伊頓 (ETN) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2007 Cooper Industries Limited earnings Conference Call.

My name is Stacey and I will be your moderator for today.

I would now like to turn the presentation over to your host for today, Mr.

Jon Safran, Director of Investor Relations.

Please proceed, sir.

Thank you, Stacey.

Welcome to the Cooper Industries Fourth Quarter earnings Conference Call.

With me today is Kirk Hachigian, Chairman and Chief Executive Officer, and Terry Klebe, Senior Vice President and Chief Financial Officer.

As mentioned in our Press Release, we have posted a presentation on our website related to the Fourth Quarter and full year results.

We will refer to this presentation throughout the call.

If you'd like to view or download the presentation please go to the investor center section of our website at www.cooperindustries.com and click on the hyperlink for management presentations.

Before we proceed, 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 and as a result, actual results may differ materially from those anticipated by Cooper.

A discussion of these factors may be found in the companies Annual Report on Form 10-K and other recent SEC filings.

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

To the extent that these have been anticipated, reconciliations of those measures to the most directly comperable GAAP measures are included in the Press Release.

And now, let me turn the call over to Kirk.

Thank you, Jon.

Good morning.

I assume everybody has had a chance to read our Earnings Release and access the exhibits we've posted on our website.

If you turn to Slide 2, we delivered record revenue earnings and cash flow in 2007 and we exited 2007 with good momentum on both core and acquired revenue growth, margin expansion, and cash generation.

For the full year, we delivered 8% core growth with an incremental 6% from acquisitions and foreign exchange, and earnings per share of $3.14 up 22% from 2006.

As we enter 2008, our 175th year anniversary we're extremely well positioned to continue to deliver a balance of growth, earnings improvement, and strong cash flow.

I want to thank all of our employees around the world for an outstanding performance in 2007.

If you'd now turn to page 3 for more details on the fourth quarter, our total revenues in the quarter were up 15 % with very strong core growth of 8%.

Electrical products was up 17% with core growth over 9%, and Tools up 7 with core growth of 2%.

We continue to see strong growth in industrial, utility and non-residential construction and continue to see the housing and residential market soft as anticipated.

We saw very strong international growth up 30% in the quarter and on a full year basis, we crossed $2 billion for the first time and achieved 34% of our sales outside of the U.S.

Earnings per share were $.83 up 22% from the fourth quarter of last year.

We had favorable pricing and strong operating leverage.

Electrical products return on sales were 16.4% with 20% leverage on incremental sales.

Tools return on sale was 13%, up 120 basis points delivering 31% leverage on incremental sales.

For the full year, cash flow was $682 million, up 27% over last year.

Our 7th consecutive year where free cash flow is in excess of income from continued operations.

And we completed six acquisitions and a tender offer for MTO Instruments.

We have great complimentary businesses now that add to Crouse-Hinds, B-line, Lighting, Busman and Cooper safety.

We continue to build the size and scale around these faster growing, higher margin, less cyclical businesses.

If you turn to page 4, for the Electrical product segment which is now 87% of our total company sales, the drivers in the quarter were strong utility demand, particularly in CNI reliability products in international, solid industrial demand with factory utilization near 80%, very strong international demand for industrial and infrastructure projects, particularly in developing economies, which was up over 40%.

We had firm commercial construction spending with strengthen architectural and energy efficient products.

We had four of seven businesses delivering double digit sales growth and a total electrical orders were slightly ahead of shipments in the quarter.

We had a solid execution in our pricing discipline and productivity which drove electrical margins up 60 basis points to 16.4%.

Issues or challenges facing the Electrical segment during the quarter with continued slowness in residential and retail down double digits, volatile credit markets with vacancy rates creeping up for the first time in four years and continued pressure from the metals and energy costs.

In summary, our Electrical Products grew at 17% with over nine being from the core, we had solid incremental leverage of 20% to the bottom line, and we delivered a very strong close to an outstanding year.

If you'd now turn to page 5 of the handout for the Tools group, we saw a growth in Waller Aerospace and managed a slight growth in a difficult retail channel.

Overall, the business was negatively impacted by the severe housing slump and depressed motor vehicle sales.

Margins and free cash flow were up nicely due to solid execution on productivity programs and lean practices.

And now let me turn the call over to Terry to provide you with additional details on the quarter, and update you on our 2008 outlook.

Thanks, Kirk.

As Kirk mention the, we had an outstanding Fourth Quarter.

Turning to the earnings for the quarter, I'll provide some highlights on our free cash flow and Balance Sheet.

In the Fourth Quarter, we completed six acquisitions, four of which were completed in December.

We also initiated the tender offer for MTL Instruments.

The acquisitions and the tender offer have a significant impact on certain Balance Sheet, cash flow and Income Statement items which I'll comment on as I discuss our results for the quarter and the year.

On Slide 6, as Kirk noted our free cash flow for 2007 increased 27% to 682 million compared to 535 million for 2006.

