Ladies and gentlemen, thank you for standing by, and welcome to the Eaton Second Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, this conference is being recorded. I'd now like to turn the conference over to our host, Senior Vice President of Investor Relations, Mr. Don Bullock. Please go ahead, sir.

Good morning. I'm Don Bullock, Eaton's Senior Vice President of Investor Relations. Thank all of you for joining us for Eaton's second quarter 2016 earnings call. With me today are Craig Arnold, our Chairman and CEO; and Rick Fearon, our Vice Chairman and Chief Financial Officer. The agenda today as normally includes opening remarks by Craig highlighting the company's performance in the second quarter and our outlook for the remainder of 2016. As we've done in our past calls, we'll be taking questions at the end of Craig's comments. Couple of quick housekeeping items. The press release today from our earnings announcement this morning and the presentation we'll go through have been posted on our website at www.eaton.com. Please note that both the press release and the presentation do include reconciliations to non-GAAP measures and a webcast of the call is accessible on our website and will be available for replay. Before we get started, I want to remind you that our comments today do include statements that are related to expected future results and as a result, are forward-looking statements. Our actual results that may differ from this for a wide range of uncertainties and risks, they're described in our earning release and in the 8-K. With that, I'm going to turn this over to Craig Arnold.

Okay. Hey. Thanks, Don. Hey, I'm sure you've all had an opportunity to work through the material and so I'll hit a few of the highlights and add a bit of color to the results. Operating earnings per share, we're really pleased with the results in the quarter at $1.07, $0.02 ahead of our guidance. And as we anticipated, sales in the quarter came in at $5.1 billion, down 5% organically – down 5% – organic revenue down from 4%, and this is really consistent with the normal patterns that we see. Q2 sales at 5% above Q1 and quite frankly, FX was a little better, 1% better than it was in Q1 as well. Segment operating profits came in at 15.4% versus our guidance of between 15% and 16%, and I'd say with particularly strong margins in Electrical Products as well as in Aerospace, both of which came in at 18.6% when you exclude some of the restructuring charges, and offsetting a bit of weakness in Electrical Systems and Services. Restructuring costs in the quarter came in right as expected at $35 million and reducing our margins by some 60 basis points. Adjusting for restructuring costs and FX, really strong decremental performance by the company overall in each of our businesses. And we're really pleased with the fact that we had record cash flow in Q2 with cash conversion of 124% of net income, so really strong cash performance in the quarter. We also repurchased some $225 million of our stock back, some 3.7 million shares in the quarter. Turning to the financial summary, we continue to see weakness in the number of our end markets versus 2015 but sequentially revenues were up some, as I mentioned, 6% from Q1. Organic revenue declines and FX headwinds are decelerating. Organic…

At this point would our – commentator will provide some guidance for you on the Q&A session.

Thank you.

Before we enter into the question-and-answer session today, I did want to note that we have a number of people in the queue for questions, and to try to be able to keep things within the constraint of an hour for us, I would ask you that you limit your questions to a single question and a follow-up, and as always, we'll be available to go into more detailed questions or others throughout the remainder of the day or otherwise. With that, our first question today comes from Julian Mitchell with Credit Suisse. Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker): Thanks a lot. Hi, Craig. Just firstly on the ESS margins, I think you're implying the second half margins are 14%-ish. Those are up maybe 150 points year on year and sequentially in the half. Revenues though, probably in the second half, probably not doing much year on year or sequentially. So maybe just clarify what it is you see in ESS that picks up in that second half.

Yeah, I'd say the first adjustment we'd say you need to make in terms of the underlying run rate of the business is the fact that we did have the legal settlement in ES&S in the quarter. That shaved some 70 basis points off of margin. Then secondly, as we move into the second half of the year, we will clearly see a little bit of volume lift but not dramatic, but the restructuring benefits that we've been undertaking during the course of the year also start to kick in and we will see a margin lift as a function of the restructuring benefits that are more backend loaded. Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker): Got it. Thank you. And then just within the Electrical Products business, you did see that bookings turn down in Q2. It looks like the guidance for revenues has an acceleration in organic sales year on year in the second half. Are you seeing something in the bookings in Q3 already that suggests that that decline in bookings should be reversed now and that gives you the visibility on second half revenue?

