Donald H. Bullock - Senior Vice President of Investor Relations Alexander M. Cutler - Executive Chairman, Chief Executive Officer, President and Chairman of Executive Committee Richard H. Fearon - Vice Chairman and Chief Financial & Planning Officer

Ann P. Duignan - JP Morgan Chase & Co, Research Division Jeffrey T. Sprague - Vertical Research Partners Inc. Jamie L. Cook - Crédit Suisse AG, Research Division Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division Stephen E. Volkmann - Jefferies & Company, Inc., Research Division Andrew M. Casey - Wells Fargo Securities, LLC, Research Division David Raso - ISI Group Inc., Research Division Eli S. Lustgarten - Longbow Research LLC Jeffrey D. Hammond - KeyBanc Capital Markets Inc., Research Division Christopher Glynn - Oppenheimer & Co. Inc., Research Division Robert F. McCarthy - Robert W. Baird & Co. Incorporated, Research Division Andy Kaplowitz - Barclays Capital, Research Division Jason Feldman - UBS Investment Bank, Research Division

Ladies and gentlemen, thank you for standing by, and welcome to the Eaton Corporation's Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to our host, Vice President of Investor Relations, Don Bullock. Please go ahead.

Good morning. I'm Don Bullock, Senior Vice President of Investor Relations. Welcome to Eaton's Second Quarter 2012 Earnings Conference Call. Joining me today 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. As you all are aware, we're in the midst of the acquisition of Cooper Industries, which is under the jurisdiction of both U.S. and Irish Takeover Rules. As a result, I'll draw your attention to a rather wholesome Safe Harbor statement that's outlined in our presentation, and I'll cover portions of that this morning. This presentation contains certain forward-looking statements. Many factors could cause actual results to differ materially from these statements, including those set forth in our Form 10-K filed with the SEC on February 24, 2012, and in the unanticipated delay or failure to close the Cooper acquisition. This presentation includes certain non-GAAP measures as defined by SEC rules. 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. In addition, the earnings guidance contained in this presentation constitutes a profit forecast for the purposes of the Irish takeover rules. In accordance with the Rule 28.4 of the Irish Takeover Rules, this profit forecast shall be repeated in the S-4 Registration Statement and the reports required by Rule 28.3 shall be mailed to the Cooper shareholders with the S-4 Registration Statement. With that, I'll turn it over to Sandy.

Great. Thanks, Don. I'm going to be working from the presentation, which is out on our website, and I'm starting with Page 3 in that presentation. Just a couple of highlights of our second quarter results. We had a number of records in our second quarter. The first 2 referred to on this page are our operating earnings per share of $1.15, which was up 19%, and our net income per share of $1.12, up 15%, were both all-time records and reflect that we think our strategy and our balance is really working quite well. The second 2 that are referred to here, the segment operating margins of 14.7% and the operating cash flow of $469 million, are second quarter records. Really, really very pleased with the margin performance, as you've seen both in the first quarter and the second quarter are stronger than a year ago. Then the operating cash flow, I think, reflects again that our model is working well and our businesses are executing very well. On the sales of $4.1 billion, I think, as you saw in our press release, that came from core growth of 3%, acquisitions of 1%. And then the large item, a negative 5% from ForEx, higher than we had expected coming into this quarter, and I think reflects the currency volatility that we've all been witnessing as we've gone through this quarter. Then the final point on this page is that emerging markets constituted for about 24% of our sales. You'll recall that this was a higher number last fall. And what we've been seeing is that as the emerging nations have been weaker this year, our sales into those countries have been weaker as well. Now turning to Page 4. Just a quick reconciliation to the guidance we provided at…

[Operator Instructions]

Our first question comes from Ann Duignan with JPMorgan. Ann P. Duignan - JP Morgan Chase & Co, Research Division: Sandy, just on Electrical Americas, it remained strong despite the fact that it likely has exposure to nat gas frac-ing, either directly or indirectly. We thought that might weigh on the segment. Can you talk a little bit more about where you are seeing the strength both on the nonresi and the resi side of that business?

