Ladies and gentlemen thank you for standing by and welcome to the Eaton’s Fourth Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. Also as a remainder, today’s teleconference is being recorded. At this time I will to turn the conference over to our host, Senior Vice President of Investor Relations, Mr. Don Bullock. Please go ahead sir.

Good morning. Welcome to Eaton’s Fourth Quarter 2013 earnings conference call. Joining me this morning are Sandy Cutler, Chairman and CEO; and Rick Fearon, Vice Chairman and CFO. We’ll begin today's call with comments from Sandy, followed by a question-and-answer session. Before I turn it over to Sandy, I’ll take a moment to draw your attention to the statement on Page 2 of our presentation. Our presentation today contains forward looking statements. Comments included on page two in the presentation outline several factors that could actual results to differ from those in these statements. These factors are also noted in today’s press release and the related form 8K. In addition this presentation also includes certain non-GAAP measures, as defined by the SEC rules. A reconciliation of those measures to the most directly comparable GAAP equivalent is provided on the Investor Relations section of the Eaton website at www.eaton.com. At this point I’ll turn it over to Sandy.

Great, thanks Don, and thank you all for joining us. I’m going to work from the presentation that we put out on the webpage earlier this morning. Now starting on Page 3, that’s titled highlights of the Fourth Quarter results. A number of items that I want to call your attention to here before we then turn later in the presentation to our guidance for 2014, and I'm going start on Page 3. Obviously you saw the press release, our operating earnings of $516 million, up 63%, our operating earnings per share up 32%, the $1.08 compared to consensus that was out there of about a $1.06, our own guidance for $1.05. We look at the elements in the quarter, importantly sales up 28%, right in line with the guidance we provided coming out of the third quarter. Significantly, the quarter revenue was 4%, really our best quarter in all of this year and we think encouraging in the momentum that we carry into next year. Segment margins, 14.6%. While they were up very strongly from the 12.1% last year, they were below our own expectations for the fourth quarter and I’ll talk a little bit more about that as we get into three segments in particular. Cash flow very strong - $872 million, up 27%, I think again converting on the promise that we outlined for you when we did the Cooper acquisition of significantly stronger cash flow and strategic optionality for the company. And then very significantly, the Cooper integration activities and savings remain ahead of our original schedule. You saw that we achieved a $115 million this year. You will recall when we started on the deal we thought that it’d be $75 million. Then we increased our guidance to $90 million and to a $115 million.…

Our operator at this point will give you instructions on the question and answer period.

Thank you very much. [Operator Instruction]

Our first question comes from Joe Ritchie with Goldman Sachs.

So my question is on the incremental margin guidance for ’14 of 26%. I was just trying to back into what your exiting the year organically, and if I pull out the $46 million in EBIT synergies, the currency impact of $3 million and something related to the sales energies that you got quarter, I’m getting something below 26%. And so maybe you can comment on the organic incrementals and your confidence in that number for 2014?

We’re pretty comfortable to all this. We look at - we went through our detailed operating plans and the way we had thought about 2013 is that really the core incremental would be around 28%. It was increased, if I mentioned by 5 point because of restructuring we took in fourth quarter of 2012, in our Aerospace, Vehicle and Hydraulics business. So we got along and thought that the kind of core was 28%. That doesn’t include ForEx and acquisitions from divestitures. So that was a little bit of a complicated reconciliation. The reason we think 26% is more appropriate for 2014 is that, we’re in an environment where we’re convinced market growth is going to stay a little more tepid, and we think in that environment you got to work a little harder to get the growth and that’s why we are investing more in and around growth initiatives, and that’s the rationale really across our business for the slightly lower incremental.

Okay, Sandy, that’s helpful. I guess maybe comment a little bit more about the -- is it fair to say change in tone? When we existed last quarter, the exact terminology was handsome bookings and then the bookings this quarter were also good. Has anything changed in terms of your tone and your outlook for 2014 that somewhat you’re seeing in the market today?