Yeah, what I'd say on that one, Julian, is that when you take a look at the absolute level of revenue that we're forecasting for the back half of the year, it's really running essentially at Q2 levels. And so we don't really have a volume lift that's built into the second half of the year. And as I mentioned earlier, the comps in general get easier for all of our businesses. As you'll recall, we really saw a fall-off in our revenue during the course of 2015 in Q3 and Q4. So principally, we're saying we're going to be running at this current level of economic activity and revenue and it's a function of the comps versus prior period that appear to be a relatively change in the rate of change, but the absolute dollars don't really move much at all. Julian Mitchell - Credit Suisse Securities (USA) LLC (Broker): Great. Thank you.

Our second question comes from Rob McCarthy with Stifel. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: Good morning, Craig, and congratulations on a solid quarter and a good initial start. I guess the first question I would ask, with respect to ESS, aware of the litigation expense there and the margins. But could you talk – you did set the oil and gas exposure there, but could you talk about maybe the trends you're seeing there, oil and gas in general? And then as a follow-up to that, and this will constitute my follow-up, could you talk a little bit about the portfolio's oil and gas exposure beyond what the explicit exposure, what the implied exposure could be? Because I think what we struggle with sometimes is understanding what the second order effects of some of these industrials companies' oil and gas exposure is. So if you could comment on that, that would be very helpful.

Yeah, so I think there's three questions there, one, in terms of the margin impact in ES&S. We had this legal settlement related to a three-year old or so commercial negotiation that ended up impacting the Electrical Systems and Services segment. And so that did take our margins down by 70 basis points in the quarter. And just a commercial settlement from a prior matter. In terms of the company's exposure to oil and gas, most of our exposure that's inside of the electrical business is in the Electrical Systems and Services business. You'll recall that when we acquired Cooper, we also acquired a very large business called Crouse-Hinds that has a very big exposure to what we call harsh and hazardous markets including oil and gas. And so we're certainly seeing an impact in that business as well as in all of our businesses that are exposed to oil and gas. I'd say, in terms of the overall oil and gas market, I think at this juncture we'd say we certainly have not seen any improvement in oil and gas and maybe we've seen a little bit of deceleration in oil and gas. Not material changes from our original assumptions for the year, but clearly we've not seen any indications that that market has turned. And to your point around the second derivative and the other markets that are tied to oil and gas, I think we really have been experiencing all year that second derivative impact. And so yes, it's oil and gas but it's in many cases, oil and gas companies whether it's upstream or downstream, they all live under one roof. And so we've seen the other knock-on effects from oil and gas related industries already impact our business and is already reflected in our guidance. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: I guess following up to that just briefly, do you think you have a number about, for planning purposes and otherwise, how you're thinking about that second order impact? Because I think you have a headline number for your oil and gas exposure, but do you have a number of about the outer ring of that penumbra?

Yeah, we really don't, Julian (sic) [Rob] (23:42). Appreciate the question and what you're trying to get at, but we really don't have a particular number. And once again, it's a really tough number to derive and we would just be hazarding a guess. And so what we try to think about today is, we understand the underlying run rate of our businesses and what we're experiencing today. We know that we're already experiencing the second derivative fall-off and that's the basis that we use to develop our guidance. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: I'll leave it there. Thank you for your time.

Thank you.

Our next question comes from Steven Winoker with Bernstein. Steven Eric Winoker - Sanford C. Bernstein & Co. LLC: Hey, thanks, and good morning, guys. Just trying to understand here, on the margin front, you put up 10 basis points better ex restructuring. That's quite a performance given the volume leverage. So maybe just talk a little bit about what you're seeing, if you could give us some color around – you've mentioned price versus material, productivity versus wage inflation, leverage, mix, some stuff going on in corporate. Just a few of the puts and takes to help us understand how you get there and how sustainable it is.

