特靈科技 (TT) 2010 Q4 法說會逐字稿

Good day, everyone, and welcome to the Ingersoll-Rand fourth-quarter 2010 earnings conference call. Today's conference is being recorded.

At this time I would like to turn the conference over to Ms. Janet Pfeffer, Business Development and Investor Relations. Please go ahead, Ma'am.

Thank you, Jennifer. Good morning, everyone. Welcome to Ingersoll-Rand's fourth-quarter 2010 conference call.

We released earnings at 7 a.m. this morning and the release is posted on our website. We will be broadcasting in addition to this phone call through our website at IngersollRand.com where you will find the slide presentation that we will be using this morning. This call will be recorded and archived on our website and will be available tomorrow at 10 a.m.

If you would, please go to slide two. I would like to remind you that statements made in today's call that are not historical facts are considered forward-looking statements and are pursuant to the safe harbor provisions of the 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 from anticipated.

In addition, please refer to the slide 20 which covers the use of non-GAAP measures to describe the Company's performance.

Now I would like to introduce the participants on this morning's call. We have Mike Lamach, Chairman, President, and CEO, and Steve Shawley, Senior Vice President and CFO. Also, Joe Fimbianti, Director of Investor Relations.

With that, please go to slide three and I will turn it over to Mike.

Thanks, Janet. Good morning and thank you for joining us on today's call. I will start out today's call by giving you some perspective on our 2010 full-year performance.

Last year at this time you might remember that we expected a slow recovery in developed markets, moderate growth in developing countries, and mixed activity in our major vertical markets. Full-year revenues were forecasted to increase in the range of 2% to 5%.

As it turned out, most markets were somewhat better than expected. Our full-year revenues were up over 7%, primarily due to stronger than expected activity at our industrial businesses, Thermo King, and our residential HVAC business.

Additionally, we saw strong acceleration of volumes in November and December. The increase in volumes and productivity helped to offset higher-than-expected material inflation. This resulted in our full-year EPS at the very top of our initial forecast range of $1.95 to $2.35.

We increased operating margins at 220 basis points, which exceeded our annual target of 200 basis points per year. Total productivity increased by 4.6% for the full year, delivering $593 million of savings in 2010. We realize the Trane cumulative synergy benefits of roughly $550 million, $250 million above the initial forecast. And we continued to implement a multi-year restructuring program which will reduce our manufacturing footprint, improve our cost base, and greatly improve our operating margins. We also divested two small non-core loss-generating businesses.

We generated available cash flow of $874 million, which was 136% of our 2010 after-tax income. This strong cash flow helped to greatly improve our balance sheet. We reduced total financing by $550 million and reduced the Trane acquisition-related debt by $2.3 billion. We also contributed $444 million to fund our pensions in the second half of the year.

Additionally, we continued to increase product development investment and introduced many significant new products during the year. Overall, we are building a stronger culture of innovation and continuous improvement and we are all -- demonstrating that we can execute well regardless of market conditions.

Full credit goes to the many dedicated Ingersoll-Rand employees around the world that made our cash productivity and share gain initiatives a success in 2010, while always ensuring that we continued to deliver outstanding value to our customers. We had some bumps in the road in 2010, but we expect some periodic setbacks as our organization and processes continue to stretch and mature.

Importantly, we are not backing off of our targets. We continue to target operating margin improvements of 2 percentage points per year and we are well-positioned to continue to generate continued productivity, growth, and cash as our markets recover.

Now let's talk about the fourth quarter and please go to slide four. We continued our focus on driving top-tier operational performance and delivered strong revenue growth with three of four sectors achieving double-digit top-line increases. We expanded our margins, grew our earnings, and generated strong free cash flow.

Fourth-quarter earnings from continuing operations were $0.62 per share, mid-range of our fourth-quarter earnings guidance range. For the quarter revenues were $3.7 billion, up 13% versus prior year, 14% excluding currency, exceeding our guidance range of 7% to 10%.

During the quarter we continued to see strong bookings as most of our businesses are showing solid growth. For the Company overall, orders were up 9% and 10% excluding currency. Order rates improved in each of our segments, except for Commercial Security which was flat hampered by the ongoing decline in North American new commercial construction activity. Our backlog also increased by 8%.

Operating margin for the quarter was 8.4%, driven by higher volumes and productivity. All of our segments improved operating margins year-over-year and operating margins were up 150 basis points across the Company.

We continued to drive disciplined cost controls and operational improvement. Unfortunately, the productivity benefit was eroded by the steep run-up in material costs in the quarter. We have addressed our pricing to mitigate material cost increases.

We also suffered some inefficiencies which held back productivity as demand in November and December came back significantly faster than what we had forecast. This impacted the supply chain resulting in unplanned overtime and freight costs and delayed the realization of some productivity savings as resources were dedicated to meeting customer demand.

Please go to slide five. The slide gives a summary of our quarterly order rates from 2008 through 2010. As you can see, we hit the bottom for orders in the back half of 2009 and reported flat orders in the fourth quarter 2009. Reported orders for fourth quarter 2010 were similar to the first three quarters of the year, up 9% overall, 10% excluding currency. All sectors except for Commercial Security enjoyed year-over-year gains and we had especially strong gains in industrial Air and Productivity and residential and commercial HVAC equipment.

Please go to slide six. Here is a look at the revenue trends by segment. We think revenues, excluding currency shown on the bottom chart, give a better view of our organic sales performance.

As you can see on the bottom chart, the fourth quarter was up 14% excluding currency. We had improvements in all of our sectors except security, which was flat in the face of significant declines in the North American commercial construction market.

I will give you two other views of our fourth-quarter results, a geographic split and a split between recurring revenue and equipment. On a geographic basis revenues improved by about 13% in the US and were also up about 13% in international markets, 15% excluding the impact of currency. Equipment revenues were up 14% and worldwide parts and service were up 9% compared with last year.

Let's go to slide seven. This bridge analyzes a change in fourth-quarter segment operating margin year-over-year. Fourth-quarter operating margins were 8.4%, an increase of 1.5 percentage points compared with 2009. Volume, price, and mix and increased revenues added 2.1 points to our operating margins.

Productivity netted against inflation decreased margins by 30 basis points as commodity inflation increased in the quarter, particularly related to metals. Investments, combined with restructuring and other charges, were unfavorable to last year by 30 basis points.