No, we’ve just completed - the start of [ph] around the trip with all of our businesses because you’re clearly -- I think when people look at the PMI data early this week, I think it shook a lot of people and we’re not seeing the kind of weakness that that might suggest. Now of course as always a lead and a lag of this, but we’re about 50% U.S. So that number really related to U.S., we’re continuing to see Europe’s strength and it’s a not runaway, but it’s strengthening. We’re seeing China continue to strengthen, again not a runway. And so the basic outline that we’ve had is that we expect global growth to be stronger in ’14 than it was in ’13. The big year-to-year difference is because Europe is a positive instead of negative, but we’re gradually seeing things strengthened here in the U.S. as well. So that’s the general outlook. So I say no, our tone hasn’t changed. I think the issue I can well appreciate that is challenging for inventors is that the enormity or complexity of all the purchase price accounting and adjustment that goes with a $13 billion acquisition, then getting it all closed in the quarter, it does introduce noise into trying to figure out what’s the pace of the business. And I would not let that overshadow our view of the opportunities we think we have ahead of us, nor our achievements in achieving all the synergies because that is a powerful story and it’s one that remains very much intact.

And just one last question. Perhaps you could just clarify, the 7% to 8% number that you gave us for U.S. nonresidential, is that total or was that just private?

That’s total.

Our next comes from John Inch with Deutsche Bank.

So, if we were to look at the systems business -- I think you tell these are sort of around a quarter -- up to a quarter of the mix. Is there a way to look Sandy at the down order growth rate if you were excluding government and utilities? Like what’s going in that business kind of pro forma expose two items? Is that -- I realize it’s the one piece segment, but what’s going on there?

We’ve talked about most of what goes into the nonresidential market tends to be assemblies and so our power distribution assemblies would be in that segment. Our big three phase UPS would be in that segment. Our pro-science business which has got a big oil and gas piece is in that regiment. And then as you correctly note it is true with our overall service business and our utility business. And so there are individual elements within that that are performing really quite well. We continue to think that the oil and gas market, in spite of some reports that have been out over the last month and half, everything we see is quite strong. The order book is strong. The projects are strong. Our quotations are strong. And so I’d say that the two elements or the three elements within the segment that have been weaker are the ones we’ve pointed out. U.S. government spending obviously has pulled back. We don’t think that’s going to roll forward here in this environment. The utility market is going through a fairly fundamental transformation that we’ve talked about all this last year, where you’re seeing real pressure on CapEx and a reallocation of where that CapEx is being spent. And I think you’re hearing from most people in the electrical industry that they expect utility spending to be flat to maybe a positive one, but not a lot of growth there. We think the opportunities are substantial in oil and gas. We’re quite positive on the continuing rebound in nonresidential construction in the U.S and we’re very big players in that market as well. We’ve been through some period where the UPS and datacenter markets have been a little bit different by region around the world. We are seeing Europe starting to pick in that regard. There is a real shift again of capacity to Asia-Pacific and we’re seeing good activity there. It’s been a little faster in the U.S. market at the big end.

And so Sandy, if you were to take out of this systems business, if you were to take out utilities and government, does it look like the rest of the business is strengthening in terms of the order book or is it not clear?

Yes, I would say on the oil and gas side, yes and on the non-res, yes.

Okay. And then Cooper, I think you made reference to this, this is Page 16 of the deck where the integration costs came through little lower, the cost of synergies very slightly less. What was actually going on there again? Were things just a little bit slower in terms of the integration activity? Were you a little more cautious or did you actually run into maybe little bit of unforeseen hiccups as you kind of went through the process?

No I would say no hiccups very definitely. It’s been moving very well. It’s really been the timing that we talked about in terms of announcing some of the manufacturing restructurings and we’re very comfortable where we are right now in terms of our ability to get the majority of those that we have not yet already announced launched. So I would say simply a timing issue of a quarter, nothing in terms of a restructuring headache or problem.

Okay and then are we still on track to, you had originally said no real large acquisitions or any significant until 2015. But clearly you would like to sort of maybe add around hydraulics and maybe provide more of a diversified base. What are your thoughts around maybe just sort of how you’re thinking about acquisitions this year really looking?

Yes I think the good news there, as we’ve always put this within the context of repaying our $2.1 billion of debt and obviously we get some optionality that’s going to come out of some of the cash we’ve freed up out of our businesses through a divestiture and we’ll decide what we’re going to do with when we actually close that divestiture. Our cash flow has been very strong. One of the reasons I laid out that repayment schedule for the debt is that still is our primary call. Now we’ve also not commented on dividend and our Board will take that up obviously later in this quarter. But we’re still not in the market in terms of any large scale acquisition until we finish paying back the $2.1 billion.

