Welcome to Honeywell's Third Quarter 2016 Earnings Conference Call. [Operator Instructions]. I would now like to introduce your host for today's conference, Mark Macaluso, Vice President of Investor Relations.

Good morning and welcome to Honeywell's third quarter 2016 earnings conference call. With me here today are Chairman and CEO Dave Cote and Senior Vice President and Chief Financial Officer Tom Szlosek. This call and webcast, including any non-GAAP reconciliations, are available on our website at www.Honeywell.com/investor. Note that elements of this 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 ask that you interpret them in that light. We identify the principle risks and uncertainties that affect our performance on our form 10-K and other SEC filings. This morning we will review our financial results for the third quarter and share with you our guidance for the fourth quarter and full year of 2016. And as always, we will leave time for your questions at the end. With that, I'll turn the call over to Dave.

Good morning, everyone. As we previewed during our update call two weeks ago for the third quarter, we reported earnings per share of $1.60 or $1.67, excluding the $0.07 we deployed to restructuring. We expect to return to double-digit EPS growth in the fourth quarter which yields our full-year EPS growth target of 8% to 9% that we communicated on October 7. Q3 was a quarter of important changes in many areas that positioned the Company for better performance next year. These include the split of the former automation and controls solutions segment, ACS; the acquisition of Intelligrated; the sale of our government services business, HTSI; and the spin of resins and chemicals. Combined with nearly $250 million in restructuring actions, these changes are lasting improvements to the portfolio that yield benefits beginning in the fourth quarter and into 2017 when we expect year-over-year benefits exceeding $175 million from the restructuring actions alone. In the fourth quarter we'll lap the impact of our U.S. Postal Service project and productivity solutions, the UOP return to growth and expect a continued ramp of our Solstice low global warming product sales. Darius and Tom will provide more details about 2017 during our annual outlook call in December, but we have a favorable setup. The fourth quarter momentum continues, our long cycle businesses are improving and our inflections start to kick in. It remains a slow-growth environment, but we've continued to invest heavily in the business, in capital projects, research and development, hiring salespeople, winning content on new aerospace platforms, improving our growth profile through strategic M&A and divestitures and executing on restructuring projects to improve our fixed cost position. With all the work we've done to improve the growth profile our continued emphasis on the Honeywell operating system and our performance culture, we're well-positioned for long term growth and are committed to creating long term shareowner value. On October 7, we communicated all the changes or moving parts that occurred in the quarter. In our attempt to lend transparency to all the moving parts, we lost sight of the importance of conveying our confidence in our future, the fourth quarter, 2017 and beyond. For that miscommunication I take full responsibility. Last week we released a number of charts explaining why we were confident in our future. We've included several of those charts in this morning's package because we wanted to explain a bit behind each of them. We've continued to invest heavily, seed planting if you will and the returns will be there. We've outperformed historically and will continue to do so. We largely discussed third quarter a couple weeks ago, so much of today's presentation focuses on the future and why we think Honeywell is an exciting place for you to be. So with that, I will turn it over to Tom.

Good morning. I'm now on slide 3 with a quick recap of our third quarter results. Reported sales of $9.8 billion increased 2%, primarily reflecting the impact of acquisitions. On a core organic basis sales were down 3%. Our growth was led by process solutions, transportation systems and home and building technologies, but was more than offset by softness in business jets, defense and space, productivity solutions and UOP. The softness in UOP has moderated throughout the year to the extent that in the fourth quarter we expect high single-digit sales growth in that business. The decline in segment margins in the quarter reflects the impact of OEM incentives, M&A integration costs and the lower volumes partially offset by benefits from previously funded restructuring. Earnings per share were up 4% to $1.67, excluding the restructuring charge deployed from the retroactive portion of the stock compensation accounting change. The individual restructuring projects in the third quarter have an average payback of about two years and provide attractive accretion in both 2017 and 2018. Free cash flow in the quarter was $1.3 billion. That's 103% conversion on net income. We continued to put substantial capital to work for our shareowners, our CapEx and reinvestment ratio was 150% this quarter and we bought back approximately $1.9 billion worth of Honeywell shares through the end of the third quarter. Let me move on to slide 4 to discuss the segment performance. In aero, the sales decline is consistent with what we previewed. The negative 6% headline number reflects the softness we described in our business jet OEM revenues and in defense and space, but also to a larger degree the increase in OEM incentives. I'll discuss the incentives more later, but in the third quarter year-over-year increase in OEM incentives drove 4% of the…

