特靈科技 (TT) 2007 Q4 法說會逐字稿

Good day, everyone, and welcome to the Ingersoll-Rand fourth quarter 2007 earnings conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to the Director of Investor Relations, Mr. Joseph Fimbianti. Please go ahead, sir.

Thank you, Amy. Good morning. This is Joe Fimbianti, Director of Investor Relations for Ingersoll-Rand. Welcome to our fourth quarter 2007 conference call. We released earnings at 7:00 a.m. this morning and the release is posted on our website. I would like to cover some of the usual housekeeping items before we begin. This morning, concurrent with our normal phone-in conference call, we'll be broadcasting the call through our public website. There you'll also find the slide presentations for the call. To participate by the web, go to www.ingersollrand.com and click on the yellow icon on the home page. Both the call and the presentation will be archived on our website and will be available tomorrow morning at 10:00 a.m.

Now if you would please to go slide two. Before we begin I would like to remind everyone that there will be forward-looking discussion this morning which is covered by our Safe Harbor statement. Please refer to our December 31, 2006, Form 10-K for the details on factors that may influence results. In addition, please be aware that some of the subject matter discussed in the following presentation will be addressed in our proxy statement prospectus to be filed with the SEC relating to the acquisition of Trane Company.

Now I would like to introduce the participants in this morning's call. We have Herb Henkel, Chairman, President and CEO of Ingersoll-Rand, James Gelly, our Senior Vice President and Chief Financial Officer, and Rich Randall, our Vice President and Controller. We'll start with the formal presentation by Herb Henkel and James Gelly to be followed by the customary question and answer session. Herb will start this morning. So if you would please go to slide three. Herb?

Thank you, Joe, and good morning. And thanks to everyone who dialed into this morning's call. By any standard, 2007 was a transformational year for Ingersoll-Rand. During the year, we divested our Road Development, Bobcat, Utility Equipment and Attachments businesses for a combined $6.2 billion in gross proceeds. And then in December, we announced a definitive agreement to acquire Trane, the global leader in indoor climate control services and solutions, for about $9.5 billion.

In so many words, this year marks the substantial completion of an eight-year transformation of our portfolio from deep cyclical to Class-A diversified industrial company. The new Ingersoll-Rand portfolio will have scale, global reach, diversification, inherent growth potential and the potential for significantly higher margins and returns. As we execute on the potential of this new Company, investors will experience consistently rising EPS and cash flow with the potential for significant upward revaluation.

In a minute, we'll take you through the details of our fourth quarter and full year 2007 results. The key message today is we maintained operational focus and discipline while executing what has been the most fundamental portfolio transformation in the Company's long history. For the year, revenue increased 9% and we had solid growth in all of our major businesses, despite soft North American residential construction and heavy truck markets. Despite many one-time items, the fourth quarter results capped an excellent year in which we made significant progress in many areas. Full year EPS from continuing operations was $2.48. Total EPS, excluding one-time gains and charges, were $3.33, up 4% despite a significantly higher tax rate. Available cash flow was $714 million, even after a prior period tax payment of $217 million. Excluding this tax payment, we comfortably met our targeted 90% conversion rate.

Now, let me turn it over to James who will take you through the fourth quarter and full year performance. James.

Thanks, Herb. If you'd please go to slide four, the slide gives you a quick summary of revenue and operating margin for the fourth quarter. As you can see on the upper right, sales were $2.3 billion, up 8.4%. Looking at the lower right, operating margin was 12.9%, effectively flat versus last year's 13%. Please note that this quarter's results included $12.9 million in restructuring charges. Excluding these charges, margins would have been 13.4%. I'm going to come back to the topic of margins and operating leverage in much greater detail shortly.

Let me now go to the slide entitled fourth quarter revenue growth. As you can see on the upper right, currency neutral growth in the quarter was 4% with about 4 points coming from the impact of a weaker U.S. dollar. Looking at the upper left, all three operating segments delivered solid revenue growth and we continue to see good momentum in our key end markets apart from the North American residential building and transport refrigeration markets, both of which I'll discuss in more detail. Climate control was up 6% while industrial and security were both up double-digits. Organic growth for industrial was 9% with a small amount of acquisition driven growth.

Looking at the lower left you can see growth rates by region. We continue to benefit from global diversification with about 6 percentage points of top line growth coming from outside the Americas. We saw 4% domestic growth in the quarter with an average of 16% growth outside North America. Results were strong in Asia and Europe across all reporting segments. Revenues in the Americas were up 4% despite residential construction and transport refrigeration markets which both experienced double-digit year-over-year declines. Latin America sales were up over 20%.

Let's go to the next slide entitled 2007 revenue growth which provides a look at our segment growth rate during the four quarters of 2007. All three operating segments delivered consistent year-over-year revenue growth throughout the year with industrial and security delivering double-digit growth in nearly every quarter.

Let's move now to the income statement, slide seven, entitled fourth quarter 2007 results. Skipping right to the second row, operating income, which was $298.8 million, up 7% year-over-year. As I said, this included about $13 million in restructuring charges. Moving down the page, other income for the quarter was $15 million, up about $20 million compared with 2006. This increase is effectively higher interest income on our large post divestiture cash balances; we ended the year with about $4.7 billion in cash.

Let's move right to the tax line which is an expense of $106.4 million, up significantly from last year's $28.1 million. As you can calculate for yourselves, the effective tax rate in the quarter was 38.4%, versus last year's 11.8%. The fourth quarter rate obviously reflects some significant nonrecurring tax charges taken in the quarter. As you'll see in a minute, these charges drove the full year effective tax rate to 21.8%, considerably higher than our prior guidance. There are a couple of key elements in this quarter's tax charge. The first relates to a downward revaluation of tax assets now that we've sold off a big chunk of Bobcat and Road income. In so many words, we found that our post divesture business mix and cash flows in the future are such that we'll be less likely to realize the future benefits of things like foreign tax credits and net operating losses.

The second piece relates to a more pessimistic judgment on our part about some tax liabilities that date back to the late 1990s. Based upon information received in the quarter, we increased our existing reserves for tax penalties and interest related to the 1998 to 2000 tax years. This is essentially the same matter that led us to make a $217 million cash deposit with the IRS in August of 2007. So taken together, the combined impact of the fourth quarter tax charges is an unfavorable $50 million or $0.18 hit to earnings from continuing operations. Adding back these one-time items and the $0.03 of restructuring, we think the representative continuing ops earnings power for the Company is closer to $0.82 per share rather than the $0.61 reported this quarter.

Moving on and looking at the next couple of rows at discontinued ops, you can see a loss of $237.1 million and a separate gain of about $2.58 billion. In EPS terms this breaks down to a discontinued operations loss of about $0.85 a share and a $9.30 gain. The $9.30 gain is the after-tax gain on the Bobcat divesture. The loss of $0.85 is the net of two things. First, a $1 noncash charge for future asbestos claims, which I'll cover in more detail in just a minute, and a positive $0.15 of earnings from discontinued businesses. Finally, looking at the bottom line, reported net earnings for the fourth quarter from total ops were $2.5 billion or $9.06 a share.

