Good day, ladies and gentlemen, and welcome to the Parker-Hannifin Corporation First Quarter 2017 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct and question and answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference maybe recorded. I would now like to introduce your host for today's Mr. Jon Marten, Chief Financial Officer. Mr. Marten you may begin.

Thank you, Andrea. Good morning, and welcome to Parker-Hannifin's first quarter FY '17 earnings release teleconference. Joining me today is Chairman and Chief Executive Officer, Tom Williams and President and Chief Operating Officer, Lee Banks. Today's presentation slides, together with the audio webcast replay, will be accessible on the company's Investor Information Web site at phstock.com for one year following today's call. On Slide 2, you'll find the company's Safe Harbor disclosure statement addressing forward-looking statements, as well as our non-GAAP financial measures. Reconciliations for any references to non-GAAP financial measures are included in this morning's press release and are posted on Parker's Web site at phstock.com. Turning to Slide 3, toady's agenda is outlined. To begin our Chairman and Chief Executive Officer, Tom Williams will provide highlights for the first quarter of fiscal year '17. Following Tom's comments, I'll provide a review of the company's first quarter, FY '17 performance together with the guidance for FY '17. Tom will then provide a few summary comments, and then we'll open the call for a Question & Answer session. At this time, I'll turn it over to Tom and ask that you refer to Slide 4.

Thanks, Jon, and welcome to everyone on the call. We appreciate your participation this morning. Today, I'd like to share highlights of our first quarter results, comment on our fiscal year 2017 guidance. And finally share progress we are making with the new win strategy. Before I get into the financial highlights of the quarter first I’d like to talk about the safety. Keeping people safe is our first priority and as such we start our meetings at Parker with the discussion on safety. So I thought I’d start our earnings call with safety as well. During the first quarter of 2017 we are able to reduce our recordable injuries by 35% compared to the prior year. This builds upon a 33% year over year improvement we posted comparing 2016 versus 2015. And actually we have a long way to go, to reach our goal of zero accidents. But I’m very pleased with the progress we’re making. Safety is important because, not only does it protect our people but also because great safety performance typically leads to great financial performance. Now to the financial highlights of our first quarter results. First quarter sales were 2.74 billion, a 4% declined compared with the same quarter year ago. This represents the third consecutive quarter we saw a decelerating rate of decline in sales on a year-over-year basis. Nearly all the decline in sales this quarter was organic. Total order rates in the first quarter increased 2% compared with the same last year on easier comparisons. This represented the first quarterly increase in order since December 2014. By segment, North America is still weak but slowly recovering and our aerospace systems segment and international business order rates were positive. These order rates reinforced our previously communicated view that we’re progressing towards stabilization in…

Thanks, Tom. And at this time please refer to Slide 5. I'll begin by addressing earnings per share for the quarter. Adjusted earnings per share for the first quarter were $1.61 versus $1.52 for the same quarter a year ago. This equates to an increase of $0.09. This excludes business realignment expenses of $0.06, which compares to $0.11 for the same quarter last year. On Slide 6 we review the influences on the adjusted earnings per share for Q1 versus Q1 of FY '16. We had earnings per share of $1.52 for the first quarter FY '16 and $1.61 for first quarter of this year, increase to adjusted earnings per share include a reduction of corporate G&A expense which totaled $0.11 per share. A lower effective tax rate of 28.1% versus 29.2% in Q1 of FY '16, lower interest expense and the impact of fewer shares outstanding due to the company share re-purchase activity which equated to an increase of $0.07 per share, a reduction of $0.08 per share and income was a result of the lower adjusted segment operating income driven by weakened end market topline demand as projected while higher other expense equated to a reduction of $0.01 per share. Moving to Slide 7, with the review of the total company sales and segment operating margin for the first quarter. Total company organic sales in the first quarter decreased by 4.6% over the same quarter last year. There was nominal contribution to sales in the quarter from acquisitions and minimal currency impact. Total company segment operating margins for the first quarter adjusted for realignment cost incurred in the quarter was 15.4% versus 15.3% for the same quarter last year. Business realignment costs incurred in the quarter were $11 million versus $22 million last year. The lower adjusted segment…

Thanks, Jon. I’m glad we’ve started 2017 on such a positive note. I would like to thank the appropriate team members around the world for their efforts. Not only have we made meaningful progress with initiatives designed to improve margins, but we’ve also taken great strides to strengthen and sustain our business and better serve our customers. We’re positioned well for the rest of this year and beyond under the framework provided by the Win Strategy. I look forward to sharing more with you as always as the progresses. And at this time, we are ready to take questions. So Andrew if you could help to get started.

