特靈科技 (TT) 2009 Q3 法說會逐字稿

Welcome to today's Ingersoll-Rand third quarter 2009 earnings conference call. Today's conference is being recorded.

At this time I would like to turn the call over to Bruce Fisher, Vice President of Strategic Planning and Investor Relations. Please go ahead, sir.

Thank you. Let me add my good morning to everyone as well. We released earnings at 7 a.m. this morning, and the release is posted on our website. Concurrent with our normal phone and conference call we're broadcasting the call through our public website. There you will also find the slide presentation for the call. To participate via the web at web go to www.ingersollrand.com. Click on the yellow icon on our home page. Both the call and the presentation will be archived on our website and will be available tomorrow morning beginning at 10 a.m.

If you would please going to slide two of the presentation. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor Provisions of federal securities law. Actual results may differ. Please see our SEC filings for a description of some of the factors that may cause actual results to vary materially from anticipated results. In addition, please refer to slide 26 which covers the use of non-GAAP measures to describe Company performance.

Now I would like to introduce the participants this morning's call. We are have Herb Henkel, our Chairman and CEO, Mike Lamach, our President and COO, Steve Shawley, our Senior Vice President and CFO and Joe Fimbianti, our Director of Investor Relations. Herb and Mike will review our business results. Steve will cover our financial position, and Herb will summarize our outlook for the rest of the year and our preliminary framework for 2010. We'll then open the lines for your questions. If you would, please go to slide three and I will turn it over to Herb.

Thanks, Bruce. Good morning and thanks to everyone who dialed into this morning's call. In the third quarter, we continued to focus on performance achieving better than expected results on our productivity, new product programs, while facing continued market challenges. Third quarter reported earnings, continuing operations were $0.68 a share. Adjusted EPS $0.70 a share excluding $0.02 of restructuring and including $0.04 of discrete tax benefits. This improvement in EPS reflects better than forecasted operating performance which off sets some lower volumes.

For the quarter revenues were $3.5 billion which is down 19% versus prior year and down 17% excluding currency. Third quarter revenues were at the low end of our July guidance where we anticipated revenue ranges of $3.5 billion to $3.7 billion. The decline in order intake was in line with the revenue drop and was off 20% year-over-year. Excluding currency effects, orders were down about 17%.

All of our segments improved operating margins compared to the second quarter and total segment margins were up 1.5 points sequentially adjusted for restructuring. We also hit our 5% goal for gross productivity through a combination of tight cost controls, restructuring savings, Trane synergies, and operational improvements. We also held or gained share in most of our businesses and continued to develop and introduce new products which helped mitigate some of the weaknesses we see going forward.

Our sharp focus on cash flow management continues to really pay off. We generated $1.2 billion of available cash flow year-to-date, well ahead of our annual target. We used the extra cash to pay down our total financing by $850 million, significantly (inaudible ) full year target a quarter early. Now let me turn it over to Mike Lamach who will go through the second quarter in more detail. Mike.

Thanks, Herb. With that, please go to slide four. The slide gives a quick summary of revenue and operating margins for the quarter. As Herb mentioned reported revenues for third quarter 2009 were $3.5 billion, down about 19% on a reported basis, and down 17% excluding the impact of currency. Reported operating margins were 9.1% and were 9.4% excluding $10 million of restructuring costs. On an apples-to-apples basis adjusted operating margin declined only 150 basis points despite an $830 million drop in revenues highlighting the success of our productivity actions. I will come back to the topic of margins and operating leverage in greater detail on a later slide.

Please go to slide five. This slide provides a look at the trends in our revenues by segment. We think revenues excluding currency (inaudible) chart give a better view of sales performance and our comments will focus on this measure. As you can see on the chart it appears we have been bouncing along the bottom since the second quarter of this year with some modest improvement in the rate of decline in the third quarter.

I will give you two other views of our third quarter results a geographic split and a split between recurring revenue and equipment. On a geographic basis revenues declined by about 15% in the US and about 22% in international markets excluding the impact of currency. Equipment revenues declined by about (inaudible) percent on a comparable basis with last year. Worldwide recurring revenue held up better and were off by about 8%. Our sales like most diversified industrial companies declined significantly in the third quarter all be it at an accelerating pace.

Please go to slide six. This bridge represents the total of segment operating margin on a pro forma basis and excludes restructuring. This look gives a better view of the true dynamics of operating margins at the enterprise level. Third quarter segment operating margins were 9.4% which is off about 1.5 percentage points compared with pro forma adjusted 2008. The combination of declining volumes, negative FX, and marginally lower price hurt margins by 5.6 points. We continue to invest in new product development and those activities coupled with purchase accounting related costs and restructuring expenses had a minor impact in the quarter and reduced margins by 30 basis points. Productivity improvements, restructuring savings, and Trane acquisition synergies added about 4.4 margin points.

While we were unable to compensate fully for the significant volume decline in the quarter, we were able to reduce our decrimental margins to 17% and $830 million year-over-year revenue decline. For comparison our deleverage in Q2, 22% on $1 billion in lower sales by reducing our fixed and variable cost structure and focusing on productivity we're positioning ourselves for higher margin when is our markets do begin to recover.

Please go to slide seven. The bridges, the components of EPS compared with our breve guidance range from July. At that time we expected to be in the range of $0.55 to $0.70 per share from continuing operations before restructuring with the midpoint value of approximately $0.63 per share. As I mentioned, our revenue came in slightly below the lower end of our forecast range. Our reported revenues splitting currency were about $120 million below the forecast midpoint of $3.6 billion which equates to a $0.09 per share drag in earnings. We also delivered higher product activity than expected. As we accelerated our restructuring activities, implemented additional cost containment programs, and realized additional deflation these items contributed to an additional $0.08 per share.

Discrete tax items were a $0.04 benefit as was a lower tax rate from operations. As an aside our year-to-date earnings of $1.17 per share still includes a cumulative $0.02 from discrete tax items. Our increased cash generation allowed us to reduce borrowings and lower our interest expense by $0.01 offsetting a higher share count. In aggregate, internal drivers offset weaker than expected revenues drove our improved performance with the July guidance.

Let's now move to a review of the operating segments and go to slide eight. This slide lists the highlights for air conditioning systems and services, represents the Trane business that was acquired in June of last year. Trane third quarter revenues were close to $1.8 billion down 14% versus prior year on a reported basis and down 12% including the effects of foreign exchange. Global nonresidential HVAC equipment markets declined more than 20% in the third quarter with significant reductions in the Americas, Europe, and the Middle East, Asia markets were flat reflecting growth in China.

Our commercial air conditioning revenues which are the combination of commercial equipment and parts, services and solutions, were down 16% reported and $0.14 excluding 2 points of FX. Total global commercial equipment systems which represents (inaudible) of our commercial HVAC sales in the quarter were in line with global markets down about 23% excluding FX. The global parts, service solutions business represents about 48% of our commercial sales declined by about 1% excluding foreign exchange.

We continue to see deferrals and smaller retrofits and also have now had year-over-year growth in our service agreement base as customers have increased the level of outsourcing service they do with us. Cooler than normal, late summer temperatures especially in the densely populated northeastern U.S. also hurt repair activity. We expect our service business to be flat in the fourth quarter compared to last year. Current contracting and service backlogs are up over 15 % over prior year reflecting our increasing ability to sell to owner direct customers and an uptick in energy efficiency projects as well as in our service agreement business base.

Let's turn to the residential part of our business which represented close to 23% of total Trane revenues in the quarter. We estimate that industry shipments of new residential construction were down in the range of $0.30 to $0.35 in the quarter and replacement (inaudible) shipments. declined to low single digits combining (inaudible ) in the range of 10%. For the quarter our residential product sales were down by 6% as improved mix, (inaudible) offset lower volumes. Inventories continue to be lean in our channel and we're getting the benefit of the better sell through. In addition, the US residential market may be approaching an inflection point driven by pent up demand and easier comps.

