Eli Lustgarten - Longbow Securities Mick Dobray - Robert W. Baird Alexander Blanton - Clear Harbor Asset Andrew Casey - Wells Fargo Linda - Credit Suisse Nathan Jones - Stifel Nicolaus Jeff Hammond - KeyBanc Henry Kirn - UBS

Good day ladies and gentlemen and welcome to the first quarter 2013 Parker-Hannifin Corp earnings conference call. My name is Erica 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 this conference. (Operator Instructions). I would now like to turn the presentation over to your host for today’s call, Ms. Pamela Huggins, Vice President and Treasurer; please proceed.

Thanks Erica. Good morning everyone. As Erica just said, its Pamela Huggins speaking and I’d like to welcome you to Parker-Hannifin’s first quarter fiscal year 2013 earnings release teleconference. Joining me today is Chairman, Chief Executive Officer and President, Don Washkewicz; and Executive Vice President and Chief Financial Officer, Jon Marten. For those of you who wish to do so, you may follow today’s presentation with the PowerPoint slides that have been presented on Parker’s website at www.phstock.com. For those of you not on the line, the slides will remain posted on the company’s Investor Information website at www.phstock.com, one-year after today’s call. At this time I would ask that you reference slide number two in the slide deck, which is the Safe Harbor disclosure statement addressing forward-looking statements, and as usual ask, if haven’t already done so, please take note of this statement in its entirety. On slide three, this slide as required indicates that in cases where non-GAAP numbers have been used, they’ve been reconciled to the appropriate GAAP numbers and are posted on Parker’s website at phstock.com. Again, to cover the agenda for today on slide number four, the call will be in four parts. First, Don Washkewicz, Chairman, Chief Executive Officer and President will provide highlights for the quarter. Second, I’ll provide a review, including key performance measures of the first quarter, concluding with the revised 2013 guidance. The third part of the call will consist of the standard Q&A session; and for the fourth part of the call today, Don will close with some final comments. So at this time I’ll turn it over to Don and ask that you refer to slide number five titled First Quarter Fiscal Year ‘13 highlights.

Thanks Pam and welcome to everyone on the call. We certainly appreciate you joining us today. I just want to make a couple of comments and then we’ll turn it back over to Pam for some additional detail about the quarter. First of all, our results in the first quarter largely reflect the impact of the continued weakness in international markets and the softness in North America and that’s particularly late in the quarter and I’ll talk about that in a minute here. Actually I had a plan going into September, so July and August were actually fairly strong months. We are actually ahead of plan than we experienced in September; a lot of cancellations and rescheduling of orders and so forth by many of our OEM customers as they adjusted to current economic conditions. So that’s really what impacted the quarter for the most part. We were ahead and then a lot of these cancellations, rescheduling. We saw a September come in weaker than what we had anticipated. Considering what happened in these conditions, we have performed well in the quarter or remain cautious about the outlook, especially going into calendar 2013 and I just say it to keep in mind that we are one of the few companies giving guidance into 2013 due to our mid-year fiscal. Our earnings guidance therefore reflects this caution with regard to the global economy in calendar 2013. Just a few points about the quarter, a little review of the quarter. Our sales were essentially flat with last year at $3.2 billion and they were impacted by a 9% decline in industrial international sales, so you can see where the weakness is coming from; its in our international segment. This is the third consecutive quarter in which we have reported a year-over-year decline…

Thanks Don. So at this time I’d probably just take a look at slide number six and I’ll begin by addressing earnings per share for the quarter. Fully diluted earnings per share for the first quarter came in at the low end of the guidance at $1.57. This is a decrease of $0.34 or 18% versus the $1.91 from the same quarter a year ago. And just weighing out both components, the puts and takes of that $0.34 per yield, segment operating income accounted for $0.26 of the decrease and this is mainly due to international and the continued softness that we are seeing in that region that Don just talked about. Below segment operating income are what we refer to as below the line items, impacted earnings per share and favorably by $0.09 and again, this is mainly due to the other category and it’s the result of the higher pension cost that we communicated last quarter. Higher taxes impacted earnings per share by $0.02 and this is mainly due to the expiration of the tax extended bill for U.S. research and development credit and there also were some discreet items that were in expense this year and a benefit last year and then less shares outstanding impacted the earnings per share favorably by $0.03. So moving to slide number eight, looking at the top line, revenue for the quarter, they were essentially flat, decreasing $19 million or 0.06%, coming in at $3.2 billion consistent with last year. Our revenues decreased in international and climate and industrial controls, offset by increases in North America and aerospace. There wasn’t any impact to revenues as a result of acquisitions and currency and total acquisitions added 3% to sales, which was offset by negative currency of approximately the same amount. Segment operating…

(Operator Instructions) And our first question comes from the line of Joel Tiss with BMO. Please proceed.

