伊頓 (ETN) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen, welcome to the fourth-quarter 2004 and full year Cooper Industries earnings conference call.

My name is Andrea and I will be your coordinator for today.

At this time, all participants are in a listen-only mode.

We will be facilitating a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to the host of today's call, Mr. Richard Bajenski, Vice President of Investor Relations.

Please proceed.

Thank you, Andrea, and welcome, everyone, to our conference call discussing our recently released announcement of fourth-quarter results and full-year activity for Cooper Industries.

With me today are John Riley, Chairman and Chief Executive Officer of Cooper Industries, and Terry Klebe, Senior Vice President of Finance and Chief Financial Officer.

As is typical our format today will be to open with comments from Mr. Riley, with a further discussion from Terry Klebe, with some added details from yours truly covering operations for this past period.

Before we turn to questions, both John and Terry will give a quick summary of our outlook for the year, and some update on asbestos matters.

Before we start, let me remind everyone that comments made during this call may include forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These statements are subject to various risks and uncertainties, many of which are outside the control of the Company.

Actual results may differ materially from those anticipated by Cooper.

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

In addition, comments made here may include non-GAAP financial measures.

Reconciliations of those measures to the most directly comparable GAAP measures have been included in supplemental tables to our recent press release, a copy of which can be accessed on Cooper's website.

Finally, this call is a copyrighted presentation of Cooper Industries Ltd. and is intended for the exclusive use of the participating audience.

No rebroadcast, transcription, or other use of this presentation may be made without the express written consent of Cooper Industries.

Having said that, we will begin with comments from John Riley.

John?

Thank you, Rich, and once again thanks to all of you for being with us this morning to review our fourth-quarter and full-year 2004 results.

As we mentioned in this morning's press release, we ended 2004 on a very positive note.

This morning we reported that the Company's net income from continuing operations for the fourth-quarter 2004 was almost $89 million dollars, up 19 percent from the comparable 2003 net income of roughly $75 million.

Earnings per share from continuing operations increased 21 percent to 94 cents diluted, compared with 78 cents per share earned in the fourth quarter of 2003.

Fourth-quarter revenues were up 10 percent to $1.15 billion, compared to $1.04 billion in the fourth quarter of the prior year.

For the year just completed, annual 2004 revenues were $4.46 billion, up almost 10 percent compared to 2003 revenues of $4.06 billion.

Income from continuing operations increased 24 percent to $340 million, compared to $274.3 million in 2003.

Earnings per share for the year from continuing operations rose to $3.58 a share, up 23 percent compared to $2.92 per share for all of 2003.

I remind everyone that we did have some restructuring unusual items booked in 2003, and Terry Klebe will provide you with more detail on the impact of these items in a few minutes.

Our 2004 free cash flow was an outstanding $383 million.

As a result, our debt to total capitalization ratio net of cash at December 31, 2004, was 26.1 percent, down significantly from 29.3 percent net of cash at December 31, 2003.

To say that we're proud of our fourth-quarter and full-year 2004 performance is an understatement.

We achieved strong revenue growth and year-over-year margin improvement despite facing significant pressure related to the high cost of critical commodity materials.

It seems clear to me, at least, that our efforts to accelerate growth -- things like cooper connection and globalization --and our efforts to improve productivity -- programs like strategic sourcing, and our MVP productivity improvement program -- as well as other efforts to control costs produced these expected results.

Additionally, we made steady progress implementing a common worldwide Enterprise Business System, which will lead to continue streamlining of our businesses in the years ahead.

Beyond that, our balance sheet strengthened, providing us with considerable flexibility in our drive to produce additional value for our shareholders.

The programs we have in place, coupled with a developing recovery in our key commercial and industrial markets, give us good momentum as we move ahead into a new calendar year.

I am going to ask Terry to tell you more about our fourth-quarter and full-year 2004 performance before we get into 2005.

Terry?

Thank you, John.

Before I turn to the earnings for the quarter I will provide some highlights on our flow and balance sheet.

For the fourth quarter, we generated free cash flow of 78 million, compared to 172 million in last year's fourth quarter.

For the year, free cash flow was 383 million, compared to 384 million last year.

And, the reported free cash flow for 2004 included some discretionary uses in the fourth quarter.

When we issue our annual financial statements you will find that our pension plans are very well funded.

In addition to the 15 million we intended to contribute to our funded pension plans during 2004, we contributed an additional 42 million during the fourth quarter.

We also purchased a lease facility for approximately 14 million and provided approximately 60 million in funding to our employee benefit trust.

In the prior year, we utilized an income tax settlement of 76 million to make a 49 million contribution to our employee benefit trust; made a pension plan contribution of 15 million; and a 12 million contribution to the Cooper Industries Foundation.

The bottom line is that we far exceeded our cash flow objectives and had another great year of driving improvement in our asset management.

Now, some statistics on asset management.

