Honeywell International Inc. (HON) Q4 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Honeywell's Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to introduce your host for today's conference, Elena Doom, Vice President of Investor Relations.

Thank you, Kevin. Good morning, and welcome to Honeywell's Fourth Quarter 2012 Earnings Conference Call. Here with me today are Chairman and CEO, Dave Cote; and Senior Vice President and CFO, Dave Anderson. This call and the webcast, including any non-GAAP reconciliations, are available on our website at www.honeywell.com/investor. Please note that elements of today's presentation contain forward-looking statements that are based on our best view of the world and of our businesses as we see them today. Those elements can change, and we would ask that you interpret them in that light. We also identified the principal risks and uncertainties that affect our performance in our Form 10-K and other SEC filings. This morning, we will review our financial results for the fourth quarter and the full year 2012, as well as share with you our guidance for the first quarter and full year 2013. And finally, we'll leave time for your questions. With that, I'll turn the call over to Dave Cote.

Thanks, Elena. Good morning, everyone. You can see Honeywell delivered another excellent quarter despite a still challenging macro environment. As we've said before, our goal is to be known as a company that outperforms and delivers in both good times and bad, and I think our performance and track record really shows that. We had modest sales growth in the quarter. It was up about 1% on an organic basis, yet we still continued to drive margin expansion, up 50 basis points to 15.6%, as well as pro forma EPS growth of 9% on an adjusted basis. And that's using the same tax rate in both periods. So we're starting 2013 with some positive momentum. First, the short-cycle order rates are improving slightly overall with stabilization in key developed regions and some pockets of growth, particularly in China -- and other high-growth regions. And that suggests a modest improvement in end market conditions. Second, pension is expected to generate income of $50 million to $75 million this year, and that reflects the proactive funding we've done to date, coupled with a higher-than-expected return on assets last year. And third, the euro exchange rate is a bit better. Our outlook assumes an average euro dollar rate of $1.25. We're tracking above those levels today, but who knows what's going to happen with 11 months left in the year. So for now, we're cautiously optimistic, but it's just too early to tell what direction the economy is going. And we're all well too familiar with the issue, big democracies around the world are still in gridlock over debt and the U.S. is kicking the debt can down the road and finding that kick doesn't quite go as far as it used to. All of these factors make forecasting what's going to happen…

Thanks, Dave. Good morning, everyone. Thanks for participating on this morning's call. Let's go to Slide 4 entitled 4Q 2012 Results. And I'm just going to take you through the summer [ph] results for the quarter, which, as you know, came in largely as expected when we gave you our December outlook. Sales for the quarter of $9.6 billion were up 1% on both a reported and organic basis. And on a regional basis, the U.S. was up approximately 2%, Europe was down 3%, China sales were up approximately 10%. Now, sales did come in a little bit better than we expected in December, as a result of both improved organic growth in ACS, as well as Transportation Systems, and also favorability in terms of our assumption on foreign exchange, and all of this drove approximately $50 million in terms of higher sales. Segment profit was up 5% in the quarter. Segment margins expanded 50 basis points. I'm going to walk you through the individual drivers when we go through each of the businesses in just a moment. But a high-level productivity continues to be very strong, more than offsetting inflation and enabling continued investment for growth. Below the line for the quarter was as expected, which was also consistent with our prior run rates, so no surprises there. And the tax rate was higher. We gave you the guidance on that. It was higher than normal at 30.6%, which is when in keeping with our full year 26.5% rate that we also guided to. Now pro forma earnings per share, which excludes the impact of the fourth quarter mark-to-market adjustment for pension, was $1.10, an increase of 5% on a year-over-year basis. However, if you normalize for taxes, which, recall, didn't impact the full year, just the quarters, EPS…

Thanks, Dave.

March 6.

Just one clarification, so Investor Conference, March 6 in New York City.

Thank you very much.

Kevin, if you could now open the line, we'll take our first question.

[Operator Instructions] Our first question comes from Scott Davis with Barclays.