Cooper's strategic initiatives continue to drive performance resulting in the 7th year in a row that free cash flows exceeded income from continuing operations, excluding the 84 million in tax accrual reversals we had for the year.

Our Balance Sheet remains in great shape with our debt to total capitalization net of cash at 24.8% on December 31, 2007, compared to 19.1% on December 31, 2006.

This was after spending $276 million on Common Stock purchases net of proceeds and $336 million on acquisitions during the year, and funding $290 million for the tender offer of MTL.

Now, you may have noticed our Balance Sheet and cash flow statement $94 million in investments.

During the Fourth Quarter, our primary U.S.

Money market fund froze accounts and began liquidating the fund.

As a result, we were required to reclassify the cash as an investment in our Balance Sheet and cash flow statement.

The fund is making monthly distributions as it liquidates investments and we expect to have approximately 90% of the funds distributed by mid year.

The fund did break the dollar net asset value and we recognized a small loss during the Fourth Quarter.

Our debt and capital structure are in great shape and provide outstanding flexibility in 2008 in the future.

Turning to Slide 7.

Our inventory turns in 2007 were 6.3 turns up from 6.1 turns in 2006.

The dollar investment inventory is impacted by the increased material costs compared to a year ago as well as the acquisitions completed during the year.

We continue to focus on Customer Service and improving processes and should see continued improvement in 2008.

For example, we still have several divisions with inventory turns below 5.

On receivables, our Day Sales Outstanding in 2007 increased by two days to 65 days.

The acquisitions we made late in the year drove the increase in DSO's.

The improvement we're making in DSO's is also offset somewhat by the impact of the stronger international growth where commercial turns tend to be longer.

We also improved our payables performance in 2007 and we'll continue to move suppliers to terms closer to the terms our customers demand.

As a result, our operating working capital turns improved to 5.4 turns compared to 5.2 turns in 2006.

Overall, a good performance in 2007 on operating working capital considering our initiatives to improve Customer Service and acquisitions.

On Slide 8, our Capital Expenditures were up 35% in 2007 to $115.5 million.

Capital Expenditures in 2007 include equipment addition, capacity additions, Power Systems division, and ongoing implementation of our global enterprise business system.

We now have approximately $5 billion of our revenues on the new business systems.

In the 2007 Fourth Quarter, we purchased 1.3 million shares of our Common Stock spending $69 million against proceeds from issuance of $14 million.

For the year, we purchased $6.9 million shares and issued 4.1 million shares for stock option exercise that matches to our 401-K and other stock program.

As a result, our outstanding shares decreased by approximately 2.8 million shares in 2007.

Under existing Board of Directors authorizations, we can purchase an additional 4.4 million shares plus the shares issued for stock option exercises and other stock programs each year.

In February 2007, we increased our dividends 14% and based on our strong results and confidence in the future, will recommend to the Board of Directors a strong double digit increase at our Board Meeting in February.

We have also recently been aggressively taking advantage of our Balance Sheet strength and the weakness in the Stock Market to purchase our Common Stock, and so far in January, I've purchased 2 million additional shares.

Our Balance Sheet is in great shape and we consistently generate very strong cash flow and as a result, we have tremendous flexibility to fund growth, pay competitive dividend and purchase our Common Stock.

Turning to the results for the fourth quarter in Slide 9.

First, there's a few items that impacted our results in both the fourth quarter of 2007 and the fourth quarter of 2006.

In the fourth quarter of 2007, we recognized $6.3 million of Belden income and reversed $20.3 million in tax reserve as a result of the statute of limitation expiring on potential issues and other favorable results.

These items combined increased our reported earnings per share by $0.15.

Our results for the fourth quarter of 2006 included a $.01 per share benefit from the extension of the R & D credit.

There was no R & D tax credit benefit recognized in prior quarters of 2006, therefore the full benefit flowed into the fourth quarter.

During the 2006 Fourth Quarter we also recognized Belden income of $5.1 million for the first time in several years.

We also incurred legal and environmental for businesses that were disposed of years ago.

As a result, there's no bottom line impact from these two items.

Excluding unusual items, Fourth Quarter 2007 earnings per share was $.83 compared to $.68 in the prior year Fourth Quarter an increase of 22%.

For those of you that the may not be familiar with the Belden agreement, this relates to the IPO of Belden in 93.

As part of the Belden IPO transaction, we stepped up the bases in Belden with the agreement that Cooper would receive 90% of the benefit of the step up in years when Belden recognized the benefit in their tax research.

We are somewhere in the 40 to 45 million range of remaining that could be received from Belden under the agreement but it's all contingent on Belden's future tax position and whether they can realize and utilize the benefit to reduce their Federal and State income tax payments.

Turning to Slide 10, on 2007 full year unusual items, for the year, Belden income partially offset by legal and environmental reserves on disposed off businesses and tax reserve reversals totaled $.59 per share.