Sure. Well, Ann, on the nonres side, again, I would reference everybody right back to the same detail we tend to look at, which is looking at the private put-in-place information and up some just under 4% in the quarter, following a very strong quarter in the first quarter. And when you go through all the segments there, it's interestingly the only segments that really jump out to have negatives were in the communications area, where there's been a lot of discussion around telecom. And then the second is surprisingly is in mining and petrochem and natural gas. And a little lower than a year ago. But virtually, the vast majority of all the other segments are positive. And so at a time when people are talking about office and other commercial, they actually grew. And we're seeing quotation activity continuing to be quite strong as well. So really pleased with the breadth in that area, really continuing on the theme we've talked about before. Frac-ing for us, Ann, has been a little bit more of an issue actually over on our Hydraulics business than it has been on the Electrical side, and they're clearly after a boom in 2011 when we started to look at the impact of some of the discussions in and around regulations, it had slowed down this year. So it's not quite the boom that we saw a year ago. But we remain really quite positive on what we're seeing, not only on what we have booked but more importantly the depth of our quotation logs on the nonresidential side. On the residential side, again, I would say we're not in a booming takeaway. But these numbers are up over 20% when you look at all the public data versus a year ago. So we're beginning to see a recovery there, which is welcome off of the very low levels we've been in for a couple of years. Ann P. Duignan - JP Morgan Chase & Co, Research Division: Okay, Sandy. And a follow-up on the Hydraulics business. You noted potential slowdown in the ag space. Is that something you're already hearing from OEMs? Or is that just you gauging the environment and recognizing that the drought is likely to have an impact on farmer sentiment?

I'd say it's more of the latter, Ann, at this point. And of course, there are very different theories on what may happen at this point. But we think it's just prudent planning at this point.

Our next question comes from Jeff Sprague with Vertical Research.

Just a couple kind of high-level guidance questions. First, obviously, you've lost a really wide range, and we all get kind of the volatility going on out there. But could you characterize to any degree your comfort with the range? And I guess, in particular, although you brought down Rest of the World Electrical, it implies kind of an improvement in the back half, I'd like to understand why that happens. And you got Truck kind of flattish to up slightly in the back half on what looks like should be lower volumes. Why does that happen?

Yes. A couple of comments, Jeff. We narrowed our range from $0.40 to $0.30, so we've got about a 7% range at this point. So we actually don't think that's that big a range for a 6-month time period with the kind of volatility that's been out there. But we thought it was prudent to bring it down by $0.10. On the Electrical Rest of World, it's obviously been a hard one to call. Basically, what we're seeing is that Europe has flattened. It hasn't gotten worse, it's flattened. We've actually seen -- in Asia, we've seen our business up from the first quarter, but we don't -- and part of that is the timing of obviously Chinese New Year's as well. But we aren't forecasting massive increases as we go through the back half, so we're assuming that what we see today is pretty much what we're going to get upfront. That's our best call at this point. A quarter ago, you may recall we were talking about that we were hopeful we would see particularly in China, we'd see more of a recovery in the fourth quarter. And we're just not seeing the evidence of that. Having said that, we've all been fooled before and have seen the Chinese economy, in particular, change more quickly. But that's not our expectation at this time. On the truck markets, just a last piece. I think you posed a question on there. Really, it's due to the order rates. And we have not seen the order rates come in during the second quarter that we were hopeful we would see. And that's the reason for the direct bringing it down to the 285,000 number.

But you're defending the margins and I was more on the margin side, it looks like you're pretty confident on defending the margins despite what looks like a kind of a production fix in the third quarter especially.

Yes. In terms of trucks specifically, are we talking about?

Yes, Sandy, on trucks specifically.

Yes, it's -- we're operating obviously at very attractive levels. And I think for a number of people who've followed us for some time, we've built a pretty flexible model in our truck market in terms of being able to ramp ourselves up and down so that we do believe we can hold, as we say, the full year margins we've got in that business. We've been operating very well, both in the first and the second quarter. And while the volumes are going to be coming off, we think, a little bit with the market coming down here, we're convinced we can meet these long term -- or excuse me, full year margin goals in truck.

And just finally and I'll jump off, can you actually tell us what dollar-euro rate and dollar-real rate you're using in the guidance, so we can all kind of reset it as the things play out here?

Yes. No, we sure can. You may remember we started this year thinking that we would see currency negative headwind hit us for about $550 million. We revised down to $300 million at the end of the second quarter in a fit of happiness when we saw things were not quite as bad at the end of the first quarter. And now we're pretty well back to where we were at negative $500 million. What we're assuming is that for the balance of the year we'd be in this $1.20 to $1.22 range for the euro. And we'd be around $2 for the real. I think it's helpful when you think about how dramatic these changes have been in the second quarter this year. The average versus the second quarter of last year for the euro is down about 12%. But interestingly and not everybody tracks the Brazilian currency as carefully, it's down 20%. So these are big impacts. And that's what's driving this 5% negative impact on our top line in the quarter.

Our next question comes from Jamie Cook with Crédit Suisse. Jamie L. Cook - Crédit Suisse AG, Research Division: First question, I guess, on the guidance front again, I guess, I was surprised that you were able to keep your Hydraulic margins at the 16% on the lower growth rates. So can you just help talk about your assumptions behind that? And then in total, what was price material cost in the quarter? And what are the expectations for the back half of the year?