Next looking at orders, total global commercial orders excluding FX were off 11%, significantly better than revenues. Excluding foreign exchange, equipment orders declined approximately 15% in the Americas, much better than the high 20s decline seen in the second quarter. Orders for contracting, parts, service, and controls were close to flat. We ended the quarter with global backlog of equipment, contracts, service and parts of approximately $1.2 billion. Global backlog was down 6% both reported and excluding FX. Equipment back enclosing declined 12% while contracting and services backlog increased by 15%. Geographically Americas and international back logs were both down mid single digits.

Now let's turn to air conditioning margins. For the third quarter of 2009 operating margin was 8.6% including purchase accounting, restructuring, and incremental allocations all totaling (inaudible) million. These items negatively impacted margins by 3.1 points. Last year these items totaled $122 million and adversely affected margins by 7.3 points. Adjusting for these items, margins were 11.7% with last year. This means that operationally margins were flat despite a $280 million drop in revenue as our productivity and cost containment actions offset the impact of lower volumes, FX, and inflation.

In summary, the commercial equipment revenues remain weak. Service and contracting are poised to recover, essential market may be on the verge of turning positive. In addition, productivity, product launches, and restructuring action based on these results will put us in position when the markets improved.

Please go to slide nine. Climate control revenues for the second quarter were (inaudible) down (inaudible) on a reported basis (inaudible) excluding currency. The Global Thermo King Transport business revenues decreased by 30% largely due to weak global truck and trailer markets and low freight rates. Worldwide refrigerator, truck and trailer volumes were down about 30% compared with 2008 due to ongoing decline in the worldwide trucking industry. We saw negative sales in all geographies with the most severe declines in the European trailer business. HVAC shipments and (inaudible) sales also declined substantially due to slowdowns and end market activities.

Aftermarket revenues were down reflecting lower fleet capacity utilization and ongoing inventory management actions in overseas markets. North American aftermarket revenues increased slightly due to increased in [refer]unit changeout driven by emission regulations and transport equipment entering the state of California. Tri-pack auxiliary power unit volumes also declined significantly compared with last year as lower diesel prices and declining fleet revenues have continued to limit conversions in 2009. Looking at stationary refrigeration, global sales were down about 25%. This was driven by a decrease in display cases and a sharp decline in the installation business due to lower supermarket capital expenditures and deferral of expected fourth quarter remodeling projects to 2010.

On a positive note, Hussman head, year-over-year sales increases and gain market share with major national supermarket customers during the quarter especially in higher margin, reach in display cases. Hussman margins also increased significantly compared with last year as productivity and cost containment more than offset the volume decline. Amid this market a upheaval we have gained share in trucks, trailers, and display cases in North America and continue to introduce new innovations and energy savings products into the marketplace.

Climates reported operating margin was 9.3% in the quarter. This compares with 11.5% in the third quarter of 2008. Margin contraction was driven by the significant decline of high margin truck and trailer revenues and the impact of currency which combined to cause a 9 point drop in margins. Productivity improvements offset much of the margin pressure and helped margins by about 7 points.

Let's go to slide 10. Industrial Technology third quarter revenues were $512 million down 29 % versus the prior year quarter and down 27% excluding currency. Revenues for the air and productivity business decreased by 29% due to lower volumes in all geographic regions and negative currency. Air and productivity revenues in the Americas declined about 33% during the quarter with a 38% drop in equipment volumes due to declines in major industrial, process, and fluid handling end markets.

Recurring revenues were off about 26% and lower industrial production levels and deferral of maintenance by customers. Air and productivity revenues in overseas markets declined less significantly down by 24% compared with 2008 primarily due to declines in industrial activity, especially in Europe, and a 3-point drag from currency translation. Reported Europe pen volumes were down 29% and about 24% in constant currency. Revenues in Asia-Pacific were off about 18%.

Club Car revenues decreased 29% compared with last year due to weak economic fundamentals in key golf, hospitality, and recreation markets and customers deferring replacement of golf carts. Year-over-year market share has held steady in a historically difficult market. Industrials operating income was $43 million, representing an operating margin of 8.4% down from 11.3% in 2008 on a comparable basis. Volume declines and unfavorable currency accounted for 7 points of the margin drop. Industrial also had 1 point of restructuring costs hit their margin in the quarter. Similar to our other businesses, improvements in productivity offset much of the volume decline and in industrials case contributed 5 points.

Let's go to slide 11. Revenues for Security Technologies were $550 million, down about 15% and down 13% excluding currency. Third quarter revenues were up 3% from the second quarter. Commercial security worldwide revenues were down 17% primarily resulting from declining building and remodeling markets in the U.S. and Europe. Currency accounted for 3 percentage points of commercial revenue decline in the quarter.

Americas revenue in the commercial sector were down 19% with decline of volume partially offset by carry over pricing from 2008. Securities European business was down approximately 16% on a reported basis and 7% excluding currency. Asia revenues were up slightly on a constant currency basis. Americas sales in the residential segment declined approximately 7% in the quarter. Residentials results continued to be impacted by the decline in domestic residential building and remodeling activity.

Volume gains from (inaudible) residential home security and energy management products and revenue gain from prior period price increases helped to partially offset the fall off from residential market activity. Operating income for the sector was $117 million or operating margin of 21.3% excluding $2 million of restructuring costs margins would have done over 2 percentage points above 2008. Accelerated productivity, strong cost control discipline, and prior period pricing actions added 8 points to the quarter's margins and offset the loss of 6 margin points for volume decline and negative currency.

Let's go to slide 12. Let's switch gears and talk about area of relentless focus for us which has been productivity. The top half of this slide shows a summary of our cost reduction and productivity actions for the first three quarters and the full year 2009. We set a long-term goal of delivering 5% gross productivity every year. This compares to our historic productivity performance of 2% to 3% a year. For 2009, we have increased our target total productivity savings to $670 million, almost double the gross productivity we achieved in 2008.

In the third quarter we achieved $172 million in savings, $14 million better than our guidance which equates to gross productivity of 5.2%. We have revised our 2009 productivity projection to $670 million despite lower than expected volumes. We also expect to benefit by roughly $120 million in 2009 from commodity did deflation which is about $30 million less than previously projected. The expected savings will be offset by the additional productivity just mentioned in approved non-commodity deflation.

Let's go to slide 13. This slide shows both the costs and benefits of our productivity programs in 2008 through 2010. The incremental annual savings for productivity, synergy and restructuring programs are shown in the top right. We expect gross material and labor productivity to reduce our costs by 2.5% to 3% per year in 2009, 2010, and beyond. We have raised our target for Trane acquisition synergy savings to a cumulative 500 million including growth synergies through 2010. Breaking this down further, ongoing cost reduction programs will contribute $390 million through 2010 and are recently announced organization restructures will add $90 million in addition next year.

Restructuring program saving should add another $360 million cumulatively as we complete actions begun in 2008 and initiate new ones associated with improving capacity utilization, consolidating common skills into focus centers of excellence and accelerating our use of low cost country strategic sourcing and region of use manufacturing. We expect to now achieve an incremental restructuring benefit of $145 million in 2010, up from our previously communicated guidance of $55 million in benefits.

Cumulative benefits of $360 million in the restructuring category and the $90 million shown in the organizational restructuring portion of the synergy category which have asterisks on this slide require about $277 million of spending to achieve cumulative benefits shown of $450 million in the period 2008 to 2010. We show the key programs in each of the categories at the bottom half of the chart. As you can see we're expanding our productivity activities and we are committed to making up a foundation of our operating culture.

Please go to slide 14. On October 8th, we announced the formation of the new Climate Solutions sector which will align our Trane commercial systems, Hussman and Thermo-King businesses under one sector offering integrated solutions to customers to improve the energy efficiency and the sustainability of their products, facilities and services they provide to their end customers. Climate Solutions sector has broad capabilities to help customers reduce energy use and carbon emissions while improving sustainability performance on both economic and environmental levels by pulling together HVAC and refrigeration the Climate Solutions sector can have a large impact on customers businesses by addressing more than 50% of their energy use and improving the quality of their own operation. The sector has an accredited energy services company, employees more than 500 LEED certified engineers and offers a wide variety of energy efficient products, services and solutions and stationary HVAC refrigeration and transport refrigeration many of which are the industry leaders in their categories.