Absolutely. [Operator Instructions] Our first question comes from the line of Nathan Jones with Stifel. Your line is open.

I think I would like to talk a little bit about cash generation and cash usage today, very, very strong cash flow quarter in what I don't think is normally an overly strong cash flow quarter. I think for as long as I have followed Parker your target has been 10% of sales converted into free cash flow. Is the new Win Strategy an execution of that structurally changing that target and should we think about cash generation being some number higher than 10 going forward?

Nathan, this is Tom. 10% has been our historical target, it’s still the target. But what we’ve done as far as determining that target is what’s top quartile against our peer group. And it happened to be when we set that goal years ago 10% was top quartile and as we benchmark it today 10% is still top quartile. Now obviously as we continue to raise margins, which is our goal, we should continue to be even better performing, but the goal is to be top quartile, we happen to be a pretty consistent performer in being top quartile on cash and I think you look forward for us continue to do that.

Okay, fair enough. And then the $2 billion share repurchase is complete. The commitment that Don made a couple of years ago there is complete. The balance sheet is still pretty robust, you've still got plenty of capacity there. How should we think about your approach to M&A versus share repurchase going forward from here?

Hey, Nathan, it’s Tom again. So we obviously look at both of those all the time on a dynamic basis with the goal of making the best long term value creation decision for our shareholders. So I would characterize the pipeline right now as far as acquisitions you know being fairly active, as always acquisitions are lumpy and hard to product as far as the [technical difficulty]. And I think what is normally -- what historically in the last couple of years has slowed us down as far as converting more acquisitions has been the price valuation gap and what we are seeing now and I hope would hope over the next couple of years we’ll continue to see this even more is, I think sellers expectations coming closer to reality and I think that price gap that we experienced will become closer and I think properties will become more actionable. So we will continue to look at share repurchase and acquisitions and make the best decision every quarter on behalf of our shareholders. On the share repurchase, just as opposed to pre-announcing we’ll continue to be active and as I’ve said before on these calls what we’ll do is we’ll communicate after the fact. We think that’s the best value creating for our shareholders. We won’t be buying into our own wind and you’ll see us be active. Like I mentioned in my opening comments, our goal is to be great generator of cash and we will continue to be even better at that, but we want to be great deployers of cash and put into work. Now the $2 billion that you mentioned Nathan that’s sitting there, just to would remind I think most people realize this, is that 99% of that is permanently invested overseas. And so there is certain constrains or factors that you have the weigh when you think about how to deploy that and trying to deployed it in a most tax efficient manner on the benefit of our shareholders. So we will look at that, we obviously want to put it to work but there is factors you have to consider on that cash that is sitting overseas.

Okay, thanks very much. I'll pass it on.

Thank you. Our next question comes from the line of Andrew Obin with Bank of America. Your line is open.

Just a question, we are seeing improvement in energy prices and I was just wondering if you could give us some more color if you guys are seeing any impact on backlog or discussions with your customers?

Andrew this is Lee Banks here. I would characterize the oil and gas pretty much as we characterized it last call. So year-over-year it's still down. There is certainly is an increase in rig counts taking place, but I would characterized it as almost basically at the bottom with a lot of choppiness taken place in the market. So there is no real catalyst for a significant change at this point in time.

And just a follow-up on M&A, I have literally had discussions where people are using negative interest rates for a cost of funding for deals. What is the equation between the prices and cost of capital is working in this environment? Are people getting more reasonable given where macro is and how does it balance the fact that you can borrow at almost nothing?

