John L. Brooklier - Vice President of Investor Relations E. Scott Santi - Chief Executive Officer, President, Director and Member of Executive Committee Michael M. Larsen - Chief Financial Officer and Senior Vice President

Jamie L. Cook - Crédit Suisse AG, Research Division Robert Wertheimer - Vertical Research Partners, LLC Joseph Ritchie - Goldman Sachs Group Inc., Research Division Steven Fisher - UBS Investment Bank, Research Division Nigel Coe - Morgan Stanley, Research Division Ann P. Duignan - JP Morgan Chase & Co, Research Division Deane M. Dray - Citigroup Inc, Research Division Stephen E. Volkmann - Jefferies LLC, Research Division Eli S. Lustgarten - Longbow Research LLC Andrew Kaplowitz - Barclays Capital, Research Division Andrew M. Casey - Wells Fargo Securities, LLC, Research Division John G. Inch - Deutsche Bank AG, Research Division Mircea Dobre - Robert W. Baird & Co. Incorporated, Research Division Shivangi Tipnis David Raso - ISI Group Inc., Research Division

Welcome, and thank you all for standing by. [Operator Instructions] Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to your host, Mr. John Brooklier. Sir, you may now begin.

Thank you. Good morning, everyone, and welcome to ITW's Fourth Quarter 2013 Conference Call. Joining me this morning is our President and CEO, Scott Santi; and our CFO, Michael Larsen. During today's call, Scott, Michael and I will discuss our strong Q4 and full year financial results, update you on our enterprise strategy progress and provide our full year and Q1 2014 guidance. At the end, we will open the call to your questions. Per our long-standing practice, we ask for your cooperation on our one-question, one follow-up question policy. As always, we have scheduled one hour for today's call. Moving to the next slide. Before we continue, let me remind you that this presentation contains our financial forecast for 2014 first quarter and full year, as well as other forward-looking statements identified on this slide. We refer you to the company's 2000 sic [ 2012 ] 10-K and Q3 2013 10-Q for more detail about important risks that could cause actual results to differ materially from the company's expectations. Finally, the telephone replay for this conference call is (800) 570-8799. No passcode is necessary. The playback will be available until 12 midnight of February 11, 2014. Now let me introduce our CEO, Scott Santi, who will comment on our strong Q4 financial performance. Scott?

Thanks, John, and good morning, everyone. I'll make a few comments on our fourth quarter performance and our progress on our enterprise initiatives and capital allocation strategy before turning it back to Michael, who will provide some more detail and color on both our Q4 results and our forecast for Q1 full year 2014. Overall, we were pleased with our Q4 performance as we were able to deliver strong across-the-board operating results, while we continued to make meaningful progress in the execution of our enterprise initiatives. Q4 revenues were up 4.8% in a modestly improving macro environment. Our Q4 organic growth of 3% was up from flat in Q3, driven largely by North America and China, with overall organic growth of 2% in Europe. Once again, our Automotive OEM segment delivered strong growth, with organic revenues up 11% in Q4 versus worldwide auto builds that were up 6%. And our Food Equipment segment continued down this path of improving growth, with overall organic revenues up 4% in the quarter, driven largely by strength in North America and leveling demand in Europe. We also saw a solid improvement and demand in our Test & Measurement business in Q4. Total company operating margins of 17.7% were 260 basis points higher than Q4 of last year, and that was driven by disciplined operational performance and the continued excellent work our business teams are doing in the execution of our enterprise initiatives. In the fourth quarter, enterprise initiatives contributed 110 basis points of margin improvement. Q4 earnings per share of $0.92 came in $0.03 higher than the midpoint of our forecast, and were up 43% versus our adjusted Q4 of 2012 earnings per share. This shows promising momentum going into 2014 as we enter the second year of our enterprise strategy. Finally, we remain focused on driving strong free cash flow and being highly disciplined in our capital allocation approach. Full year free cash flow conversion came in at a strong 129% of net income. And in 2013 for the full year, we returned $2.9 billion to shareholders in the form of share repurchases and dividends. As was announced last year, we intend to utilize our existing share repurchase authorization to offset the full amount of earnings per share dilution associated with the upcoming sale of the Industrial Packaging segment. In summary, we made meaningful progress in the execution of our enterprise strategy in 2013, and as a result, delivered meaningful improvement in all of our key performance metrics in the year, which was year 1 of our 5-year plan. I want to recognize great work done by all of our ITW colleagues around the world in making it happen. The ITW team has the company well positioned to deliver continued strong progress towards our enterprise strategy performance goals in 2014. Now let me turn the call over to Michael. Michael?