Yes. On the guidance, Jamie, remember, we've got a couple of things going on within our Hydraulics business. One, we've completed a couple of additional acquisitions in our filtration space. And as we've commented to you, we were very pleased with those businesses. They're being integrated and that's giving us the benefit of those synergies, which is playing into that margin as well. We think at this level of activity, which is an attractive level we're at, so we're not talk about coming off from where we are at this point, is that we can maintain very attractive margins in the business. Very pleased with the way the business has been executing. So that's really the piece behind Hydraulics at this point, as we've had a very, very nice first quarter -- or excuse me, first 2 quarters this year, getting started in the business. I'm sorry, I forgot the second part of your question, Jamie. Jamie L. Cook - Crédit Suisse AG, Research Division: Sorry, just the second point on price cost in the quarter and then what the expectations -- I'm wondering if you get a benefit in the back half of the year.

Yes. It's hard to know again. We said a couple of times here that the piece that's always hard to predict is the difference between futures and spot pricing because the future prices tend to move with more volatility than do the spot prices, which is more of where we end up actually purchasing. And we have seen, I think, commodities have weakened up as we've come into this year. We're not seeing that pressure to the degree we were. And our expectation for this year was that, that net between price and cost for the full year would be approximately 0 by the time we worked through everything of the year. That's pretty much where we're planning it still at this point. If it turns out to be better than that, we'd be very pleased. But we're not assuming a big plus there. Jamie L. Cook - Crédit Suisse AG, Research Division: Okay. And did you get a benefit in the quarter?

I would say it's fairly immaterial at this point.

Our next question comes from Nathan Jones with Stifel, Nicolaus. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Sandy, in Electrical Americas, you started nonresidential construction as a market showing strength for you. Can you comment on the recent trends in the ABI, which tend to suggest that the growth you're seeing now may not be sustainable over the next year or so and talk about what you're expecting in those end markets for Eaton sort of more 9 to 12 months out?

Yes. ABI, we find, is of interest in terms of our -- it's an insight in terms of looking at about 1/2 of the nonresidential space. ABI really deals with what we would call commercial construction. It doesn't tend to deal with the big portions of mining shafts, wells, manufacturing, which make up about 50% of what's out there in the marketplace. So early on in this recovery, the big strength was really in the areas that I just mentioned. And you were not showing ABI move up at all, and we were talking about the nonres market was going to really bottom and start to increase solidly by the middle of last year and in fact did. So we don't find ABI to be as helpful in this regard as really watching our quote log. So looking at our quote log at this point, we're continuing to see a really nice balance of projects that we can see in this next 6 to 9 months. So our expectation is that we're still in the midst of a several-year recovery in the nonresidential market. It took about 3.5 years for it to trough down. We think it's reasonable you're going to see a similar length of opportunities here on the upside. And we're looking out now at projects that are 6 to 9 months out, so that we think we've got a pretty good view out ahead of us at this point. We've not put out a number for 2013. We really won't do so until we get later in this year, but we're very much encouraged with what we're seeing in terms of the quote log for that period of time. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And if I could just jump to Electrical ROW. The last 5 quarters in a row, you've had negative market outgrowth. Can you talk about where it is you think you might be losing share and what you're doing to address that?

Yes. The big issue that we've referenced over the last year was that we had a very outsized position in residential solar, and really that's for the last 4 quarters, that's really been the burn-off of that particular activity. I'd say that the second issue is if you go to countries like Australia, where we've got a very strong position in the commercial construction side of the business, that economy is struggling right now and that's not where the activity is there. So we don't really think it's a share activity. We think it was primarily solar. And that's pretty well behind us because we've burned off the year-to-year adjustments in that regard. I would say the second issue is that our data isn't -- or third issue, our data isn't as precise in some of the emerging nations as we would yet like it to be. I think it's getting better, but I have a little less confidence in our ability to call those markets precisely than they do in the developed nations, where we've spent years trying to perfect these economic models.

Our next question comes from Steve Volkmann with Jefferies. Stephen E. Volkmann - Jefferies & Company, Inc., Research Division: I'm wondering, Sandy, if things have deteriorated a little bit here. I guess, we'd probably agree there's not a ton of visibility from a macro perspective. Can you just talk a little bit about what sort of contingency plans you guys have available if things do take another leg down? And sort of how much restructuring could you do? Or what types of levers could you pull on? And how do you do that planning?