With 10 percent revenue growth in 2004, we financed 100 percent of our growth with improvements in operating working capital.

In other words, zero growth in operating working capital to support a 10 percent revenue growth.

Our inventory turns improved to 5.8 turns from 5.1 turns in 2003, and as a reference inventory turns were 4.3 turns back in 2001.

Days Sales Outstanding were essentially flat compared to 2003 as a result of the strong finish to 2004.

We have improved 6 days since 2001.

Our capital expenditures for the year totaled 103 million compared to 80 million last year.

Our 2004 capital expenditures include the purchase of a leased facility for approximately 14 million in the fourth quarter of 2004.

We did not purchase common stock in the fourth quarter of 2004, but year-to-date have purchased 3.7 million shares for a total cash outlay of 203 million.

During the year, we issued 2.5 million shares from stock option exercises and matches to our 401(k) and other stock programs.

As John mentioned, our balance sheet remains in great shape, with our debt to total capitalization net of cash at 26.1 percent on December 31.

There are two balance sheet related items that may draw your attention.

First, you will notice that our short-term debt increased around 90 million in the fourth quarter.

These borrowings were necessary to accomplish international tax reorganization and will be repaid in the first quarter of 2005.

Second, our accrual for discontinued operations increased from the third quarter and was 225 million at year-end.

This accrual is a net liability.

That is, it is net of insurance-related recoveries, and the timing and reporting of these can be very significant.

Before continuing my comments on the fourth quarter and year, I am going to remind everyone of the unusual items reported in our 2003 comparable results.

First, in the fourth quarter of 2003, we reported 28.6 million of interest income on a tax refund and restructuring charges of 16.9 million primarily related to a pension obligation on exiting of a Cooper Wiring Device facility.

Both of these items were reported on separate line items in our income statement.

In addition, we made a 12 million contribution to the Cooper Industries Foundation, which is included in selling and administrative expense in the conventional income statement and in general corporate expense in the other and segment reporting.

As you would expect with the discretionary nature of the Foundation contribution, the fourth-quarter 2003 items essentially net to a very nominal net income impact.

In addition to the items impacting the fourth quarter of 2003, we had a 14 million reversal of an accrual in the second quarter of 2003, reflected in the restructuring line item in our income statement.

This accrual reversal increased 2003 net income for the year by 8 million and earnings per share by 9 cents.

My remaining comments will exclude these unusual items, unless otherwise noted.

Now, turning to the results for the fourth quarter.

Results for the fourth quarter came in stronger than we had forecast back in October.

For the fourth quarter, revenues increased 10 percent, including less than 1 percent contributions from the two acquisitions completed in the first quarter and fourth quarter of 2004.

Going into the quarter, we had forecast relatively flat currency exchange rates with the prior-year quarter.

Both the euro and sterling ended up strengthening significantly against the dollar.

Currency translation contributed 1.9 percent to the overall revenue growth, with a 1.7 percent contribution to Electrical Products and a 2.7 percent contribution in Tools.

December was a very strong shipment month across most product lines.

Unlike the last several years, customers were proactive in achieving incentive targets and generally less focused on minimizing year-end inventory levels, as end-user demand continued to be favorable.

Finishing out the quarter on a strong sales performance drove our performance above and beyond our earnings per share forecast for the fourth quarter of 90 cents, plus or minus, to the reported 94 cents per share.

With the earnings growth in the fourth quarter, we did increase our income tax rate for the year to 20.7 percent from the 20.4 percent effective tax rate for the first 9 months of 2004.

This resulted in the fourth-quarter income tax rate being 21.5 percent and had the effect of reducing earnings per share by about 1 cent in the quarter.

Material prices and energy-related cost inflation continued to create challenge throughout the fourth quarter.

We aggressively went after sales price increases and efficiencies for the quarter.

Aside from this challenge and the sales mix impact of our lower-margin Power Systems business leading the year-over-year revenue growth for the quarter, we delivered a 21 percent increase in earnings per share on a 10 percent revenue increase.

Now as I have mentioned in previous calls, the comparability of our fourth-quarter 2004 results with the fourth quarter of 2003 results continues to be impacted by Cooper voluntarily adopting January 1, 2003, a new method accounting for stock-based compensation that results in expensing all stock-based compensation by a prospective basis.

2004 reflects the second full year of our expensing of all stock-based compensation.

As substantially all of our stock-based compensation is a 3-year or less vesting, at the end of 2005 we will have the full impact reflected in our results.

Now, once again, the powers that be have changed the accounting rules on expensing stock-based compensation.

The good news is that based on our preliminary review of the new rules, we do not anticipate any significant impact beyond the impact we are already incurring.

Further good news as far as I am concerned is that all companies will have to reflect expense for all stock-based compensation beginning in mid 2005.

In the fourth quarter of 2004, our total expense related to stock-based compensation increased approximately 3 million over the fourth quarter of 2003.

