特靈科技 (TT) 2007 Q3 法說會逐字稿

Good day, everyone, and welcome to the Ingersoll-Rand third quarter 2007 earnings conference call. Today's call is being recorded.

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

Thank you, Dana. And thank you, everyone, for dialing in. Welcome to our third quarter 2007 conference call. We released earnings at 7 a.m. this morning. And you should find the release posted on the website. This morning, concurrent with our normal phone-in conference call, we'll be broadcasting the call through our public website. There you can also find the slide presentation for the call. To participate via the web, go to www.ingersollrand.com, click on the yellow icon in the home page of the website. Both the call and the presentation will be recorded and archived and will appear on our website later this afternoon.

If you would please go to slide number 2. Before we begin, as usual, I would like to remind everyone that there will be forward-looking discussion this morning, which is covered on our Safe Harbor Statement. Please refer to our June 30, 2007 10-Q for details on the factors that may influence results. Now I would like to introduce the participants of this morning's call. We have Herb Henkel, Chairman, President and CEO of Ingersoll-Rand. We also have our new Senior Vice President and Chief Financial Officer, James Gelly. Welcome, James. And Rich Randall, our Vice President and Controller. We will start this morning with formal presentations by Herb Henkel and James Gelly, followed by a question-and-answer period. Herb will start with an overview. If you would please now go to slide number 3. Herb?

Thanks, Joe. And good morning, everyone. This morning we announced third quarter earnings of $0.92 per share, which included $0.68 from continuing operations and $0.24 per share from discontinued businesses. Total earnings also included about $14.3 million of pre-tax restructuring costs, equal to $0.04 per share. Our overall operating results of $0.96 per share were about $0.08 above the mid-point of our prior forecast of $0.85 to $0.90 per share. Please go to slide number 4.

During the quarter, we continued to see solid activity in many of our key end markets, including commercial building, industrial, and refrigeration, throughout the world. We enjoyed another strong quarter in terms of revenue growth. Revenue growth for the quarter was about 10%, which was well above our prior guidance range of 6% to 8%. Organic revenue growth at 9% was above the upper end of our stated 4% to 6% long-term target range. This growth highlights the benefits of our recent investments for innovation and geographic expansion. We've been able to offset several soft domestic markets and report substantial organic growth. This chart also highlights the consistent revenue growth of our three-platform business compared to the ones we're selling. Our discontinued operations are on plan for the year, but they've been strongly challenged for the last five quarters by the down cycle in the U.S. residential building market. James will now review individual business unit performance in closer detail. Then I will cover some key strategy considerations and the outlook for the fourth quarter and the full year 2007. Welcome, James. It is all yours.

Thanks, Herb. Before I jump into this quarter's results, I want to remind everybody that, like last quarter, Bobcat, Utility Equipment and Attachments will be reported in discontinued ops for both current and prior periods. If you would be good enough to go to slide number 5, the one entitled third quarter revenue growth. As Herb just showed you, all three operating segments delivered solid revenue growth. And in general, we continue to see strength in most key end markets, apart from the North American residential and transportation markets, both of which I will discuss in just a minute.

If you look at the upper left of this chart, you can see that Climate Control was up 7% and both Industrial and Security were up double-digits. Organic growth at Industrial was 9%, excluding three modest bolt-on acquisitions. Looking at the upper right, organic growth was 9%, which excluded 2% favorable impact from foreign exchange. If you go to the lower left, you see growth rates by geographic region. This quarter's results really show the kind of consistent growth that comes from having invested in global diversification. Basically, 4% in the U.S. and 19% across our overseas businesses. Specifically, Asia Pacific was up 24%, Europe, 17%, with solid results across all of our reporting segments. And Eastern Europe continued to be strong, offsetting some slower growth in Germany and France. Revenue in the Americas up 6%, as it shows, despite soft residential and transport. But Latin America sales were up double-digit, and again, across all three of our operating segments. Finally, looking at the lower right, total recurring revenues, which are of course part services, rental, and used equipment, increased 6% year-over-year and account for about 18% of total revenue. Let me go to slide 6, which gives a quick summary of continuing operations, revenue and margin for the quarter.

As you can see down on the lower right ,operating margin reported was 12.3%, down 90 basis points from last year's 13.2%. Excluding a $14.3 million restructuring charge taken in Climate Control, overall operating margin would have been 13.0%, down slightly from last year. Our ongoing cost and productivity initiatives have led to us identify a number of potential high-return restructuring opportunities. And as you'll see, Climate Control initiated a couple of these in the quarter, primarily consolidations of high cost facilities in Europe. We'll continue to look for opportunities to further improve our cost structure going forward. Let me go and cover the income statement in more detail on the next slide, number 7. And skipping right to the second line, operating income was $276 million in the quarter. As I just said, that included $14 million in restructuring charges. The relatively low degree of leverage that we displayed in the quarter resulted from the impact of unfavorable mix, cost inflation, some growth investments, which more than offset a favorable volume and price. Material cost inflation continues to be a drag on profitability. Third quarter commodity inflation was approximately $20 million, and has been nearly $70 million year-to-date. We expect full year commodity inflation of $85 million to $90 million, which is consistent with what we said previously. Nonferrous metals continue to be the major culprit. And we're working to offset the impact of cost inflation through sourcing initiatives, value engineering, and of course, price increase.

Moving down the page, interest expense increased slightly to $33.3 million, reflecting higher debt levels. Other expense for the quarter was $7.6 million compared with $2.4 last year, and the year-over-year difference was primarily due to currency losses. Tax rate for the quarter was 16.1%, up from last year's 14.7%. And we're still projecting a full year rate of 15%. So earnings from continuing ops were $198 million or $0.68 per share. Earnings from discontinued ops were $69 million or $0.24 a share. And for future reference, this breaks down into $0.29 of earnings from discontinued ops -- discontinued businesses, and $0.05 of retained costs, which relates to previous divestitures. Just a quick word on the businesses that we now classify as disc ops, Bobcat, Utility Equipment and Attachments, as they disappear over the horizon.

