in the Climate Control, you're talking specifically?

Yes.

If I look at growth, from them overall, I'd say, their full-year forecast is closer to the 8 percent level. Actually, picking up first quarter being more in like the 4 to 6 like I mentioned and then getting stronger as we wind up getting into the second half of the year to almost double that run rate.

And the piece I would say to you is that -- I now refer to as the "illusive contract." We continue to see strength. We have over 20 percent -- I think it was 23 percent, something like that in 2004 versus 2003, we wound up doing it. And now what we see is that the total going-forward for 2005 we expect to be up even more than that. And I'm optimistic that if the illusive contract actually gets signed, it will provide some really dramatic growth in that business as well. But I don't have baked in the numbers yet.

But absent that, I would say we're pretty consistent growth, that that level that Herb mentioned, the kind of the, 4 to 6 percent in the first quarter and the kind of 8 percent full-year as that escalates is pretty balanced between the service side of the business and the case volume.

So those are numbers, just to clarify, and this is my last question. Those are numbers just for case, that's not Climate Control total?

No, that's Climate Control total.

Okay. But case is a significant driver of that?

I'd say it's pretty balanced between service and the case.

Okay. Got it. Thank you.

We will take our next question from Alex Blanton with Ingalls and Snyder. Please go ahead

Good morning.

Hi, Alex.

On these continuing, discontinued costs. How do they fit in with the legacy cost of $0.17 for 2004, and the earnings from discontinued ops of $0.24? So those are combined then for 2005, those 2 line items?

The $0.20 is kind of a legacy cost that we've always incurred. There's quite a number of moving parts in the disc ops-line, as I kind of laid out in my bridge at the beginning. We have embedded within disc ops obviously, the gain on sale of both for full-year 2004, the gain on sale of both Drill and Dresser-Rand and we have sold one other small business in the third quarter. We had the earnings for the period of time that we had it. We had a tax -- as we closed out the transaction, we identified some FISC tax benefits that I pointed out that were about $0.06 that actually came into the operations line.

And of course you know we had a fourth quarter CDSOA payment that was -- added about $0.06. So there were a variety of different things in there, but as you think about 2005 in the future, those one-time discontinued operations will go away. And you should plan on that $0.20 per year, about a $0.05 a quarter.

And what we're saying is that 2005, as far as we see right now the only thing that we have in there are the ongoing legacy costs. We don't -- there are no further CDO-type payments and we do not have planned at this time the sale of any significant business-type units. So I think you see discontinued becoming more of a ongoing liability line of $0.05 a quarter without any other --

We really have to include it in the earnings, since it's not --?

That's historically referred to that -- as total operations, right. We have the continuing operations and then what we also add in the discontinued operations, at least, that is recurring to get to what we referred to as total operations. And again, Alex, if you go back to the Slide that I talked about at the very beginning of our presentation, it breaks out all of those component pieces both on a first quarter basis and then a full-year basis.

Okay. Now, the second question is on the cost increases from raw materials you're forecasting, does that include inefficiencies due to supply shortages? Inefficiencies in your operations or is it strictly just the cost increase of the raw materials?

Cost of materials.

Just cost increases. What we do is we track by commodity-type all of the costs by steel, non-ferrous and so on, and so the number we're giving you are those, the other items would be included in our entire productivity numbers, we go into that way.

But it would be netted out against productivity?

That's correct

So you're just looking at raw materials. If we just look at surcharges and prices alone, how much of the 140 would you expect to recover?

I would say that we're going to be talking somewhere in the half [indiscernible].

One half?

Yes. In 2005 you're referring to?

Right. That's right. So you're going to recover half of that, then you are going to recover the other half with the net productivity improvements?

Our target for gross productivity eventually, north of $125 million.

Gross productivity? Okay.

Right. So you take the 100 -- so you get the productivity, you add to that the price surcharge and you net against that the raw material increases. And when you're all said and done with that, you actually wind up with, we hope to have an increased net productivity of somewhere in the 50 to $75 million range.

This is including the raw materials?