Andrew, its Tom. I think the gap I was refereeing to on valuation has been more of sellers continue to use whatever crop pre 2008 mentality as far as forecasting sales based on, we buy properties that we know and understand, we buy things within our space and we have divisions that are in the same space. So we see what the market and our growth rates are and typically there has been disconnect in that. I see that disconnect getting closer which allows things to be more actionable, now your point as far as how we decide to look at the financing side of things, we’re disciplined, we do a disconnect cash flow, we have a certain discount rate that we look at. We have returned criteria's that we considered. And this is all to the benefit of creating value for our shareholders and how we look at that analysis. I think we are very contemporary, we try to look at that in the current environment, so it will be reflective of what's going on in the real world. So I think we will continue to do that robust review.

Thank you, very much.

Thank you. Our next question comes from the line of Jamie Cook with Credit Suisse. Your line is open.

Nice quarter. Two questions. One, Tom or Jon, I'm just trying to one, get a better understanding of the margin guidance in International given the performance that you put up in the first quarter given that you actually had a sales decline and your sales for the year are assuming positive growth. So I would assume you would get more leverage there. So if you could just give a little color there. And then my second question is just on the order front, I guess I was pleasantly surprised that North American declines are lessening and we saw another positive order number out of international on a tougher comp. So can you give a sense of your comfort level that the OE channel is clear or when North American orders should start to inflict positively? Is that in the second half of the year? And then whether you expect the strength in international to continue or when that starts to inflect even better? Thanks.

Yes, Jamie. A quick answer from me, this is Jon on the margin guidance here for international. We did it up 10 basis points, we are showing as we made in commentary, a little bit of a better overview in the Q1 and guidance going forward there. We see great progress as a result of our restructuring actions and our simplification ability here in the company wide internationally also. And so we found it was prudent to just move that up 10 basis points and we are really pleased with how we are performing there.

But, Jon, your margins in the remaining nine months of the year implied margins are lower than the first quarter, but we’ll get sales growth?

Well, what we are going to do there is that as we look at the mix as the year goes on Jamie, we have a very slight change in the mix going forward here. So we are trying to make sure that we get the best guidance out there. Please keep in mind that there are some seasonal impacts here for going forward here that we are going to see in our Q2, that’s kind of indicated in our guidance too. And that one have an impact on the international margins in our Q2 and as typical in that beginning up our Q3 also.

I'm sorry. What is the mix issue? Is it just more OE or can you just give color on that?

Well, it would be more of an ability as we look at some of the in rows that we are making and some of our businesses in Asia as well as in Europe making new wins getting more business and we are seeing good increases in our sales there for as -- much better than we had projected and that is really helping us to get more business and -- but that OE versus the aftermarket mix here is having a very, very slight impact.

Okay sorry, then just a question on the order inflections for North American International?

Yes Jamie, it's Lee. I am going to answer your question and pivot on that too, and just give some color on the markets around the world. I think it's important too, for just everybody on the call to just go back a quarter and how we characterize the micro environment as we gave guidance in FY17. And what we talked about was basically we figured this to be a year where most of our market declines that we saw when we decelerate and eventually make it back or close to the flat. And we forecasted growth to be soft in Q1 as you remember, essentially flat in Q2. And then we’d see some small organic growth in year-over-year basis in the second half of the year. And we gave guidance last quarter, we put the markets in three buckets positive which would be positive year-over-year growth for our FY17, neutral and then -- which would be neutral and then negative. So it really hasn’t been much change from any of that. When I think about positive, we’re still bullish on aerospace, we talked about refrigeration, air conditioning, semicon, and telecom. We continue to see strong activity in all those areas. On a neutral front, we talked about automotive, we talked about power generation in rail. And I think the one thing that we talked about, which it really was a positive in our mind that we saw distribution moving to neutral, and what we see, we’re on track to do that. And I’ll comment on North America too for you when. And then negative year over year, which is consistent, it is decelerating for sure. But whole natural resource and markets construction, farm and ag, forestry, marine, mining, and oil and gas. All have -- still have headwinds to…

Okay. Thank you. That was very helpful. I will get back in queue.

Thanks, Jamie.

Thank you. Our next question comes from the line of Ann Duignan with JPMorgan. Your line is open.

Can we just take a step back for a moment. I missed what you said about Turkey. Did you say Turkey was improving or Turkey was a bit of a headwind? You were talking about political activity.