Well, I finally made it. Just two quick questions; one is a clarification I guess. Can you be more specific on the accretion or dilution from the sale of the CIC business, the auto part?

Yes, I can. It’s about $0.04.

Okay, thanks. And then I just wanted to ask Don. I mean he’s probably the guy with the most experience on the call, unless Alex Blanton is on, and I just wondered, you’ve been through three or four recessions or whatever and you’ve seen how they developed and all that and I just wondered, like what do you see for the next year? What are your customers saying? Are we going into another recession or we are just slowing down or correcting inventories. Can you just take your whatever years of wisdom and help us out a little bit.

Well, thanks Joel. Basically if you think back to the end of last fiscal and we started talking about this fiscal, which takes us half way into 2013, what we are hearing on the street at the time and from our customers and all that, keep in mind that for instance Latin America was pretty flat and had been flat for quite some time and we started hearing well, we are going to start seeing a little bit of a hick-up there, because we’ve been down and that’s on a month-to-month, quarter-to-quarter basis we’re going to start seeing some pick up, we didn’t see any of that. The next thing we’ve heard was that Europe’s in the tank and which we knew. Last year they were, of course the whole Greece thing just continues on. I don’t know if that will ever be resolved, but it was all that malaise about what’s happening in Europe and who is the power. They are going to get their financial things in order and we heard that there was probably going to be some improvement there, we haven’t seen any improvement or actually we’ve seen and actually it’s gone the opposite direction. Then lastly as you recall we talked about Asia, and we said, yes that stimulus is coming in China. The rail project is going to come back on, construction is going to probably pick up a little bit and in fact if you look at our China activity, it hasn’t really materialized. As a matter of fact, the GDP over there is more like in the low sevens now as opposed to what they were looking at before. So as I look forward, do I see a cliff coming? I don’t see a cliff. It just seems like, just like a…

All right. Thank you very much.

Sure.

Thanks Joel.

Our next question comes from the line of Stephen Volkmann with Jefferies. Please proceed.

Hi, good morning.

Good morning.

I was wondering if you could just give us a little more color, I guess on the North American orders. That was the one that was kind of surprising for me, and Don, you sometimes have your sort of 3/12, 12/12 commentary that you do by end market. I am wondering if maybe that might help us understand that?

Well, let’s talk a little bit first about just a couple of other indicators. Now one thing, when you look at it, I like to look at the PMI indices, because that’s kind of telling as to what’s happening there. First of all, all of the PMI’s pretty much globally have been going up interesting enough, in spite of what we’ve been just talking about here, but only North America is greater than 50%. So that’s kind of telling us, well everything seems to be moving a little bit in the right direction, but nothing other than North America is really in a positive territory with respect to the PMI. When we look at the specific market segments and what’s happening there as far as order trends, which ones are doing better and not as good, pretty much all of the aerospace markets, both military OEM and aftermarket segments are all looking good on a quarter-to-quarter comparison; that’s what I am going to kind of give you here is the kind of the overall trend. Some of the other ones that are looking good, power gen process markets, farm and ag has been positive and I think that will continue, oil and gas has been positive and commercial refrigeration. If we look at our trends, those would be the positive ones. The ones that are kind of flattening out for the most part, but not necessarily terrible, but it’s just that they are not growing at the same rate they had been in the past would be cars and light trucks distribution, semiconductor, life science and heavy-duty truck. I mean this is not to say those are doing real bad, it’s just that the trends are actually flattening out on those. Then regionally if we look at the regions as…

Great. I appreciate that, and maybe just quickly, just your thoughts on share repurchase given the liquidity you have on the balance sheet and the cash flow that you seem to be doing this year.