In the quarter, they met their planned objectives, with revenues increases 26% versus easy comparisons last year. As you recall, last year's results were negatively affected by a sharp decline in North American equipment demand and factory and dealer inventory corrections. Operating margins in discontinued businesses was 15%, also a significant increase compared with the third quarter of last year. Finally, net earnings for the third quarter from total operations were $267 million or $0.92 per share. Let me now take a few minutes to talk about each of our reporting segments in more detail. So if you would turn to slide 8, I can start with Climate Control. Here you can see that sales were $882 million, up 7%. Worldwide, Truck and Trailer revenues expanded by approximately 10%. North American shipments have been weak for awhile, as you know, due to declining truck ton miles and lower freight rates. Looking at the North American refrigerated trailer industry as a whole; third quarter shipments were down 20% and are forecast to be down approximately 15% for the full year to about 33,000 units. For our Thermo King transport business, declines in North America were offset by strong growth in overseas markets, especially in Europe but also in Latin America and Asia. It is interesting to note that for the quarter, our European trailer revenue base exceeded the Americas trailer sales for the first time.

Looking at the full year, we expect worldwide Refrigerated Truck and Trailer revenues to show positive growth year-over-year, again, driven by European trailer volumes, which will exceed our North American business for the full year, too. Worldwide Bus and Sea-Going Container sales also expanded nicely in the quarter. And moving down the page, looking at Stationary Refrigeration, this business was up 4% in the quarter. This time, growth in the Americas and Asia more than offset lower sales in Europe. These examples highlight the benefits of geographic diversification, which allows us to more than offset declines in key markets and still deliver substantial growth. Looking at the lower right, operating income was right at $100 million, representing an operating margin of 11.3%, or 13%, excluding the restructuring charge, and this compares with 12.6% in the year ago period. Favorable volume, price and operational improvements more than offset by inflation, unfavorable mix and restructuring costs.

Lets go now to slide 9, which covers our Industrial Technologies reporting segment, which reported third quarter revenue of $702 million, up 13% versus the year ago quarter. Minus acquisitions, organic growth was 9%. Air Solutions revenue grew by 19% -- that would be 12% organic -- as favorable industrial markets drove higher revenues across all geographic regions. Recurring revenues were up 11% year-over-year. Productivity Solutions delivered 4% organic growth, as international growth in material handling and higher services revenue offset challenging domestic markets, primarily in tools. And Club Car revenues grew 3% year-over-year. And this increase is attributable to higher sales of utility and 4X4 vehicles, higher aftermarket sales, and some continued share gains in an otherwise lackluster golf market. Segment operating income was $93 million, representing an operating margin of 13.3%, up 50 basis points from the third quarter of last year. Favorable price mix and productivity were partially offset by inflation and growth investments.

If you go to slide 10 -- I will cover the Security Technologies segment, where revenues were $655 million, up 11% compared with last year. Commercial revenues were up 16%, driven by strong worldwide commercial construction, especially schools, universities, and healthcare facilities. Revenue from Electronic Access Control was up 24%, while sales of Mechanical Products increased 13%. North American sales in the residential segment increased a very impressive 5%, in view of the precipitous decline in domestic residential activity. This was accomplished through market share gains at big box customers and in the new home builder channel. We also saw strong sales of newly introduced residential electronic products, which helped drive these impressive results. Third quarter segment operating income was $113 million, which gives you an operating margin of 17.2%. This is down about 60 basis points from last year's throng strong 17.8% margin. Price increases have not yet passed through all of the impact of material cost inflation, primarily copper and zinc. So this segment delivered favorable price, solid productivity, and continues to make some targeted growth investments.

Turn now to the balance sheet, slide 11. Our balance sheet continues to show good strength, flexibility. Looking at working capital; inventory improved by three-tenths of a turn, which helped reduce the negative impact of higher receivables days and slightly lower payables performance. Capital spending in the quarter was $31 million, about 1.5% of revenue, while depreciation and amortization were $28 million. Debt, net of cash balances at the end of the quarter, was $2 billion. This is up about $200 million from a year ago quarter. And this reflects solid cash flow from operations, divesture proceeds, more than offset by the impact of aggressive share repurchase activity in the last year. Debt to total capital was 31%, up from 26.6% a year ago, and this reflects about $800 million in commercial paper outstanding at the end of the quarter. With all of that out of the way, let me turn the proceedings back over to Herb.

Thank you, James.

Please go to slide 12. I would like to address several topics of interest to investors. The first topic is corporate development activity in the third quarter. On July 29th, we announced an agreement to sell our Bobcat, Utility Equipment and Attachments business to Doosan Infracore for cash proceeds of $4.9 billion. We expect to complete the sale towards the end of the fourth quarter and for the after-tax proceeds to approximate $3.7 billion. The sale of these businesses represents the last major divesture to transform our business portfolio to repositioning Ingersoll-Rand as an diversified industrial company. We remain focused on driving growth and creating shareholder value through three powerful growth platforms serving global climate control, industrial and security markets. I am confident that these businesses can and will deliver improving and consistent financial performance over the long-term and across all phases of economic cycles. Collectively, this transaction and the recent sale of our road development business in April 2007 will generate proceeds of more than $6.2 billion and approximately $4.8 billion after tax. As a result, we've created immediate value for our shareholders and unlocked significant capital for driving long-term growth.

Now please go to slide number 13. The second area I would like to cover relates to the investment priorities for the redeployment of cash from our divestures, as well as our strong available cash flow. Our priorities have remained consistent over the last several years. We will continue to use a balanced approach, split among internal investments for organic growth, acquisitions, and share repurchase. Our preference will be to use the proceeds of the sale to augment profitable growth by funding innovation and new products effort and to make acquisitions that enhance our strategic business platforms.

Now please go to slide 14. Over the last two years, we've increased our internal investments to fund continuing innovation and geographic expansion. Our strong organic revenue growth in 2006 and 2007 is proof that these investments are paying off. Going forward, we're expecting to increase investments in our internal operating systems to improve efficiency. We'll also be making additional investments to upgrade our manufacturing technology and systems to improve margins and ROIC.

Now please go to slide number 15. We also remain committed to supplementing our organic growth with acquisitions that extend our product technologies, expand our product and geographic market reach, and increase our recurring revenues. Going forward, we're targeting to complete a number of value-creating acquisitions, which can replace the revenues and earnings lost from recent divestures. The environment for acquisitions has improved recently with the sharp decline of private equity activity. We've always had an excellent pipeline of candidates, and in view of improved deal multiples, we expect to be able to close more transactions over the next few years. We've retained our investment criteria. That means always comparing potential deals with the returns from share buybacks. We continue to believe that there is significant growth potential in our portfolio of businesses and that there are acquisition opportunities available to supplement our organic growth potential. With our current strong cash balances, strong cash generation capabilities, and an under-leveraged balance sheet, we obviously have substantial resources for acquisitions.