Thank you, Scott, and good morning, everyone. As Scott mentioned, we were pleased with our fourth quarter financial performance and the positive momentum as we continue to execute well on the enterprise strategy. Let's start on Slide 5 with the fourth quarter. Total revenues of $3.55 billion were up 4.8% versus prior year, as organic revenues were up 3%, with international and North America both up 3%. In terms of segments, we have continued double-digit growth in Automotive. And Food Equipment had another strong quarter, up 4%. Test & Measurement was also up 9%. John will add some more color on our segments in a few minutes. Our recent acquisitions contributed 2 points of growth and are off to a good start. Operating income in the quarter was $628 million, up 23%. And margins expanded 260 basis points to 17.7%. Our disciplined and focused execution on business structure simplification and strategic sourcing contributed 110 basis points on a year-over-year basis. EPS from continuing operations was $0.92, up 43% over our adjusted 2012 EPS and $0.03 higher than the midpoint of our guidance. Finally, we had another strong quarter in terms of free cash flow, which I will discuss in just a minute. On Slide 6, organic revenues were up 2.8% for the quarter, and the associated operating leverage was 70 basis points. Price cost was favorable 40 basis points. And the largest driver of our margin expansion, like I said, was 110 basis points from the continued strong execution of our enterprise initiatives. Total operating margins of 17.7%, up 260 basis points from last year, as every 1 of the 7 segments delivered on margin expansion. As you can see, Construction, Food Equipment, Test & Measurement and Electronics led the way. But even in higher margin segments, such as Automotive,…

Thanks, Michael. On Slide 10, just very quickly, let's look at some geographic trends. Scott and Michael have both noted, our reported organic revenues increased nearly 3% in the quarter, with international organic revenues growing 3.3% and North American organic revenues growing 2.6%. In Q4, we saw some improvement in the North American economy. Europe continues to show signs of stabilization. And China along with Australia and New Zealand continues to drive growth in Asia Pacific. On the next slide, just a couple of quick comments. From a profitability standpoint, as Michael noted earlier, all 7 of our reporting segments showed operating margin improvement in the fourth quarter, with Construction Products up over 300 basis points. Test & Measurement, Electronics, Food Equipment and Automotive OEM produced margin improvement in ranges from 160 to 250 basis points. As we've said repeatedly, these strong results underlie the meaningful progress we've made in year 1 of our enterprise strategy. Now moving to Slide 12. Let's take a brief look at our reporting segments. Starting with our Test & Measurement and Electronics segments, organic revenues rose 1%. In Test & Measurement, organic revenues increased 9% as equipment orders improved as the quarter progressed. Electronic organic revenues declined 8% as comparison eased somewhat in Q4. We expect these comps to be more favorable in 2014. And in the quarter, operating margins were up an impressive 250 basis points. As we noted earlier, in Auto OEM, this was once again our fastest-growing segment, with organic revenues outpacing worldwide auto builds by 5 percentage points. And that's thanks to growth in new product penetration and favorable customer mix around the world. Breaking this down geographically, Auto OEM's organic revenues grew 11% versus a worldwide auto build of 6%. And by geography, North American international organic revenues grew…

All right. Thanks, John. And as you've heard today, we exit 2013 with some positive momentum that positions us well for 2% to 3% organic top line and 18% to 24% earnings growth, in line with the 2014 guidance communicated at our December 6 Analyst Meeting. While we were encouraged by what we saw in the second half of 2013 and the fourth quarter in particular, we think it's prudent to remain cautious on the global macro environment at this time. We expect operating margins of approximately 19% for the year as we continue to execute well on the BSS and sourcing plans that support our enterprise initiatives. And we're reaffirming our 2014 EPS guidance in the $4.30 to $4.50 range, again an increase of 18% to 24%. And all of this is very consistent with our outlook from December. In terms of our IPG-related share repurchase program, we are slightly ahead of schedule. And if we stay on track, we could complete the program earlier than year-end. If so, you should expect a slight EPS benefit associated with the timing of the repurchase program. For the first quarter, we expect EPS within a range of $0.93 to $1.01. This assumes total revenue growth of 3% to 6% on some easier year-over-year comps and an organic growth rate similar to Q4. In conclusion, the fourth quarter was a good finish to a solid year for ITW, and we're well positioned to deliver continued strong progress toward our enterprise strategy performance goals in 2014. And with that, I'll turn the call back over to John for Q&A.

