Ladies and gentlemen, good morning. Thank you for standing by and welcome to the Eaton First Quarter 2016 Earnings Conference Call. At this time, all lines are in a listen-only mode, later there will be an opportunity for questions and instructions will be given at that time. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the conference over to our host, Senior Vice President, Investor Relations, Mr. Don Bullock. Please go ahead.

Good morning. I'm Don Bullock, Eaton's Senior Vice President of Investor Relations. Thank you all for joining us for this morning's first quarter 2016 earnings call. With me today are Sandy Cutler, our Chairman and CEO; Craig Arnold, President and Chief Operating Officer and Rick Fearon, Vice Chairman and Chief Financial Officer. The agenda this morning is going include opening remarks by Sandy, highlighting the performance in the first quarter along with the remainder outlook for the remainder of 2016. As we've done in our prior calls, we'll be taking questions at the end of Sandy's comments. The press release and the earnings announcement and the presentation we'll go through today have been posted on our website at www.eaton.com. Please note that both the press release and the presentation do include some reconciliations to non-GAAP measures and a webcast of this call is accessible on the website and will be available for replay, later in today. Before I get started, I want to remind you that our comments today will include statements related to future results of the Company and are therefore forward-looking statements. Any of the areas of uncertainty around those will be outlined in our 8-K. And with that, I'll turn the comments over to Sandy.

Great, thanks Donny. Good morning, everyone. Thanks for joining us. I'll be working again from the presentation that was posted earlier this morning and why don't we turn to Page 3, it's entitled Highlights of Q1 Results. I think as you saw from our earnings release. Our quarter was slightly ahead of original expectations coming in the upper half of our range. It positions us very much on plan for our full year guidance and really not much has changed in terms of our view of either how markets will progress this year. We're seeing the economy, nor how we see our prospects for this year. You saw the operating earnings per share were $0.88. Our sales of $4.8 million were down 8% from a year ago organic revenue was down 6%. You may recall it, as compared to the fourth quarter. We had said that we had expected our first quarter sales to be down about 5%. We actually came in a little bit better than that. And then the Forex impact down 2%. Really strong segment margins, exactly in line with what we'd outlined in terms of our guidance and when you exclude the restructuring cost that are part of our three-year restructuring program margins were actually 15.1%, that are really quite strong for our business mix in the first quarter. Very pleased with our cash flow, the first quarter $371 million. We were able to purchase back $100 million. We recall our full year plan as a $700 million buyback and then we announced the dividend increase a 4% increase in February. If we move on to Page 4 and just to comparison to our guidance, pretty simple. Higher revenue, than we expected primarily organic, a little bit FX for $0.02. And then we did spend a…

With that, I'll turn it to the operator, who will then provide instructions for our question-and-answer session.

[Operator Instructions]

Our first question this morning comes from Steve Winoker with Bernstein.

I appreciate you moving that with lightning speed. And Sandy, I want to of course start by congratulating this might be your last earnings call, as CEO. Retiring and moving on. So fantastic, I think the stock is up like four times since you took over or more. So well done. I guess I'll just start also with tax and the treasury rules and regulations. Haven't really got a clear picture and how you're thinking about, how your tax rate may be impacted by this, the timing of intercompany loans etc. on a perspective go forward basis. If those proposed rules become final.

Great, thanks. Steve. I'll ask Rick to pick that up, it's obviously something we've given a lot of consideration to.

Hi, Steve. We've obviously studied this at some gap and the conclusion we come to, we don't see any material financial impact to Eaton from the new regulations. We believe, our guidance for 2016 will not be impacted and in fact, the guidance I gave on the last call longer term, which is a tax rate between 10% and 15%, with the rate stepping up slowly from the 9% to 11% for this year. We think it's still the appropriate guidance for later year. So in some, we don't see any material financial impact from the regulations. We do however see the need for additional administrative actions to meet the documentation requirement, for the new regulation for new debt that you put in place. I think as you know, the regulations only impact new debt, they don't impact debt already in place, but those administrative actions won't have any material financial impact on Eaton.