Yeah. I'd say that principally, maybe if you cut through all the tape, more than anything, it's a function of restructuring, benefits, great cost control by the operating teams and good operational execution. Price versus commodity input costs, we mentioned that we are having a few challenges in Electrical Systems and Services, but if we think about the entire year, we think we're largely on plan and on expectations that there's that little bit of uncertainty around what the future looks like around commodity prices as you read all the same press clippings that I do. And we have seen a little bit of an uptick in some commodities in the last 30 days. We've seen others tick down. So we think, largely speaking, that commodity prices for the full year will be very much in line with what our expectations were. We're not getting leverage right now in the business because we're not, for the most part, growing volume, and so it really is a function of our business is doing a good job of flexing our costs in anticipation of this weak market environment that we're living in. Steven Eric Winoker - Sanford C. Bernstein & Co. LLC: Okay. All right. We can follow up offline for some – maybe if we could put some numbers around some of that it'd be helpful. But on the cash side, maybe, look, that was also very strong performance. Maybe talk about some of the puts and takes there around working capital and others? Richard H. Fearon - Vice Chairman, Chief Financial & Planning Officer: Yeah, Steve, I'd be happy to. Really, quite a straightforward quarter from a cash standpoint. If you look at the combination of net income and depreciation and amortization, those two were almost $730 million of cash and then the balance is simply a small positive from working capital. As we've commented earlier in the year, we believe that we have opportunities to continue to take down inventory. We did take inventory dollars down some from Q1 to Q2, but we think we have further opportunities as we go through the year. So it's really just those three items: net income, D&A as well as a small positive from working capital. Steven Eric Winoker - Sanford C. Bernstein & Co. LLC: Great. Okay. Thanks. I'll pass it on.

Our next question comes from Ann Duignan with JPMorgan.

Yeah, good morning. You know you mentioned a few times some strength in Europe for different businesses. Could you just give us a little bit more color on that, where exactly and what segments that you're seeing strength?

Yeah, yeah, sure, Ann. Be more than happy to. I think what we've seen in almost every one of our businesses is relatively speaking versus our expectations for the year and all the geopolitical issues and everything else taking place in Europe, we've seen Europe generally perform slightly better than what we anticipated. And so it really does run the gamut. Certainly if you take a look at vehicle markets, and that's probably been a big standout this year, light vehicle production and sales has been up mid-single digit all year, so we're seeing real strength there. Hydraulics markets in Europe, while still negative, less negative than we anticipated. In fact, that market's we think down low-single digit this year which is a better outlook than we anticipated. On the Electrical side of the house, once again we're seeing growth for the most part in many of our end markets in Electrical Products and Electrical Systems and Services, and we think those markets grow slightly this year. We think up, once again, low single digit. So it's really, we'd say, been a broad-based kind of beat versus our internal expectations, modest but pretty broad, and at this point it's too early to say. And your follow-up question may be in terms of what happens with Brexit and the Turkey matter. At this point it's too early to say. On the positive side we are, today, a net exporter out of the UK so we don't think that is going to have a big issue and the same thing would be true of Turkey. So really it's been a broad-based, we'd say, beat where Europe in general has performed slightly better than what we anticipated.

And since you answered my follow-up, I'll switch to a different follow-up then.

Okay.

On the Hydraulics side, which specific end markets? Was it mobile, was it industrial hydraulics? Just a little bit of color on the Hydraulics side that was less negative.

Yeah, that's great. It was pretty much primarily the mobile side that came in for the quarter stronger than what we anticipated. As I mentioned, strong ag orders up from 23% in the quarter, strong construction orders up 8%, offset by ongoing and pretty significant weakness that we still see in the stationary side of the business. The process industries, oil and gas, large industrial, very much like what we're seeing in the Electrical side of business, and that continues to be quite weak.

Okay. I'll leave it there in the interest of time. Thank you.

Thanks, Ann.

Our next question comes from Eli Lustgarten with Longbow Securities (sic) [Research] (30:01).

Good morning, everyone. Can we just get a little more clarification? You just said ag up 23% but you said it's weak. Was that – and Europe performance has outperformed what the industry, and the industry was down a bit more than it. Is this picking up share? Was this just rebalancing of inventories in ag or something with anticipation of planned shut-downs which are coming this summer? So do you view the ag and the construction more of a one-off quarter as opposed to sustainability and can you talk a little bit about pricing there?

Yeah. Yeah, it's a good question, Eli, and I wish we were really smart enough to be able to call it precisely, but I think it's more the way you articulated. We had a strong quarter of order input in ag and construction. We don't think that's in any way indicative of the underlying market performance, and so it's probably a function of a bit weaker comps that we had last year, and to your point, perhaps some pre-buying that's taking place in anticipation of summer shut-downs. And so that's why our call on the year for Hydraulics hasn't changed. And we still think that the guidance that we provided on the full year is very much consistent with what we're feeling and experiencing in the business. The pricing environment in Hydraulics is just fine. We're not seeing any particular or unusual pressures there with respect to the – once again, we always talk about it in terms of the net of commodity input costs and price and so we think it will be net about neutral. Price is not going to be a tailwind for us this year, or a headwind.