The formation of the Climate Solutions sector and the previously announced formation of Residential Solutions sector are important milestone events in the overall integration of the former Trane business with Ingersoll-Rand. These organizational changes are consistent with Ingersoll-Rand's strategy to become a more customer focused enterprise capable of driving higher organic growth rates into the future. At the same time, these changes create a more efficient and integrated operational footprint designed to deliver sustained 5% growth productivity improvement.

Effective with reporting fourth quarter 2009 results the Company's four segments will be Climate Solutions which again includes Trane Commercial HVAC systems, Hussman, and the Thermo-King businesses. Residential Solutions which includes residential HVAC and residential security business, Security Technologies which includes security commercial businesses and Industrial Technologies which includes air and productivity solutions and Club Car. We're excited about these changes and the opportunity we will have have to serve customers better at lower costs.

Please go to slide 15. In addition to our productivity programs, we continue to make significant investments in new products and services. Close to $2 billion of our 2009 revenues are from new products and services introduced in last three years with the number of new offerings at each of our businesses. We'll invest over $500 million this year in R&D, engineering and CapEx not including marketing and promotional expense which drives both innovation and value engineering programs. This slide highlights three of the areas and in Trane we strengthen our leadership position in integrated systems by introducing a number of new products.

We launched our new global Air Cooled Chiller and are manufacturing the product in each region of use. Simultaneously, our new commercial air handling unit product also went into production and we have seen notable order share gains in both product families. Our [Fortanay] refrigerant transition for unitary residential products is now 100% complete as of September. We will emerge from this downturn with an industry leading new and refreshed product line in terms of breadth, efficiency, and customer value.

In Climate we launched 23 new product this is year. Our new Hussman display cases are energy efficient for our customers and eye-catching for consumers. We're also introducing a more energy efficient refrigerated trailer which reduces fuel costs by 25% to 30%. Our Schlage LiNK product it hit the business box market in the second quarter and early results are positive. In the third quarter we launched programs with other major retailers to carry the product line and have also introduced products including a Trane thermostat which can control the home central and heating cooling system remotely and also offering other products linked which is lighting and security cameras.

In Commercial Security we're now launching a new modular electronic locking platform, the AD series by Schlage is designed in an open architecture platform which are can seamlessly integrate into existing access control systems. The patented modular design allows building owners to select among seven different credentialed standards by simply swapping out a single module without losing hardware or installation investment. Reinvesting in our business is critical to our future growth, and we have a full pipeline of products and services many of which are synergistic and combine capabilities across our businesses.

Many of these offerings are [in] Ingersoll-Rand and will continue to strengthen our market leadership positions. This investment will continue in the fourth quarter as we expect increased spending by $15 million over the third quarter for commercialization of new product lines, and solution offerings. Steve Shawley will talk about the improved balance sheet, cash flow and our success in reducing working capital, all of which substantially improved our liquidity position. Steve.

Thanks, Mike, and please go to slide number 16. As we have discussed on many occasions, the need to deleverage the Company in the face of very difficult economic additions has been and will continue to be our top financial priority. I am again extremely pleased to report that due to the unprecedented $1.2 billion of available cash generated through September 30th we have been able to reduce total financing by $850 million while maintaining cash balances of around $750 million at third quarter's end. The outstanding commercial paper balance has been reduced to zero. Our liquidity cushion of $2.25 billion is at the highest level that we have seen all year long. Current economics suggests it is unlikely that any material amount of the puttable bonds will come back to us in the fourth quarter. Accordingly, this chart projects what our cash and financing levels will look like assuming that we will generate another $150 million of available cash in the fourth quarter.

We fully expect to end the year with zero receivables and a securitization program and enough cash in the balance sheet to meet our February 2010 debt maturities of $261 million. If for whatever reason the puttable bonds show up in the fourth quarter, we will have more than adequate liquidity to handle the maximum that could come back and to retire the early 2010 maturity. In any event, we anticipate ending the year with total financing requirements of $4.1 billion which equates to a total reduction of $1 billion for the year, a number well above our $675 million deleveraged goal for 2009.

Please go to slide 17. This chart provides loot of detail in the make up of our available cash flow. We showed this analysis back in February at our analyst and investors meeting as a road map of how we deliver $920 million of cash necessary to meet our deleverage goal of $675 million. This analysis shows what has been done in the face of lower than planned earnings to drive the generation of cash. To date, working capital has been reduced by $577 million.

This focus on working capital and efforts to effectively manage our cash taxes has produced available cash of almost $1.2 billion to date with more to come in the fourth quarter. We are forecasting the rate of working capital reductions to slow in the fourth quarter but we now expect to achieve a total working capital reduction of $650 million for the year. CapEx will be close to depreciation for the year and we will see some tax payouts in the fourth quarter. All in, we expect total available cash generation for 2009 to be in the $1.3 to $1.4 billion range.

Please go to slide number 18. At the beginning of the year we were confident that working capital reductions could be achieved given the soft markets but really were not counting on creating a whole new standard of performance for Ingersoll-Rand. The management focus on cash generation has been intense. We believe that the results will not only allow us to out perform our cash targets this year but to also raise the bar for working capital performance in the future. We finished the third quarter with working capital of 4% of sales, less than half the level of the year ago.

The biggest performance improvements have come in inventory turns and payable days. Receivable DSOs are more than holding their own and (inaudible) have been a drag. Underlying improvements that have been made in manufacturing systems and processes, footprint restructuring, and supply chain and logistics management are paying off in the form of lower working capital as a percentage of sales. We believe that these improvements are sustainable and will help maintain future working capital to sales ratios in the 4% to 5% range even as volumes improve over the next few years.

Please go to slide 19. In light of our cash performance I thought it appropriate to remind everyone of our key financial policies. These policies were established prior to the Trane acquisition and were reviewed at our analyst and investor meeting in February. We have demonstrated that we are well on track to over deliver on our deleverage plans. This performance ensures that we will stay focused on liquidity and balance sheet improvements simply because we believe it has already made us a better company. With that I will turn it back to Herb for the forecast.

Thanks, Steve. Would you please go to slide 20. A year ago we saw a downward flex point in many of our major end markets. Our forecast balance of 2009 continues to call for weak activity in most of our major end markets. Most economists are predicting the US GDP will begin to show positive on a year-over-year comparison in the first quarter of 2010 and that even then the recovery will remain hesitant. We're operating operating with what we believe is a conservative base line for the fourth quarter of 2009 consistent with our most recent readings on our end markets.

So let me start by reviewing the updated economic assumptions behind our 2009 forecast. Slide 20 is an updated summary of the key economic and business metrics for 2009. The changes from our prior forecast are noted in red. For U.S. construction, residential building markets appear to be bottoming out at very low levels compared with the 2006 peak. Non-res construction will see about a 26% reduction in contract value and a 35% year-over-year decline in square footage with institutional activity off about 17%. The outlook for nonresidential building has continued to deteriorate throughout 2009 as the slower economy and tight credit negatively impacts starts.

The refer trailer market in North America continues to be below replacement level, but our forecast has improved since July. Water rates have solidified over the past six months. Recent order rates indicate that North American market should reach about 23,000 unit shipments this year. This is 4,000 units above our previous guidance but still 14% below full year 2008 shipments. We find this increase in trailer activity very promising since in each of the previous business cycles this has been a reliable early indicator of a pending economic recovery.

European truck and trailer markets had a sharp downturn in the fourth quarter of 2008 after a strong first half of the year. Demand for 2009 continues to be very weak, and we expect total European markets to be down as much as 70%. Industrial production and capacity utilization had a major drop off at the end of 2008 and in the first half of 2009. We continue to expect stagnant year-over-year industrial production and capacity utilization for the balance of 2009, especially in North America, and western Europe.

