Eaton Corp PLC ETN
Q1 2013 Earnings Call Transcript
Transcript Call Date 04/29/2013

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Eaton Corporation First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode and later, we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, today's conference is being recorded.

I'd now like to turn the conference over to your host, Mr. Don Bullock. Please go ahead.

Donald H. Bullock Jr. - SVP-Communications: Good morning. I'm Don Bullock, Senior Vice President of Investor Relations. Welcome to Eaton's first quarter 2013 earnings conference call. Joining me this morning are Sandy Cutler, Chairman and CEO; and Rick Fearon, Vice Chairman and CFO.

As has been our practice, we'll begin today's call with comments from Sandy, followed by a question-and-answer session.

Before turning it over to Sandy, I'd like to cover a couple of items; first, I'd take a moment to draw your attention to Page 2 of the presentation for today's call. Our presentation today contains certain forward-looking statements. Comments included on Page 2 in the presentation outlines factors that could cause the actual results to differ from those statements. These factors are also noted in today's press release and the related Form 8-K. In addition, this presentation also includes certain non-GAAP measures as defined by the SEC. A reconciliation of those measures to the most directly comparable GAAP equivalent is provided in the Investor Relations section of our website at www.eaton.com.

With that, I will turn it over to Sandy.

Alexander M. Cutler - Chairman and CEO: Great. Thanks, Don, and thank you all for joining us this morning. (indiscernible) chance to cover with you our achievements really of the first quarter and maybe just a couple of comments to proceed talking through the presentation, which I hope you've all had a chance to download this morning. I'll be working off through those slides.

Now, if you will turn to Slide number 3, this is labeled highlights of our first quarter results. Couple of comments; first this is the first full quarter results reflecting our acquisition of Cooper Industries and as such you will note that we are reporting in our new segments that we had outlined to you in our last earnings call. You will also note for those who are used to following our earnings call that we are not providing any quarterly market growth or outgrowth information on a quarterly basis. The process of both the acquisition and (get) all this information has just made that very difficult for us to do at this time.

So, with that let me start off and just hit these couple of points on this first chart, again I am on Chart number 3, operating earnings per share of $0.84 obviously compares very favorably above the top end of the guidance that we've provided for the first quarter and against a consensus of $0.79. Sales were $5.3 billion, obviously a record, benefiting quite a bit from the acquisition of Cooper and the other acquisitions we concluded last year. About 40 points from acquisition, negative 1 from ForEx and a negative 5 from organic growth.

Operating cash flow was a $100 million and for those of you who've followed us for some time, you know the first quarter's always our weakest quarter in that regard. We make our pension –largest portion of our pension contributions in the first quarter, this year about $208 million, and it's also the quarter, in which we rebuild working capital coming off a technically a burn down of working capital in the fourth quarter.

I think very importantly and I know you're are all interested in this subject, the Cooper integration remains right on track both from a revenue point of view, from a cost reduction point of view, from recognizing the working capital and associated tax benefits. Synergies of $15 million in the first quarter, you'll recall that we're talking about $90 million for the full year this year. That equates to about $0.03, all on its own. Full year forecast of keeping the same as $90 million and if you think about the first half versus the second half, one of the important sources slightly higher profits in the second half this year than the first half, is the fact that we would expect these acquisition synergies to accelerate in the second half. Slightly on the whole deal, we would look at the first half being slightly dilutive and that $0.15 accretion we called for basically all happens in the second half of the year.

If you turn to Chart 4, label comparison to first quarter guidance, fairly easy reconciliation versus the $0.75 midpoint of the guidance we provided in first quarter. Volumes were lower, about $50 million lower than we thought and easy way to think about that is that's primarily Europe. I think a theme you've been hearing from many companies, but it's about negative $0.03. A lower tax rate you saw at about 5% and one of the big influences on that number is the 2012 R&E credit for both Eaton and previous Cooper dropping into the first quarter, that's about $17 million. It equates to about 4 rate points. So if you want to think about the 5% tax rate in the first quarter if you added those 4 rate points back you'd be at roughly 9%. Then the higher incrementals, little stronger operating margins in the businesses than we've anticipated and lower corporate expenses, you'll recall that we guided to about $83 million of corporate expenses per quarter on average through the year. 2013, we came in at about $70 million. So, we had a positive $0.10 for that, so obviously up $0.09 from the mid-point of our guidance. We think it's really solid execution, and what I think has broadly been characterized by many companies, a soft global market and we think that that's a really solid foundation for the rest of the year.

Moving to Chart 5; comparison of first quarter 2013 to Q1 of 2012, a couple of important issues to think through here, obviously the acquisition adds revenues and adds segment profits, but as we've talked about on a number of occasion, there's an impact of higher shares, higher purchase price accounting and amortization and higher interest to achieve that. So, let's just walk through the chart real quickly. Incremental acquisition volume contributing about $0.59, that is the total of the five acquisitions that we completed last year, so about $1.6 billion of volume there. Lower tax rate, 5% this year, about 15.6% last year, it's a positive $0.13, better incremental in terms of the continued progress of all our work on productivity, you see about $0.05. The next two line items, higher number of shares, that's the 475 million shares in the first quarter versus the 340 million last year, about negative $0.34. The purchase price accounting and higher amortization about $0.24 then if you will just skip that lower core volume number and drop the higher interest per minute that's about $47 million of higher interest. So, if you take the $0.34, the $0.24 and the $0.12 you've got about $0.70 of below the segment higher cost as a result of the acquisition. And then lower core volume, down about $190 million from last year, and as we talked about all through last year we saw markets and hence our volumes declining quarter-to-quarter and our vehicle and our hydraulics business last year, you'll recall has a much weaker second half and that's really what we are seeing here is the lower volumes in those two businesses, in particular.

If you turn to Cart 6, I think no big surprises on this chart from those of you who already read the earnings release in detail. I'd point out just one number for you to think about here is our first quarter 2013 segment operating margins of 14% that compare to the roughly 12.1 in the fourth quarter, that's a very good start for us and as you will see in most of our segments we are in very good shape against our full year guidance starting right out at the beginning of this year. I mentioned before, the acquisition volume of roughly 40 points and then you'll see the weak end market activity was the core volume down 5% and Forex being a fairly small changes here just 1 point.