Okay, that's good to hear. Could you maybe dig into the electrical product improvement that you're seeing and I'm trying to get a sense also for what is and in this, probably goes some of the other segments? What sort of comp driven versus really fundamental demand changes. In this case, obviously LED penetration, large projects. Maybe just give us a stance for where the strength is business wise as opposed to just geography.

I'll be glad to, as I mentioned. The couple areas clearly the residential businesses have been doing very well for us and so that's both in terms of the load center circuit breakers, pull outs as well as wiring devices. Lighting continues to be quite strong, the single phase power quality which we report in our electrical products area, has been strong as well and it has helped. That, what we've seen over the last couple of years is we've seen strengthen these areas in the US, that haven't seen much strength in Europe in that regard. Europe's had a far better quarter in that regard as well. So I would point to those as being the areas of real strength. The areas that have offset it, because you look at 2% and say that's not kind of growth we were seeing a couple years ago, then still the industrial markets. So that's both industrial MRO and industrial OEM continued to be the weak spots and so we see that on a number of our products, we sell directly into those markets.

Okay, all right. Thank you. I'll pass it on.

Our next question comes from Ann Duignan with JP Morgan.

Can we dig into the vehicle business a little bit Sandy or whomever wants to address it? That business, that Brazil piece is trucks and agriculture. Can you just talk about what you're seeing in the fundamental both of those businesses? Any either of them reaching trough [ph], any signs of life standard [ph] in either of those end markets, please.

Yes, I think its signs of life is maybe the right way to describe. Obviously the political and economic situation is so difficult in the country right now and to say, that we've got better transparency than anybody else on what's going to happen there. When we overestimate our capabilities to have those insights, so we continue to see this year's that, a year that is actually declining in Brazil. In our view of Brazil at this point, where our vehicle markets is, as I mentioned upfront worse than it was starting the year. So no, we're not seeing a turn in Brazil.

Okay, thank you and then just a follow-up. Asia is a large place. When you talk about Asia across your different businesses is it all China or is there any other markets that are worth noting?

I think, China is clearly one of the big players in that regard and you know, we have for several years, felt that the China economic data was maybe a little bit more bullish then we were actually seeing at the street level. That continues to be true but, we're not seeing our business in China growing at this point and in fact, we've seen it pull back slightly. So and when you get into certain segments, you're seeing in our electrical business or example some of the utility activity in China has pulled back. And in our vehicle businesses, the markets on the light vehicle side has stayed relatively strong. They've been pretty choppy in the commercial vehicles, over the last couple of years. That's probably the biggest piece of, but I would say that Asia in general is not been stronger in this time period. Craig, would you want to add anything to that?

No, I think you've covered. I mean, I think it's maybe a green shoot or two, in terms of what's going on in some of the hydraulic market. It's too early to really to call that we've hit bottom. But we certainly saw in the month of March and probably some of the other data that you follow as well that, perhaps some bottoming in some of the construction equipment markets in Q1, but once again probably too early to call if we've really reached bottom or not.

Say the one area maybe [indiscernible] didn't mention Ann is, that the aerospace markets really outside the US and that does include Asia, it remains strong.

Right, thank you. That was pretty broad. So I'll leave it at there.

Our next question comes from Julian Mitchell with Credit Suisse.

Just on the vehicle segments again. Obviously, you went through last year in hydraulics in each quarter you were cutting the sales and or the margin guidance as you went through the year. One quarter in for vehicles you've cut the sales and the margin guidance. So I guess, what issues do you think different for this year, when you're looking at vehicles, guidance and the assumptions behind it versus where you were on hydraulics one year ago.