One of the things that you didn't address in the presentation was cash reinvestment for 2013. I'm guessing since you don't have to make a pension contribution, you're probably sitting on a fair amount of cash at this point. I mean, what's your thought on to potentially buying back some stock? Or are there more deals out there, like Thomas Russell, that maybe you can comment on that?

Well, a couple of comments, then I'll turn it over to Dave. But -- we did go through a bunch of that in the December call. Our plan really haven't changed all that much. We raised the dividend by 10%. We bought back some shares in December last year. We're saying we'll hold share count about flat with the fourth quarter this year. And as we've said in the past, I mean, that policy still hasn't changed when it comes to acquisitions and additional repurchases. We're going to be opportunistic about what do we think make sense, so hasn't really changed from what we said in December. Dave, anything you want to add?

No, I would say absolutely we're on track for that. And you obviously fund the Intermec acquisition, Dave, during the course of the year. The one thing I would just say is -- obviously, is the acquisition pipeline continues...

That looks good.

Continues to be attractive. We're going to continue to leverage our strong disciplines, both in terms of price paid, as well as execution and the integration. But that looks good. I think the share buyback is absolutely on track. We're going to have over $1.3 billion cash outflow for dividends in 2013 and, obviously, very positive feedback that we're getting in terms of that continued rate of growth on the dividend. So that's really the story, Scott.

Fair enough. The -- one of the highlights to me in the quarter, at least, is the ACS margin. And we've talked about this, I think, for several quarters. Things have been progressing really nicely there. I mean, we -- I don't think in our model we had ACS margins over 15% until like 2016 or something. So you're way ahead of that pace. What -- when you think about this quarter, the 15.5% number, you referenced kind of positive inflation impact, and maybe that is some impact. But help us understand what's sustainable on that kind of over 15% level, and what may be more a transitory or mix related?

Well, for ACS, I mean, none of this stuff is transitory. This is kind of consistent with that concept of evolution in everything that we do, that we've talked about, is we're just going to keep steadily building on what we've done before. So I fully expect ACS continues to increase their margin rates, just like I expected in Aero, I expected in PMT and TS and total company. So we're not very subtle. In fact, I can't think of any transitory or onetime gains that we generally ever let fall through on anything. We tend to use those for repositioning. So I'd say very sustainable. Dave, anything you...

Well, I just say that we have 14.1% margin for ACS for the year, which is a record. We're going to continue to build there. It's really -- we hope we're going to get a little more volume leverage. That would be terrific. I mean, I think we would see really terrific conversion there, I mean, everything that Roger and the team are doing on the productivity, on the cost side of the equation. So it's -- you're going to see -- there's going to be sequential differences. First quarter is going to be different than the fourth quarter. But when you look at really year-over-year, as Dave said, it's a sustained improvement that we're really targeting, and the business is confident that they're going to be able to deliver. And the formula, Scott, you know the formula that we're using.

Yes. No, I think what I was specifically referencing is you do talk about inflation. So I'm guessing that there's a price-cost spread that's in there that has some sort of an impact that we wouldn't want to model that going forward. So I'm not talking about onetime gains or anything like that.

Yes. The -- just -- Scott, on the price to cost side, it's actually slightly unfavorable. But ACS is mitigating that through strong material productivity and even building on their performance in the quarter. They also offset some negative mix of roughly out 20, 30 basis points in the quarter. So I think it's productivity across-the-board, both in terms of operational productivity and material productivity.

We go next to the site of Nigel Coe with Morgan Stanley.

So obviously, you alluded to the fact that you got a bit more contingency in the plan, due to maybe where the FX rate is right now and some other factors, such as pension, but obviously, keeping a conservative view on the year. But I'm wondering if we're in a situation now where perhaps there's some -- there's a few more good guys than bad guys as we go through the year. What does the -- how does the repo pipeline look at this point? And is the policy to accelerate repo this year and maybe flow it through next year, or do you see the potential for maybe a balance between additional repo and perhaps upside to the plan?

