伊頓 (ETN) 2002 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Cooper Industries first-quarter earnings release conference call. During the presentation, our participants will be in a listen-only mode.

We will conduct a question and answer session. If you have a question, you need to press the 1 followed by the 4 on your telephone. As a reminder, this is recorded, Tuesday April 23, 2002.

Before we proceed, let me remind everyone that comments made by Cooper representatives may include forward-looking statements under the Private Security Litigation Reform Act of 1995.

These statements are subject to various risks and uncertainties, many of which are outside the control of the company, such as the level of market demand, competitive pressures and future economic conditions.

A discussion of these factors may be found in the company's annual report on form 10-K and other recent SEC filings.

This call is a cooperative presentation of Cooper Industries, Inc., and is intended for the exclusive use of the participating audience, no rebroadcasts, transcriptions or other use will be made without the express written consent of Cooper Industries.

I would like to turn the conference over to Richard Bajenski, the Vice President of Operations.

Thank you, and welcome one and all to the conference call this morning or this afternoon depending on your time zone.

With me today in a review of our first-quarter results is John Riley, Chairman, President, and Chief Executive Officer of Cooper Industries, and Brad McWilliams, Chief Financial Officer. We will give you a quick run down on the activities of the past quarter, other subjects that may be of interest, and we will provide for some time for questions following the conclusion of those remarks. Let me start off with introducing John Riley. John?

Thank you, Rich.

And let me add my welcome to all of you for being with us this morning. We are pleased that you could join us. Earlier this morning, we announced our first-quarter 2002 results, and commented on our outlook for both the second quarter and the balance of the year.

And for those of you who may not have seen our release, let me give you at least the highlights of our report.

Let me begin by saying that despite a very weak manufacturing environment, we think we had a very decent quarter on a number of fronts. We had earnings of 52 cents a share, modestly better than we had originally anticipated for the quarter. Our cash flow was outstanding, over 100 million dollars better than the first quarter of 2001.

As a result, our balance sheet leverage remained at a very comfortable 39.8%, that's the total cap level, even though we spent roughly $38 million in the quarter buying back a million shares of stock.

Apart from the numbers, we continue to make very good progress implementing longer-term cost improvement initiatives, strategic sourcing, offshore manufacturing, and the like.

And finally, we think we may have even seen some indication that the economy may indeed be in the very, very early stages of a recovery.

All in all, the quarter unfolded very much as we had expected, we opened that the existing softness in the overall economy and in the specific markets we serve would linger well into 2002; however, we continue to exercise good discipline managing all of our businesses. As expected, all of our electrical products businesses experienced lower demand relative to the first quarter of last year. However, the good news is that when compared to the fourth quarter of 2001, overall segment revenues were flat, providing at least some indication that the market declines, the steep ones, we experienced throughout 2001, may, in fact, be moderated. Additionally, our margins in our electrical products businesses held up reasonably well reflecting previous cost reduction programs and its effectiveness. Third to the fourth quarter of last year, our lighting circuit protection and lighting businesses reported modest revenue increases, sales to power delivery market have held relatively constant over the last six months.

Revenues soften over a bit in our other electrical businesses, and they were impacted primarily by diminished demand from commercial construction sectors and volatile oil and gas markets. First-quarter revenues in our tools and hardware segment were $155 million compared to $185 million for the first quarter of 2001.

Worldwide demand was very weak during the quarter for tools used in our key general industrial and electronics markets. The slowdown in the domestic economy especially in these two areas, industrial and electronics sector was factory utilization rates are hovering near 70% affected the sales of both hand and power tools. As I mentioned in January when we spoke, we plan to take aggressive actions during the quarter to curtail tool manufacturing operations in order to reduce inventories and focus on cash generation.

We were even more aggressive than we had originally planned.

And Rich will have some details on that later. Earnings for the segment reflect both the impact of local and lower revenues and these actions.

Brett and Rich will now give you more detail on our first-quarter performance. Then we are done, I will give you my views on the outlook of the second quarter of the full year.

I will also bring you up to date on the latest statistics on asbestos-related matters and other issues of significance to the company, including our inversion project.

When we're done, I think you will agree, that we remained well-positioned to take advantage of any upturn in the economy.

Brad.

Thank you, John.

Good morning, afternoon to everyone. I am going to take you down a quick run of the P&L in the press release and give you some other financial statistics on the balance sheet and cash flow.

Our revenues decreased 11% from a billion 095 to 975 million.

This is after negative translation of 6/10 of a point. Our cost of sales came in at 701.4 million, 1.2 percentage points higher than last quarter as a percent of revenue 71.9 versus 71.7. This was primarily caused by lower than planned volume in electrical, in tools, and by the conscious effort that we made to cut back production in the tools area to lower our inventories, and as John mentioned, generate more cash. Our SG&A expenses were down some 7.2% for the quarter from 199.5 million to 185.2 as a percent of sales, we went from 18.2% last year to 19% as we lost some leverage with the continuing revenue decline.