Maybe I'll grab that one, Sandy, if you're okay, with that. But I say Julian the big change for us at vehicle this year really is centered largely on North America class 8 truck. The other market buy in large are performing as we anticipated. The light vehicle market in China is doing fine. Europe's in light vehicle is doing well. As you probably saw on some of the data, we're not a big player, but the truck market in Europe is doing well. Yes, we had some perhaps a little bit of another leg down in South America, but at this point the denominator is so small that it really doesn't matter a lot. And so really it's a function of the North America class 8 market, and coming into the year. We had a 250 number out there for the market, which was quite frankly one of the weaker numbers of anybody forecasting the market and coming into the earlier part of this year. It appears that we have about 20,000 units of inventory overhang, that's fundamentally affecting the North America class 8. If you take a look at 80 [ph] truck tonnage, where some of the key markets that are the indictors for those markets for longer term. Those markets are doing okay and so we're really, we're going to a bit of inventory correction right now, in North America class 8 and that's principally reading, we reduced our forecast. And that's 230, we think once again, we have one of the more conservative numbers out there. So at this juncture, we think we're well positioned in terms of the year and so we don't think, that there's going to be a case of every quarter another down to revision.

Thanks, Craig and then just my follow-up with the on the electrical businesses. Just wondered if you saw any change in demand trend as you went through the last few months in any of the major regions or verticals?

Yes, we've seen nothing substantial, Julian. And I think, a more broadly a number of people I'm sure are curious about how do we see March difference than January, February and I'd say that, not significantly different than we would normally see it, first quarter. So we have not seen an acceleration in demand if you will, that has been unusual in the month of March. And if go back to the comments that we made right at beginning of the call, is that. We see the year letting out very much as we did, number of you thought we were conservative in terms of our economic outlook for this year, but when we see US GDP coming up, the kind of numbers that did the other day. We think it's more confirmation that, this is likely to be a slow growth the year on the industrial side and the real premium has to be placed upon getting cost out and then trying to buy back shares and that's very much, what our plan is built around.

Very clear, thank you.

Our next question comes from Scott Davis with Barclays.

We've seen a bit of pop up in steel prices, copper things like that and I think at least in the US, your LIFO accounting, I think. Memory serves me right. But, are we at the point of cycle where you can go out and get price even potential a little bit more than just a pass through. Are we still just trying to get a pass through here and can you, probably get a pass through I guess particularly when you think about things like vehicle or hydraulics.

It maybe, these things have issues of timing and there is usually some sort of lag. I think, when I'll ask Craig to comment as well. We're more a view at this point, that we're getting slight positive in terms of margins as we mentioned our guidance this year from the tailwind. Yes, some things have picked up but I think you have to see pick up a little longer in this before you'd really see price traction from commodities. I don't know, Craig. How do you feel?

And I absolutely agree with that. Despite the fact that we have seen a little bit of pick up you know over the last 30 days from a standpoint of planning assumption. We're still within in many cases below our original assumptions for the year around where commodities are going to go. So at this point, I think it'll be clearly premature to think about, we're moving into an inflationary piece of the cycle. Only balance that we've set in the past, we think our net between material cost coming down in price are about a net neutral for the company and we continue to believe that's where we're positioned.

Got it, fair enough. And, I don't think you guys mentioned M&A in your prepared remarks. At least, I didn't hear and no one's asked about it yet. But are there, transactions out there that you guys could perceive getting done by the end of the year?

Yes, I'd say on the M&A front, what we said is that from a priority standpoint today. You know we're really focused on first and foremost, you know investing in our businesses to drive organic growth. We think we have plenty of opportunities to do that. Secondly, we said we're really focused on making sure that we maintain a strong dividend and then we also said, that share buyback in this environment where our stock is trading at below the valuation that we think is fair, is the priority. And so at this juncture, we continue to be focused on those priorities. We've committed to buy back $700 million worth of stock this year. And quite frankly, given our priorities right now we don't think there's going to be a lot of latitude from balance sheet standpoint to do much in the M&A front. There's always things that we're looking at on the margin and we'll continue to look, but today that's not the priority.

I'll pass it on to Sandy, congrats in your retirement and it's been a pleasure. So I'll pass it on.

Thanks, Scott.

The next question comes from Eli Lustgarten with Longbow Securities.