And just as a follow-up, we're seeing some, a lot more pressure on input costs in the second half of the year, particularly the steel numbers really haven't changed much. They're up big, maybe less than the spot market, but they're still up significantly. Can you talk about cost price across the business? And in the context with the auto numbers that came out that were quite weak today across the board, have you had any concern about some weakness spilling over into Vehicle business besides the truck market, just from North American auto?

Yeah. As I said, you raise an excellent point, Eli, because we've absolutely seen steel prices move materially up order of magnitude 50%, a lot of that driven by some of the duties that have been put on imports coming out of China, and that's had a knock-on effect of steel prices around the world. In the near term we think we're fine in terms of the net impact to the company. We did some pre-buying. We do have some hedges in place. And so we think in the near term, we have the ability to mitigate the impact of steel price increases. We'll have to wait and see how long these increases stay in effect, whether this is a short-term blip or it's a long-term blip. And in the event that it's a longer term impact, we'd have to actually revisit our pricing assumption and we'd find a way to pass it on into the marketplace. And so, we think once again on balance, we'll do what we've always done in inflationary environments. We'll find a way to pass it on to the customer base. And I think it's been well publicized, it's well understood, and so we don't think that poses a risk to our margins. To your point around auto weakness, we certainly have seen a lot of the reports, reading the same ones that you have. We continue to take a very cautious view on the outlook for automotive markets. We think North America will be largely flat this year and Europe and Asia will be up slightly. But like you, we're taking a very cautious view of it and we're getting prepared that in the event that we do have a downturn, we're going to be well prepared to deal with it. I will add that there's a number of economic forecasters who do have a view that's already out for 2017 and we're not sure if they're right or wrong but whether it's IHS or some of the other economic forecasters, they think that the markets essentially continue at these high levels on into 2017 that essentially look flat or maybe up 1% or so, 1% or 2%. But we're watching it just like you and we'll be prepared in the event that it takes a turn for the worse.

Thank you very much.

Our next question comes from Joe Ritchie with Goldman Sachs. Joe Ritchie - Goldman Sachs & Co.: Hey. Good morning, guys, and nice job executing in a tough market. My first question, maybe just starting on Hydraulics for a second, I saw that you didn't take down the organic growth guide, yet one of your largest customers talked this quarter about underproducing real demand in the second half of the year. So I'm trying to marry those points. You guys are seeing some stabilization. It seems like things can get a little bit worse. So talk to us a little bit about, like, what you're seeing and what your expectation is for the second half.

Yeah, and I think generally speaking, I said we were really pleased with our Q2 performance in Hydraulics and as we look at the absolute level of change in revenue for the quarter, down some 7%, slightly better than we anticipated, and you take a look at our order input down some 2%. So we think a couple of really strong data points that would suggest that if there is in fact a little bit of weakness in the back end in certain markets, and we saw the same report that you did that came out of one of our major customers, there's another – there's enough breadth in the business and other segments that are performing a little bit better than that that on net, we think that the year will be very much in line with what our expectations have laid out. Joe Ritchie - Goldman Sachs & Co.: Okay. Fair enough. And I guess maybe my follow-up, one of the things that has surprised us from a trend perspective this quarter was that June seemed to have gotten worse for a lot of our companies, especially on the industrial side. And so to the extent that you maybe can provide some color on what you saw in sequential trends and specifically talk about industrial, that would be helpful.

Yeah, I think from our perspective, industrial really has been a source of weakness really this year and for the entire quarter. I don't know that June was an especially stand-out month for us in terms of the industrial markets, but we are in fact seeing the same weakness that others are talking about. And it's one of the reasons why in our Industrial Systems and Services (sic) [Electrical Systems and Services] (36:29) business, that we've taken the guidance down and the reason why we continue to see some margin challenges in that business. And so we are absolutely seeing the weakness and experiencing it. I would not say that we saw any particular change in the rate of trajectory in the month of June. Joe Ritchie - Goldman Sachs & Co.: Okay. Great. Thanks, guys.

Our next question comes from John Inch with Deutsche Bank.

Thank you. Good morning, everyone. Hey. How did ESS margins in the backlog, how do they look? And the order pricing, is there anything that you could provide us there, Craig, in terms of color?

