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Executives

Pam Huggins - VP and Treasurer

Don Washkewicz - Chairman, CEO and President

Tim Pistell - EVP and CFO

Analysts

Jeff Hammond - KeyBanc Capital Markets

Jamie Cook - Credit Suisse

Alex Blanton - Ingalls & Snyder

Henry Kirn - UBS Securities

Mark Koznarek - Cleveland Research

Eli Lustgarten - Longbow Securities

Ann Duignan - JPMorgan

Joel Tiss - Buckingham Research

Terry Darling - Goldman Sachs

Daniel Dowd - Sanford Bernstein

Robert McCarthy - Robert W. Baird

Parker Hannifin Corporation (PH) F1Q09 (Qtr End 09/30/08) Earnings Call October 16, 2008 10:00 AM ET

Operator

Good day, ladies and gentlemen and welcome to your Q1 2009 Parker Hannifin Corporation Earnings Call. My name is Sandy and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions).

I would now like to turn the presentation over to your host for today's conference, Ms. Pam Huggins, Vice President and Treasurer. Please proceed.

Pam Huggins

Thank you, Sandy. Good morning, everyone. This is Pam Huggins speaking, as Sandy just mentioned. I would like to welcome you to Parker Hannifin's first quarter fiscal year 2009 earnings release teleconference. Joining me today is Chairman, President and Chief Executive Officer Don Washkewicz; and Executive Vice President and Chief Financial Officer, Tim Pistell.

Before getting into the earnings release, let me address a couple of administrative matters. First for those of you that are online, you can you follow today's presentation with PowerPoint slides that have been presented and for those of you not online, the slides will be posted on the Investor Relations' portion of Parker's website at PhStock.com.

Second, as is customary, I would like to call your attention to slide number two which is the Safe Harbor disclosure on forward-looking statements and ask that you read this statement in its entirety.

Third, moving to slide number three, this slide is required indicates that in cases where non-GAAP numbers have been used they've been reconciled to the appropriate GAAP numbers.

And now moving to slide four, the call will be in four parts today. First Don Washkewicz, Chairman, President, and Chief Executive Officer will provide highlights for the quarter. Second I'll provide a review including key performance measures of the quarter and of course concluding with a revised outlook for fiscal year 2009.

The third part of the call will consist of our standard Q&A and as a reminder please ask one question at a time. My goal is to keep this call to one hour, so please be courteous and get back into the queue if need be. And for the fourth part of the call today, Don will close with some final comments.

At this time I'll turn it over to Don and ask that you refer to slide five titled first quarter highlights.

Don Washkewicz

Thanks, Pam and good morning to everyone on the call this morning. Just wanted to make a few comments and then we'll turn it back over to Pam for a little bit more detail of the quarter results.

First of all, I'd just like to say that we're extremely pleased today with the results that we delivered in the quarter. We posted record sales of $3.1 billion, which is an increase of 10% over last year's quarter. Particularly impressed and pleased with the organic growth which was strong at 4% in the quarter.

Earnings and earnings per share for the first quarter were records for the company. So we've had a stream of records here for the last with earnings per diluted share increasing 13% to $1.50 a share and cash flow from operations was about 10% of sales or about $307 million.

Little bit about Aerospace, we delivered another strong quarter there with sales increasing at double-digit levels for the second consecutive quarter in Aerospace, and you're certainly all aware of the Boeing strike and that continues to impact our Aerospace business. That strike, our shipments basically stopped in late September, about September 20th and of course as that strike continues on, that's going to continue to affect subsequent quarters going forward.

You'll note that early in the first quarter, we announced another major long-term contract and that was with Bombardier. That's $3.5billion contract for development of fly by wire systems for them. If you look over the last two years now, we have brought in about $10 billion in new business in Aerospace contracts over that last two-year period of time. So we're very excited about the long-term prospects of our Aerospace business.

This here, a little bit about acquisitions, we acquired four strategic acquisitions this year which will contribute sales of $460 million and they're expected to be accretive to earnings.

So we're pretty much on target to hit that 5% of sales number we said that those are basically our internal target here, 5% of sales coming from acquisitions. That would imply that we'd have to do about $600 million a year at the current run rate of $12 billion for the company.

So we're doing pretty well on that metric as well. Also during the quarter, we invested $414 million to repurchase Parker common shares during the first quarter and we announced a dividend increase for the 52nd consecutive year.