Your line is open, sir.

I'm sorry, can you hear me?

Yes.

My best wishes to Sandy, upon retirement and I just hope you need to survive this summer.

Thank you.

Other things also. We just started talking about, we're hearing a lot of price competition coming in a lot of markets in a break [ph]. Can you give us some idea, I mean, there's a lot of mentality among competitors that nobody wants to lose a deal, and pricing particularly outside this country is getting very, very competitive in what we're hearing. Can you give us some idea? I know you just talk about these, but you're still kind of neutral, but are we seeing any real changes in pricing competition around the markets.

I think if you see, if you look at our margins in the first quarter. That's maybe the best way to give you some sense, I'd say not that we haven't anticipated and with the benefit of all the work we're doing on restructuring. I think you're seeing our decrementals be extraordinarily low. And so, there's no question when commodities come down. You're going to see some impact. We talked about that in our last calls, but I don't think it's anything that we haven't really anticipated at this point.

I agree completely, Sandy. And certainly in the negotiated project piece of the business there's always on the margins of some places where you're being more or less competitive and there's some regional differences, but on balance and across the company nothing that would not be consistent with the guidance that we provided, no indications that anything is changed.

Okay, not much going on. And one of the things we're hearing a follow-up from lot of companies is, [indiscernible] are getting better but a decelerating decline across market and is that what you're seeing of course, anything. There's no expectation for things getting better very quickly it's part of the guidance. But are you seeing things stabilizing and even in the oil and gas sector. The question is, when do we anniversary the big declines that things begin to be more stable across the company.

I think the best, Eli to think about our volume forecast for this year is, while you've seen an organic decline for us in the first quarter 6% and then I mentioned to you, if you looked at our guidance for the second quarter and if you were to calculate it versus a year ago because I gave it you versus the first quarter and it will be less in the 6%. The comps for the second half get a lot easier and that's how we get to this down 2% to 4%. Now that's kind of quarter-to-quarter look, but I don't think we're saying that we're seeing markets begin to accelerate at this point. So we think we're kind of cruising down towards the bottom, if you will at this point. And we don't see a significant market growth at this point and so that's the kind of tough scenario we find ourselves in this low growth global environment and that's why again we put the premium on taking this time to do the restructuring and do the share buybacks.

All right. Thank you very much.

Our next question comes from Nigel Coe with Morgan Stanley.

Just wanted to holding on electrical. And firstly just on the system side. The down 2% to 3% order trends, I guess over the last two or three quarters. What should we expect revenue growth to recouple to that kind of cadence and then second part of that question would be on the Canadian Dollar. We've seen a pretty sharp strengthening of the Canadian Dollar. And I remember last year, you had some struggles with margin deleverage due to that weakening. So I'm just wondering the reversal of that trend, does that help you on the margin front.

Yes, first on the volume level and kind of the looking ahead. I do think as we mentioned Nigel, you correctly referenced it as at, looking at our bookings is a pretty good way to think about what's coming out ahead of in terms of these, the electrical systems and services segment. There is a portion of that business that does come in during the quarter and go out and that's the piece, it's a little higher for us to forecast. And in some cases, that is MRO for the oil and gas area. So that's an area it's a little harder for us to look ahead. I think and we entered this year, thinking oil and gas will be down on the basis of 15%. It's every bit of that, whether it turns out to be more than that, I guess we'll know come year end, but even though we've seen oil move up to the mid-40s. That segment is just not investing right now and there's still very much in a cutting back mode at this point. It's going to take some time before we see that start to come back from the other direction. I say the other issue for us to keep an eye on here as whether we start to see confidence in and around reinvestment in industrial projects and we're really not seeing that to-date and we think that's likely to take more time as well. You're right that the pricing is a Canadian Dollar versus the US because most of our production is in the US that we serve Canada with. It did hurt us last year. If it stays on a sustained basis and that's the key here, that will start to help us from a margin perspective.