Yeah, I'd say there's nothing in the backlog or environment that will in any way materially change the margin assumptions or are highly influencing our assumptions around margins for the balance of the year. Now we did in fact trim the margin guide to ES&S, but that's largely a function of the things that we talked about. We talked about the fact that large projects, large industrial projects, which tend to be more profitable, we're not selling as many of them. So we have a negative mix effect, and that's the one business where we are seeing a slight negative on the balance between commodity input costs and pricing. And so that was the other reason why we trimmed the guidance slightly in ES&S. But there's really nothing in the backlog that would suggest any particular heavy influence on the margins of the business on a go-forward basis.

So other – just by inference then, other companies and not Eaton have called out that what projects are available. And I realize I'm not suggesting it's apples to apples, but just in general, right? What projects are available, but pricing is very tough, as you can imagine, right? Just because of the capacity that's out there for fewer projects. Sounds like that's not happening.

No, and I think what we said is that price in that particular business, the net of price and commodity import prices, that is negative. So we are in fact experiencing a bit of price pressure in our Electrical Systems and Services business. So that would – we are in fact saying exactly what you're hearing from other companies.

Okay. Okay. And then maybe big picture, how was China in the quarter? Maybe you could dovetail a little bit of your commentary around construction and just in general in China, right, was it stable? Did it get better? Did it get worse? Just if you – anything you can tell us about it would be fantastic, Craig.

Yeah. I'd say in general what we're seeing in China is largely ongoing weakness. I think as you heard the commentary as I talked through the various end markets, but for let's call it the consumer-related market and passenger car markets, we continue to see weakness, mid-single digit weakness in the industrial markets in China. That's affecting our Electrical business, and we continue to see strong double-digit declines in many of the Hydraulic-related markets as they continue to work off excess inventory.

I was going to ask you just lastly on inventory in China, I think at the Analyst Meeting earlier this year, there was a broad discussion around just a lot of systemic inventory in China, whether it be construction machines or other equipment. And it's just not Eaton, it's more market. Has that changed at all, do you think? Or is it still this overhang?

So I think we're still living through a bit of overhang, and sales versus production I think continues to eat into the inventory overhang that we're dealing with in a lot of the capital equipment markets. Principally I think markets like excavators and road rollers and the other things that are really supporting this major building boom that China went through over the last ten years, but they continue to eat into it. Are inventories today at the level that I'd say are where the market needs them to be? I'd say no. I think they're still working through a bit of an inventory overhang, and that's why we're still dealing with these strong double-digit declines in a lot of the end markets in China. And that's very much what we're forecasting.

Yup. Got it. Thanks very much.

Our next question comes from Nigel Coe with Morgan Stanley. Nigel Coe - Morgan Stanley & Co. LLC: Thanks. Good morning. And good solid quarter here. Just wanted to come back to Hydraulics. This quarter, Craig, is the first we've seen any sort of hint of normal seasonality in this business for about three years. So I'm wondering maybe – obviously the orders down 2% is good news, but it's sometimes hard to define the underlying trend from order data alone. So I'm just wondering maybe address the issue of normal seasonality at lower levels and how did the book-to-bill this quarter compare to other quarters? Are we at a normal book-to-bill ratio here?

Yeah, I'd say that if we take a look at the business this quarter, we built a little backlog in the quarter, which would be expected to the extent that your orders are stronger than your sales out, and so – but once again, I think like you, we don't want to over-read one quarter of results in Hydraulics. And so it was a bit of a stronger quarter than we anticipated in the order intake. Is this a turn in the business? We don't know. And I think it's too early to call. I think we need to string together more than one data point before we know whether or not the Hydraulic end markets, the big important markets to this business which are ag and construction and oil and gas and mining, have these markets bottomed out? Are they ready for a turn? We're reading all of the same customer data that you read, which would suggest that we're still living in this period of really low economic activity. So I'd say in general it's just too early to call whether or not these markets have reached bottom and are prepared for a turn. Nigel Coe - Morgan Stanley & Co. LLC: Yeah, but stability is good news, I guess.

(42:24) Nigel Coe - Morgan Stanley & Co. LLC: And then – yeah. And on the restructuring, clearly you're getting some pretty tangible payback on the actions. You've raised by $5 million this year, you're getting $5 million more, so it's a wash, but 2017 you gave some color in terms of what do you expect, and I'm struggling for the numbers here, but I think it was $130 million of restructuring costs next year and $105 million of payback, incremental payback. Are we still on track for that next year?