Our good will was 14.8 million last year and 0 this year, as a result of the changes required by FASB-142. Operating earnings declined from 111.9 million to 88.4 million. Our interest expense declined from 25.1 to 16.9, and all but a little over 100,000 of this was reflected in our reduced debt level, because we had very strong cash flow over the past year. Income before taxes was 71.5 million compared to 76.8 last year. Our income taxes decreased from 30.4 to 22.7, reflecting lower income and a reduced rate as a result of not having to charge earnings for good will, as a percentage of income, our taxes decreased from 35% to 31.8%. Net income after taxes was 48.8 versus 56.4 last year. Diluted net income per share, 52 cents, compared to 60 last year. And our average diluted shares outstanding decreased from 94.7 to 94.5. Let's turn to some other financial statistics that will be of interest to you. Depreciation expense for the quarter was 30 million down from 31.2 last year reflecting lower capital expenditures over the past year.

And, in fact, our cap-x was down significantly in the quarter to 14.5 million from 39.6 million last year. You may recall that last year, we were building two significant Mexican plants and had very large expenditures during the quarter. Our capital structure, our debt level came in at a billion 325.5 versus a billion 589.4 last year and our equity, 2 billion 006.1 versus a billion 925.8 last year reflecting a debt to total cap of 39.8% versus 45.2% last year. Again, this is a reflection of the fact we only have one small acquisition during the year, and we have very strong cash flow.

A return on average shareholders' equity was 9.7%. Turning now to some of the data from cash flow. As mentioned, our depreciation expense for the quarter was 30 million. We now no longer have the amortization of good will, so we don't have to add that back. Our net cash provided by our operations was 45.8 million, compared to cash used last year of 34.5 million and 80 million dollar positive swing, and if we factor in the cap-x and the sales of equipment, as John mentioned, we were actually positive for the quarter over last year, 106 million.

And this is despite the fact that our income was actually down 7.6 million. Improved working capital was the main reason for this significant generation of cash.

Our inventories came in at 657.4 compared to 737.3 at the end of the first quarter of last year, some $80 million drop.

They dropped from year end, last year end from 670.9.

Our returns improved quarter over quarter from 24.2, whereas we had 4.1 in the last quarter of last year. Our accounts payable and accrued liabilities went down 64.7 million during the quarter, as our business slowed and we cut back on buying. Accounts receivable were 774.2, as a percent of sales, we were at 19.9, compared to last year, we were down in accounts receivable by 68.6 million or 8.1%. Last year, our percentage of sales was 19.2.

As previously mentioned, our cap-x for the quarter was 14.5,

and we paid out 32.7 million for dividends for the quarter. With that, I'll turn it over to Rich who will give you further data on the individual segments.

Thank you, Brad. The following a rather quick review of the revenue trends for our two business, tools and hardware and electrical products. First, for tools and hardware where we saw a quarter -- first quarter this year versus first quarter of last year a decline of about 16% in total revenues.

One percentage point of that decline was the affect of translation adjustments.

So our -- on average, our tools and hardware business was down 15% year on year. And the declines were registered across all geographic areas for our businesses. North American revenues were down 17 to 19%. In Europe, excusing translation, our revenues were off 5% and Latin America, our revenues declined approximately 10% excluding translation. Principally what we are seeing around the world is a decline or slowing of industrial demand in markets for all of our tool products, hand tool and power tools, and notably, as well, in the electronic product area, pretty much across the board.

Now bottom line, though, while these markets aren't in the greatest shape right now, we continue to drive our investment out of this business. As Brad mentioned, we've taken significant reductions in many areas of our working capital, and within the capital area of tools and hardware, we took 15 minutes dollars out in this past quarter.

As many of you have heard John say, you play the cards you are dealt, and I think during this difficult time, we are playing these cards pretty well right now. Turning over to our electrical products area, revenues were down year on year 10%.

And there is no significant impact either from the translation side or as a result of acquisitions. On average, across our businesses, 10% decrease in core businesses for electrical products. In north america, our revenues were down about 10%. And in that marketplace, the electronic product demand remains quite weak. After a rather precipitous decline in the early part of 2001, which continues to reflect demand for our datacom and telecom products. Softness in industrial and commercial markets which resulted in lower revenues for lighting and wiring device businesses, utility product demands for our types of products continue to decline as a result of the continuing and ongoing uncertainty in the regulatory and energy generation marketplace. And domestic command for hazard electrical products have retreated after several quarters of growth as volatility and uncertainty emerge in the energy markets. In Europe, excluding translation, our revenues declined 6 to 8%. Petrochemical demand for electrical chemical materials have fared better than it has for its North America counterpart. All across Europe, our European-based businesses experience the affects of reduced economic activity and the impact on their market, for the most part, in the commercial and industrial atmospheres. In Latin America, excluding transition, our revenues declined 12 to 14%, mostly because of the economic weakness in Mexico and Brazil which has dampened business activity there. Overall, when you look at our electrical products revenue on a sequential basis, our first-quarter revenues were about equal to those in the fourth quarter.