Our next question comes from Ann Duignan with JPMorgan.

I’ve got a number of questions here, but just on your Hydraulics business if I take your outlook relative to your bookings and suggest that maybe you are anticipating a significant slowdown, maybe even negative growth by year end, could you just give us some color to what you’re thinking and what you’re hearing from customers on the Hydraulic side?

Yes, I would say no, it is not that we’re anticipating any slowdown. And I think one of the things always to be aware in the Hydraulics business is, particularly with many of the mobile customers, when they make booking commitments, often the booking commitments go well out beyond three and a six month time period, very similar to what we saw in the cancellations in the 2008 time period. So personally I think the way to interpret the very strong six months bookings is the markets firming up, we’re seeing mobile market, not including mining, firming up pretty broadly and around the world. The tone out of the region that has been the weakest region of the world is feeling better, and that obviously was China. It’s still not breakaway but we’re starting to see some positive order behavior and we’ve told you we thought it would take quite a long time to fin out inventories of finished apparatus, not our apparatus, but our customer’s equipment that’s beginning to show some results in China at this point. And the industrial side I think feels or the stationary side feels very much like what we see around the world on industrial activity. It’s not a double digit number but it’s a fairly solid number in terms of mid-single digit and there are individual markets like oil and gas that are going stronger than that. So we’re encouraged that we’re seeing some stability in a market that has not had much stability over the last three years. But no, we’re not anticipating this slows down as we go through the year. We think this is building momentum.

Okay, that’s helpful. And then on the market out growth, could you walk us through where that out growth is going to come from by segment and in particular on the Vehicle side, since that’s where you incurred more cost?

This is a day long discussion to go through each of the business [indiscernible]

Yes, I can appreciate that.

Each of the product launches. I’d say again it’s -- a lot of it is the investments that we’ve been making over the last couple of years and both the new product launches which are a significant piece, a number of them are significantly customer commitments that we now have. We’ve also been investing very aggressively on the front end on these businesses. So my expectation of our businesses is that we outgrow these markets at 50%. That’s how we drive the businesses and that’s how our leaders are incented as well.

But anything in particular, particularly on the Vehicle side since that’s where you’ve incurred the most cost for new products?

And again I wouldn’t say that we incurred the most cost. It was simply, the launches that we had in the fourth quarter there were, in that sense, if you that’s what’s what you mean the cost, I wouldn’t say that the development is any more expensive. No I’d said they’re tied to both commercial and light vehicle launches and one of the things we’ve been pleased with, these light vehicle markets have been doing a little better than we expected. I know January looks like it was a slower number and some here in the U.S. attributed that to the weather but Europe has firmed from where it was. Asia continues to be a strong story and remember the capacity we were putting in place in China, when we finished up that big capacity addition to support our engine valve and electric capability there in China. And our supercharger story continues to be a very powerful one for us. So I wouldn’t pick anyone out in particular.

Our next question comes from Nigel Coe with Morgan Stanley.

So Sandy, good momentum with the revenue synergies, and the bulk of that $50 million came in, in 4Q. So if I just simply run rate that, it seems that the $35 million for ‘14 seems quite conservative. Would you agree with that?

I think as we try to lay this out and we will obviously have a better view on that as we get toward the middle of the year, but I would tell you that I think our integration teams are doing really superb job, both on the cost side and very importantly on the commercial side. We have always said that this was an enormous undertaking on bringing together the commercial front ends of these two businesses, because they are both highly capable. They both work through many different distribution channels and 2013 has been a very important year of laying that base to do it well and I think any of you who’ve been out talking to customers in the electrical industry or channel partners, you would get a sense for what our customers see as happening in the marketplace and we are pleased that we matched market share gains in ’13. We would expect to do so again in ’14 with the powerful base we have implanted. It’s a little higher for me Nigel at this point in January with snowstorm about to arrive here in Cleveland to say that we got a full vision of the year as to what’s conservative or not. But we came out of the year with really good momentum and we carry that into this year and that’s a positive.

And then just switching to the electrical businesses. Obviously we’ve seen quite a big diversions in end market conditions in ‘14 and I am wondering can you just remind us on how that impacts mix and then addressing ESS specifically, are you seeing any pricing pressure on some of these projects?