So to summarize, we've made the right investments. We've taken the right portfolio actions and we have industry-leading products and services in the right markets. The future will be quite good for us. We continue to invest heavily to drive positions on winning platforms in aerospace and research and development to bring new breakthrough products and technologies to market, in salespeople and repositioning and in capacity expansions and highly profitable businesses, including UOP and fluorine products. We'll see the benefits of this next year, 2018 and many years to come. You'll hear Darius and Tom talk a lot more about this in the outlook call that we'll have in mid-December. With that, let me turn it over to Mark for Q&A.

[Operator Instructions]. We'll take our first question from Scott Davis with Barclays.

You've had a few weeks now, we've had three weeks in October and UOP is a pretty lumpy business. I mean your confidence seems to be really high that comes back in 4Q. Is that based on what you've actually started to see in October or just a function of the backlogs there so it should start to get released?

This is mostly orders that are already there and that the guys have actually been doing a fair amount of the production already to be able to ship into the fourth quarter. So we have a high level of confidence on UOP. Tom, anything you want to add?

No, the visibility to the install base is pretty good. Much of the business is reload activity and we're tied at the hip with the customers.

Yes, no I get it. Let me ask it a different way. I've covered you long enough to know that this stuff gets -- something pushed from December 20 to January 3rd, it wouldn't surprise me in UOP because that's just the nature of the business. So I know you've got the orders, but your confidence in actually seeing it in 4Q versus 1Q 2017 based on what you've seen in October. Has that changed? That's what I'm trying to ask. I didn't ask it very well.

No.

No meaning, confidence is better or--

No, no, no. We're in the same place we were. We feel good about it. I suppose there's always that chance that it can happen, but the lumpiness is not so much moving from that we missed a shipment as it is that when the shipments are going to occur. They're already planned. They've already got the orders. They're already producing. We don't see any issues there.

Okay. I was just trying to get my arms around that. It's tough for us to model it. My only other question is the PMT capacity investments you've made, when you roll that stuff out and you start producing in 2017, do you make a margin on that right away or do you have to hit a certain level of capacity utilization before you really start to make a margin in that?

There's typical startup costs, but it's a disciplined startup process. I mean, of course in the first few months you're not running at full optimization, but it isn't very long after that you do achieve the impacts of the volume that are coming through.

Okay. So you're not losing money out of the gate, per se. You can actually start making money day one, but obviously that margin ramps up when your utilization goes higher.

That's the expectation, yep.

That's true. Yes, it's not a drag from the beginning.

Okay. I was just trying to get my arms around it. Thank you, I do appreciate it.

Thanks Scott.

And we'll go next to Steve Tusa with JPMorgan.

Funny we're talking about slippage on this call. You have done a pretty good job over time of calling annual guidance over the last ten years, so just an interesting question. But when it comes to aerospace, you're exiting the year at a pretty negative trend line on organic. I mean, just to think about the comps next year that gives you confidence that you can hold aero close to the flat line organic. I'm just kind of thinking about the direction of that business definitely suggests that it should be down next year organically, just kind of the early read on that.

Well, let me put this into context of total 2017, because I'm assuming that question will come up also. We're going to plan sales conservatively based on what we're seeing this quarter and that will include aero being on the more negative side when we think about business jets and commercial helicopters. So we want to make sure that we're consistent with what we're seeing and that we're not Pollyannaish in any way with our sales planning. HTSI and RNC will also be coming -- the government services business and the resins and chemicals business will also be coming out, so we'll have had like three quarters of both businesses being in in 2016, they'll be out in 2017. We also have a number of pluses, so we'll have the impact of restructuring, the aero incentives begins to decline. We've got the impact of all the acquisitions that we did and you understand the first year hit we normally take from there. Interest expense should be a positive. UOP, SPS, Solstice, those should all be positives. And we're going to put all this together and have a much more in-depth discussion in December after we've had a chance to go through all the AOP planning and Darius and Tom are going to take the lead on that. And that's why we feel comfortable in saying that even in this slower macro and we think more difficult aero side on biz jets and commercial helos in particular, that we feel comfortable with the statements that we've made about 2017. Hopefully that helps.