Ending a string of sequential declines. These sequential level show market demand for our type of products. From the fourth quarter of last year to the first quarter of this year, almost all our electrical businesses reported an increase in revenues or less of a decrease in revenues.

We believe that our current cost structures which we have achieved with significant adjustments over the last three or four quarters do position us quite well to produce good results in these markets and even better results as an when those markets begin to improve.

That's the summary of our two business areas. Let me now return this call back to John Riley.

Thank you, Rich.

Let me now address the second quarter and full year before I talk about some other issues. I think it is fair to say that I believe our operating results for the first quarter of 2002 mirrored prevailing weak market conditions and we handled them pretty well.

And at this point, we open that this tough environment will continue at least for part of the second quarter. That said, the combination of modestly better sales and lower costs in our judgment should produce earnings in the range of 65 cents for the quarter.

Our outlook for the second half of the year is more positive. We continue to believe that we will see a significant strengthening within many of our markets, particularly if overall construction activity remains strong, and industrial production continues to trend upward as many are predicting. While product demand is not yet appreciably increased, we are encouraged by economic indicators appearing to be pointing that to recovery.

During the past three months, industrial production has increased sequentially for the first time in almost 18 months.

As a result, manufacturing employment levels stabilize after declining significantly throughout 2001. Additionally, construction activity forecasts remain positive, assuming interest rates stay low.

And shipments of electronic components and telecommunication equipment, at least now appear to be stabilizing. While it will take likely some time for all of this to be reflected in the economy, we do remain optimistic that there will be much better demand for our projects in the first and fourth quarter of 2002 compared to 2001. Our cost reduction programs will allow us to have substantial earnings improvements, that's a given.

And the projected pickup and demand will be an additional plus. Thus, we still maintain that our annual earnings forecast for the year will be in the range of $3 per share.

Obviously, time will tell, but we think we are pretty well positioned to do that.

Now, before we take questions, let me end the conversation by addressing two issues as follow-up to our last call. The first is asbestos.

The second is the inversion process. We have been asked by several of you how we intend to keep you up to date on asbestos matters. And we do intend to keep you very up to date on that matter.

You will recall that on our most recent 10-K, we included in the section called "Impact of Federal [Mogul] Bankruptcy," a series of numbers updating you on where we were in terms of claims history and costs.

That will be done -- continue to be done on a quarterly basis, and you can expect to see our next series of numbers in our upcoming 10-K. That will reflect our first quarter activity.

I don't have exact numbers for the quarter, but I have very good approximations for through morning, and I will give them to you now.

Claims filed during the quarter. The first quarter of 2002 were roughly 4,000 claims.

Claims resolved during the quarter were roughly 260 claims. That brings the open-claim balance to 62,090.

During the quarter, we will have spent -- those claims would have spent -- cost us $2 million in defense cost and a million two in settlement claims.

If you add those two together, you come up with roughly $3.3 million, if you assume that after insurance, we spend about a third of that, that brings you right back to the $4-to-$5 million we originally predicted.

You will also note when you find these numbers that you will note that we spent a little bit more on terms of settlement per claim on the 260 or so claims we settled.

These were all more serious claims that we elected to settle early rather than go on with them through the process.

I would caution you that when you look at all of these numbers, you should keep in mind that these names on a quarterly basis can increase or decrease in relatively large swings.

For example, there will be quarters where we have settled thousands of claims for relatively modest dollars, so we will continue to update you on a rolling average basis in our 10-K's as we go on.

But frankly, looking at the quarter's experience, at least the numbers that we have -- that I have to date, I feel very comfortable that we are very much in the ball park of what we told you back in January on this matter.

Finally, let me address the question of the inversion.

We have had questions as to whether we are on track for the inversion, assuming our shareholders agree, we intend to proceed as described in our recently-mailed proxy.

I think you know that the shareholder meeting on this matter is scheduled for may 14th. We are mindful of the discussions that are going on around the country on this issue and frankly, we are encouraged by this debate.

We strongly believe that to be a global competitor, Cooper has to be competitive on labor, material, overhead, and, yes, on tax rates.

So we are proceeding as we have outlined in our proxy.

Obviously, in the future we will comply with any and all laws and regulations relating to this matter as we always have. So with that, I will -- I

think we can now open the forum up for questions. Margarita will do that. Thank you.