Just a couple of comments on markets, I am sure there will be more comments that we'll make later on, and this was in the press release. The total orders are up 1% for the quarter versus a year ago. North America grew a modest 2%, while trends in Aerospace and CIC were stronger with increases 9% and 5% respectively.

Our Industrial International segment has continued to weaken and has been weakening now over the last several quarters. We've been watching that and reporting on that to you as that occurs and right now the international segment had declined 4% in the recent quarter over the same quarter last year.

Distribution being one of the strongest parts of our business remains stable, which is about half of our Industrial business and this continues to be a strength for us going forward. Some North American OEM markets continue to be weak. We've talked about these in the past. They're automotive, heavy-duty truck, refrigeration, residential air conditioning, light construction equipment and semiconductor and so forth.

Some of these major OEM segments have been really soft for quite some time now and eventually they will turn but we're doing I'd say extremely well in light of the fact that many of these segments are down and have been down for quite a while.

Given this economic backdrop, especially in the latter part of our fiscal year, we have decided to revise our fiscal 2009 earnings guidance downward by roughly 5% to a range of 535 to 575. As we have said in the past and will continue to do this in the future, we will try to give you an annual guidance, and we'll try to give you an update on that annual guidance on a quarterly basis and that's what we're doing today.

I think with everything that's happening in the environment out there today, it's really, really tough to predict what's going to be happening next calendar year, certainly. So we're doing our best here to give you the best guidance we have and of course this may ultimately prove to be conservative, but with the swiftly changing economy, I want to stress that like everyone else there's a higher level of uncertainty in the second half of our fiscal year. So we'll keep you updated as each quarter goes by.

The other thing I’d like to say is just a little bit about the win strategy. Much of the work that we've completed under the win strategy over the past seven years was really designed to help the company perform better specifically in a downturn that we're experiencing right now.

So for instance, today we have exposure to a greater number of end markets than we had in the past which mitigates our downside risk and increases our presence in many or less cyclical markets like energy, life sciences, biopharm and many others that we've entered into over the last several years.

We also have a much better geographic balance. I think many of those on the call will remember the days when we used to have 70% of our industrial business in Industrial North America located in North America and now 50% of our Industrial segment revenues are being generated from international markets, so that's a much better balance than we ever had in the past.

Our cost structure also is much more flexible than in the past and we continue to focus on the lean enterprise activities that we launched seven years ago which will continue to help us through this period, and other strategic initiatives that we've talked about in the past. Keep in mind that the activities that are going on to prepare us for this period of time have really started seven years ago, and with a lot of hard work and effort to get us to where we are now and that's the reason why we are reporting today record quarters.

As a result, Parker expects to perform at a much higher level throughout the downturn that what we had done in the prior period.

Right now, I'm going to turn it back over to Pam and we'll talk more about these in a few minutes.

Pam Huggins

Thanks, Don. If you all reference slide six at this time, I'll address the earnings per share for the first quarter. You can see that it's $1.50 and this represents a 13% increase over the $1.33 in the fourth quarter last year – the first quarter last year.

Now, if you move to slide seven, I’m going to outline what happened in the first quarter. Earnings per share and this is on a consolidated basis versus the same quarter a year ago. You can see that a 10% increase in revenues, with double-digit increases in all segments, except CIC.

Improved selling, general and administrative expenses as a percent of sales declining to 10.9% from 11.7% as a result of lower compensation incentives and lower outstanding shares as a result of $414 million in purchases this quarter in the open market. Offsetting some of these positive items were lower gross margins of 20 basis points, and this was due to a slight lag in pricing as we discussed on the last quarterly call.

Higher interest expense, as a result of higher debt due to acquisitions and of course the repurchase of the shares that I just mentioned. Higher other expense and this is mainly due to an investment for tax purposes that was offset by a tax credit. And then of course higher taxes due to increased income and then a higher tax rate in the quarter as a result of discrete benefits. However, you will see that the tax rate for the year has gone down from 30% to 29%.

So just to summarize these puts and takes for you in the first quarter; higher operating income contributed $0.14, lower corporate G&A expenses contributed $0.02, lower other expense contributed $0.02, and of course less outstanding shares contributed $0.05. And these positive items were offset by additional interest expense of $0.02 and of course higher taxes of $0.04 that I just mentioned.