With that out of the way, let me now turn to a review of our reporting segments. If you would please go to slide eight which discusses climate control. Sales in the fourth quarter were $915 million, up 6%. For the total Thermo King transport business, revenue increased by 9%. Declines in North America were offset by strong growth in overseas markets, especially Europe and Latin America. Looking at just truck and trailer, revenues worldwide expanded by approximately 6%. North American shipments have been weak for much of the year, as you know, due to declining truck ton miles and lower freight rates. Looking at the North American refrigerated trailer industry as a whole, fourth quarter shipments were down approximately 35%. For the full year, industry shipments were down approximately 15% to about 32,000 units. It's interesting to note that for the quarter and the year, our European trailer revenues exceeded our North American trailer sales. European trailer volumes were up 24% in the fourth quarter and up over 35% for the full year. Worldwide bus and sea-going container sales also expanded nicely in the quarter.

Looking at stationary refrigeration, this business was up 3% in the quarter. This time growth in the Americas, especially in services and installation, more than offset lower sales volumes in Europe. Climates reported operating margin was 12.4% in the quarter, up 140 basis points versus last year. This business generated some impressive leverage in the quarter. Margin expansion was driven by volume and price but also by operational improvements which together more than offset inflation, unfavorable mix and $8 million in restructuring costs. The management of this segment has made a lot of fundamental improvement including a proactive approach to cost reduction in the face of sharply lower U.S. volumes. We also continue to execute restructuring initiatives globally which will drive margin expansion in future periods.

Let's go now to slide nine, which discusses Industrial Technologies. Fourth quarter revenues were $758 million, up 10% versus the year-ago quarter. As I said earlier, minus acquisitions, growth was 9%. Air solutions revenue grew by 12%, that's 11% organically, as favorable overseas industrial markets combined with new product introductions drove higher revenues. Recurring revenue increased 10% versus prior year. Productivity solutions delivered 6% growth as international growth in material handling and industrial offset challenging domestic markets, primarily in tools. Club Car revenues grew 7% over last year. The increase was attributable to higher sales of utility and 4 X 4 vehicles, higher after market sales and continued market share gains in an otherwise lackluster golf market.

Segment operating income was $97.7 million, representing an operating margin of 12.9%, down 80 basis points from 13.7% in 2006. Favorable price and productivity were more than offset in the quarter by the unfavorable impact of inflation, mix, and investment costs.

Let's go to slide ten to look at security technologies. Revenues were $650 million, up 11% compared with last year. Commercial revenues were up 7% driven by worldwide commercial construction, especially schools, universities and health care facilities. Revenues from electronic access control products were up 21%. North American sales in the residential segment increased a very impressive 14% in view of the precipitous decline in domestic residential activity. This was accomplished through recent pricing actions, 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.

Operating income was $121.7 million or an operating margin of 18.7%, down 130 basis points from last year's very strong 20% margin. About half of this decline was due to $4 million in restructuring charges. Other than that, unfavorable product and geographic mix, inflation and growth investments more than offset price and productivity.

Let's go to the next slide entitled fourth quarter EPS which is intended to present in cartoon -- simple cartoon form all of the moving pieces we've discussed so far. Starting on the left, EPS from continuing operations is $0.61. Adding back the $0.18 hit related to tax charges and $0.03 of restructuring charges taken in the quarter, brings you to the normalized continuing ops earnings power in the quarter, about $0.82 a share. Next on the right, you can see the earnings from discontinued ops, excluding the divestiture gain and asbestos charge which was $0.15 per share. Adding up these three pieces brings you to $0.97 which is in line with our prior guidance. Moving to the right, you can see the negative $1 impact on discontinued operations from the $277 million after-tax charge taken to cover expected future asbestos costs.

For the record, reported EPS excluding the divestiture gain was a loss of $0.24 and finally on the right, we recognize a book gain of $9.30 on the Bobcat, Utility and Attachments business, leading to the EPS of $9.06 a share.

Before we move on to the full year, let me take a minute to remind you of the fourth quarter charge we recorded for future asbestos claims. That's chart 12. As I just said, we took a $277 million noncash charge in the quarter, which represents our projected liability for all pending and estimated future asbestos claims going out the next 45 years through the year 2053. Historically, we had recorded liability for anticipated settlement costs projected seven years into the future because we were unable to make reasonable estimates beyond that period of time. But in the fourth quarter, we conducted an exhaustive review of our historical asbestos related litigation. This involved looking at litigation developments, trends, in terms of claims, mix and judicial treatment, and now our extensive cumulative experience in resolution of asbestos claims. Based upon this review, we determined that we could, in fact, make a reasonable estimate of the total liability for all pending and future claims. We estimated the incremental net liability at $277 million after tax, almost exactly $1 per share and recorded the liability in the quarter.

Let's go now to the full year 2007, which is slide 13. Revenues were up 9.1% for the quarter (sic), with double-digit growth in industrial and security. For the full year, our non North American revenues were up 18%, versus 4% in North America. Operating margins for the year were 12.1%, down 30 basis points from last year. Excluding restructuring of $28.7 million pretax, margins are roughly flat year-over-year.

Let's go to the full year income statement shown on slide 14. Moving directly to line two, operating income for the year was $1.058 billion, up 6% year-over-year. Excluding restructuring, operating income was up 9%. Hitting the high spots, other income increased $23 million year-over-year primarily due to lower foreign exchange losses and higher interest income from increased cash balances. The tax rate we have already talked about but was 21.8%, up from 10.8% last year. Continuing earnings per share increased by approximately 5% to $2.48.

I've just given you a lot of information about operating leverage but let me take it one step further on slide 15. In so many words, Ingersoll-Rand did not produce any operating leverage during 2007. Excluding restructuring, operating income grew at fundamentally the same rate as revenue, about 9%. Starting on the left, you can see 2006 operating income of $998 million, or a 12.4% margin. Moving to the right, you can see the impact of revenue growth, which is primarily price realization and a small benefit from foreign currency. During 2007, the impact of 3.5% cost inflation across the Company's $7 billion cost structure represented about $250 million of unfavorability and is shown in red. We also made investments for restructuring and growth of $50 million to $60 million during the year.

Our 2007 cost productivity was about 3%, not enough to offset inflation and investment spending. In summary, the low leverage on incremental volume for the quarter and the year was the result of heavy inflationary pressure and discretionary investments which together outweighed our cost productivity. A key element of cost inflation was, of course, materials spends which continued to be a drag on profitability as late as the fourth quarter.

Let me now turn to cash flow shown on slide 16. Our full year 2007 cash generation was $714 million, which included a $217 million tax deposit related to the 1998 to 2000 tax audit period. As you can see, the Company is capable of strong cash generation. Excluding the tax deposit, which relates to prior periods, cash flow exceeded 90% of net earnings in 2007 mainly due to some improved working capital management. In fact, let's go to the next slide to look at some balance sheet metrics.