Now please go to slide number 16. You may recall that in December 2006, the Ingersoll-Rand Board of Directors authorized a share buyback of $2 billion. On May 14th of this year, the Board increased the authorization to $4 billion. And we targeted and completed the first $2 billion tranche at the end of the third quarter. We repurchased 21 million shares during the third quarter and close to 39 million shares year-to-date. The pace and timing of share repurchases during the fourth quarter will primarily depend on acquisition opportunities and the closing date of the sale of the construction related businesses to Doosan.

Please go to slide number 17. The third area I wanted to cover was our tax dispute with IRS for tax years 2001 and 2002. On July 20th, we received a notice from the IRS containing proposed adjustments to our 2001 and 2002 taxes, effectively treating the entire intercompany debt incurred in connection with the Company's reincorporation in Bermuda as equity. We strongly disagree with this view, and during the quarter, filed a protest with the IRS contesting their conclusion. The timing of the resolution of this dispute is unclear. We will provide updates on any material developments in this matter in our future public filings.

Now please go to slide number 18. We had a great many changes in 2007, and we expect to continue to strengthen our business mix as we go forward. Our portfolio no longer reflects the cyclical, capital-intensive heavy machinery profile of our past. The future Ingersoll-Rand is a multi-brand commercial product manufacturer serving customers in diverse global markets. To that end and with your help, I look forward to the day when our share price is completely unaffected by any twitch or news from Caterpillar and to never again see Ingersoll-Rand's name mentioned in a news report talking about heavy machinery. We'll continue to execute our strategy, which has delivered solid results and improvements for the past seven years. We've become a global company able to serve global markets. We've created a strong foundation for growth by expanding our recurring revenues and through our commitment to innovation across all of our businesses. We're demonstrating operational excellence and the benefits of our business operating system will be a base for ongoing future gains. I am confident we have delivered only the beginning of the long-term benefits that will accrue from our Company's transformation. Now do we shed our heavy machinery past, while elevating our sights to achieve top tier performance within the diversified industrial space. Even how I am pleased with our recent strong revenue growth, we have lots of room for additional improvement, especially in our operating leverage, our working capital management, and cash flow generation. We have many significant opportunities ahead of us, and we're well-prepared to manage the challenges ahead as well.

Let's go to slide number 19 and let's go to the outlook. Our economic outlook for the balance of 2007 has not changed materially since our last forecast in July. We closed the quarter with solid revenue growth in most of our businesses. And in our continuing operations, bookings were up about 7% compared to relatively strong numbers last year. This 7% is slightly below bookings for the first and second quarter, which increased by 8% and 9%, respectively. With the exception of the North American residential building and transport refrigeration markets, we expect steady growth in most of our worldwide end markets for the balance of 2007. Based on our recent order pattern, we expect fourth quarter revenue growth to be in the range of 5% to 7%. Earnings from continuing operations for fourth quarter 2007 are forecast to be between $0.76 and $0.79 per share, with discontinued operations EPS in the range of $0.18 to $0.20, total fourth quarter earnings per share in the range of $0.94 to $0.99 and exclude restructuring costs and gains on the sale of businesses. Also, as a footnote, we're expecting to record a gain on the sale of discontinued businesses of over $10 per share in the fourth quarter.

Now please go to slide 20. Earnings from continuing operations for full year 2007 are forecasted to be between $2.66 and $2.69 per share. We also expect discontinued operations to account for about $0.89 to $0.91 per share of earnings. This brings our total to $3.55 to $3.60 per share, excluding restructuring costs and gains on the sale of businesses. This forecast includes the earnings of discontinued businesses for the entire fourth quarter. The completion of the sale of discontinued businesses prior to year-end would have a very minor impact on earnings projections. Despite continuing headwinds in 2007, Ingersoll-Rand's diverse business portfolio is expected to produce record EPS in 2007, thereby demonstrating that our strategy is working and that our business execution remains solid. We will discuss our 2008 outlook at our year-end conference call in January. This ends our formal remarks and I'd like to open the floor to your questions. Thank you.

Thank you, sir. (OPERATOR INSTRUCTIONS) We'll go first to Ann Duignan of Bear Stearns.

Hi, there. Good morning.

Good morning, Ann.

One clarification. Restructuring in Q4 -- it was a little bit lighter in Q3 than you had guided to. I think came in at $0.04 versus $0.06 guided.

Yes.

And you'd expected Q4, I think, to be $0.01. What's your outlook now for restructuring in Q4?

We -- in following the current reporting rules, we found some of the expenses we thought we would get in the third quarter actually moving on over into the fourth. So the magnitude of what we were looking at has not changed. It is really more along the the lines of the some of the timing because we now have to do more of the matching of the timing of when its occurred rather than when it is approved. So look at the full number we had talked about as being about the same.

Okay. Thank you. Herb, can you talk about slide 15 a little bit? I think -- it seemed to me that you went out of your way to emphasize the fact that you will pursue acquisitions. Can you talk a little bit about -- particularly geographic expansion, which businesses do you think need to be more geographically diverse? And where exactly are you looking for acquisitions outside of North America?

I think that's a very important question, Ann, and I don't mean to be steering the boat away and trying to give you more. I think that -- what I really wanted to pointed out -- and let me make sure I am clear on this -- what I really want to point out is I have seen a marked change in the, quote, 'bid/ask situations' for acquisitions, since what I would call the slowdown in the private equity. That was really the main point I wanted to make there. And then specifically to your question, as I look in terms of the geographic reach that we currently have -- let me start, if I can, by businesses.

If I look at it with Climate Control, we at this point in time have tremendous upside in Asia Pacific. And what we need to do is to find partner that is will help us get into the Indian as well as the Chinese type marketplaces. Those, I think, would be critical in terms of geographic reach. If I look at it in the industrial space, we clearly, at this time, see lots of opportunities throughout Europe, Eastern Europe, as well as, again, Asia Pacific. In Security we are still a very, very largely North American company with a Southern European presence. So for us, getting a coverage throughout all of Europe for security would be very important. Plus, I think, in Security Technologies, the opportunities to electrify, if you will, gets to be the second element to throw on top of that. Overall, I really do expect that we'll be spending money at making bolt-on acquisitions and adding to geographic reach in all three of those given sectors, without seeing one being frankly a lot higher than the others, but just being at different places with different priorities.

Just finally, Herb, can you define bolt-on? Is there a size limit to bolt-on or is it just -- ?

It is a bolt-on -- when I talk about a bolt-on,on, Ann, I am describing an operation that would fit in and be managed and add to the value of an existing business, rather than one that's out there by itself.

Thank you. I will get back in line.

Sizewise it could be, frankly, hundreds of millions or it could be $10 million.

We'll go next to David Raso of Citigroup.