Diving right into the segments and I want to provide you a little bit more detail on these because we recognize we've got some new segments here that take a little getting used to in terms of knowing what businesses are where. First, the Electrical Products segment, I am on Chart number 7. This includes several of the traditional Cooper businesses as well as some of the original Eaton Electrical businesses. So, for those of you who are familiar with the Bussmann, the Lighting, the B-Line, Wiring Devices and Safety businesses of Cooper they are in this segment now. You see a good start to the year here with a 14.7% margin. It is difficult we recognize for you to compare first quarter '13 to the previous year, because the previous year would not include the Cooper products. So, you're looking at 15.7% margin in terms of the Eaton products that would fall into this segment a year ago, in first quarter of '13, you're are seeing a 14.7% margin that both the Eaton products plus the Cooper products.

I would simply tell you that when you look at the Eaton products within a year, the margins were slightly higher than they were a year ago and so we're pleased with that continued progress. I'd reference you down to the slightly green colored box under sales growth, the acquisition contribution here being some 92%, that's about $820 million of incremental volume that's come into this segment for acquisition.

What's going on in the business at this point, continued strength we see in the end markets in the U.S., in the Middle East and Latin America, some more mixed in Asia Pacific, we'll talk a little bit more about at the conclusion of my comment and then I think that the big news here is really is not news, it's that Europe continues to be weak. We're not seeing any form of recovery. It's slightly weaker than we perhaps thought it was going to be when the year started.

Our combined bookings were down about 3% and this particular segment is heavier than the next segment we'll talk about, in items of items that are stocked by distributors. We are fairly confident that we saw a distributor destocking occur in the first quarter here in the U.S. and in Europe. I think people are minding their stores tightly trying to figure what volume will look like in the second quarter of this year.

If we move to Chart 8, Electrical Systems and Services segment, again, in this particular segment, the traditional Eaton businesses that were included in this segment, plus the Cooper legacy businesses of Crouse-Hinds and the Cooper Power Systems business. Once again, you have this mismatch of what's included in the first quarter of '12 versus first quarter of '13 because '12 does not include the Cooper information. However, I would tell you when you look within those margins, the Eaton margins improved fairly significantly within this segment, so it's not simply a mix change here. It's also a driver of performance here.

Once again, market condition's pretty much the same as I just characterized for the products segment. Bookings topped in this particular segment by about 2%. We also came into the year with a very strong backlog in this particular business; you tend to have more backlog in this segment than you would have in the products segment.

Once again if you drop to the slightly green colored box on the left hand lower corner, you'd see acquisition contributing about 80% to the sales increase. This is both Cooper, Rolec, which was a Chilean acquisition we did and Gycom, which was the northern European, really Scandinavian, Nordic country's acquisitions we did last year. So again off to a really good start here with a 14.1% margin, right off the bat in the first quarter.

Now moving to Hydraulics and here we've got a little easier comparison year-to-year because you don't have quite the reconfiguration of the segments having added in the very large Cooper acquisition. Sales of $756 million, up from the fourth quarter where we were at $693 million, so up about 9% from the fourth quarter, quite a rebound in terms of the operating earnings in this segment, 11.9% versus the 7.4% that we reported in the fourth quarter. I think you will all recall that in the fourth quarter we booked about $17 million of restructuring that were aimed at both helping us resize the overall business, closing two plants and downsizing two other plants, and I think you're already seeing the beneficial impact of that in our margins. The acquisition number again on the lower left hand green box that 13% represents just under $100 million of additional volume that came in from Jeil and the SEL acquisitions; the two acquisitions we completed on hydraulics business last year.

Market is up modestly over the fourth quarter, but I think the bookings information is perhaps the most important information, we could talk about here in this segment, down 8% compared to a very strong first quarter 2012 and then you will recall the year end off after that, but this year volume is up nearly 30% from the fourth quarter booking level, so we really believe that we are seeing this business beginning to turn in this regard. And when you look within that 8%, not surprisingly the distributor reduction is sort of a mid-single digit number and the OEM number is just over 10% negative. And when you dive inside the distributor data it is not much different by region, but when you do dive inside the OEM data it is very different by end market as you would expect the construction market still being quite weak but the big turnaround versus the fourth quarter being (Ag) where it was a very significant negative in the fourth quarter it is a significant positive in the first quarter.

So, once again after four quarters of consecutive bookings decline we've seen a very significant quarter-to-quarter increase in the bookings in our hydraulics segment.

Moving to Chart 10 the Aerospace segment. (indiscernible) volumes compared to the fourth quarter it was $434 million in the fourth quarter, it is $434 million in the first quarter, but a significant improvement in our margins and you will recall in the fourth quarter when we reported the 10.4% operating margin we had booked about $4 million, 90 basis points restructuring that was really dealing both with our organization structure one small plant closing. We're very pleased with the 14.3% operating margin here in the first quarter. I think here again, examining the bookings is perhaps one of the most important items as we think about the future here. Booking's up 7%, which is a great quarter, continued weakness in commercial aftermarket and so the story is very much the same here, very strong OEM activity. We were frankly a little surprised that our strong OEM activity was not only on the commercial, but we also had a very strong quarter in terms of military pipeline bookings as well, so, really solid quarter in our Aerospace business.

Moving to our Vehicle segment and you'll recall this segment represents now all of the traditional Eaton products in both the Truck business and the Vehicle business, a very solid quarter again here $939 million of volume, up 8% from the fourth quarter when we reported $871 million. Our margins moved up from 11.3% in the fourth quarter to 14.1%. You'll recall in the fourth quarter, our fourth quarter reflected restructuring of $17 million of expense or about 200 basis points. We had done some resizing in South America and resizing in Europe in light of both the market conditions we saw in those areas of the world.

So, again, a really solid start in this business and clearly this is one of the businesses where it's easiest to understand the market driver that we're counting our forecast – or placing our forecast upon this year, the first quarter, NAFTA heavy-duty truck demand was 55,000 units. We still have a forecast of roughly 270,000 units per year that means by the fourth quarter, we'd be at a run rate of about 78,000, so quite a ramp as we go through the year and as you've seen the bookings have been coming in to support that forecast.

So, now if turned to Chart 12, no change on this chart in the upper portion of this area – of the chart and we'd be prepared to talk with any of the individual indices that you wanted during questions. I would just simply note the new box at the bottom of this page where we say we now expect market growth to be toward the lower end of the range. If you recall we had said that our outlook for the weighted-average of our end markets was 2% to 3%. We think it's likely to be closer to 2%, I think that's probably a surprise to any of you which all the economic data has rolled out over the last month and a half, obviously the confirmation of the weak GDP here in the U.S., in fact that the China numbers came out a little lower than some expected. In Europe that seems to be mired in malaise still at this point. So we think still the prudent basis for our forecast is a lower end of this range. I think the very good news is with a little slower market start this year; our execution is improving our ability to make it make up in terms of higher productivity and pulling in these synergies as we have.