As you can see, we made some improvement in working capital management, especially inventory. Inventory improved by half a turn from 6.1 to 6.6 turns. Receivables days improved slightly by half a day and taken together these working capital elements helped to offset the impact of higher sales on the balance sheet. Capital spending in the quarter was $33 million, about 1.5% to revenue, while depreciation and amortization were $40 million. The biggest change on the page was clearly our cash and debt position, which went from a net debt position last year of $1.6 billion, to a net cash position this year of $3.3 billion. A favorable swing of $4.9 billion. With that out of the way, let me turn the proceedings back over to Herb.

Thanks, James. Please go to slide 18. By any standard, one of the key transformational steps of the past decade has been the recently announced acquisition of Trane. Since we have many new and prospective investors on this call, I want to take a few minutes to step back and to discuss Ingersoll-Rand's portfolio transformation in more detail. For those of you who have followed Ingersoll-Rand over the years, it should be clear that this is just another step in the strategy we laid out back in 2000. In the last eight years we have significantly reshaped our portfolio by selling off slow growth or deep cyclical businesses and by reinvesting in targeted growth platforms. We had primarily focused on bolt-on acquisitions, making more than 60 of them since 2000. These have strengthened our three segments -- Climate Control, Industrial Technologies and Security Technologies.

Now please go to slide 19. The acquisition of Trane is a major step in our transformation strategy. Trane plus Ingersoll-Rand creates a leading diversified industrial company. As a result, the combination gives you a company with stronger growth, better earnings consistency, and much better critical mass around the world.

Please go to slide 20. I'm sure you recall that Trane was part of American Standard, which went through a lot of significant portfolio reshaping of its own over the past year. This was the opportune time to complete this transaction. As you'll see, there is a powerful industrial logic inside this deal. From every perspective, customer, employee, and shareowner, this deal creates a lot of value. You combine premium brands, a broad customer base, a huge installed base, which drives future demand, and a big proportion of parts and service revenues. All of this adds up to a very diverse revenue base with very limited exposure to new U.S. housing starts. It also has very broad geographic coverage and that means especially strong growth potential in emerging markets.

Additionally, with 60% of Trane's commercial revenues coming from replacement, and 80% of residential coming from replacement demand, they've delivered consistent earnings over time. Probably the most valuable part of Trane's business model is its distribution network. Not just excellent product technology and engineering depth, Trane has cultivated and invested in what is without a doubt the leading distribution network in the world.

Now please go to slide 21. Trane is present in over 100 countries. It has a proprietary distribution network with more than 7,500 sales engineers and service technicians, more than 500 company-owned locations worldwide offering sales, service and distribution. There is a lot of excitement on both sides about combining this distribution network with Ingersoll-Rand's global footprint. This will offer customers and employees a significant opportunity for value creation. We plan to use this muscle to drive revenue growth.

Now please go to slide 22. The combination of Trane with Ingersoll-Rand gives us a group of very, very strong worldwide brands. Looking at this next slide, you get a reminder of the high-quality brands in the Ingersoll-Rand portfolio. Trane is a perfect addition. They're number one in the U.S. and number two worldwide in commercial HVAC and have a major market share in U.S. residential. Looking across the top row, you can see the climate control lineup, number one and number two positions across the board. The bottom row shows the market positions and brands in our industrial and our security segments. As the take-away box says at the bottom, a portfolio of iconic brands with $16 billion of 2007 revenues, we will also create an $11 billion climate control giant with global critical mass, a tremendous install base, distribution strength and more advanced technologies than any other player.

Now please go to slide 23. With the acquisition of Trane, the major heavy lifting of portfolio change has been accomplished. During the next 18 months or so, cash flow will primarily be used to retire short-term acquisition debt and I do not expect many acquisitions or divestitures over that time frame. For the foreseeable future, our focus will be on acquisition integration, synergy execution, and cash generation. The key operating principle is, keep the businesses running smoothly, without disruption to our customers. We will be intensely focused on operational excellence and continuous improvement.

Now please go to slide 24. Growth in cost synergies will be driven by accelerated implementation of Lean Six Sigma and productivity initiatives. The Ingersoll-Rand business operating system that has been developed over the last several years will be the platform for driving continuous improvement across our enterprise. The Trane transaction will be a major catalyst for ongoing cost reduction and continuous improvement throughout the new, larger Ingersoll-Rand. We obviously remain very excited about this transaction and this strong new company that it will create. We will continue to update you on our progress going forward.

Now please go to slide 25 and let me turn the proceedings back over to James who will take you through the outlook for 2008.

Thanks, Herb. This year our forecast has a little added complexity compared to previous years due to the exact timing of the Trane acquisition closing. Let me start by reviewing the economic assumptions behind our 2008 forecast, starting with stand-alone Ingersoll-Rand.

If you would go to slide 26. This slide summarizes the key economic and business metrics for 2008. Like many companies, we're aware of the likelihood of a U.S. driven economic slowdown in 2008, but do not have evidence of a meaningful impact on our businesses as we enter the year. In fact, momentum as we exited 2007 looked solid. However, here are the key assumptions starting on the upper left. We assume the U.S. economy has slowed, but, like this quarter, the bulk of our revenue growth in 2008 will be generated outside North America. We expect this pattern to continue for some time but we do assume some slowing in Europe and the rest of the developed world in 2008. On the upper right, looking at U.S. construction, we assume residential building markets will show no up turn before 2009. Nonresidential will see about a 5% to 6% year-over-year decline in square footage terms with institutional activity roughly flat year-over-year.

Moving down the page, the refrigerated trailer market in North America declined 15% in 2007 and is expected to decline by an additional 15% as the market bottoms in the first half of 2008. Expanding refrigerated truck and trailer volumes in Europe will help offset the decline in North America.

Finally looking at the lower right, we expect industrial production and capacity utilization to continue at levels not dissimilar to 2007. The continued influence of a weak U.S. dollar and the significant stimulus that's provided to export growth will continue to be felt. In summary, for 2008, we expect to see overall stable growth in most major product and geographic markets with enough product and geographic diversification to mostly offset the few particularly tough end markets that we serve.

If would you please go to slide 27. Based upon the macro-economic view I just set out, we expect revenues for full year 2008 to be up 6% to 7%, compared with '07. Looking at the upper right, we expect about 4% to 5% growth in local currency terms and assuming the U.S. dollar stays right where it is now, about 2 points of benefit from currency translation. Looking at the upper left, we expect our three segments to deliver growth in the high to mid single-digits with somewhat higher growth in our Industrial Technologies business. Looking at the lower left, as we saw in 2007, the bulk of our revenue growth will come from non-North American markets since overseas growth will be much stronger than growth in the U.S.