Thank you.

Ladies and gentlemen, if you have a question, press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt at your ask. If your question has been answered or you wish to withdraw, press the 1 followed by the 3.

And if you are on a speaker phone, please pick up the handset before entering your request. One moment please for the

first question. Bob Cornell with Lehman Brothers. Please go ahead.

Hi, everybody.

Good morning, Bob, how are you?

I'm well.

Thanks. You should be do. You talked about the second quarter your range of 65 cents. Can you give us an idea of wat you are looking at within electrical and tools. For example, do you expect electrical sales to be up in June over the just reported March quarter and by how much?

And what are you thinking in terms of electrical versus first quarter and how about

the tools too.

Do you need help with that, Rich? I don't have that schedule or numbers.

This is Rich, Bob.

I will try to address some of that for you. We are looking for modest increase in overall revenues for our businesses. In the second quarter versus the first.

You are looking for sequential changes?

Yeah, I mean, looking at -- you know, given some revenue guidance for this quarter.

In the last conference call relative to the fourth. Similar guidance of the June quarter over this quarter.

Electrical tools, in terms of revenues, where you were talking about, and the tools had a funky quarter. Could you give us guidance of what you are thinking in terms

of second quarter as part of the 65 cents.

As I started off, relatively modest expectations for revenue increases in the second quarter versus the first.

In line with John's earlier comments as things stand right now, we believe that our market is going to stay about at these current levels for at least the better part of the second quarter.

If there are fact, we begin to see some improvement, our anticipation at this point will be through the latter part of that quarter as opposed to earlier. With the changes that have taken place in the business and this relative stability in the market places, we are looking for the margins for our businesses, both electrical and tools and hardware to pick up. Even if at this point you are not looking for them to yet to achieve what we have anticipated the average margins to be like. Electrical products, and tools and hardware, really are going to get those better margins once the volumes start to pick up on our expectation later this year.

Rich, how about in tools, the 5.3 million; that's way below what you have been running on.

How much of the unusual costs is as part of a restructuring and look at that another $5

million number in this quarter.

The answer is, no, we are not looking into another $5 million number in this quarter. Some cost associated with the Mexican consolidation there, Bob. I think you are probably looking at a number in tools

that may be even approaching double that number for the second quarter. In terms of earnings.

Okay, thanks, that's helpful.

Okay.

Martin Sankey with Goldman Sachs, please go ahead.

Hi, my question has to do with the inversion. In that the --is that the -- the aspect of inversions that congress seems to be objecting to most is the fact that post inversion, there's a tendency for companies to transfer patents and logos and other intangibles into the Bermuda parent and have the U.S. subsidiary pay royalties to to the bermuda parent and, thus, create lower earnings in the United States and create tax deductions.

To what extent are the articulated savings that you have discussed with us, dependent upon such moves in addition to just getting lower foreign taxation?

Well, this is Brad, Martin. Basically, you know, we are going to be doing everything we can to lower our tax rate. As we move forward in Bermuda currently we do not have any plans of transferring the intellectual property, but if, in fact, this is allowed and it makes sense for our shareholders, you know, we will be doing it, but numbers that we presented to you earlier do not include any royalty payments.

For having intellectual property offshore.

Okay, so the aspects that congress is really getting steamed about are not included in the tax savings you have articulated.

It depends on which bill you look at.

There are so many bills out there. Some of them, you know, focus on things where some of our benefit comes from, and others don't. And so it's -- it's really too early to tell exactly what -- how all this is going to shake out. The good news is the country is focused on it, and it is going to be -- it will level of playing field for our american companies with our global competitors, and that's what we are really after in the long run.

Okay. Thank you.

Nicole Parent with Banc of America Securities. Go ahead.

Good morning, guys.

Good morning, Nicole. How are you?

Good thanks.

Could you elaborate on the tools restructuring? I think, John, I read you mention an additional $15 million of cost incurred and you noted that you accelerate it had in the quarter.

What, at the end of the fourth quarter, were you planning? And I guess looking out to follow up on Bob's question, I mean, we should still expect

this business to be down year over year in the third and fourth quarter, right?

Nicole, let me make sure I understand your question because I think you have a number wrong. Go ahead Rich.

Are you referring to the numbers that I referring to in the tools business 15.15 million reduction in working capital investment in the business, and that was for the most part driven by the concerted effort on our part to keep production levels low and to take our inventories down in the business, which is an effort that will continue on through the second quarter and later into this year, depending on how circumstances bring us to work on that.

Okay.

The big hit in tools during the quarter is really kind -- you can look at it three -- excuse me, three real hits there.

One are the production variances over and above what we had originally anticipated we would take there, because we were more aggressive shutting down plants for short workweeks and lower work schedules and shutting down plants in general.