For the quarter, our Electrical Products segment revenues increased 11.3 percent compared to the prior year, and our Tools segment revenue increased 4.4 percent.

In our Electrical Products segment, excluding translation, all of our businesses experienced year-over-year increases in core revenues except our wiring device business, which was close to flat on very strong 2003 comparables.

Once again, the strongest year-to-year revenue increases were in the utility markets.

Sales through distribution grew double-digit with a weaker performance in retail driven by tough comparables in our wiring device business.

Our Power Systems business, which sells both direct and through distribution, saw revenue growth in the high teens, driven by strong demand and partially by good progress in bringing our backlog and lead times more in line with the norm.

As I mentioned earlier, sales trends accelerated late in the quarter.

Traditionally, we would experience some late in the year sales activity driven by customers' desire to achieve incentive targets.

However, in the past few years, we have seen limited year-end activity in this regard, with 2004 being the first year in several years where the activity was more at the traditional level.

My view is the distribution channel is seeing good sell through and is now stocking at more of a normal inventory level.

Electrical Products markets remain competitive, but we are seeing a growing acceptance of price increases in the market.

For the quarter, we estimate that overall pricing was up slightly over 2 percent.

In our Tools business, we expected revenues for the quarter to be down 2 percent to up 3 percent with nominal translation impact, resulting from the large assembly equipment systems sales in 2003.

We ended the quarter with sales increasing around 2 percent excluding translation.

The sales mix in Tools for the quarter was favorable, driven by double-digit revenue growth in both hand tools and industrial power tools and accessories, more than offsetting a customer delay on the shipment of an assembly equipment order.

Overall, cost of sales as a percentage of revenue improved 50 basis points to 70 percent from 70.5 percent in the last year's fourth quarter.

Electrical Products cost of sales improved 40 basis points from the prior year to 69.4 percent.

Though a nice improvement, sales mix and pressure from material cost increases limited the improvement from the prior year.

Tools cost of sale in the fourth quarter was 71.8 percent.

This was an improvement of 180 basis points from the prior-year quarter.

Sales mix was a significant contributor to the improvement; with significant lower year-over-year shipments of low-margin assembly equipment partially offsetting the revenue gains in hand tools and power tools and accessories.

Overall, benefits from strategic sourcing, MVP, and other productivity actions contributed to a lower-cost base in both segments that was partially offset by increased material costs.

During the quarter, steel and energy costs continued to escalate.

In October, we were forecasting close to parity between commodity price increases and sales price realization and incremental cost reduction, compared to the approximately 4 million to 5 million negative impact we experienced in the third quarter of 2004.

Our estimation is that we did achieve close to overall parity in the fourth quarter.

Selling and general and administrative for the quarter as a percent of sales was 18.7 percent, compared to 20.2 percent in the prior-year fourth quarter.

Excluding the 12 million contributions to the Cooper Industries Foundation in 2003, selling, general, and administrative was 19 percent of sales in the fourth quarter of 2003.

Maintaining cost control has allowed us to leverage the revenue growth and overcome the increased expense from stock-based compensation.

Flipping over to our segment reporting, I will start out by discussing general corporate and other expense.

For the fourth quarter of 2004, we reported 19.7 million in general corporate and other expense, compared to 17 million in the comparable quarter of 2003, exclusive of the 12 million contributions to the Foundation.

Stock-based and incentive compensation accounted for substantially all of the increase.

We delivered a very nice increase in segment earnings for the quarter, up 18 percent over the prior-year comparable quarter.

Electrical Products was up 17.6 percent and Tools was up 21.2 percent.

Our Electrical Products segment return on sales increased to 13.7 percent from 12.9 percent in the fourth quarter of 2003.

The benefits of cost-reduction efforts and efficiencies from higher volume were tempered by increased material costs and the impact of sales mix.

During the quarter, we experienced the strongest sales improvement in our lower-margin divisions, B-Line and Power Systems.

Our Tools segment return on sales increased to 10.1 percent, compared to 8.7 percent in the prior-year fourth quarter.

This segment benefited from the prior-year factory closing, good sales mix resulting from lower shipments of lower-margin assembly equipment orders, and the higher volumes in retail and industrial channels in the fourth quarter.

For the year ended December 31, 2004, revenues increased 9.9 percent compared to 2003, with Electrical Products up 10.8 percent and Tools up 5.4 percent.

Translation increased Electrical sales 1.9 percent, and Tools sales 3.1 percent.

Earnings per share increased to 3.58 per share, and excluding the 9-cent reversal of the accrual in 2003, earnings per share increased 27 percent.

For the year, Electrical Products return on sales increased 70 basis points to 13.7 percent, and Tools return on sales increased 300 basis points to 8.5 percent.

All told, 2004 presented its challenges with the rapid increase in commodity prices.