Yeah, well, we're still on track and what we said is $120 million of net, so you think about the net profit improvement as a function of restructuring. We said it's $120 million, but your numbers are largely correct. Nigel Coe - Morgan Stanley & Co. LLC: Great. Thanks, Craig.

(43:08). Great.

Okay. Our next question comes from Jeff Sprague with Vertical Research.

Thank you. Good morning, guys. Hey, just a couple questions. Craig, on lighting, I think you described it as mid-single digit. I don't know if that was an outlook comment for what happened in the quarter. Could you just elaborate on that? And I was wondering if maybe you could bifurcate lighting a little bit. I think you have some harsh and hazardous in there that maybe is holding that business back a little bit. Any way to think about the underlying truly commercial part of lighting and how that's growing, commercial and res?

Yeah, we did say mid-single digit in my commentary. That's really a reflection of what we expect for the entire year and so it's our outlooks, but it's largely the way we think the market has been performing overall. When we quote the lighting numbers, it does in fact include all of our lighting which would include harsh and hazardous and the safety business as well, so it's a composite view. And certainly, if you took out harsh and hazardous, the business would be performing slightly better. I don't have the exact number handy, but it would certainly be performing slightly better than that. And we think the really important news is that LED penetration continues to grow inside of our overall lighting business and LED penetration in Q2 was approaching 70%. So we continue to see tremendous growth and penetration in LED lighting and we think that has a lot of room to run and we're really pleased with the way that business is performing.

Thanks. And Craig, I appreciate your comment on trying to go after price as laws maybe start to work against you a little bit. But can you help us frame that? Perhaps some idea of what percent of your COGS are raw metals or metal related or any kind of ballpark number you could give us there?

Yeah, it's not a number I have handy so what I would just say is that what we'll do is we'll find a way to offset it like we have historically. We could end up in any given quarter with a little timing challenge around inflation versus pricing in the market. But all of that thinking and the current commodity prices are factored into our guidance for the year, so it's all fully baked into 2016 at the current activity levels, at the current inflated levels of steel prices. And so I don't really have the number in terms of specifically the steel commodity itself and how much, in terms of bifurcating that from the rest of what we buy.

And just one other quick one. Just thinking of Eaton Corp. as maybe a window on what industrial companies are thinking. Can you share any view on what you would expect your capital spending to do in 2017?

Yeah, it's really too early for us to make the call. We haven't even really begun the process of working through our internal plans at this point, so we'll certainly be in a position to give you perhaps a better look at that at the end of Q3. But at this point, it's just too early to call.

All right. Thank you very much.

The next question comes from Jeff Hammond with KeyBanc

Hey, good morning, guys. Hey, can you hear me?

Yeah, yeah. We got you, Jeff.

Okay. Yep, sorry. Okay. So I really wanted to focus on EPG order rates. You went from plus 2 to minus 2 and I just want to understand what caused the delta because that was the one area within Electrical that had been more resilient. Richard H. Fearon - Vice Chairman, Chief Financial & Planning Officer: Well, we don't have that precise Q1 to Q2 comparison, but as Craig pointed out, if you look at order pattern in Electrical Products, it really was the industrial parts. It was those products that are in that segment that go into industrial controls for example, and APAC. Those are the two areas that showed particular weakness. And so without having the precise numbers, I would characterize those areas as being a bit softer than in Q1.

And how about just the non-res piece? Richard H. Fearon - Vice Chairman, Chief Financial & Planning Officer: Well, non-res of course goes across both segments and so much of non-res in Electrical Products tends to be in the lighter commercial type areas and that experienced good conditions. And as Craig mentioned, Europe in general, non-res as well as other markets, experienced pretty good conditions in Q2. Q2 orders.

Okay, good. And then on slide 11, you gave the quarterly cadence of the restructuring cost. Do you have that similarly for the $190 million in savings?

Yeah, we don't have it particularly for savings and we haven't provided it other than to say that the savings will generally follow the spending in the business. And maybe to deal maybe the follow-on question, as you think about characterizing the restructuring spending for the back end of the year, I'd say that it's going into the businesses that you would likely expect. And so Electrical Systems and Services will be the recipient of the most money followed by Hydraulics and then Vehicle. And so that's, if you're thinking about modeling where the restructuring spending's going, that's really the way the current numbers line out in terms of where most of the cost will go.

Okay. Thanks guys.

Our next question comes from Andy Casey with Wells Fargo.