Well, we always want flexibility on repositioning. We're always looking at projects. But as you know, we've got over $300 million worth of projects that are already funded that we need to work our way through. We like having the flexibility in the event that there is a really good idea that comes forward. But just executing on what we've already funded is going to be a real boost for us going forward. And I think we've provided those numbers for this year, and I don't know about 2014.

Yes, the incremental benefit that we're assuming is roughly $150 million in 2013.

This year, yes.

Does that then flow through into '14 as well? Is there an incremental into '14, too?

There is, Nigel. Off the top of my head, I don't have that, and I think it's something we can provide, certainly, in March.

Well, the important thing maybe, Elena, just to add to that, is we funded on a gross basis, $120 million of repositioning in 2012.

Already on top of what we'd...

We've already done. And so -- and by the way, some very attractive...

Good projects.

Payback projects. And so what you'll see, Nigel, and we can follow up on that, and clearly, we'll have more about that when we get together in March, on March 6, that you're going to see there is strong -- there'll continue to be strong incremental benefit that'll flow into 2014.

Fantastic. And then just digging into PMT margins. I just wondered what impact the Thomas Russell acquisition had, due to accession accounting in the quarter. And you also mentioned unfavorable price/raws. You guys have done a great job of mitigating the raw material volatility, particularly within the Resins business. And I'm wondering, has there been a change in the dynamic now where price/raws becomes more of an impact going forward?

Well, on Thomas Russell, we had, obviously, favorability in terms of -- I cited that when I talked about the reported versus the organic sales contribution that Thomas Russell made. Also, Thomas Russell was actually accretive in the fourth quarter. We actually had -- it made a positive contribution. We had talked about that earlier, just in terms of the excitement that we have for the transaction, both in terms of tremendous complement that it gives to our current gas technology and gas positioning in UOP, but also what we think we can do to continue to leverage its strength, its marketplace strengths in terms of the financial performance. So we saw that in the fourth quarter. We're going to see a continued benefit, obviously, in 2013.

But it was margin rate...

It was margin rate...

Margin rate dilutive.

Yes, about 40 basis points for the quarter.

Okay, yes. And the price/raws?

Our price/raws -- well, R&C has been dealing with a decreasing spread throughout the year. I don't see that spread getting worse during the course of this year, but that's something that they just work on managing going forward, and like you said, it's become less of -- significantly less of an issue for us, just in terms of how we manage the entire business. So I don't see it creating any issues for us this year.

We'll take our next question from the site of Steven Winoker with Sanford Bernstein & Co. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: So just first question, is the Defense and Space view of sequestration changing at -- or changed at all since the fall, based on the activities over the last month?

No. I would say that we're staying in the same place we've always been. And that planned conservatively there because you just don't know what those guys are going to do down there. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And then you commented on the energy orders push-out in BS&D. Can you give us a little more color on what you're seeing there in North America? And what your sense is for that changing?

Yes. It's good the -- that whole market has slowed down just because state municipal budgets are all struggling to get money right now to even investigate or look at anything. Even though these end up being cost-free projects, it still just causes everything to slow down. And that's the phenomenon that we're dealing with and it's across the industry. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And Transport for next year, I mean, given your comments on Friction, historically, I think, hoping for breakeven by 2014 and all that, are you still kind of hanging in there for that business unit over the next 6 months?

As in what sense? Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: As in thinking about their ability to drive to the margin targets, given the -- what's going on in Friction, as well as volumes in Europe?

Yes. Yes, we're -- we think they have a doable plan. We're going to continue to fund the transformation that we've talked about. And that's not the most pleasant of situations to deal with, but we're going to stick with it. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And maybe just one last. You mentioned -- the words you mentioned about 6x was -- in the presentation, 2014 and beyond, and that we're going to hear about 2014 and beyond in March. Can you just give us a little clarity on are you suggesting that you might be thinking about more specific targets this year as opposed to next, or you're just sort of speaking generally?