I think Nigel, you are right. As we look at many peers and lot of discussions with industry forecasters as well, you are seeing some very different numbers depending upon the segment that people participate in. And so clearly, and if you look in lighting, you are seeing some numbers that are higher than the average we supply here and a big piece of that’s driven by LED and we’re growing at every bit of that. That’s why I quote the 37% LED penetration for us. On the other side utility, generally people are thinking the market is growing slower, although there are some people having advantages in their -- through what I will call, logistic play as the utilities are trying to find ways to outsource some of their cost. I think on the industrial side, our industrial business, I quoted the numbers, double-digit growth are growing much like you saw and some of the really good industrials announced by a couple of our peers. Non-res, I think if non-res is to increase like we think it will be, Eaton will be one of the big winners because we’ve got a very big footprint in that area and do very, very well. And then when you come back to the UPS area and generally kind of the overall power quality side; last year being ’13, a disappointing year in terms of single phase as you really saw not a lot of innovation in or around the server markets. We are starting to see single phase look a little better this year so far and we do think that you are seeing some of the larger data center activity returning, although not as much in the U.S. as you are seeing that activity really return fairly strongly in Asia. So I think again it depends very much which competitors are dealing in which one of these verticals. We are pleased that we have got a pretty balanced participation across them. We think 3% market growth is representative of what you look at globally but again the U.S. is going to be stronger than that number. Europe is probably going to be a little weaker than number and Asia maybe a little bit stronger in that number. So, again somewhat colored by where people are from a geography point of view.

Okay. But, so when you put all that together, how does that impact the margin mix?

Well, I don’t think it changes our margin mix substantially because we are really fairly well balanced across and I would say as long as -- and we built our plan on the weaker utility piece. I mean clearly if we’re counting on 6% to 7% utility, it would not be a real realistic plan at this point. But I don’t think it changes our margin mix as much, I think the bigger player in terms of the margin in the two electrical segments at this point is getting that additional $95 million of synergy. That continues to allow us to increase that overall margin performance if you put the two segments together by just less than one point.

Okay, great. And then just finally maybe for Rick. Can you just clarify the 5% tax rate for 2014? Is that the new structural rate for Eaton, post Cooper?

Nigel, as you have seen over the last couple of years, the tax rate has been impacted by the closing of the transaction and the final steps we taken. So, we are now entering a time period when the rate should settle down. 5% is still probably below the medium term rate. It probably still is in the 8% to 10% range that we have talked about in the past. It’s just that this year there still are going to be we believe a couple of discreet items that may push the rate below that more steady stayed rate.

Our next question comes from Joshua Pokrzywinski with MKM Partners.

Just a follow up on that last comment, Rick about the discreet items. Any idea when those are coming? So when we get a big negative tax rate we can kind of see that in advance?

Well, discreet items are discreet because they happen when they happen and it really -- I’m not even sure which at the end of the day will occur. The world of tax is very complicated and you do a survey of all the things that might occur and based on that survey we believe that we’re likely to have some discreet items. But I can tell you which ones are when.

Okay. That’s fair enough. And I guess just moving on to the Hydraulics segment, it seems like the tone has been that -- incremental margins there should be pretty healthy coming off the bottom here and it seems like bookings have inflected. You guys are getting good feedback on the length that customers are willing to go out and clearly you’re starting to lift off the bottom here but the March end guidance didn’t really seem to bake in anything more than that kind of Eaton underlying rate of 26%. Is there something going on there on the investments front or is there something from the mix perspective that we’re missing.

I think, Josh, I think the primary issue just is continuing to invest in the business for growth and so that if we come in with much stronger margins, maybe pushes these things further, but as we see at this point we’re wanting to continue to invest in the business for growth and we think roughly half a point is about the expansion we’re likely to see this year in terms of margins.

Got you and I guess same question on ESS. Is that a mix issue there? I would imagine you’re getting some synergy help but again not really much above the fleet average there, despite the Cooper contribution.