If we turn to Chart 13, this is unchanged. This is our margin expectations by segment, really no new news here. Chart 14, full-year guidance remains the same range of $4.05 to $4.45 in terms of our operating EPS with a mid-point of $4.25. What is new on this chart? Obviously this is our first specific guidance for the second quarter. You saw in our press release this morning $1.05 to $1.15 operating earnings per share with a mid-point of $1.10. Chart 15, this was our full-year guidance it took you from the $3.94 to our guidance of this year of $4.25. No change, we simply just provided this for the ease of your comparison.

Then Chart 16 is the comparison of our first quarter of this year to our second quarter and I'll walk you through this steps in terms of what supports our guidance for the second quarter. First quarter obviously we just reported our $0.84 operating earnings per share. We noted in our press release and if you look back over many years for Eaton you will see a fairly strong seasonal impact where our sales generally increased between 5% and 10%, it varies little bit every year and what you'd find is this additional $0.28 of higher core volume at the targeted incremental that we've talked about this year 33% gives about 7.5%, so it is $420 million.

You will also recall when we gave guidance for this year and reported our fourth quarter earnings in our last call, we had identified that the purchase price accounting adjustment for the inventory charges coming out of the acquisition of Cooper that we had expensed an element of those in the fourth quarter and then we expected the final piece roughly 33 million or $0.06 to be expensed in the first quarter which indeed it was and it was included in our $0.84 result. So, we will note have that $0.06 repeating here in the second quarter.

Additional acquisition synergy realization, I mentioned to you we realized about $15 million in the first quarter. We are ramping up to get to that full $90 million this year we'll be at about $20 million pace here in the second quarter that adds $0.01 in the second quarter.

Our tax rate I mentioned to you it was 5% in the first quarter, it will be closer, we believe, to about 10% in the second quarter. Again we won't have the R&E credit that we did have in the first quarter.

And then corporate expense, I mentioned to you that we ran at about $70 million level in the first quarter, that's below the average of what we thought we would run at (indiscernible) order this year and so we are including the forecast here again of about $83 million, that's up $13 million from the first quarter that means about $0.03. Those are I think fairly straightforward five items that lead to the reconciliation between our first quarter $0.84 and the second quarter $1.10.

If you move to Chart 17, no changes here, this is the same guidance that we provided you with at the beginning of the year, again, just for your reference and user material.

Let me move on to Chart 18 then just a couple of points in terms of summary. Q1 not just for us, but if you heard more generally, it was the slow start and what we would characterize as sluggish global markets now. You recall that many people felt that we were conservative when we started this year saying we thought end markets will grow in the order of 2% to 3%. We think that's the right place to be, and it leads us to the right orientation in terms of our resources and our productivity requirements, so very much on track with what we thought.

The Cooper integration, obviously, an enormous undertaking is going really very well and we're just delighted with the progress our team is making there, and I'd say this is the year where our performance is far more dependent upon our execution than global growth. We did not come into this year assuming global growth was going to bail us out. We came into this year with the expectation that we would have fairly nominal global growth. We do have the benefit in a couple of our businesses of some fairly strong quarter to quarter growth. It's related more to individual market activity than it is to global growth per se, and I would call out North American heavy duty truck as an example of that, or the strong seasonal on our electrical business, which tends to come in much stronger in the second, third and fourth quarter than it does in the first quarter. But nonetheless, we're really pleased with the first quarter $0.84 really got there based on execution and then a question I know a number of you have is that when will our 10-Q be available?

We thank you for bearing with us in terms of all of the complexities of pulling the accounting for these different firms together at this point through this large acquisition, we'll have it available later this week and hopefully I will have more information as you'll be seeking that will be outlined fully in the 10-Q.

With that, Don, why don't we open things up for question? I should mention that on Page 20 of this packet, we did include again just for your reference, no change here, the synergies expected from the Cooper Industries acquisition and just thought that would be helpful to have this referenced document there for your working.

So with that Don why don't we go ahead and start things up.

Donald H. Bullock Jr. - SVP-Communications: Turn it to the operator who will give us instructions and then we'll open it up for questions.

Transcript Call Date 04/29/2013

Donald H. Bullock Jr. - SVP-Communications: Joe Stivaletti, Goldman Sachs.

Joe Stivaletti - Goldman Sachs: So Sandy, you just mentioned that 2013 is much more highly dependent on your execution and global growth. Could you just shed some light on where you see the greatest execution risk as you progress through the year?

Alexander M. Cutler - Chairman and CEO: I guess I wouldn't characterize them as risk, but I think we've got teams well around them, but certainly the integration of an acquisition of the size of Cooper industries is the one that is obviously at all of our target list. We also had acquired four other companies last year. So each of those five have to be successfully integrated that -- I think the first quarter is a good indication of how well we're doing on that. We're very much on track and you may recall that we actually increased our guidance if we go back into February early March time period for what we expected to get from Cooper -- the Cooper acquisition this year. Second, there are number of restructuring programs that we kicked off with the roughly $50 million of restructuring cost that we booked in the fourth quarter, those are also going quite well. Then the area that I'm particularly excited about, the vast array of new products that we are launching this year, and part of that is how we expect to be able to drive higher booking activities, and if I just was to pick a couple out of our electrical business this whole suite of lean automation and control solutions that are targeted machine builders often running well for those of you who want to handle fairly you really saw that reception there. Our new Xiria modular SF6 Free medium voltage switchgear, another big plus for those of you who (indiscernible) just as last week you saw us kick-off another LED platform with our – something we call wave stream, that's the brand name for our new (edge lid) LED lightning products really offered at very attractive price range and really taking that technology into recessed lightning where it has not yet really penetrated. Then I would just end with just one other big one to be thinking about here and that's what we have done to take – you've heard us talk about this really premier energy efficiency we have in three phase large, higher power applications we've now moved that down into a product line that's much more sort of the mid-size, so it really brings that efficiency to the smaller data centers where there is fair amount of activity. So, I'd say those are the kind of the issues we've got our eyes on. In terms of execution I'd say they are off to a great start this year and I think our team well understands the market is not going to make the differences here it is really creating our own growth and creating sources of profit and that's where these large acquisition really gives us an additional leg-up as many others because we've got a lot to work on while we can create additional profitability.

Joe Stivaletti - Goldman Sachs: And I guess in your prepared comments, one end market question you did talk a little bit about distributors use stock in U.S. and Europe and I am just trying to square that away with your commentary at the fourth quarter that you expect non-res – specifically U.S. non-res markets to be up 4% to 5% this year. So, help me understand those dynamics what's occurring in the marketplace?