Very generally. The great unveiling will be in 2014 of the next 5-year plan. Steven E. Winoker - Sanford C. Bernstein & Co., LLC., Research Division: Okay, all right. Great. Well, we'll keep asking.

Now that, I'm relatively sure.

We'll go next to the site of Jeff Sprague with Vertical Research Partners.

Can you just post us up where we actually finished on pension from a funded status, both in percentages and dollars? And should we expect that you are done funding for, really, the foreseeable future?

Yes, we finished that at about 85%, maybe a little less than that, in terms of funded status for the year. I think that's about...

$3.5 billion.

$3.5 billion in terms of underfunded balance. And I'd say in terms of your -- the second part of your question, in terms of are we done, I think that's very much TBD. As we've talked about before and as you're very familiar, this is a very discount rate-sensitive phenomena. The math is really driven significantly by discount rate, and we talked about this a little bit in December. If you just go back to the numbers in terms of discount rate that we had in 2009, 2010 in the...

5.25%

5% to 5.25% range, you're basically at a fully funded status. So I think it's prudent for us to have done what we've done, which is to done the prefunding over the course of '10, '11 and '12, to be in the position that we are now. We've seen, obviously, continued historic lower rates. We've had headwinds in terms of number of our major markets. So I think now is an excellent time for us to shift that focus, do what we're doing for 2013 in terms of capital and cash redeployment. But we're going to have to say it's a wait-and-see attitude, where, hopefully, what we're going to see is some improvement in terms of rates, and that's going to really address most of this issue. Meanwhile, on the accounting side, we're going to benefit here in 2013, as we've said, from a little bit of pension income. And we expect that'll probably continue into 2014 at about that same level, given where rates are today. Again, that is also interest rate or discount-rate sensitive. But I think for now, we feel very comfortable with what we're doing, the strategy that we've employed, and it'll have to be wait and see going forward to make any kind of further statement in terms of beyond '13 or '14 in terms of funding.

Just to add to that, we wanted to kind of stay in the sweet spot, where, at some point, rates do go up, markets will do better, and you don't want to be in a position where all of a sudden you end up with a significantly overfunded plan. By the same token, you don't want to be in a position where you don't have critical mass in the pension, so that when things do get better, rates go up, whatever, you still stay underfunded. So we've been trying to manage to that sweet spot, and we think we're there. And with just a little bit of help from rates and from market return, then there should be no need to put money in the pension fund for a while.

One other quick thing, Dave, if I could add, which is effective also with the beginning of this year, we've lowered our rate of return assumption from 8%...

8% to 7%.

to 7 point -- 7.5%, 7¾%, which we also think is smart and, again, is consistent with our conservative approach on this issue. So that's another element of it, Jeff.

Just backing into some rough numbers, though, it looks like if you earned your ROA, you actually earn enough to pay your annual benefits payable and you hold this thing stable as long as discount rates don't go lower.

Right. I think that's right.

Pretty much, yes.

Yes. Just on the deal front. Do you still see Intermec closing kind of in the May timeframe? And given that Thomas Russell is off to a strong start, have you raised your sights a little bit there on accretion for 2013?

I'd say with Intermec, we'll see, but that's kind of the way we're thinking about it now is sometime during the second quarter. With Thomas Russell, yes, we're really pretty excited about what that can do for us in terms of what we can get on the order side. So I think we can grow that pretty well.

And then just one other quick one. Just thinking about this contingency that's been created early in the year. Should we think of any upside from dollar, euro falling through kind of at the average Honeywell margin rate, or is there some other complexity there to think about?

Jeff, the sensitivity is really for every $0.01, it's roughly $50 million in sales and about $7 million of operating income. It's sort of our back-of-the-envelope math that will see this through.

We'll go next to the site of Howard Rubel with Jefferies. Howard A. Rubel - Jefferies & Company, Inc., Research Division: Two questions, Dave and Dave and Elena. First, you've done some very interesting drop-in and complementary acquisitions of late, and you've talked about Thomas Russell a little bit. Could you just elaborate a little bit and give us a little sense of how some of the other acquisitions have done lately in terms of complementing what you've done? EMS stands out as another example.