Okay, that's great and then just quickly. You gave us some good color on the end markets within electrical. You didn't talk about utility, which is about I think about 10% will serve your electrical sales, a bit more within systems. But it seems like distribution spending is coming back a little bit. I think first of all, have you seen that and how much of that's weather, what is your view going forward on distribution spending in the US?

Yes, we did see a little better quarter on bookings. So it comes in obviously bookings first on the distribution side. So you're correct. Have frankly seen that from a couple of our peers as well. There are some other issues going on within, what we call our Power Systems business currently in, you may recall there were regulations that were put in place about transformer last year. It caused sort of pop-up in bookings on the fourth quarter, a little bit of an overhang in the first quarter. We expect to see that stabilize as we go through the year. So, our original guidance of 0% to 2% for utilities, we did better than that in the first quarter.

Great. Thank you very much.

Our next question comes from Josh Pokrzywinski with Buckingham Research.

Just maybe to go back to some of the earlier questions on the complexion of business. Sandy, you touched on not a lot of appetite in the market place for project business. Are you seeing more stability though on the MRO and piece parts side, how would you characterize kind of the price or mixed dynamics between those as well?

Yes, I'd start and let me ask, Craig to comment on this too. But, I'll start with a couple of high level issues. Construction is better than industrial activity. So industrial activities around the user or the OEM side is weaker. And then when you get in fact, construction, construction is better on commercial than it is industrial and it's strong on residential. And when you get inside commercial, it's better in light commercial than it is in heavy commercial and that has been pretty much our experience through the much of last year, as well as we're seeing now. So we're not seeing strengthening on the industrial side and either the MRO or the user side. I think, you've seen that parallel on a number of our peers, who reported quite recently and their big weakness is been on the industrial side, both user and OEM and it's been on the large industrial project side, whereas strength has been moreover in the construction side, particularly light construction in residential.

And would you characterize the light construction and I guess residential not as much as the business, but is that light construction profit mix favorable or because there ends up being more lighting in there and maybe a lower engineering content that it does hold down the margins and some of the strengths we're seeing is, really unrelated to that.

Again, I would say a lot of this industrial MRO and user it tends to flow into products and you typically in the industry you see products as a higher margin in systems and services. So it does play a little bit that way.

All right, great. Thanks a lot guys.

And that is more of a reason in terms of the margin guidance that we provided in electrical systems and services. Basically those margins and got it, really is that issue that the industrial sides of business, the MRO side of the business that tend to be a little bit more profitable and we're seeing relative weakness there and strength on the commercial side.

All right. Great. I'll pass it along and Sandy, congratulations.

Thank you.

Next question comes from Jeff Hammond with KeyBanc.

Just back on the conversion changes, maybe two questions there. One, how do you think differently or not differently about tax re-spins and wanted or not wanted to do that, out beyond December 17. And then as you look at deals perceptively, how should we think about the ability? How do we look differently or the same at tax synergies within that?

Yes, let me jump on that, Jeff. And I'll deal with your second question first. The new debt regulations as I said a bit earlier. Mainly impact us in having to have a more comprehensive documentation around newly issued intercompany debt and it doesn't seem likely that those requirements would significantly impact any financings, we would undertake as part of new acquisition. So we don't see much impact on future acquisition. In terms of, impact on spins those regulations haven't changed. It's a five-year some, five-year period from the time, that you undertake a transaction like the Cooper transaction. So as we get to the end of next year. We will be able to undertaken spin tax-free. Again there may be some more documentation for some of the financing around that, but we don't believe that the fundamental transaction will be impacted.

Okay, great. And then, Sandy or Craig, can you give us the quarterly cadence NAFTA truck production, how you're thinking about that?

That was 64 in the first quarter and where our thoughts, it's going to be approximately 60 in the second quarter and then approximately 54 in the third quarter and then 52 in the fourth quarter.

Okay, thanks guys.

And all that's obviously in our guidance.

Best guess recognizing, there could be a little bit of in precision [indiscernible].

Absolutely.

Our next question comes from Deane Dray with RBC.