Please go to slide eight. This slide explains how we compare versus the EPS guidance range we provided in October. At that time we indicated that we expected to be in the range of $0.56 to $0.66 per share from continuing operations with a midpoint value of approximately $0.61.

Volume, mix, and currency were about $0.08 better. Pricing and inflation were about $0.04 of headwind. Productivity was up about -- I am sorry, productivity was about $0.07 short of target impacted by the volume ramps in November and December. The tax rate of the charges net to $0.01 favorable to earnings.

Timing of investments was a positive $0.03. So overall versus our guidance we were above the top end of the guidance on revenue due to stronger-than-expected end-market activity and delivered earnings to just above the middle of the range.

Steve will now take you through a review of our reporting segments.

Thanks, Mike. Please go to slide number nine. This slide covers the Climate Solutions segment which includes the Trane, commercial HVAC business, and the Thermo King and Hussman refrigeration businesses.

Total revenues of $2.1 billion for the fourth quarter were up 16% and also 16% excluding currency FX. I will talk first about the Trane commercial HVAC business.

Trane's global commercial HVAC fourth-quarter revenues were up 13% versus prior year on both a reported basis and including -- and excluding the effects of foreign exchange. Global commercial equipment revenues increased 16% with year-over-year improvements in all regions. North American commercial equipment revenues were up 11%, marking the first positive growth we have seen since the second quarter of 2008.

Global parts, services, and solutions revenue increased by 10% excluding FX. This continues the momentum that we saw in both the second and third quarter, which were up by about the same percentage.

Shifting to orders, our global commercial HVAC orders were up 10% on both a reported basis and excluding foreign exchange, driven by global equipment orders which were up by over 20%.

The global Thermo King transport business revenues increased by 25%, which is consistent with significantly improving markets compared with last year. Our worldwide refrigerated truck and trailer revenues grew at about a 30% rate, with strength in all key regions.

Global bus HVAC, APU, and marine container shipments sales all increased substantially due to easy comps and improved end-market activity. Thermo King orders increased by about 3% in the fourth quarter due to strong orders last year in what is usually a seasonally low quarter. Recent commentary from larger customers and industry projections indicate that strong activity levels should continue into 2011.

Looking at stationary refrigeration, global revenues were up 16% primarily driven by North American display case revenues which are up 20%. The operating margin for Climate Solutions was 7.1% in the quarter compared with 5.1% last year. This 2-point margin improvement was driven by volume gains, productivity, and better mix, partially offset by higher commodity prices.

Please go to slide number 10. Industrial Technologies fourth-quarter revenues were $692 million, up 17% on a reported basis and 19% excluding FX. Industrial markets are continuing to recover after stabilizing in the first quarter. Air and Productivity revenues increased 21% versus last year with increases in all geographic areas.

Club car revenues were up slightly in the order as increases in golf equipment were partially offset by weaker activity in utility vehicles. Air and Productivity orders were up 22% with strong improvements in the Americas and Asia.

Industrial's operating margin of 13.1% was up slightly compared with last year from higher revenues, pricing, and productivity. Industrial's margins have steadily improved throughout 2010 and the full-year operating margins increased by over 4 percentage points compared with last year.

Please go to slide number 11. In the Residential Solutions sector, which includes Trane and American Standard HVAC product lines and the Schlage security residential business, fourth-quarter revenues of $510 million were up 12% compared with last year. Excluding foreign exchange, revenues were up 14%, the fifth consecutive quarter of positive growth in residential. Bookings were up 22% versus last year.

Revenues for the residential security portion of the sector were down about 14% and down 5% excluding currency. North American revenues declined 9% due to flat activity at the new builder channel and declines in big box customer volumes due to their reductions in stocking levels.

South America was down over 40%, primarily from significant negative currency translation related to the devaluation of the Venezuelan Bolivar.

For the HVAC business, industry shipments of motor bearing units increased slightly versus prior year. Our residential HVAC sales were up 20%, principally from improvements in replacement sales helped by the expiration of the 2010 tax credits and the introduction of new products. We gained about 3 points of market share and the residential HVAC portion of the sector expanded margin by 4 points in the quarter.

HVAC bookings were up 32%. Sector operating margins of 9.3% were up 1.8 percentage points compared with 2009, driven primarily by higher audience which were partially offset by inflation and negative currency.

Please go to slide number 12. Revenues for Security Technologies were $448 million, down about 1% and flat excluding currency. America's revenues in the commercial sector were up 2% in the face of significant year-over-year declines in commercial construction markets. The revenue improvement is mainly attributable to higher sales of electronic locking devices.

Our European Security business was down approximately 9% on a reported basis and 3% excluding currency. Asia revenues were up mid-single digits.

Operating margin for the quarter was 17.9%, up over 1 percentage point despite the sales decline. Strong productivity and price realization drove the improvement in margins.

Please go to slide number 13. We ended the year at 4.6% productivity or $493 million versus our target of just over $600 million. Material productivity, where we have the most mature processes for project tracking and management, was essentially on target for 2010. The majority of the shortfall in the fourth quarter was in the area of labor and overhead, mainly related to additional costs incurred and resources focused to satisfy higher-than-expected volumes in November and December.

As you know, our goal is to increase operating margins by at least 200 basis points per year through a combination of cost reduction, price realization, and leverage from volumes while still investing in the future of the business. For 2010 margins were up by 220 basis points, so while we are disappointed that price versus inflation and productivity in the fourth quarter came in under our targets, the 2010 performance shows that our margin expansion goals can be achieved.

2010 we announced 13 manufacturing plant closures as well as reducing three plants for the (inaudible) and microturbine divestitures, bringing the total to 16 fewer manufacturing sites globally. We spent $26 million on restructuring and productivity initiatives in the quarter and $80 million for the year.

Please go to slide number 14. In addition to our productivity programs, we continue to focus on developing and launching new products and services. About 17% or $2.4 billion of our 2010 revenues was generated from new products and services introduced in the last three years with a number of new offerings in each of our businesses. This is up from approximately $1.8 billion or 14% of sales in 2009.

Pictured are four of the new products we launched in the fourth quarter. Just to highlight two of them, with its 7-inch interactive high-definition color touchscreen the Trane ComfortLink II thermostat is the ultimate home comfort connection. Providing an intuitive user interface, the thermostat serves as an easy-to-use central planning center for the home bringing year-round home comfort and control right to one's fingertips.