I'd say, well, it's not just the recent past. If you take a look at the whole 10 years, the acquisition process that we have really works. And I mean, I am hard pressed to think of one that's been bad that was of any consequence. We had some smaller ones that didn't work out as well as we'd hope, but nothing has been a big miss. So EMS, to your point, stands out because, there, we ended up getting a $2.8 billion order that we hadn't even counted on as part of the valuation. Thomas Russell has been excellent right from the start, and we think the opportunity there is going to be even bigger. We're excited about what we think Intermec can do to broaden our portfolio. So I'm -- we've built a great safety products presence. So I think this is one of those capabilities that we really have as a company. It's not something that we do as one-off every 4 or 5 years, dust off the book and figure out what you have to do. It's more kind of in the psyche of the company. It's just how we do things. They've all worked out pretty well. I can't think of one that isn't something to brag about. Howard A. Rubel - Jefferies & Company, Inc., Research Division: I agree. I just thought maybe there was something to add in terms of how it's 1 plus -- I don't want use the trite expression 1 plus 1 is getting 3. But there's an element of what you've found is that as you've done some of these, there's other market opportunities that have been uncovered. And that's what the focus of the question was.

Well, that part is true is that it's one of the nice things about kind of broadening our portfolio is that we end up seeing more new areas to be able to go into. And EMS is a good example, because that's really broaden the -- open the aperture for Aerospace as they think about what they do in that segment. Howard A. Rubel - Jefferies & Company, Inc., Research Division: And then the follow-up, just to go on Aerospace. You've had a number of notable wins, some are announced and some are not. How are you thinking, Mr. Anderson, about the incremental BGA investments this year?

And, Howard, are you talking specifically about some of the RD&E investment? Howard A. Rubel - Jefferies & Company, Inc., Research Division: Yes.

Well, as we've said, we're looking for Aero to be basically flat on a RD&E as a percent of sales. We talked about that when we gave our December guidance. It's a good question because I think one of the challenges we have overall at Aerospace is it's an opportunity-rich environment. And despite us being selective, and that's something that we've been very, I think, clear in terms of our direction with Aero, it's something I think that's really served us very well, and it's going to continue to serve us very well in the future. Fact of the matter is it's a robust pipeline, and we'll continue to manage that. And we just -- I think that's one of the things that we've just gotten better at in terms of execution. It also underscores, as Dave talked about, just our operating disciplines and just getting better in terms of managing innovation, program management and delivery. That's -- you're just going to see that translate, we think, into just even a stronger Aerospace in the future, stronger Aerospace group for Honeywell in the future, Howard. And also it's consistent with what we continue to say in terms of the upside. It'll translate into margin expansion and improvement for the group. So the BGA opportunities are big. As you said, there's opportunities there that haven't been announced, publicly announced or stated. But we think that pipeline is very rich, and we'll continue to manage it effectively.

Take our next question from the site of Steve Tusa with JPMorgan. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: You guys gave a backlog number last year. I think this year, you gave just the long-cycle backlog. Last year, I think it was $16.2 billion, of which 74% was going to be shipped in 2012. This year, I think it's 15 point -- if you could just give me either the total backlog, and then more importantly, what you expect that long-cycle backlog, how much of that is going to be shipped this year in '13?

Steve, the comparable number that you're looking for is $16.8 billion. In terms of the comparable number, the $15.8 billion that we quoted is really the long-cycle backlog that would ship within 24 months. So there's... Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Got you. Okay, that's very helpful. On the PMT margins, I think you said, going forward, 18% to 18.5%. You guys did 18.7% this year, but you guided up 0% to 20%. So maybe if you could just clarify those comments.