Now, of course if you net all of these items, you can see that the $0.17 in higher earnings were of course quality earnings for the quarter are mostly coming from segment operating income and clearly a good performance in the quarter.

Moving to slide eight at this time and addressing sales, you can see that sales for the quarter increased 10% to $3.1 billion, and this is up from $2.8 billion last year. And of this 10% sales growth, 4% is organic, 4% is the result of acquisitions, and 2% is the result of currency which is mainly the Euro.

Moving to slide nine, the 10% growth in the quarter, again is the result of double-digit growth in all segments except CIC and Aerospace led the way with a 9% organic growth in the quarter. Acquisitions added $125 million in the quarter.

Moving to slide 10 and focusing on segments starting with North America, most notable on this slide is that in spite of several soft markets that Don mentioned, North American first quarter sales are up 10%. Of course, 8% of that is from acquisitions and 2% is core growth. So in spite of a challenging North American environment, operating income for this segment is ahead of last year at $160 million versus $155 million a year ago.

Moving to slide 11, now I'll address the industrial segment. Moving to international, here you can see that currency is becoming less of a contributor to sales of course with the strengthening of the dollar; 4% for the quarter, this is versus 15% last quarter. Organic growth was 4%, up against tough comparisons a year ago, however. Acquisitions added 3% and margins as a percent of sales remained at a high level at 16.6% versus 16.7% a year ago.

Moving to slide 12, addressing the Aerospace market segment, you can see that sales increased 12%. Margins increased 80 basis points and this is mainly due to lower research and development costs than anticipated in connection with the new program wins in that first quarter.

Slide 13, Climate and Industrial Control segments, as mentioned previously, softness in North American automotive, heavy-duty truck and residential air conditioning, that's what affecting the segment. That's what we have been talking about for several quarters. So, as a result sales are flat organically for the quarter and margins are flat year-over-year at 6.1%.

So, at this time moving quickly to orders, orders for the quarter, slide 14. These numbers just as a reminder, these numbers represent a trailing three month average and are reported as a percentage increase of absolute dollars year-over-year, excluding acquisitions and currency except for Aerospace and Aerospace is reported using a 12-month rolling average.

As you can see from the slide, orders are up 1% for the September quarter just ended and this compares to 8% last quarter and 7% a year ago. North American orders for the quarter up 2% year-over-year, and last year at this time orders were flat and this 2% compares to 4% sequentially from the June quarter.

Industrial International orders declined 4% and this is up against a positive 19% last year. The negative 4% for this quarter compares to 8% last quarter and is partially due to a tougher comparison from June to September last year. Aerospace orders up 9% for the quarter, which compares to 23% last quarter and 12% a year ago.

And then in the Climate and Industrial Controls segment, orders are up 5% and this is up from a negative 7% last quarter and a negative 13% a year ago. This is partially due to easier comparisons and increased business in air conditioning.

Moving to the balance sheet quickly, you can see that Parker's balance sheet remains solid. Cash on the balance sheet at quarter end was $608 million. $569 million in commercial paper was outstanding. Day's sales and inventory increased to 67 days from 61 last quarter, and accounts receivable in terms of DSOs 49, a four day improvement over last year. With respect to accounts payable it was a use of cash, but we do see some opportunity here.

Moving to slide 16, operating cash flow for the quarter was $307 million and of this $307 million, $98 million or 3.2% of sales was used in connection with capital expenditures. Acquisitions consumed another $12 million and just as a reminder, the three acquisitions that closed October 1st are obviously not included in these numbers. They will be included in next quarter numbers.

Dividends were paid in the amount of $41 million and the remaining cash in combination with the issuance of commercial paper in the amount of $414 million was utilized to purchase shares in the open market.

Moving to slide 17, you can see that the debt to total cap ratio is 35%, however on a net basis it's 29%. And I will just give you the updated guidance, which is shown on slide 18 through 20. On slide 18, the guidance for sales and operating margin by segment have been provided. On slide 19, guidance has been provided for the items below segment operating income and then of course on slide 20 the guidance is summarized on an earnings per share basis.

As you can see from the slide the guidance for fiscal year 2009, it’s projected to be 535 to 575, as Don mentioned. This assumes a 46%, 54% split first half versus second half respectively. And please remember that the forecast includes acquisitions that have closed and excludes any acquisitions that may be made in the remainder of fiscal year 2009.