The ComfortLink II thermostat has already won accolades for its innovative design. In the November issue of Popular Mechanics it was featured as one of the year's 10 most transformative products and a winner of the publication's 2010 Breakthrough Award. The ComfortLink II thermostat is also named as an International Consumer Electronics Show Innovations 2011 Design and Engineering Awards honoree.

Trane applied fresh thinking to outdoor air and ventilation-related problems in designing the new Trane Outdoor Air Rooftop Unit. The Trane Outdoor Air Unit solves these challenges with a code-compliant system to properly condition outdoor air, control humidity, and deliver a safe, comfortable environment. This product addresses the needs of multiple vertical market segments including lodging, retail, restaurants, education, and industrial markets.

In the fourth quarter Trane demonstrated the product's capabilities and benefits too many key customers and Hilton and Marriott have adopted Trane Outdoor Air Unit product as their brand standard. Please go to slide number 15.

We continued to strengthen our balance sheet during the fourth quarter. We delivered available cash flow of $317 million in the fourth quarter bringing full-year cash generation to $874 million. We were somewhat below our initial target for the year due to working capital requirements in the fourth quarter from higher-than-expected volumes.

We made a discretionary pension contribution of $201 million during the quarter. This was in addition to the $243 million we contributed in September. These discretionary funding actions count heavily toward our efforts to deleverage the Company, and they also are expected to offset any incremental pension expense that would otherwise be triggered in 2011 by the lower discount rates.

Cash balances ended the year at over $1 billion and we had no outstanding commercial paper at the end of the quarter. Assuming normal patterns of cash flow in 2011, our year-end cash balances are adequate to support debt maturities all the way through 2012. $510 million of maturing debt was paid down in 2010 and we have reduced total debt by roughly $2.3 billion since the completion of the Trane acquisition in June 2008.

Please go to the slide 16. We finished the fourth quarter with working capital at 2.6% of sales, only slightly up from last year. We expect to maintain working capital to sales in this range in the future through improvements that have been made and are continuing to be made in manufacturing systems and processes, footprint restructuring, and supply chain and logistics management.

With this I will turn it back over to Mike for the forecast.

Thanks, Steve. Please advance to slide 17. Our forecast for 2011 is based on steady improvement in our markets. We continue to expect a slow recovery in the US and European economies, growth in Asia, and mixed activity levels in our major vertical end markets. We believe recent activities indicate that we are seeing stages of recovery and refrigeration, industrial, commercial HVAC parts, contracting and service, as well as signs of improvement in commercial and residential HVAC equipment.

We expect to see a continuation of the challenging conditions in the US nonresidential new construction market for at least the first half of the year, which will continue to primarily impact the commercial security and HVAC businesses. We are certainly encouraged, however, by our orders and backlog. We continue to focus on achieving productivity, continued investment, and our long-term growth through innovation.

Based on this improving view of the world, our revenue range for full-year 2011 is $15 billion to $15.3 billion, up 7% to 9% compared with 2010. Climate Solutions revenues are expected to be up 6% to 8%, with mid-single-digit increases in HVAC equipment and high single-digit gains in both refrigeration, contracting parts, and service.

We expect industrial to show gains in the high single to low double digits. Residential is expected to be up 6% to 8% with HVAC up mid to high single digits, while residential security will be up low to mid-single digits, due to continued stacking controls at big-box retailers and a slow housing recovery.

Security Technologies is expected to show mid-single-digit year-over-year improvement due to its exposure to nonresidential building, especially in North America. This results in a full-year forecast, again, of $15 billion to $15.3 billion equal to a 7% to 9% full-year growth for total Ingersoll-Rand.

Please go to slide 18. This slide bridges our 2010 performance with our 2011 forecast. Margins at the midpoint of this range would be up just over two points, from 8.9% to 11%. Volume mix and FX add two points to margins. We will be about 30 basis points negative on price increases versus material inflation.

We implemented price increases at the end of 2010, mainly effective at the beginning of 2011. However, commodities have continued to increase since that time, so although we continue to review our pricing levels versus material costs, this guidance assumes only the current actions.

Total productivity at the 5% level offset by other inflation is 2.9 points accretive to margins. As we continue to invest for the future in innovation and growth, this will have an impact of about 50 basis points.

We have a contingency of 120 basis points because when you set stretch targets across the Company, some things may not go as planned. Inflation may be higher or we may decide to step up investments to drive growth for cost reduction. All in, this all translates to a total leverage of about 40% on the incremental volume, and is essentially the same earnings growth model that we laid out last May.

Our tax rate will be about 24% in 2011, which is a $0.23 negative year-over-year EPS impact, and our share count will be 345 million shares, which has a $0.04 negative impact year-over-year. We expect restructuring spend to be flat with 2010, and to be backend loaded in order to minimize disruption during peak seasonal demand.

That brings us to a total EPS from continuing operations in the range of $2.90 to $3.10. We expect to generate available cash flow of about $1.1 billion. This guidance does not reflect any redeployment of cash, which we still expect to begin in the first half of this year.

Please go to slide 19. So, in summary, we are forecasting 2011 revenues up 7% to 9% and continuing EPS up about 30% at the midpoint. First-quarter revenues are forecast up 6% to 9% as the economy continues to recover.

Reported EPS from continuing operations for the first quarter are projected to be approximately $0.25 to $0.35 on a reported basis, up substantially from last year. Operating income leverage in the first quarter at about 30% will be lower than the full-year average since it is expected to be the toughest comparable quarter in terms of year-over-year inflation, as inflation was fairly low in the first half of 2010 and pricing has not yet caught up to rising commodities.

To sum up, we expect 2011 to demonstrate our continued and unrelenting focus on driving toward premiere performance across each of our businesses, while steadily increasing the delivery of customer-focused innovation. We expect to see continued improvement in revenue growth and significant earnings growth as we deliver on these objectives.

So Steve and I will be now pleased to take your questions.

(Operator Instructions) Steve Tusa, JPMorgan.

I just wanted to figure out a little more around the price material inflation number of negative 0.3. Can you break that down between, and just talk about the dynamics around, what you are assuming for the raw material headwind and then how much price you think you -- you have announced -- I know you guys have done something in the kind of 4% to 8% in resi HVAC. How much of that you expect to capture in this guidance, so just a little bit more on price costs, some details please.

Yes, Steve, I will start. This is Mike and then I will let Steve add his input into this as well.