And clearly I would say, just between the two businesses too, we’re learning the mix of these businesses and I think everyone may recall last year when we started the year and we were trying to provide people with some guidance about the two segments, we said we thought they would be about the same size and obviously, when we got to the end of the year, we found out one was bigger than the other and so the dynamics are a little different than perhaps we anticipated. Some of the assembly markets that I mentioned grew a little less quickly. Our best estimate is both these two segments are going to grow about 3% this year but just as I think Nigel’s question earlier, there’s a lot of complexity within each of these end markets that can cause them to move slightly but I think for planning purposes at this point, thinking that will be about 3% and that we’re going to see similar margin expansion as it may be the best way to start the year. We’ll get another quarter of experience and we’ll tune it up at that point.

And if I could just one last one. Sandy mentioned that you’re still feeling good about the non-res market and I think maybe the complexion of that varies by the definition of non-res, other company with different definitions. But how are you feeling about industrial CapEx? That seems like an area where we’d some pent-up spending for a couple of years. The propensity you’d invest back in the business has been lower. Are you getting the sense that that is starting to break loose as well?

Yes, I think of course within non-res areas like oil and gas where we see pretty good spending and say you’re right, we did see right when we came out of the recession, we saw a little pop in industrial spending and then it kind of pulled back and we are seeing good examples but I would say it’s not like we saw in the 2004, 2005, 2006 time period. So, it’s still not back to that level.

Our next question comes from Steve Volkmann with Jefferies.

I’ve sort of been answered but I guess I’m just going to ask for little clarification. Sandy, obviously orders in Hydraulics are very strong here and your outlook still fairly muted and sensitive that orders can be longer term but it has to be pretty long term, it seems like -- it just seems like that’s a very big gap between those two things.

Yes, we’ve seen this before Steve, where we’ve seen big orders and what people want to do with wanting to reserve capacity and hopefully what we’ll see as some of that reserve unit capacity get pulled into in terms of true shorter term re-leased orders. Nothing would please us more. As we see it at this point, we think this is the right way to be thinking about the year but you’ve got some segments in here, such as agriculture that we think are likely to be weaker this year. You’ve got mining being weaker but we are seeing some of the other areas I talked about in terms of some of the construction side re-strengthening, part of that simply getting back -- production back to equal sales because people have been cutting inventory so significantly as I think you’ve heard from a number of large OEMs. So like to believe it’s going to go higher. Perhaps as we get into the year, this year we’ll see that but at this point we think this is the most prudent kind of planning number.

Okay, fair enough. And then just on aerospace and I apologize if I might have missed this but it looks like the implied incremental margin there is sort of 10% or maybe even a little less than that. I assume that has to do with some sort of mix in R&D and so forth but is there is anything to say about that.

Yes. I would say really that the issue of trying to decide whether we go at a 14% margin or 14.2% or 14.3%, I said the rounding is probably the more controlling issue than how we feel about the business. We think it’s going to be a year of roughly 3% market growth. The same issue is going on in the market, strength and commercial weakness on defense. And still this relationship in, with aftermarket, that’s not as attractive as it was a number of years ago, where you’ve got say 65% of the market being OEM, 35% being aftermarket. At some point, we all know from having been around this business for over 30 years, that will go back to 60-40, but it’s not happening right now while you’re continuing to accelerate the number of commercial, primarily commercial transports that are being put up and the numbers again this year look like we’re getting another strong year of production gains on the commercial side.

Okay, great and then maybe just a quick on for the Rick. It sounds like your confidence in the tax rate is still somewhat less than total maybe. I don’t know what right way to say that is. But I’m wondering, will there come a time when we can kind of get a lot of these tax adjustments behind us and sort of count on fairly stable rate, whatever that rate maybe and do you have any sense of what that would look like on the horizon?

Well, the steady state rate we think, absent one off type items is likely to be in the 8% to 10% range. And we think that as we get through this year and into ’15, we would guess at this point that you’re likely to see fewer of those kind of discrete items. Whenever you do a very large transaction, there are, it just takes time to work through open issues and so the way to think about it is, I think once you get to ’15, you’re going to start seeing more stability.

Our next question comes from Julian Mitchell with Credit Suisse.

I just wanted to follow up on the U.S. non-res guidance for this year, because I think in late October you talked about 5% market growth, your sort of initial planning back then. Now it’s 7% to 8%. But I guess in the interim, your bookings growth in Electrical is slower in Q4 than it was Q3 but a lot of that is I guess utility on the ESS side, but what’s the kind of higher growth rate in non-res based on? Is it your own bookings or is it more external factors, like the Dodge Momentum Index and so on?