Finally, our forecast is based on the dollar to euro ratio of 1.39 compared with our previous forecast of 1.37. In addition to these industry specific drivers, we assume the Americas and European economies will experience weak GDP comparisons for the rest of 2009. We're also forecasting a recovery in China, but declines in the rest of Asia.

Now if you would please go to slide 21. Based on this macroeconomic view, we expect revenues for full year 2009 to be down 19% to 20% compared with 2008 on a pro forma basis including the 2 point drag from currency translation. We expect Climate Control and Industrial to show declines in the 24% to 29% range with low to midteen declines at Security and our ACSS business. This results in a 19% to 20% full year decline compared to our previous guidance range of down 16% to 19%.

Now please go to slide number 22. Additionally, our forecast is built on the following assumptions. We will benefit from lower commodity cost especially in the fourth quarter and we expect to achieve our productivity target of 5% as our productivity, synergy, and restructuring programs continue to lower costs significantly for the remainder of 2009. Finally, our fourth quarter forecast assumes flat pricing year-over-year of 14% tax rate, $15 million of additional investment spending compared with the third quarter and EPS based on a 332 million share count.

Please go to slide 23. Our outlook for revenues and EPS is shown on this slide and adds some context by showing 2008 revenues by quarter. As you can see on the chart, the current downturn began in the third quarter of 2008 after a strong first and second quarter. Compared to this year's forecast the year-over-year declines get smaller in the fourth quarter of 2009 not because demand is getting notably stronger but because the comps are getting easier.

Fourth quarter revenues are forecasted to be in the range of $3.2 billion to $3.4 billion which is down approximately 7% to 13% on the pro forma basis compared with the fourth quarter of 2008. The midpoint of $3.3 billion is also $200 million below our prior forecast for the fourth quarter. EPS from continuing operations is expected to be in the range of $0.44 to $0.54 excluding restructuring costs reflecting both weaker sales and our increased new product investments. We're projecting full year 2009 EPS from continuing operations and excluding restructuring to be between the $1.60 and $1.70 per share. Including $0.10 of costs associated with discontinued operations, total EPS is projected to be between $1.50 and $1.60.

Please go to slide number 24. We have not yet completed finalized our annual operating plans, but we thought it would be useful to feel show you a framework for thinking about 2010. For Ingersoll-Rand, the key drivers of performance will be end market demand levels and pricing, the success of our new product introductions, our productivity programs, and external cost changes driven by inflation or deflation. This chart shows that even with flat markets and flat prices in 2010 we are confident we can deliver substantial improvements in earnings versus 2009.

For the purposes of this framework, we have assumed that 2010 revenue growth of roughly $200 million is due solely to the absence of the significant destocking we saw customers undertake in the first half of 2009. This $200 million in sales revenue is worth roughly $70 million of additional operating income. Also, taking a simple view of productivity and costs, we would expect that a gross productivity of 4% to 5% will yield a 1% to 2% improvement after all cost escalations including commodities. This spread between productivity and costs is worth approximately $130 million to $260 million of operating income to us.

Using the midpoint of our 2009 guidance as a base, the additional $200 million to $330 million of operating income converts to an incremental $0.50 to $0.83 per share on top of our 2009 guidance, midpoint of $1.65. Again, to keep the framework simple, assume that all other major drivers, interest expense, share count, tax rate and FX net to a zero impact. Add some cushion, and this approach would yield EPS before restructuring of between $2 and $2.40 per share on flat end markets. This should be enough information for you to construct and sensitize your scenario during this off 2010 earnings. We'll have more to say about next year's sales, earnings and cash generation during our fourth quarter earnings call.

Now please go to slide 25. To sum up the forecast, we expect 2009 to remain difficult with activity declines in most of our major end markets. We remain focused on programs which make us a better performing company in both difficult and good economic times. We're delivering cost synergies and expanding our growth synergies. We're organizing our business to take better advantage of market opportunities. We will realize savings from restructuring and are stepping up productivity targets to the 5% level while working to capture material cost savings from commodities. We solidified our balance sheet by reducing debt balances by $850 million, dedicated to generating over $1.3 billion of available cash and are continuing to fund high priority projects that will focus on our growth in future years. In summary, we're taking the neccessary actions to both manage through this downturn and to deliver improved margins once the economy begins to recover. We would no be happy to take your questions.

(Operator Instructions) Our first question is from Nigel Coe with Deutsche Bank.

Good morning.

Good morning,Good morning, Nigel.

Wanted to dig deep into some of the margin trends here. In Security you're getting 8 points productivity benefits in the business line that's your highest margin by far. Just curious by that. Can you comment on that, please?

Nigel, interesting even in how the Security team does this to give you a little bit of color on Security. They're actually rolling prices back for 2007 before they count productivity, so they have a very progressive approach to working with suppliers around their own GAAP to excellence implementations and they are really leading the pack across the Company and driving that, so what we saw there was great performance again, two quarters in a row in productivity there.

Quarter four for them part of the investments we're make across the business, they have quite a few product launches. They're launching now a commercial lock which I discussed earlier and they're also doing a major national advertising campaign which some of you may have seen around the Schlage LiNK product, so as you look out to quarter four, maybe the margins would moderate a little bit in Q4 as a result of the investments. We continue to see strong productivity from that group.

So you feel pretty good about keeping margins above 20%?

Yes.

Okay. And then turning to I guess Industrial Tech and in particular, but FX is hurting your margins in particular within segments. Can you maybe just explain why and then as we transition to FX becoming positive, does that then help your margins?

Well, the more of a transactional element within [ICS's] business space is have a fairly significant business in India and buy some of the product out of Europe as an example, so you see both the translational and the transactional elements there. Increasingly I think the answer to that is to localize as much of the products we can in the region we're going to use the product and that's the midrun, long run answer to that question.

Nigel, just to add where we are, we're probably getting hurt about 1 point in margin with FX across the board.

Okay.

Possibly could swing, but we haven't seen that yet.

Okay. Can you remind us as well within industrial and particularly within air compressors, what is your exposure to mining and commodity products I know out of [CUPCO] it is quite a big (inaudible) for those guys.

It is really quite small for us, Nigel. We don't really have that large of presence in either the oil, gas, or into the mining side of things. We really are much more into more traditional, industrial type applications.

Okay. And just one final one for me. The tax you come to the tax next year is neutral to the year-on-year comps. That suggests probably a midteens separate. Can you comment on where you see the structural rate going forward?

Yes, I would say so, Nigel, I would say, again, the way we look at this thing, obviously at the top end of the range the rate would be a little bit higher. Because of the way the inner company loan is restructured but midteens would be a pretty good number.

Structural rates?

I am sorry?

Structural rate going forward, city state range going forward?

I would say as we go forward and we see an increase in our earnings, it will creep up to the 20%. We said in the past that peak earnings levels we expect to see rates in the mid-20s. That's peak. I would say mid-range we're looking at the 20 to 22 type percent.

Thanks, guys.

Thank you. Our next question is from David Raso with ISI.

Good morning. If you can indulge me for a second in some numbers here. Stepping back, you just put up revenue growth of about $9 million, but your profit grew $37 million. You're saying for '10 on flat revenues you can grow profit $265 million, so clearly earnings power without revenue helped, but the fourth quarter guidance-- first I would say if you back into the fourth quarter from the full year revenue guidance by segment, it is actually $3.4 billion for midpoint, not $3.3 million. But still if I use the $3.3 million-- what is so different about the fourth quarter? Besides $15 million in new product, it is three or four pennies? Obviously the tax rate, sure, up a bit, but I am trying to understand why is the fourth quarter that unique? Is there something about price versus costs? You did allude to some commodity savings in the fourth quarter. Can you help me understand that discrepancy in what you just did, what you're saying for full year '10 versus the fourth quarter guidance?

I mean, business by business basis, some of the weakness we're seeing in the top line really is around if the climate businesses and, in particular, we talk about unitary business at HVAC, both the resi and commercial portion of that.