Across the Company we have had increases that range from 2% to 6% in terms of what we have announced, and I would think about that more as sort of an umbrella around what we have put out in the market place. Depending on the business, res HVAC and security being very quick in terms of price realization and large air and applied HVAC being very long in terms of realization, we would expect to phase in over the course of the year.

So right now pricing for the year we are thinking to be about 1.5%. Again, (multiple speakers) to 6% backdrop. We think inflation at the current levels would be -- in terms of material would be about 1.8%, and that gives us the 30% inversion on that relationship.

Okay. That is very helpful. You said that that guidance doesn't assume any further action when it comes to price, so you could go back out with a mid-season type of increase if you continue to see commodity rates move up?

Steve, the way it really works is you put the increase out and there is some amount of realization that just happens, I think, with the ebb and flow of competition during the year. I think what happened across all of the areas that we compete is our competitors have done the same thing, and what you will tend to see is a higher realization within the umbrella that has been announced.

If things were really to dramatically increase from this level then I think you would see a secondary round of increases, but I think it's a lot of headroom between the 2% and 6% across the portfolio.

Great. So then my follow-up would be, this contingency number, it just seems unusual to me that you would have a contingency that is twice the size of your annual range. I mean why not just make the EPS range a little wider and have a little bit less of a contingency?

I am just trying to get my hands around -- other than inflation, which another point and then change of inflation net of any costs you might get, it just seems like a huge number. So other than inflation, what are you really that worried about? Your end-markets seem to be going better than expected so it doesn't seem like it's an end-market thing. Why such a big range on the contingency and why not -- why didn't you kind of wind that into the EPS forecast?

Steve, I think the first answer I would give you is every year we have a contingency. This is the first year we are actually laying it out for you. And I really think this is consistent with the effort we are trying to make being much more transparent around how we are thinking about the business and really allowing you to see that and apply that to where you might think there would be strengths and weaknesses across the portfolio. Whether the bias would be toward productivity or pricing or excess material inflation, allowing you to adapt that.

But as always, when we give guidance we are assuming the middle of the range is where our performance would be at the time we give it.

Okay. So there is not something specific that jumps out at you here. This is a, hey look, we got this long -- we got these great longer-term targets, a lot of opportunity, and there is always a little bit of a hedge between the stretch goal, which is great, and the 200 bps of margin from which you are still pretty good on an absolute basis. Is that kind of how we should think about this?

Absolutely, Steve. Remember in the spring last year when we got together we talked about the model. I think I even mentioned that when you go through the algorithm in the model you will come up with the need to put some contingency in it to satisfy the 2 points per year of margin improvement. In other words, if you go through all the variables that we have given you in that model you would come up with more than 2 points a year.

So this is just a contingency against, as Mike said, stretch goals we have had out there. We are going through this inflation versus price period of time. That is probably the initial concern. But, quite frankly, the push to drive productivity to the levels that we have got in our model there is a bit of hedge there.

Also don't forget, if you look at this model we have included in here 5 bps of or 5 points, I am sorry, of investments back into the business.

50 basis points.

Yes. The increase in the investments that is an incremental increase in investments that we have got in the model every year. So if we see things going our way, which we would hope that that would happen, we would not hesitate to take some of this contingency and plow it back into the business in the form of more productivity investments and possibly more product launches. Pulling up programs that we have in the pipeline, perhaps get them even faster.

Well, good luck. Thanks.

Robert Wertheimer, Morgan Stanley.

Good morning, everybody. You guys give great detail on the year-over-year and it's really helpful. I wanted to ask a little bit, if you can, about the quarter over quarter trends in gross margin, and not margin as well but SG&A maybe not as complicated.

Your revenues were kind of flattish from 3Q to 4Q and your gross profit was down. Are you able to maybe talk about what the non-revenue seasonal effects were that impacted that and then just more broadly what happened to gross margin?

Robert, I would start with -- if you look at root cause for us as to why they weren't higher, it really gets down to in the fourth quarter what was our forecast capability in the quarter. And it's an interesting problem.

We haven't had it in probably 10 quarters where we are surprised to the degree we were on the upside in some really amazing ways, and I can give you some color on some different ways it happened during the quarter and during the year. But that level of variability in demand, and if you fix the fact that we are always going to meet customer expectations around delivery and timing, then it puts you into enormous calisthenics around trying to get the quarter to happen with the demand that occurred.

Examples, we launched a midsize rotary air compressor in the late summer. We achieved -- we had a pretty aggressive launch planned in there and we achieved a whole year's worth of results in one quarter based on that launch plan.

Example, we had launched a chiller platform and localized in a region. Anticipated 15% growth in the chiller platform; had 70% growth in the chiller platform. And then you come back to the res business and -- well, you come to the res business and you say November/December were enormous bookings months for HVAC. And, surprisingly, even commercial units area was up 20% bookings.

We had not planned on that. We have not forecast that demand and so it was a very busy time for us. We didn't miss the material productivity at all. We missed labor productivity through overtime and we missed logistics in order to make the supply chain work. So that is a bit of a color on kind of what happened third quarter to fourth quarter from my point of view.

That was really interesting. Thank you. Is there anything you are seeing, Mike, in how you are increasing productivity and restructuring the business that gives you -- if revenues are exceeding or slipping versus plan, gives you less flexibility? Are you running it tighter so that you can have more margin variance when it goes outside or is it just really this was a very strong revenue quarter?

If you go back and you look at lessons learned for us in 2010, one of the things that we want to apply in 2011 is really the timing of restructuring and investments relative to peak seasonal demand. And you go back to sort of the Q2/Q3 issues we had, and the res business is an example, and we wouldn't want to repeat something like that with the demand that we are seeing.

And so I think you are seeing from our point of view, when you apply this sort of comeback in key markets, making sure that we don't do anything to miss customer expectations or to lose the opportunity on the volumes that are coming through the door.

That is helpful, thank you.

Scott Gaffner, Barclays Capital.

Good morning. So I was hoping maybe you could just give us a little bit more detail, I mean it is -- I understand before you said you wouldn't necessarily hit the 5% productivity number on a quarterly basis. That makes sense to me, but here we are at 4.6% for the year, a little bit below plan.

Can you just walk us through how much of the below plan was this unplanned labor cost and how much of it was still the freight cost? And on the freight costs are we still talking electronics that you are having to ship in airfreight, that kind of thing? Maybe just a little more detail there.

Actually, I would say, first of all, material productivity was in great shape and so you kind of take that off of the table and you are down to labor and indirect productivity. I would say the majority of the productivity in this would have been in labor where we were working significant overtime really across the whole globe in November and December to meet demand. Primarily that.