Alexander M. Cutler - Chairman and CEO: If you think about our electrical business having kind of two types of activity I am going to talk about how they flow through channels not the kind of products, those products that are stocked in distributor shelves a very healthy part of our business and one that we are really very pleased with the Cooper acquisition brought us an even bigger percentage of those kind of standard products, if you will, that's what we saw in January and February in particular, fairly active destocking by distributors both here and in the U.S. Now, we think that's partly was people readjusting to the fact that maybe the year wasn't going to be kind of the year that some of our distributors thought it was going to be originally. Frankly, I think they have come back a little bit more to where we thought the growth rates were going to be this year, but I think – it's so hard when you watch all of the issues of sequestration or other government challenges going on here in Europe, that doesn't give distributors a lot of confidence about putting more, more inventory on their shelves. So, unlike many quarters, in the first quarter, where you see a rapid acceleration of sales quarter to quarter, we didn't see as much of that this year. I would say on a non-residential side that tends to be a product that is non-stocked as much. That tends to be the assemblies business, if I could characterize it more. It’s bid to a particular job or transaction. There are pretty good bid activity and so that that distributor stocking as it doesn't tend to hit as much. You're exactly right, we did come into the year with a non-res forecast of roughly 4% to 5%. I think by then that always has been private put in place that we've talked about. I think the piece that everyone has got their eye on right now is, what’s the government, kind of, streams of activity and obviously with sequestration in place we think that that's a bit of a negative. So, when you look at the total non-res, which should be government and private put in place probably a number that's more like 3% to 4% versus a number that's like 4% to 5%, but I would say frankly that's tuning that – sometimes that type of tuning doesn't really change things that much for us.

Donald H. Bullock Jr. - SVP-Communications: David Raso, ISI.

David Raso - ISI Group: Just trying to think to be implied second half growth and also a question on the model on amortization of intangibles. Just trying to think about the growth in the second half of the year, seems to be implying high single-digit, low double-digit, and I just backed into that based on what you just said first quarter to second quarter on core volume. So can you help us understand if I'm doing that properly? I can completely appreciate the vehicle business truck being up a lot year-over-year in the second half, and maybe Hydraulic to some degree as well. But can you help us walk us through that second-half acceleration of growth, maybe try to nail down a little bit more what you're expecting from the Electrical businesses in the second half, maybe Aerospace.

Alexander M. Cutler - Chairman and CEO: Sure I think the way to think about this. If you take our first half, the $0.84 in the midpoint of the $1.10, that's a $1.94. Then if you subtract that $1.94 from the $4.25 you get $2.31 in the second half. So roughly 46% of the earnings in the first half 54%, in the second half, I think you'd find that's within about 2% of what we've generally run most years if you go back. Of that $0.37 increase in the second half, roughly $0.17 of it comes from the Cooper synergies, and that's the difference between the first half and the second half, I told you it would be slightly and this is when I say Cooper synergies it's that entire balance of $0.15 for the year, so that's got amortization, that's got increased shares, that's got the interest cost, it's got all that in it. So you get a little bit of a negative on that in the first half, you get roughly $0.17 from the second half, so now you're dealing with $0.20 difference half to half if you will. The largest portion of that $0.20 difference then comes from the acceleration, specifically on the North American heavy-duty side because our forecast of 15 million retail sales for light vehicle here in North America hasn't changed much. We came into the year thinking that the European automotive market would be only down maybe 2%, we think that's likely to be more like 6 and a 7. So that's kind of taken away any plus you find in the automotive side of that marketplace. So I'll come back to that, so you come back to the heavy duty truck and then you come back to the seasonality here you tend to get that electrical business, as I mentioned it tends to kind of come up that 7.5% is not a bad number for that business, it kind of comes up to that second level – excuse me second quarter and third quarter being relative similar and then comes off just slightly in the fourth quarter. So, and then last I would say the hydraulics business which we believe but we can't certify, obviously, that we are seeing the bottoming of this bookings activity and if we are right in that regard we are going to start to see some volume pick up there. Aerospace, we've assumed not a lot of volume change, but it is pretty – I think drop through to the bottom line it is not a substantial difference. So, I think you are really looking at vehicle, hydraulics and electrical as being those three drivers.

David Raso - ISI Group: I do appreciate that. But maybe, Rick, just help me to make sure I have these numbers right. The core volume was down $190 million in the first quarter, correct?

Richard H. Fearon - Vice Chairman, CFO and Planning Officer: Roughly, yeah, and that's core Eaton, yes.

David Raso - ISI Group: And if I grow that 425 million at 2Q that means 2Q will give me about positive 130 year-over-year on core? So, I go into the second half of the year in the whole about 60 million to try to get to the full year core revenue growth guidance of 900 million. So, baseline yield of core growth in the second half at the 900 million and I understand some of the businesses year-over-year just they are going to grow a lot more in the second half than we are seeing in the first half. I am just making sure I understand the core growth dynamics in the second half of the year?

Alexander M. Cutler - Chairman and CEO: I think, David, maybe we got to go offline to kind of work through all the specific numbers. I am trying to give you the overall where we are, we would be glad to do that subsequently.

David Raso - ISI Group: Then lastly the amortization question the 107 million in the first quarter was just a little higher than I would have thought. Can you help us think that through the rest of the year on a full year number?

Alexander M. Cutler - Chairman and CEO: We continue to think the number is in the neighborhood of $420 million for the full year. So, it will be at this level or maybe just a little bit under this level in some of the later quarters.

Richard H. Fearon - Vice Chairman, CFO and Planning Officer: And that's not any different than we indicated in our earnings conference call.

Donald H. Bullock Jr. - SVP-Communications: Julian Mitchell, Credit Suisse.

Julian Mitchell - Credit Suisse: Yeah. I guess just firstly on China, I remember, you'd mentioned on the earnings call in January that you'd seen some encouraging order intake activity, looking around other companies that have reported, it feels like some sort of domestic focus, stuff like construction's a bit better, but stuff that's tied more to export, like factory investment, industrial output is still very weak. I just wondered what your update was on China.

Alexander M. Cutler - Chairman and CEO: Your memory of our comments is exactly right. We had talked about specifically on our Hydraulics business in January, which is one of our insights into the construction equipment business there and in China, the things have ticked up in China, I'd say unfortunately they ticked up and kind of stalled in China and so we like others would, I think characterize China as not recovering on the pace that it looked like it might have starting off beginning of the year, it is beginning to recover and 7.7% GDP growth is nothing to sneeze at, but it's not the 10% to 12% everyone would love to see. Our own business in China, if you look at our actual shipments for China in the first quarter were about flat, when you go with a year ago, but when you go within it, I think more instructive is that the vehicle businesses are up pretty nicely and so you saw a pretty good quarter of activity there. I would say that most of the infrastructure oriented businesses be that our electrical or our hydraulics businesses were off just slightly in terms of the shipment and all that brings the other to be roughly flat. So I think our assumption for this year on China of roughly an 8% GDP increase, feels about right to us, but it's not accelerating really, really quickly.