Yes. I'd start, Steve, by saying -- and I think it's on everyone's mind. And I would start by saying at this point, on a relatively low growth activity right now, you're already seeing us with core growth over 7%. And I think that speaks to the first issue. We have, I think, evidenced our ability to outgrow these markets even during very difficult time periods and that's because the applications we're in. And so whether you start [indiscernible] any one of these businesses, there's an awful lot of regulation that's driving the adoption of our technologies. And I don't think that will change. I think customers will have to make some tradeoffs as to what they spend on. But those tend not to be items that you can trade off. And so I think that it starts right there in terms of the strength and positioning of the portfolio. Secondly, I'd say in this relatively volatile and unstable economic growth time period, you're seeing our margins continue to expand. And I think that speaks already to the types of steps that we're taking in terms of how we're positioning our products, how we're able to then price them in a way that creates real value for our customers as well as for our shareholders. And the third is, I think, if we found ourselves in a period of real economic weakness like the 2008 time period, you saw us move very quickly at that point to take costs out. Frankly, we've not let a lot of those costs creep back into Eaton. And we've shared that in our New York analyst meeting the last 2 years. And that's part of the reason we're opening up these margins. But if necessary and we don't see that necessity today because our margins are, we think, are at all-time record levels, we can take steps to cut things back. And of course, we will be in the process of integrating a large acquisition here at some point as well. And that always provides additional opportunities. Stephen E. Volkmann - Jefferies & Company, Inc., Research Division: Okay. That's helpful. But I guess, just to take that to the bottom line, you're not yet at the point where you feel like you need to take any of those actions?

No, we're not. We're still seeing -- x ForEx, we are seeing positive growth and we're being able to capitalize on that. And the ForEx is an issue that we all watch through the cycle. And that doesn't cause us to run our business differently. Stephen E. Volkmann - Jefferies & Company, Inc., Research Division: Fair enough. And just because you brought it up, maybe this falls under the category of tweaking. But I see your outperformance is a little lower than it was. Is there anything happening there?

No, I don't -- I'd go back to the comment that I made to Nathan is that we're candidly a little bit challenged with trying to come up with good economic models for some of these emerging nations, particularly as they've reversed their fortunes and they're not growing like they were. And so my hope is that the longer we spend time on these areas, we're going to get better and better at it at this point. But I'd say no, nothing fundamental.

Our next question comes from Andy Casey with Wells Fargo.

First, and if you did, I apologize, could you give a little more color behind the very strong Electrical Americas margin improvement? Was it all volume and mix? Or is there something else going on there?

I'd say, Andy, a big piece. And no, we hadn't commented on it before. A big piece remember, too, is that the first quarter tends to be the weaker quarter for our Electrical Americas segment from a seasonal point of view and typically from a margin point of view. So you do get that quarter-to-quarter jump. If you look back to the previous year, I think what we are seeing is very solid volume growth. And we're also seeing that a number of what I'm going to call these high-spec products, products where we've come out with really unusual technology, they are enjoying a little fuller margin, and we're seeing the benefit of that as well. So that's the investment in the business. And then I just think our team is doing a terrific job of running that business. So I'd say those are probably your 3 sources. And as you can tell from our full year guidance, we think it's quite sustainable and we raised the guidance by another 0.5 point in that segment. So I think you're really seeing the benefit of a business of real scale hitting on multiple cylinders with a lot of new products.

Okay. And on -- just quickly on -- another question on that. Have you seen a reversal in the data center weakness that you talked about in Q1?

I would say, generally, I would say that the power quality market was weaker in the second quarter. And so our bigger strength was on the power distribution side of the business. And I'd say almost each of the 3 areas that we typically talk about in power quality, whether that be the single-phase business, whether that be the 3-phase flow business or whether it be the 3-phase large data center business, it was a weaker quarter than we had seen in the fourth and first.

Okay. And then one clarification and a broader-picture question. The clarification on the outlook for the Aerospace margin 2012, 15%, first half, by my math, comes in at about 13.7%. What are you factoring in to drive the second half margin improvement?

We typically -- Andy, if you take a look at us, we've been a little stronger seasonally in the second half in that business. And we're counting on that as one of the items that will drive that stronger margin. I'd say that's the biggest plus. You'll remember overall for the year, the big change year-to-year is occasioned by the change in the much stronger commercial OEM production and then not as much aftermarket. And we saw that aftermarket frankly even a little weaker than we thought it might be here earlier in the year. And then really no change at this point from our perspective as the military market would be a mid-single digit decline this year in terms of activity. And that's pretty well manifesting itself already this year.