Thanks a lot. Good morning. Question on cash flow. Your really strong performance the first half, it's running about 40% of your annual operating cash guidance and in most years, it moves around a little bit, but it's usually between 20% and 30% full-year operating cash. And Rick mentioned the opportunity to draw down inventory in the back half. Are there any second half offsets of that inventory drawdown that we should consider? Richard H. Fearon - Vice Chairman, Chief Financial & Planning Officer: None that we're aware of. We think that, given that, as Craig commented, we think sequentially, revenue stays relatively flat going from Q2 to Q3 and Q3 to Q4. That would mean you wouldn't have a need to build working capital to deal with revenue going up. And so we would hope that we would be able to pull down a bit of inventories in that flattish revenue environment. But other than just the normal business characteristics, we wouldn't expect anything else to impact cash flow.

Okay. Thanks, Rick. And if at historical proportion of closer to 40% hold, if full-year guidance ends up being a little bit conservative, what sort of allocation priorities should we consider? Would it be an acceleration of maybe share repo or restructuring or something else?

Yeah, I'd say that, as we think about the company's capital priorities, I think very much consistent with what we said in New York. And our message all along is that if we think about capital allocation, we say the first priority is to invest in our businesses, to continue to invest to drive organic growth. The second priority was said is in fact to ensure that we continue to maintain a very strong dividend. The third priority we said was to buy back shares, especially in this environment. We think that our stock price is on sale and we think we can create a lot of value of buying back our shares. And then the fourth priority would be to do M&A. And so that prioritization has not changed and that's currently the way we would think about capital deployment.

Okay. Thank you very much.

Our next question comes from Josh Pokrzywinski with Buckingham Research.

Hi. Good morning, guys. Just to come back to Hydraulics and the stationary market, it seems like you guys are trying to signal a bit more of a downbeat tone there, although when you talk about the weakness or the fresh weakness in industrial market, it seems to be directed more at ESS. So I guess I'm trying to determine one, in 2Q did you see a further loss of momentum in stationary or is it just trying to signal that hey, some of the mobile markets are hitting easier comps and stationary is now along for the ride? I guess first question, just trying to parse out that difference.

Yeah, I'd say in terms of Hydraulics, I think the right way to characterize what we're seeing in the stationary markets is that the oil and gas markets continue to be weak. They've been weak all year and we really have not seen a turn in those markets. We did see a little bit of some weakness in some of the process industries, but those orders tend to be lumpy. And we saw some strength in the mobile markets. And so I'd say the way we'd characterize Hydraulics is that not a downbeat tone at all. We're very much pleased with the fact that we posted better revenue than what we anticipated and we had better order performance than we anticipated. We do think it's important that we don't read that through to mean that a definitive bottom in the business and that the business has turned, but it's certainly a positive indicator for the business overall.

Got you. And thinking about the potential margin mix of recovery, if mobile starts to look better or bounces off of a bottom here and stationary stays weak, is that a better outlook for the margins of the business? Is it all about the same? Maybe help us try to bridge that gap.

Yeah, I think the bigger indicator would be what's happening with the OEM business, whether it's mobile or stationary, and what's happening with distribution. The distribution business tends to be a bit more profitable than the OEM business, and that's really more what influenced the underlying profitability than anything else. And in the quarter, our distribution orders were actually slightly stronger than our OE orders. And so that's a positive sign. But once again, with one quarter, really too early to really make a call one way or the other.

I guess maybe to ask the question differently, is there more distribution exposure in stationary or mobile?

Yeah, they really do play across both segments and so our distributors sell mobile applications. They sell industrial applications, so really they play across both markets.

Okay. Appreciate the question, guys.

Sure.

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

Morning, guys. Hey, on Hydraulics, just on the margin side, getting that back to low teens margins ex restructuring has been a goal of yours. Was this sooner than you expected to get there? And now that you're there, has the 13.1% victory been achieved, or anything particularly favorable that got you there this quarter?

Yeah, no, I'd say the business largely performed on expectations for the quarter and we certainly continue to have work to do inside of that business with respect to restructuring. We're not done, and obviously the 13% at the low point in the cycle was the bottom of our threshold. And obviously our aspirations for the business are much stronger than that. So I'd say no, we're not done. We're not ready to declare a victory. It was a strong indicator that the restructuring work that we're doing is paying off, but we clearly still have work to do in that business at different volume levels to ensure that we can maintain the minimum of 13% at the bottom of the cycle, and obviously numbers that are closer to 16% in normal times.