No, I am not asking why the revenue is down. Why would the performance on EBIT be so terribly different from than a company that just put up $37 million of EBIT growth sequentially and only $9 million of rev? '10 you can do flat rev but still grow profit over $200 million. Why would the fourth quarter sequential revenue decline it be such a significant profit decline? That's what you're implying. You'e implying roughly EBIT of $272 million for the fourth quarter to get to $0.49. the fourth quarter to get to $0.49.

I was going to say to finish, David, I thought that the businesses that were down most had a higher deleverage than the businesses that were not down so one of the factors there is the mix of businesses and fixed costs associated with those businesses are greater.

It can't just be the share count but I assume you add another 2 million of shares to the fourth quarter because the stock's above $35. When you said 332 million shares, was that a fourth quarter number? Obviously for full year that would mean the fourth quarter share count for the whole year average would be 332, like 350. I assume that's not what you're implying, not a 332 average for the year with a fourth quarter of 350s is that correct?

It is going to run about 330 on average.

In the fourth quarter?

Yes, because we're up to almost that right now if you look at the information we sent out.

You're at 331.8, shares above $35-- kicks in another 2 million shares -- even if it is 333 in the fourth quarter, the full year average is only 327.6.

Right.

So, okay, basically the fourth quarter would be maybe a mix issue and a little new product costs, but it is --

You also have to add, remember, what we're saying, to is we're going to go and increase again we're going to add an additional 5% productivity. Our margins for next year are going to wind up going up another 1 to 2 points based on what the full-year impact is which we're not seeing obviously yet in the fourth quarter of this year. So the sequential improvement in profitability as a result of the ongoing productivity piece is going to put next year's margins up 1 to 2 points above where we are in the fourth quarter of this year.

Yes. I am with you. The fourth quarter just seems very low EBIT guidance on that revenue change given how the Company just performed and what you're saying about '10.

What we did on it, David, let me if I can and maybe anticipate one of other questions, what we looked at is that we got roughly-- again I am going by what we talked about from the last time around, the guidance we gave the last time, so we're up about $228 million of revenue, and most of that, half of it comes from Trane Commercial, then we've got some coming out of Climate, we've got some coming our of our Security type business.

And collectively we see that actually decreasing by over some odd 31% because of the mix of the businesses we're in. We're able to offset some of that because of productivity and spending controls and then you kick in the $15 million investment that we make and we have about $20 million of inflation we're baking in our number. So by the time you get done adding all of that in, that's how you come up with a 3.3 midpoint type range or you come up with the earnings we're talking about.

The last related question for '10, and you stated here, I am just making sure I am reading it right, you're saying 3% inflation is going to hit you but you're not going to get any pricing?

Dave, what we said is framework of trying to go and put out there a what would be a base case, that's what to me the framework is all about, and so just assume in this that when you're all done what you have is about 3% inflation. Everything else I zeroed it out. I said price was zero and all the rest. I said as a base case assuming no price going in there, assuming no increased revenues, except for making up the $200 million of inventory destocking piece on it, those are the numbers that you're going to go see in there.

If I see commodities going up, obviously why would I want to volunteer to be the guy caught in the middle between no pricing and higher costs? We would clearly go go forward. Consider this as a base case assuming no price and 3% inflation all the way across.

If you get the 3% back, that's 400 million of rev growth right there on the inflation being captured.

That's why I am saying consider what I just gave you as a base case, a benchmark to work from and you can add the pieces all the way from there as you construct the model. You're right.

I appreciate the detail and time. Thank you.

Our next question is from Jeff Sprague with Citi Investment Research.

Thank you very much. Just to come back to the idea of energy retrofit and what you might be saying there, you guys talk about bidding on a billion dollars worth of stuff in the second quarter. I am just wondering what the bidding proposal activity is looking like now and how much business you have actually booked and when you think you might convert some of that to revenue.

This is Mike. I assume you're talking about the billion that was relative to stimulus.

Yes.

Hopefully this won't be a complicated answer. Just give you a little insight as to what we see happening. We go down through each state, each project, and what the teams are rolling up, we believe that about 15% of what we believe to be the total $6 billion opportunity is in some phase of play, meaning anything from us working with school districts to help write grants all the way through to about $100 million in booked business for the year. So there is-- you can say $ 900 million left out there. We're going to win our 30%, 35% of that. I assume another $200 million to $300 million of bookings for us out there on what's happened to date, but long story short, I think about 15% of the total is in some phase of play.

Right. Coming around back to the commodities question, a subset of where David was at, can you give us an update on what you see if we watch commodities costs in right here today is that 3% all in where you're running and any particular hedge dynamics we should think about as we try to model that number?

Jeff, for 2009, for the fourth quarter first, our practice has been that when we give you the range we talk about the lock that we've got, plus the current spot rate for the unlocked portion. As it relates to 2010, and the framework Herb gave you, we're now we should leave it there and January be clear on the specifics around how we see each individual commodity playing out and probably give you more of a sense about how price plays into that .

But for right now, remember what we said Jeff, We're taking down full year reduction in what we said was $150 million when we did the second quarter call to now being $120 million for what we see as full year commodity price impact on our 2009 numbers. That would reflect that what we saw obviously is the coppers of the world going back up again and where we were for a period of a couple of months we were talking about copper less than $2.

All in this year we're in about $2.15, $2.20, but clearly if you look at the spot it is going back up again much closer to the $3 level, so when we laid in then the rest of the year, what we said is the $120 million, rather than $150 million, that's part of the drag on the earnings we had to overcome with productivity. And then going forward for next year, in our assumed base case we just baked another 3% on top of the overall numbers for our entire cost base. Remember, only about 10%, 12% of our total costs is really raw commodity. You have much closer to almost 90% being where somebody has done something with the commodity to turn it into a motor or whatever else it is, so it is when we collectively look at that 90% just benchmark basis put in the 3% we felt that was pretty-- I think conservative for what you would expect in the environment we're going to be looking at.

Just one final one for me. Just thinking about the balance sheet, Steve, if the put bonds don't come back, you guys have going to actually run out of debt to pay back just based on maturing debt pretty early in 2010 it looks like to me. Is it economic to early retire some of the that later maturity debt or would we consider progressing to share repurchase as a bridge, just how do you think about that if you actually end up having more flexibility sooner than you thought you would?

Well, how we think about Jeff, is obviously we want to have the cash on the balance sheet at the end of the year to meet that February maturity. The reason for that is that prevents us from having to go back to the C P markets and we can run it in the reduced financing level throughout. The second thing we're looking at is volumes that we would see in the early part of 2010. Right now the framework we gave you showed a flat assumption that if we do get lucky and we see some uptick in markets we would expect working capital to start building a bit in 2010.

Now, we don't expect to run back up to 7% to 8% of revenues but certainly even at 4% to 5% it would be an upward pressure on working capital in the first half. The second priority would be to meet that need if it comes without having to go to the well in terms of commercial paper. I think once you get beyond that what we're looking at is quite frankly continuing to manage towards the coverage metrics that is we promised the rating agencies we would achieve post acquisition. And the way we think about that is that as we continue to see EBITDA levels in 2010 that certainly would be-- even the framework that we would give you would be less than what we thought 2010 was going to be two years ago before we did the acquisition.

So we would continue to try to deleverage the Company until we got to a point where EBITDA growth i.e. market viability returns and EBITDA growth starts helping us meet the coverage ratios that is we see to improve our ratings as we go. That's how we're looking at it, I think if I characterize where we are today, yes, we are in a position that we could see an expedited time for the more strategic use of our cash. I would say based on what I would say at this point in time, with going into 2010 with the assumptions that we have, I would say that by late 2010 we would start taking a look at what's in our 2011 plans, I would say late in the year we will be much better position to shift to shall we say a much more strategic discussion around capital allocation.

I want to add one thing to your inflation thought process. Don't forget the first part of this year we were still thinking high cost inventory off the books, so in the first quarter we actually had a significant,t shall we say, level of inflation a little over around 2%. So when you start looking at going into next year, and you see the commodities coming increasing pretty rapidly in the last few months, on average when you start looking across the year we still think that the 3% is a fairly good estimate. I would add that above that level we have to start talking about pricing as a fix beyond that.