Julian Mitchell - Credit Suisse: Then just within the Electrical Systems and Services segment, you obviously had a very, very nice margin jump in Q1 and the margin in that segment in Q1 was sort of already slightly above your full year target. I just wondered if there was anything in terms of seasonality that we need to be aware of or if you could give any sense of what the base full year margin in 2012 for the Systems and Services was.

Alexander M. Cutler - Chairman and CEO: In 2012. Our challenge in 2012 is giving at you with both Cooper and with Eaton and that's what we can't at this point. What I could tell you because obviously it is a noticeable change between the 9.2% we reported last year, which was the traditional Eaton businesses and the core teen one now is that with just the Eaton products and that's where we've got consistent data, we saw a several point increase in margins and that's some of the work we've been doing in terms of continuing to work on productivity and introduce new products and so this isn't simply a mix change of having added in the (indiscernible) and the power systems business into that segment. So, we're really pleased and we think that is quite sustainable. So when we look at that full year number obviously we have a 14% margin, we started off the first quarter, which typically is a little weaker with a very strong quarter. Now it's also a reflection of the fact that you recall the really outstanding bookings versus market demand that we had in the second, third and fourth quarter. So you're seeing us come right out of the block with obviously being a little shipped from this very strong backlog.

Julian Mitchell - Credit Suisse: And then just lastly, Electrical products the bookings were down about 3% in Q1, core sales were down about 4%. So, Q2 is your guidance sort of embedding get back to about flattish year-on-year the revenues?

Alexander M. Cutler - Chairman and CEO: Our thinking again is that – if you take our two businesses and put them together there is roughly 7.5% increase, that's not a bad surrogate for the electrical business as well and obviously as the construction market comes up in terms of just the bad weather issue is always an issue in this business is that you get a bigger quarter there in the second quarter. So, our conversations with distributors and we've had many is that we think the inventory correction that went on this winter is many little over done and there is an opportunity in that regard as we enter the bigger building program. We haven't talked about one particular market here because there is a lot of understandable focus on non-res. I think we all got to keep focus on the fact that residential is while not back at the levels that we experienced in the 2006, '07 heydays, it is coming back to more respectable levels and these are kind of 20% increases year-to-year and that residential really starts to move more quickly as you get into the second and third quarter from a construction point of view.

Donald H. Bullock Jr. - SVP-Communications: Jeffrey Hammond, KeyBanc Capital Markets.

Jeffrey Hammond - KeyBanc Capital Markets: The better incrementals is it in one or two segments or is that pretty broad based and how do you think about the sustainability?

Alexander M. Cutler - Chairman and CEO: We still think the right number, Jeff, full year is to think about roughly the 33% incremental and you will recall in our guidance at the end of the fourth quarter the reason we use the 33% this year and the previous year has been 28% was that we expensed $50 million of restructuring which we don't anticipate during this year and we get the savings from that. So, we still think that 33% is the right number in that regard for this year.

Jeffrey Hammond - KeyBanc Capital Markets: Then the order resiliency in some of the strength you talked about last year in Electrical Systems and Services, what's really driving that where do you think you are seeing the outperformance?

Alexander M. Cutler - Chairman and CEO: I think and keeping in mind kind of because if you think about our fourth quarter, our fourth quarter, where we were talking about the market having – I've talked to electrical right now and I'm putting the two segments together and we talked about growth, it slowed in the second half of last year and we think that it has carry over into the first half of this year. It's consistent with kind of our overall forecast, you are talking about growth slowing toward the back half of last year and then being fairly lower this year globally. Our bookings continue to be better than market conditions and we think there are a number of reasons to think that, will continue, but you may recall, in the fourth quarter last year, we had overall bookings up like 7.5% at a time when the market was barely growing and most of that got driven by some of the, what I'd call the systems business, large projects that we were successful in booking. We didn't see quite as much of that in terms of that outflow from the first quarter, but we don't see anything fundamentally that changes that competitive positioning and based upon a number of the products that I mentioned earlier to Joe's question, we are launching an unprecedented array of new products in our Electrical business between the base Eaton business and the legacy Cooper business, a number of which are right in the dead center of these big energy issues and we've talked a lot about LED and lighting. We were well up over 20% in terms of the LED content, in terms of LED product content in our first quarter. This whole new edge lighting for recesses application, we think opens up the biggest segment of the lighting area and we're right out front, if you've had a chance to read anything about what went on at LIGHTFAIR, so we're really quite bullish in terms of the new products and what that's going to drive for us here.

Donald H. Bullock Jr. - SVP-Communications: Stephen Volkman, Jefferies.

Stephen Volkman - Jefferies & Co: I might be getting a little bit ahead of myself here, but I want to understand as you've had another quarter under your belt, so looking through for whether you've had a evolution in your thinking about potential synergies in say '14 or '15 and maybe even coming on the sales side as well?

Alexander M. Cutler - Chairman and CEO: Steve, not at this point. But what I would say is that and I've said that in a couple of forms, the transaction and the business is everything we hoped it would be and more and that's why we were comfortable increasing our original estimate for 2013 from $75 million to $90 million that's why we were comfortable increasing our mature year total, in the pre-tax earnings, up another $30 million or up to $290 million, then we've maintained $160 million in the tax side, so all that feels really good. It's a little early still. We got elements of our team that are heavily involved I guess I would say in all of the blocking and tackling to make this happen, but the customer reception, the channel reception what we see in the cost reduction we'll get everything that we've talked about. I think so importantly that the broader array of capabilities we've got right now, it's done nothing, but strengthened us in that regard, so it's a little early in terms of taking that next look at that '14, '15, '16, we'll revisit that as we get out towards the end of the year and get a couple of quarters under our belt.

Stephen Volkman - Jefferies & Co: Then it sounds like you're saying the destocking in the Electrical side is sort of running at the course and maybe even got a little over done, similar comments on Hydraulics or I don't want to put words in your mouth.