Let's go to slide 28 and look at 2008 operating income, looking at Ingersoll-Rand as a stand alone business. We expect to expand operating margins by about 1 to 1.5 percentage points in 2008. We expect this to happen through carryover pricing gains that we realized in 2007 and through higher cost productivity, closer to 4% of total cost in 2008. We also expect inflation to moderate somewhat in 2008. With full year 2007 material inflation of about $150 million, we expect about $100 million in 2008.

Let's go to slide 29, to Trane's results. On January 29th, Trane reported outstanding results for the fourth quarter and full year 2007. Trane's fourth quarter revenues hit record levels at $1.8 billion with organic growth of 13% compared to 2006. The order intake at Global Commercial Air-Conditioning was very strong, up 24% with an 8% increase in backlog. Fourth quarter EBIT was $120.4 million, up 8% versus last year. Operating margins were 6.6%, down modestly from last year. Revenue and margins improved significantly in commercial, while residential dealt with ongoing difficult market conditions and incurred additional costs associated with inventory draw downs, logistics and marketing expenses. For the full year 2007, revenues of $7.5 billion increased about 10% compared with '06, with double-digit growth in both commercial equipment and parts and services and they more than offset a year-over-year 3% decline in residential products. Full year 2007 EBIT increased by 12% despite approximately $35 million in one-time costs related to warranty and inventory reductions in the residential business.

Moving to the right to 2008, Trane is entering the year with strong momentum. They had 13% organic growth in the fourth quarter and double-digit growth in orders. Revenues are projected to be up 5% to 6% to about $7.9 billion. Commercial equipment systems growth, which is about half of total Trane business, is projected up about 6% in 2008. Growth in the Americas is expected in the 6% range based upon the strong replacement business and solid backlog entering the year. Europe, Middle East, and Africa will also grow at a steady 6% to 7% rate. Commercial parts and services and solution, which is about 30% of total Trane business, is expected to continue its strong momentum; that 15% organic growth it had last year but with revenue growth of about 10% in 2008. In view of the momentum entering the year and strong growth focus, this business is believed to have some upside potential.

And finally residential equipment sales are projected to be flat. Housing starts are expected to decline further; however, 80% of this business is replacement. Also, channel inventories are low and the inventory drawdowns that we saw in the channel in 2007 are not expected to recur.

Looking at EBIT. Trane is expecting to deliver 10% to 15% EBIT improvement in 2008, to a range of $785 million to $830 million. Please note that this includes about $75 million of contingency and all told this would be about a 70 basis point margin expansion to 10.3%.

The next slide, slide 30, puts together the respective stand alone forecast for Trane and Ingersoll-Rand. For this analysis, we've assumed that the combination is completed on May 31st, not March 31st as we communicated a couple of months ago. As you can see, this forecast shows expected revenue for the combined entity in 2008 of approximately $14.2 billion and an operating margin of 12% to 13%. We continue to target first full year synergies of about $125 million pretax, and this forecast assumes about 7/12 of that amount that were realized during 2008. Likewise, we assume purchase accounting charges of approximately $145 million per year and again we prorate that annual amount for the period from June 1st through year-end.

As you can see, below the line we show interest expense and interest income assumptions associated with the total $6.5 billion worth of debt outstanding for the last seven months of the year. The effective tax rate for the combined entities should be about 22% to 23%. And adding all of this up brings us to total EPS from continuing operations in the range of $3.80 to $3.90. Please note that those numbers do not include about $0.40 to $0.45 of one-time charges, primarily inventory step-up, which we expect to incur post closing. As always, we'll retain about $0.06 per share of expense related to the costs associated with discontinued ops. This forecast is based upon a 312 million average share count during 2008.

And I should make it clear that the only real difference since our December 17th announcement is that we've assumed a closing that's two months later. And therefore we'll lose a big part of Trane's seasonally strong second quarter and that causes the drop from $4 to the $3.80 to $3.90 that I show here.

Finally, the combined company should be a strong cash generator with available cash flow exceeding $1.1 billion in 2008. However, this amount does not include about $1.1 billion in 2008 tax payments related to the gain on the Bobcat divestiture and we expect to make that tax payment in the next month or so.

Go to slide 31. We'll switch gears for a minute and talk about the first quarter of 2008 which is much less complicated because it only includes the current Ingersoll-Rand business. We expect earnings per share from continuing ops in the range of $0.72 to $0.77, which is an increase of over 40% compared with last year. This improvement is based upon revenue growth of 6% to 7%, operating margins at least 1 point higher than the prior year, and a significant increase in interest income due to our substantial cash balances. These improvements will be partially offset by a higher tax rate which we expect to approximate 22%. The forecast is based on 279 million outstanding shares. EPS from discontinued ops will be about $0.02 of costs. So in total we expect reported first quarter EPS in the range of $0.70 to $0.75. After all of that let me hand back off to Herb for some concluding remarks.

Thanks, James. Please go to slide 32. I wanted to finish off this morning with the very important topics of integration synergies and long-term productivity improvement which are going to be key drivers for Ingersoll-Rand going forward. As I noted earlier, our focus for 2008 through 2010 will be first and foremost to keep the business running smoothly and to attack the easily identified and controlled savings, like overhead reductions and supplier rationalization, while laying the groundwork for multi year aggressive productivity improvement. We're establishing rigorous multi year goals for key cost areas. While working to achieve functional excellence through a Lean administrative structure for key functions like finance, legal, HR, IT and shared services. The cost base we're working over is about $500 million. There should also be substantial procurement savings available in both direct and indirect materials considering the overlap of both companies' builds and materials. The process improvement activity will also lead to manufacturer cost and quality improvements. That's a $9 billion cost base we're working on.

Integration planning has already begun and we formed 14 teams in six areas. We staffed this effort with dedicated full-time resources, both internal and external, to ensure execution with 20 vice president level internal resources bolstered with outside expertise when and where necessary. Both Trane and Ingersoll-Rand employees are actively engaged in this integration planning team process. Putting Ingersoll-Rand and Trane together will create some large scale efficiencies and unlocks a significant amount of cost synergies. After our initial reviews, we feel very comfortable that the annual run rate savings of $300 million per tax is highly doable. The savings are pretty evenly divided between gross margins and G&A. Cost of goods will be lowered by supplier rationalization and procurement leverage and other manufacturer initiatives. Long-term, there is lots of overlap in synergies in the areas of engineering, manufacturing, and supply chain. We see cost efficiency to be gained across the combined entities' $3 billion SG&A structure. Both companies come into this merger with heavy SG&A due to recent divestiture activities. For example, total corporate costs of the combined entity approximate $300 million. Our updated look at a rationalized cost structure suggest SG&A as a percentage of revenues can be lowered by 1 to 2 percentage points. We remain very excited about this transaction and the stronger new company it creates.