Hi. On the acquisition front, the bullet about creating acquisitions going forward to replace revenues and earnings lost from the recent sales. Just remember exactly, but I think you sold about $3.4 billion of revenue and you add up Road and Bobcat and so forth.

Right.

When you think of what you're looking at in your pipeline right now, and of course looking at it doesn't mean you're going to close on it, but when I think of $3.4 billion being replaced, are you already looking at enough in the pipeline that is in that ballpark already? And are you looking to replace those revenues within twelve months, fifteen months?

If I could forecast that accurately, I would probably do real well in fantasy football leagues. I think, David, the real issue for us at this time is that we're looking at how we can absorb the acquisitions. And if you look at that -- I look at saying key acquisitions in each of the sectors. And if you assume there were several hundred million in revenue, it is hard to see how you can, in a period of a few months, go into replace all the revenues. I look at this as being something that is something you do over the next two, three years.

That's helpful. I will get back in queue. Thank you.

We'll go next to Terry Darling of Goldman Sachs.

Thanks. Herb, wondering if you can sort of finish up this part of discussion, in terms of how you're thinking about buyback in the near term? Obviously, you've indicated that you're looking to close the Bobcat sale first. But can we translate here that buyback is -- remains -- a significant buyback remains a key priority in the short-term?

I would say to you that for us -- and let me talk specifically fourth quarter and then the forecastable, if you will, future. In the fourth quarter, we clearly are starting off with the fact that the closing, which candidly, when we entered in this process I thought would be ready at this point in time to be done. And we're finding it takes a lot longer to get a lot of legal entities opened up around the world for Doosan than what we had envisioned. So there is not an issue regarding the deal closing, it is a matter of them being ready to assume running the Company.

I now find myself in forecasting later in the fourth quarter, as to when I am actually going to be looking at receiving the proceeds. I already have a billion dollars of commercial paper out there that I am paying interest on. So really looking at this point in time saying, from that perspective alone, I am not going to go gush out and do another $2 billion this quarter. But I am going to be very mindful of the fact that my cash flow end is not until the end. And we have acquisitions in the pipeline that I like to see. During the fourth quarter, you're not going to see a big gush of share buyback. But then over the next year, clearly what we have is all the proceeds, plus round off a billion dollars of cash generated from operations, that we expect to deploy meaningfully. That means I don't plan on putting it into a bank earning 5% interest. So the balancing act between what's the timing of acquisitions that meet or exceed shareholder buyback versus the actual shareholder buyback is really what's going to be drive the math there.

That's very helpful clarity. Wondering if we can shift to a question on operations here which is -- the Security business, particularly in the U.S., performed very well relative, at least our expectations, given the weakness in the residential housing market. Wondering if you can talk about where you see the U.S. piece of that business heading in 2008, given continued pressure in those markets? Can you continue to zig while the market is zagging there?

I think, in terms of what -- the specific point area I keep pointing out is, we did say we were spending extra money and we talked about this year -- I think the number I remember is like $54.7 million of extra investment. So I am not surprised. I am grateful, but I am not surprised that we're getting the kind of growth we are because that's what it comes from, is all the investments from new products. Although I would say big box, and obviously, you can see the res construction numbers falling off, what we have been able to do, and I think will continue to do, is to gain the share and presence. We wound up getting Pulte.

Pulte's homes went from 70,000 to 30,000. But you know what? We went from zero to 30,000, in terms of growth that's there. So my expectation is that we'll be able to outgrow what will be a negative market throughout 2008, to the degree we get more acceptance of the electronic business to go and to put into big box plus continue to get these large builders -- switching them over. I am optimistic that we'll be able to outrun the marketplace for the planning horizon, at least through 2008. Then you speak to like, well what's going on in the commercial side. You keep reading all the reports of Dodge data is going this way and Dodge data is going that way. The piece I focus on, when I look at the Dodge data, is what's going on in the institutional side. Our yield per dollar of construction, when it gets into universities and hospitals, is tenfold what it would be on the square foot of office space. So the fact that office space is going to be off 7%, 10% next year -- to me the critical piece is I see that we have the institutional side is forecasted to be up 4%, so if I continue to go and provide more solutions than what they're building, you add that all up and I think you're talking upper single-digits in the U.S. in spite of what I would say would be continued soft type marketplace conditions.

Again, very helpful. Thanks.

We'll go next to Daniel Dowd of Bernstein.

Good morning.

Hi, Daniel.

How are you? Let me actually turn to the issue of the Industrial segment. You noted 12% organic growth in Air Solutions. That seems terrific under the circumstances. Can you talk more about what's driving that?

Actually, frankly, I am disappointed in 12%. I was thinking we could get to 15% to 18% because that's what the size of the opportunity is that's out there globally for us. When you look in turn -- I always go look and see what Copco does and you can see what my attitude is based on. I would tell you that I see that marketplace continuing to have significant demand. And it really comes from two things.

Number one, it is new solutions we keep talking about, blowing plastic bottles around the world. But the second piece; as costs continue to be an issue for our customer base, the industrial space, those people are continuing to come to us to come up with ways to increase their productivity and their effectiveness. So when we're able to come up with air that reduces energy consumption by 20% to 25% per year, that has a payback that is well within their desired levels. For me this is really one that we continue to look at for significant upside. And I want to expand and bolt-on be more than just air. We think there is other types of solutions we can provide in this floor space. Every time a plant shuts down in the U.S., I think it is obviously bad for the employees that are not working there, but for us, it is an opportunity, because when the plant goes into whatever part of the world that opens up, we wind up replacing all the equipment at that time. I am very bullish about this piece. You can continue to see us making investments in technology and global reach in this one.

You mentioned also in your uses of cash, that one of the key uses is going to be continued investments in your Industrial operations and you are manufacturing more broadly. Can you give us a little color in the kinds of things you're focused on on that?

Let me give you a specific example. When we wind up doing a lot of our handle sets in our Security business -- that was something that we used to frankly outsource -- and what we found is that by -- I think the Board just approved about a $32 million plant that we're going to put in in Mexico, that will actually reduce our handle set costs by more than $10 million a year. And those are the kinds of things we're talking about on the, quote, technology investment side.