That's item one. Item two is really a cost mix issue, which is related to the cost of converting to the Mexican production from the U.S. production on the cost side. And frankly, the mix was -- was not favorable for us, because when you get the drop in the electronic tools that we sell, for example, our we willer product line, those happen to be some of our -- well, that happens to be our higher product line so you get a mix effect.

Pure volume, not just true for tools, but for [functional] tools. If you have the volume, then you would really be throwing off a bunch of earnings and a bunch of cash out of these businesses at this point. And that's what we need.

I mean, my view is we don't have a cost problem right now wave volume problem. When that comes back, we are -- we have a volume problem,

and when that comes back we will go and be a pretty good shape. That $15 million was a reduction in working capital as Rich mentioned it.

Thanks.

A little more color year over year, I know everything is pretty much down in electrical, but as you look at it the

first quarter of '02 versus Q1 '01 by business, the magnitude and rate of changes are and what's your outlook for full year?

I'll let Rich dot magnitude of changes, but quarter over quarter, lighting was up, [business] was up, power was about flat, beeline was off, primarily because of commercial construction, [Crouse] was off modestly in the quarter, modestly 0 to 5 in the quarter because of the fits and starts in the oil and gas market that a lot of your counterparts who are following those markets are seeing.

I think I have hit most of them. Wiring device was off modestly, and mostly because of commercial construction, but Rich you may want to give nicole some color on numbers.

Okay. Let me try to understand the comparison you are looking for. Fourth quarter of this year, right, expected --.

Yeah, I guess -- first of all, as supposed to sequential, year-over-year declines and as you are looking for the full year, in the 4th quarter, first-quarter call you gave us an outlook for all the businesses, how has that changed based on what you have seen in the fourth quarter with electrical power segment.

Let Rich do that.

First, a real quick overview of it is that our view is that we are in store for some relatively unchanged market demand for most of our products in the second quarter, and that we will begin to see some improvement, probably late in the second quarter but somewhere around midyear that will contribute to an overall 4 or 5% growth on average in that latter part of the year.

Versus the first half of the year.

When all is said and done, when we compare the fourth quarter -- where we think we'll be on the fourth quarter of this year to say where we ended up in the fourth quarter of last year, if I can use that as a comparison.

Then I think what we will end up seeing for most of our businesses is, in fact, I am going to page this in numbers -- pages here.

If you hear pages flipping, that's me scrambling for some numbers. Generally a nice increase in electrical products, in revenues off of the fourth quarter last year.

In the high single digit area. And a much better increase in tools and hardware if there are fact, as we anticipate, we get some benefit out of a rising industrial marketplace for those businesses.

That will be a rather [salutary] benefit to this business because as you recall, we saw rather sharp drop-off in the shipments of assembly equipment through the third and fourth quarter of last year and early part of this year. I'll tell you right now, the order patterns for assembly equipment are not that robust and capital spending, particularly in the capital goods Industries continues to be under pressure.

I think if you look at Cooper Industries, our capital spend something much lower than it was in years prior. The prospects for the citizens to pick up will really be depending on how soon we see those capital budgets pick up here in North America and Eastern Europe. I'll call that one -- you know, call on capital spending budgets more than anything else.

I guess just to follow up on John's point with the volume declines. If you look at the sequential tools revenue, if I am doing the math right, Q4 was down 5%. Q1 '02, down 8%.

OP down 11% in the fourth quarter and now accelerated that to down

[INAUDIBLE] percent.

I think mostly what you are saying, this is Rich, Nicole, is the impact of the efficiencies and operations resulting from the cutback in inventories. I don't like to see those margins drop down to where they have, but we are getting well paid in terms of getting the inventories down, get the investment out of the business, and to have our operations perform well, regardless of the outcome of the expected pick up in the economy.

If it's not there, we will do okay. If it is there, I think we will do quite well.

Thank you.

Thank you.

Eli with [HC].

Good afternoon, or good morning.

Hi, Eli, how are you.

Couple of clarifications, tax rate, corporate charges and interest charges stay relatively flat the rest of the year versus the first quarter?

I think in interest, we will be continuing to pay down debt. We expect significant cash generation this year in 330, 340 range prior to dividends, so if you factor that in on an increasing or on just a linear basis, we will see decreases in interest rates, interest expense because of that. The tax rate, we would expect to be 31.78, up to 32, in that range for the rest of the year.

Absent the inversion, you know. If we do the inversion, assuming we have a positive vote and go forward, our tax rate will be down approaching 20%.

And the general corporate expenses and what were the actual shares outstanding at the end of the quarter?

As far as general corporate expense, Eli - this is Rich - at the end the year something in the $35 million to $40 million range. As far as shares outstanding for the year, I think you can use the $96 million share outstanding.

You just brought back a million shares, didn't you?