The logistics piece of that would not be electronics but it would, in fact, be a lot more of the intercompany movement. As an example, we have a coil center of excellence in one part of North America that serves coils for the balance or sheet metal is an example that we would move into operations from various other locations. So it would have been more intra-company related than it would have been historically where the supply chain outside the Company would have been an impact more in Q2/Q3 of last year.

So on the labor side would you have had that issue if you haven't rationalized so many plants or was that directly related to taking out some of the footprints so you had to add some labor to some existing locations?

It was actually unrelated to the restructuring. It was related to the demand forecast in key plants. And so as an example, in Security Technologies we had gone through a round of downsizing and restructuring in a number of North American plants right around November, very early December only to get a large spike in demand.

And it's pretty quick ship there, two, three days in a lot of cases. Ended up working substantial overtime across most of the North American plants in security all the way through December 31 as an example.

Okay. And then just lastly, you mentioned $1.1 billion in free cash flow for this year. I think you mentioned that you would put that to work later in the year. Can you maybe just give us a little more details on how you think you are going to put the cash to work this year?

Yes, we have talked about this on a number of occasions. If we look at our priority list here, the first thing we would want to do is go to our Board and suggest that we increase our dividends, in essence start the path to get our dividend payout consistent with our peer group over a period of time.

We wouldn't do that all in one year, but we would certainly take significant steps towards getting to a much higher level of pay out over the next two to three years. We would expect to begin that, that would probably be the first thing that we do. We would hope to do that even sometime in the second quarter.

The second priority is share buyback to control the dilution. Some of you had questions about share count estimates for 2011. We have assumed no share buyback in that share count, but we are fully, fully aware of the fact those since we have put the converts out there in 2008 we have diluted the share count. I think we started about 325 million shares, now we are up to almost 345 million.

So we have targeted the next step to be buying back shares to start controlling the dilution, bring that dilution back down. That would be our second priority. And, again, we would be petitioning the Board for establishing a share buyback authorization as early as the second quarter.

Scott, I would add, if you go back and listen through the last couple of years anyway, 2.5 years perhaps, there has been consistency around and we are trying to be very predictable in how we are ordering and thinking about things. The first order of business for us was really repairing the balance sheet post-Trane acquisition and we think by all counts have got that well under control at this point in time.

The second piece of this was to come back and really put a competitive dividend out in the marketplace relative to the peer group. The third piece of this was to control the dilution, as Steve mentioned. We order that in our thought process before we would move on to anything beyond that. So just sequentially think about us kind of moving through that order of priorities.

And please don't -- I just gave you some examples there of number of shares. We haven't targeted any number of shares to be bought back over any period of time at this point in time. We have a lot to discuss with our Board, but we should be in a better position to talk about that when you are here for the meeting on the second of March.

Understand. Look forward to seeing you then. Thanks a lot.

Steven Winoker, Sanford Bernstein.

Good morning. Just first quick question on the productivity number for the quarter. So my back of the envelope just gets me to about backing out maybe 4.1% for productivity. Is that number correct? And if not, what is the actual productivity number for the quarter?

That is pretty close.

Okay. And then what do you have then embedded for actual copper pricing in your inflation expectations for next year? Maybe copper, steel, aluminum, just give us a sense for what is already baked in.

If you look at the copper obviously that is a big factor. What we have got factored in is just what you see in the futures markets. We have updated that just several days ago.

So I think if you look at the average copper price that we would be expecting in 2011, it's like $4.35. That is the market price that is open. We have about a third of our copper requirements locked. So if you look at the weighted average between locked and market using $4.35 at market, we would be about $4.25, something like that.

Aluminum, similar kind of story. The current market projections, if you look at the average of the futures, is about $1.17. We have locked at somewhere about the same number, same percentage, so we would be at about something slightly below $1.17 going into the year for copper. For aluminum I am sorry, aluminum.

One thing that has gone well, I think, between copper and aluminum is that copper for us -- we will probably buy, say, 90% -- 10% less than the prior year. And you think about that in the face of the 6% to 8% climate demand you see less reliance on copper.

Conversely, you would see about a 20% increase in the amount of aluminum we are buying. Again, moving through this shift where we can from copper to aluminum.

And on that shift, Mike, I think I have heard that you were covering something like 20% of your residential heat exchangers. Can you maybe talk a little bit more about that? I met with a bunch of the heat exchanger guys at the HVAC show last week and it seems like everybody -- they almost seemed overwhelmed with this move from all the OEMs on this front.

So how are you guys doing, how are you doing competing for that resource? You are obviously saying you are hitting your material targets; maybe give us some more color there.

Number one, I think that this has been no surprise to us and to our suppliers for two years. So we have been working at this for that long around working with select suppliers around capacity and around long-term agreements around that capacity and pricing, so there is no surprises relative to that.

The intent for most of the residential HVAC business, where we can, is to move it to aluminum. In the commercial business there is obviously opportunities there. A little slower to move just due to some of the size that we are dealing with in terms of equipment and engineering changes to make that happen, but that in the commercial business is progressing.

Where res I would say would be largely complete in 2011, commercial might be a quarter of the way along that process. And there is still opportunity in 2012 in that area.

And why not go to a 5 ml copper solution? Some of your competitors are approaching that.

Actually, we have had across most of our businesses smaller diameter copper for a long, long time. That was a productivity item that was in 2009 and early 2010 for us. So I guess I am not sure if our people told you anything different, but I can tell you that we have gone to thinner copper tubing and have been working with thinner copper tubing for a year and a half, two years.

You weren't at the show, so I think that was just cost savings there in the quarter. All right, thank you. Appreciate it.

Nigel Coe, Deutsche Bank.

Good morning. Before I kick off with questions, Steve, was there any LIFO reserve adjustments this quarter?

Very little, Nigel.

Okay, so not material. Okay. Going back to productivity, the 5% for 2011. How are we doing on that transition between what I would say run rate productivity versus maybe temporary productivity? When I say temporary I mean restructuring, organizational restructuring and certain things like that. Where are we in that transition towards run rate synergies -- run rate productivity?

I have never thought about it the way that you are expressing it, Nigel. We think about it all as reducing the permanent cost structure and the permanent run rate in the business, so I am not sure I can give you an answer to that question.