Well share buyback, currently just to remind everybody, we increased our 10b about a year ago, 10b5-1 from about $50 million a year to $200 million. So we are around $200 million a year, about $50 million a quarter pace right now, so that will continue. We bought in the first quarter I believe somewhere around 57 million shares back in the first quarter and that would give you about $107 million in the first quarter total for the company. What I have been doing, not just I, but what we have been doing is really focusing primarily right now, trying to keep enough dry powder to go after some of these acquisitions that are in the pipeline. You can see that we picked up five. We’ve got a couple of more coming through in this quarter. So we’ve been just kind of are these going to make it at the finish line or not. If they are, we’d like to maintain, have some capacity to do some of these acquisitions, not all of them we realize are going to make it to the finish line. Then after that if in fact they don’t, we’ll buyback more shares, but I don’t want to predict at this point just what we are going to do. I’d say the preference right now, because we’ve been working on some of these acquisitions is to try to get some of these closed in the balance of this fiscal year. The other thing that we are going to do, of course we are going to continue to do would be the dividend payout; we want to continue that. We have an increased record that goes from 56 years now and we are pretty happy about the yield where it’s at. We are approximately at the median of our peer group, around 2% yield and we might need to tweak that a little bit. Of course if the stock drops further, we don’t have to worry it’ll be higher than 2% yield, but we hope that doesn’t happen. In acquisitions, not acquisitions, but in other growth areas like supporting capital expenditures, we are still looking at around 2.5%. I think Pam mentioned around 2.5% and we are still looking at that as far as capital allocation. So hopefully that answers and I can’t give you a hard number on share repurchase of course. We’ll look at share repurchase in light of the acquisitions that we are looking at and if we have capacity there and the shares are suppressed, we’ll definitely do more share repurchase.

That’s great, and I don’t want to put words in your mouth Don, but it sounds like what you’re saying is the acquisition pipeline is fuller than it’s been for a while. Is that accurate or it might mean too much.

I think that’s very accurate. It seems like it took a longer time to fill it this time around, because we’ve been talking about it for a long time that we are looking at a lot of things. It seems like the fluid is moving a little slower through the pipe, but they are starting to coming out the other end, so that’s good and it’s encouraging, because we’ve picked up some very nice acquisitions off late.

Thank you very much.

Thank you.

Our next question comes from the line of Eli Lustgarten with Longbow Securities; please proceed.

Good morning everyone.

Hi Eli, how are you?

Just had a clarification, your EPS guidance assumes what share count for the year? Is it probably the easiest way for us to do it?

About $1.54.

About $1.54. So you actually don’t expect the net…

I am sorry, $1.53, I apologize.

You were just about $1.526 I think for the quarter. So you’re assuming there’s no net share reduction for the rest of the year?

That’s right.

Okay, and the guidance for revenue includes the $380 million of annual sales that you’ve announced in the first quarter and it’s all in there.

That’s right. Just so you know though, let me just give you some numbers here, in terms of the acquisitions. It’s about 2.5%, 2.4%, 2.5% of the sales amount. Okay?

Okay. I mean you are indicating that profitability, I guess as the volume comes down, you are going to be able to hold profitability in Industrial in North America for the last year. In other words, you don’t expect to go much under 17%, I would suspect for the rest of the quarter despite the lower volumes? And in aerospace, the increase of profitability comes from lower R&D or better volume or better mix or what’s…

Well, in terms of the aerospace Eli, it is really both. It’s the R&D that Don talked about earlier and just us trying to react to some of the programs that we won over the last five years and a little bit of a change there in terms of our forecast going forward and also again…

How much was the R&D increase in the quarter unexpectedly for us?

About $0.02. And then the other part of the change in the guidance is in the mix and it has to do with the commercial MRO business here. Its not quite as robust as we had planned, slightly down.

Okay, and the profitability in both industrial North America and industrial international going forward, I guess you are saying it’s going to come down to like this operating margin in North America to stay the same, and international from where we are today?

I would say that’s North America is staying, industrial is staying north of 17% and international gradually improving throughout the year.

Right, and one thing to be aware of the way the currency impacts, it gets more favorable as we go throughout the year.

Okay, and one final question is that we talked about the drop in orders and so, can you talk about inventory liquidation at distributors. Are we seeing – like they were saying, that we are starting to hear and talk about it and particularly as construction equipment and I am surprised heavy truck is flat, because the production is down 20% in the fourth quarter, but has construction equipment taken down their orders also across the board?