We are anticipating we will see some issuance of shares through the year as a result of stock option exercises and issuance of shares to employee purchase plans and such.

This is just for share increase.

That's correct. In essence that 96 million will be shared, that's right.

Can you talk about your expectations for more begins for the sectors for the years.

Have they changed from the meeting that you had given the weakness of the first quarter

and what's going to be actually continuing below numbers in the second quarter. Do you expect to make it up and still get to 13.5 and 8-plus?

I think we haven't changed on electrical.

I think we said 14. And we haven't changed on that number. Now this all presumes we get the volume that picks up in the latter part of the year.

That being said, we still are reasonably comfortable with the 14 electrical. I think realistically, probably tools will be in the -- off maybe a point of what we said.

I think we said 8.5. It could be down in the 7, 7.5 range. That kind of range, Eli, on the cash flow front, we told you we were looking for free cash flow between 3 and 3.25.

Most people pegged us at 310, 315.

I can tell through that that may be a number -- that number may be conservative, but I'd rather that I can mccall on all of this more definitively for you let's say an our second-quarter numbers. But I'm quite encouraged with the cash situation, and that's going to leave us a lot of flexibility in terms -- by the time the year is done from we didn't spend any of that except pay down debt, we will be very, very well off in terms of position going forward.

I look forward to those 15 to 16% electrical margins during the year.

We do, too.

Thank you.

Jeff Sprague with Salomon Smith Barney. Please go ahead.

Actually let's start with Eli's closing shot there. What kind of revenue, you know, just absolute levels of revenue do you think you need to have in the electrical business to see margins in the mid-teens again?

Margins in the mid-teens in electrical?

Yeah.

Actually, I am not sure how to answer that.

Take out 14% and staying in mid-teens.

Yeah.

On average for the year.

15, but I guess that's close enough.

Given what we have done to the cost structure through these last couple of quarters, four or five quarters, in fact, a nice increase that would be mid single digit increase in revenues, consistent and solid across our businesses would be sufficient in our mind to get us a long way, if not completely there.

I think you are probably talking, Jeff, just eyeballing some numbers, you are probably talking about a run rate in the -- I don't know, 900 million a quarter range kind of number.

Something around there.

It's maybe a little less than that, but it is in that ball park. It is not far off from that. That ought to -- if you get to those kind of run rates, which you could easily get to when the economy picks up, I mean, frankly we were at that run rate back in the first quarter of 2001.

So we are really not -- really not poking at a number here that's way out of line with what historically we have done in the past.

With the existing businesses, absent any additional [acquisitions] or those sort of things. I think you are probably looking for a number, if you are in the 900 million revenue line basis, you are probably going to be in the 14% to 15% range. I think that is where you are going to be. The whole card -- it won't be the whole card internally, just in terms pricing coming back and has been quite funky in all of these markets as you know, how quickly that comes back.

John, does your optimism on the second half relate directly to something you are seeing in your channels, or more kind of a macro view based on some of these indicators you talked about, industrial production and items like that?

More base on the macro indicators.

The four we looked at was electronic and telecom equipment production that has flattened and bumping around at the bottom.

The thing that is encouraging, Jeff, is this quarter-over-quarter change in industrial production. We have not seen three quarters of that going up above in positive territory for a long, long time, 15, 16, 17, 18 months.

Frankly, once the factories get running in this country, they get back up -- the factories get running in this country, and they are not any different in what we are talking about of what's going on in several of our businesses. But once that gets running, the first phase starts the maintenance and repair business and then people start to redo some lines and more capital investments.

That will be the key -- the key factor going forward here, as I see it.

Once that gets up and running, that's going to be a real positive for [all of this] business. Great for our bussman business, for our crouse business, big-time great for our b-line business.

It is great for a lot of the lightning business. I mean, just great for a lot of our businesses. Now having said that, the other side of this is construction needs to hold up at its current levels.

We have acknowledged - I think everybody has said that they sense commercial production dropping off.

Probably a bit of overbuilding in that area and a little bit of over-optimism over the last 12 to 18 months in terms of building that area. We wouldn't argue with that but as residential construction holds up reasonably well and a reflection of the interest rates. If interest rates stay down, factories get running and people get back to work.

Thanksgiving will hold up pretty well going forward. The key points. It will come down to construction activity, holding

up reasonably well and a big kick back on the industrial side of the business.

I want to understand better the dynamics in the electrical margins.

A couple of questions on the call going back and forth sequential on a couple of things. Revenues are basically flat and your margin are down 100 basis points, and the margins last year included the impact of good will amortization, if I am not mistaken.

So you actually have a 200

basis point margin or erosion on an apples-to-apples basis on revenues.

I am not sure about the direction of numbers, but directionally, it is direct.

Big-time and electrical in two areas.