Thank you.

Thank you. Our next question comes from Steve Tusa with JP Morgan.

Good morning.

Good morning, Steve.

Just wanted to get into the commercial HVAC side a little bit more. Your orders over the last few quarters have been down low double digit, mid-teens, organic sales were down 23% this quarter is that basically just a difference between the applied and unitary business?

It is, Steve. Applied hanging in there pretty well, mid to low teens. The unitary is up in the high 20s. Light commercial at some point might have been a little higher than that, so --

Right. So when we look at the orders down 11%, that should be a good indicator for the applied business. That actually improves relative to last quarter. What are you seeing there that is driving that because given the fundamentals out there you expect that to get worse?

Yes. First thing, don't forget we saw the downturn right in the fourth quarter last year, so it is a bit of an easier comp number one. Number two, we have got pretty good visibility through two channels, one being the residential light unitary channel and the second being the commercial light unitary channel. And the thing between those two is we seem to see more opportunity right now with the light residential unitarian, than the commercial contractor, so there is a difference between the rates of decline where the commercial contractors are a little harder hit than the residential contractors at this point.

Okay. Another question on I guess lead time. Your services backlog you say has been up for the last couple of quarters, and you keep talking to us about this services growth, but it is just not coming. Is backlog in services less meaningful as an indicator or is there a timing lag between when we start to see some of that backlog translate into the sales?

Number one, for the first quarter now we have year we have seen our service agreement base, our plan service agreement base go positive. So that is a great trend for us. Secondly, the biggest part of our service business growth in backlog has come through contracting and actually hasn't been small retrofit. It has been large contracting projects that go between even on a short run six months in the long run eighteen months, and those are booked, their inhouse, their mobilizing, and beginning but the bulk of that occurs in 2010. In terms of executing that backlog. That's us acting as a contractor for often times multi-million dollar mechanical installations.

Right. So it is lead time issue.

Yes.

And big picture questions. With regards to giving 2010 guidance, I don't think you guys gave that last year. I am just curious as to with the lack of visibility out there really across the economy, what's the rational on putting something out there that is above most people's expectations and probably getting towards the high-end towards a little bit more of the aggressive level? I am just curious as to the rationale putting that out there this early on?

Over the last couple of months, Steve, we have been out there meeting with many shareholders and many perspective shareholders, and what we found is that because of the number of moving pieces that we had about the addition of Trane, what has got to do with synergies, what about this productivity and all the rest, we found in terms of people were having a very difficult time in putting together an accurate assessment of what our Company would be like going forward for the next year.

We felt it was really required for us to put a stake out there which as I said really was a benchmark to go against so people would be clear as to what was included in synergies, what was included in productivity, what kind of commodity pressures were we you understand. So it was really as we found people who had such a wide range in their expectations for the next year, we felt was really required to going to put something out there just a stake in the ground and said here is a baseline where we saw next year going.

One last thing on the strategic talking about having multi-cash back to Jeff's question. When you say strategic when you say strategic do you feel the need to go out and do more acquisitions? You seem to have a decent amount of runway organically, a lot of costs coming through and a little revenue that will translate. Do you guys feel after what happened with the Trane deal that you're confident and ready enough to go out and push the button on another transaction? Or should we think about you guys being a little more conservative over the next you mean can of years?

I don't know if I would consider us more conservative. What I would say is when we made the Trane acquisition, it completed the transition from being a construction machinery type company to being a diversified industrial. What we said is for the next couple of years our number one priorities is operational excellence to take advantage of and deliver on the promise of the result that the new portfolio businesses we have can take place. What Steve was talking about is rather than just looking at the traditional how do you wind up going and taking care of debt are there other things we should be looking at, and really included in that thinking was not so much large acquisitions.

It was really much more along the lines of how do we wind up going back and thinking along the lines of priority for dividends. What are we going to do with the dividend side of it, and what are we going to do as what Jeff was asking, we have longer term debt out there, how much of that should we look at pulling in because it is attractive type rate? So I don't feel the urge and necessity or so on to have to go do an acquisition. If a meaningful one comes up that makes sense, we would look at it, but right now it is focused on delivering the portfolio we have.

Great. Thanks a lot.

Thank you. Our next question is from Jeff Hammond with KeyBanc Capital Markets.

Good morning, guys.

Hi, Jeff.

Just wanted to dig in a little bit better on this new $90 million reorg restructuring I guess synergies related to Trane. Can you dig in on what falls in there, where you're getting the savings, et cetera?

Do you want to talk about the $90 million or the whole--larger package? Just trying to get some context for what we're trying to do here.

I guess the $100 million was out there so I just wanted to dig in the new piece.

Right, so the $90 million that we put out there around the integration of the businesses. In June we announced the Residential Solutions integrations. We also at the same time we put together the field organization between Trane and Hussman that's been operating for five months that way on a combined field organization, so this was really putting together if you will a two headquarters or two sectors which were really three businesses into one business, and one sector. When you think about the opportunity and SG&A I want to be clear it is really around the G&A portion of this thing.

Selling has gone well, no intentions of changing, the way the brands go to market, changing the way that our people represent themselves in the marketplace, no changes to the commission structure to the people, and more opportunity probably to cross-sell and link in other parts of the Company but it is really on the G&A base. There is lots of detail below that to know that between those three actions they total $90 million.

And as you look at the new puts particularly on the Trane side, where do you see the most opportunity to move the needle in share?

Jeff, I would say I probably like a kid in a candy shop because I haven't felt this good about anything in a long time. I was at Clarksville last week I guess it was and we celebrated the 410 A launch. And we also had with us out there almost all of the new product that we launched throughout the year on a parking lot out there, which is pretty big parking lot. And we'll tell you that it is refreshed, it is new, it is best-in-class, we have the luxury over sometimes 20 years to take a look what everybody else was doing, and figured out how to put best-in-class and all the different product lines together.

We literally with the exception of [centrifugal] chillers which are the most efficient in the world, we have the whole product portfolio replaced by the end of 2010. That's exciting when you put that in the hands of the Trane salesforce and those are the guys that know that, the Trane salesforce I can tell you that putting great product and systems in their hands is a good opportunity for us across the board.

Okay. Thanks, guys.

Thank you. Our next question is from Mark Koznarek with Cleveland Research Company.

Can you hear me?

Yes.

Just a question on 2010, the flat revenue outlook. I am wondering given a lot of the late cycle businesses that you are exposed to within Trane certainly the capital spending stuff and industrial and commercial security. I would have thought that revenues could conceivably be down a couple of points next year rare than flat, and I am wondering if you can conceptually walk us through your thoughts on the mix of your sectors. What is likely to be a little bit up next year and what is some of offsetting that on the negative sense to get to flat?

Mark, this is Mike. I am going to in the spirit of the framework I am going to give you a broad strokes on the framework to let you know what our thinking is. But clearly we see increases in services and contracting in the backlog there strongly supports that. We see uptick and an increase in the Res, HVAC and in the Res Security business. We really see an uptick pretty well across the board with a little bit of uncertainty being Europe across the board and the whole transport refrigeration business. And so those are all on the plus side of the column for us. Clearly on the negative side of the column we've got commercial construction, and as an offset to that we do expect and the tendency increases as it relates to some of the stimulus money flowing through, we also expect to see increased activity around some of the new product launches that are towards the retrofit markets.

The wild card that's out there for us and the reason we aren't clear on a framework of this point in time is really trying to get a sense for what the real bottom of the commercial construction market and how much can we pull off that bottom with stimulus and new product launches, but when you net that all out, the framework would say we should be able to run the Company pretty well flat.

Mark, you ought to add industrial, I think the directionally there is more probability of it being up rater than it being down for the next year. That would be another positive side to add to it. That would be just as well including for the golf course stuff because there has been a lot of deferrals, I think, for next year.