Well, I think when I was talking about that, Steve, I was talking about longer-term sustainable targets directionally. One of the things that we've been asked a lot is can PMT sustain this kind of performance, this kind of performance track record. So what I was really referencing was the fact that we had confidence. Another way of saying it is we have confidence in PMT stability to do that, so the collection of the technologies that we possess, the market positions, the richness of the NPI, the new product backlog in terms -- from research standpoint, as well as what we just see in terms of the continued global macro trends and market opportunities. And you take an example of that now, the addition of Thomas Russell and our key position in natural gas liquids. That's -- and you're -- we've acquired a company there that's basically got a U.S. footprint with significant growth continued in the U.S. but also now international expansion opportunities. That's the type of thing I'm saying in terms of the sustainability is really what you should look to as opposed to a specific number. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Great. And then one last question, just on the incremental pension tailwind. How do we read you guys as having this kind of, like, hedge out there as opposed to you guys have been pretty smart in the past about taking some of this upside and offsetting it with restructuring? Do we read this as there's nothing you really worry about today so you let -- the more -- the likelihood of that just kind of flows through, or that you're kind of out of opportunities for restructuring? Just a little curious as to why you're kind of not -- right away, kind of calling that out and offs -- and saying, at some point, we're going to offset that with restructuring?

Here's the way I would look at it is, over the last 2, 3 weeks, let's say, some of the economic news looks like it's gotten better, but this is not the first time we see 2 or 3 weeks that look good...

That's right.

Followed by stuff that really doesn't look good at all. And government is still not showing a capacity for dealing with its debt problems. And we're all concerned that, at some point, this thing turns again and turns in the other direction. We just think the smart thing to do now is to stay conservative and stay prepared. There's -- I see very little downside to being prepared for the downside, and that's the way you're just looking at it. And we're saying, "Okay, better to have this in our pocket to be prepared to deal with that downside." If it doesn't happen, well, there is restructuring opportunity, there is let-it-fall-through opportunity, there may be other investments that we'll do. Right now, just because the news looks a little better the last couple of weeks, but we just don't think this is a good time to declare economic victory.

And we'll take our final question from the line of John Inch from Deutsche Bank.

Dave Anderson, you had talked about, in your December preview, caprolactam headwinds. And between the capro and the benzene price declines, is there a -- just remind me, is there a formula that you -- or that we can look at that says for every percentage change this is the impact on PMT? And then just kind of the corollary is, what do you think of PMT margins sort of sequentially as the year progresses based on, I think, your previous comments regarding sort of spreads? I think, Dave Cote, you said you expected spreads to kind of remain not worse or whether in terms of the impact.

Well, again, that, call it the benzene add or the formula that exist in terms of market pricing, gives us a directional indicator. It doesn't give us a precise. You can't plug that in and determine what the outcome is in terms of the margin or the profitability for R&C or for PMT. Because we serve so many different markets, and as you would expect, John, it gets kind of complicated. But it is a macro indicator of the health of the overall -- that overall business space, and it's an overall indicator for us in terms of -- from a planning standpoint, directionally, in terms of the profit performance that we expect out of that business and also an indicator of volumes. Because as you would suspect, when you get weaker demand, some of that translates into weaker commodity pricing. So that's one of the challenges that we have going forward. On the other hand, with PMT, we expect to see continued good margin performance over the course of the year. We are going to see a very good first quarter 2013. And the reason is -- and we've been signaling that, is we're going to have very strong catalyst deliveries in UOP that's -- that looks like it's absolutely on track. So we're going to have exceptional performance there over the course of the year. But we expect another good year in terms of overall PMT margins. But like...

With a little less variability compared to what we saw at the end of 2012.

Right.

Looking forward to 2013. Because, John, to your point, we're going to have lapped the year-over-year impact of the R&C caprolactam to benzene at our spread.

Or stated differently, the second, third and fourth quarters, those are going to be more consistent...

More consistent, right.

And more -- to one another in terms of the sequential margin rate that we'll see out of PMT.