We believe we have seen utilization increase probably 8 to 9 points, so if you take our fixed cost reduction component of productivity as an example. We are probably 8 to 9 points kind of low to mid 40s overall utilization from a plant perspective, and we would likely make that type of gain again in our expectations for 2011 on the fixed piece.

On the variable piece, there is obviously all the PO to PO reduction around material and material change relative to VAVE we would see as permanent, and that is gone and (inaudible) particularly well for us. So the productivity miss in my mind has been really on the labor side. And root issue there for us isn't that we are missing tact or cycle times, it's the fact that we are working overtime to a large extent based on the inability to have an accurate demand forecast.

Yes. The reason I asked it that way is because I think last year you broke out the $600 million between, I think, synergies and then you had ongoing and organizational restructuring. The ongoing was a relatively small portion of that bucket, so I just wondered how that is ramping because clearly as you get deeper into the plan the ongoing is going to have to pick up more slack.

I think it's a good conversation. I will be sure that we really cover it in March. But the other learning I think from last year to this year and how we represent what we do is we see a lot of what we are doing across the sector as a toolkit. Some have much greater opportunity relative to price or to cost take out in a particular product or quality, etc. So I think you would see by sector variability in terms of how they intend to attack that.

Now from a corporate perspective around material and what we are doing there and around lean deployment across the Company that is a standard across the Company in what we expect to do there. But I think you would see a little bit more maturity about how we would intend to do that by sector as opposed to a representation just across the Company in sort of a ubiquitous format. That isn't as helpful.

Okay, that is very helpful. Then just looking at the 1Q revenue guidance. It struck me as fairly conservative when I compared the 4Q versus 1Q drop down. I think we are forecasting something at the midpoint of about 15% drop down, so a lot more severe than we saw last year.

We have seen acceleration in ISM, particularly in the US. I am just wondering that is back between ISM acceleration and yet we have seen a pretty severe drop down in 1Q. Anything we should call out there?

We are looking at operating leverage in Q1, Nigel, if I got it right, of around 31%.

No, on the revenue line.

On the revenue line, okay. We are looking there at about 50% drop. Yes, that is your -- I am sorry, we are not understanding your question exactly as it relates to the ISM.

Well, just we are hearing anecdotally from other companies that they are seeing a re-acceleration in order growth, just basically as you would expect from the ISM going above 60. So therefore it seems that 1Q is looking a bit brighter than maybe it would have two, three months ago, but yet you are forecasting a big drop-down relative to last year from 4Q to 1Q. I just wondered if there is anything we should think about there.

No, this is really a rollup of what we are getting from the businesses with ranges, as always, expressed on risk and opportunity. So could it be better? Sure. It depends a little bit about the Q4 bookings for long-lead items and what it is that we think we can pull, if anything, from Q2 to Q1.

Also, on the HVAC commercial business there probably was a little bit of a pull up there as well. Just customers wanting shipments earlier, project cycles happening earlier. We might have had $20 million, $25 million of pull forward in the commercial HVAC space.

Okay, that is very helpful. Thanks.

Andrew Obin, Bank of America Merrill Lynch.

Good morning. Have you guys provided any outlook for your capital spending for 2011?

No, but we can. If you look at what we would tee up in 2011 it would be about a quarter of a billion, about $250 million. That would be up a good little bit from this year.

So another question I have as you guys think about the restructuring plan, the transformation, it does seem that the revenues to volumes are running ahead of your expectations. I just find it's interesting that we are talking about capacity utilization, I guess if I heard you right, in the 40s and at the same time we are having issues with overtime on labor.

Given the faster pace of recovery, do you think you need to adjust your game plan in terms of how you think about capacity utilization? Are you thinking about facility shutdown?

I think we are doing that every day, Andrew, in terms of how we would look at moving the footprint. It's not a static plan that we put in place. It's dynamic, literally, weekly at least we are discussing capacity and what we think we need to do around restructuring and timing of restructuring. So I don't want to give you the sense that it's a static plan at all.

Sure. But at this point you think that you are fine in terms of the pace of restructuring, right? You don't need to change anything?

No, I think you see in the comment I made earlier that I think the learning from us in 2010 applied to 2011 is not to potentially disrupt operations in peak seasons. And it's a lot more, I think, thought around how do we really ensure that we preserve customer shipments and not have these sort of fire drills on demand as we are restructuring operations. And so you would see a different order and thinking of timing based on seasonality.

Terrific. Just on inflation and price, should we expect the relationship to turn positive by the second half of the year? And I apologize if you answered the question already.

Andrew, before you go there I just want to make sure, maybe just a little bit of a clarification. When we talk about capacity utilization we go back and measure it at the low point. In other words, back in 2008/2009 we were running about 30%. So Mike's commentary about being up to 40% is on flat volume assumptions.

We are actually running ahead of 40% or much more than 40% in capacity utilization right now because of volume. But what we hold out as the standard for ourselves in terms of the footprint program that we have is we wanted to improve, in fact we wanted to double capacity utilization at kind of the beginning of 2009 capacity utilization levels.

Without volume.

Without volume. That is very important because when we give you these numbers we are working towards taking out fixed cost. So we are running at much higher than 40% capacity utilization in our factories today, but it's being driven more by volume as opposed to the fixed cost targets that we had set for ourselves two years ago.

Got you. So the point is on apples-to-apples basis you have improved your efficiency to the point where you added 10 percentage points of capacity to utilization using your methodology?

Right.

8 to 9 points.

Got you. And then just if you could answer the question on relationship between pricing and inflation. Should we expect it to turn positive by second half of the year? And that would be my last question, thank you.

The spread is wider in Q1. We are probably 40 basis points upside down in Q1. We end the year, we think at this point, 30 basis points upside down so there is not a material flipping there, if you will, Andrew. It's pretty much 1.5 points of price or so coming through the year each quarter with inflation probably being a little bit stronger in Q1 relative to the comparable we had in 2010.

Terrific. Thank you very much.

Josh Pokrzywinski, MKM Partners.

Good morning, guys. Just on some of these I guess better-than-expected demand in fourth quarter and productivity getting pushed to the right on that, what is the sensitivity in 2011 guidance to the extent that there is revenue upside? How much above the high end of the range could you deliver and still have productivity?

Josh, I am going to give you probably a pretty simple pat answer here. If we see that kind of growth in Q1 we are going to adjust guidance at that point in time, but right now we have kind of bound it here to what we think the reasonable outcomes would be.