One is huge and that's huge impact. Volume from first quarter last year to first quarter this year.

Q4 to Q1, revenues are basically flat.

I am looking at this quarter-to-quarter sequentially.

Let me make my other point. The other one is in pricing. Those two are the big hurts when you go quarter to quarter,

first quarter to first quart are. You are addressing which now, Jeff?

Electrical revenues of basically $820 million in both Q1 and Q4. And you know margins down 90 basis points quarter to quarter, but I think you know last year's margin includes amortization and this year's doesn't. I don't know exact will he how the amortization was allocated across tools and electrical, but you are maybe down a couple hundred basis points sequentially on margins on flat revenues, quarter to quarter.

Jeff, this is Rich.

Let me first put the numbers out on a comparable basis. In the fourth quarter of last year for electrical products, the margins would have been 13.7%, excluding the amortization of good will and looking at 11.2% in the first quarter of this year.

A couple of things come into play. One is, there has -- the old bug-a-boo mix comes into play, and that is there is no doubt about it, in this business.

We are in a period of time right now where our [cross hinds] business through 2001 held up very well and was champion in marketing contribution has seen their markets fall off one against with the volatility and energy marketplaces.

That -- and I don't want to discount it too much or put too much emphasis continue to, but has had an impact. Electrical problems like tools -- intellectual products, even as tools, rates, even with these level of volumes similar to the 4th quarter, they are not as strong.

We are taking inefficiencies in our business as a result of that -- one area in particular has been lighting.

Another area we have been focusing on and will continue to focus on is in our bussman area. So those two things, I would

point to, as being the primary contributor to what has brought us to this point right now.

Okay.

Great. And with the FAS-142, are you guys not looking at any impairment charge, or are you

still investigating that?

We are still reviewing it, Jeff.

We obviously will be reporting to you after the end of the second quarter on it, but we are not seeing so far any big

issue that would lead us to -- you know huge write-offs.

Okay. All right. I'll pass the time. Thank you.

Robert Sharpman with Chapman Capital. Please go ahead.

Back to the asbestos front.

I was hoping you would give us a essential for -- sense for what your average and high settlement value per methothemeloma and asbestos case and unimpaired case has been in your most recent quarter that you gave data for.

You gave a data point for the amount of settlements and [can I]

have that broken down by severity of impairment or lack of impairment?

Don't have the specific numbers in front of me -- is it Robert, by the way?

Yes.

Robert, I'm sorry, I don't have the specific numbers in front of me.

I can tell you that the case settlements as I said will be in the 260 case settle range.

The indemnity cost to sell those, 260 cases will be around 1 million 2 or roughly $4500 a claim.

Almost all of those 265 claims were either what we would have considered -- would either be [Meso] cases, or we would have considered them to be the [Morris Canny] cases, so we proceeded to settle those out as quickly as we can.

Even at that, average of those -- a group of what I would consider to be higher risk cases was only 4600 dollars a claim.

So that will sort of put it in the ballpark for you.

I don't know exactly [INAUDIBLE] can't tell you precisely what each of these claims were settled for, but I think you

are talking about at a high level, low 100s, 100s of thousands of dollars.

Settling meaning the plaintiffs in these mesothemeloma, on average, $4500?

On most cases, that's correct. Let's be clear. The plaintiff and the plaintiff's attorney is receiving the $4600.

That's not just Cooper's share of it, the actual dollar amount going to the plaintiff and counsel per meso case?

That is before insurance, correct.

Clarify one thing.

The number that John quoted was the average for the cases -- in the quarter. Those were not all meso cases,

but they were the more serious, high-risk cases.

You don't have a data point for meso cases?

No, I don't.

Any trends for unimpaired claims?

The less serious claims.

INAUDIBLE] where the truck went around and took x-rays, and now they are wheeling guys out that has no claims to impairment but they may have cancer someday?

But I can't give you any real informed judgment in terms of giving you numbers on that, other than I guess the fact that there were 40 -- roughly 4,000 claims, 41 hundred claims filed during the quarter hold in that 15, 16,000 annual current claim rate that we mentioned back in January when we went through these numbers.

So I would think the mix is probably pretty close to being the same, although, again, I -- you know, hate to really go into detail of that.

I apologize if you talk about the Federal Mogul situation that the leak it looks like [IKON] sent out with settlement with the bond holders.

Did you comment on that?

And if so not, will you comment on that please.

We haven't commented on that and frankly we haven't made a comment and don't intend to, other than it wouldn't seem unusual to us if groups of people at that level and with that involvement are meeting on this issue.

And frankly, that would be a good thing, I think, from our perspective, because that's going to be the first step in bringing this thing to ultimate resolution.