Yes, that's what I said. What we do is operationally, we look at what are we going to do too increase our throughput in the plan, the effectiveness we have there, we net against that what we have is material increases, and obviously what labor cost increases go in. And the net number from that has got to be positive. And what I'm saying to you right now, that looks like something in the 70 to $75 million range as we enter the year based on what I've been told are conservative material, but, I'd rather be conservative in material than surprise you positively the other way around.

So just to summarize that 140 to 150 of increased raw material cost about $125 million is what we consider productivity, that is buying better, buying smarter, and also internal productivity initiatives. And then 50 to $75 million worth of price increase. Raw material cost driven price increases and price -- and surcharges attributable to the cost increases

Okay.

Nets out in the range of $50 million, 50 to 75 that Herb identified.

Okay. Just one more thing. When I started I said, if you have inefficiencies in operations you can't get raw materials, you have to go back and have incompleted machines, you have to complete later or something like that. The inefficiencies, where would they be in all of these numbers?

They would hit into that productivity number, we just had there before and that would be in my cost to goods.

It would be included in that?

Yes.

And it's a negative productivity?

Yes, for instance, during 2004 Expeditor was a very big job description as we were chasing around, some hydraulic components and so on. And that obviously, what you start seeing on -- because that's why, when I looked at the beginning of the year, we were on incremental revenue dropping through between 42 and $0.45 on a dollar. We were only doing -- only it's still a good number, but relative to that we were only doing $0.30 on a dollar when we got to the fourth quarter. Some of the $0.10 [indiscernible] that you have in there are the types of inefficiencies that you are describing that have to do with expediting, material handling and extra premium freights, and all the other junk that happens as a result of touching it more than you want to.

Okay. Thank you.

Sure.

Okay, we'll take our next question from Robert McCarthy with Robert W. Baird. Please go ahead.

Good morning, guys.

Good morning, Rob.

I wonder if I could just get a clarification from you first, the double-digit booking decline in Climate Control you were talking about, that was the entire fourth quarter or just the month of October?

The total bookings for the fourth quarter were down about 10 percent.

Okay. I gather you do not have anything in your forecast for option -- for expensing options?

That is correct, Rob

Do you have a preliminary estimate for an impact in '05?

Well, it's --.

I know.

It's midyear, before it will be put in place. We're obviously studying the binomial and the Black-Scholes models to understand what we want to do and how we may transition it in and whether we restay and so forth. So there's a lot of activity going on and we have not concluded on that. But if you go back [archives] we do footnote disclose the amount of cost associated with our stock options on the annual base if we were to have expensed them, and it was probably $30 million. So assume if we did, the Black-Scholes you're probably talking about something in that range. We would expect that probably the binomial model would result in something less than that.

On a full-year basis.

That's on a full-year basis; that's correct.

That's the best number we could give you right now to sort of look at. But obviously we -- I can't wait to see what they're going to come up with what we do.

On allocated corporate expenses down by a huge amount, of course, in '04. Can you help us a little bit with what to expect on that line going-forward?

A big piece of that, Rob, is the -- is that increase in stock-based liabilities in 2004 as it was in 2003.

Right.

We're kind of targeting the normal -- obviously we had talked about some of the elements of that in prior years, prior quarters, was attributable to some of the absorption or reducing our costs when we sold off businesses. Some of the corporate expenses didn't immediately go away. So it was -- it took us some time to make that go away, and that brought it down. As we look at 2005, I think you should anticipate somewhere around 25 million a quarter, $100 million for the full-year.

With embedded in it would be an underlying assumption that -- I mean what you're calling "options liabilities" or -- which -- it's really an incentive comp, right?

Well, what it really is, is it's things like when employees defer compensations and invest it implicitly in Ingersoll-Rand stocks, as the stock price goes up, our liability goes up. That's really what that is. There's no option component, there is a piece of -- it's -- there's a piece of SARS where we have international employees that's embedded within there, and we have reflected in the $100 million number I gave you, probably 10 -- 5 to $10 million worth of increases in that liability.

Okay. Thank you.

Well take our next question from Barry Bannister with Legg Mason. Please go ahead.

Good morning.

Good morning, Barry.

Good morning. This is one of the only stocks I follow that's still somewhat at or below the 1999 April price. I'm trying to get my arms around this incentive pay plan. It seems like you, ram the ship into the rocks on Hussmann a few years ago, got a 3-year recovery, and then pay yourselves 3 million options a year and use a repurchase authorization just to buy it back to avoid [creep]. So what exactly is the ongoing forward-looking incentive pay plan now that we have sort of established what the historical plan has been?