Industrial compressors you think have a chance of being up?

Yes, just because of the amount that has been avoided and the work that has not been done. Over half of our work at this point in time is service related, not new goods, I am talking about we have seen a significant deferral as we saw with the HVAC side also happening on the industrial air side, so I am thinking that there is more upward opportunity there rater than downward pressure.

Okay. And then a question on the cost reduction actions in the productivity. Has there been a significant amount of temporary cost reductions such as furloughs or absence of retirement match or something like that that comes back next year that off sets some of --

No. We have been really clear internally, and externally through that. We didn't do any of that. We didn't do any of the non-401K matching or the games there. We have taken costs out. With have looked at and separated the volume metric cost out from the fixed cost out.

We did postpone increases for our salaried associates and that's why when I wound up telling about what we baked into the 2010, that's why we put in a 3% inflation type number for all of our costs including compensation. That's the only difference really between activities in 2009 and 2010 when it comes to the benefit side.

Okay. Very good. Thank you.

Our next question is from Shannon O'Callaghan with Barclays Capital.

Good morning, guys. Hey, just a question on the treatment of restructuring going forward. I think we had talked about this last time and there was thought maybe these things could offset. You're backing out the restructuring in 2010, and I just wondering when do we start including that? Why not now? You pretty much have offset from these organizational restructures to offset it at this point. Seems like ongoing stuff. What's the thought process?

We want to keep apples-to-apples at this stage of the game, and again as we said, this is a framework of how to think about our Company. We put our plan together and layout the specific timing, although I do think the timing of the restructure is going to be front end loaded as opposed to later in the year 2010. We'll lay all of that out in terms of how it affects -- we expect it to affect the gross earnings and the net, but we just want to as-- we since this year we're giving guidance without the restructuring in it, we to want make sure there was no confusion around the framework as to the delta for 2010.

There is no question we will have more restructuring expense in 2009 than we talked about in the fourth quarter and also early 2010. We'll lay the 2010 out when we give guidance next time around.

Okay. And then could you go through again I think you started to before as part of another question but just for the fourth quarter relative to when you gave the $050 to $0.65 what were the real moving parts in the businesses that changed for the worst to cause to you set the new guidance for 4Q?

The biggest change would have been in the climate control business where you had stationary refrigeration, particularly contracting and the capital installations for customers get deferred out of the fourth quarter, so that was 45% to the difference. The other 45% or so of the business would have been the Trane commercial business and here is where you're seeing the unitary business in particular still trying to find its bottom or at least begin to bounce a bit off the bottom. And then the last piece of that and very small piece really is just the commercial security business which is 10% of the drop. That's just related to, again, involving commercial construction.

Okay. Thanks a lot, guys.

Our next question is from Eli Lustgarten with Longbow Securities.

Got it pretty close. Good morning, everyone.

Good morning.

One clarification in the quarter date awe gave us you had a 139 euro and we're sitting at 150 at this point. What is the impact of -- is that baked into the bottom end of the range? Should we assume that we don't have to worry--

When we gave you 139 that's the full year number. The fourth quarter that's included in order to get to there I think is about 146 if I remember right. Is that right?

I think it is 146 actually. 139 is how you go from 137 to 139 is with 146 in the fourth quarter, so if I look at 146 compared to what's out there today --

It won't be much effect.

Seems pretty close to me, I think.

And I appreciate it. I think you're doing a marvelous job in profitability. When we talk about 2010 and the gains, should we assume as we spread it out over the year it will be back end loaded? Just seems that the big declines that we keep running into in the commercial businesses interest just went through in stationary refrigeration, unitary businesses, Trane (inaudible), commercial security, those businesses probably have much tougher first half 2010 comparisons than maybe full year comparisons, so are we looking at a back end loaded scenario to get to the tow dollar plus numbers we're looking at?

Eli, we haven't really gone at this point and laid it out quarter by quarter in that way. Clearly with the amount of capacity utilization work we're doing as part of the new restructuring, that's going to more back end loaded, that portion would be more back end loaded. In terms of the organization consolidation and any of the volume metric sizing, that's going to be front end loaded. It is going to be pretty well happening quarter one.

And how much of your commodities have you hedged for 2010 and what is the impact of substituting aluminum for copper on the business? Is that material or just a minor fix? It is not material to the overall numbers.

It is a big deal in terms of aluminum substitution as well usage of material as well as, so it is 3 to 1 basically is the conversion if you can move a copper to aluminum foil. I can probably at this point stay away from telling what you we have done for 2010 at this point.

We have hedging going into next year?

We have a process that we have been using and intend to keep using which got us to this point, which is what we'll layer in multiple hedges over a period of time ladder it out, and keep some flexibility to deal with spot.

Can you give me an idea of what are the savings of aluminum and copper in the fourth quarter and what is that saving you and performance doesn't change, I assume?

Fourth quarter is an example we'll probably pay something closer to $0.94 for a pound of aluminum, and if you go over to copper we're going to be paying something more like $2.60, $2.70 at that point, so again you can see that there is a significant incentive to move to aluminum.

No performance change or perception change by using aluminum instead of copper.

Not at all because you're talking about really a coil. Typically a condenser coil is going to be shrouded. The efficiency for some of the micro channel technology in particular may actually improve efficiency, and probably the other added effect of this is you might find using 20% less refrigerant charge or more in those new coils, so you get a knock on benefit of refrigerant use and all of that as well. It is a pretty big deal.

Thank you.

Thank you. Our next question is from Ted Wheeler with Buckingham Research.

Hi. Good morning.

Good morning.

Thanks for extending the call. I wondered if you could comment on the trend during the quarter and maybe in October as well if you care to share it with us. On the pace of revenues and activities in the service businesses for air conditioning, for transport refrigeration and I guess I would like to hear about the services activities in stationary refrigeration as well. As the quarter evolved and again into October if you could.

I won't go in October but tell you what happened in the quarter here is. What we saw was steady improvement with the scheduled service base where throughout the year the retention rate was always very high. In fact, historically high rates of retention. What happened in the third quarter is the actual dollars per account grew. As I think it is a function of a lot of our customers having less staff, tighter operations, scopes got larger of the work that we were doing in those service agreements. That was the first time since the downturn that we have seen an increase in that particular area.

And it moved forward positively through the quarter, in the quarter.

That's right. That's right. Contracting we talked a lot about. That's been a strong story for us. Performance contracts is very largest complex contracting that we do is up at historical records, okay, both volume bookings and backlog. Those are the good things.

Small retro fits, if you can wait on those, customers are deferring. You're also asking customers to give you multiple proposals to extend equipment rather than replace it or maybe even to take something out of service and repair a second chiller as an examples opposed to balancing between two. Those are the things we're seeing there. Parts is slow. We haven't had help this year with the whether of course is parts is still mid single-digit down in the HVAC business. I assume your question was around HVAC.

I would if you're interested to hear about transport refrigeration and stationary refrigeration, the aftermarket.

What I tell so in the quarter customer interest levels and communications around opportunities seem to be increasing, and we'd expect to see that show up in the container business in the fourth quarter around bookings and actual shipments. I do think we're seeing and will see an increase and have seen in the transport with exception of Europe at the present time truck and trailer business that will show up in bookings I think in Q4, but I think I don't think we'll convert that in Quarter 4 over to billings, so positive trends there. The only thing that's been not showing signs of life to this point is really been European truck and trailer. Even the [Bussa] HVAC business is increasing nicely in terms of order activity and customer input.

I think the activity level in stationary refrigeration is the other one on the downside and the service side as people are postponing opening up or doing work on supermarkets which traditionally has been a strong spot going into the Thanksgiving and the Christmas holiday season.

Really nothing changing there?

No.

Thanks for the color.

Our next question is from Robert Wertheimer with Morgan Stanley.

Good morning, everybody. My first question was on the reorganization that you're going to do for 4Q reporting. Can you talk about what was the driver behind that? I understand some of the links you're trying to build are starting to build between HVAC on the home side and Schlage LiNK and all of that, but what was the real driver in terms of wither channel or manager leverage or commercial leverage?