They need, at some point in time, the federal mogul folks and whoever else is involved, including the plaintiff's attorneys and also the credit to creditors committee and the bond holders and banks and so on and so forth will have to agree on a form of reorganization.

I'm assuming -- I'm not privy to those conversations.

I assume they are going on. I would assume that's a good thing and let's get on with it so we can helpfully get this trust established, and we can participate to the degree we think we should participate and be on with life.

I got a note from -- on the unimpaired claims, there are

more unimpaired claims being filed on a relative basis but not a significantly greater amount.

Just regarding the Federal Mogul situation, it would seem to be one of the quickest settlements between the injured claimant as pool, bond holders, other credit holders and equity holders that has ever happened.

Gipson, [Graves] for about a year. Is it really feasible that Federal Mogul could resolve this that quickly are a third to a half of the normal time line?

Guess the answer to that should come from General Mogul. I can't give you a judgment on that.

Okay, thank you very much for answering all the questions.

Thank you.

Lewis Sarks with [Chesapeake] Partners.

Hi, congratulations. Just to clarify. You bought a million shares back during the quarter?

That's correct.

What was the total proceeds for those?

I don't have the exact number but somewhere between 27 37.50 and $38 a share, if I recall.

Is that right?

About $37.80 on average, something like that.

Okay, in terms of the plans for the year.

To offset or reduce the share account. What was the average number of shares that you expect by

year's end again.

We had forecasted something in the range of 45 million shares, which is where we are now.

We will actually buy the creek back, which we have done, basically in the first quarter. We have an outstanding authorization for $4 million to buy back roughly 4 million more shares, which we will be discussing with our board on an ongoing basis throughout the year, and I would suspect that the first objective for us is to make sure that we have our balance sheet in order an that we are dropping our debt to total capita at some point we will be more inclined to look at that on a share buyback going forward.

Was the 1 million in the quarter offset or an option?

Offsets.

Fred, go ahead.

Question has been asked.

Once again, if you have a question, press the 1 followed by the 4. Bob Cornell, go ahead with your follow-up question.

Yeah, a follow-up.

I know you guys are running these numbers by quickly but to the electrical margin issue. You know, the discussion was if you got to 900 million in revenues, you could do, you know, 14, 15% operating margin. But you might get to 900 million in revenues by the end of the year, but in order to get margins for the year to 14, you will have to have a run rate in the second half well above 14% to get the old year average to 14%.

Any comment on that regard?

I think directionally you are correct, Bob.

I hesitate to jump into numbers here, because I want to make sure I look at those, but I think directionally you are

correct and directionally, we don't think that's out of the cards -- we think that's doable.

Okay, thanks.

With that, and Michael, our time, if we have one further question, we will take it.

Our last question from Michael Gresens from W. Barrett.

Hello.

If you could break down the bussman division and give a little insight of what you see from the distributors and some of the order patterns and inventory situations within their component division?

Don't have the breakdown on bussman between the electrical and electronic product lines in front of me.

I will say this. As a general rule, I think most of our marketing and

salespeople, not just at bussman but across the board would say that the inventories in the channel have been reduced significantly over the last 12 months, and I don't think that anybody is sitting here saying that there's much more inventory to come out that when the turn comes and the demand comes from an end user level, most of us should be seeing that in order -- in real order patterns without much delay.

Do you believe that the distributors, though, they need to cut their inventories back even further or are they to the point where they are so bare bones they need to start reordering?

I don't know if I will call them "Bare Bones," but I think they are at a place where they need to be reordering.

Okay.

Appears to us that most of our distributors supplies to bussman and for the most part, a good general statement for most of our products have brought their inventories down to the current demand in the marketplace.

A pickup in demand will generate two benefits for us.

One is the grater level of demand. And, two, some potential for restocking to the higher level demand that will be beneficial

to us, as well.

Thank you.

And I think that's exactly where the future questions lie, and that is when things come back, what happens, how quickly do prices come back, and secondly, at what levels do these folks restock to.

But they will get to that level pretty quickly and then an ongoing demand level.

With that, [Mary] at that, we are pretty much done.

I will only say that, again, the first quarter came out about where we expected. As Rich mentioned, I am not crazy about these volume levels we are dealing with.

This is getting to be pretty old for all of us on this side of the phone and I'm sure on your side of the phone too. But directionally, I think we are headed in the right direction, and that is, take as much cost as you can out of the equation during this downturn, and above all, generate a bunch of cash.

That's what we are up to and, again, as I said earlier and said in the press release, when things start coming back, I have been around these businesses for a long time, and I don't know that I have ever seen these things ready to leverage as much as they are ready to leverage right now.

So hopefully we'll all get some good news on the economic side of the equation, and if we do, we all would be quite pleased with the end result. Thanks for your help, thanks for your time and interest. Thank you.

Ladies and gentlemen, that does conclude your conference for today.