If we had increased demand beyond that we are looking for a forecasting process that is going to be a little bit tighter for us to be able to see it and react to it sooner. And then if you go back to a bit of a root cause again in Q4, I would tell you the learning there is that it was a good problem to have but nonetheless it's a problem when you miss it like that.

So we got to get better into 2011 around that. If we see stronger revenues, we certainly would be guiding toward that and we would be updating the forecast to reflect it from a delivery perspective.

Okay. Then just shifting over to the contingency you mentioned earlier to the extent that everything goes as planned and you are able to realize that 1.2 points that some of that would get redirected to investment. Maybe talk about what is the propensity to reinvest that versus let it drop through, i.e., are we going to see investment go from 0.5 point to a full point or does it go to 0.5 point to 0.6 or 0.7?

We want to grow the Company profitably at 15% operating margins and higher consistent with our model. So if the best opportunities we had were to invest that in growth and we were seeing projects and opportunity that would be accretive in terms of new product or margin being -- or product being replaced with higher margin product, we are in it for the long run.

So I would tell you that I sit here today looking out over a long period of time and want to make sure we are delivering this kind of gains five, seven, 10 years from now. So that is how I look at it.

Got you. Thanks, guys.

Julian Mitchell, Credit Suisse.

Yes, thanks. My first question was about the labor sort of productivity push outs that you have mentioned in Q4 because of the steeper volume demand in November and December. What sort of assumption do you have for that in terms of 2011? How quickly do you think you can work through those labor specific issues and is that something that weighs on Q1?

And then based on your volume outlook for the year and your CapEx plans and so on, do you think you get through that by the time we get to the middle of year?

I would say that the labor and logistics inefficiency in Q4 were fixed the moment we responded with the demand forecast which was accurate which is now. So those things happen in the moment. As soon as you get your demand forecast right it changes and so I don't anticipate that issue reoccurring for us.

A little different than 2010 is the timing of some of the restructuring investments that we will do, which would be skewed a bit toward the back half of the year. Again we are not going to initiate anything that is going to cause disruption in the April through August/September timeframe. As an example, of our climate businesses would be a great analysis to use there.

So I think that in terms of how you would think about modeling out our productivity goals, probably relative to our 5% objective a bit slower in the first half of the year and a bit stronger in the back half of the year.

Thanks. And then on the price increases, you mentioned your overall sort of firm-wide assumption and the range of price increases being pushed through. Can you talk a bit about, based on the last couple of months' experience, which parts of the business you feel sort of most and least comfortable in terms of price increases being pushed through again or the existing ones sticking?

The industries move together here and so you are not, I think, getting or seeing much in terms of outliers at this point in time around rising prices and the need to impact pricing. The parts of the business that were slower just by nature of the fact that you have got a big backlog are going to be the large air business and the applied business where you might have locked pricing in six months earlier around a delivery. And so you are going to see a mix issue in terms of the realization.

Also, those businesses work where every customer and every project is quoted and so there is an iteration of activity competitively to see prices begin to materialize in the marketplace, as opposed to businesses like security or big-box retail where there is a price or price list and it goes up instantaneously.

Great, thanks.

Jeff Hammonds, KeyBanc Capital Market.

Good morning, guys. I just wanted to understand better because it looks like in the presentation you flesh this out differently between the guidance and the actual fourth quarter. But if you look at this 4 points of inflation in the fourth quarter can you break that out between other inflation and material or commodity inflation? Or I guess asked another away, what was net price?

Well, go back to your inflation question first. The bulk of it was going to be other inflation, which is really where you are going to see a lot of what I have talked about in terms of the inefficiencies coming through. So out of the $150 million or so we had in the inflation two-thirds, 70% of it would have been non-material, less than 60 of it would have been -- $60 million would have been direct material inflation. Okay?

Price would have been about 70 basis points or so of price. We had an expectation of a point so we were light about 30 basis points in terms of price.

But your net price -- I mean versus the 30 basis points you are looking for in 2011, Mike, what would that number have been in the fourth quarter?

Price we would have looked at, net price realization of about 70 basis points. We would have looked at material inflation of about 160 basis points, other inflation probably 240 basis points, so that kind of gives you all the variables there.

(multiple speakers) Go ahead.

With the prices kicking in in the first quarter we would expect that 0.7% in the fourth quarter to shift up to about 1.3% in Q1.

Okay. And then just quickly on res. Your high single-digit growth, can you just talk about how you think about price, how you think about mix just given stimulus going away, and does that incorporate any kind of additional market share gain?

Well, we had 3 points of share again in the quarter. Again that is a heck of a surprise for us there. We were running about a point of gain for the start of the year.

One data point I will give you is when you look at the demand we had in November/December and you know we got a January 1 price increase, the logical question is how much buy forward happened and what happened there. So you look to January and say you would see it in January.

We had 10% bookings in January again in the HVAC res business, so I can't tell you that that is going to continue through February or March. I don't know. But we would have expected to have seen a fallback in January in the res HVAC based on bookings in November and December that were 40%/50% plus. For the quarter in total where I think the quarter bookings were up 32% in the res HVAC business.

So there has been some strength continuing on that. The mix is good. We would have, I guess, worried about the mix shifting down. We did plan the mix shift down. Surprisingly, it's a little stronger perhaps than what we were thinking in terms of the efficiency mix.

Okay. And then just as a follow-on to that you had a supply chain issue in 2Q in res, you had labor productivities and you were surprised in the fourth quarter. Do you ultimately just need to carry more cushion and more inventory to manage kind of these quick shifts in demand?

I think it depends on the situation. They are very different situations. One was a real forecast, I mean we had everything we needed to achieve the forecast we put in place. If you miss the forecast then clearly you are going to go through calisthenics to get things done.

The supply chain issue we had in the second quarter was specifically a supplier where we had an issue around getting parts. Unfortunately, those parts were coming out of Asia.

Okay.

Jeff, also it was a big factor here. The biggest gorilla we have in the park here is the Trane commercial business. As we said, it has been down since 2008.

You see the kind of recoveries we have seen in equipment in that particular segment of the business, it's pretty bumpy. And that is really kind of what we ran into.

So when Mike said it's very different circumstances the biggest area of challenge that we had was in the Trane commercial areas and gearing up for the equipment that went out in the fourth quarter. When you go from being down to double-digit increase quarter to quarter that is a pretty massive change.