Excluding unusual items, our earnings per share from continuing operations increased 22% to $3.14 from $2.58 in the prior year.

Turning to Slide 11.

Back three months ago we forecast fourth quarter revenues to increase 12% to 14% and today, we reported a revenue increase of 15.1% with Electrical performing very well and Tools coming in at the lower end of the forecast.

The top line growth was aided by the significant appreciation of the Euro and the Pound Sterling against the dollar and the quarter which added 2.9% to the revenue growth.

Acquisitions contributed 4.1% to the revenue growth of the quarter.

As Kirk mentioned, we report $.83 in earnings per share versus our forecast of $.79 to $.83 exclusive of the Belden income and tax accrual reversals.

Another great quarter with 22% comparable earnings per share growth and this is up against a tough comparison where we had 25% earnings per share growth in last years Fourth Quarter.

On Slide 12, our overall cost of sales as a percentage of revenue was 66.9% and improvement of 150 basis points from the fourth quarter of 2006.

As a result, gross margins increased to 33.1% from 31.6% in last years fourth quarter.

Great execution on productivity and the increased volume drove the improvement.

Our overall price realization was slightly over 1/3 of the core revenue growth in the quarter as we continued to drive price realization, especially in utility products where Electrical grade steel and transformer oil have increased substantially from one year ago.

Overall, we've been very successful in achieving price to stay at least even with material cost inflation and the fourth quarter was once again no exception.

Recently, prices of many other met alls we consume have been mixed but have been less volatile.

Electrical grade steel and transformer oil are an exception where the costs have continued to escalate.

While recent acquisitions have not had a significant impact on gross margins, they are having an impact on reporting improvement in selling, general and administration, leverage , and return on sales.

With purchase accounting and the amortization of ink tangibles, acquisitions have lower earnings in our base business and the earlier periods after continuation of the acquisition.

Overall, acquisitions contributed 4.1% to revenue growth with the incremental revenue contributing an average return on sales slightly below 10%.

Selling, General and Administrative Expense for the quarter as a percentage of sales was 18.6% compared to 18.4% in the prior year fourth quarter.

However excluding the 5 million in unusual items in the 2006 Fourth Quarter, our Selling, General and Administrative cost increased 60 basis points.

Acquisition related costs in the higher Selling, General and Administrative cost on international sales growth drove the increase in the SG&A cost as a percentage of sales.

General corporate in the segment Income Statement decreased from $25.9 million to $21.3 million.

But excluding the $5 million legal charge in the Fourth Quarter of 2006, general corporate increased slightly.

We continue to invest in our global growth and other initiatives at the same time, realize a benefit from those investments.

Leveraging the revenue growth into earnings and cash flow.

Turning to Slide 13.

Solid execution on cost initiatives while continuing to invest in our companywide growth initiatives and great execution across our business as a price realization drove a 23% increase in operating income and our operating margins up 90 basis points to 14.5%.

Continuing to Slide 14 on net interest expense, our tax rate and net income.

Our net interest expense was essentially flat compared to the 2006, fourth quarter.

Our effective income tax rate for the fourth quarter excluding the Belden income and tax accrual reversals was 27.6% versus the 27.2% for the first nine months of 2007.

Excluding the R & D credit, the income tax rate for the fourth quarter of 2006 was 25.6%.

The increase in the tax rate is primarily from the incremental income being taxed at the statutory U.S.

Federal and State income tax rate.

Despite the higher tax rate in the quarter, our net income excluding the unusual items increased 21% on a 15% revenue increase.

Turning to the segments in Slide 15.

For the quarter, Electrical Products segment revenues increased 16.7% with very strong core revenue growth of 9.4%.

Currency translation added 2.5 points and acquisitions contributed 4.8%.

Price realization was close to 4% in the fourth quarter with both Busman and Power Systems needing and realizing the price increases to cover the increases in material and energy costs.

Core revenue growth for Electrical Products was strong in all regions of the world with Asia Pacific, Eastern Europe and the Middle East having the strongest growth.

Global Electrical distribution in our utility revenues were up double digits again this quarter with strong growth in North America and Europe.

We experienced continued growth in industrial and utility markets and non-residential construction markets.

Our softest channel was the retail channel where revenues as expected declined in the Electrical segment.

Electrical retail sales declined in the low double digits in the fourth quarter of 2007 compared to the fourth Qqarter of last year.

Overall, Electrical Products segment earnings increased 21% and return on sales increased 60 basis points to 16.4% from 15.8% in the fourth quarter 2006.

Our incremental earnings leveraged at 20%, slightly below the leverage in the first three quarters of 2007 on a higher contribution to the revenue line from acquisitions.

Incremental revenues from acquisitions diluted return on sales approximately 30 basis points and incremental earnings leverage by over 400 basis points.

When you consider the currency translation and price that recovers material cost and inflation, dilutes earnings leverage, and the acquisitions take a couple of years to achieve segment margins, we continue to have terrific leverage to the bottom line.