We overcame this challenge and delivered strong leverage on the revenue growth and, more importantly, we made very good progress advancing our 5 company wide initiatives.

Rich will provide further comments on the regions and our individual business revenue trends.

Rich?

Thank you, Terry.

As Terry said, here's some additional detail behind the performance of our operations on a geographic basis; and then a quick wrap-up of how each of our businesses did for the quarter.

For revenues in Electrical Products, let me remind you that revenues were up 11 percent with 2 percent of that coming from translation, core revenue growth in our base businesses being up 9 percent for the year.

In the domestic markets, that is the United States and Canada, our revenues increased about 10 to 12 percent, where a strong utility market demand primarily focused on system reliability and an improved backlog in lead-time performance at our operations led to growth in sales of electrical distribution and transmission equipment.

As well, industrial spending continues to sustain increased sales of industrial electrical construction materials, circuit protection devices, and support systems.

Overall retail demand in this sector continued its upward track, though with widely different impacts for our individual businesses.

Lighting had another good quarter, while Wiring Device sales held up even after very strong shipments in the prior quarter and the prior year.

Commercial renovation and maintenance spending continues to add to the demand for lighting fixtures and other electrical construction materials.

Turning to Europe, here excluding translation our revenues increased about 6 to 8 percent, where we continue to achieve growth in most of our major product areas, with some additional contribution by a good increase in export demand.

In Latin America, also excluding translation, our revenues increased 9 to 11 percent, where local sales increases were led by the sales of products for industrial and utility applications.

Lastly, Asia-Pacific regions saw an increase, excluding translation, in revenues of approximately 9 to 11 percent.

Here our sales continue to grow as we gain momentum for our focus and our resource commitments in this region.

Staying with Electrical and looking at how our individual businesses performed, on a core sales business, that is excluding translation impacts, we saw increases of 10 percent are or in our B-Line and Power Systems businesses.

We saw increases of between 5 and 10 percent in Bussmann, in Crouse-Hinds, and in Lighting.

We saw increases from 0 to 5 percent in our member business.

We saw a very small increase, essentially a flat market performance, out of our Wiring Device business.

Turning to the Tools and Hardware operation, where revenue increased 4 percent and about 2, 2.5 percent of that coming from translation, with core revenues up about 1.5 to 2 percent.

In the domestic market, that is U.S. and Canada, our revenues increased approximately 3 to 5 percent.

The revenue increase here reflects improved industrial retail and electronic market demand for hand and power tools, with a partial offset from lower assembly equipment shipments.

In Europe, excluding translation, our revenues declined about 6 to 8 percent.

The year-to-year decline in segment sales here is the result of lower assembly equipment shipments to the European automotive industry.

Otherwise, regional sales of hand and power tools for industrial markets and hand tools, particularly for electronic assembly applications, increased from last year.

In Latin America, excluding translation, our revenues increased approximately 10 to 12 percent.

Here we continue to achieve growth from our expanded product focus and some market penetration.

Lastly, in Asia-Pacific, excluding translation, our revenues increased approximately 17 to 19 percent, reflecting our growing focus in this region.

On a business-by-business perspective, again excluding translation, our hand tools grew approximately 10 percent overall.

Our power tools on an overall basis were down approximately 10 percent.

If you exclude the highly volatile assembly equipment shipment impact on this, our power tool business was up in the neighborhood of 5 to 10 percent this past quarter.

That concludes my summary for this purpose.

Let me turn this over to John Riley.

Thank you.

Rich.

Now before moving on to 2005 and a few closing comments, I will update you on the status of the Federal-Mogul Abex asbestos situation as of year-end.

Pending Abex claims as of December 31, 2004, were 46,700.

That compares to 62,700 at the end of 2003.

Our average per claim indemnity at year-end 2004 was $1,911 compared to $1,846 as of December 31, 2003.

No significant change.

We also saw relatively little activity in this area during the fourth quarter.

We received 1,317 new claims and settled 1,685 claims during the period.

Again, no significant concerns here.

As far as Federal-Mogul's plan to emerge from bankruptcy is concerned, I don't have anything new to report to you at this time.

It appears that some parties have raised objections to their plan of reorganization and those issues are presently being considered by the courts.

As I said last quarter, time will tell how all this turns out.

In the meantime, asbestos liability seems to at least be getting some well-deserved heightened attention in Washington.

Again, as all things in Washington, time will tell if anything comes of this activity too.

Now let's look ahead for a minute.

Let me begin by saying that we think 2005 will be another very good year for Cooper Industries for several reasons.

First, we are optimistic regarding conditions in most of our served markets.

We recognize that residential construction markets have likely peaked, and that cost pressures from certain commodity-based products will continue to be a challenge.

But we remain confident that growing strength in our other key markets and the disciplined execution of our 5 key improvement initiatives will help us generate solid profitable growth for the year.

Each of our businesses remains actively engaged in executing these programs that will drive growth on the top line and improve productivity.