Alexander M. Cutler - Chairman and CEO: I think all these issues whenever you have channel destocking, there is a point where you get down to a minimum that you have to have be able to satisfy kind of daily sales and obviously hydraulics went through four quarters of negative bookings and over a year I think you get that pretty well shaken out. I'd say the market that's been (indiscernible) for us to call in hydraulics in terms of not only the distributor channel, but also the OEM channel how much finished products they've got how (indiscernible) dealer has been China and I would say our insight in not perfect in that regard because I think we've been fooled a couple of times over the last year or two trying to be sure we had our hands on that. It feels like that starting to turn, but that one always takes a little longer than we think. I would say here in the electrical business, we got a pretty good handle here in the U.S. and Europe through our major distributor partners as to where they are in that regard. It can't get down much under 30 days backing; you just can't handle the kind of volumes. So, our best thinking on this at this point as we saw in the first quarter we think we've understood and we spend a lot of time with our channel partners and we don't expect to see another quarter of it in the second quarter.

Stephen Volkman - Jefferies & Co: And then April has that kind unfolded the same way, and I will pass it on.

Alexander M. Cutler - Chairman and CEO: Yeah, it is a little – unfortunately for us right now with bringing all our systems together between our traditional electrical business and Cooper we are not quite as fully integrated as we will be in the couple of months. So, I don't have quite as much up to date data for you there, but I think the tone is reasonable here in the second quarter and it feels like the season. I would say the one business we've not talked about here in the call which has been one of the points of weakness in the electrical industry in the U.S. has been the utility market and I think versus some of the forecast that were out from the industry associations and forecast utility demand, but first quarter was a weaker quarter in terms of utility demand and our own thinking as for this year is that while it will be a good year it is probably not going to be a record year and that's all reflected in our guidance at this point.

Donald H. Bullock Jr. - SVP-Communications: Nathan Jones, Stifel Nicolaus.

Nathan Jones - Stifel Nicolaus: Can you comment on – we’ve seen declines in copper prices and declines in steel prices over the last couple months at least. Can you talk about how that flows through pricing in both of your electrical segments and in general, I would assume it's easy to pass through pricing on electrical products, am I thinking about that the right way?

Alexander M. Cutler - Chairman and CEO: You're right in terms of the clearly versus a couple of years ago, the drum beat business seen to be move up on commodities, and so clearly, I think you're seeing pricing in the markets obviously be a little bit more conservative around that as well. We tend to buy as we pointed out more on the stock markets than we do on the commodity markets. Now the spot markets have come down, but not quite to the degree that the future markets have on that regard, but we are in a little easier commodity market at the present time than we were a couple of years ago when they were rocketing quarter-to-quarter and it was very difficult to stay up with them. That's obviously helpful in a time period where growth is just as slow as it is on a global basis. I would say that’s when you look at this overall environment, I'd say slow growth more stable commodities and that really puts the load on us in terms of executing well, and that's exactly what we think we were able to do in the first quarter.

Nathan Jones - Stifel Nicolaus: Okay. If I could jump out, (want to ask) you commented that you had a strong order quarter from out of the military side of aerospace. I think everybody is expecting strength on the commercial side, but it might be not on the military side, if you could give some more color around that and whether or not, you think it's sustainable?

Alexander M. Cutler - Chairman and CEO: Well, I won't forecast again is that we'll see the military markets come down by about 6% this year. We have not changed that view of where things are going to be. You just can't have every supplier having increases on the military market and come up to a negative 6 and that's not going to work out. We do believe that a number of the platforms were under the platforms that are going to be consolidated around such as the joint strike fighter or the new tanker, a number of the heavy-lift rotorcraft and it's on those platforms that we were – that we secured additional long-term commitments and that's really what helped with this very strong 7% quarter. So whether it was commercial transport, business jets, military fighters, military transports we had a very good quarter in that regard. Now just recall -- remember again in the aerospace business you often get orders and then they may ship over some period of time. So it's not always, it's almost never in one month and out the next.

Nathan Jones - Stifel Nicolaus: Just one more, it looks to me like you paid off the only debt maturity you have for this year. You will likely generate $1 billion plus in cash even after the dividend for the remainder of the year, can you talk about the priorities for that cash?

Alexander M. Cutler - Chairman and CEO: We have just one more slug of debt that we can play the term debt that we can pay off this year, Rick you want to comment on that.

Richard H. Fearon - Vice Chairman, CFO and Planning Officer: Nathan that would be in May. We've got $300 million in May and another $7 million in October, so another $307 million. But your point is correct we have quite substantial cash flow even considering that and our priority as we said both for financial and managerial reasons is that our priority is to use the cash flow to pay down as much debt as we can including to the extent that it make sense and we can get good execution perhaps even paying some debt down by buying it off market. We did a very small amount of that in the third -- in the first quarter, but we will continue to look at that as the year progresses.

Alexander M. Cutler - Chairman and CEO: That beats into obviously what you've seen us do already this year, a 10.5% increase in our dividend we announced in the first quarter. We have said that as we went through this period of time where we would be largely out of the M&A market to the point Rick made is that we maintain our overall commitment in terms of our capital expenditures that's roughly $700 million this year our commitment in terms of increasing our dividend in line with our future expectation of our earnings that was 10.5% increase we made in the dividend this year, paid down the debt to get us back to a (solid) it means we stay out of the M&A market for any appreciable activity here for couple of years until we get there. So, that's very consistent with what we laid out going back to last May as what would be our game plan in terms of the balance sheet.

Donald H. Bullock Jr. - SVP-Communications: Aon Dagnan, JPMorgan.

Aon Dagnan - JPMorgan: When you were giving your comments you said over a year are you guys in (indiscernible) or are you in Cleveland?

Alexander M. Cutler - Chairman and CEO: We seemed to be in the year all the time. We are in the states right now.

Aon Dagnan - JPMorgan: I wondered probably if you would give us a little bit more color on the two electrical businesses and their exposures specifically to government spending. I know that Eaton's core business did well the last couple of years and a lot of retrofitting of government building. Can you just give us color now on both businesses and their exposures?

Alexander M. Cutler - Chairman and CEO: I wouldn't say it is a major business there. I would say the major business really is aerospace who got a fairly significant piece that relates to military spending. I would say though when you try to think about the non-residential market in the U.S. and of course this gets a little complex in terms of whether you include road building and other things out of this type of stuff that uses electrical equipment to our best estimate and believing this is an estimate so please don't take this to a decimal point. There is 25% to 30% of the total market that sort of relates to where government tends to have an influence – sometimes the Federal government here primarily but there is some state government here in there as well, and that is an area where you are right, there have been some very significant energy efficiency mandates and honestly enough, those mandates have not changed. So, the question is how are they going to be funded and those mandates apply both to government buildings plus there are incentives available for people if they are building more effective buildings in terms of the private marketplace as well. We've not seen an enormous change there yet, but our expectation has been that will slow down, it is going to get crimped in this budget issue and that's why we say we think about a non-res markets maybe three to four would have included at this point. But frankly, those pressures have being felt, we believe in the federal government really since the second quarter last year. So, we don't see that as a big game changer at this point.