Thank you, Michael. We'll now open the call to your questions. [Operator Instructions] We're ready for questions now.

[Operator Instructions] Our first question comes from Ms. Jamie Cook of Credit Suisse. Jamie L. Cook - Crédit Suisse AG, Research Division: I guess just 2 questions, one within the Construction Products side, the margin performance was fairly impressive. Can you just talk about the drivers behind that and how to think about incremental margins if we get a bit of a tailwind from the construction cycle? And then just two, just there's a lot of optimism, I think, in 2014 with some potential recovery in non-res construction. Just sort of how you guys are viewing that? And do you think the market's a little too optimistic?

Yes. In terms of the overall margin sort of trajectory that we anticipate, we've talked before about our view that the construction business at its current size and scale certainly has the potential to be operating at a much higher level of profitability in a level that's accretive to our overall company objectives. So from the standpoint of incremental margin performance from here forward, we expect it to be very strong for the next 4 to 6 quarters, regardless of what's going on in the macro environment. And I think on the commercial construction question, I think we are right where you described. I think it's -- I think John used the phrase, choppy, for the last couple of quarters. I think we have been encouraged at times over the last 2 to 3 quarters. And in the fourth quarter, things seemed to soften up again a little bit. So I think we'll certainly be happy to see it when the recovery comes, but at this point, are not seeing a whole lot of basis for a high level of enthusiasm there. We'll see what happens.

I would just add to that. If you look at -- Jamie, if you look at the latest Dodge data through the end of the year on a square footage basis, which is the metrics we look at, construction on a square footage basis is basically -- commercial construction is basically flat year-over-year. So to Scott's point, I don't think there's anything supporting a better commercial construction in the near term.

Our next question comes from Ms. Rob Wertheimer of Vertical Research.

And I apologize. I missed the first minute of the call, but did you get into the change in profit in discontinued operations quarter-to-quarter and what caused that?

No, we did not.

I'm not sure what you're referring to.

What was the discontinued ops profit in the quarter? I think it...

Well, for IPG? If you go in the appendix, you'll be able to see that in the schedule.

I just thought that it declined from $40 million or $50 million down to $1 million and comes from discontinued ops. That was -- maybe I misread it.

Okay. Well, part of that is related to some of the restructuring we're doing as we prepare the business for sale. And there were some tax charges related to that. And that -- so that's what you would have seen in the discontinued ops.

Okay, perfect. So it's deliberate actions rather than a degradation on...

Yes. No, no, absolutely. It's the legal reorganization as we get ready to separate the IPG business from ITW and proceed with the transaction.

Okay, perfect. And if I can just ask one sort of big picture question. Are you seeing any revenue gain or any revenue impact from the BSS initiatives? Obviously, Auto's been incredibly strong. That's a bit of a global business. I'm just curious. I mean, obviously, you talk about the [indiscernible] saves and the cost saves and the COGS line. What is your impression of how it's shaking out on revenue? Are you losing any J-curve? Are you seeing more opportunities as you continue to do it? And I'll stop there.

Sure. Our expectation is that BSS is very much going to drive a greatly enhanced focus in terms of the major growth opportunities in the company. So there is a big revenue component in terms of improved organic growth performance overall that's driving BSS. That being said, I think the focus around the company in the first year has largely been much more internal than external. I would expect '14 to be a year where we're still fairly heavily focused on completing some of the internal restructuring, but that we begin to start to pivot our view, if you will, from inside to outside in preparation for some accelerating organic growth in '15 and from '15 going forward.

Our next question comes from Joe Ritchie of Goldman Sachs.

And so just a quick question on the cost-outs. I know that historically, you've talked about the synergies that you plan to get being linear over the next 5 years. Can you just provide what the actual benefit that you received in '13 and what your expectation is for 2014?

Well, you're talking about on the BSS side and the sourcing side combined, we saw 110 basis points of improvement in the fourth quarter. And that built up really from -- if you go back into the first quarter of 40 basis points, then 60, then 80 in the third quarter, then 110 here. And we really expect to kind of have leveled out here at about 100 basis points improvement a quarter roughly as we move forward into 2014. Again, the way we've laid this out, we've talked a lot about the pace of execution here and not wanting to get too far ahead of ourselves and take risks that we don't need to. And so we've really laid it out in a fairly linear fashion here in terms of the restructuring costs, as well as the savings associated with those.