Now please go to slide 33. Finally, let me wind up the prepared remark portion of today's call. By this time next year, we'll be entering 2009 as a $17 billion company with some of the best, most widely recognized commercial and industrial brands, all of which have leading market positions. The combined companies have stronger growth prospects going forward as well as significant opportunities to improve margins and returns. We'll be rounding the bend on $300 million of annual cost synergies at that time. Much of our time and resources will be focused on margin expansion and cash generation through continuous improvement and disciplined program management.

I appreciate that our investor base has had to deal with a very, very tumultuous 2007. The changes during the year have exacted a toll and I take full responsibility for that. I would be remiss if I did not conclude my remarks by saying that I am very confident that Ingersoll-Rand has never been better positioned, has never had a better portfolio, and has never had greater opportunity to drive higher income, cash flow, and share owner returns.

I thank you for your time and patience. And that concludes the formal part of our presentation. I would now like to open the floor for your questions. Thank you.

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

Good morning, guys. This is Ann Duignan.

Hi Ann.

I would start out to by asking what is the delay, I thought it was going to be straightforward, and any changes of the funding of the deal given that you had initially said you would issue 54 million shares, that would have delivered 2.6 billion back then but obviously your share price is much lower today. Is there any way to the way you finance the transaction?

If I can let me answer that piece. First of all, we have a firm price cash plus, a 0.23 shares of IR stock that has not changed and in our financing and so that has also not changed so whatsoever. Secondly, regarding the timing. Unfortunately this continues to be an estimate on our part. When we went through our process back in the beginning of December, we thought we would be getting through as we said the end of the first quarter, the end of the second quarter. Now as we find ourselves in mid-February will still completing the K and still having to do the S 4 and expecting the review by the SEC we say in terms on it the quote average of those dates turned out to be May 31st but I will tell you candidly, it could be as much as a month earlier, it could be as much as a month later. It is really depending more on the time it requires for the SEC needs to review the documents we submit but outside of that really nothing else has changed.

Thank you. And my follow-up is around your outlook for organic growth for climate control. That's higher than I I would have anticipated given the outlook for than for Thermo King or for (inaudible) in North America. Can you give me some color on the market outlook for that business segment.

I think when you look at the climate control for the full year going across and frankly the first quarter is not all that much different. It says the climate control and Americas is going to be in the relatively flat category with the driver what is happening in our European operations. As the eastern European part of the market continues to be very robust we're seeing mid teens on the revenue side. And then if you take Asia-Pacific for us and this is not including any upside that we are hoping we can realize from Co-change initiatives we are working on ,but from the core business we have in place. We expect close to 10% growth so when you add those pieces together that's how you wind up with 6 or 7. So the key piece is, as we said in the comments, it was incredible for me when I think back to what we had experienced back in the early 2000 time to 2007 to now see the trailer and truck markets in Europe both being larger than the trailer and truck markets in the U.S. and both having upward potential that is capacity constrained yet that is helping to significantly offset the again continuing forecast slower 15% reduction we see in trailer North America.

Okay. Thanks, Herb. I'll get back in line in interest of time.

Thank you, Ann.

We'll go next to Alex Blanton with Ingalls & Snyder.

Good morning.

Good morning.

I want to talk about the tax rate for this business. When you gave your guidance for this quarter, tax rate was not anticipated.

That's correct.

And you said something about the tax increase in fourth quarter being nonrecurring and yet the tax rate that you're forecasting for this year is actually higher than last year's full year tax rate, so it is recurring is the not?

Let me say that the effect on the fourth quarter and calendar year '07 are items that we described as one-time in nature and relate to the things that I described in my remarks, increasing reserves and reducing foreign tax credits and net operating losses in the wake of the Bobcat and Road divestitures. So those adjustments, I tried to characterize as charges that were one-time in nature. Now as to the 2008 effective tax rate guidance which we've given you, you pretty much do one year at a time, when you develop your tax rate, and as a separate matter, and unrelated to the items that you found in the fourth quarter, we're looking at a 22% rate in 2008.

The 22% rate in 2008 is not related to what happened last year?

No. No, in fact the rate that you calculate for the coming year, 2008 has a whole bunch of things in it like the amount of the version debt, the amount of overseas income, tax rates, et cetera and you kind of roll them up one year at a time but I did not raise 2008 rate in any way connected with the items that ran through the fourth quarter rate. It's just a coincidence that they got to the same place. I know it's confusing but hopefully that's helpful.

Also, restructuring charges, you broke out for this year but did you have any last year?

Nothing of this magnitude.

Okay. Now on this -- let me just finish by asking, why was the tax rate increase not anticipated? Because that does -- that does lower the earnings.

It's a good question. You're right. It's a significant increase and the answer is, when you get to the end of the year and in a year where you divested almost a third of your revenue base and you changed in some fundamental fashion the amount of income you you have inside the U.S. and outside the U.S. and until you look at it legal entity by legal entity, country by country, business to business, I'm afraid to say you can't reach some of the determinations that we reached and I hate to say it was impossible to forecast but it certainly wasn't in our mind when we gave guidance 90 days ago or even back in May when we announced the divesture of the compact equipment business.

Okay. Thank you.

Thank you.

We'll go next to Andrew Obin with Merrill Lynch.

Yes, good morning.

Hi Andrew.

Just a question on the margin patterns in industrial and security and safety. As I look at the results, there were at least by your European competitors, I'm just struck by the fact that their margins went up and yours have declined and I'm just trying to understand, is there a structural explanation or are you just in different markets? Are you trying to gain market share? Could you comment on that.

That's a great question. And we look at it the same way and reached more or less the same conclusion. So number one, if you take the Industrial Technologies competitor, there I think you have better, in their case, more favorable geographic mix and product mix. So higher margin product in better markets. I think we have more work on our hands where it comes to productivity and price realization but can we come to the same conclusion you did which was we under performed from a margin standpoint versus that competitor.

I think we do want to add onto it, Andrew, is remember when we reported last year in terms of the charge that we incurred for the oil for food, those charges ran through this sector's numbers in the fourth quarter. So that is about almost a margin point right there. That's not a excuse but I'm trying to give you the difference on this so we have more to do on getting a better share on the oil freight, we need to do more on getting non-U.S. based income in this business, and we need to avoid those kind of stupid extra charges.

And the question I guess on security, I mean you've done fantastic job growing, I guess the residential business in this market. But does it come at a substantially lower margin or is lower margin security and safety due to the fact that electronics is growing so fast.

I think it's not an either or. What you have is clearly the most profitable of our businesses are in the commercial hardware side and as we said that we had a significant growth element that came on to residential, which as you deal with Big Box and so on, does not have the same margin level as we have on the commercial side. If you then add onto it, the strong growth we had on the electronic side, the electronic piece is more like at the mid teen level rather than the 20 plus% so collectively the addition of the growth in residential as well as what we had on the electronic build side, that's what made the difference between what we normally look at at and 18 to 19% level margin.

Got you. And just on another subject. When you note this 40 to $0.45 charge, how much of the charge is cash and how will this cash flow over the next year or two?