Julian, your memory is exactly correct. We were talking mid-single digits this fall as preliminary outlook for ’14. I think what’s increased our confidence in that regard is, yes, there is a lot of public data, whether it’d be different booking indices, but also when we look at our own project bookings and look at the projects we’re working on , it well seems to support us. One of the advantages, we’ve talked about this historically we’ve got is we’ve got a very large sales force that’s out working projects that aren’t going, and in the market for six to nine months and so we think we’ve got a very good window in that regard and that’s what gives us the confidence around this number that little higher than what we’re talking about in the third quarter.

Got it. Thanks. And then within vehicles, you talked about the margins being way down in Q4 by the launch cost. Is that something that drags kind of significantly on into Q1 and so Q2 is when you really the snapback in that vehicles margin?

Now, we think we’re going to see in the first quarter. We got pretty well to rate that we needed to get to by the end of fourth quarter. So we think we’ve got those issues kind of under our belt and behind us at this point.

Thanks and then lastly within ESS, I understand the orders are very lumpy, but I guess trailing 12 months, the orders are up about 1% and you’re talking about maybe 4% organic growth for the year ahead, including outgrowth for that segment. So are you sort of expecting a big pipeline of orders to come through early on in the year?

I think key to -- when we look back at 2013 is again the geographic nature of where that demand was coming from. So we had more weakness in Europe and Asia. Those markets were weaker than the U.S. and we happened to see both those markets strengthening, versus where they were in ’13. So that’s really the key to that equation.

Our next question comes from Eli Lustgarten with Longbow Securities.

Can we talk a little bit to Vehicle just very quickly. Even with the 1.8% margin hit from the start-up’s new product, I guess given the strength of trucks and how trucks are behaving as you go into the fourth quarter and first quarter and the strength of automotive, is there something going on that’s keeping the margins a little bit lower than you’d expect it, particularly in the truck sector, because you’d think that with almost steady state production, that the profitability would be better in Vehicles in both parts of automotive and truck?

No, I wouldn’t say so and this is pretty much, it’s pretty normal. We’ve gone back and looked at a bunch of years, third to fourth and with that difference of the 1.8 that I mentioned to you, it’s very much right on the button. Remember in the fourth quarter you typically have weaker production, primarily down in Brazil. So there you lose kind of half the month down there. And that’s the primary driver outside of the seasonal demand issue that tends to have our fourth quarter be weaker from a margin perspective than the third quarter.

And you’re still expecting Brazil to be very tough in the first half of the 2014?

Yes, our feeling about ’14 for Brazil in the vehicle market is it’s a down year.

And, as you go through the -- if you look the electrical businesses, is really where 3% growth is identical for both sectors and one gets 140 basis points in margins and the other one gets 35 basis points. There is a huge difference in the profitability outlook for the second half of ‘14 versus ‘13 given the kind of environment. I mean it almost seemed you expect electrical products to be probably up a bit more and electrical systems to probably lag a bit to justify that kind of margin differential improvement.

A big piece of the margin differential improvement has to do with where the synergies are dropping into, and the majority of the synergies happen to be dropping into the products segment versus the S&S segment.

So that $95 million is what? Two-thirds, one-thirds or more than something to that effect or more than that?

And remember a portion of the 95% goes into the corporate. So the whole 95% doesn’t go in there, but the vast majority goes in there and then the biggest percentage of the synergies in the operating side are dropping into the products versus the S&S fees, yes.

And just a quick one for Rick. Should we be using 9% for our tax rate in 2015, because that’s sort of a critical variable as we look out?

8% to 10% is the range that we can see now and I think using the midpoint of that is a reasonable number.

Our next question comes from Steve Winoker with Sanford Bernstein.

Just so I understand on the synergy point on Slide 16, when you took out, you talked about timing and the $105 million costs are going to a $100 million but left [ph] 2014 it went $75 million; similarly on the sales synergies. So is that sort of $5 million kind of just gone or how should we think about that and I know you said it was just plant timing. Just maybe a little more clarity on what’s really going on, the cost synergy there?