I was a little bit of disruptive there when all the political unrest was taking place, but it appears to us to be getting back in line and it was really some distribution business that went soft on us for a period of time.

Okay, that is helpful. And then Lat-Am orders accelerating. Can you just talk about where exactly you are seeing the demand? Is it distribution? Is it truck? Just a little bit of color in terms of specifically by market or by region?

Yeah, I mean these are all very low level. So I don’t want to mischaracterize what’s happening there, but truck has been positive, construction equipment and really farm and ag has been the positive.

Okay. Thank you. And then just a follow-up on your guidance. The dollar has strengthened against the euro by 4% since the end of the quarter. And I know you said you expect your outlook based on September 30 exchange rates. If you were to do your exchange rates as of today, would you have changed your revenue guidance?

Ann this is Jon. I think yes I mean given that track and we have a pattern of a going through and using September 30. We will see how that kind of plays itself out for the balance of the year, but with the strengthening the dollar today I think that it would have an impact on the guidance very slightly.

Okay, I appreciate it. I will get back in line. Thank you.

Thank you. Our next question comes from the line of Joe Ritchie with Goldman Sachs. Your line is open.

First, I guess my first question, there has been a lot of concern especially as we have been exiting September that things in Industrial have started to get a little bit worse. And so I'm just curious whether you can provide any color on how things trended in the quarter and specifically that back half of September which has been a hot topic of conversation with folks?

Joe its Tom. So through the quarter what we saw was that North America orders get less negative, which is a good thing and seeing it progress sequentially that way to the quarter. Internationally and aerospace we are relatively consistent through the quarter. In October we haven’t seen I think that’s unusual and October is consistent with what we’ve put in the guidance.

Okay. Helpful, Tom. And then maybe just given that the earnings number came in a little bit better than expected, Tom, you kind of kept the guidance range wide for the year. I think historically you guys have kind of narrowed in the first quarter. Just curious what your thoughts were around that especially just given the fact that order trends have gotten a little bit better?

Yes, two things. One and maybe I will talk about the width of guidance, maybe people didn't pick up. We start -- we did this year in August different than what we have done historically. If you go back and look at our August guidance typically had a much wider range, so we started off the year with a more narrower than traditional range in August and we just kept that the same for the third quarter. So that part of it is really the starting point. And as far as keeping it consistent, when you look at what happened to the quarter, so we met the guide at the operating income level and the good thing about what happened in the quarters is we had slightly less sales, but we had better operating margins so we ended up delivering the operating income to our guide which was a testament really to the team around the world doing a fantastic job on that. We got some help below the line with some discrete one off things that are not going to repeat. So we felt that with the mix holding it flat made sense and holding it flat especially in today's environment with the macro environment being I would still say fairly uncertain, but we are encouraged with the fact that our orders turned positive. I would like to see a little bit more data before we get too far ahead of ourselves.

Got it. That makes sense. Maybe one last follow-up and this is specifically on the below the line items in the guide. I know you guys made a voluntary pension contribution. I assume that was going to be a little bit of a tailwind to your earnings number for this year, but it looks like your corporate number has gone up. And so what is the natural offset there?

Yes I think the -- first of all it’s not a big tailwind, but it is a slight few cent tailwind there with that additional contribution that we made. Going on below the line, what would be going the other way as Tom has talked about and many of our different venues over the last several quarters. Our investments in R&D, our investments in ecommerce, our investments in IOT, and the kinds of things that we needed to in order to improve on our well customer experience is really driving the additional expenses here that are helping to offset that $0.05 or so impact that were getting from the additional pension contribution that we made. So I hope that helps you Jon.

It's helpful Jon. Thanks guys.

Thank you. Our next question comes from line of Andy Casey with Wells Fargo Securities. Your line is open.

On the quarter could you give a little bit more color on the benefit to operating profit from restructuring and simplification?