Turning to the Tools segment, on Slide 16.

In our Tools business, sales increased 6.6% with currency translation adding 5.2% to the sales increase.

We continue to see solid revenue and earnings in aerospace and electronics but weak sales to motor vehicle end markets.

Retail sales were up slightly compared to the prior year quarter as a result of new products and new customers offsetting softness in the residential markets.

Tools operating earnings increased 17% on a sales increase of 7%, and our reported Tools operating margin as a percentage of sales increased 120 basis points to 13%.

Now, turning to the full year results and Slide 17.

Our outlook for the year started at $2.90 to $2.98 per share and ended the year with earnings per share from continuing operations of $3.14 excluding the unusual items.

In other words, we beat the top end of our February 2000 forecast by $.16 per share.

As we told everyone in our 2007 outlook meeting, the markets could be stronger than we anticipated and overall, they were.

Our February 2007 outlook was for utility markets to grow 10- 15% and industrial to grow 5-7% and with our exposure in energy for us to be up over 10%.

Growth considerably exceeded our 2007 outlook in these two markets.

For non-residential we thought the market would be up 3-5% with p Cooper adding another 2% growth from regaining market share.

While non-residential started the year slow, by the second half of the year was strong.

Residential construction, we forecast to be down over 10% with our revenues down 3-6%.

While we said at the outlook meeting that the residential forecast had the greatest risk in 2007, we underestimated how bad it could get and how fast.

That being said, our teams performed extremely well with sales in retail which primarily serves residential down mid single digits for the year, a very good performance in a difficult market.

So overall, we saw stronger utility and energy Markets and delivered above expected growth in the developing markets where we grew revenues 32% in 2007.

Turning to Slide 18 on a Summary for the 2007 full year.

For the year, revenues increased 15.4% in Electrical Products and our Tools business increased revenues 4.8%.

There was great leverage execution to the bottom line with Electrical segment earnings increasing 21% and Tool segment operating earnings increasing 10%.

Return on sales increased 70 basis points in Electrical and 50 basis points in Tools.

Earnings per share from continuing operations were up a strong 22%.

Our free cash flow conversion excluding the tax accrual reversals was 112% of continuing earnings, our 7th year in a row that free cash flow exceeded earnings.

Before turning the call back to Kirk, I'll provide brief comments on our 2008 outlook.

We will be providing a detailed 2008 outlook at our meeting on February 21 in New York City.

Turning to Slide 19.

First, for the year, we're forecasting a top line growth of 10-13%.

Acquisitions including MTL Instruments should add close to 6 % to the revenue growth and currency translation is a very nominal amount.

Electrical 2008 revenues are forecasting 12-14% and Tools revenues are forecast to increase 0-5%.

At this point, with the weakness in the residential and motor vehicle markets and tough comparables in aerospace and electronics, we're hesitant to forecast much revenue growth in the Tools segment in 2008.

Earnings per share for the year are forecast to be in the range of $3.45-$3.61 per share, an increase of 10% to 15%.

With the integration cost of acquisitions and the economic uncertainties in the market, we believe it is prudent to be cautious in our forecast and have a higher, wider range than in the past.

In the first quarter, we're forecasting revenues to increase 11% to 14% with Electrical up 12-15% and Tools up low single digits.

Earnings per share is forecast to be in the range of $.78 to $.82 per share, an increase of 10-15% against a very strong first quarter of 2007 where earnings per share were up 25%.

First quarter revenues will be impacted by the timing of the MTL Instruments acquisition closing.

Earnings also will be somewhat impacted by acquisition integration cost and anticipated reorganization cost in the Tools group that total a few million dollars.

Kirk will provide a wrap up on 2007 results and comments on the 2008

Thank you, Terry.

If you turn to page 20 in summary, 2007 results demonstrate again the quality, breadth and resilience of our portfolio as well as our teams ability to execute on our five business initiatives.

Driving total customer satisfaction, continuing to innovate to improve our products and services, expanding our penetration into existing and newer emerging markets around the world, acquiring, assessing, developing and deploying talent, and a mind set of continuous improvement in everything we do, including safety, quality, and service.

As we enter 2008, we expect the global economy to be much more challenging with the tightening credit market, slowing North American job growth and concerns regarding North American manufacturing activity.

That being said, we still see strong opportunities for growth in the oil and gas and metals markets, in the international markets, on utility spending, and in energy efficient and technology spending.

We're very fortunate to have purchased 13 terrific businesses plus MTL to compliment our existing portfolios and allowing us to continue to build our specialty connector platform, utility automation platform, Lighting controls, LED 's, notification and safety, Busman Transportation and to improve our presence in Asia, particularly in China and in Korea.

And despite our recent stock buybacks and these acquisitions we continue to maintain excellent financial flexibility to invest in growth, repurchase our shares at a very attractive price, and reevaluate our dividend policy.