Yes, that’s the segment that we’ve seen the most adjustment in, is the construction equipment, the OEM segment. A lot of the OEMs readjusting there and I think that’s pretty much globally too by the way, its not just North America, it’s pretty much globally, that, what we are seeing in the construction segment or part of the business.

And distributor inventories are…

Yes, the distributors, I wouldn’t say distributors Eli are probably reacting from what input we are getting, pretty much like they have in the past. Pretty much haven’t been building a lot of inventory to begin with. So they are basically adjusting to the reality like we are. I don’t see any huge material changes one-way or the other. I think they are going to gradually making adjustments as times go forth. Keep in mind that there is no cliff that we see on the distribution part of the business either, see that’s still a pretty solid segment for us.

Eli, we need to be cognizant of time to give other people a chance. Thank you.

Our next question comes from the line of Rob McCarthy with Robert W. Baird. Please proceed.

Hello, this is Mick Dobray in for Rob McCarthy, good morning.

Good morning.

So first, a quick question on Industrial and International. Can you give us a little more color on the integration acquisition cost in the quarter?

Well, for the Industrial International segment we are seeing a $0.03 for the integration and acquisition cost. This relates to deals that we have announced and completed in Q1. This also relates to deals that are unannounced and that are in the pipeline that Don has been referring to.

Okay, great, thank you. And then switching back to industrial and North America and you commented a little bit about the Parker stores, but I’m wondering, are you seeing going forward any sort of mix shift in the way your revenues are generated in that segment. And what sort of impact did you bake into your margin assumption? Because from what I can tell, your incremental margin embedded in the guidance is something north of 35% in North America. So I’m kind of wondering, is it that you are sort of seeing a more pronounced shifted on the distributor side or is it that its OEM business that potentially carries higher margin there.

I just would like to make a comment about this marginal return on sales at this point. There are certain points in the cycle when you don’t have a lot of acquisitions, you can look at these marginal returns on sales number and they make a lot of sense. But then there is points in the cycle and especially a period like this when we are doing a lot of acquisitions. These marginal return of sales numbers, there is the law of small numbers, number one. And then also due to the acquisitions they can become a little distorted, and if you look at North America, just to give you an example, the marginal return on sales in the first half is, you’re right, north of 35%, but if you look at the first quarter and the second quarter, you have a favorable 6% and then a unfavorable 24% in the second quarter, so it’s just the way the numbers are working out. For North America, quite frankly we’re right in line where we think we should be.

Okay, thank you.

The next question comes from the line of Alex Blanton with Clear Harbor Asset. Please proceed.

Hi, can you hear me?

Yes, good morning Alex.

Thank you. Hi Joel. You asked the question I was going to ask and I want to go back to that for a minute. No one has really focused on the 11% decline in North American orders in the quarter and that apparently really started in September, was the first two months up in September more than offsetting, and what does this mean in terms of the economy for the fourth quarter, what do you think?

Well, let me just give you a little color on how things played out through the quarter. As we went into July and then August, we were feeling pretty good, because we were right on pace with what we had told you previously. It’s really the month of September that really did take a big decline.

So, it was more than offsetting. In other words, it was down more than the first two months were up?

Yes. For the quarter, you can actually look at the miss. We did a $1.57 for the quarter; we thought we were going to do around $1.66. It really was attributable to the really tough September month.

Well, now doesn’t this sort of indicate we might be entering a recession here, a big fall off in orders in September and the weakness overall in other companies results that are coming along here as we go through the earnings season? I’m just wondering why you are assuming it’s going to be flat for the year when you are starting the next nine months with a big downturn in your orders. And secondly on that question, how do you think the election is going to affect you? I mean, depending on who is elected, you might have a big increase in the business in the second half or a big decline. So are you just waiting to see what happens or do you think it doesn’t matter?

Maybe Alex I’ll just touch on -- this is Don, I’ll touch on the second part of that. We can’t predict what’s going to happen frankly. We have our own opinions as to what would be best for the economy and best for our business certainly as to outcomes, but I don’t want to go online and predict anything. I think instead of doing that, we just decided not to predict anything, and just say, hey we are going to get another look at this after the beginning of the year. We’re going to know lot more then. We feel pretty comfortable with our second quarter; you can back into our second quarter numbers. We’ve given enough information. So you can back into that and we feel pretty confident on those. And when you look at October, the way it’s coming in right now, I mean October is usually a pretty good month and its shoring up to be reasonably good month, so that’s going to carry a big portion of the second quarter, because remember November, December are the weakest months in the quarter. So had we not had indication of a reasonable October, we would be telling a different story right here, so okay.