Okay, that's helpful. And so I mean, I calculated a number that was roughly $110 million to $120 million in savings in '13. And so in '14, it was really -- it was very, very much back half-loaded. So in 2014, since we're exiting at a higher run rate, you'd expect there then to be a benefit, an incremental benefit in '14 versus '13. Am I thinking about it correctly?

I think in terms of what you'll see is a 2014 that where the BSS savings will be very much in line with what we saw in 2013 and then continued progress on the sourcing side.

Okay, great. And I guess one last question on the incremental margins. Clearly, the margin performance across several of the segments were great. I'm just trying to understand, I'm trying to break up the difference between what you're getting from BSS and sourcing versus the incremental margins that you're seeing on your organic growth. Is there any heuristic that we should use or think about for '14 and beyond?

What I'll tell you that on the -- in terms of the incrementals on the organic growth, I mean, we remain in the 35% range. And anything beyond that is a combination really of BSS and sourcing efforts.

Our next question comes from Mr. Steven Fisher of UBS.

You guys are still looking for 2.5% organic growth in 2014 at the midpoint versus the 2.8% in Q4. So just wondering if you're thinking that 2% to 3% growth forecast is conservative at this point? Or are there really areas you think are going to slow that you mentioned that you kind of want to be cautious at this point still?

Well, I think what I'll say is the 2% to 3% organic, we view that as a realistic assumption for 2014 based on what we're seeing right now. And so if you look at 2013, the fourth quarter was really our first quarter of organic year-over-year growth at 2.8%. And while we're encouraged by some of the revenue growth we're seeing in our segments, we think it's a little too early to call these trends and get too far ahead of ourselves here. The other thing I will say is if you look at some of our more capital goods-driven businesses, including the Welding side in North America, we haven't quite seen the pickup yet in the CapEx cycle. So I'd say very much consistent with what we're seeing today. We've laid out the 2% to 3% organic consistent with what we said in December. And on a reported basis, that's about 2% to 4% revenue growth.

Okay. And then at the Investor Day, you said if things lined up perfectly, you thought there could be some upside to the 10 million shares a quarter and 50 million total on repurchases. I guess, curious, how you're thinking about that now? I mean, I think if you do the math, I guess about 49 million shares in total that you're talking about?

Yes. So when we announced the IPG move to discontinued operations back in September, we also said that we would repurchase 50 million shares to offset the EPS that goes with IPG. Last year, we completed 14 -- or in the fourth quarter, we completed 14 million shares, slightly ahead of the 10 million planning assumption. And so we have 35 million shares to go. And if we remain on track here, as I said, we're slightly ahead of schedule, we could see that program get completed earlier than year-end. And if that happens, we should expect to see a slight EPS benefit associated with that. But I really can't comment much beyond that in terms of the actual timing and number of shares being repurchased by the company.

So it's a timing upside, not a number of shares upside?

That's correct.

Our next question comes from Nigel Coe of Morgan Stanley.

So the performance of the Auto OEM business continues to impress. And I'm just wondering, do you think you can maintain that going to 2014? And I'm just wondering how the new platform launch calendar looks for this year versus last year?

Nigel, I think we're in pretty good shape there for '14 and probably several quarters beyond that based on what we have visibility of right now.

Okay. And then I think, Michael, you mentioned 14 million shares done. Was that actually in the quarter or does that include what you did -- where you've done in January as well?

That was in the fourth quarter.

Okay. Can you talk about what you've done in January, just in general?

No. I mean, what I can tell you is that we have an active program here, and we're committed to repurchasing the 35 million shares. And we are slightly ahead of schedule at this point, like I said.

Okay. And I know you addressed the question on disc ops, and it sounds like there's 1 or 2 discrete surcharges of it. If we look at the underlying performance of the IPG business, did it grow EBITDA in 2013? And you remain confident that you're going to close this deal by mid-2014, indicating there should be an announcement fairly soon. I'm just wondering, can you just maybe provide sort of a bit of comment into the timing? And would you expect it to be exits or could there be something along the lines of the structure that we saw with the exits?

Yes, so here's what I'll say. I mean, we're targeting, to answer your last question first, a complete sale of the business and not a joint venture. We are very pleased with the auction process that we're running. The business, to your earlier question, is performing in line with, if not a little bit better than expectations. And so we're on track to complete a transaction, a closing of a transaction by the middle of this year. And so if you back into that, you would expect an announcement in the not-too-distant future.