And Sandy, you may have answered part of this question, in your response to Josh's question. But, it was interesting one of your big electrical products, should be there as yesterday talked about little more cautiously on non-res calling at flattish. But maybe, I don't believe they have as much exposure on the light commercial and residential. But just, how would you reconcile those comments among your distributors?

Obviously, we have many, many distributors across the country in Canada and most of the, my comments really to it NAFTA region is that, again for people who are participating in the really, really big projects on either the commercial side or the industrial side, it is not as strong. And so that it's really a quite a mix issues in terms of where you're exposed and again, it's the lighter commercial activity that's the stronger side of commercial and everyone's individual exposure will be little different depending upon which market and how they're rate in terms of services. We continue to see non-res as a pretty good year. We've talked about this kind of 3% to 5% growth here. So we're not talking about 10% year, but a good solid year. As we look at our negotiations and we talk about this, Deane over many years. Because of our very large sales force. We get a pretty good look at the projects that are out ahead of us as well and that's 10%, feels pretty good at this point.

Great, and then just second question. You called out the decremental this quarter and when we look at those, they really jump out as a positive in terms in tough markets in declining revenues, if you can manage somewhere in and around, a 25% decremental and you handedly did that. So with their actions, that you had to take within the quarter to manage to that, those numbers or was that prior restructuring.

Its' both. I mean, but thanks for asking the question. Because I think it is important for us all to remember that out of that $185 million of incremental savings year-to-year. A bunch of that is from actions we took last year. Remember we pivoted at the end of the first quarter and Craig and the whole team has really put in place the very aggressive set of restructuring. We obviously got benefits from that in the fourth quarter, we got benefits from that in the first quarter and obviously, will through this year. So in addition to that, now we've also kicked off this whole set of additional actions here in 2016. So we would not be able to have those light decrementals unless we have been working on this for some time at this point.

Great, thank you.

Our next question comes from Jeff Sprague with Vertical Research.

Just wondering, if we could just go back one more time to tax. In particular, just thinking about the potential for spin off dynamic size. I appreciate that the five-year period may have not changed. But, I was also under the impression that perhaps there was just the high level of complexity, if you wanted to go down that path and I'm wondering is that complexity and kind of the disentangling of structures that you have in place currently, particularly in light of the treasury regulations would make us spin, especially difficult if not on economic.

Yes, let me answer that. These new regulations really don't fundamentally affect a spin and disentangling any subsidiary to spin, is always a complicated exercise because sometimes the assets are not owned in a separate legal entity. Sometimes you need to sell a legal entity to another entity in order to create one vehicle that you could spin if you look at other companies that have gone through spins. It usually takes a period of month sometimes, even as much as a year to disentangle all that. but it's really is a function of just getting all the assets in businesses into a single legal entity and these new debt regulations won't have any significant impact on what you need to do.

And maybe before we go too far down the path around kind of this magical line of demarcation that happens at the end of 2017. So we don't read too much in that, as we said in New York. We have a game plan for all of our businesses. And we have a game plan that we like. We laid out plan around, how we get these business to deliver significant market margin through the economic cycle, was due certainly participating in certain businesses that are most cyclical than other. But we're not sitting around waiting for 2017 to make some magical decision around what we do with our businesses. We have a game plan that we like and we think, each of these businesses will continue to contribute positively to the company as you've seen this year and then prior years. We know how to manage cyclical businesses and we know how to deliver growing margins despite the fact that, our markets are performing poorly right now. And so as we think about the company overall, we have to plan to run these businesses and I don't want to any much sitting around thinking that come the end of 2017 that we're going to announce some big transaction. We have a plan that we like, there's certainly risk in some of our markets as you saw in the vehicle discussion just recently. Clearly, we in some of markets being a little weaker than what we anticipated but we're not done with restructuring in the event that markets are a little weaker. We have lots of programs and plans lined up, to do more restructuring if we need to. So, we're very confident that we can deliver the margin targets that we laid out for each of our businesses independent of what happens with some of these end markets.