As a result, our sales and orders should continue to grow.

Our margins should remain on an upward trend, and our balance sheet should continue to strengthen.

All of this leads us to conclude that our annual earnings per 2005 will be up somewhere between 10 to 15 percent from the $3.58 per share we earned in 2004.

Keeping in mind that time is short for questions, and that we will be reviewing our 2005 business plan in far greater detail with you at our outlook meeting on February 23, at the Warwick Hotel in New York City, I would ask Terry to give you some brief color on what we think will drive improved performance in 2005.

Terry?

Thanks, John.

As John just mentioned we will be covering our 2005 business plan in great detail in a few weeks.

I will give you a few highlights of that plan now.

For 2005, our business plan reflects continued economic expansion in all geographic markets and across most channels.

We expect to outgrow the base markets through execution of our strategic initiatives.

For the year, we are forecasting a 5 percent to 7 percent revenue gain in both the Electrical and Tools segments and, as John mentioned, a 10 percent to 15 percent earnings per share increase.

If the economy continues to improve, and revenue growth is greater than our forecast, and material and energy inflation moderate, we would expect our earnings growth to improve accordingly.

And, for the fourth year in a row, our free cash flow is forecast to exceed our earnings for the year.

We do expect some challenges in the first quarter of 2005 related to recently announced price increases.

Electrical core steel and Transformer oil price increases that will primarily that will primarily impact our Power Systems business, and ballast and certain component cost increases in our Lighting business will be a challenge as we begin 2005.

The good news is that we are seeing our competitors realize the need for higher market pricing.

That being said, we expect the first-quarter earnings per share to be up low double digits.

At this point I will turn the conference call back to John.

Thanks, Terry.

Well, that is our report for this period.

In summary, a really good year for the Company is on the books.

And even better, we enter the New Year feeling positive about our ability to perform at an even higher level.

I would be remiss at this point if I did not acknowledge the hard work that all of our folks have put forth to make this possible.

The efforts are paying off and it is much appreciated.

I would also be remiss if I did not acknowledge our shareholders for their continuing support.

I thank you for that.

We look forward to earning and working with you to earn our continued confidence in 2005.

Andrea, I think it is now time to take a few questions.

(OPERATOR INSTRUCTIONS) Bob Cornell from Lehman Brothers.

A couple of questions, first of all, did the strength in December continue into January, the best you can tell at this point?

I don't have actual statistics to quote you, Bob, but anecdotal evidence would suggest that certainly the first half of January was reasonably good business activity in most of our product lines.

I think there may be one or two that maybe saw a little bit of falloff, but I would not consider that anything significant or alarming at this point.

May be Terry could explain to me why the tax rate is trending up a little bit, and what the outlook is for '05; so give some bit of (ph) definition of what is happening there?

Sure, Bob.

Our tax rate is driven by somewhat of a fixed structure.

So incremental earnings tend to be at an incremental rate of 36 percent, absent us doing some additional restructuring.

That being said, we have done some additional things that will benefit us in 2005.

We would anticipate the rate will be somewhere between 21.5 and 22.5 percent for the year.

Right.

I guess if you could just flesh out why the cost issues in the first quarter are more notable maybe than they were in the fourth quarter.

That is primarily driven by some somewhat unexpected price increases we saw in our Power Systems.

Unexpected price increases?

Well, they were notified in December of some price increase on specific commodities that impact our Power Systems business.

One being they call it electrical core steel; it is grain steel.

And the other being transformer oil.

So we will have a challenge on getting enough price increase in that business in the first quarter.

Then on the Lighting side of the business, we have seen pretty steady increases on certain commodities in that business.

As you have probably seen across the -- from some of the other companies, there has been a pretty uniform price increase announced across, by most of the companies that participate in that market.

So the real question on that one will be how much of that pricing sticks and how quick.

I think you mentioned that you were on -- in balance price cost in the fourth quarter.

Does that mean the first quarter you're going to be slightly out of balance again?

No, we hope to get back to be at parity in the first quarter, Bob, because we have some of the price realization that was announced late in the year will benefit us in the first year.

That hopefully will offset some additional new price increases.

Okay, thanks.

Scott Davis, Morgan Stanley.

A couple clarification items.

Just looking at your balance sheet, it looked like receivables were up about 11 percent and inventories were down about 5 percent.

Can you talk to that?

Maybe there is some impact from currency there.

But the sustainability I guess of being able to take down inventories while demand is cooking up?

Sure, Scott.

On the receivables side, some of that is driven by the small acquisition we did late in the quarter; and clearly the euro and the pound strengthened a lot during the fourth quarter, which drove the balance sheet side of the numbers up.

Receivable Days Sales Outstanding, like I mentioned earlier, were flat with the prior year, which is not bad performance considering the significant trend in revenues toward the end of the quarter.

I think we are fine on the receivables side of it.

There's opportunities for further gains in that area.