Okay, yes, I got that. Okay listen, I don’t want to take too much time, but I’ve got another question on your international business, you had a 50% decremental margin. Operating earnings were down $56 million and sales were down $112 million. So why was this so large on decremental side?

Alex, Jon here. Just to try to help you with that. Internationally, first we talked about the acquisition integration and acquisition costs. So that $0.03 that we’ve talked about are baked into those MRO this year for Q1. In addition to that, as you know we try to manage to negative 30. That’s historically in the best times. When we are actually going down we, are able to manage the negative 30 and that provides a very good result from us, from a margin or return on sales. When we first start turning though, as we are turning right now, we can’t react instantaneously and so we are furiously throughout all of our operations, specifically in this case internationally that we are talking about working to try to take the actions that are necessary in order to adjust to the new reality that we are seeing here in terms of the recession in Europe in most countries there, as well as the reduced industrial production indexes that we are seeing from Asia, primarily in China.

Yes, so you try to get a 30% decremental margin, but you can’t react that fast, right?

Right, right. So, we don’t expect that 50 to continue and we are determined to get to no worse than negative 30.

And that 30 would be lower, but you don’t want to cut out all of the SG&A that you built up necessarily, right?

Well, we’ve got a certain base that we will continue to maintain and we will continue to try to structure all of our operating divisions in a way that is going to make us also able to be able to react as things go back up. So we’ll be mindful of the long-term, we’re not going to be totally short-term focused.

Okay, thanks.

Our next question comes from the line of Andrew Casey with Wells Fargo. Please proceed.

Thanks and good morning everyone.

Good morning.

At the risk of beating a dead horse, I just wanted to ask Joel and Alex’s question a little bit differently. From a historical context, could you discuss whatever differences you may be seeing between what happened in September in industrial North America, the order drop-off from what you historically saw back in fiscal Q2 ‘09?

Andy, Jon here. One thing that we’ve been looking at very closely is and talking about is of course as we are putting the guidance together here. How does this situation compare to prior years and we are very intensely looking at the data in each one of our groups and each one of our segments. One of the things that Don talked about earlier, I think it’s very important for you and Alex and Joel and everybody to remember is that we did experience several cancellations from some of our OEM customers and those cancellations of course are one-time events. They are not a general pattern. They were enough for us to mention in our comments going forward and so as we experienced those cancellations they’ll have a one-time impact on our order rates for a quarter, but we don’t see, especially given the detail that we know behind the order reductions, we don’t see that impacting us going forward at the same rate. So what we do as you know is, we took our bottoms up approach in our forecast when we put our guidance together. We feel very good about our Q2 and our balance of the fiscal year based on what we know right now, and that is how we basically have looked at this question of the orders in the month of September and the impact on North America for the quarter.

Thank you for that Jon. So if I could take a stab at re-characterizing what you just said, is your view that the OEM customers in particular who made those cancellations are just taking deep production cuts right now to true up their order boards? Is that…

Yes, I think that they are resetting, there is no doubt that they are resetting and we are reflecting that in our results and keep in mind that as Don talked about the PMI moving up in North America, many of our customers that reset their orders in the quarter are also resetting their look to react to the international situation and sometimes those orders are going to our OEM customers in North America, but ultimately are destined for final demand that is international related.

Okay. Thank you very much.

Thank you.

Your next question comes from the line of Jamie Cook with Credit Suisse. Please proceed.

Good morning Jamie. How are you doing?

Oh! This is actually Linda in for Jamie.

Oh! How is Jamie doing by the way?

She is doing well.

Good, good. She just had a baby by the way.

I mean kind of going with what everyone else has been asking with those orders in the U.S. I mean those cancellations, how is that making calendar year 2013 looking for you. Like OEMs, are they looking at sort of a growth year or is that going to be more flat looking or down. Like what’s sort of your expectations with dealer orders?