Okay, Sandy. And then lastly, bigger picture for North America. You're encountering mixed market conditions, clearly seeing weaker truck and then strong auto and construction markets. I mean, you guys have a very broad view on NAFTA truck. Can you share your perspective on what really is behind the hesitant customer order placement and then why that hesitation would remain kind of isolated to truck?

Yes. And I think in some ways, Andy, you're right that the things that are causing the weakness in the truck market may be on people's minds in multiple markets. Number one, there were price increases for the new trucks. And I think many customers are saying, "Gee, I'm concerned about the magnitude of that price increase and maybe I'll wait or maybe I'll negotiate a little longer." And we've heard a fair amount of that chatter. I would say, secondly, is that freight's been good, fleets have been getting price increases. All that's a positive. There's been quite a bit of buying of new trucks end of last year and first half of this year. In our talking with dealers and key fleets, they're looking at the fiscal cliff at year end and they're saying, "I'll wait and I want to see how that's going to sort out." So I think the issue that we're all reading about every day and that many of us are worried about, the fiscal cliff has very relevant and potential impacts on what's going to happen for capital goods and personal purchases as we get out to the end of the year. And we hear it back from a number of customers in a number of markets. And so the closer we get to that, I think the more people will be concerned. And it's not hard for someone to take 6 months off, and then start up again.

Our next question comes from David Raso with ISI Group.

The question's about the second half revenue guidance. I'm just trying to understand the moving parts. Basically, the first half, the revenue growth was about 1.7%. So the second half has to grow about 6.2% to get to the full year. And the acceleration there, obviously, the Turkish acquisition, that alone probably gets you 1/3 or so of that 6.2%. But the other 2 key pieces, what is accelerating in growth rate second half year-over-year versus the first half year-over-year? I would think the currency at a minimum, all else equal, is going to be as much a drag as it was in the first half, if not a little more. So what's accelerated? Is it just the Rest of the World difficulties in Electrical and every other business just being less of a drag? Or is something actually accelerating on a positive growth rate?

Yes. From the growth rate because we're not talking 3% to 4%, the market growth rates are pretty flat compared to the first half this year. Your currency was, because we told you in the first quarter, it was about a negative $50 million, it's about negative $250 million in the first half, it's about negative $250 million in the second half. Now that's larger than we had thought it was going to be for the second half and that's the difference between us having a negative $300 million in our previous guidance and a negative $500 million now. But as you think about growth for the year, you end up with this 3% to 4% base growth minus negative 3.1%, I think, is the percentage if I recall for the $500 million. And then you end up with a couple of points of acquisition growth. And then the outgrowth is a little higher than it was in the first half. And I think those are your pieces in terms of trying to figure out that overall growth.

Well, I'm not sure if somebody can -- maybe, Sandy, could take me through a little more detail. Just the pure math of up 1.7% in the first half total revenues to get to up 4% for the year. Again, you need the growth rate to accelerate to 6.2% in the back half. The Turkish acquisition probably adds $180 million in the second half. It added very little to the first half. So of the acceleration of 6.2%, I can see right there the Turkish acquisition adds say 2.2%. But the rest to accelerate on, I'm just try to figure out what's accelerating especially again if currency is maybe even a bigger drag year-over-year.

David, it's Rick. I think that you're actually understating the acquisition sum. It's not just the Turkish, it's Jeil, the Hydraulics acquisition. And as Sandy said, the FX should be, in absolute numbers, the same in the second half versus the first half. But it's hard to do these kinds of reconciliations online. So why don't I ask you to have Don walk you through it on a later call?

Okay. Then lastly, when I think about the margins in Auto, in a way having the international business down as much as it is and the total business down, I would say the decremental margins of only 18% in the quarter were actually pretty impressive. When you think about the next few quarters where again, it's probably domestic auto, healthy, and international, weak, is that a reflection of the international margins in auto or just not nearly as high as North America? So that mix is actually a net positive, and I should expect some pretty modest decrementals. Or are you already taking some costs out of those international auto businesses? Because again I thought that margin was pretty healthy for total auto sales down 8% and the decremental wasn't too bad.

Yes. Dave, we commented in the fourth quarter, and then in the first quarter that we've been starting up a new facility in China that we're really excited about because frankly the volume opportunities have been quite substantial in that marketplace. And as we look at this full year guidance of 12% in terms of the margin revenue -- or excuse me, the revenues -- the margins, excuse me, in that segment, we've been -- in the first quarter, we were down about a point due to excess costs of starting up the facility in the second half of about a -- in the second quarter, about 0.5 point. And those international margins would actually be even a little better without that. We expect that to be largely behind us now as we go into the second half.

And that's the confidence the margins are up in the second half sequentially in auto...

Correct.