On the inventory side, quite honestly, we still have a lot of businesses that are below 5 turns.

So we see continuing opportunity to continue to improve that as we move forward over the next several years.

Okay.

Just continuing I guess with the cash-flow statement, I don't think I heard you do CapEx guidance for 2005.

CapEx guidance for 2005, Scott?

CapEx guidance.

CapEx, did you say?

I'm sorry.

We're still working through a little bit on the CapEx side, but we would expect that number to probably be up slightly over the 2004 CapEx expenditures.

Maybe up in the 110, 120 million range.

last question just on pension.

Obviously you made an additional contribution 4Q.

Can you talk a little bit about where your funding ratio ended up at the end of the year, and what your discount rate assumptions are for 2005?

Sure.

First I'll start out with the discount rate.

We have reduced our discount rate to 5.75 percent.

We have also decreased the expected long-term return on assets investments to 8.25 percent from 8.5 percent.

So going into 2005 that is our assumptions on our primary plans, which is the majority of it.

In other words our North American plans.

The funding level of the primary plans should be close to 100 percent.

Now when you see our financials clearly, you will see a little bit of impact from unfunded plans, being supplemental plans as well as international plans, such as Germany, which have no funding whatsoever.

But we are in very good shape on the overall funding level of all of our plans at this point.

Okay, thanks guys.

Nicole Parent, Credit Suisse First Boston.

I was just wondering if you could dig a little bit deeper into the outlook by some of the end markets.

I think obviously the strength of Power Systems and what you're thinking in terms of spending from the utilities, whether it is maintenance or transmission distribution for 2005?

Also, you mentioned commercial lighting improvement on renovation.

Can you just talk, I guess step back and just talk big picture what you are seen in the non-res construction market?

Nicole, this is Richard.

I'm going to use this as an opportunity to remind everybody that will be doing our full-year outlook presentation.

I'm going to use some of your time here, Nicole, if you will allow me.

But we will be doing our presentation on February 23, in New York City at the Warwick Hotel.

We will be starting early in the morning.

We will put a notice out on that relatively soon, and invite you all to listen in by web cast.

We will look forward to seeing some of you in our audience there.

With that let me turn this over to Terry and John for some comments on the outlook.

Nicole, let me just briefly run down those 5 major markets we talk about.

On the construction side of the business, we think that the commercial markets are picking up, not by leaps and bounds, but a nice gradual improvement; and we expect that to continue throughout the year 2005.

If we are lucky, we may even get a little bit more aggressive activity in that area in the second half of 2005.

But certainly in the first half, improvement over 2004 rates, but not by leaps and bounds as I mentioned.

We are pretty convinced that the residential markets have peaked.

I think most people would agree with that.

We think they're going to be probably off a bit in 2005 compared to 2004.

But, again, assuming the economy keeps clicking along and the rate structures remain reasonable and where they are now or close to where they are now, it still would be by historical standards a pretty good year in residential construction, albeit a little bit off of what we think was the peak in 2004.

The industrial markets we are continuing to see very good activity there.

Our Bussmann business has been doing very well.

Our Crouse-Hinds business is beginning to pick up in certain regions of the country and the world.

So we think the industrial markets will be up a reasonable amount.

The utility markets we think it is going to be a year of servicing continued new construction both on the residential side and the commercial side, but also continuing maintenance investment.

We don't see and we are not anticipating a large or a huge turnaround in what we would call infrastructure build out, the transmission and distribution side of that equation.

But generally speaking, still a pretty good market scenario.

We think the retail markets -- again depending on the economy holding up, which we think it will -- will still be pretty strong.

We have seen some modest growth, actually some nice growth in a small piece of our business called electrical and telecom.

We have seen that generally in the Bussmann business, but also a little bit in our B-Line business.

So I would say overall, that sort of gives you the general gist of it.

We will be able to fill you in on some more details on that obviously in New York, when we get some presentations put in order here that will sort of take you through those on a percentage increase basis.

But generally we feel pretty good about the markets.

I guess one follow-up, just on ongoing restructuring.

As you look ahead and what you have done over the past couple years, how much more do you think you need to continue to reinvest in the businesses on a go-forward basis?

Depending on how you define the term restructuring, I think it is fair to say that we think that our businesses will be in one way, shape, or form in a continuing restructuring mode for as long as I can foresee and most other can people can foresee.

This has just become a way of business.

The cost of taking cost out does not go away.

In our case, I think you would know that we have chosen to just beat these costs as a general rule.

Occasionally we have had a charge that we have taken.

But generally speaking, we have taken these costs as a general rule to our P&L and to our business as we think it is appropriate.

Because it is a way of life in the manufacturing business today, and it will be tomorrow, in our judgment.

Now, we have had some people ask us, how much is that number?

It is almost impossible to give anybody a number with certainty.