And the second piece that we're really going into is we're doing an awful lot of work in our ERP systems, trying to make ourselves easier to do business with the [sign-up] front upside. And candidly, we have to do better in our inventory turns and reduce our working capital requirements, because the downside of becoming more global is that you have stuff all over the place, and you have to be better at managing, in terms of the amount of that pile that's everywhere around the world. We're going to be looking at how we wind up going -- and the Board authorized us to go ahead and to do an installation of ERP systems with Oracle as the base, Siebel as the front outside facing the customer over the next two years. So those are the kind of investments we think will really help us in improving the ROIC. And we're also spending a bunch of money on our procurement cycle. We believe that by putting people into low cost countries, we're going to be able to do a better job of sourcing to supply those plants that are in low cost countries, rather than shipping them from where they're currently getting it.

All right. Thank you.

Yes. I would like to give you the magnitude on it. For next year, I would like to see how we're going to do $0.20 to $0.30 of improvement, just from that category alone.

We'll go next to Mark Koznarek of Cleveland Research.

Good morning.

Hi, Mark.

Question on operations. The outlook in the fourth quarter, 5% to 7% revenue growth; is that organic or is that all in?

That's all in, Mark. But remember, we have less than 1% really coming in as to acquisitions that are currently in the pipeline.

Okay.

It is 95% organic.

And then foreign exchange, you would expect to be roughly -- how much in that?

We have -- it's almost 2%.

Okay. So that's a pretty sharp slowdown from the 10% that we're -- that you just delivered for us. Where are the deltas going to be across the segments?

Well, if I could give you some directionally, as to what I am looking at; when I look at the Climate Control, that's the one that probably we see the brakes coming on obviously the most for what's going on in North America market. And we also see some -- a slowdown there in different parts of the Southern European piece. So I look at that as being somewhere more in the 4% to 6% range compared to what you saw in 7% in the third quarter.

If I look at the Industrial space, as we look through that -- Northern Europe -- you tend to -- if you look at my forecasting prowess, I tend to probably be more on the conservative side, allowing upside rather than the other way around. But mine is more along the lines of, again -- the guidance I would give you there is -- I am looking more like 6% to 8% on the Industrial side, when you are comparing it to -- obviously what we just had as 13% in the third quarter.

That's Europe, is the -- ?

That's Europe and we're really applying, maybe conservative math, but we're applying in terms of brakes in the U.S.

Okay.

And then if I look at the Security piece, we toned that down also to about 5% to 6%, 4% to 6%,in that kind of range compared to where it is. And what we're focusing there on is, how much of this continuing slowdown do you wind up seeing on the big boxes and so on? And sometimes their movements, as we know in the fourth quarter inventory, they exacerbate. And it is more like what we saw with Bobcat last year, where inventory levels were adjusted maybe beyond what retails were falling off -- so I would say 4% to 6% there. That's how we come up with a 5% to 7%.

And to the degree that they outperform that, we're very comfortable we can deliver to that. As you know, my approach is, I would rather put a cost structure in place that has to deal with the slower level of revenue forecast and then go manage to the upside successfully, rather than be very disappointed by having costs in place, forecasting higher revenues and then trying to figure out how to undo that.

Okay, Herb. One follow-up here, with regard to the Security Technology -- would be the margin line. When would be reasonable to forecast that that margin would reverse to positive year-over-year comparisons? Is that an '08 story, once we get this Mexican plant up and operating?

I would say to you -- I think that we always said that we believe that Security, for us, is a 16% to 18% type business. The fourth quarter traditionally is higher than the rest of the year because of the timing for some of our software and electronic type business that's coming out of the Interflex side.

That tends to push it, you'll notice historically, a little higher and we're usually lower in the first quarter. Overall, just given your planning process, thinking of how we're going to continue to go drive this thing between 16% and 18% and trying to achieve double-digit type growth around the world, giving us the opportunity to really invest in going aftermarkets, such as China and Northern Europe, where we currently don't really play.

Okay. Thanks very much.

We'll go next to Joel Tiss of Lehman Brothers.

How is it going, guys?

Hi, Joel, how are you?

All right. I wonder if you could give us sort of the philosophical run through of the segments on pricing potential, given that there is -- the cyclical exposure is way down and seems like it might be easier to get some pricing.

I am going to take you with me when I go Home Depot next time when you make those kind of comments. I think you will find -- you'll still have challenges out there. When I look at overall -- the good news, really, for us is that we now realize this year about 2%, which is as you know, Joel, is a lot better than we've done traditionally. I think it reflects more of the kind of the magnitude of the inflation we're seeing on material.

If I look at the net price realization, it really has been -- the highest we've been able to get has been in the Security businesses, which are running actually between 3% and 4%, depending on which business you're into. The Industrial stuff runs closer to 2% to 2.5% range. When you get into Climate Control, you're dealing more between like the 1.3% to 1.5% type range. For us, with material increases that we keep looking at it being -- this year again 2% plus, obviously it is critical that we wind up having other productivity improvements so not to have a degradation on the margin side.

Okay. And I wonder if you can highlight some of the restructuring opportunities? You said before that you have a lot. And maybe if, James, you could chime in and give us a sense of -- I know it is really early days and maybe it is not fair, but what do you see -- maybe your 100-day plan of some of the focal points? Thank you.

Let me start off with -- the preponderance of the restructuring opportunities we're looking at, Joel, continue to be one of looking at where we have our cost structure and what I refer to as higher than necessary cost type areas. And we're looking in terms of how to rationalize some of that. That continues to mean for us, looking in areas, whether it is in the U.S. or looking throughout Europe. I think that's really the predominant thing is -- Western Europe is one we're looking at. And then how we wind up, frankly, migrating more from North America to Mexico for some assembly type operations. James, how is your 100-day review?

I am here about 10 days, so I am only --

10% of the time.

10% of my 100-day plan. But let me say this. The Company has a good grasp of productivity. As you drive increasing rates of productivity, improving rates of quality -- continuous improvement, you're going to find a lot of excess capacity. I think the structure is here to, as Herb said, migrate the footprint to lower cost locations. I think it is a case of leaning out all of the cost structure, which not just cost of goods sold but overhead structure as well. All the tools are here. I think if you'd agree, Herb, turning up the pace or the cases of continuous improvement, which is how you get your upper quartile goals that you set for the Company. How about that for a high level statement? And we'll get back with more after another 10 days?

We'll go next to Nigel Coe of Deutsche Bank.

Thanks. Good morning. Just a question on slide 13 with the cash redeployments. Obviously, you flagged internal investments and you've talked about that a little bit as well, but I am assuming -- and then perhaps you can confirm that internal investments will be significantly below buybacks and acquisitions?

That's very correct. When we talk about the internal investments, we're talking about numbers that are going to be less than 1$00 million I think per year. I think that's the kind that we can absorb and frankly get a good return on. I don't want to just go and throw it on the wall and hope something sticks.