No, that helps a lot and that's still embedded in the -- and thanks for the follow up by the way, allowing me to ask a follow up. And you think that's embedded in the low single-digit guidance that you're giving? You can still grow the Company with aero down?

Yes.

Okay. And then one last question for you. When it comes to buyback and capital allocation decisions, who's steering the ship right now? I mean is that collaborative with Darius? Is that, who's making the call on perhaps doing the bigger buyback? The stock obviously took a hit, your presentation on Mad Money suggested it was overdone, so who's making the call on the buyback at this stage?

Well, consistent with our policy over the last 15 years, I try to make all of these decisions with no input from anybody. No, of course it's collaborative. We make no decisions here without trying to get input from everybody and making sure that everybody weighs in. So yes, as you might imagine we have a lot of discussion about it and from time to time we let Darius out of that closet that I talked about in the last call so we get his input on things. It's obviously collaborative. Darius is involved. Tom is. We discuss it with the Board. It's not a surprise to anyone -- well, except maybe externally when we do announce it, because we want to be thoughtful in what we do. And the way we've always tried to run the Company, not just on buybacks but any decision, is that we want all the input, all the opinions conflicting, agreeing, whatever they are, so that at the end of the day, we make the best decisions. I've always felt like we get measured on the quality of our decisions, not on whether somebody was right or wrong from the beginning and that's how we handle the buyback decisions also.

I was just going to add one element to that, Steve. I mean we're obviously subject to the blackout periods in trading of our stock, so that comes into play from a timing perspective. But as we've referenced in the past, we do have some programmed 10B51 types of plans in place that do a modest amount of activity based on certain levels of trading in the stock.

Yes, that's fine. You don't need to make it some big splashy headline. Thanks.

And we'll go next to Nigel Coe with Morgan Stanley.

Good morning. I do want to echo the comments from Steve. It's amazing how quickly a decade of execution gets lost in noise and the transparency provided around this second half mess I think is well appreciated. So I just wanted to say that. So aerospace the near term outlook is pretty ugly. Biz jet we all know how bad that is right now. When do you see the crossover point between biz jet moderating, the decline moderating and then the ATROE starting to pick up? Is that a second half 2017 event or do you think it's earlier than that?

The ATR side has actually performed fine and we're going to continue to see things like A350 pick up, so that's going to be a benefit to us. The biz jet side and commercial helos should I would suspect are going to continue to be a market drag for us next year. When we put all that together, aerospace is still going to be an important performer for us overall. You saw a fair amount of the restructuring also occur there and we think it's going to be a good performer for us in the long term. But 2017 is still going to be little bit tougher overall, I think when you put all that together.

Is it too early to have confidence in growth or is it too touch and go to make that call?

Are you talking about growth in the business overall?

For 2017, yes.

For 2017 we want to go through the AOP planning to make sure that we understand all the pieces, but at this point I think we're probably going to plan this more conservatively than less. So I'd say overall probably lower sales next year than this year will be the way that we'll plan for it. We really haven't gone through all our planning process yet.

And then as a follow on, the $1 billion forecast for Solstice in 2020 is obviously a big number. Can you just remind us where is the backlog right now for Solstice? What is the current revenue base and how do you think the Rwanda agreement, how do you think that expands the scope for Solstice?

Yes, in rough order of magnitude we're probably a $400 million or so business currently and that continues to grow nicely as we've said. I mean it's more right now mobile air conditioning which is a brand new segment for us, but as we continue to progress through it, we get into buildings and blowing agents and other things. So it becomes a broader application for us. As far as the new regulation, it remains to be seen how that agreement will impact us, but our forecasts are not dependent upon anything that happened this past week. We do see it as potential opportunity, but we need to sort through and fully understand those impacts close to 2020.

I would say though, Nigel, it's clearly a good development and world's focus on low global warming potential products makes a difference. If you take a look at the HFCs that our product replaces, HFCs are up over 1,300 times worse than a single-molecule CO2. If you take a look at HFOs, our invention, it's actually 0.8 molecules of CO2, so like 1,500 times better than what you would see from HFCs. So it's a significant new product. There is a recognition that HFCs do have a big impact, negative impact on global warming potential and Solstice, our HFO is just a tremendous solution for it. And the faster it gets adapted, the more quickly governments will actually be working to stem the tide of global warming. So we think it's going to be quite important.