Thanks, Craig that's very helpful. Would it be also fair to say that, no plan so set in stone, that if there is significant economic value to be unlocked by doing something else, you would be open to doing that?

Absolutely. It goes without question. We've done it many times in the history of the company as we shared with you in New York, in the event that we feel like these businesses no longer meet the expectation that we set out for everyone one them. Now we've demonstrated historically that we're willing to pivot and we're willing to divest it and so that's, it's still acquisition.

Thank you. Could I just have a little more color on lighting? I think Sandy just characterized it as strong, which I'm sure it is, but can you give us a little bit of color on how quickly it's growing, whether the LED penetration is, a couple metrics around the business.

Sure, maybe two that might be helpful to you, Jeff. Is that our LED business is not over 60% of our total lighting business and so, we really think see it continuing to leading that respect. That LED business grew it over 30% in the quarter and so it continues to be a very fast growing and exciting area. And part of the advantage and you've seen a lot of reports come out after light there is that, every one of our competitors has its own unique strengths and weakness. We again are the only company that's really able to combine all the advantages of independent lighting with the full power control and distribution system in the building and that's really where we think, we build very unique value for our customers.

Thank you very much.

Our next question comes from David Raso with Evercore.

Two question on cash flow. I thought the cash flow in the first quarter was pretty strong. Definitely one of your strongest first quarters on record, I think you said. The cash flow to the full year. I'm surprised it was an increase. I think from the analyst meeting one of the more interesting statements was, how much stronger you expect the cash flow to be, this five-year period versus the prior. What was going out with the lack of cash flow increase?

I would David, really and I would say this about a number of elements out of the first quarter. It's still early. We're - end of the first quarter and that we really, what we're seeing the danger in the kind of slow economic times is, just assuming that everything continuously get better. I think by the time you get to the end of the second quarter or middle of the year it's probably more appropriate time to look at this.

Okay, so it's fair to say that cash flow year-to-date is ahead of plan?

We had said that remember, a full year is that we would have a cash efficiency ratio of one or better and that's still very much our plan.

Okay, one last just housekeeping. Maybe I missed it. The net savings or if you want, even lay out the cadence of the $185 million of savings over the four quarters. How did it play on the first quarter and the rest of the year?

Yes, we'll give you a full accounting on this by quarter, when we get to the end of the year. But I think the best way to think about this is, approximately 45% of that savings is in the first half, approximately 55% to the second half. And you might say, how could you get that much in the first half, remember part of it is, the carryover for the full year benefit for actions that were initiated in 2015, that was our plan coming into the year. It's built into our quarterly guidance and so again, hopefully that plus the kind of layout we gave you for the restructuring expenses on the charts that are in the presentation, give you a sense for help out the cost and the benefits lay out over the year.

So the net actions in the first half are still slightly negative than the positive delta of second half?

Yes, I think, yes. Correct.

Okay, thank you very much.

Our next question comes from Shannon O'Callaghan with UBS.

On hydraulics margins. Maybe just a little bit more color on how you feel the actions there taking hold and when do you think, you can get those to kind of the low teens expectation extra structuring when does, when sort of the demarcation line for them to be required to get there.

Yes, its' a great question and it's a as you appropriately pointed out. So much of restructuring, we're doing across the company today and going back into 2015 is absolutely focused on the hydraulics bit. And today we have margins that are running as you see, in the 10% to 11% when you look at both Q1 and Q4 less restructuring and we're, I'd say order of magnitude about half way through the restructuring opportunities that we're working through. So we really think, by time we get to the end of this year, for early next year that we ought to be having a business at this level of economic activity, not banking on any significant recovery markets that is running the low-teen rates.

Okay, great, that's really helpful and then. Rick sorry to beat the tax thing to death here, but you know a lot about this. [indiscernible] more, is the fact that there is not an impact and you're still, your 10 to 15 is still hold, is that because potentially differing treatment within equity and things like that, doesn't have an impact or is it because you've already incorporated some tax-free into your range in the first place, when you say 10 to 15.