I guess I wouldn’t try to over-deduce a direction out of it. We still are absolutely confident in getting the 210, which is plus of 95. I personally the big significance is that we have actually exceeded what we originally thought we could do in the sales synergies. What we had increased twice during the last year were the actual cost portion of the overall synergies. So while we had to push some announcements into the first quarter and that’s really again the reason that you see. If you look below on the acquisition integration costs, you see them push out. We’re still very confident that we’re going to get all that cost synergy and I think I would suggest that your confidence in the sales synergies and that’s the margin that you see from the sales synergies on that line are to be going up by the fact that we have done so well in the first year which is typically the difficult year to get sales synergies.

Okay. And so I understand the restructuring plan, I think you mentioned $168 million for the year. That baked into the 26% incremental margin on organic growth resident [ph] or someplace else?

Okay. I was just trying to get my head around that, because you had talked about 5 points additional to incremental margin in 2013 versus 2012 based on higher debt restructuring a year prior.

That’s a different issue. Let me take you back to it. In the fourth quarter of 2012 we announced restructuring in our Hydraulics, Aerospace and Vehicle businesses. The cost that we took, which was $40 million in the fourth quarter plus the benefits that we would achieve in 2013 added five points to our base 28% incremental. That’s why all through last year we used a 33% incremental rate on increased sales over 2012. So this year we’re saying that our incremental rate for 2014 over 2013 is 26% and that really compares to the base 28% we were using the year before.

Okay. So just one last sort of more strategic question around utility demand and that having flattened out and change, did you see that at some point normalizing or do you think this is really more of a structural shift now in demand pattern given all the puts and takes in that industry?

I think you will see spending move back to -- remember there are three segments; that are generation, transmission and distribution. And what’s happening for many U.S. utilities right now is as they are being pushed to retire coal facilities, they’re having to covert those coal facilities or establish substitute capacity using cleaner sources of energy, whether that’d be gas or solar or whatever. So more of their expenditures are being pushed into that, let me call re-characterization of their generation capability. It’s being pulled out of distribution. It’s one of the reasons why you find the distribution network so fragile currently, whether it’s in storms or other natural disasters, because there is not as much spending going in there. It will have to go back in there at some point, just because the fragility of the distribution system is fairly high and if you continue to introduce alternative sources onto the grid, the quality of the grid, the adaptability of the grid and the stability of the grid become really important issues. That’s sort of a crisis that’s going on in terms of deciding where you spend the money in the U.S. utility industry. So I think you are hearing every utility talk about it. They are all trying to work through this issue. They are caught a little bit between regulations and demand. But it’s having a short term impact of reducing spending in T and in D and pulling it into re-allocating or trying to re-characterize their generating sources.

And I don’t think anybody asked about momentum through the quarter and into January, maybe just address that.

I did mention earlier that our quick survey of our businesses in January, because obviously there has been a lot of economic data that’s been flowing over the last two weeks as we continue to see demand very much as we expected it to be in January and we’re not seeing the indications that the PMI that came out earlier in this week would suggest of a market slowdown and in U.S. markets that’s not our visibility at this point.

So you think that was maybe weather or just not sure what…

Hard to know. The big differences between the two different sources of information on that, I think that’s as informative as anything else right now. Everyone seems to be taking ownership of one and ignore the other.

Our next question comes from Andy Casey with Wells Fargo.

I just wanted to return from a bigger picture to the outlook. We’re seeing some positive indicators aside from that ISM indicator you just talked about. And if your order strength in Truck and Hydraulic markets and you gave some pretty robust construction views for ‘14. All of this seems pretty similar to when we were at the end of 2011 looking into 2012. Compared to that here the market view is about 200 basis points lower, another 3%. Other than the Cooper mix, is the end market view more a reflection of increased conservatism being built into how you look at the markets?