Andy, this is Tom. Maybe I will start strategically and I will let Jon add with the details in the quarter. But with simplification, the strategy here is really there is four elements of it and we’ve have a focus I would say initially, if you would envision simplification as kind of being an iceberg, the tip of iceberg was division consolidations that was kind of the natural thing out of the gate that we have did. But the bigger part of simplification was underneath that, it's going to product line complex, revenue complexity, organization design work, process changes that we’ll do related to that revenue complexity and there is good old-fashioned bureaucracy. So we are very encouraged because if you remember simplification is geared more at the strategic SG&A type of restructuring. So we made a lot of progress, but I think this is very early days and that’s a part of why you have seen from an operating margin standpoint why we perform so efficiently in the last several quarters, and why our decrementals have held up so well. But specifically within the quarter Jon has something more to add on that.

Well the only thing that I would say on specifically in the quarter here is, we had $0.06 in restructuring that we actually book. We are going to see about -- we are maintaining our right guidance for the year and we are maintaining our saving that we have projected when we put our guidance together which is about 20% of the savings that we are going to get in the first half for the year. So it kind of came right in along with our expectations, our actual restructuring that we booked in the quarter was a little bit lighter, few cents lighter than what we have projected in the guidance, it's actually $0.03 lighter than what we have projected in that guidance. But we are very pleased with our progress and we are maintaining that projection through the balance of the year.

Okay, thanks, Jon and Tom. If I step back a little bit from the quarter and look at the 2020 goals, you have mentioned confidence in achieving those. If I just isolate the 17% operating margin goal, can you comment on whether you can get there if the market stabilization happens but the markets kind of stay flat after that? Or do you need some end market growth in addition to the 150 basis point outgrowth that you are targeting?

It's Tom again. So what we project including the 150 bips greater than the market is a 1.5% CAGR. Now remember the CAGR starts in ’15, so it went down from ’15 to ‘16 which is why that doesn’t sound like a really big number. So we go down because ’15 all the natural resource that dollar but then ’15 to ’16 flatting from ’16 to ’17 and starting grow by -- this time we get to FY20. Our expectation is to grow 150 basis point faster in the market based on FY20 as an exit rate. When you do the CAGR through that period of time it's 1.5%. So as a background, as long as the CAGR from ’15 to ’20 is a 100% CAGR we think we can get there 17% operating margin. Obviously if it’s lower than that, that’s does going to put challenges on it. But I think that’s a reasonable expectation given the macro environment, and our goal to gain share and all the other strategies we got around, the Win Strategy to grow fast in a market. So I think that’s fairly reasonable and we feel very comfortable that we can pull that off.

Thank you. Our next question comes from a line of Joe Giordano with Cowen.

We have kind of touched on this but with the orders in North American Industrial getting slightly better on a comp basis, but the revenue was touched a little bit lower like 40 bps, did the order patterns even though it improved come in a little bit lighter than you might have thought?

Joe, this is Tom so the sale gap that we have, which is very slight impacted, our guide around $40 million was pretty much equally dispersed between the three reporting segments, aerospace North America and international. So for Aerospace, it was little bit of biz jets softness helicopters, for North America a little softer, and heavy duty truck, automotive and little bit in the general industrial. Then international is mainly a little bit lighter in the Europe, then we had thought. But when you put it all together and based on their order trends that we’ve see and in fact that order trends are moving in the path we had thought they were going to go, we are encouraged, which is why we left the sales guidance flat for the full year.

I guess I was just referring to just on the sales guidance for North America, was touched down a little bit from prior. And orders seem to be getting a little bit better so I didn't know if that specifically -- if the cadence there was a little bit different than you might have thought?

Now these are only slight differences, Joe. We are only down a total of -- for the time period of 19 million for the year going forward were not down, all that much. And so this is us going through each one of our end markets, each one of our business pulling them all together and then coming up with some guidance that makes sense. But I would not read anything into that. Our orders are trending, just the way that we thought that they would. And so therefore we are making just very slight change in the sales as we’re projecting here in the guidance.

Fair enough. If I could just switch quickly to Aerospace for a bit, you mentioned the margins suffered a little bit from development costs. Can you maybe go into a little detail there? And then just two quarters in a row there 14% order growth and how much would you attribute that to comps getting progressively easier or are you seeing some real strength there?