Aon Dagnan - JPMorgan: Would electrical products be in business that is being more impacted by that or would it be services?

Alexander M. Cutler - Chairman and CEO: No, I would say that it's probably more of those systems and services, more of that would tend to flow in there, but there are businesses that are over in the products business that would have product that would go in there as well. So, a business such as lighting, for example, which is in our product segment clearly part of the big push is to try to get (thermal) energy efficiency one of the best place anybody can have is to think about relighting these rebuilding. So, I'd say that's probably the one area that's got a bigger play.

Aon Dagnan - JPMorgan: That's what I was thinking on the lightning side. And then just on the hydraulics, on your outlook, Sandy, I mean, you noted that the agricultural OEM orders was up significantly, but you didn't change your outlook for the end market. Can you talk about is there a bigger drag elsewhere or is this just being conservative in case things slow again as we go through the year?

Alexander M. Cutler - Chairman and CEO: I'd say every two areas in there, Aon, I'd say that we haven't changed our view so much of the U.S. nor Asia on the end market, but we are in Europe consistent with our view of what's happened with car sales there and what's happened with distributor stocking in our Electrical business. Also, we look at the hydraulics market in Europe of being influenced by that, so that's a little bit of a drag. I'd say the construction equipment business it has been a drag and it's continuing to be, I'm talking about the U.S. and Asia in that regard. Mining is clearly a little bit worse than it's been. I think we've all read about that and I think it's related to the commodity question that was raised earlier. Then I'd say the big plus has been just as you noted has been the Ag market, a big turnaround from what has appeared to us many OEMs were trying to reduce inventories till last year. It appears to us now that they've flipped that switch and we're seeing – we saw a very strong all orders placed. Some of them work for future capacity, but frankly some of them were right for the springtime build.

Donald H. Bullock Jr. - SVP-Communications: Josh Pokrzywinski, MKM Partners.

Josh Pokrzywinski - MKM Partners: Just following up on the comment about sequential growth in bookings in Hydraulics that 30% jump in fourth quarter, what is that normally seasonally?

Alexander M. Cutler - Chairman and CEO: It's not hard to have a jump from the fourth quarter to the first quarter. It's been very hard the last couple of years to give you a normal because we've been going through these very dramatic changes, but I think if you assume between fourth quarter and first quarter you're going to bet a 10% or 15% jump, that's not a terrible number, but I would tell you that it's been hard to give you a your normal number in the last couple of years. Anyway, you look at it after these four quarters or excuse me – quarter-to-quarter decline, it's a big jump and we think directionally it gives us a view we're starting to make the turn here.

Josh Pokrzywinski - MKM Partners: One of your competitors said last week that some of the weakness they saw on the booking side was more for long-term delivery schedules kind of trimming the out quarters rather than anything that you would call near time weakness is that your characterization as well maybe a little bit of near term and little bit of – I guess just some color there would be helpful?

Alexander M. Cutler - Chairman and CEO: Last year we saw quite a bit of long-term cut back, that's consistent with what we saw in 2008, 2009 time period when people weren't clear of what their visibility was going forward they were just trying to get everything off the book. I would say we saw most of that hitting us last year, now we are seeing a little bit more of the – it is not only that quick (indiscernible) something next week it is also trying to get a call on capacity as we go out little further.

Josh Pokrzywinski - MKM Partners: And then just one last one from me on the data center side. Any change in momentum on small data centers versus large ones any update you can give us there on the momentum there?

Alexander M. Cutler - Chairman and CEO: Yeah I would say not much. You will recall when we gave our guidance for this year after a very weak year last year we thought that market would be going kind of between 1% and 2% this year and we don't see anything that's really changing that at this point couple of pieces as you listen to the various different tech companies report there is not big new generation of servers coming out, there is not many of the kind of the technology nodes that tend to get people to flip at this point and there is still a fair amount of work going on as people are trying to think about do they build their own versus do they continue their own work on virtualization or do they kick things to the cloud. So, we think this year is going to be a relatively slow side on the power quality side and that's consistent with what we said earlier this year.

Donald H. Bullock Jr. - SVP-Communications: Eli Lustgarten, Longbow Security.

Eli Lustgarten - Longbow Security: Can we just talk a little bit about the European exposure in the electrical business both electrical products and electrical systems and services. In electrical products weakened bookings in the quarter, margins – what we expecting is (15%), what's going on in the European country? I don't think is that big in that business, but we talk about how we are thinking of it and get some color on that incenting for electrical systems and services?

Alexander M. Cutler - Chairman and CEO: I think, again – and you'll recall from Tom Gross' presentations that our business in Systems and Services and the traditional Eaton business was bigger in the U.S. than it was outside the U.S. because we hadn't had the traditional IEC assemblies business and our services business which tends to work on that installed base and not fully developed yet. So, Europe is not a real big issue. There is some more of a products orientation for the traditional business. You'd find that overall we talk about Europe being on the order of about 18% of our sales, so that when we acquired Cooper, Europe became even smaller portion of Eaton's overall sales. In terms of geographic exposure, the products business has got a bigger exposure to Europe than those assemblies it's about 2 to 1. When we gave guidance at year-end, we were talking about in terms of geographic guidance the systems business – Systems and Services business had a 14% or 15% end market European and that's EMEA, so that includes the Middle East content and the products was closer to 27%, 28%.

Eli Lustgarten - Longbow Security: I'm trying to get some idea if you look at your electrical products 14.7 margin in the first quarter, bookings down 3%, if you got to get to 16 with the bigger European exposure. So, I'm trying to get some color on that how we'd be able to get there and one point even Electrical Systems and Services, you beat the 14% guidance this quarter, you are telling us this is going to get weaker over the rest of the year. So, I'm just trying to get some idea?

Alexander M. Cutler - Chairman and CEO: Yeah, I think what we're really telling you, Eli, as we've got two new segments here then we have one month of experience, one quarter of experience with and it's just too early to be changing the guidance. I think as we have a little bit more experience working with the new businesses we acquired, we'll have a little better handle on how they go through the year, if you will, but both to us feel very reasonable, we look at the guidance for the remainder of year, this year. The product business, even in a weakened Europe, still has a seasonality because the weather patterns happen the same kind of way they do here, so it will be up a lower base.