It’s a good question Andy and it’s always hard to be totally reflective on this, but I would say that I think what our view has been is we have experienced disappointing global growth over the last three to four years versus when most of our experience is, really going back into the late 90s and early 2000s and as we look at where the sources of growth are going to be this year, we kind of put it in three buckets and that’s been our belief really to the second half of last year and this year as well; is the U.S. would go through gradual continual improvement, not a break out, but would be better in ‘14 than ‘13, a little different by segment; Europe would reach stability and move into growth in 2014 of a low level, but still would be growth, and that China would begin to stabilize, not get well but stabilize to a degree that we hadn’t experienced through ‘12 and ‘13. Now the emerging nation theme that everyone has been examining very hard over the last three to four weeks is clearly one that was rocky through last year and we think is likely to continue to have some bumpy portions through it this year but overall we think that global GDP is going to get better, manufacturing industrial production is going to get an even bigger increase than the increase simply in global GDP. That’s the backdrop for this point. We do not see a U.S. budget crisis occurring in the first quarter, which we have had the fun of dealing with the last couple of years and that takes one more piece kind of off the table. But I think we’re realistic in the fact that we don’t see global growth accelerating at a high pace. We think it’s accelerating at a rate that we can do very well within but it’s not one that’s a breakout.

One follow up and I don’t know if this analogy is right. But in the last few years and you just kind of described it, it’s kind of like somebody driving with their foot on the gas the other foot on the brake pedal, and kind of immediate choppy. Are you seeing any difference in that?

Well I think the two that I would point to right away is number one, it looks like we’ve got a period of a little bit more stability in U.S. government policy around budget. And whether you like or not is a choice of people’s flavors but it looks to be a little bit more stable. And it does looks like Europe is out of their recession. They are not in a boom period but they are in recession. Those two alone are a big plus. I personally think that figuring out the China growth rate is more complex than figuring out the issue in Europe and the U.S. at this point and you hear very divergent thoughts on it. We are actually seeing our sales increasing in China, we have for several quarters, not at the rate that they once did but at attractive rates. And I think your analogy is a good one Andy. It has been a choppy global economic environment over the last couple of years. What we’re laying out in terms of our guidance is that we think there is prospect for it not being as choppy, but that doesn’t mean the growth is going to accelerate to 5% or 6% global growth.

Okay. And then one clarification and I will leave it for others. The 2013 for the Vehicle margin, if I add back the $17 million product launch cost in Q4, it gets a full year to about $15.9 million and from that adjusted basis the guidance for the full segment implies about a 20% incremental margin in 2014 and for that particular segment that seems little subdued. Is there something in 2014 and somebody asked a similar question earlier, is there something in 2014 that’s causing a little bit of a drag on the normal incrementals?

No, I would say it’s more of a rounding issue there in terms of what we’re dealing with. Remember you’ve got to put some of the ForEx over that particular segment as well because they’ve got some significant participation in both Europe and Brazil.

And our last question today is going to come from Andrew Owen with Bank of America.

So, two questions, just more sort of big picture questions. The first, how are you guys looking at price-cost equation going into 2014? You have enjoyed many years of sort of positive spread and do you think it’s sustainable?

We don’t see really a significant move one way or the other, either from commodity pressure or increased pricing at this point Andrew. So not a significant factor plus or minus in terms of our margin guidance for this year.

So, what do you think the NAFTA trend price cost, so net pricing 1%?

Across all of our different businesses, I would be hard pressed to add that all up. It’s not going to be a significant number. And again the way we think about it is it’s not so much of a net pricing on existing product, it’s our introduction of new product which is where we tend to have the opportunity to bring in new features and functionality to our customers, that have an increased value. That’s really where we get an increase in margin if you will for the period that we can bring that increased value.

That makes a lot of sense. The second question on the emerging markets and FX fluctuation, are you seeing a change in your distributor behavior? Is credit getting tighter? Are people managing receivables more carefully? Could you comment on that and particularly in Brazil?

I would say the biggest issue where we see in the credit challenge for small businesses like distributors or dealers has actually been in China. It’s been very, very difficult for the last nine months in China for small business people. And I think this issue of the credit tightening or let me call the selectivity of those who are able to get credit has been a bigger issue. I’ve personally not heard as much about that in Brazil. I know Rick, if you heard out of Brazil on that issue?

Not anything in particular Andrew and also our business in Brazil too is much more OEM.

Well, thank you all for joining us today. I know there are a number of callers with questions we weren’t able to get to because of time constrains today. As always, both myself and Mark will be available later to take your calls and answer any follow-up questions. Thank you very much for joining us today.

Thank you. And ladies and gentlemen, that does conclude your conference call for today. We do thank you for your participation and for using AT&T executive teleconference. You may now disconnect.