The balancing act, really is -- between the rest turns out to be where we get the best shareholder returns. The criteria we use -- there is not going to be an acquisition that is done that if I buy a dollar's worth of share back I create more value, that we will do the share buyback first. Having said that, Nigel, saying -- I keep saying now is that, obviously with the all these strategics really playing in some of the places we're looking at, I think we're seeing more and more opportunities to really provide incremental return to the shareholder. And we'll work on it.

The $2 billion you got on the table right now, are you committed to that? Or is that contingent on the opportunities you see in the backlog right now?

I am sorry, say that again.

The $2 billion, are you fully committed to doing that within a certain timeframe? Or is that contingent on the opportunities in the M&A backlog?

I tell you that it is an authorization that we have from the Board. And what we're doing is we're scheduling out in (inaudible) of what we see as to acquisitions, and then how we backfill it with the rest of the share buyback. But the $2 billion is definitely a number we're looking at implementing over the planning horizon.

Okay. And just two more quick ones. The last couple quarters, you sounded quite cautious on the outlook for commercial construction. You said you saw some weakened channels. You don't sound quite so cautious now. Is that a fair comment?

No. I'd say to you that as we get closer and closer to it happening -- what I really said is that -- I think maybe what I am not so bad about any more -- I get a better feel for the magnitude is -- if you look, I don't remember if it was yesterday or the day before or so, the last Dodge data that now came out for '09, '08, it showed that the institutional construction level is still going to be up 4%. If you remember, when we had this call back in July, there was a very big question mark and a very big cloud because all that was being said at that time is that the number was overall going to go negative. Now I tell you, as we sort it out, we see that the negative is more in strip malls and other non-res construction and that our institutional space is frankly a little bit stronger than what we originally had feared. I guess to that degree, I'm more optimistic because I see a plus 4% versus the minus something that was potentially in our horizon when we talked about this back in July.

Okay. One final question. Hill Phoenix looked -- sounded quite cautious on the outlook for their commercial refrigeration business. I know they do have more exposure to Wal-Marts -- a bit North American feel. But any issues there for you guys?

Well, let's put it this way. It is always disappointing when you read the fact that a customer that you got all the business from decides to go and cut it back by 20%, 30%. Look at it on the basis of what -- the optimist speaking, it's the avoidance of the growth that I have there rather than the taking and losing of business that's there. But the other piece I would share with you is -- the fortunate piece where I think we're in a little better position, is that we have a much broader footprint with regard to the other type of the chains that are around. We're seeing some of the more traditional national chains in the U.S. really picking up, while we see Wal-Mart showing down in places.

If you augment that for the rest of the world, we are really optimistic, at this point in time, as to what we see going on in the far Asian pieces of the world. I think, collectively, we have a bigger footprint and we're not as dependent on Wal-Mart. It frankly truncates some of the growth that I was hoping we would realize. I think -- James, it would have been about $50 million year-to-date, if I remember the number right? And that's on the stationary side only. So to the degree that it doesn't grow faster, it will hurt us on that. And that's why, frankly, when I give guidance we're talking about 4% to 6% growth there and maybe rather than 5% to 7% or 7% to 8%. So baked into our assumption is the fact that Wal-Mart is slowing down, and that will wind up making it up in other accounts, and frankly with other services.

Okay. Thanks a lot.

We'll go next to Robert Wertheimer of Morgan Stanley.

Good morning, everyone. A quick question on Climate Control. You mentioned unfavorable mix -- and your Truck and Trailer was up 10 versus Stationary up 4. So was the unfavorable mix strictly geographic or was there something else going on there? Is it -- ?

It turns on that the container was up very significantly as well. If you look at it, that's -- so when I talk about the overall mix -- Transport Refrigeration, we missed obviously, the robust numbers that we had last year on the Transport and Refrigeration in North America. We replaced that with some more Sea-Going Container type revenues. That is at a lower type margin. When we talk about Europe versus the U.S., there really is not much difference whatsoever in the profitability on the Transport side when it comes to Truck and Trailer. But it was the Transport side. And then obviously, we also had growth in the Stationary Refrigeration side, which has got much lower gross margins than what we see on the [Refer] side of the business.

Perfect. Thank you. As a related sort of question, there was a recently announced transaction in a related space in Goodman. Are you able to say whether that fell inside or outside your screens for either size or space?

I guess I am -- since the deal is done, I am now able to talk about it. Is that what you asked?

Yes.

Did we look at it? Obviously. Why were we not the final winner? They are in a space that we felt -- it turns out that we could not add a lot of value to, obviously nowhere near as much as what others bid for it. We thought (inaudible) that they were at a value proposition that was inconsistent with what we provide. We view them as being a low-cost provider approach. We consider ourselves more in the upper end of the product lines. That's where the disconnect came. And so we looked at it and concluded that the value proposition --- that the levels that they were looking at did not meet our return criteria.

Perfect. Thank you very much.

We'll go next to David Bleustein of UBS.

Good morning. And first of all, congratulations, James.

Thanks, David.

On the Security side --

Not bad for ten days, don't you think?

I am sorry?

That was not bad for ten days.

No. On the Security side, do you think it is market share versus competitors? Or do you think your products are -- the penetration rates -- there are more dollars per home, dollars per institutional building? I am trying to figure out, do you expect the competitive response or is this sustainable?

I think that -- the only one I can document where we're getting a higher yield, David, is where we wind up taking a $50 mechanical deadbolt into your house and replacing it with a $125 to $150 electronic dead bolt. That's the only one where on a one-for-one basis, we have incremental revenue going up. But obviously, multiplied by the number of units we sell, it is relatively immaterial. I think that the real yield we're seeing there is our penetration. As I said, we're now getting more and more into the homeowners builders, the larger accounts which we did not have before. And we continue to win shelf space.

If you go in today's big box, you would find that we have more linear feet than we had beforehand. As a result of that, I expect in turns on it that, as we continue to create demand for the product, and help our channel partners to move it through the channel, I think they'll look to us more and more. We were the 'Vendor of the Year' with Lowe's again. And I think when you do those kind of things, they reward with you the opportunity. And if we deliver with new product and show them how to get it off the shelf, I think we'll continue to do better than the market statistics would show.

All righty. Let me switch gears. Forget this. You said you don't want to be compared to Cat. Got that. The question for you is are ITW and Parker Hannifin legitimate comparables?

Yes, sir. They would fit in. When I look at our -- we do like a -- eight that goes on here. We put on that Danaher on that list, we have Emerson on that list, we have Trextron on the list, we have ITW, we have Eaton, and we have Parker Hannifin. Did I forget one?