Well first on the development cost, I think from time to time, it’s very hard to project these quarter by quarter here and so these are more timing issues than they are anything else. Now on the 14% for two quarters in a row. I want to again -- as you know and everybody on the call knows, we are reporting these numbers because it’s long cycle business at a rolling 12 months average. Now the long term growth rate that we can expect is what we’ve seen almost in the Q1 from aerospace there sales up 3.1%, and our long term growth rate with them is going forward is going to be in the 4% range. And that is something that overall a next 3 or 4 or 5 year timeframe, we feel very confident in saying. So I want to just caution you that to not expect a 14% increase going forward. This has to do with the lumpiness of the orders and how they come in from our military and commercial customers. And the long term prospects are fantastic, but they are not at translating to sales at a 14% per year annum rate.

Thank you. Our next question comes from the line of Stephen Volkmann with Jefferies. Your line is open.

Just a couple of quick follow-ups. I think, Lee, when you sort of went around the horn on all the end markets, I didn't hear you mention anything regarding distributor inventory levels and maybe stocking is kind of waning or something, but I don't want to put words in your mouth. Anything to comment on there?

Steve, I don’t think it’s a big issue, I mean I’m sure there are some pockets out there, that aren’t apparent to me. But by and large that’s not something when I talk to the channel people that we’re worried about. I think a lot of that has worked its way out.

Okay, great. Maybe for Jon, it feels like we are sort of tweaking down the guidance I guess for fiscal second-quarter a little bit. Correct me if you disagree, but is there anything to call out for modeling purposes, any kind of below the line item stuff that maybe bounces back or how do we think about that?

No, you’re right. I mean I think if there are some onetime events that Tom was talking about that happened in Q1, that was kind of good news for us, that are not going to repeat in Q2. You’re right, your observation is correct, it’s been tweak down just slightly. And there are no other new in different types of activities that are occurring here that would want to call out in a call like this. I think it’s a normal cost structure. Our cost structure is getting better, our volume is following a long our orders. Our orders are coming in the way that we had projected and so we are just a slight adjustments here for the slight bits of a good news here that we got in Q1, especially below the line.

Great. That is all I have got. Thank you so much.

Thank you. Our next question comes from the line of Jeffrey Hammond with KeyBanc. Your line is open.

Just back on simplification and the division consolidation, I mean you guys have done a great job early on. But Tom, you mentioned a lot of runway ahead. Can you maybe just speak to what are the really big opportunities as you go forward? And maybe along those lines just, Lee, you touched on international distribution maybe just expand on what you are doing there?

So Jeff, its Tom. I’ll start with the simplification and Lee can talk about international distribution. For us I think the biggest pull in the tent on simplification is the whole revenue of complexity and when you look at our divisions and you do a histogram of their sales and you look at that last couple of percent of revenue it has a significant, and I would underlying significant amount of part numbers, quote activity and SG&A that’s tied up in a relatively small percent of revenue. Now, we don’t want to walk away from that, we want to do it significantly more efficiently. So that’s a big element and because of the size of the company and then just the sheer magnitude of part numbers, that is something that will take time, but it’s going to be probably the biggest contributor to savings in the future on simplification. And we just now started scratching the surface of that. Related to that is organization design and process. So as we go through their product line complexity and simplify it, its old 80:20 type of concept. We are going to change organization design and processes associated and there will be speed, efficiencies, cost, et cetera. And in general an improvement in the ability to serve customers and ease of doing business with us, that’s the other big part of the simplification is, is to make it easier to business with Parker. We’ll look at traditional things in organization design like span of controls, number of layers, all those type of things then we will look at good old fashioned bureaucracy which Lee and I talked about it in the past, if you were to do our -- what used to be called internally in the Company, the Black Book of process which is our annual planning process. It was a process that would take 5 months, 20 financial schedules and literally thousands and thousands of people hours tied up in that process and we drove that down to eight weeks, eight schedules and significantly freed up time for people. So those are just an examples and color on that. We’re early days in this, but I think I would say it's got great momentum in the Company. So I’ll let Lee take over on what we’re doing on distribution internationally?