And we'll take our next question from Andrew Obin with Bank of America Merrill Lynch.

I missed the preview call because I assumed nothing bad was going to happen. So I was out of the office. So I'm going to have a follow up question to that. Just on these incremental aero incentives, my understanding is that these are in fact tied to faster shipments to customers than previously agreed. And if that's the case, what's the impact on revenue and profit for aero in 2017 from taking higher incentives in 2016?

So Andrew let me clarify that. The incentives become due and are recorded and recognized in our financials when the milestones that govern that incentive are reached. The milestones are generally development or performance-related milestones. They vary by customer. So for example, if you hit the first test flight or entry into service or other types of engineering milestones, those could trigger an incentive being owed and due and it's recognized in our financials. When you look at 2016, our P&L has been significantly burdened by, to the tune of $0.25 as I said earlier of EPS, by incremental OEM incentives. Next year this is the peak year and it starts to tail off next year. We get a modest tailwind and then it really accelerates into 2018 and 2019 in terms of the tail wind, yes.

No, I just want to understand accounting relationship. Do incentives, because my understanding is that incentives, higher incentives do rely on hitting milestones earlier as you said does translate ultimately into faster shipments to the customers. Is that the right way of thinking about it? Is there a connection?

It's not a direct connection because, I mean the incentives for us are largely based on the development process and bringing the aircraft to production. And so while you might incrementally get to faster production, you still have to have orders, you still have to have selling and those cycle times generally are unaffected by -- or incentives are generally unaffected by those activities.

And just a follow-up question.

Andrew, I should add these are good investments for us to be making. We expense everything as incurred. We don't put it on the balance sheet, so we take our hits as they're occurring, unlike others who put it on the balance sheet and you see it over time. So for us while it's painful in the short term, it sure as heck helps where you're going in the long term. And these were decisions that we made several years ago to make sure that we were on the right platforms with the right kinds of products and services going forward. So this is pretty smart money. It's painful in the short term, but it's smart money and positions us extremely well for the future.

And just a follow-up question on connection between global airline passenger traffic and your commercial aviation aftermarket. You were up one. My understanding is that global passenger traffic was up mid-single digits. Is there a reason for the disconnect? Is there destocking deferred maintenance or anything else driving the difference? Thank you.

Well, this is one that's always kind of interesting when you look at aftermarket versus flight hours, because while flight hours develop pretty consistently over time and they tend to go up 3% or 4% a year; even in a bad time, they'll go down for a single year and then pop back up again. So that trend is always relatively smooth. The aftermarket stream associated with it, though, bounces around in sometimes crazy directions. If you recall the recession, for example, where flight hours were down 3% or 4%, aftermarket was down something like 20% or 30% in that same year. So the long term trend is generally consistent with what those flight hours are. In the short term it can bounce around quite a bit, so being able to explain the difference between say 3% and 1% is easily within the realm of typical variability.

The other thing I'd add to that Andrew, is that you've got a combination of both air transport and business jets in that 1%. We talked a little bit about the slowdown on the business jet RNO activity. I was going through the slides and that has contributed to this.

And we'll take our next question from Steven Winoker from Bernstein.

I just want to first follow up the earlier comments on UOP and fourth quarter confidence. The question specifically, if you look at the incremental, you've got this 20% growth and whatnot orders on the catalyst side, where are the incremental catalyst volumes going to? If you think about refining versus pet cam for that part of the growth, is there any impact at all from first wave Gulf Coast crackers that have been delayed?

Wow, that's a level of specificity, Steve, I'd have to say we'll have to get back to you on that one.

Okay. Just so you know in advance, this is an investor discussion based on just concerns about that visibility even in those end markets for other companies, so that's where that comes from. That would be helpful. The second one, Dave, you'll love this, I think. Just hope you're sitting on this one. It's like a bad relationship where one bad thing happens and all of a sudden everything else comets comes out, right. So in a lot of investor discussions I've been certainly defending Honeywell's growth in aerospace and margins versus the margins in aerospace over time. The assertion is that Honeywell somehow has been trading off growth for margin expansion when you look at specific platform wins. And as you say in slide 13, large wins on the right platforms to accelerate growth. I'd like to give you an opportunity to maybe address that directly to a lot of investors out there who are concerned about this from a higher level perspective.