The revised guidance assumes the following; sales growth approximating 0.8% to 1.2%; segment operating margins as a percent of sales in the range of 13.3% to 13.7%; corporate administration costs of approximately 1.5% of sales and interest and other expense in the range of $175 million to $192 million and then of course a tax rate coming down from 30% to 29%.

At this time, we will begin our regular Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Jeff Hammond of KeyBanc Capital Markets. Please proceed.

Pam Huggins

Good morning, Jeff.

Jeff Hammond - KeyBanc Capital Markets

Hi, good morning. Just wanted to get a little more color within the order rates in international, maybe just parse out, where you have seen the greatest decline or maybe just give us a little more color, Europe versus Latin America versus Asia. Then within the international, revenue guidance, can you just walk us through the moving pieces of [recoming in], FX dynamic and how the base business has moved?

Pam Huggins

Okay. I will start here. Let me give you a little bit of color on the orders just to begin. First of all, just walking you through the quarter which I think you have some interest and seen how that all played out. When you look at our orders, July came in pretty good, okay? We had a fairly good size drop off in August. Okay? When you get behind that drop off in August, you find that it is in Europe and Asia both, okay?

What is happening there is some of the exports that are going out of Europe into Asia were slowing. We were not alarmed at that time because August is really a tough month for Parker Hannifin anyway. Everybody is on vacation over in Europe. We loosed a lot of absorption in our factories and so August is one of those months, very difficult to see what is going to happen or play out in the rest of the quarter.

So at that particular time looking at it we said okay, we will wait and see how September comes out. Well, September did come back. September was much stronger than August but of course it was not enough to make up for the August downfall. So we know that Asia had some play in that with the Olympics. We think that some of the exports going out of the Europe were not as strong. We have said on the last call that we thought there would be some impact from Asia.

So, when you look at the regions around the world, you will see that of course Southern Europe is very weak. You look at Italy and Spain and that has been weak. I think it hit Parker later than what it – most people were talking about it earlier than Parker.

Latin America continues to be very strong. Asia-Pacific, looking forward, we think that will continue to do well, even though it was very soft in August. Western Europe, obviously you are seeing some slowing in some markets. You are seeing some slowing in Russia for example. When you look at Europe at some of the markets that are slowing, truck for example construction is just a couple to name a couple.

Jeff Hammond - KeyBanc Capital Markets

Okay. Then if you would hit on the moving pieces within the international revenue guidance?

Pam Huggins

Okay. You are talking about organically versus acquisition and that type of thing?

Jeff Hammond - KeyBanc Capital Markets

Yes, just acquisition FX and base business.

Pam Huggins

Okay. Let me just walk you through that a little bit. If you look out through the quarters for fiscal year 2009, you can see that in the first quarter we had 11% in international growth, we had about 3% from acquisitions and we had about 4% from currency. Going into the second quarter – well let me address the half, I think that might be a little easier for you, okay?

Jeff Hammond - KeyBanc Capital Markets

Okay.

Pam Huggins

First half international, 6% we are looking at 7% acquisitions and about 4% currency. So when you really look at the base business, you are looking at downturn of about 5%. In the second half, looking at international, we have a negative 5%, okay? We really do not have currency built into that for the third and fourth quarters. We have international down about 13% base business and about 8% coming from acquisitions. Does that help?

Jeff Hammond - KeyBanc Capital Markets

Yes, that is helpful. Thank you.

Operator

Next question comes from the line of Jamie Cook, please proceed.

Pam Huggins

Good morning, Jamie.

Jamie Cook - Credit Suisse

Hi, good morning. Just a follow-up on the international business, my question is more around the margins. It seems like as we look out over the next year, your base business and international is going to start to drop to double-digit range yet I am surprised as I look at your margins in international they are still showing well above the North America. Can you just walk me through your thoughts there?

Tim Pistell

Jamie, this is Tim. Some of the wonderful dynamics in the international for us is that it is we see international as it is made up of a whole bunch of different pieces here. We have learned that in executing properly and again that we track some higher margins. So I think that the Latin America, we will say it is very strong and running at a high rate, will continue to do so. Asia, likewise, is a good market for us and performing pretty well and we expect that to hold up pretty well.

Europe, generally, now that we have gotten into this new territory and the way we have done it, we are hoping that we can preserve those – a little more strongly going forward too. So it is really a mixed bag across the board, but Latin America and Asia as we have said for years have always been good for us and higher margin and they remain the stronger. So, we will see the fate in Europe, but we think we will hold up pretty well.