There is a seasonal element to the fourth quarter margin in PMT, which, on average, can be roughly 150 basis points of the decline, driven by, really, fluorine products, specifically. But other than that, as Dave mentioned, we expect there to be much more consistency in terms of the margin rate performance in 2013.

Yes.

Actually, that is quite helpful. I wasn't sure how you'd have the confidence, if you were -- there was no predictive readthrough. But that answers that very well. 787, I realize Aerospace is very diversified. It's about flight hours. But you guys have a pretty good content on that program. Is there any discernible impact in the guide, even if it's just minor, or is it just not really that relevant?

It's not going to have much of an impact. I mean, there are some -- there are obviously some sales from it in the year. But even if they stopped producing, which I find hard to believe, that's manageable for us.

Then just last. Dave Cote, ACS has been a -- has been and is expected to continue to be an important source of productivity. How are you thinking about productivity opportunities in emerging markets? And the reason I'm asking that point is that there are lots of reports of increasing automation proliferation because of rising wage costs in China and other places. You guys, as a company, although you've closed the gap, were behind, I would say, a few years ago in emerging markets. You've closed the gap. Is this still a period of time for Honeywell to be investing? Or are there opportunities to also perhaps drive productivity because of these -- just because market conditions are changing in the China and Indias of the world?

Well, I guess, a couple of comments there. First one is the opportunity for us to be able to expand outside the U.S. is still significant. While we have grown our percent of sales outside the U.S. from 41% to 54%, 75% of the world's GDP is outside the U.S., so still a lot of room for us to grow. When it comes to productivity, we look at productivity in everything everywhere and in every country. And we break it out into the 2 pieces that we've talked about before, is material and organization effectiveness, or OEF. And we look at every business that way, thinking about what's the smartest way to make both of those happen. And that doesn't really change, I'd say, as a result of wage rates going up in China or going up in India. Yes, it's something that you manage, but it's not so overwhelming that it requires drastic change in the company or exit stage right or enter stage left. I mean, nothing like that. So very manageable, and we'll continue to do that within that kind of framework, looking at material and looking at labor and just keeping it as simple as that.

So basically, on a net basis, you're still in the build phase, very much so, it sounds like, for the next few years, in emerging markets versus a -- versus more of a cost phase, if you want to look that up on that basis.

Well, we always look at is growth and cost at the same time. I've never been a believer that you just do one or the other. So that's why we've got it teed up in the 5 initiatives the way we do. So we're constantly looking at both. None of this stuff has been a real surprise. But we still see a lot of opportunity to grow, and we still see a lot of opportunity to take out cost and just driving those big enablers of ours, Velocity Product Development, the Honeywell Operating System and Functional Transformation. There's a lot of margin rate improvement and customer benefit from doing all 3 of those just a lot better than we do today.

All right, Dave, I'd like to hand it over to you for final comments.

Okay. So while the economic times still remained difficult, we are going to continue to focus on what we can control to deliver outperformance regardless of the economic conditions. And at the end of the day, you have to play with the economic cards that were dealt. Until governments truly deal with their debt issues, that's just the way it is. We could wish it was different. But the best thing we can do is just play conservatively, assume that these great things aren't going to happen and stay very flexible in what we do in terms of our ability to respond. So we're going to continue to evolve the company in everything we do. And you know that word evolution is one that I use a lot, because I think it's important for organizations, for people, for companies, for processes, because we want to stay flexible to be able to respond to changing conditions and we want to be able to improve on all dimensions. A couple of weeks ago, we had our annual meeting of our top 300 global leaders. And I -- it's just fun to be able to tell you about the excitement that you can feel from the top 300 people in the world for Honeywell when it comes to what they know we can accomplish as a company and where we're going. I mean, the feeling was palpable. It was the sort of thing that really pumps you up. So as a Honeywell team, we look forward to demonstrating that continued outperformance that results from all that excitement for all the great groundwork, all the great seed planting that our guys have been doing for a lot of years. Thanks for listening.

Thank you. This does concludes today's teleconference. Please disconnect your lines at this time, and have a wonderful day.