Yes, it's one I always kind of wonder so what date are they looking at when it comes to -- I assume this is the market share question, Steve?

Mostly, yes.

Yes, because if you look at the dater, it actually looks very good for us. And to your point, we're selective on the platforms that we pick. I've always been shocked at the investor reception when one of our competitors says that they've won 32 of the last 25 competitions and when you say, geez, now they're winning over 100% of all the competitions out there, how is that possible? And I think they're getting a little carried away with what do they count and what do they not count. If you take a look at our avionics performance, it's quite good and there's future stuff that we'll end up talking about at some point. If you take a look at the concessions that we're paying right now, for example, that you would look at that and say, oh, that yielded a bunch of good platforms also. When you look at the amount of R&D that we spend in aerospace it's kind of -- I don't know what the heck they're pointing to when they say it. It's one thing to be able to say some of this stuff. It's a little different when you actually have to back it up. I just have a tough time seeing it. I don't know where they're getting it from.

And then finally on the capital deployment front, you have repeated the kind of window or envelope that you have to work with over a few years of something in the order of $25 billion. There's always a big difference between what you could spend and what you will spend and when and how obviously. So as you look at the market now and you look at the discussions you're having with huge pipeline that Ann and company and everybody has developed, what's your level of optimism again and the kind of types of M&A activity that investors should be prepared for?

Well, it's always tough to predict, as we've said before and we're going to continue to do both the divestitures and acquisitions in a way that causes us to improve the overall growth profile of the company. The problem of course is you can't predict them. You can't say it's $2 billion a year, $5 billion a year. It's going to be 0 one year, 6 another. You just don't know. So we have to take our opportunities as they arise and we'll continue to do that. We do have a good balance sheet, like having that. We think that gives us the opportunity to be smart when it comes time to doing a deal or when it comes time to having the capability to repurchase and we'll continue to be opportunistic on both.

And I guess maybe just one last follow up there. In terms of software solutions stuff versus consolidating products, is everything on the table or directing more one way?

Are you saying from an acquisition perspective, Steve?

Yes.

Yes, well the nice thing about having so many opportunities and so many places for us to go, all the stuff you talked about is interesting, whether it's technology, software, stuff that does a better job of connecting the digital physical world. So there are lot of places for us to run here. It's really a question of what's available and is the price right. We're still always going to be very conscience that price makes a difference. If you pay for a strategy because the strategy is right, what ends up happening is the seller is the one who made all the money on the strategy, not you. We're going to continue to be thoughtful about how do we do that.

And we'll go next to Howard Rubel with Jefferies.

I'm not going to ask an aerospace question, I think I know that market pretty well. Instead I'd like to--

Wow, I was prepared, Howard. I was prepared for that and for someday for them to actually pronounce your last name correctly.

Well, you're taking the words out of my mouth, but I'm going to try on restructuring for a moment and because you talk about it as being a permanent change to the way in which you're going to be able to compete and run the business. Can you give us some of the nuts and bolts behind this? Because it's a very large number and probably is very meaningful to several of the businesses.

Yes, well, you can start Howard, with aerospace. You know that over the course of the year because of the volumes as well as driving HOS, we've deployed a fair amount of restructuring to that business and a lot of that is pretty quick turnaround kinds of paybacks. When we did the desegregation of ACS we also went through a significant management spans and layers exercise, so what we try to do is limit and reduce the number of layers that we have from the top boss down to the lowest level person in the organization. We've also tried to increase the span of control for each of our managers. That also took up a bunch of the capacity that we spent in the third quarter. And I'd say thirdly, in our supply chain we continue to have lots of opportunities, whether it's continued integration of acquisitions that we've done or just addressing legacy sites. We've found opportunities and still have more ahead of us to invest in restructuring and attractive payback projects. So it's a combination of the reorganization that we've done as well as continual addressing of our ISC, our supply chain. And then the third thing I'd say is the acquisitions that we've done to achieve the cost synergies that we talk about, you do have to apply restructuring. Again, those do deliver anywhere between 6% and 8% percent of cost synergies on the acquisition. A bunch of that comes from just leveraging our sourcing agreements. But some of it is from restructuring as well. And so those are the three principal areas and as a result you're seeing that 2017 tailwind from the pool of funded projects that we have, as I said.