Okay, and then on Vehicle, on the margins there, you guys have worked to decapitalize that business and try to minimize the decrementals. They got a little tougher this quarter. You still feel good about the ability to keep modest decrementals in Vehicle?

Yeah, absolutely. And quite frankly, we're really pleased with the Vehicle business and the way it performed in the quarter. 17.1% return on sales excluding restructuring at a period of time when the North America Class 8 market is down 30%, at a time when the Brazilian markets are at all-time lows. We think that business continues to execute extraordinarily well and we're very much confident that we have the right formula. And to the point that you raised, it has been a formula of decapitalizing the business, changing the business model, moving more across from fixed to variable and we're very much comfortable that the business formula works there and that that business will continue to deliver strong margins in very difficult economic environments.

Okay, thanks.

Our next question comes from Deane Dray with RBC.

Thank you. Good morning, everyone. Hey, just like to touch on Aerospace if we could, some more specifics on the mix that you saw this quarter. The business jet weakness is certainly being felt industry-wide, but maybe some color on the offsets in the aftermarket, both military and commercial?

Yeah, as we said, Deane, appreciate the question. I think it's the weakness on the bizjet side caught us all a little bit off guard and that's really what's driving a little bit of underperformance in that business from a revenue and an order input standpoint. But offsetting that and helping the margins, we continue to see strong order input and results in aftermarket, commercial OE, commercial transport continues to be quite strong. It was roughly 10% in the quarter. Military OE was off modestly but very much in line with expectations. And Military aftermarket also growing in the mid-single digit range and so aftermarket continues to be a real source of strength. Commercial transport continues to be a real source of strength offsetting some weakness in bizjet and a little bit of weakness in regional jet as well.

Thanks. And then, Craig, just on a bigger picture question, you've now had your first quarter as Chairman and CEO successfully completed. Is there anything different versus your expectations since taking the helm in June?

Hey, Deane. I appreciate that question as well. I'd really say no. Again, as you know as well, the transition between Sandy and myself was really over a period of about 12 months and during that period of time, we worked closely together and I was in the shadows of all the calls that have taken place over the last year or more. And so I'd say the job is largely what I expected. The business environment is largely what I expected and there's really been no big surprises. It's the way we like it by the way, in the job so far.

Terrific. Appreciate that. Thanks.

Our next question is from Chris Glynn with Oppenheimer. Christopher Glynn - Oppenheimer & Co., Inc. (Broker): Thanks. On the guide I think I heard revenue flat or sequentially into the third quarter and again into the fourth quarter. That would seem to be a favorable in the fourth quarter relative to normal seasonality, if you could comment on that. Richard H. Fearon - Vice Chairman, Chief Financial & Planning Officer: It's relatively flat. It might be down just a tiny amount in Q4 possibly, but the reality is that it won't even be a material change and so as we see the balance of the year laying out, it's just Q2, Q3, Q4 are essentially flat revenue.

And I appreciate the concern that a number of you are signaling around the second half volume pace. And what we've said all along is that in the event that the volume pace is any different than what we anticipate, we'll be more aggressive around the things that we will do around managing costs. And so as you can imagine, we have a contingency plan that we're working through as a leadership team around what happens if in fact we end up with a volume issue in the second half of the year. So we're well prepared for that contingency. Christopher Glynn - Oppenheimer & Co., Inc. (Broker): Okay. And then just in lighting I'm wondering if there's been a lot of transition over the last couple years. One of your competitors talked about some recent change in the competitive and pricing environment, are you seeing anything in that area?

No. I'd say lighting, every year it's a business given that the input costs and the price of LEDs has continued to fall. So every year it's a business that basically sheds a bit of price, but also the input costs and the cost of that LED technology continues to drop and so I'd say in that business overall, in its ordinary course is that it's a competitive business and the technology cost continues to decline and our margins in that business, quite frankly are performing just fine. And we had another strong quarter of margins in Q2 and so we think that business is fine and very much consistent with the guidance that we laid out for products during the course of the year. Christopher Glynn - Oppenheimer & Co., Inc. (Broker): Thanks.

Thank you all for joining us today. We're at the top of the hour and wrapping, and would like to wrap up our call. As always we'll be available to take questions or follow-up item after the call, thank you very much for joining us today.

And that does conclude the conference for today. Thanks for participation.

Thank you.

You may now disconnect.