The vast majority of it Andrew is inventory step-up. So I would say no cash.

Okay. Thank you very much.

Thank you.

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

Good morning. How is it going.

Joe. Sorry we were not able to be there the other day.

Yes. Well the sun finally came out. I guess I've coincided with your earnings. I wondering if you could just -- you enumerated the reasons why the structure leverage, the numbers, but can you give us a sense of anything inside the businesses or the mix or anything from a structural standpoint and you can tie that together a little bit about with the actions you're taking on the restructuring charges?

I think there is really several pieces to it. Number one is that as we look at our European footprint, specifically we continue to look on it where we can have the same type of productivity improvement that we realized in the U.S. based manufacturing, back five, six years ago so that continues to be an area of how we're looking to drive in terms of the cost reduction. And I think the second piece is that we keep looking at saying is that our material inflation, we have just not been able to go in to get between that and the salary increases to be able to totally get enough productivity. That's what James said.

We know we need to step up our productivity from the 3 to 4 to 4.5% on the year-over-year basis and that's why the edition of Trane at this point in time gives us the ability to combine the two overhead into one and go after the G&A side. That we have a lot of manufacturing footprint, things we can look at the in the future to improve, while we are currently outsourcing things right now we can bring them in and increase our productivity and so that's why I say it is throughout the builds and material, manufacturing footprint and looking at total G&A structure.

Okay. And then sort of a similar kind of question, your CapEx had been low historically, or in the last couple of years, is there anything that you're seeing that would cause that and have to reevaluate in the future?

If I look at the biggest parts of the differences, is that as we wind up looking at more of our growth being outside the U.S., what is the effectiveness of manufacturing on our current locations versus to be more regional. So included in our plans is another plating facility down in Mexico to take part of the structuring we're doing here. And then we're looking at is our IT spend. How do we wind up going getting at some of the costs we have. We have to drive our 100 some odd different programs and structures and implement an ERP so many of the ERP dollars wind up going and running through the balance sheet so you will see an increase that takes us up closer to the 2% more than the 1.5% we've been running in the past.

Thank you very much.

Thank you. We'll go next to Terry Darling with Goldman Sachs.

Thanks. I had a question on the slide 28 where you're talking about the IR stand alone operating income bridge and I guess just looking for more detail pursuant to the last question. You got inflation, 2.5% versus 3.5%, in '07. Can you take us through where you see fewer inflationary pressures this year to start off.

Well first of all, if you go back and look over the last call it two or three years, there's been, as you know, some pretty rapid rates of inflation in commodities, almost in every regard you're still seeing some push -- pass through, through the system of higher resource costs, metal costs. What we're looking at as kind of outlook for 2008 is that there will still be inflation but instead of taking $150 million, we can sort of trace to more like $100 million of projected inflation and that's -- everything -- commodities to some degree, but across the board looking at a slight deceleration in total input. So that would be across the board, people costs, services cost, professional services cost, as well as materials and other things like commodities.

And if I'm thinking correctly about the Delta relative to your initial expectations in '07, copper was a big component of that. Can you correct me if I'm wrong there and can you tell us what your copper price assumption for '08 is, please.

Yes. No copper -- copper increased in '07. You're right. In fact the numbers you saw in latter half of the year, some $3.50 a pound. We have a slight reduction in the cost per pound as you go into 2008.

Okay. And then on the productivity side, you're talking about 4% versus 3%. Where do you see the incremental -- what is driving that incremental improvement in productivity?

Yes. Well first of all, if you take a big company like this, obviously a big part of it is continued work on the procurement front. Work on commodity teams and applying more leverage in the supply base that's before the acquisition of Trane. I think the big Delta will probably be moving into nonmaterial productivity, in a more aggressive way, Herb talked about leveraging the overhead structure better, driving more efficiently to get incremental dollars of revenue without adding to the SG&A layer. In many cases we're making growth investments. I think the trick is to take more time and attention to drive productivity in the overhead, if you will in the administrative parts of the company and to get a better balance of incremental dollars with less heavy investment in SG&A. That's different set of strategies, different type of resource that's been brought to bear here over the trailing two, three, four year time frame where a lot of the productivity focus has been on, I'll call it material costs. We continue to restructure. You alluded in your question, all of the benefits for the 28, $29 million of restructuring we took in '07 will be found in our results results in 2008. So you fund productivity in part through productivity. The second half of '07 was a relatively healthy year in terms of productivity investment and the returns on those type of projects are very good.

In the uptick in the restructuring and growth investments is that on the restructuring side of the growth investment side?

Of the amounts we called out of the year of 50 odd, $60 million worth of quote investments, about half was the restructuring dollars that I cited. So 28, $29 million of restructuring. I would say the growth investments have been maintained around here for quite sometime. That's a pretty representative level but the restructuring is probably heavier than you've seen in the last couple of years.

And lastly on the ERP implementation, can you square us up as to where you are in the process, if you want to use the baseball analogy that might be helpful and what is the spending on that in '08 versus '07?

Well in baseball terms we were pretty far along in the businesses that we divested. So if you think about the history of putting in integrated ERP systems in the company we got good at it by putting it into Bobcat and Road, those businesses were divested and what remains were probably in the second inning.

We really have much more of a footprint already there than at climate control than we do at the industrial end and security, and the full going forward, we're talking about -- let me get a dollar number for you--- . I think we're talking about somewhere along the lines of 70 to $80 millions with the total number of dollars that we were looking at spending. Remember this is not a net number, so what we are obviously also doing is stopping work on some of the existing legacy system cost that we have in place so this is not to go into increment by that much but by stopping to do the re-writing and re-programming of a MRP and instead go do it into the Oracle base stuff we're doing.

So that was 70 to 80 for '08 or over the life?

Yes.

And that will tail off in '09?

This is probably two or three years. Without considering the business case of putting in more integrated systems in the Trane businesses. We haven't even considered that. We were thinking as a stand alone Ingersoll-Rand, it would be '08, '09, 2010.

Thanks for the help.

Thank you.

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

Thanks. Good morning.

Hi Nigel.

You talked about the synergy on SG&A side being maybe 1 or 2% of combined sales. If you go up 2% that would get you a little bit more than $20 million which is combined synergy target as it is. Now you've had two months to look at Trane in a bit more detail that you're maybe a bit more bullish on your opportunities for synergies.

Well I think what I would say is one, we have done our homework but we are at this point in time very confident in the $125 million for the first year and the $300 million that we will deliver in 2010. But in the spirit of continuous improvement, you and I both know that what we wind up trying to do is continue to see if we cannot go beyond that. But as we now are planning for more, we're working on more but right now I'm giving you is the 125 to 300 and your math, that's why I said to you it's 1 to 2%. If you got the 2%, you clearly go by that , I'm not there yet. Where I am is 125 the first year and 300 by 2010 and I want you to know that we're working diligently to see if I can change that by the time we talk in the next couple of calls.