But I would be shocked if in aggregate that number was less than 5 to $10 million a year, and it could even be a little bit more than that every year on an ongoing basis.

But that sort of gives you a flavor of the order of magnitude of where we are on that.

Great, thank you.

Deane Dray from Goldman Sachs.

Just to clarify on the core revenue assumption for '05, you said 5 to 7.

Does that include any price?

Yes, it would include some price.

We would have carryover pricing and then some additional price realization anticipated in the '05 timetable.

Can you put a number on that?

Is it 1 or 2 percentage points?

At this point I would probably say it is probably somewhere in that, probably at the lower end of that.

You talked a bit about stock buybacks, quiet in the fourth quarter.

What was the reason there, and what is the expectation for '05?

We basically had completed our plan of buying back our CRP (ph) plus some.

I think Terry indicated that we netted out positive in terms of reductions, something like 1.5 million or thereabouts. 1.2 million.

Frankly we just didn't -- the market was reacting pretty good to our stock and we just didn't feel as though it was necessary to use that in the fourth quarter.

Again we had completed our objective, and we preferred to let the balance sheet strengthen a little bit.

We have got some things we've got to get done in 2005.

We have got some debt that we want to look at that comes due.

We may pay that down; we may roll over some of that.

So I think it is all in keeping with this philosophy of in these times and in our situation, all things considered, we want to have a relatively conservative balance sheet.

I don't think there is any question we are not going to change our stripes in terms of our positioning on the CRP, I don't think, in 2005, Deane.

We will obviously be reviewing that and other capital structure items with our Board in February; and I think that will be an item of significant discussion for our Board, including dividend and so on and so forth.

So we will in a position I think when we see you in February to lay out in chapter and verse what our views are on some of the use of that cash.

Any changes on the acquisition front?

No, the pipeline is still okay.

We are continuing to look at a number of things.

There are some things we have looked at that we have decided didn't fit.

But I think based on the two small ones we did in 2005, hopefully we will be able to pick that activity up.

I'm sorry, in 2004.

We will be picking that activity up a couple of notches in 2005.

But it all depends on finding the right things that fit in the right places and give us the right return.

Great, thank you.

Jeff Sprague from Smith Barney.

John, on the power business, and maybe you made a similar comment on one other business, but you kind of talked about working off backlogs and normalizing lead times.

I'm just trying to get a sense of what type of impact flushing the backlog, if you will, might have had on revenues in the quarter.

And if there is some overhang to that as we look into the first quarter?

Fair question.

Terry has got a little background on that, I think, Jeff.

Jeff, over the last probably 4 or 5 months of the year, the order trends in that business have picked up pretty good actually.

The issue we were running into is that our lead times were stretching out more than we would desire.

The good news was there was a press by our operations to catch up on that and bring the lead times down.

As we exited the year, I would say our backlog was more to what I would say our backlog was more to what I'd say would be the normal expected backlog.

Orders remained good.

At this point, we are not seeing a decrease in the trend line of the business, albeit it probably will not be at the high teen level going into the first quarter.

But nice strong backlog in pretty good shape.

To what would you ascribe the weakness in wiring?

It is dependent upon the retail channel and changes there?

Or is there something else in the ultimate end-market that impacted the business?

No, I would say, Jeff, the retail market is lumpy, which is pretty normal on it.

But they had a very good end of the year in 2003 on the retail side.

This year, less so.

But strong on the distribution side, which offset some of that.

But really nothing; no change in the end markets; nothing looking into the first quarter that is concerning at all.

Jeff, I think we're sometimes a victim of our own openness here in terms of giving you these year-to-year comparisons.

I think we have to be careful in -- we cause some of this, to be honest with you, when we start looking at year-to-year comparisons and we say, well, Wiring Devices is off a tick from the prior year period.

It is all relative to that prior-year period.

So if we had a very strong quarter in the fourth quarter of last year, and we were off at tick, that doesn't necessarily mean that business, is falling off a cliff.

It means exactly what it says.

So I think we have probably -- we should heed your reading of some of those; and I think you're reading those in an appropriate manner in the sense that you're questioning those comments.

We need to be careful about making sure that everybody understands that we are continuing to measure to this quarter-to-quarter thing.

For us to suggest that our Wiring Device business did not have a good fourth quarter is not doing our Wiring Device folks justice, to be honest with you.

Okay that is fine.

Just explain the comps, but don't stop giving them to us.

I understand.

I don't think you believe we do that.

I think most of you would accept that we do a reasonably good job of giving you these comps; and we do it for a reason.

We want you to understand our businesses.

I appreciate it.

Just one last follow-up if I could.

To what extent was your realized price held back by backlog fulfillment?

That business that was sold in previous quarters, or things like that, protecting people on longer-term contracts.

How much of that is part of the pricing equation for '05 versus kind of new price increases from here?

Most of our businesses don't carry a lot of backlog.