For those of us who showed up in April, March of 1999, I remember that there was about a 2-month period of time when the stock hit north of $70 -- it had been traveling at 40 to 50 all the time before that. When I look at the subsequent down almost 6 years, we wound up in 2001 having a significant downturn, where we participated in a recession. The stock obviously went down into the 30s. During that period of time, the number of options were significantly reduced. The variable comp was zero in several instances. Now, that the business is starting to grow again on it, I think what you see is that you wind up having again options.

Our option payout level, the number of options yet is directly related to our performance versus plans that are in place. So they actually wind up going up and wind up going down. And if I look at now in terms of [indiscernible] the total stock-base comps and sum -- we look at 2004, 2005 there's about $50 million that winds up going out to the entire Management Team. That's the magnitude of what is there.

All right and just Tim, one last question. Now that the Company has got a new year have you considered just reporting clean quarters? I think you're through the transformation. It doesn't serve the Company to report all this nonsense below the operating line. One of the things that you might do is run your bolt-on piece mill acquisitions through operations and ram the legacy cost through corporate and other where it belongs. So are you going to be reporting cleaner quarters or is it still going to be all this terminology Lexicon?

No, Barry. I mean there are county regulations that dictate where we include these things. I think we have tried to improve the transparency of our reporting. We report what we have. We've been very clear on what's in the component pieces and do the reconciliation for you. As we go forward, we have substantially completed all of our dispositions of nonstrategic businesses. So I wouldn't expect that we would have the confusion brought on by the discontinued operations and so forth. And in 2005 as we've laid out it should be a pretty clean continuing operations number. And as you can expect about $0.20 worth of full-year impact from our legacy cost associated with this -- or associated with prior dispositions.

All right. Thanks.

We will take our next question from David Bleustein with UBS. Please go ahead.

Good morning. What's the duration of the ongoing component of those discontinued items?

As we look out at the horizon -- I can say it's going to be 10 to 20 years. Our expectation is that it's pretty much a recurring cost. At some point, yes, they will end, but it's not in our immediate planning horizon.

All right. And Herb, just a real broad question, but with the major divestitures behind you, where are you spending most of your time? What are you focused on? And if you were going to do an acquisition, which areas right now look like the most interesting to you?

Well, if I look at where we finished the first month, during that month I spent 1 week in China and India. I spent a couple of days in Europe and I spent some time here in the U.S. I was involved in doing operation review, meeting with customers of new businesses, and having a couple of looking under, the co-hoods of potential acquisitions. So I think really we'll be continuing to be all those parts. I see significant growth opportunities for us on the organic side where we are not yet in some of the geographic regions. And clearly, I think we look for a bolt-ons that will add to what we did down like CISA.

Terrific, thanks.

Cynthia, we'll take 2 more questions, please.

We do have a follow-up question from Robert McCarthy with Robert W. Baird. Please go ahead.

I just had another number orient question, guys, in the Industrial Solutions segment you have a couple of pieces that according to the slides were up 15 percent the segment was up 17 percent. I'm wondering what the missing piece is?

There's a piece called "Energy Systems," where we have the microturbon, which is running about for the full-year somewhere around 10 some odd million dollars. And it was pretty strong in the fourth quarter. We had revenues almost 8 million there.

Okay. Thanks.

Well take our final question from Ann Duignan with Bear Stearns. Please go ahead.

Hi there, just a couple clarifications. On the $0.03 earnings from discontinued operations can you tell us how much of that was Dresser-Rand and how much was adjustment for Drilling?

It was about $0.02 and $0.02 in Dresser-Rand and it's about $0.01 worth of other things.

So Dresser-Rand contributed $0.02 of earnings for one month of performance?

Right. That's correct.

Okay. So there was nothing unusual in even keep receivables or anything with that transaction that would have inflated that or?

No. We thought it was going to be $0.01 and they had a stronger October than we had originally envisioned.