Okay. Great. And secondly James on the tax fund, the 20 - 20% combined tax rate, it's maybe a bit lower than expected. There were maybe concerns that Trane might mix up the tax rate. It doesn't sound like that will happen. Can you comment on that.

Right. The blend rate might be higher. One of the areas of opportunities we've identified when you put two big global companies together and you have a chance to look at the tax as one of the synergy strategies, we think we found some. I think for some reasons we haven't spelled them out or talked too much about them but we do think they are structurally some opportunities here to keep the blended rate down to the low 20s.

Great. And then finally, on the cash flow, I think, if I'm not mistaken, you took about $1 billion for 2008. You're now talking about 1.1, is that coming from just better work, capital management and going forward is there any structural reason why Ingersoll-Rand cannot convert 100% or more of earnings in the cash flow?

Let me answer the second question first. No. There is no reason. If you look at the slug of amortization we're going to have around here. It's simply additives to the, call it positive cash generation as a percentage of net income. And to your point, you get there through, as Herb described, lean capital spending, better working capital management but there is nothing inherent in the business model here that indicates less than 100% of net income. Now when you grow rapidly, you grow outside of the United States, you go through changes of the kind that we have gone through, sometimes on manufacturing or putting more material on the water. There are all kind of comes and goes but there is nothing in the business model that says you can't do 100%.

Great. Thanks a lot.

Thanks, Nigel.

Thank you. We'll go next to Robert Wertheimer with Morgan Stanley.

Good morning everybody. You've been pretty helpful on the material costs but I wanted to see if I could narrow it down a bit. It materials getting worse or better into 4Q and then I guess into the first part 1Q?

Well actually it is continuing to go up slightly in terms of the inflation continuing to be a number that's going to be driving let's say the first quarter. Probably somewhere between 15 to $20 million on an incremental basis.

Okay. And then -- thank you. And then the second question would be just on the inventory step-up charges. I understand that happens and I know you were very clear that that estimate was not precise last time we talked but I think you said you thought the $4 number included a little bit of inventory step-up and now you have 40 to $0.45 that's not in that. So the question is am I correct and did I end up coming up higher than you thought and why?

First of all when we gave the $4 we did not include -- we could not have included meaningful amounts of inventory step-up so that is the primary change going and doing a more thorough job of what would be the impact from step-up. We are not including in the number known areas of restructuring which are not heavy. So I do not think we were very imprecise, if I can say so, back in December about given the shortness of time and the amount of detail that we had at that point and we didn't attempt to give an estimate of the step-up.

I understand that. And but I want to make sure. There wasn't really of a step-up in the $4 number.

That's right.

Okay. Perfect. Thank you.

Thank you.

We'll go next to Eli Lustgarten with Longbow Securities.

Good morning.

Hi Eli.

Thank you for giving a great year and with '08 being as complicated it's going to be because of the timing of the acquisition , they had to go back to the tax rates but can we talk about what 2009 tax rate looks like. Is it staying the same range or some parameters of it. And in the big charges of '07 you had some penalties and interest for pre 2001. Now there is another big claim by the IRS for 2001 and 2002 post that I believe you're negotiating or in discussions with. Can you talk a little bit about that, the impact of that claim against Ingersoll-Rand.

Sure. Let me start with the second part which relates to the 2001, 2003 audit period as you point out, Eli, correctly. It is in that audit period that the Bermuda inversion was examined and assessed as I think everyone on the call knows, the IRS has disallowed any of the inversion debt to be treated as debt and therefor the interest deductible, that's the area where the company has strongly disagreed with the IRS's position and as you rightly point out, that's an area to say the least that we're in discussions with and we are really not talking about that process. It's not something that we do get into or can get into. It's outside of any of the guidance or consideration and I'll just say for now, Eli, that remains a pending item and could be quite sometime before there is any resolution of that matter. You ask about 2009 tax rate, I'll just say that based upon what we now know, sitting in 2008 and looking at the income mix and I'll call it overseas versus domestic tax rates, other structural things we're work on, I don't have any indication now that 2009 is going to be very different from 2008 in terms of tax. The only thing that I would say, is as income continues to grow at Ingersoll-Rand and as income were to continue to grow in the United States, high tax jurisdictions, you could see some upward creep in the effective tax rate but I'm not signaling that I think that's a big number and then I'll just say the imponderable about additional settlements or assessments are also not in our guidance beyond what we've already said. Do you want to ask a follow-up question?

Yes. The other comments you talk about is the material guidance of 100 million versus 150 and I guess -- I know the Trane guidance also assumed a stable cost price relationship between material and price. Can you talk about -- you indicated in your first quarter, we're seeing tremendous cost pressure on the commodity prices, big steel increases, average copper prices higher at this point. Can you talk about whether you're comfortable with that 100 million? It looks like that will be a conservative number, we have seen everybody raise that forecast and to what degree do you expect higher prices, with a kind of price assumptions are you putting into 2008 at this point to -- given the pressures that are existing in the business?

Yes, okay. So realization of price during 2007 across all of Ingersoll-Rand ran at about 2% favorable. And so as I mentioned in my comments a big part of what we do is we continue to look for areas where we can realize price and we'll continue to do so and we'll realize the carry over of what we got in 2007 for all of 2008. I think it's fair to say, that you're right. We still see inflation pressures. I think what we're really debating here is the rate of increase year-over-year. So if I pick out certain things like -- I'll just pick lead as an example. Lead went from $0.50 a pound in 2006 to $1.50 a pound in 2007 and it assumed $1.50 in 2008. I don't have a decline baked in there, nor do I have $1.50 to $2. If we take copper, which we talked a lot about, it went from $2 to $2.50 to $3.50. It's in the plan in 2008 at $3.50. What we're getting at here is what was the aggregate increase in 2007 and the answer is very heavy if you take these metals, steel being another example. And what is the further increase from here as a percentage when you look at all of '08 versus all of '07. The question is whether '08 is another barn burner commodity inflation the way '07 was or do you continue to face the cost structure when you got to the fourth quarter of '07. So what we're not projecting is another big year in '08 like '07. But there is no relief from the levels you hit in '07.

So think of it Eli, along the lines of full year pricing at 2007 and the Delta between that and the stuff we had in 2007, collectively ends up an arm mass of being about 100 million.

And let me clarify. You did indicate you're showing a positive cost price and you're able to pass on the costs at this moment so that's not an issue at the moment.

That's right.

Thank you, thank you.

Thank you, Eli.

We'll go to David Raso of Citigroup.

Two questions. One on Thermo King and also on security and safety, nonresidential. Can you tell us what Thermo King was down domestically in the fourth quarter.

I think it was about 12%.

Given what the industry buildings have been, does that mean we have that pain to come in the next quarter or are you just taking that much share.