Our next question comes from Eli Lustgarten with Longbow.

Can we just go over some points? You talked about power quality being weaker in the second quarter. Can you talk about what's your expectation there for the rest of the year?

The market has actually been growing a little less quickly than the power distribution market. And so that we think with pressure on individuals buying computers, server sales not being outstanding, that we don't see quite the strength there that we were seeing in the fourth and the first quarter. So our market within that overall forecast for both Electrical Rest of World and Electrical Americas is a little weaker now than it was on power quality.

And you expect, effectively, no change for the rest of the year from the second quarter for the...

We don't see a reason to assume there's a big rebound, Eli. That's very fair.

Right. And you talked about no expectation for Europe and China to get better. Brazil has been a mess that surprised everybody, the way it's been in the first half. Do you see anything happening in Brazil at this point? Or do we continue to see...

Yes. We don't think -- we think third quarter is likely to look a lot like the second quarter there. A little harder to call because the fourth quarter wasn't anything real special down there last year. So that no, we think this year you're going to see Brazil be a kind of a disappointing economy versus people's expectations. And that's pretty much our view for the rest of the year.

Okay. And then when you talk about truck market, I mean, you cut your forecast at 285,000 and you're holding margins. And the industry is showed to be producing about 310,000 first half. And the problem is the order rate, the 6-month trailing order rate is 232,000, down from 262,000 if you move it back a few months. How much sensitivity do you have if you have to bring that truck production down a little bit more to being able to hold that margin? And is there a risk of that happening?

Well, I think what you've seen from -- you're seeing from us kind of zones of profitability as we've been in kind of different -- whether it was the 200,000 or the 225,000 or the 250,000, I mean, all using NAFTA numbers here. And we clearly, at this point, are thinking we're in this 285,000 range. If you start dropping down to 250,000 or 240,000 or 225,000, all of which I think are highly probable, but yes, you do see us come down by points. And I think your best view there is probably, Eli, just to take a look at those years where we were operating at 250,000. And that will get you a pretty good view as to what our margin activity's likely to be.

Our next question comes from Jeff Hammond with KeyBanc.

Just as you talked to your sales guys or people on the street in China, I mean, what are the silver linings or what kind of gives you confidence that we're seeing any kind of improvement or that give you confidence in recovery into '13?

Yes. I think it's probably -- it's not as much I would say on the street discussions at this point because you'll get people who are at both ends of the spectrum that the recovery is a day away and that the recovery isn't going to happen for some time period. It's more about the actions that the government has been taking. And they've been beginning to cut interest rates. But we think that doesn't take a month. We think that's a 5- to 6-month impact in terms of that happening. You have a change in government coming. And frankly, we thought more would be done by now to try to get the economy up to a higher level ahead of seating a new government. It does look like they're beginning to move in that area. And then I would say selectively in some of the areas we do business, we've seen inventories pared significantly. And that's a very necessary precondition to try to get your production to ramp up to actually -- excuse me, orders to ramp back up to meet with actual production rates. So having said all of that, that's why we pushed it out of the fourth quarter because we think the actions had needed to be a little earlier and a little bigger to assure we would have seen a fourth quarter recovery. Having said all that, it is a very big economy. There are still very large projects to be done and need to be done, particularly on the energy side of the economy. And so we remain bullish long-term in terms of the opportunity in the Chinese economy.

Okay. And then as you jump through the various hoops to getting the Cooper deal closed, anything more definitive on timing? Or how you think financing shakes out relative to original expectations?

No. We still think, Jeff, it's a second half transaction. What we're very pleased about though is that if you think about those couple of comments I mentioned in terms of we're in that process of the S-4 review, we've had the Hart-Scott-Rodino approvals here in the U.S. and we have been able to get our finance facilities upsized, so I look at each of those steps saying, "Hey, we're very much on plan, and it's our expectation to close here in the second half."

Our next question comes from Christopher Glynn with Oppenheimer. Christopher Glynn - Oppenheimer & Co. Inc., Research Division: I had a question about Hydraulics. Just wondering how do you think about how much you've improved the scope of your participation on platforms globally versus before the great recession. And really, trying to get an eye on how much of your growth there has been cyclical and how much has been strategic.