Don Washkewicz

Jamie, there is one other point that I would make is that the weakness that we are seeing in some of the regions are from the OEM side of our business which tend to be the lower margin side of the business and the distribution as I mentioned earlier is still pretty solid out there, really worldwide. We have worked hard over the last seven years building that aftermarket and that is a higher margin business for us. So, I think when you look at the mix, with the mix changing that is going to have an impact as well.

Jamie Cook - Credit Suisse

Okay. That makes a lot of sense. Thanks, Don and I will get back in queue.

Pam Huggins

Thanks, Jamie.

Operator

Your next question comes from the line of Nigel Coe of Deutsche Bank. Please proceed.

Pam Huggins

Hi, good morning, Nigel.

Unidentified analyst

This is actually Nicole asking questions for Nigel. How are you?

Pam Huggins

Hi Nicole, how are you?

Unidentified analyst

Good, thanks. Just one for you on Industrial. Could you just go through all the end market trends you are seeing there both in North America and internationally?

Pam Huggins

You are talking about in end markets?

Unidentified analyst

Yes.

Pam Huggins

Okay. If you look at North America distribution is obviously still positive for us, okay. Our Industrial business is positive for us and specifically within the Industrial business, machine tools is hanging in there, mining is hanging in there, it is more than hanging in there in North America to be honest with you.

General Industrial is doing well. Telecom and oil and gas, when you get into the mobile side of the business, believe it or not off highway construction is still doing better year-over-year. Farm and Ag, our Lawn and Turf business is doing well and then of course forestry.

Now when you move to Europe, okay, distribution again still doing well, total Industrial is doing well, the machine tools is hanging in there. Mining is hanging in there. General industrial, power gen, of course oil and gas, cars and light trucks still is up for us year-over-year and again Farm and Ag and Marine. You get Asia-Pacific; walk you around the globe here a little bit. Distribution is good.

Total Industrial is up there and the mobile business continues to be up. Farm and Ag is strong and of course industrial trucks and material handling. Then you get to Latin America and almost everything is up for us still.

Unidentified analyst

Okay, great. Thank you.

Operator

Your next question comes from the line of Alex Blanton of Ingalls & Snyder. Please proceed.

Alex Blanton - Ingalls & Snyder

Hi, good morning. Let me say, Tim, I find your guidance for this year really stunning.

Pam Huggins

My guidance?

Alex Blanton - Ingalls & Snyder

Stunning, yes, because economists in all stripes are now forecasting a very deep and long recession in the US, just published a report, where I am talking my assumption, 1% to 2% decline in GDP in the US, and who knows what outside the US and yet you have only reduced your guidance by $0.30 for this year. If we assume that there is another $0.30 for the second half of calendar 2009, that $0.60 decline is only 10%. You know in the last recession I think you were 50%.

So, I know you have explained something about, why this is, but I would like to know what your forecast assumptions are, in terms of the US economy for 2009 and also for the world economy and the various parts of it, what is built into your numbers? Are you taking the really terrible economic outlook fully into consideration?

The second thing is, because you said some slowing in Europe, I mean, it is not slowing, it is going down. Thirdly, I mean, I am talking the economy. Is there share gain going on here? Is that one of the reasons for this very small decline in your guidance, market share gains? Can you address that issue also?

Tim Pistell

Alex, this is Tim. Let me try to answer. I think fair question. Frankly, we have obviously guided down here today, we have lowered. We have very good visibility into the next quarter, which takes us out through December. We do not have that great of visibility, frankly, beyond that. I do not think any of us truly – anyone that I know of knows exactly what the world's going to be like here come next spring and next summer.

So, we have taken things down a little bit, again, reflecting what we have seen to-date and so we did decrease in the second quarter. We slightly decreased in the third and fourth quarter. As Don I think said earlier, we will update this as we go. We really do not know. I do not think anyone really knows what is going to be going on in the world come next spring and next summer.

Although we all know credit is going to be extremely tight and that is going to hurt and we will have to deal with it. So, that is what we have done and that is what we have reflected here. We do not pretend to be experts and know, frankly, what it will be like next calendar year. We toned it down some. It could prove to be conservative, but also could prove to be very optimistic. We have done the best we can.