Our next question comes from Ann Duignan of JPMorgan. Ann P. Duignan - JP Morgan Chase & Co, Research Division: Can you give us just a little bit more color on the Food Equipment business, where you saw the strength of the small businesses? Was it institutional? Was there any buying at the end of the year for tax reasons, do you think? Or just a little bit more color on what's going on there?

I think overall, what's driving the overall acceleration of growth is a much more active new product pipeline there that we've been working on for the last couple of years, and we've been commercializing steadily over the last 3 or 4 quarters. The overall environment here is, I would say, okay at best. So it's largely driven by, again, new product development in North America. And it's also had an effect or an impact in Europe, offset somewhat by the much more sluggish macro environment there. Ann P. Duignan - JP Morgan Chase & Co, Research Division: And is it the more products filling out the product breadth or is it products into new customers?

It would be much more about product enhancements. So innovation associated with water savings, energy savings, et cetera. Ann P. Duignan - JP Morgan Chase & Co, Research Division: Okay, that's helpful. And the same question on the construction side. Are any of your customers buying into year-end for tax reasons? Or we haven't found anyone yet buying for tax reasons.

Certainly not on the commercial side. Ann P. Duignan - JP Morgan Chase & Co, Research Division: Not on the commercial side, obviously. Okay, most of my other -- yes, go ahead. Sorry.

I was just going to say, we didn't see a lot of acceleration in terms of year-end buying. I'd say from a standpoint of Test & Measurement, that business strengthened up to the extent there was a bit of use it or lose it there in terms of capital budgets, we really can't say, but that would be the one area that would maybe be a bit subject to some year-end sort of buying patterns. But across the board, it was pretty minimal.

Our next question comes from Deane Dray of Citi.

On the residential side up 12%, can you give us a split between how much of that is new builds versus renovation, and how you expect resi overall to play out during the course of 2014?

Yes. I mean, that's all new build. So when we give you the -- it's really the housing number. So the renovation would really go into our renovation category, which is represented by the box stores largely for us. So the number you saw for '12 is really housing, single-family housing and some multi in there. But it basically -- that's a number that you would want to track along with housing starts.

And so your expectation for the balance of the year?

Well, for the -- you mean for '14?

Yes, sorry.

Yes, for '14, housing starts right now are running at about 1 million. I don't think we're seeing a projection that's dramatically higher than that for 2014. But I think you should expect us to probably, from a growth standpoint, to run at numbers that are consistent with what you're seeing right now, probably low double-digit on the housing side. I think the renovation on the commercial side -- commercial side in particular is too difficult to call right now in terms of what improvement we might see there.

Got it. And then I also wanted to ask about M&A. And we know the new look ITW is 1/3 of top line is coming from M&A on a go-forward basis. So maybe some observations, color on what the funnel looks like, the size of deals, pricing and so forth.

Well, I think what I would say for now is I would expect 2014 to look a lot like 2013 looked like. We had 3 really nice, very tight fit, highly strategic deals that we did. And I think the revenue contribution in Q4 was about 2% from those. And I think our -- my expectation for '14 would be that would look very similar to that. I would -- I'm not sure how to comment on the pricing environment other than to say...

Well, you walked away from deals because of pricing?

No, I think we're -- it's much more about sort of the strategic filter right now than it is the pricing. And so the things that we got really interested in, in 2013, we were able to close. And I would expect that we'd have the same ability to be successful in 2014.

Our next question comes from Steve Volkmann of Jefferies.

Just a couple of quick follow-ups. Any update on your price cost assumptions for 2014?

Yes. So we're still -- we're tracking. If you look at '13, we had about 40 basis points of favorable price cost. That's a difficult number to forecast. And while we're not seeing a lot of significant cost pressure at this point, so we're basically going with the 20 to 30 basis points for 2014.

Great. And then can I just ask about Test & Measurement and Electronics? The margin obviously was up nicely there. And I'm wondering if that's sort of mix related with more Test & Measurement or if it's more sort of enterprise initiatives or just any commentary there?

I mean, it's really a combination of all of the above, including the flow-through on the 9% organic growth in the Test & Measurement business. So really a combination of all of the above.

Our next question comes from Eli of Longbow Securities.

Just a follow-up on Steve's question. Can you talk a little bit about -- you see any effect from the strong dollar and what's going on in pricing across your markets? Is pricing sort of benign? Was there any areas of price improvement taking place?