Boy, I don't know I can give you a decimal point on that one, Chris. We're obviously, number one, we're participating in the fact that there has been a big recovery in the market. And we do think there's a very significant change that's taking place in the market that it's the mobile side of the market that led the recovery. And we're continuing to see very strong activity there. If you simply just take these last 2 acquisitions that we've announced, they greatly expand our capabilities. And really delighted with Jeil in terms of what it brings to us for a number of mobile applications, particularly in the construction marketplace, really widens our capability there. We're also, prior to doing these acquisitions, whether it be SEL or whether it be Jeil, we've introduced a number of new products that have really broadened our capabilities there as well. I'm quite enthused with some of the LifeSense hose capabilities we've talked about. We can take you through a whole list of products. So I think what you have in our Hydraulics business is not only a business that has more technology and more product, but it has done a really terrific job, the team has, of improving the mix of what I would call fixed and variable costs. And you've seen the margins improve quite substantially in the business. So we're really very pleased with the performance of the business, and then have added on top of that the 2 additional filtration acquisitions we did last year. And that business has now become a business within Hydraulics of real scale as well. Christopher Glynn - Oppenheimer & Co. Inc., Research Division: Okay. And then on Electrical Americas, would you say you're less weighted to public than the index?

Less weighted to, excuse me, Chris? Christopher Glynn - Oppenheimer & Co. Inc., Research Division: To public construction on the nonres side than the index?

No. I think because of our position, I think when you look at the whole nonres market for the Americas, that looks pretty much like -- or we look pretty much like it.

Our next question comes from Josh Pokrzywinski with MKM Partners. Okay. Moving on, Rob McCarthy with Baird, Robert Baird. Robert F. McCarthy - Robert W. Baird & Co. Incorporated, Research Division: I wanted to ask about the second half growth outlook from a little bit different perspective and recognizing that these numbers are rounded. For the second quarter, second quarter in a row, you've reported no outgrowth. Your guidance for the full year assumes about a 1.4% growth contribution from outgrowth, the implication then being for the second half of the year, it would add something like 2.5% to growth or maybe even a little more. Could you maybe rank order for us the top 2 or 3 contributors to that improved outgrowth performance that you're looking for in the second half, Sandy?

Yes. And we don't give specific guidance, Rob, on individual elements. And so let me maybe give you a little bit more general reply on the subject. If you look at our larger businesses, in Electrical Americas, for example, we've got pretty good visibility into what we've got in our backlog versus what the shipments are going to be. And so that's probably what gives us quite a bit of confidence when we look at the businesses where we've got backlogs. So we've got fairly substantial backlog in our Aerospace business. We've got fairly substantial backlog in our Electrical business. And we've got some backlog, obviously, in our Hydraulics business. And with the benefit of knowing what we've got kind of in-house, that's what gives us a little bit more confidence around these numbers. Robert F. McCarthy - Robert W. Baird & Co. Incorporated, Research Division: Okay. But there's an implication that something is improving in the year-on-year comparisons. And I thought maybe that you mentioned, for example, that the comparisons in the Truck business in Brazil in the fourth quarter, probably at least on the face of it, would seem to be a lot easier than they were last year yet you mentioned solar. Are there a couple of other important moving pieces that would have a similar impact?

Well, I think you've seen pretty consistently in our Electrical Americas business a record of outgrowth there. And it's a whole variety of products that are within there and important market segments that we're doing quite well in, so it's a little bit of all the fleas in the flea market because we're dealing with so many different products here. I get the gist of your question, but it's more like a 2-hour answer, not like a 2-minute answer. Robert F. McCarthy - Robert W. Baird & Co. Incorporated, Research Division: Fair enough. The other question I wanted to ask was -- surrounded your comments about price cost and really looking for a roughly neutral impact through the year. And with -- I would expect at least some -- and you mentioned it yourself, seeing some improvement on the cost side. I wondered if we could talk about where you see the most, I guess, pressure would be the right word, on the price side where you've got the greatest resistance there. And I assume maybe that, that would be Electrical Rest of World.

Yes. I would say the issue -- and generally, let's go back a year when you had commodities increasing fairly dramatically. Lots of company, not just our own, were trying to both find ways to cost-reduce product substitute materials, and then, yes, selectively increase prices where necessary. I think it's clearly a different market today. I don't think there are a lot of price increases out there at this point, and particularly with the uncertainty that's going on in the end markets. And so we're continuing to work really hard right now to continue to find material substitution where necessary but also to continue to introduce the products that are really creating a real value for our customers. And that's the way we think about it is that energy costs are starting to go up again right now. We've all been watching that again in the last 3 weeks, and that's starting to put pressure on issues where people want to invest. And we think we've got the high-value products that can really make that difference. Robert F. McCarthy - Robert W. Baird & Co. Incorporated, Research Division: So my takeaway, Sandy, is, I mean, if I've got this wrong, is that the elements are both about neutral as well. In other words, not much change on cost side for the full year, not much change in price realization.

Yes. And we've not given -- Rob, I appreciate your question. We've not given specific guidance on either because it's pretty much competitive information. But the net of no impact is correct.