Net, net, net we expect 2008, our 175th year anniversary, to be another record performance for Cooper Industries.

Now, let me turn the call back to Jon for your questions.

Thanks, Kirk.

At this point I'd like to open up the call for questions.

Stacey?

Ladies and gentlemen, (OPERATOR INSTRUCTIONS).

Your first question comes from the line of Bob Cornell with Lehman Brothers.

Please proceed.

Good afternoon, everybody.

Got a couple of questions.

Kirk, you intrigued me right off the bat when you said you exited '07 with good momentum both in the core and in the acquired businesses.

I wonder if you could just expand on that and maybe talk about visibility into the year.

Yeah, if you look at the - - let me take it on a couple of different levels.

If you looked at the industrial space, if you looked at the organic growth rate, if you looked at the way we finished on the international sales, all of it felt pretty good, even the non-residential primarily served by Lighting, pretty solid numbers, backlog did not deteriorate at all in the fourth quarter, so it would be a lot more confident if it wasn't for everything else you sort of read in the paper and you see going on in the macroeconomic effect, Bob.

I think that's sort of trying to be a little bit more prudent I guess.

I understand.

You didn't give your usual wrap up of the asbestos situation and it keeps changing but maybe you could just tell us whether we're in Plan A or Plan B or what we should expect and what the financial impact would be in 08?

I'll ask Terry to do that, Bob.

Sure.

The next hearing is the last week in February.

We expect to know more at that time.

The federal mogul has emerged from bankruptcy.

They funded the Plan B $140 million into a escrow account.

The Judge will, we're hopeful in the end of February meeting that she will express a view on the Plan A on it.

We feel pretty somewhat optimistic yet that Plan A will proceed and we'll know more then.

Well, so Plan B is the one that's been approved at this point?

Plan B, Bob, was always part of the main bankruptcy and voted on with the main bankruptcy, so it was ease it for the judge to aprove that side of it.

And in order to get federal mogul out of bankruptcy by the end of the year, she chose to segregate Plan A for additional hearings, right after the first of the year.

Well, I don't know if you want to take time on this call but under Plan B, you get money back -- Why don't you explain the difference between - -

Under Plan B, we will net Cooper Industries $138 million on it.

If we go into Plan A, we pay around $250 million, and then $20 million a year for 25 years which all that will be net of insurance, obviously.

Okay.

So, there's a big swin between what we would pay out in 2008 being in Plan A, versus Plan B.

So, Plan B is a net positive financially under the current state of the asbestos litigation?

Yeah, but the 140 is not on our books.

It's in an escort account right now or 138.

I'll follow-up more after the call.

Thanks very much.

Great.

Your next question comes from the line of Jeff Sprague with Citigroup Investments.

Please proceed.

Thanks, hello, everybody.

Good morning, Jeff.

Kirk, could you give us for starters, just kind of your big picture view of how or if Phillips Gen Light kind of changes the competitive landscape in your view?

Net-net, I saw it as a real positive.

I think it sheds a very positive light on the space over the next 10-15-20 years.

I know Phillips well from the old GE Lighting days.

For them to make that type of an investment in this space would again lead you to believe that there's going to be great growth in investment in these energy efficient and architectural products.

I think the team at Gen Light did a terrific job.

Always competed on design and aesthetics and innovation, and Phillips is the same type of a company.

We buy from Phillips on the ballast side and on the components, so we'll continue to maintain that relationship with them.

But net-net I see it as a positive and the other indication is that space is very attractive for years to come, Jeff.

And what do you think about the need or the idea that the fixture and the lamp manufacture need to be under the same roof?

Any channel issues there or anything that you see arising?

No.

I think I'm not as convinced.

You've got multiple spaces there, right?

You've got the actual people who produce the dyes, companies like Korea and [Chia], and people that are in the fabrication of the dye specifically and then you have packagers or integrators and then you work yourself all the way up to the fixture.

And for whatever reason, they saw it as being synergistic to what they wanted to do.

You can still buy the dyes and such and figure out where you want to play in those different intermediate steps along that continum of value-added.

So, no.

We think it's interesting.

It's certainly a perspective but we don't see it as being probably the most efficient way for us to go after that space.

You know, we made two acquisitions in that space this year, that small company in UK, we bought a company out in Chicago.

Obviously we're stepping up our activities.

We've always seen the change of source, whether it's ceramic metal halide, whether it's T5 fluorescent, whether it's compact fluorescent, alway creates great demand because of the optics and the ballast and the energy efficiency, and it's going to be an exciting time in a very interesting space for us over the next multiple years.

Maybe just to follow on to that same thought then.

Are those two little acquisitions kind of a sign of more to come?

Is there things you want to do the better position or increasingly position the Lighting business for what you see coming?

We're going to do a bunch of it organically.

We continue to look at architectural type businesses.