Now, let me also address what is different at Parker because during the last recession, we had no downturn on our top line. We grew on our top line all the way through the recession, primarily driven by acquisitions. We have just done another three big acquisitions begin this quarter, who are all great franchises and added those to the family. The falloff that you are addressing which is very valid, and do not - so it was not on the top line, it was on the margin line, the income line. We have learned from that lesson, we hope and we have done a lot of things. We think in terms of diversification and also in lean enterprise that we will manage much, much better through any a decrease.

We do not think the drop will be nearly as bad in our base markets and we also feel that we are much better positioned to manage through that decrease and maintain the margins. Frankly, good visibility through December; after that Alex, we really do not know. I do not know anyone who knows.

Alex Blanton - Ingalls & Snyder

An honest answer, but what about the share gain, I asked about?

Don Washkewicz

Share gain, I will tell you something. That is up until a few months ago, there were some great opportunities. We all had too much business. If people could not deliver, they were losing and other people were gaining and I think there was a lot of that. Alex, I would now think we are in an environment whereas business drops down, everyone is going to get caught up on their past dues, they are going to fight like crazy, very difficult to take any shares at this period.

Alex Blanton - Ingalls & Snyder

Okay. Thank you.

Don Washkewicz

Right.

Pam Huggins

Thanks, Alex.

Operator

Your next question comes from the line of Henry Kirn. Please proceed.

Pam Huggins

Good morning, Henry.

Henry Kirn - UBS Securities

Good morning. You have mentioned distribution being strong globally a couple of times. Just wondering if you could talk about inventory levels at the distributors and how you see those and how much visibility you have there.

Don Washkewicz

Well, this is Don. We really do not measure our distributors' inventory at all. We never ask them about their inventory. We do not go surveying their inventory. I can just tell you that as the company has become more and more lean and as our delivery performance has continued to improve over the years that our distributors adjust their inventory based on how we respond to their orders, okay?

So I can tell you that over time, generally speaking, the distributors inventory probably has been coming down over time on a relative basis because we have been doing a better job at delivering on adjusting time basis for them and getting them the product they need when they need it.

I would not say that we have any big buildup in inventory out there in the system that has to be worked up anywhere that I know of and I would say that I am speaking pretty much globally about the distributor organization out there.

Henry Kirn - UBS Securities

If they were to choose to de-stock, how quickly could you respond to that?

Don Washkewicz

If they choose to de-stock?

Henry Kirn - UBS Securities

Right, if they choose to run with even lower inventory levels than they have today.

Don Washkewicz

What you really have to remember is that on any particular product, I can not answer for all the products because we have a million of them, but on any particular product we can respond at varying rates to restock the distributors. We deliver right now at about a 90% level line items shipped to request date so at about a 90% level.

That number is gradually going up. We used to measure parts shipped on time. We have changed it to line items because we think that is more in tune with what our customers are measuring. So as we focus on that, we are responding to the distributors on a real-time basis to their needs as they need it.

Tim Pistell

Don, if I could. Henry, this is Tim Pistell. Excellent question though, because in years gone by when slowdowns would occur, we would have stockpiles of inventory in our plants and so with the customers and so with the distributors and it was a real problem when a slowdown occurs because you had to work through the entire inventory before you are going to start producing again.

I will tell you when we go out and we visited, Don said, we visit our distributors, we visit our customers, they do not carry inventory. They are 100% dependent on us to ship what they want, when they want it and so there is no inventory out there, very little and we do not have much in our plants either. So when things slow, we feel it instantaneously and that hurts but we do not have the old problem and when things will turn around, they will come right through and it will benefit us when that happens.

Henry Kirn - UBS Securities

Okay. Thanks a bunch.

Pam Huggins

Thanks, Henry.

Operator

Your next question comes from the line of Mark Koznarek. Please proceed.

Pam Huggins

Good morning, Mark.

Mark Koznarek - Cleveland Research

Can you hear me?

Pam Huggins

We can.

Mark Koznarek - Cleveland Research

Okay, great. Good morning. I have a question about the international margin outlook; because if I understand the answer to Jeff's question a little bit earlier about what the core growth is for international, it seems like it is now down 8% and at the beginning of the fiscal year you thought core growth in international would be up 4%; so pretty big swing.