This is Don again. I think if we see that happening on an ongoing basis, then it’s going to bode not so well for 2013. But like we said earlier, we’re seeing this adjustment and I think this is just adjusting like we are adjusting to the current reality and I don’t see it continuing. At least at point if the global condition worsen, and then I think maybe there’s going to be another readjustment. But I think that’s how it will affect us over the long period. I don’t see any sustaining effect of what we saw in September above and beyond what we’ve already indicated in our guidance.

Okay, and then switching over to international then. I mean China seems like it’s kind of an important part of the international recovery. What is your thoughts on China? I mean, is growth going to come back there next year or is that pushed out to your fiscal years 2014 or how is that kind of looking?

It’s Pam Huggins speaking. Really we’ve become, I don’t want to say negative, but versus what we were thinking even three months ago, our view is somewhat different. We were probably a little exuberant in what we thought might happen in China, but we were right in line with that everybody else was thinking at the time too. We thought we would see more of an up-tick there actually now. We do have the little bit of growth baked in, but it’s very minor, 1% to 2 % in the second half, and I would call that probably more in line with the natural cycle of our business, than really seeing any true up-tick that’s going to take place there.

Okay great. Thanks guys.

Thank you.

Our next question comes from the line of Nathan Jones with Stifel Nicolaus. Please proceed.

Good morning everyone.

Hi Nathan.

Can we just talk a little bit about Europe and kind of the sequential progression there, things still deteriorating sequentially stable, getting any better?

Well, I think if you look at what’s happening from some of the PMI’s that I had mentioned earlier, which is probably the best indicator overall. I mean we can talk about our own numbers and all that, but the Europe is negative, I mean negative to 50%, they are down around 45%, 46%. They creped up a little bit in September. Germany actually bounced up about three points, so they are around 47%, which is a good indicator. So I don’t think deterioration from this point as what I’m seeing here. I just don’t see a tremendous up-tick either. I just see more of a steady as she goes.

And could you talk about specifically your own business over there and how that progressed through the quarter?

Nathan, as the quarter went on, it was obvious to us that in Europe we were bouncing along a low level, and so we don’t see further deterioration through the quarter. Our projections through the balance of the year are that we are basically flat lining and flat lining in terms of the growth that we had projected in the first sort of the guidance at the rate that we are now seeing. And Nathan, we are in a low level there. We’ve never gotten to the point that we really have been able to see a huge growth in the different end markets that were in there that are opposed to some of the other end markets around the world. We are really focusing in on some of the growth opportunities that are in very strong end markets that are in Europe right now; one of them being oil and gas process, a few other chemical industries that are really very promising for us. But the short answer to your question; we are at a low level, but we are not deteriorating further and that’s what our guidance indicates.

Okay. And it sounds to me a little bit like the drop-off in orders in Industrial North America might be primarily driven by end market weakness in Asia. Is that a fair statement?

I think that certainly some part of that is attributable to that. It’s really hard for me to tell you what part of it, but that is certainly a material portion of the answer and again, we are looking at it as a reset and we are looking at our customers reacting to their ultimate demand levels and many of our customers are multinationals too as you will know.

And if I could just slip one more in on aerospace, are you expecting the OE versus MRO mix in the balance of the year to be the same, more heavily skewed to original equipment or more heavily skewed to MRO?

As time goes on through the year, it’s going to be more heavily skewed to OEM.

Great. Thank you very much.

Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Please proceed.

Hi guys. You mentioned a lot of kind of acquisition and integration cost, but clearly you are bringing in some good businesses. I mean how should we think of – I mean, do these start to become accretive pretty quickly or I mean, may be if we look at the whole year, how should we think about accretion from these deals?

All of these deals that we announced in Q4 last year and in Q1 this year have been accretive, accretive to the bottom line and are performing very well for us. We are very excited about the prospects and of course we’ve got integration cost and things, but even given that these deals have been accretive.

Okay, but your bridge doesn’t really call out any acquisition positives or negatives?

No, we just don’t get to that level of detail and we normally don’t go deal by deal and explain exactly what the performance has been by quarter, but in general, we wanted to make sure that we explain to you and anybody else in the call that deals have been accretive for us and we are happy with the results that we are seeing.