The Lighting controls area, anything that has to do with light management and the LED space is right in that architectural higher end specification package.

So that's the answer to your question is yes, but anything that has to do with specification energy efficiency, that helps you wrap up and tie up large quotation type jobs, will be where we invest in the Lighting business but I would tell you we're investing as much or if not more in core growth as well on that space.

And then, just a quick one for Terry and I'll pass it on.

Terry, how should we think about FX in terms of kind of earnings or margin fall through, and did I hear you correctly that there's no FX in the '08 guidance?

Right.

We have nothing in the '08 guidance at all on the FX.

Currently, we get some fall through on the FX on the top line but not very much because we have a 300 some million dollar Euro debt issuance.

So, we get higher interest expense on it, but it does help our operating margins a bit.

Your operating profit dollars, but not your margins.

Right.

Thanks.

Your next question comes from the line of Deane Dray with Goldman Sachs.

Please proceed.

Thank you, good afternoon.

Could we revisit the 2008 guidance range that you gave back in November?

Definitely, that was early November but it does look like you lowered the low end of the range by a couple percentage points.

Is that - -

Yeah, Deane, when we gave that guidance to be very specific, we were four months back and our take on the economy was chances of a recession in the U.S.

Maybe no better than 20-30%, so you fast forward to take you where you are today and I think even the best forecasts are talking 50/50, there's some people who are even suggesting that we're in a recession where we sit right now.

We don't see it.

We're not seeing it in our order rates.

We're not seeing it in our end markets, but I think to reflect the risk of a recession even be it slight in 2008, we decided to take down the low end and leave the high end where it was.

And I think it was basically more of a risk adjustment type of a decision than anything we're seeing in the businesses or in our markets today.

Got it.

I don't think it was four months ago, but early November.

But either way the macro environment has changed.

If I heard Terry correctly in terms of how you're looking at the range with the additional risks are, two data points.

One, you said the additional deals in how the integration might change and bring it towards the lower end and also economic uncertainty but just in terms of the deals, how did the deals that you've announced so far recently, how does that impact margins and your earnings outlook for '08?

Well, it will impact the margins in the sense that the acquisitions come on at generally 10% or below return on sales, so our margins on our Electrical side will not increase as rapidly as they have in the past.

It will meet that increase somewhat on it.

So, you have that impact on it.

They're all accretive as we move into '08, so they will help the earnings on but of course we got to finance that growth.

And is there anything tricky about closing the MTL transaction?

I know it's a London-based Company which means you have to go through the take over panel.

We are at well over 90% shares tendered on that deal.

At this point, I believe we're only waiting for German and U.S.

Regulatory approval, which we hopefully will have in the next couple of weeks.

Thank you.

Your next question comes from the line of Nicole Parent with Credit Suisse.

Please proceed.

Good afternoon.

Hi, Nicole.

I guess, Kirk, you mentioned in your discussion on Electrical Products four out of seven businesses were up double digit.

Could you give us a sense of, I think we can probably point to Power in a couple of them.

Of the three businesses that weren't up double digits what went on there and then of the Electrical Products businesses , which would you expect to see turn

The only negative business we had was the Wiring Devices which you'd expect.

The other businesses were all positive.

Actually, a very good performance out of the Lighting business.

The competitors that have announced already, had some pretty good numbers and we're very happy with the top line at Lighting.

It wasn't double digits especially when you were the downside to the residential and some of the retail business here but we're happy overall there.

I think if you look out, Nicole and you try to look for early indicators, it's not going to be the Crouse's or the Power Systems.

The Power Systems is seeing some weakness on the piece of the construction single phase stuff that goes into the housing segment but I think the Lighting business is where you'd probably begin to see some things tightening up if you were to see some downturn.

The international piece though, I'm still, again if you look at the momentum we finished the year with, you would be believing that we are going to continue that momentum in the first quarter.

Now, with that said, again you've seen the overseas exchanges reacting to the U.S.

news over the last week.

I don't know how all that rolls through to absolute demand in those end markets but I imagine the momentum that's been generated in infrastructure projects and oil and gas and building out the export economies of places like India, China, the Middle East I think that momentum is going to continue.

And I guess just on that last point, you noted developing Markets were up 40% in the quarter.

Could you just talk about Western Europe and if you've seen any signs of sluggishness over there?

We had a big kiss from FX.

If you take out the FX, it was still solid growth over there, as well.

It's still relatively a small player in those markets.

We still think that we have significant opportunity to continue to grow.

Crouse is a big part of that business in Europe and then you've got the non-residential.

We don't play in a big way on the retail space in Western Europe, so the Middle East non-residential construction continues to boom and then the Western Europe non- residential construction was strong as well.

I mean, single digit type of strong.

Okay, and one last one.

You just had your leadership retreat.

Could you talk a little bit about how much of the focus was on contingency planning and cost versus growth and innovation?

There was one page on contingency planning and cost and a couple other comments and then we had a staff meeting.