Our next question is from Andy Kaplowitz with Barclays.

Sandy, you've talked in the past this year about building scale in the Rest of the World business to help that business, to help it outgrow and to help it with margin performance. How have you been doing this year? How is the build out going? And then is it possible to talk about how Cooper can help that business over the next year assuming the deal closes?

Yes. Let me speak to the Cooper piece first. And then I'll say just what we said when we announced the transaction is that if you recall going back into February of 2011, one of the items that we talked about in our conference in New York was that we were looking to increase our EBIT by about 4.5 points over a 5-year time period. 3 points would come from increase of segment margins. That was from the 13% to the 16%, and we've since increased that a little bit higher. The other 1.5 point would come in terms of corporate costs, with the largest portion coming from lower cost coming from the pension plan. We've not been particularly good predictors of the discount rate, so let me move right by that one and talk about the balance, which was about 0.5 point that was going to come through better absorption of corporate expenses. And part of those higher corporate expenses had come that we had invested in infrastructure ahead of growing our businesses in Rest of the World. And those are all our businesses, not simply the Electrical business. What we commented when we announced the Cooper acquisition is that it gave us additional volume into a number of emerging nations, where we had already built the infrastructure and should allow us then to reach our goals of absorbing those higher costs more quickly. So that we do believe will happen is something we talked about in our announcement at that time. And beyond that, I can't really say too much more about the Cooper acquisition. But I'd say that assuming all our assumptions were upfront in terms of what we announced, we still think that, that would be true. What are we building out in terms of our own kind of Rest of World activity, not only in Electrical but in businesses like Hydraulics, in Truck and Automotive? We've been continuing to invest in these areas because we really do believe long-term that those markets will grow more quickly than the developed nations. And so while the markets are weaker right now, we think the right strategic path for our shareholders is to continue to drive strong participation in those regions.

Okay. Just shifting gears to Hydraulics. Obviously, your U.S. Hydraulics business has been quite strong for you. I mean, you mentioned ag, construction markets have been pretty strong. What's the visibility like in that segment? How long can you see out based on your backlog in that segment that it looks relatively healthy still?

We're back to -- our backlogs aren't as long as they were in 2007 and '08 because I think at that point, people were feeling the world might never change and people had a little dose of reality, you've got to watch these cycles. But we've been operating at pretty similar levels in the business really since the third quarter 2011 through now. And so I would describe it more as a period of stability. You're seeing these negative booking comparisons for the first quarter and the second quarter of 2011 because those were just big booming year -- quarters, excuse me, both in China and in the rebuilding of the backlog by major OEMs. So generally, we're seeing out 3 to 6 months, but our forecast is as good as our OEMs' forecast is because they're the ones that are really providing us with the order commitments.

Got you. And then at least for 3 to 6 months, things still look pretty good in both of those segments.

Yes, they do and we're operating it at quite good levels. And I think the difference really in our forecast, just so everybody gets the tonality correctly, is that what we're saying is that China doesn't recover in the fourth quarter and that Europe stays more or less like it is. It isn't that Europe is getting much, much worse and it's not that we think there will never be a recovery in China.

So our last question of the day comes from Jason Feldman with UBS.

On Hydraulics, you've talked about the mobile side. Could you give us a little bit more color on what's happening with stationary, any particular areas of strength or weakness relative to what you saw last quarter?

I'd say fairly consistent. And we're not talking about big percentage changes here. And I think clearly, you're seeing U.S. exporters having a little different situation on their hands than they had 6 months ago with the change in the currency. But I would say that outside of the frac-ing market, which was really, really hot, as you came out of the end of last year, not dramatic changes at this point.

Okay. And then lastly, the tax rate was cut with guidance. And I'm just kind of curious because it sounds like if the U.S. market just seems to be holding up better relative to your expectations than some of the foreign markets, which presumably are lower tax jurisdictions, what are the dynamics there, given what's going on with the U.S. versus international end markets but the tax rate being lower, your expectations for the year?

Jason, it's Rick. Let me handle that. Not all non-U.S. markets are low tax markets. Brazil, for example, is a very high tax rate country. And so you have mix changes going on that are a little bit different than we thought about at the start of the year. And as we referenced in our earnings early, we also had some actions taken in Europe that resulted in a lowering of some deferred tax liabilities. And so there were multiple factors that resulted in the rate being a little bit lower than we had thought. For the full year, we now think the rate will be about 2 percentage points lower than we had previously thought.

With that, we want to thank you, all, for joining us this morning. As always, I will be available for the remainder of the day and on into the week to answer any follow-up questions you might have. Thank you again.

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