Okay. Because it does seem a little high. And then on the acquisition of CISA. We're struggling to get to net accretion of 8 to $0.10 for 2005. Can you help us understand -- we can get the operating number quite easily, you obviously give us that. Can you tell us how much you're subtracting for loss of income from cash and the assumption of the debt from that business?

Yes. You start with about $46 million worth of annualized operating income. There's about, 5 or 6 -- 5 to $7 million worth of transition integration costs reflected in there. Remember that we -- from looking at a bottom line EPS standpoint we already had 30 percent interest in the business, so we're talking about an incremental 70 percent of it. So you have about $28 million worth of incremental there. And then subtract out the interest. We're assuming in that, that we alternatively would invest the cash at 2 to 3 percent. When you get finished with that, you should get down to that 8 to 10 percent.

And what about the cost of the debt you assumed?

Our assumption is, is that we will pay that off pretty quickly.

But isn't there a cost assumed with that?

Yes, there are --.

If you lose more interest from the cash you used to pay off that debt?

Exactly. I mean, it -- we would pay that off and we may pay a little bit of premium. But that's embedded within the net interest cost when we think of 2 to 3 percent.

So it will be 2 to 3 percent of -- if I'm correct about Euro 400 million?

Yes, about 500 million total. I'm sorry Euro, you're correct $500 million.

Okay. It's still a stretch, I think, when we do the mathematics to get to 8 to 10.

Well, we had 28 and you subtract out 10 to $12 million worth of interest. It's going to bring you down to 16. And by the time you factor in some too taxes and factor in there our number of shares, usually it tends to be a 50 percent kind of number from an earnings standpoint down to an EPS. So I think that gets you there, Ann.

Maybe I'm using a different tax rate. So I'll take that offline. I know we're running out of time here. But you gave us an organic growth rate for the year. You kind of talked about some of the businesses through the course of the conference call. Could you just quickly run through your organic growth outlook by business for '05, not just Q1?

If we do a full-year, I see as I said before is that we expect Climate Control to move up into the 6 to 8 percent-type range.

Right

I think that Industrial Solutions actually is above that they are probably more 8 plus, 8 to 9 percent. Infrastructure is going to be in the 8 to 10 percent. That's what we had in there for full-year because we got some interesting comps in the second half of the year. And then Security is also going to be up -- now I'm doing it without CISA, okay? We thought that was also going to be up somewhere in about the 8 percent-type range.

So that's without CISA.

Those are organic, as Herb mentioned it excludes CISA. It does include probably a percent of currency.

A percent of currency?

Approximately 1 percent.

Okay. And then just real quick, I know -- of the 1.9 billion recurring revenues, could you give us a sense of how much of that is spare parts versus actual recurring service contracts?

Wait while the computers run.

While the computer's running, do you include things like attachments in Bobcat as --?

No. Attachments would not be included in our recurring revenue.

Okay.

Just give us one second, Ann, we're looking up the numbers.

I'm looking at the -- I'm afraid I don't have the parts individually because it always gets lumped together along with the service side. I'm just looking through it -- you know what Ann what I would like to do is have Joe give you that specific -- rather than I trying to fabricate a number and be wrong with it. I have to go -- we have to pull out because we have Service and Parts lumped together.

Okay, that's fine. It's just that we tend to look at them as having different margin profiles --.

Oh, they do for sure. I'm sorry I just don't have them in front of me the ability to pull those 2 apart for you.

Okay. I'll take that offline and follow-up with Joe.

Great. Thank you.

Thank you.

Thanks, Ann.

This will conclude today's question-and-answer session. I will now turn the call back over to Mr. Fimbianti for closing comments.

Thank you very much, Cynthia. We're wrapping up now. Thank you for joining us. There will be an instant replay of today's conference call available at approximately 1:00 p.m. It will be available until the February 7th. The call-in number for the instant replay is 888-203-1112. And the pass code is 675112. The audio and the slides from today's conference call will be archived on our website.

And finally the transcript of this conference call will be available on the Ingersoll-Rand website next week. This is -- I wanted to remind everyone this call is taking place in Davidson, North Carolina. So I'm not going to be in my normal office. But you can reach me today at area code 704-655-5775. Thank you very much. That concludes our call for today.

Once again, ladies and gentlemen, that will conclude today's conference call. We do thank you for your participation and you may disconnect at this time.