But the one that does carry a lot of backlog in terms of extended deliveries and scheduled deliveries is the Power business.

There are certain amounts of the Lighting business that get into project work that schedules a lot of things.

So I would say of all of our businesses, the two businesses that would be impacted by that phenomenon you're describing, it would most likely be our Power business and our Lighting business.

Terry, would you disagree on that?

No.

Absolutely.

So I think as time rolls on, you will always have a little bit of that delay in those businesses just because of the market dynamics.

But I think we will have less delay and less impact in 2005 than we had in 2004 in both of those businesses.

So I think that is a good thing.

We have seen some --- well, you read these press releases as well as we do, in terms of people and what they say they're doing to offset declining margins and those kinds of things.

We are encouraged by certainly some of the words that we read in these various press releases; and hopefully those words will turn into a reality.

Because I think in effect that is going to be a good thing for us over the long term.

Great, thanks a lot.

Alex Rygiel from FBR.

Real quickly, could you attempt to quantify the sales in the fourth quarter that could have been related to the hurricanes and repair work that occurred after the hurricanes?

Alex, I don't have an answer for that in terms of a specific answer.

I would suggest that some of the backlog that got worked off -- number 1, that phenomenon would probably impact our Power Systems business if it impacted any of our businesses.

Now, that is not to say that the construction devastation that you saw doesn't help our commercial products at Crouse-Hinds, and it doesn't help certain parts of the Buss business and the Lighting business and so on and so forth.

But in order of magnitude, I think the business that would probably be most impacted by that would be our Power Systems business.

We poked around trying to look at different sales trends and different numbers.

Of course, they all get sort of muddled into one big ball when the day is done.

But I just don't think that those kinds of things, when you run them out over time, have a significant impact on the revenues of those businesses.

Could it have been 5 to $10 million worth of business in our power business?

Perhaps.

But again, I cannot give you that number with certainty, but it's certainly a positive influence.

But in my judgment, in my experience over time in these businesses, I don't think it is -- I think it ends up being less significant than some people would perhaps think it might be.

That's helpful.

Lastly, it sounded like with regards to your 2005 business plan, you have built into your model an assumption of certain market share gains.

If that is the case, could you just help us to better understand maybe which business lines you're hopeful to gain market share in, or conceptually how you think about that and model that going forward?

Well, our expectation internally is that every business gains market share through new products and international expansion, as well as initiatives we have in the US.

So I'm not -- at this point, we cannot really give you specifics on each business, but the way we lay out our plans is specifically part of every business's plan.

I think incrementally, Alex, we would say that our 2005 top-line projections -- Terry, I don't recall exactly; 5 to 7 or something like that -- we are expecting that to grow at a rate that is higher than the overall growth of the markets, the baseline growth of the markets that we are dealing in.

So, from that perspective, do we think we're picking up a point of that, a couple of points of that maybe out of the marketplace?

The answer is yes.

I think, frankly, we tell all of our folks -- we just got done with again our major management meeting in January, at the beginning of January, and indicated that, look, our objective here is to grow our businesses at a rate that is, number 1, higher than the base growth of the markets we deal in, and number 2, at a rate that is higher than when the day is done the composite growth rate of a whole bunch of our competitors on a weighted average basis.

And we do some modeling on those kinds of things.

So I think we are anticipating continued improvement in our position in the market in 2005.

If you are asking that, the answer is yes, we are anticipating that and we would expect that from our people.

We would expect nothing less.

But I don't think it -- it's not doubling the market share of something like that.

We have several of our businesses that are obviously in very good market share positions.

It is harder to grow those than it is some of the ones where we have less market share, for example, like our Wiring Device business.

But in aggregate, I think we're projecting that we will get a nice incremental piece, a small incremental piece from market share improvements.

I want to make one other point.

I think most people will realize this by seeing how we manage material cost increases through price increases in the year.

We won't take business just for the sake of taking business and driving the top line.

We need it to be profitable business, and I have to give our operations credit.

We came through the year, ended the year at close to parity on price realization for all of the significant material price increases that happened during the year, which not every company can say that.

And that was not without some sacrifice to the top line.

That looks like it concludes our questions.

Alex, I didn't mean to cut you off.

Does that answer your question?

That's perfect.

Thank you.

That concludes our questions.

I want to let John say some closing comments, and thank you all for joining us.

We'll look forward to having you listening in or in attendance to outlook meeting in late February.

Once again I will just close by thanking you for your interest and support during 2004 and your continuing interest and support hopefully in 2005.

We think again 2005 will be a very good year for us.

We think we have got the plans in place to do that.

I will remind you once more that you will hear more about that at our outlook meeting on February 23.

That is going to be in New York City at the Warwick Hotel; and I think Rich will be in contact with all of you shortly if he hasn't already to put those plans on your calendar.

We look forward to seeing you then, and thanks for your being with us this morning.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes your presentation.

You may now disconnect.

Good day.