And then the follow-up questions on software, as you are able to transition away from selling a product but instead selling upgrades and I'll call it enhancements or increased applications, can you, Dave, provide us with some -- I mean to some degree that provides some substantial margin headwind or opportunity rather or tailwind rather, margin and tailwind going forward. Could you provide some context of how you've been able to see that and what I'd call give us some hard examples? Because it could be quite compelling.

I'm sorry, Howard, I'm not sure I followed that one. Hard examples of what exactly?

For example, in avionics instead of having to sell a box you sell a software upgrade. So the software costs you a minimal amount of money and yet it enhances the value of the aircraft.

I understand and yes you're correct and of course we expense all our R&D as we go along. We don't put any of that on the balance sheet either. So we take the hits for the R&D which can be substantial if you're trying to develop software, but once you do and you start selling the software packages and the upgrades, so whether it's weather radar or a runway incursion or excursion, possibilities, the JetWave. As you start to get into that it is substantial. The margin rates are significantly better.

That applies not just to aero though, it applies I would think to elements of home and building or process control and I was just hoping maybe you can provide us with a sense of where you are today and where you might be in three to five years in terms of just the intensity of the business change?

I wouldn't put any numbers on it at this point, but your concept is absolutely correct. That is definitely the -- let's say the direction of the Company and it's why we focused as much as we do on software and I think puts us in position for a very good future for the entire Company. We've got a bigger advantage here than anybody else with almost half of our engineers focused on software today. It puts us in a much better position.

And we'll go next to Jeffrey Sprague with Vertical Research Partners.

Just want to get my head around restructuring for 2017, not benefits of what you've already accomplished, but new actions. I think on the slide if I interpret it correctly, you're saying the tax rate benefit from the share accounting change will be restructured away. I'm wondering if we should expect the same for any pension benefits that flow through on service costs and are those the two main toggles that would actually define what your restructuring would be next year or is there some other expected danger, other things? Anything you can frame there would be helpful.

Yes, the way I would think about it, Jeff, is you probably noticed that over a long period of time we do a lot of restructuring. If we've got some kind of unusual gain, we usually use it to restructure. We take a lot through operations generally every quarter. It's one of those things where we want to constantly be investing. We're not going to run out of ideas. I wouldn't want to go into too much detail until we've had a chance to go through all our AOP planning, but I would be surprised if next year we didn't also have additional restructuring ideas as we went along and that we'll find a way to fund them.

It's meaningfully not lower number than it was in 2016?

Well, in 2016 of course we had a big boost as we figured out how to do the additional restructuring in the third quarter. I wouldn't anticipate that we'd do something that big again next year, but you never know. I don't want to -- as you know, I never say never on any of this stuff, but the whole ideas of how do you just constantly have a good pipeline of ideas and find a way to fund the really good ones so that you do the seed planting for the future, that's something we're going to continue doing.

And just back to the OEM incentives maybe one more time, obviously the accounting is very conservative. Just wonder if you could give us a little thought though on the return metrics as you think about making the investments. Obviously the ultimate success or failure of the investment is going to depend on the commercial success of the airplane and units sold and all that, but what kind of return thresholds do you use when you think about these investments? And what kind of cushion versus weighted average cost of capital or whatever metric you use to kind of decide if you pull the trigger on this sort of stuff?

Yes, I guess there's a couple of things that we end up looking at. I won't put a specific number on the return because that's -- I just don't think that's a good thing to have public out there. But this has to be a high return project, the same sort of thing that we look at for any internal investment because that's what it is. And that's why we pay so much attention to what platform is it and what do we really think is going to happen. So we don't just take an external look or the customers look at what do they think it's going to be, but we really go through this ourselves to say what do we really think is possible here and how do we make sure that this is going to generate a good return for the Company. Our guys do a pretty good job of this so that we pick the right platforms. And when you see the concessions that we're paying, it's been so that we could do that. So these are going to be high return very good IRR projects and platforms that we're on. We're pretty confident of that based on what we've done and what we see.