I think the difference we get into is a conversation about how much trailers are sold and put into distribution versus how many of them are sitting there and we put things into the hole that is in it. So we saw a couple of thousand trailers that we put things into that is different than what you saw in terms of trailers being manufactured in the fourth quarter. So that's why our numbers are higher, if you will, than what you would take from the [acdata] just talking about the trailers being built. So we wound up having ain'ts that we wound up putting units into and that's why the number was not as low as you would get. And now going forward for 2008 as we said is that we think our volume overall is going to be down about another 15%.

And for Europe, I noticed on the economic sheet where you had GDP was labeled western Europe but your refrigerated trailer was Europe so I assume you have the strength in eastern Europe in that European refrigerated trailer?

Yes, exactly right. We're talking increases well north of 20%. And we continue to see that strengthen and when we talk to our folks over there we hear more talk about the capacity strength rather than in terms of customer demand. I think things are firm all the way out through halfway in the year as we are in the second month of the year.

And then regarding security technology, you did not provide the mechanical commercial revenue number. Obviously third quarter commercial revs were up 16. They're only up 7 in the fourth quarter and it looks like electronic access didn't change a ton. It went from up 24 to up 21. Did mechanical flatten out in the fourth quarter?

Yes. I would say you saw in terms of it. The increase was no longer double-digit it was more into the upper single-digit type increase. And again I think a key part where we look at our profitability on this, it has got to do with the mix of European versus U.S. Our U.S. business is much more profitable on the mechanical side than the European business.

No, I appreciate that. But the mechanical business, if it was up 13 in the third, did that flatten out already in the fourth.

Yes. That's why I said, we talked about it being closer to the 10% level.

The 10% was total commercial, so mechanical is flattish to get total to up high single? There's no way mechanical can be up 10 and electronic up 21 and all commercial up 7. I'm trying to understand. Did we see nonelectronic commercial revenues flatten out?

I'll have to get back.

That's a good question.

The math doesn't make sense.

I have to go my memory.

The math doesn't work. Obviously mechanical must have gotten close flat already, then it dovetails in to '08. If I'm guiding security technology up five to six, you're guidance, obviously the economic data you threw out there for square footage down 10% commercial and so forth, how am I getting five to six. I knew Cheesa gave you a good seven year leg a couple of years back but it's still a majority of U.S. business. I think -- how can it get up five to six.

You ask just in general to make sure people understand the consistency of the data, the information we have showed about square footage, shows the decline in the commercial space X institutional, we have got in here a lag from the time that the construction is started to the time that things like security equipment are implied and it gives you pretty good visibility through a significant portion of 2008 but you're right. I mean there is -- we're looking at a head wind in that nonresidential piece.

Okay.

Especially towards the end of the year.

I would appreciate. If you could get back to us on the mechanical for the fourth quarter. Great thank you very much.

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

Good morning, gentlemen.

How are you.

It's still morning. I'll start with a simple question. I know that it's not a big number. You've been at pains to make that point. But in the restructuring charge that you've combined with the inventory step-up that you're excluding from your guidance, is it that you do not have a point estimate for the restructuring charge yet and does it not feed into the synergies that you're expecting to recognize in the year.

That's exactly right. That's exactly right. So as Herb said. We're still working and confident about the level of acquisition synergies that we originally talked about. The planning phase that we're right in the thick of right now would directly pertain to the amount of requiring restructuring and in particular, the amount of charge that you would take let's say on one side of the acquisition or other is also an area of focus. These are areas that a lot of teams are at work on, we're just not far enough along to call it book keep with accuracy enough to disclose externally anyway what the kind of restructuring benefits are and timing and amounts.

Okay. That's -- thank you.

You've got it exactly right. We're not far enough along to give that kind of detailed point estimate.

Okay. That's fine. And then the other thing I would like some help and maybe some other people would, if you could, on slides five and 27, the bar charts on the left hand side in both cases, segments and regions, these growth numbers of course include the currency effect. And rather than make wild guesses as to how much of it occurs in Asia versus Europe or how to allocate it among the segments, I'm wondering if you could tell us simply what the growth rates -- or what the currency contribution is to each of those six bars on those two slides.

Now we're talking about -- well okay. So let me say this. The answer is yes I can, but no I'm not in a position to do it right now. In other words I don't have it in front of me the break down. But yes, of course we have it.

Okay. I'll follow-up with you then.

Operator, we have time for one more, question, please.

And we have one question left in the queue. We'll go next to Mark Koznarek with Cleveland Research.

Back in the Q&A there was discussion about climate control and you described the outlook geographically. I'm wondering if you could go back and describe transport versus stationary. Especially, stationary, what the outlook is across the geographies.

What I said before, when I was doing, it I was doing it on a macro basis, Mark. I said that for instance, the climate control Americas for us when we added up the stationary plus the transport being off we said transport would be off somewhere along the lines of 15%, we then add back into that our contracting business and our stationary stuff and we're all done we are at flat to up slightly. If we wind up going over into Europe where we said there collectively we're up in the double-digit growth for 2008 and then that most of that growth, double-digit side of it is going to be winding coming from the transport, with the stationary side being really more of a modest single-digit type of growth and if you move over into Asia-Pacific, the growth there is across the board and now all of a sudden some of the growth because of the side of the numbers, bus, air-conditioning actually winds up showing one of the areas for some growth. But pretty well consistent across the board at about 10%. Not much different between transport or stationary type stuff.

So back to North America, the stationary you think will be strong enough positive to pull the overall Americas business up to flat.

One of the interesting things that we find, if there is a slowdown and we saw this in previous times, when there is a slowdown in the economy, people start going to the supermarket more to buy food to bring it home versus going out and so if you look at same-store revenues for the retail side, at the end of the year it got stronger what was it Joe, 4%.

3%.

3% higher and they're picking up land that is relatively inexpensive and so we see the activity level tail land being strong and the biggest difference for us is that we're significantly participating in all of the key players. We have the contract at Target and Wal-Mart and the traditional national type chains so unlike where we faced in the downturn, where it was driven by Wal-Mart strong, everything else being weak, we now see the ability to participate in all of it. We're doing much better, the services is now double-digit profitability. So collectively yes, we see in terms now the balance between stationary and transport for next year in the U. S.

Okay. And then just one quick follow-up on the price discussion that occurred a little earlier. I just was unclear what the pricing assumption is across the company for 2008.

For 2008, we're seeing price increases that will be somewhere about the 1.5% type range is our estimate.

And you said 2007 was roughly 2%.

Yes. Rounded up was 1.9%, 2%.

Thanks.

Thank you very much. We're going to wrap up now. Thank you all for joining us for this marathon session. We'll have an instant replay of the conference call available tomorrow at 10:00 a.m. and it will be available until February the 21st. The call number is 888-203-1112 and the pass code 5497177. The audio and slides for today's conference call will be archived on our website and finally the transcript of the conference call will be available on the Ingersoll-Rand site tomorrow. So we can read about what you heard today. Please call me, Joe Fimbianti if you have any additional questions at 201-573-3113. That concludes our call. Thank you again.

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