So on the dollar-euro, our rate that we're using for this year on average is about -- at $1.34, consistent with last year. So we're not seeing a -- in our forecast, but that's kind of what we're planning for. Because we have manufacturing in the international markets that -- on cost associated with that, we don't see large swings in earnings per share in terms of changes to the euro-dollar rate. On the price side of things, what I'd say is that we've historically done a good job offsetting inflation with price. And we continue to see that. I think some of the highlights for the fourth quarter, if you look at our Welding business in particular, we were able to continue to see favorable price cost dynamics. So but really no change in terms of the pricing environment.

And just a quick follow-up. I mean, your 3 businesses -- the 3 businesses you highlighted was Automotive and Food Equipment, and Welding was flat. Are those 3 higher-margin businesses a goal in 2014 to sustain margins? Or is there still areas of improvement that can take place, given just a little bit of different kind of demand trends in '14 versus '13?

Well, we expect all of our operating segments -- operating margins in '14 to be better than '13.

Our next question comes from Andrew Kaplowitz of Barclays.

So Scott, your international welding business flipped pretty dramatically in terms of growth in the quarter. You mentioned the strength in Europe, but it really was a pretty big change. Was this sort of new product penetration something different that happened there? Because I think it went from like negative 11% to 4%, something like that?

Yes, our European welding business is largely centered on oil and gas. And so what really is going to drive most of the swing quarter-to-quarter is much more about projects and the timing of those projects. So...

Is that sustainable, though, Scott, going forward then?

Well, we kind of -- we remain very bullish on the oil and gas play on our welding business for the long haul. I think the -- and we expect our oil and gas component of our welding business to be a strong organic grower for at least the next 3 to 4 years out as far as we can see. I think whether you're going to see it consistently grow quarter-to-quarter in Europe, given that it's a relatively small business, I can't say. But overall, we expect the demand environment there to continue and improve. We're very active in that space with new product development, product innovation. And that will continue to help drive the overall growth rates there.

Okay, that's helpful. And maybe just stepping back, I think we all understand the need to be conservative when looking at organic growth for 2014. But maybe you can talk about the pieces of your forecast that you gave at the Analyst Day? If you look at 2% to 3% in North America, 1% and 2% in Europe, 4% to 6% in Asia Pacific and other, I guess what I see is Europe is maybe trending toward the higher end of expectation. You've had really strong growth in South America. Maybe you could talk about that and any risk you see, a slowdown in the emerging markets?

Well, I think the overall framework, and we've talked about this in New York in December, was our model is we're going to forecast based on demand rates that we're seeing now. And to the extent we saw some slight uptick in a couple of parts of the company in the fourth quarter is certainly something we'd rather have than not, but ultimately to overreact too much to some relatively short-term trends in an overall macro environment that's been pretty choppy for 8 quarters or more. I think we're on a wait-and-see mode. We've got a business plan setup where we're going to deliver between 18% and 24% earnings growth at the revenue forecast that we have right now. Could things be better next year? Sure. Could they be worse? They could, but I think we're trying to sort of walk down the path of reasonable expectations in a solid business plan where we can grow earnings in a significant way, regardless of the macro environment.

I think that's fair, Scott. But is it fair to say that Europe, at least, has been tracking better than the expectations or am I putting words in your mouth?

I think it's become firmer.

Yes, more stable.

Industrial production in Europe is still negative. I think the last equivalent of the PMI index in Europe is still running negative. So it's -- I think there's plenty of reason for wait-and-see.

Yes. I mean, we saw 2% organic growth here in Europe in the quarter. And our guidance for the year assumes 1% to 2%. So I think, again, we're right in line.

Our next question comes from Andy Casey of Wells Fargo.

I just want to make sure I'm getting this correct on the combined margin impact of anticipated BSS global procurement and restructuring. If I'm doing the math correctly on the restructuring, it seem like you incurred close to $140 million in 2013. I'm wondering, is any of that related to IPG or is that ongoing ops?

No, the correct number is $114 million. I think you said $140 million. So it's $114 million was our spend in -- or our investment, if you like, in 2013. And that excludes IPG. And our assumption for '14 right now is $100 million of restructuring. And we've laid that out as approximately $25 million a quarter.

Okay, great, Michael. And then if you take a little bit smaller depth than I was looking at, the $14 million decrease, does that mean we're emerging from the heavy lifting period related to setting the foundation for the enterprise strategy?

I wouldn't say that. I mean, I think we're 1.5 years into the restructuring, the BSS efforts. And we have at least another year to go here with some significant work to be done, including in places like Europe that can be a little bit more challenging. So I wouldn't say that it's getting easier from here.