The rev side was around how we see technology in the home evolving and how key systems can play together. Beyond that, we found we had two of the three channels were in common, were the builder in retail channel was and opportunity to leverage great relationships and grow, so that played into it. And, finally, on the commercial side it was again the same where you had some markets where HVAC refrigeration are shared but there really aren't any large national refrigeration companies out there, so real opportunity to change the game around utilizing an HVAC footprint to grow a national or even global refrigeration business.

And then technology plays a huge role there around compressors and around controls so there is opportunity to put together centers of excellence there in the technology space. And then finally as you get into a lot of these plans and operations you find that you can talk about things in terms of welding, brazing, and bending, irrespective of some of the products, so there is an opportunity from a capacity utilization standpoint there as well and just made more sense to put those together and the last point gaining management efficiencies and doing that.

Okay. That's helpful. Just a quick follow. You addressed this, but the security margin I think was the highest if not ever in the twelve years I have got quarters, so really very, very strong, and it has been good lately. Was there any one off material benefit in this quarter where you mentioned the materials are going up maybe hits next quarter or was that a non-abnormal margin?

Their productivity has been outstanding, and the difference here by the way if you go back to 2001, they would be at this level, a little higher in fact and so they have been there before and they have been there in tough times in fact. But what really happened here was just phenomenal productivity, and goes it deeper into of just material productivity, usage of material, sent to the VAVE work we do around the product itself, just across the board.

All right. Thanks.

Our next question is from Daniel Dowd with Sanford Bernstein.

Good morning. One just quick follow-up on the org structure. So is the salesforce in this new Climate Solutions business -- is the same individual selling the entire suite of products or do you still have like separation between the sales organizations for the Thermo King, Hussman and former Trane?

We have separate sales organizations for three and then where accounts used more than one we put together an account team. But if you are talking about everyday, how do you get out of bed and call on your customers, you call on this will relative to Trane, Hussman and Thermo King. And when you need to leverage across, we put mechanisms in place to make that easy to do.

There was no merging of the incentive structure of the salesforce, it was -- if you really have left the S part of this completely alone for the most part.

Alive and well and kicking and thriving.

G&A move on it really where it was.

One quick thing. There was some talk earlier about acquisitions. Another way to think about this is over as markets recover, do you view Club Car as a strategic part of your portfolio?

to you I would say Club Car is undoubtedly the market leader when it comes to golf cars. The ROIC we see from them and turned on during normal times is triple digits. Our real bet with Club Car is that they can be more than golf cars, and what we're thinking is they can be electric vehicles in a world that's really looking to electric vehicles. To a degree we can go and realize that opportunity I think this has a real growth potential for the Company and it would definitely fit into what we see as an opportunity side as we get into energy efficiency. To the degree that we're not able to do that management has to go review it as to whether or not Club Car is better as a one-time source of cash or ongoing stream of cash.

Thank you very much.

Our next question is from Robert McCarthy with Robert W. Baird .

Thanks for hanging on so long. Following up on this org structure discussion, as you interact with shareholders over the next year, is part of your message here going to be that we're developing now a platform for residential products that in the future might include several other businesses that sell product that don't have anything to do with HVAC or security products?

If you look at the way we're trying to depict the Company, what we kept saying is we really believe that our core value that we can bring to our customers-- in the residential space you're talking about is in the areas of safety, has to do with comfort and has to do with efficiency, so we believe that anything that we can add as a solution to either or any of those three pieces will be something that's clearly within scope of what we would be looking at at.

Rob, I think you build off the strength of those brands and try to create technology in the middle but you have great ideas on what to do and how to do that that really from a homeowner's perspective really empower you to take more control over your energy bills and just the management of your home infrastructure.

And so in the spirit of this discussion, is the security platform a security platform or is it a commercial platform in search of an identity?

It is a security platform that we always felt there was plenty of opportunity for growth globally in that business as well. It is related to the commercial construction business, but the channels and even the way the product is specified through architecture versus engineers a little bit differently, so it comes together across certain institutional and office building customers, but there wasn't enough there that as you put the thing together that you extracted a whole lot of synergy from that, that we couldn't get by just organizing a selling activity across the enterprise level. Okay?

So what I would tell you is we're really trying to find the place in the Company we can do two things. One is have real customer driven innovation around logical end markets and, two, just drive the heck out of operational efficiency and productivity, and we tried to find where we could get the maximum impact from those two things to the restructuring. That's what we did. That's fundamentally how we get $93 million and synergies through this new action and obviously just about that much through capacity utilization in our first kick at the cat here in 2010.

I think on the face of it it makes terrific sense, just a question where it goes strategically over the next three to five years. The other thing along the same lines I wanted to ask about is recurring revenue and recurring revenue specifically within the Industrial segment.

This has been presented over time as a strategic objective and a revenue stabilizer if you will, but over the last three quarters we have seen increasing year-over-year declines in recurring revenue in that space. And these are big 25%, 26% I suggestion are bigger declines than most people would associate with something that is recurring revenue. Do you find yourself questioning your own definition and maybe looking for a little finer distinction between some of these large contracting projects and the process simply selling spare parts.

We talk about the Industrial. We really do not do large -- we don't do the contract type work in general in terms of the third party does an installation if they have a large piece of equipment. Where we really do get into the servicing install base. And what I would say to you is that if I think to quite a few of our larger industrial customers, they have multiple air compressors in their facility. Their plant utilization is such that they have actually shut down half of them that, we actually have at had this point in time idle machines sitting there.

I think what this has caused me to think the recurring is not as bullet proof as I personally had hoped it would be because in my thinking I did not take into account the fact that half of these darn things are going to be turned off. That they don't really consume parts in running and so on and I think that to me has been the terrible Ah-hah at this magnitude of reduction in utilization. And candidly in our thinking through it was more along of signs of go down 5%, 10% you still need to run it but we're actually at such level that they're actually being shut off.

Rob, with that being said, I will tell you, you're right, touch an opportunity here to grow and build a different kind of service business, and Trane has brought us a lot of that in terms of what we might think about doing. We're having those conversations internally, and I think this is a great area for growth going forward for us. So we're onto your point here with real things inside the Company for how to grow a service and contracting business in that business.

The only other thing I wanted to ask about is with the fourth quarter resegmentation of the Company and given that it is a fairly big deal are you going to be able to get restated numbers to us in advance of the actual fourth quarter report?

Robert we're trying to figure out how to get the history of the segments out before the report.

That would be very helpful, Steve, if you can. Thank you.

I think we have time for one more.

Thank you. Our final question will come from Andy Casey with Wells Fargo securities.

Good morning, I think, still, and thanks also for taking my question. A couple details I don't want to keep you from lunch. First on demand assessment, have you -- I just want to clarify some comments I heard earlier. Any sequential increase in nongovernment funded energy retrofit interest and then on the European portion of Thermo King has there been any sequential order uptick at all?

First part the answer is yes. It's not just government related stimulus is every customer with equipment aged to the point where you can go in and make viable two-year or less proposal around pay back, so that's happening. government gets a lot of attention obviously through the funding mechanisms, but the business is pretty well balanced across that. As it relates to the business in Europe, with the exception of the comment I made around the container business, I would tell you that truck and trailer the answer would be no. It really hasn't been any recovery there at all at this point.

Okay. And then just again a clarification with the leaner working capital investment in revenue that you have accomplished and expect to maintain going forward, how should we view incremental consolidation opportunities or is that really all encapsulated in some of the capacity utilization work you identified?

I think clearly the impact on working capital as consolidation is no question about that. So what we would believe is as volumes start to pick up and we start to improve our capacity utilization, that will be also affect inventory levels, in particular, and that that will help us keep about the 4% to 5% level.

Okay. Thank you very much.

Thanks, everyone. We really appreciate you hanging in there with us and participating, and there will be a transcript of this call available on our website beginning next week and please contact us if you have any other additional questions. Thanks again.

That concludes today's conference call. We thank you for your participation.