Okay. And then Don, I just want to understand the capital allocation dynamics a little bit better, because I think what you are saying today is acquisition pipeline is pretty full and we are going to focus more on deals. Yet, the last two quarters your comments were, I want to buyback my stock, I want to buyback my stock and now the stock is down 7% today, and looks like maybe a better buy than the previous quarters, I mean what’s really changing here?

Nothing’s changing, it’s a timing thing. Like I said the pipeline takes a while to fill. Once you get things going down through the pipeline, it’s a timing issue. When those start coming out the other end, I have to have money to pay for. If they are not going to come out the other end or if they are going to come through slow, then I can maybe do some share buyback and replenish my dry powder in the interim. So it’s really a matter of timing as far as what I can do and how much I can do, when I can do. We’ve done a lot of share buyback in the last couple of years. I mean a $1 billion type numbers. So it’s not like we’ve been sitting here doing nothing. We weren’t able to do as many deals in the last couple of years, because we are filling the pipeline, we are looking at things, we are turning some away, we are looking more seriously at some. So I think it’s really a timing issue and we look at kind of real time all the time, like okay, how much money do we have, what’s our leverage, we are not going to let our leverage go above 37%. We are going to maintain our A ratings on our debt. So what can we do and how much can we do; when can we do it? Of course, if I knew that the stock was going to drop $7 today, of course this would be a great buying opportunity and it is a great buying opportunity, and I am not going to predict anything here, but I say that we are certainly looking at that in light of everything else we’ve got coming through the pipeline. But once I get things going through the pipeline, and get them going through a due diligence process, I can’t just shut that off. I mean it would be silly to do that. We spent a lot of money to get them to that point. So we’ve got to continue through with the ones that we are looking at seriously and we are always looking at Parker’s stock as a good potential acquisition for us and certainly at these levels that it’s at now, it’s a tremendous opportunity.

Okay, thanks.

Okay, we’ll take one more call or one more question at this time please.

Our last question comes from the line of Henry Kirn with UBS. Please proceed.

Hey, good morning guys.

Hi Henry.

How quickly can you flex production? could you discuss a little bit the changes to your headcount plans over the last quarter and then maybe if the OEMs were to switch back to a more positive view, how quickly could you shift the production back up?

That’s a good question Henry. I think one thing that we are doing is adjusting the workforces globally. It’s slower in Europe. Probably the slowest of any region around the world is Europe because of all the workers council negotiations and the government negotiations that go on when you are trying to reduce workforce or adjust it down and so what we’ve done over time, is we’ve built up a layer of what we call associates part time employees and so forth, so that we could flex better and that’s what we are kind of working into right now as these associates, where you can take actions a little bit quicker and adjust a little bit faster and yet not eat into your core workforce, so that’s kind of what we are working on. The other thing that we’ve done as we gotten some locations, we have shortened work weeks. Again, every facility -- we have about 350 facilities, so everyone is in a different state as far as demand and order trends and so forth. So they are adjusting with short work weeks, part timers and associate workers and so forth. Those are the kind of things we are doing in the workplace. I think we are going to be in a tremendously good position to rebound whenever there happens to be a rebound and hopefully that’s soon here. There is certainly a possibility it could be soon. So we are ready, we can add people back, we’ve got the core workforce still there, so that we can respond quickly to any changes in demand.

Okay. At this time, we’d like to end the formal Q&A session and I’m going to turn it over to Don who just has a few closing comments. But for those of you on the call, I just want to say thank you. I know that you guys have had a very busy day today; a lot of people releasing earnings this morning. So thank you for taking the time to attend our call. And with that, I’ll turn it over to Don.

Well, I want to once again thank everyone on the call for joining us this morning and I also want to take the opportunity to thank all of our employees as I have in the past for their continued commitment and our success. The team continues to execute on our win strategy and they continue to outperform and perform extremely well vis-à-vis our peer group. Throughout this period of uncertainty we are going to continue to manage our cost as we said on this call. We are going to maintain our strong financial position as I stated with our leverage and we are going to continue to pursue our long-term growth strategy and we’ve talked about all of those issues today. So I want to thank you again for your participation on the call and for your continued interest in Parker. As we’ve said in past, Pam will be here the balance of the day and she will be taking calls. If you have anything that we haven’t answered, feel free to give her a call today. Thank you very much and have a good day.

Thank you for your participation in today’s conference. This concludes the presentation. Everyone may now disconnect and have a great day.