The majority of the meeting was around the initiatives.

We have a lot of presenters from the businesses.

We had Larry Bosity this year as our guest speaker talking about execution.

It was a pretty up beat, I think a lot of international people there, 25% of the population was international, 25% were there for the first time so I would say it was pretty much focused on growth, new products, customer service, all of the growth initiatives and then we of course made the point about being careful on SG&A and being careful on being close to your end markets and your customers as we go through these more turbulent times.

Great, thank you.

Thank you.

Your next question comes from the line of Christopher Glynn with Oppenheimer.

Please proceed.

Hi, thanks.

Talked about the margins from the acquisitions coming in just under 10%.

What were they kind of excluding the acquisition related costs in accounting?

Chris, I don't have those numbers handy here.

I just look at it all in and how it impacts us and we manage that every month compared to our plans.

Okay, and then on the Tools business for 08 we have the reorganization and exiting some business lines there or some approaches to the business.

What kind of an impact on the margins should that see and when do we start to see it?

Well the Tools business in the first quarter we expect it could end up being below 10%, it depends on how much of it we get accomplished in the first quarter.

We have some reductions in headcount going on there right now, but it won't be that significant.

We're talking a million to two million max.

Okay, and then just on the margin trends throughout the year.

The EPS guidance is roughly in line with the revenue guidance, so really not implying any or at least very very minimal operating leverage.

But the First Quarter and the year, so the First Quarter we have the reorganization costs and presumably higher acquisition and integration costs, so just wondering why the guidance would not imply a little bit more of a delta between the revenue guidance and the EPS guidance for the year versus the First Quarter.

Well, I think we show leverage when we're building out our 2008 plan.

I think one of the items is we will have higher interest expense in 2008 because we have to fund all of these acquisitions plus we've had quite a few share by backs, so our interest expense takes the earnings per share down but our operating margin line we're still expecting pretty good leverage on it.

Now, it does, on a raw perspective we won't see as big improvement, Chris, because of the adding 6-7% acquisition revenue growth in the year.

The core growth for the '08 outlook is still 4-7.

Okay.

So, if you look at the guidance on the earnings off the core growth rate it's a pretty good match.

Okay.

You think in November and just in general, we'll be talking about a very rich acquisition pipeline, maybe that's been depleted a little bit, just a comment, please?

Yes, we can hear.

We continue to be dedicated to finding the right properties.

We did close quite a bit of course in the fourth quarter with six deals in the fourth quarter but time has built on a nice process.

We've identified a lot of properties out there.

We will certainly be a little bit more patient in trying to properly integrate the 13 deals that we've done.

We'll talk to you more about that in February when we're in New York, but we still have a number of nice properties that we would like to bring into the Cooper family over the next six months, so we're continue to press and we like what we've bought and we continue to find these properties that we're tracking very exciting.

So, I would say continue to see a good mix of what we've been doing which is driving the core growth, acquiring and as Terry said being aggressive on the share buyback and we'll talk to you about the dividend in the next few weeks.

Okay, that's all.

Thanks a lot.

Your next question comes from the line of Alex Rygiel with Friedman, Billings, Ramsey.

Please proceed.

Actually, this is Joe [Herrick] with [Gutterman] Resource.

A couple of questions regarding your operational initiatives.

What are you guys doing regarding Lean Manufacturing, TPM and Six Sigma and how is that impacting your bottom line?

We launched what we called MVP in 2002, which was our sort of productivity program and it has a bunch of different elements into it and we've emerged from that program into more lean practices and more lean training as you go forward.

The impact is pretty clear, right?

I mean for the last four years we've gotten at least 2.5-3% variable cost productivity on our total cost of goods sold.

Our margins have gone on Electrical from a low of 12% to 16 plus which you saw for the last quarter, and our Tools margins went from a low of about 4% up into the double digit s and so fourth.

The other area of impact of course, is the cash flow.

If you go back prior to 2000-2001, the company very randomly had cash in excess of its income from continued operations.

If you go back and look in the last seven years as Terry pointed out, pretty consistent now of being able to generate cash in excess of the earnings which of course means that the we're leveraging up on the working capital efficiency.

We still think that we have a significant way to go.

We've looked at benchmarking best-in-class on working capital efficiency.

We continue to drive improvements in the majority of our businesses.

We're going backwards a little bit in a couple businesses last year but that's still a big area of focus for us.

Of course, as you do the lean, you free up factory space, you free up lead times, you free up equipment capacity, you free up inventory, you reduce your cycle times, you improve your quality and improve your safety, so I would say on the lien journey we are no more than maybe 25% down the path at the company.

And regarding metrics like OE and RONA, how important are those to you and within your company?

You seeing that as added [inaudible]

I'm not familiar with the terms that you're using or the acronyms that you're using.

RONA, return on net assets, how you're utilizing your assets and improve more throughput throughout your plans.