Jeff, the way I think of it is we have a very disciplined process when it comes to considering whether we compete for a new platform that's a potential opportunity for us. It's as disciplined as an M&A process, so we consider all of the investments. These incentives are one aspect of that. I mean there's a lot of engineering time and project management time that also goes into the outflows or the investments that you're making. And then of course you consider all the future revenues and the models and so forth. It's as disciplined as M&A. And as Dave said, we have internal returns that we look to as the hurdles. We'll go ahead with the ones that do meet those attractive rates.

And for what it's worth, Jeff, we're very conscious of the time value of money.

And we'll go next to Joe Ritchie with Goldman Sachs.

So my first question is on slide 7, when you take a look at your margin bridge for next year and you see all the headwinds that are basically going away, it's about 150 basis points. You're doing a bunch of restructuring this year, you think growth is going to get better next year and yet where the planning for next year is 45 to 75 basis points it seems really conservative. What am I missing here?

I would say we've done our -- we think we've provided a lot of color commentary on 2017 at this point, more than we normally ever would. And I would just say stay tuned for the December outlook call. We'll go through a lot more detail then with Darius and Tom to be able to explain what will we see and why. And we're going to be very conscious of having gotten burned on the macro environment this year and as conservative as I thought we were being in the beginning we weren't conservative enough. So we're going to want to make sure that as we pull together a plan for 2017 that it's one that never ends up with the kind of snail surprise that we ended up taking this year.

That's fair, Dave and definitely good to be conservative into next year. Maybe my one follow up is really just on the M&A that you've done. Tom, I think you'd mentioned on the prior call that the growth was running at about high single digits and I think the accretion was kind of coming in towards the higher end of your range. I'm just wondering how much of the deal-related costs, the inventory step up, how much of those costs go away next year? And then where -- are we still running at the same kind of growth and EPS rates for this year?

Yes, well, first if you look at the -- I mean the deals that we've integrated this year, most of them were closed in the fourth quarter or the first quarter. And yes, you had a lot of startup costs in particularly the first three quarters of this year. Intelligrated which we closed in late August, will add to those one-time startups. But net/net when you consider amortization and inventory accounting and the other things, the year-over-year impact will be favorable on those deals. But the more important thing is that the operations and the cost synergies that we get typically start to ramp in the second half of the first year into the second year. And that's where you start to see the margin rate improvement. So we'll go through the in details in December, but this should be a nice contributor to what we had for 2017.

And we'll take our last question from Christopher Glynn with Oppenheimer.

I'll get my two up front. Dave, had a question on your sales employee census data up 10%, didn't look like it grew much in 2015 despite higher M&A. The increase looks like a big organic component. Just wondering where the raw head count is and where it's especially ROI sensitive. And then my second question would be probably a follow on to Joe's, if you'd quantify what the purchase accounting burden is in 2016 in terms of EPS?

Yes, on the first one on salespeople, a lot of those have been deployed to what we refer to as high growth regions. And the reason for highlighting it, of course, is that when you hire salespeople there's training and familiarization that has to go on. So they're not immediately productive. It's the sort of thing that shows up in the future. I won't -- difficult to quantify at this point what that's worth to us say next year and the year after. But it's another investment that -- where we take the expense up front, because of course you've got to pay them while the sales numbers they deliver aren't quite enough to pay for themselves in those first years. So this is a good thing for us to be doing, a good way for us to expand our high growth region presence, but it's the sort of thing that's another investment for the future for us. On the restructuring side, I don't -- I know we've shared some data, not restructuring, the --

Purchase accounting.

Purchase accounting, yes. Tom, I don't know that I want to go too much more than what we've already disclosed here.

Yes, I think we keep it at an overall contribution, for 2016 M&A is -- we guided at $0.05 to $0.15 of overall contribution to EPS. And that is an all in number that takes into account all of those one-time costs as well as the pure operations. In 2017 you can expect that to be a bigger number as a result of a lot of those costs going away. You can kind of calibrate it when we provide that in December.

That concludes today's question-and answer-session. Mr. Cote, at this time I will turn the conference back to you for any additional or closing remarks.

Yes, thank you. On October 7 we went out of our way to be transparent. With our focus on transparency, I lost sight of how important it was to also convey our confidence in the future. Hopefully our confidence in that future came across today. We look forward to sharing more with you in our December outlook call. Thank you.

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