Okay. And then there've been some questions around this next one. Could you give us the end of fourth quarter diluted share count?

430 million, I believe.

Okay. And then lastly...

Sorry, hang on, the 430 million is the basic number. So 440 million is the diluted number.

433 million.

433 million, sorry.

Okay, great. And then what sort of issues would cause you to change the repurchase pace for the balance of 2014 from what you actually realized in Q4?

Well, I mean, I think the pace is going to be dictated, to some extent, by the 3 things that I laid out, which is our ability to continue to generate strong free cash flow, which I think we had another good fourth quarter. That will be typically seasonality. We're going to be a little bit lower than that here in the first quarter. We are funding some of these repurchases with short-term debt. And so in the fourth year, that was predominantly through our commercial paper program. We've got some things coming up here in the first half of the year that we want to refinance at some very attractive rates. And so the timing around that needs to be aligned. And then I'd say the last piece here is really the transaction, the closing of the transaction for IPG, the proceeds of which will be, to some extent, used to buy back shares. And so I think those are the things that along would obviously, we continue to look at the kind of the cash on hand in North America, and therefore, what's available for repurchase. So those are kind of the 3 variables that would determine the timing.

Our next question comes from Mr. John Inch of Deutsche Bank.

Did you give a range of organic expectation in the first quarter? I think you said it was going to be comparable to the fourth quarter, right? So that's around 3%. Is there a range tied to that? You gave a range of 3% to 6% for -- in the press release. I'm just wondering what you think in terms of organic growth in the first quarter vis-à-vis range?

Yes. I mean, I think it will be similar, kind of the 2.5% to 3% range is what we're projecting right now, similar to what we did in the fourth quarter. The comps year-over-year are a little bit easier. We were actually down in the first quarter last year.

Well, actually, Michael, the comps are a lot easier. And I'm sorry, what's the 2.5% to 3%? Is that...

It's organic.

I'm asking -- what do you think? You gave a sales range for the first quarter of 3% to 6%. What do you -- is that consistent with an -- would that spread be the organic range?

No, that's the reported range. So that still has some of the acquisitions from '13.

So you're just making a point estimate for organic growth in the first quarter?

Well, I mean, I can tell you 2% to 4%. And so that would be midpoint of about 3%, which is what we did in the fourth quarter.

Okay, so 2% to 4%. So just kind of get to the heart of my question, like your organic growth for the year has only got a point of difference, right, 2% to 3%. Yet your first quarter, if you just think of the time value of risk, should be -- you clearly have visibility into the first part of January and the business trends in your company. Why would you have a 2-point spread in organic growth in the first quarter and only 1 point for the year? Isn't the year a little bit more harder to forecast around now than the first quarter?

John, I think we're splitting hairs here. I mean, I think we discussed a point earlier. We...

And you're free to do your own forecast.

Yes, yes, yes.

Okay. So I'm not disputing your methodology. I'm just trying to understand. Is there anything that's implicit in the way you've provided for first quarter that we're supposed to be recognizing either because of something specific to the compare, which is obviously very easy, or some other aspect, just to make sure that we've got our Is and Ts dotted and crossed as we roll into...

We've built an organic forecast that is predicated on same number of days for the quarter.

And we are projecting Q4 daily demand rates into Q1.

Into Q1, with an easier comp gives us a number of x is then that range that Michael talked about.

Okay. So when you gave the 2% to 3% for the year, if I go back to the December outlook meeting, I think if I'm not mistaken, pretty much the 2% to 3% was predicated, considering you have pretty easy compares in '14 on sort of no business change or cadence sequentially. Yet it does appear the quarter has actually ended better sort of on an organic note. So am I still reading that right? So in other words, equal...

Yes, I think, John, we're back to where we were before, which is if you really want to bite on these Q4 trends as strong momentum building trends, you could absolutely have a more optimistic view of '14. In our view, it's a little early for that. I think we'll talk to you at the end of first quarter. And if we see 2 quarters in a row, we're going to be much more comfortable sort of ramping as we go forward. But given the environment over the last 8 quarters, and like Michael said, some of the things we're seeing in parts of the business where we're still very sluggish in welding, still very sluggish in a number of the capital goods sectors. I think we're comfortable with where we sit.

That's fine, Scott. I just want to make sure the framework's consistent, and there's nothing else that's been adjusted in some manner that still gets you to the same outlook. But that's great. I appreciate it.