Well, clearly, we measure everything on return on invested capital and we've improved significantly on return on invested capital and improved significantly again in '07 and we expect to do exactly the same thing in '08.

And in our bonus system, it's got two big metrics to it.

One is earnings of course and the other is cash flow, and in the businesses have another measure of working capital percent of sales, so we look at how much working capital is tied up on the Balance Sheet of a business in order to generate a dollar of sales and I think that's a pretty consistent measure across the industry.

Regarding both your divisions do you have concern with one division over the other or are they both of equal concern to you going forward regarding throughput and cycle time?

Well, they certainly not equal in size when you say two divisions.

One is 87%, electric all is 87% of the Company and Tools is now13% but I would say there's significant opportunities still on the Electrical.

You have seven different operating divisions there and you could imagine we've got some that are in the teens and some that are in the high 20s working capital percent of sales.

And as we have said, while the Tools made great progress on cash flow in 2007, they still have a significant way to go to be anywhere near the top quartile, even of the Cooper businesses.

So, we've got a wide distribution, even within the eight operating divisions that we have in the company.

Okay.

And final question, going forward for [remainder] of this year could be a very challenging year for a lot of companies in the manufacturing sector.

What systems and solutions are you guys putting in place to accelerate your CI or continuous improvement initiatives and how do you see them impacting your overall bottom line?

It's just what the we do every day.

There's nothing additional.

If you look at the performance over the last five or six years, these guys all submit budgets that are aggressive improvement year-over-year and we drive our business initiatives.

We're continually using the EBS, Enterprise Business System to become more efficient in back office processes and a lot of different things that we do.

We've got a CRM package rolling out on the front end of the business.

We continue to leverage our international infrastructure as we make those investments and we buildout our revenue and sales in those [accounts], nothing is special.

We run the Company for the long haul.

We're not really responding other than trying to be a little bit more diligent with regard to SG&A and such in the short-term but we run the company for the long haul.

Okay, good luck down the road.

Congratulations on a great quarter.

Thanks.

Your next question comes from the line of Steve Gambuzza with Longbow Capital.

Please proceed.

Good morning.

Good morning, Steve.

Just a question on the revenue guidance.

Looks like for products 12-14% and I believe you mentioned that 6% of that comes from acquisitions, is that correct?

That's right, six plus percent.

Okay.

So, on the 6-8% organic growth, I was wondering if you could perhaps give some discussion of how that might be different for the 70% domestic versus the 30% international, and if you also might comment on how price actions you've taken in the middle of 2007, what the full year impact of those might be on that organic growth or anticipated price actions.

Well, let me start with the price.

On average, we're looking at a 1-2% price increase overall for the year and of course, we monitor that continuously through the year, so that contains depending on what happens with commodity prices during the year.

But if we look at our businesses today, if I look at the third and fourth quarter performance indications through it, we have very very strong growth across the world.

The U.S.

was very strong in the third and fourth quarter.

If we could duplicate and keep it that momentum going into 2008 and throughout the year, we would be past the top end of our range on the earnings side clearly, and we're a little more cautious because of all the economic uncertainty in the U.S.

as well as the rest of the world, but the U.S.

But the U.S.

growth in '08 will still be very respectable and clearly below the international growth where we would expect that to be growing probably at 2 X what the U.S.

does.

And potentially, as Terry said with some upside to it, I know you gave a number for the international revenue growth for 2007.

That was very high.

Just earlier in the script.

I was wondering on an organic basis for the portfolio of international businesses that were there in 2007, what did those businesses grow at during 2007?

I don't have that handy, but it probably, clearly double digits.

Okay.

And low double digits.

So roughly you could expect two times the growth internationally will get domestic organically.

Is that a good rule of thumb for '08?

At a minimum, yeah.

For '08 yes.

Okay.

And then for in terms of share repurchase contemplated in '08, is there any incremental share repurchases included in guidance in excess of those offset options?

At this point, no, although I did mention we've already purchased $2 million shares In January, and we would expect our option exercises, etc, to be significantly lower than they were in 2007.

So, depending on what the market does we're going to take advantage of it.

We think $45 in stock is a very reasonable buy.

And what was the tax rate that the guidance is based on?

It will probably, tax rate will probably be in the 28-28.25%

Great.

Thank you very much.

Thank you.

There are no further questions at this time.

I would now like to turn the presentation back over to your host, Mr.

Jon Safran for closing remarks.

As we conclude this call I'd like to invite everyone to join us for Cooper's 2008 investor outlook meeting which will be held at the New York Mandarin Oriental Hotel on Thursday February 21.

We will begin presentations around 8:30 a.m.

and conclude by 11 a.m.

As we did last year, we will have presentations by both Cooper, Senior Executives from the corporate office and also division management.

A formal announcement for this event will arrive shortly and with that, thank you for joining us today.

Thank you for your participation in todays conference.

This concludes your presentation.

You may now disconnect and have a good day.