Well we had very carefully put together our financing plan for Cooper and really all the financings we've done over the years. And we've been very careful to be compliant with all the different IRS, Safe Harbor's and IRS Regulations and so, these new debt regulations don't really impact if you follow carefully those prior rules and so that's why, it doesn't have much impact on us.

Okay, great. Thanks a lot.

Our next question comes from Andrew Owen with Bank of America.

Sandy, congratulations for great work over your tenure.

Thank you.

Just question on aerospace aftermarket. Bookings were down on the first quarter, is it tough comp or what's driving it and any risk to aerospace margin in the second half of 2016 from lower aftermarket?

Really a tough comp on the aerospace aftermarket. We had a really exceptional first quarter last year, with a number of our large aerospace distributor. So we're not concerned that this is a bigger trend.

And in fact, we take a look at what happened with revenue passenger miles and generally ii in Q1. It feels like the consumer is very much in the economy jumping on planes and those numbers were up solidly and perhaps little strong than we originally anticipated starting the year so. It's an encouraging sign, that consumers continue get on planes and ultimately that's good thing for aftermarket.

And just a follow-up question on China particularly on the electrical side. You know because the way I think about the cycle by the time, machine manufacturers will places orders for your equipment, by the time you ship it, things are probably have been turning for a while, what are the leading indicators that you guys use internally to gauge the state of the Chinese market particularly on the electrical side?

So I'd say that, maybe there a couple there, there's a large project business obviously that goes on, it has a lot to do with utility and infrastructure, there you get some look and awful lot of our business in China though is daily flow business and whether that's on a power quality or whether it's in the power distribution side, that's a lot harder to gauge because it has a lot to do with how inventories are distribution and whether the OEM or the construction side of the market is moving very quickly. So we don't get a lot of lead time in China. We probably get a better view here in the US than we do in China in terms of future view.

Thank you very much.

With that, we going to have time for one more question this morning and I'll ask, Andy Casey with Wells Fargo.

Good luck to you, Sandy.

Thanks very much, Andy.

Question on the ESS, you talked about weak industrial markets in the current period, but I'm wondering, if what you mentioned in the past conference calls about some of the large industrial projects maybe starting to come on during the second half. I'm wondering if that's still the case or have they just been pushed out again?

Yes, I would say outside of projects that we're committed that contracts behind when there were some of those natural gas in that, in that area and they may not like their contract so much today. I'd say, we aren't seeing the big projects come on for the second half.

Okay, thanks and then lastly, in vehicle. I just wanted to ask question about the automotive side specifically in North America. There is been some concern about current dealer inventory levels and I'm wondering, if you're starting to hear any commentary about potential changes in production schedules for some of your customers in the second half?

Yes at this point, we think, we've really have not heard anything that would suggest that there's any concern in terms of our view. We still think, 17.3 million units is a good forecast for the North America auto market. Incentives have certainly creaked up a little bit. We track the number of dollars of incentives for vehicle that are being offered to encourage consumers to come and by and that maybe a little indication of some concerns. But by in large, at this point and we think our forecast is still valid and there is no real indication that the market won't grow - relatively modestly this year, but off of a high base.

Okay, thanks Craig and once again, Sandy. Thanks for all your help over the years.

Thanks, Andy.

And maybe a way of concluding today's call. This is I think, if I counted correctly it's my 59th earnings call with Eaton. And all of us here in the management team really appreciate your support. Your questions and your helping us sort of think through many of really key issue in and around running a business successfully. I've got enormous confidence in Craig and this team and I hope you're beginning to share that confidence at this point. A lot of experience here on this team and Eaton's best days are ahead of us. So we hope we'll continue to earn your support. Thanks very much. I've enjoyed working with all of you. Don?

With that, as always, we will be available for follow-up questions for the remainder day and all of next week. Thank you very much for joining us today.

Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation and using the AT&T Executive Teleconference. You may now disconnect.