Eli Lustgarten - Longbow Security: Follow-up in the ESS business, is the weakness of utility business the reason why you feel cautious on operating profitability?

Alexander M. Cutler - Chairman and CEO: I would say I just noted because I think you've heard from a number of other participants in the Electrical industry that utility was weaker in the first quarter than perhaps they thought it was going to be, still a really nice business for us, but it's not going to be people who've anticipated the utilities were going to be untethered ability to spend cash if you've watched what's going on and like continuation what went on last year with the difficulty utilities have gotten in to be able to get rate increases, they need to get those rate increases to have some of the money to spend. That's gotten quite tight in this environment.

Donald H. Bullock Jr. - SVP-Communications: Chris Glynn, Oppenheimer & Co.

Chris Glynn - Oppenheimer & Co: Question about the electrical strength and the U.S. calls out for both segments. It seems like some of the distribution commentary has been that it's been weaker, so just wondering if you could comment on contrast between channels whether that's direct distribution OEM, MRO, any flavor in that regard?

Alexander M. Cutler - Chairman and CEO: I would say we tend to think of the markets as covering the whole residential, non-residential, the industrial OEM and user side. We think about verticals like oil and gas, for example, that are continuing to spend quite a bit; pharma is quite active continues at this point. We think about the utility market that we mentioned and then big drivers that are going out in the industry such as LED replacement with use of vacuum interruption and a variety of different technologies and so, our characterization of where we think the market is going to go, I think, we were pulled back in the first quarter in terms of being able to achieve those full year numbers by the distributor destock, generally, what gets destocked has to be restocked. So, we think those things tend to work out over a couple of quarters. So, no, I wouldn't say we are backed-off in terms of, I would say, like all of the markets that we're out there, we think the growth is going to be a little bit towards the lower side versus the higher side. And we still think it's going to be a good year of growth.

Chris Glynn - Oppenheimer & Co: Then through the Electrical segments, you did refer to just having a few months with the full segmentation, but is the $7 billion for EP and ($6.9 billion) for ESS still a good way for us to think about the year?

Alexander M. Cutler - Chairman and CEO: Yeah, it's our best thinking at this point is whether they are going to end up exactly in those two segments. I'd say that's the best way to think about modeling and at this point, we still feel pretty good, obviously, about the 13.9 in total, and I think that's going to be the balancing item and the total will be the balance and we'll see how well we did in getting this split up on the two segments.

Donald H. Bullock Jr. - SVP-Communications: Andy Casey, Wells Fargo.

Andrew Casey - Wells Fargo Securities: I just wanted to look at the growth you are forecasting a little bit differently. In a lot of different company conference calls, there has been discussion about increased quoting activity, that's just not translating it into orders right now. Is it your view that we're kind of in a CapEx kind of air pocket and then within that are you seeing more customers focus on operating expense in place of capital investment outside of Europe.

Alexander M. Cutler - Chairman and CEO: I'd say it's quite different Andy for us individual segment. I'd say that that let me take an area like oil and gas for example; we continue to see people moving forward on very major projects as well as their MRO. I would say in mining, clearly people have gotten very cautious and are looking for ways to kind of pull back. In residential I would say it's still very much rebuilding of the industry and trying to get everyone to come, I hear the analogy this morning so they try to get all the players back at the party, it has been quite different being at 1 million or 800,000 starts versus (indiscernible). I'd say on this construction equipment side, I'd say I think people are still cautious on Ag it's starting to feel like people are interested in running on more cylinders again, so fairly inconsistent if you will. I think those are often the attributes of slow growth overall GDP and that's still is our kind of predominant view, again, aerospace commercial, quite busy, great news 787 flying again. The industry seems to be opening up on the defense side, obviously it slower. So I think that's where this execution is so important as the Company and that our opportunity having these five acquisitions to integrate is we've got an opportunity to create synergies and create earnings per share even without a big strong top market growth going on. I think that's one of the issues that really make these attractive.

Andrew Casey - Wells Fargo Securities: Then one detailed question related to pension expense. I think you're looking for increases in the 2013 guidance, but Q1 came to show a year-to�-year decline. Is there something special about Q1 or is it just a timing thing.

Alexander M. Cutler - Chairman and CEO: Pension expense does vary by quarter Andy based upon just the timing of retirements, which we can't exactly plant on. But our expectation as you'll see a modest increase in pension expense this year. We believe that accordingly you will see some higher levels of pension cost as you look at the balance of the quarters.

Donald H. Bullock Jr. - SVP-Communications: Nigel Coe, Morgan Stanley.

Nigel Coe - Morgan Stanley: Sandy, just wanted to – just to clarify the comments you made about inventory reductions. You seem to indicate that in product service, particularly in January and February, and I'm seeing the Hydraulics is the same way. So did we see an unusually weak start for the year or for the quarter, which should have got better into March?

Alexander M. Cutler - Chairman and CEO: Slightly better because March is always the month of the quarter and the first quarter. In some sense as you could almost take off the first month. I'd say slightly better, but I think again it wasn't the rate of acceleration that we've seen in some other years. I think that's reflective again of the slower growth environment and I do think there's some caution in the air in terms of whether distributors want to put lot of inventory on their shelves, and not knowing exactly how this next round of the fiscal discussions go on in the U.S. so we think there's plenty of room for some additional recovery here.

Nigel Coe - Morgan Stanley: Then switching to Aero margins. For me this is a big bright spot in the quarter. You've referenced it's off the market is still under pressure, yet you showed a big sequential improvement from second half run rate since 1Q. So, just wondering if there is anything that you should quote out there in terms of the strengths?

Alexander M. Cutler - Chairman and CEO: I think remember in the fourth quarter we took $4 million of restructuring expense and we did that because as we were looking at size of the business and this forecast that we mentioned growth on commercial – negative growth on defense we need to resize the organization, we also closed one small plant and so getting that in place is a piece of helping us manage more successfully in this little bit changed environment. We feel pretty solid about this 14% range and as you say it is great to get off – start off well in this regard. And I would say it doesn't hurt to have this backlog piece turning up a little bit for us as well.

Nigel Coe - Morgan Stanley: Just a quick follow-up on that. So, as the after-market starts to improve through the year would you expect to build-off that 14% through the year?

Alexander M. Cutler - Chairman and CEO: Yeah, I think at this point our best estimate is that's why we haven't changed the guidance at this point that we think it is 14% for the full year, but I'd say it is early still and so I have a better feel after we maybe get through two quarters.

Donald H. Bullock Jr. - SVP-Communications: Thank you all for participating in today's call. As always we will be available for follow-up questions following this call. Thank you very much.

Operator: That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.