ITT.

I am sorry. ITT -- without the military stuff, right?

Exactly what I needed. Thanks a bunch.

Sure.

We'll go next to Robert McCarthy of Robert W. Baird.

Morning, gentlemen.

Hi, Rob.

Your fourth quarter outlook for Climate Control at 4% to 6% growth, it's slowing. This is a function of North American trailer, I assume?

Yes, we've seen that continuing to slow. If you look at the rate of deceleration there, Rob -- obviously, if you looked at what it was for on a year-to-date -- if you look at the third quarter was off 20%-some odd, we just think that's going to continue to slide down.

If it's going to get worse, do you think you can sustain a positive margin comparison in the fourth quarter? Is it on a year-over-year basis?

Our outlook, Rob, reflects a continued slowing down of the North American Refer marketplace when we made our margin assumptions and the EPS numbers I gave you.

Okay. The three acquisitions that you completed in the quarter add up to how much total annual revenue?

You're talking about $100 million of revenue.

And can you -- ?

Those were last year, by the way, too.

Yes, I understand.

Use $100 million. That's why it's 1%.

can you tell us anything about deal flow? A lot of speculation about the ability for strategics to become more active. Wondering if you're seeing any diminution of flow as a partial offset to that?

No, as a matter of fact, we've seen a significant increase. And some places that I've been lately were owned by people that are now putting it on the block because they are owned by private equity versus where they probably would not have done so earlier on. So we're actually seeing a significant increase in the amount of activity, and it's both domestic as well as international.

Okay. Thank you.

And we'll take our next question from Eli Lustgarten of Longbow Securities.

Good morning. Thanks for making Gelly an honest man again.

Trying, anyway.

Just two quick questions -- to go back to what Robert was touching on. Is it fair that the only place that we're pretty sure we'll have a favorable margin comparison is within the Industrial group, as opposed to Climate Control and Security and Safety?

Are you talking third quarter to fourth quarter?

Fourth quarter versus a year ago.

I think that if you add them all up, you're going to see -- actually, once you get the restructuring out of the numbers, you're going to see Climate Control is up, Industrial is up, as well as Security is up.

Well, you had a 20% margin in Security last year in the fourth quarter.

I'm sorry, for the -- I'm glad you -- my ten-day friend next to me is pointing out that I had misspoken. My assumption was it was going to be like 18% and that we would be comparable to that for the fourth quarter. I agree, it's not --

But you expect, even with the slowdown in North American Refer, you expect to have a favorable comparison in Climate Control in the quarter?

Yes.

Another question. Let's go back to the acquisitions. You've got to be mindful -- consensus next year is $3.92 or something like that. So the expectation is somehow you're going to replace most of the earnings from discontinued pretty quickly. And with a lot of the acquisitions you are talking about possibly being overseas, there's got to be a lot of stock buyback there. My question is, how high are you willing to take the debt levels over the next year in order to accomplish the share buybacks that are probably needed to make the -- to get the numbers where they are and to maybe start filling that acquisition pipeline? Or are you willing to sacrifice those numbers for the longer term outlook?

Maybe if I can -- let me do a back of the envelope for how I look at 2008. We're in the process of putting together our plans. But just to give you an idea -- let's start off -- and the bottom end of our range for continuing ops is $2.66. If I just took the proceeds that we're beginning in and the share repurchase carry-over effect that we've got, that adds just about a buck, roughly, to the numbers. So I start off next year already at somewhere around $3.60 something or other.

If you assume 4% to 6% organic growth, even if you just put it at 20% some odd of a margin, that gets you another $0.20 to $0.30. If you take that and then you say the tax is about 20% level on it, I can very quickly get to where our goal -- doing, if you will, putting it in the bank, which is not a good idea, comes up to around $4, as sort of a rough number. So that to me is sort of like the starting point for where we get to. Then I look and say, but how do you best redeploy that? I'm going to start off at year end having $4.6 billion of cash and I've got about $2 billion of debt. So I really don't think this is a question of levering up the balance sheet. I think it's much more a how to effectively redeploy that total cash position, recognizing that acquisitions you'll probably follow, in terms of share buyback we did.

Thank you.

And we'll go next to Jamie Cooke of Credit Suisse.

Good morning and thank you. Herb, not to beat up -- not to drone on the acquisitions, but just a couple more questions. One, when you think about potentially going into any other markets, I know you got out of some of these years back, but any sort of renewed interest to be a bigger infrastructure plane, in terms of when we think about the secular growth in oil and gas and power generation? So how you think about that? If you're a big believer that the cycle is stronger and longer?

And my second question, when you think about multiples, are you seeing any difference -- one, what are you seeing on the multiple front? And any difference between larger transactions versus smaller? Larger coming down more than small, I guess?

Let me do it in reverse, Jamie. First of all, I think -- what I find as we look at the acquisition candidates, an awful lot of that has to do obviously with what are you envisioning their marketplace to be like in '08 and '09. So you can imagine if you're talking -- if you have predominance in North American residential or North American non-res, you probably don't have a very robust growth platform and therefore, I think your growth -- revenue growth goes down and frankly your selling price goes down. Again for us, the question gets to being, is the purchase price such that when I add this volume and I add the profitability, it's desirable? What I find is that we're now talking about things that are more like in the 8 to 10 times EBITDA level versus the hairbrained 15 it used to be, not that long ago. But even at that level, in order to make this really accretive, we have to do businesses that -- where we can really provide some value add rather than just being a financial buyer. So what we keep looking at is not chasing stuff, but continuing to look and see, where do we really fill out our product platforms and our technologies?

So I don't see us wandering off into the oil patch as a place to go. I think we supply them because when we're in the oil-free, we wind up going -- actually, not the oil-free. When I get into some of the larger process -- compressors, they wind up going into the oil field. So we're already there, to some degree. But I really don't envision going and buying back Dresser-Rand because oil is at $90 a barrel. I see us really looking more as to how we wind up augmenting the technologies that we currently have and leveraging the channels that we go into. If I can stick on the Industrial, because we talked about that beforehand -- we have air compressors, but if you look at, an air compressor goes into a factory. And you look at those factories around the world and you look and see what makes them more productive. There's lots of different tools that they use and equipment that they use to get there. We'll look and see how much of that we want to do. For us, what's critical, it has a good recurring revenue stream. Because we see that now more than ever, that's what keeps the revenue consistent. If you look at that chart we put early on, if you now look at the consistency we see on a quarter-to-quarter basis in all three businesses, it is so different than the kind of stuff we had beforehand. And I think that's the kind of business model we want to follow more of.