Our next question comes from Mig Dobre of Robert W. Baird & Co. Mircea Dobre - Robert W. Baird & Co. Incorporated, Research Division: A lot has been covered, but if I go back to the Welding segment, maybe you can provide us a little bit of color on consumables versus equipment demand and how you're thinking about that maybe going forward and the potential impact on incremental margin on the segment in '14?

Well, I guess where I would start is where we're really seeing the drag. The demand drag right now is really in the heavier equipment sector, sort of take a lot of what you're hearing about from the mining exposure in other heavy equipment industries. And we're a major supplier in that space. And that's really been the headwind. We've had reasonably good performance in the commercial end of the business from the standpoint of organic growth. So it's not really a consumable versus equipment mix issue. It's really more of an end market exposure issue. And our equipment business with improved results in this heavy equipment space, it's -- the overall business is certainly highly profitable for us. But that segment or that sector in particular is a very strong one for us. So if we get some reasonable recoveries and go through '14 and start to see some growth again in this heavy equipment space, it should be favorable to the overall margin profile of the business. Mircea Dobre - Robert W. Baird & Co. Incorporated, Research Division: I see. But you haven't seen maybe, I don't know, wishful thinking on my part, an uptick in consumables or anything like that as of yet?

Not yet. Mircea Dobre - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then my last question is going back to the Construction segment. It was a good color around North America, but I'm wondering can you talk a little bit about what you're seeing outside like EMEA and Australia, specifically?

Yes, I think Australia has actually performed pretty well. If anything, it was a slight upside in terms of our own projections in Q4 up, I think, 4% or so. So some reasonably good performance in Australia. Europe remains its luck. But as we've talked before, we've got a lot of work on the cost structure in Europe that's in front of us. So not super worried about the demand side in Europe right now. But I think Australia, we actually were modestly surprised on the upside in terms of the overall demand. Mircea Dobre - Robert W. Baird & Co. Incorporated, Research Division: Sure. So it's not just the easy comps issue you're saying? It's sort of more than that?

Yes, right.

Our next question comes from Shivangi Tipnis of Global Hunter.

Most of it is already covered, but I just have one question on the margin. So you're expecting about 19% for 2014. So that's about 120% -- sorry, it's about 120 bps improvement. The guidance on your long-term goal was 20%-plus for the margin and ROIC, which is a quite impressive improvement. Should we expect this 20% market growth in early 2015 or so or maybe like it would still be about 2016, 2017?

Yes, I mean, I think we're -- if I understood your question correctly, we're not giving guidance for '15 today. I mean, we're -- we've said that -- you're right that it's about 120 basis points of margin improvement and assumed in the guidance for 2014. And that puts us right on track with the targets that we laid out 1.5 years or 2 years ago almost at the -- for the 2012, 2017 strategy. And so we would say we're right on track to achieve the 20%-plus operating margins.

Okay, okay, sounds good. And then just one last question on the organic mix with China. So it's about -- it looks like about 43% of your international revenue were organic. So about -- that's about like 3% of the 7% sales growth. So -- and much of it was from South Africa -- or South America and China. So do you expect this pattern to continue in 2014 or we should expect like the change in a mix due to M&A or maybe the other thing would be like China's fragmented GDP growth, the inflation pressure than the recent PMI, which was below 50. Does that concern you for China's organic 2014 growth?

No. No, our China business is driven mostly by our Auto OEM business, which is then, as John commented earlier, a very strong performer. And we expect that to continue for a while into the future.

Our last question comes from Mr. David Raso of ISI Group.

Yes, I'll be quick. Two of the deltas for '14 versus '13 help organic. You hope to be having a lot easier comps and maybe some growth in Electronics and then the absence of the PLS drag that you had in Polymers this year. Can you quantify those? Like for example, what are you forecasting Electronics to be in '14 after being down 10% to 15% drag in '13? And again, what's the quantification on a PLS drag that you had in '13 that I assume goes away in '14?

Yes, so we're really expecting an Electronics business in '14 that's largely flat with '13. So not expecting significant improvement. I think on the PLS side, I don't think we've broken that out historically by business. But I think we would say in the Polymers & Fluids business that the majority of that activity is behind us at this point. And so we'd expect to see a slightly better '14 than '13.

Can you help us a little bit on the size of the PLS drag in '13?

Not really, no, no.

Thanks, everyone, for joining us today. We look forward to talking to you again, and stay warm.

Thank you, sir. So that concludes today's conference call. Thank you all for participating. You may now disconnect.