We have talked I mean many times that our distribution network is our greatest off-balance sheet asset that the company has and we have talked about North America being the gold standard in terms of how we compete and how we get to market. And when we’re putting the new Win Strategy together, although we had done a lot, we were cognizant that we still had not built this network out at the rate that we wanted to throughout the rest of the world. So as we rolled up the new Win Strategy we put a team of senior executives that know how to get this done, focusing on emerging regions in Europe and focusing on Asia Pacific. And we are really encouraged by the progress we are making 12 moths to 15 months into it right now. So very positive.

Okay, thanks guys.

Thank you. Our next question comes from the line of Jeffrey Sprague with Vertical Research Partners. Your line is open.

Just a couple of questions of clarification first. I just wanted to make sure I had straight what Jon said about restructuring. You made a comment about 20%. I don't know Jon if you were saying 20% of a restructuring benefits are in the first half. If you could clarify that and then just a couple of follow-ups.

No you got that right, 20% of the savings that we get from the restructuring that we’re incurring for this year we will get in the first half, so yes.

And then on Aerospace, obviously with these wins and orders you do have this development cost bubble. I’m wonder if you could just give us some sense of how elevated your R&D or E&D is today versus where you expect to see it say in that 2020 horizon?

We are at the round numbers at about the 8% level today. We have as you know moved it down from 11% a few years ago. So the 7% to 8% range is the range that historically is a number that we are the most comfortable with. But overall our level of development cost are aligned with what our expectations are of our customers. If there is new and different types of requirements where we are the technical experts then we will be in many cases the designer of choice and that so will fluctuate, but for right now given today's environment 7% to 8% seems to be a right level for us and we are at about 8 right now. So if in could just have one more question and we will wrap it up for today. I hope that answers your question, Jeff.

Our last question comes from the line of Alex Blanton with Clear Harbor Asset Management. Your line is open.

Just a question on the CapEx. The first quarter you had $32.5 million which is about 1.2% sales. That is about half of what you normally do which in turn is half as a percent of sales of what it was 10 years ago. What do you expect CapEx to be for the year? What percentage of sales?

It will be in the range of 1.6 to 2.0 for the year. So 1.6 to 2.0 CapEx as a percent of sales.

Okay, so that is going to be a pretty low figure compared with what you were 10 years ago.

We are not nowhere near as required capital that we did 10 years ago Alex, and that 1.6 to 2.0 includes a lot of reinvestments into the company, but no you are right we are nowhere near where we five years ago, let alone 10.

And that is mainly due to the lean efforts, correct?

Yes, it's hard to articulate on the phone call like this, how much lean has transformed our company. And when you add on to that all these affords that we are going through from a business simplification standpoint and how that’s impacting our CapEx plans, we are just seeing a lot of great momentum from that. And so yes, that’s correct.

So is it just a matter of raising your margins, [indiscernible] profits, the higher profits [indiscernible], when it comes to allocating it to CapEx and [indiscernible] acquisitions?

Yes, we are from a CapEx standpoint we feel very good about our positioning there and of course we are discipline, we are using in a IRR approach on that just as we do on the DCS from an acquisition standpoint. And we remain disciplined on all of our right capital allocation plans. And that’s our goal, as Tom said we want to be great deployers of the cash going forward. So I hope that helps you out, Alex.

I just have one suggestion on the slide that you list your cash flow -- I guess it is slide number -- cash flow from operating activities, Slide 12. I would give a simplified cash flow statement actually there. You are not presenting the individual components, the major components of cash flow and I realize that is in the cash flow statement in the operating statements, but it would be very helpful to have it right here on this slide so people could see it and wouldn't have to refer back to the cash flow statement. Just a simplified one showing the CapEx, showing changes in inventory and the working capital and so on.

Okay, well that’s a [multiple speakers] yes, no good suggestion Alex, we will definitely take that one on and take a real hard look at that for you and all of our investors. So I think with that.

You gave the number when you were talking but they are not on the slide.

Okay, all right. We’ll try to be a little bit clearer next time. Thanks Alex and with that I think this concludes our Q&A earnings call. I want to thank everybody for joining us today; I want to just to be assure everybody that Robin and Ryan and will be available throughout the day, to take your calls, should you have any further questions. And thank you and have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program, and you may all disconnect. Everyone have a great day.