Thank you. I'll get back in queue.

And we'll go next to Terry Darling of Goldman Sachs.

Thanks, Herb. You mentioned in response to an earlier question, I think, an item related to EPS benefit of $0.20 to $0.30 from restructuring -- internal investments. Wondering if you can elaborate on that? And how does that variable fit into the back of the envelope rundown that you just went, in terms of the [OADPS] outlook?

I'm sorry, Rob, if I wasn't clear. What I said is that if I plug in about a 4% to 6% revenue growth in '08, at about a 20% some odd gross margin -- the contribution margin; that's what translates into $0.20 to $0.30 that goes with it. Then I said we're looking at how do we wind up getting an additional $0.20 to $0.30 of productivity that we could generate. Those are two -- so collectively, between the two, I'm looking at how do I get somewhere around $0.50 to $0.60 collectively out of those two activities.

And when you look out at 2008, I think you also mentioned that 20% tax rate is the thought process in that context.

Yes, as my friends here will tell you, this was referred in to this Company as Austrian math. When you're simple like me, you have to come up with easy round numbers. So that's just for planning purposes. The number I'd say you put out there, that would be a safe, conservative number to use.

And where are we at quarter end here on shares out?

We're about 273 million, I would think.

Thank you.

Dana, we're going to take one more question, please.

Thank you, sir. We'll take our final question today from Marty Pollack of NWQ Investment Management.

Couple questions, if I may. Back on the Goodman comment, it sounds that -- I don't know whether this was realistically something you were looking at, doesn't really fit, but the fact that you were possibly entertaining or looking at a $2 -- what was a $2.5 billion acquisition. Just makes me wonder whether we are -- is there something out there in that pipeline that big that potentially could fit, so that effectively, whatever the bolt-on strategy is, there would be some opportunity of making one large acquisition. Because that effectively then, in a sense, I think -- relative to David Raso's question, means that -- believing on the terms of how you spread out the acquisitions, clearly would then affect even your thinking about share repurchase in '08. Can you just elaborate -- ?

Marty, the way way describe this to you -- I think it's our responsibility, as a management team here, to look at anything that comes across that may potentially fit into our businesses. And then based on that review, make a determination as to whether or not to pursuit. That's really in the spirit of -- we do that frankly for -- our Climate guys came up with a deal that was $3 million, and this came out as one that was brought to us by an outside investment banker for several billion dollars. We think it's up to us to go look at it. Obviously, we did not even bid in the process. But we looked it at it, because that's the kind of thing you do to see whether or not it creates value or not.

There isn't anything out there you would look at today in that size in some ways -- that you think is a potential acquisition, at least that you can see today? Is there anything like that, in that size?

I think it would be inappropriate for me to give you my list of candidates on there. But I think what you looking at, Marty, is that we're looking at a lot of different sized things, looking at a lot of different places around the world. And we're going to keep looking at it and make the decisions as to whether or not they make sense or not. We are very cognizant of -- as I said before, criteria for the acquisitions has not changed. The fact that we have $4 billion versus the fact that we have $1 billion, the math that works is, is shareholder value created by buying back that next share or by making that acquisition? The answer to that question determines then as to which of those you do.

Can we assume that -- any notion or potential of an accelerated share repurchase there, if it would not make any sense, not at least with the possibility that you would be a big buyer? You would effectively be making --

We still have that -- the reason we got that $2 billion authorization -- so we're looking at that as something being ready in the to-do category. It's a question of timing for implementing that. And on the Board, I'm sure that as we wind up going through laying that piece out, just like they did last December and earlier this year, we'll revisit it if we see that the acquisition pipeline does not warrant spending the money there, that instead goes to the share buyback, then we'll go and revisit and plan it again. Keep thinking through it -- what we've demonstrated, I hope, to you is the fact that we're very mindful that what we're supposed to do is create shareholder value. And that means we do internal evaluations for investments we make, whether they be new plating facilities in Mexico, we wind up looking at external acquisitions, whatever comes across the horizon. And we look at those all compared to, if I spend a buck in terms of putting it as to share buyback, how are we best serving the shareholder? And that's the one we'll wind up balancing with.

Just on the issue, you mentioned Atlas Copco earlier --

As a great competitor, yes.

I believe Atlas Copco's -- I think their margins are close to 20% on some of the same business segments that you may be looking at or are exposed to.

Yes.

Is there -- do you see, I guess, on the entire Industrial Technologies front, an opportunity to bring those margins up -- possibly competing to you, even the Industrial -- the Safety and Security area?

I would say to you that, we right now, are ready hinder the Industrial Technologies margin with about a $12 to $14 million loss that we're incurring to continuing to try to see whether we can get into alternate energies with our micro turbine. So if you wind up taking that $14 million away and put it in, that shows up as a significant -- that's a margin point right there. And as we look through it and as we continue to look at our manufacturing footprint and our product mix, we have significant up side. Where Copco has market share over us is in oil-free air compressors. The average selling price of oil-free is probably 15% to 20% higher and results in margins that are at least 5% to 10% higher than if you get the oil flooded, where we have been the market leader. So as we continue to gain share on that oil-free category, and do better with some of our other operating excellence steps, I would really be disappointed if we are not well north of 15% in this business next year and that we catch up to Copco's numbers in the very near horizon.

And last question, if you could, just more color on the IRS dispute with regard to timing. I mean, is this the kind of thing that could drag out for a very long time? Do you -- in effect, if there is a way, just give us a sense of how this may affect your own attitude towards share repurchase.

Well, I'd say, number one is that -- I've read about sinkholes in the past but I think that this process is one of those. We've been advised this now goes into a pile, that do not be surprised if it takes months, in some cases even quarters to get the next response level back -- going back and forth. So I do not see this, Marty, as something that's going to happen in the fourth quarter of this year. I think you see that that's definitely a 2008 event. As I said in the discussion with you, we'll provide you updates as they go forward. But this is one you're going to measure at least in months. And it has, frankly, absolutely no bearing and no impact whatsoever on our decision regarding share repurchase or anything else we're doing.

Thank you very much.

Sure.

We're going to wrap up now. Thank you very much for joining us. There will be an instant replay of today's conference call available at approximately 1:00 p.m. And that will be available until November 2nd. The call-in number is 888-203-1112, passcode is 942-5408. The audio and slides from today's conference call will be archived on our website. And we'll be taking questions, as usual, this afternoon. So please give me a call. Again thank you, and we're going to be signing off now.

And that does conclude today's conference call. Thank you for your participation. You may disconnect at this time.