Jeff, I guess to tell you the third part of your question would be would we carry higher safety stocks on a particular move. If you did it in season, which we are not going to do, absolutely we would do that. If you do it out of season, I think we need to go back and see. Did we have enough safety stock to be able to manage a move, even if it's off season; we would look at that.

We are looking at working capital in the 2.5 range and clearly if we had to invest a bit more in getting it right for our customers, we would do that. But that is not sort of the throttling component of how we think about things.

Okay. Thanks, guys.

Deane Dray, Citi.

Thank you. Good morning, everyone. Wanted to go back to the question on the use of capital. Steve, I heard you increasing dividends longer term and buybacks, but we are in a pretty significant M&A cycle. I know we talked or we heard at the analyst meeting that there would be some bolt-on -- interest in bolt-on acquisitions. So where does that stand in terms of allocation of capital?

Well, we certainly have not given up on the concept of acquisitions, but hopefully you have heard me say somewhere along the line that we are also very, very interested in getting our return on invested capital up to at least our weighted average cost of capital. The way to do that is improve margins, to run the business the old-fashioned way, and to drive the 2 points of margin improvement a year that we are targeted on.

That is a huge priority, because if you take a look at the history of the Company, quite frankly, the capital employed in our acquisition efforts you could question the impact on our return on invested capital as a result of those decisions. If we look at M&A going forward, quite frankly, it's going to be companies that can be accretive to our portfolio quickly.

So what that translates to in any M&A environment, expensive type of companies if you were to go buy them. So I would say it's our third priority at this point in time from a capital allocation perspective, because sorting through the type of company that we would be or type of enterprise we would be interested in bringing into this portfolio to be accretive fairly quickly is sort of how we are thinking about it at this point in time.

Deane, we are not going to get the cart out in front of the horse here. It's going to go back to balance sheet, dividend, dilution, down the road sensible acquisitions. And we are not through the dividend and dilution aspect of our game plan at this point.

Sure, that makes sense. How about on the other side of that equation, are there any divestitures of significance being contemplated?

We would always evaluate things that don't work in the portfolio going forward, but I don't have any updates for you here today. That is something that when we give it in March we can probably give you more of a sense of where we -- how we are thinking about those things.

That is helpful. And then last one for me, Steve, the tax rate has been bouncing around a bit, lighter this quarter but a little bit higher first quarter and for 2011. Just give us an update what some of the dynamics are there.

Yes, what happened in the fourth quarter was we had some favorable audit settlements that occurred, and also we were -- because of the increasing earnings in general, we were able to take advantage of some tax assets that we previously could not so we could value those tax assets. That happened in the fourth quarter of 2010.

Going forward it's very much a shift to earnings in higher taxing jurisdictions including the US, so that is a geographic mix question going into 2011. I think when we talked about our model we also told everybody that as we go through the next few years we would be looking at tax rates in the mid 20%s. We are seeing a little bit of a pop in that in 2011, but again 2011 is driven by where the income will be earned.

That is helpful. Thank you.

Jennifer, we have time for one more question.

Jeff Sprague, Vertical Research Partners.

Thank you. Good morning, everyone. Just to come back a little bit more on price and getting our arms around Q1. Mike, I think you said in your opening remarks you actually didn't have quite what you wanted given the latest surge in raw mats, but then Steve kind of said it's all baked in in that conversation about where spot prices are.

Can you just clarify on are you where you need to be for Q1 and what kind of gap might still be outstanding there?

Jeff, just want to make sure I am clear. The current spot prices of copper at $4.35 is up from about $3.75, $3.80 in the fall of last year when we would have put together our annual operating plan. So it has moved on us, okay, so, yes, we have priced in a current look. But in terms of how we set the price increases, remember those went out in September/October timeframes so I want to make sure I am clear on that, okay?

Okay. So what kind of headwind should we think about relative to where you set price relative to where cost stands today? Is that fully reflected in the Q1 guide that you have given us?

Yes, Jeff, I go back to the umbrella that was set out there 2% to 6%. And for guidance purposes, if you assume the midpoint of that 4% and you say half of it gets realized you are at 2%. Our plan is for 1.5% so I think we have got some room here within the umbrella that we have set around price increases.

I think you are hearing that from the folks that are in the same businesses that we are, so I don't think we are going to have much of an issue around folks working inside the net that they have got. And to the extent that we see spot rates increase up, people working on higher realization with the preannounced pricing.

Jeff, if I were to say it again in another way, three or four months ago we would have said that the price cost line of our chart here would have been no impact. Remember, that is part of our financial model where we want price to offset the material inflation. So what we have put in here is the additional inflation that we have picked up since late last year.

So in a sense we had the inflation in here and price levels at about where we expect them to level out to be given the price increases we have already announced. So there is still room for more price increases, but that is going to be subject to what happens in the marketplace.

Got it. And all the order strength that we saw in Q4 would have been booked at the pre-price increase levels?

No, HVAC would have been booked at res HVAC. Commercial, it has been working in real time for six months so you are seeing it feathered in through this more iterative process in which those industries and businesses work. I would say that industrial big air has been doing the same thing.

Security would have been more like res HVAC where the pricing would have been more of an event and you would have had sort of purchases at the lower levels. So Q1 in security and res you would expect that the bulk of what you see ought to be at the higher pricing levels.

And just two last quick things. Could you just give us what the Hussman orders were in the quarter, percent change?

Hussman had a good quarter. We had -- I am trying to look here at --.

It didn't seem to make the slide so I was kind of curious.

Yes, actual revenue cases was up about 9%.

And orders?

Orders were probably down closer to 10%.

Okay. And then finally, Steve, if you can -- if you look at the --.

And that is driven by some of the shifting in what is going on with the big retailers buying, the Wal-Mart's and Target's in particular remodeling programs.

And finally for me if you can, Steve, the walk from 2010 to 2011 on the margin bridge, if you exclude the contingency there is four buckets. Can you give us the actuals for those from 2009 to 2010?

We are going to have to call you back with that, Jeff. I don't have that right at my fingertips but we can give you this -- we talked about the need to kind of as we talk about our model in the future putting it on this format. So Janet is prepared to talk about that, so she can give you a call back.

I can get close on the quarters, but if you had it -- I will follow-up with Janet. Thanks a lot.

It's no problem. We just need to put it in this format for you.

Okay, great. Thank you.

Thank you, everybody. Joe and I will be around for follow-up calls if you need it. Thanks.

This does conclude today's conference call. We thank you for your participation.