However, the margin expectations were 15.8% at the midpoint and now it is 15.2 at the midpoint. It is pretty striking. It seems like the core revenues from the international segment will be of $600 million and you in the past have talked about a decremental margin of 30% and that is getting close to $200 million of lost operating income. So, I am surprised that you will be able to maintain the margin still in the 15% range and I am wondering if you can talk about how you intend to do that. Is there aggressive cost reduction that you have now put in place that was not contemplated 90 days ago or what is really going to hold the margin up so substantially?

Pam Huggins

Well, Mark, one thing I think that people have to remember is the composition of our business is much different in international than it is ever been before. Two years ago, we did over $1 billion in business and when you look at that $1 billion of business most of it was in Europe and it was in businesses that had good margins that do not have the cyclicality that some of our other businesses had.

So, a lot of it revolves around that. I mean the composition of the business is really different. It is going to give us pretty good margins over there. We are still very much focused on the win initiatives. We are very much focused on our lean. We are very much focused on our strategic procurement and – so we do have cost initiatives that we are working on everyday with people all around the world.

Mark Koznarek - Cleveland Research

Well, I am asking specifically is there anything new that you have implemented in the last 90 days with regard to cost?

Don Washkewicz

No. Mark, this is Don. Just keep in mind that the message to the organization is pretty clear and that is that through this period that we are going through we do not want to see inventories drastically going up and we do not want to see productivity going down and so the message is you better be real time as far as adjusting to market demands. If we are real time adjusting to market demands, we will avoid a lot of the run-up and run-down crises that we go through in a typical upturn and a downturn in the economy.

So, that is really the message. Of course the obvious things we are doing everywhere around the world as far as discretionary expenditures and cost like that, I mean, these are just routine that we are cutting back, wherever we can in those areas. More importantly, we are very much focused on maintaining discipline with respect to productivity metrics through this period of time and making the proper adjustments real time, so we are not pushing out actions that we need to take right now.

Mark Koznarek - Cleveland Research

One other thing that is different from 90 days ago in international is the Legri and Origa acquisitions and that is now in your new guidance and it was not before. Are those margins substantially above 15%? Is that part of what is different now is the mix of…

Don Washkewicz

No. I would say those margins are comparable to the rest of our margins in Europe.

Mark Koznarek - Cleveland Research

Okay, all right. Good. That is helpful. Thank you.

Pam Huggins

Thanks Mark.

Operator

Your next question comes from the line of Eli Lustgarten of Longbow Securities. Please proceed.

Eli Lustgarten - Longbow Securities

Good morning.

Pam Huggins

Good morning, Eli.

Don Washkewicz

Good morning.

Eli Lustgarten - Longbow Securities

I quite have a little bit of a complicated question. If I heard you correctly during the conference call you said that the earnings split would be 46/54, first half, second half. Therefore the implication on your guidance is the second quarter will be something in the vicinity of $1.05, $1.10 or some number relative to that.

Can you carry us through how we get that big change? How much of it the adjustments to the new environment internally. In particularly can you also talk about the tax rate, the tax rate is going down at 29. I assume the R&D tax credit is helping its going to be one time adjustment. Is that still helping the second quarter more than the other quarters and is there an Aerospace catch-up in the second quarter given that you are well above margins 14.2 in the first quarter and bigger volume and in a year you are talking 13% operating margins and much lower volume games.

Tim Pistell

Eli, this is Tim. There is general market downturn for the second quarter. The second quarter always is a drop from the first quarter for us. However, we have gone ahead and built in a market downturn and that is the preponderance of it and we carried that through the third and fourth quarter.

Additionally, in the second quarter, we have the Boeing strike and some cost related around that too, which Boeing and Aerospace related, it would be a hit in the second quarter. We also have…

Eli Lustgarten - Longbow Securities

Can you offer us?

Tim Pistell

I am sorry?

Eli Lustgarten - Longbow Securities

Are you going to quantify that at all, what magnitude that might be?

Pam Huggins

$0.03.

Don Washkewicz

$0.03 on that.

Eli Lustgarten - Longbow Securities

Okay.

Don Washkewicz

Okay. The general market downturn, I tell you, is around $0.20 a hit in the quarter and we built that in for the next couple of quarters. Just as I say, general malaise in the market that enough Alex is challenging and rightfully so, we do not know, but that was what we see to-date. So it is what we put in and it is what we carried forward.

So, the Boeing and the Aerospace related is $0.03. We also have a restructuring that is going to occur in one of the segments and I am not sure. Pam, how much of that is in the public domain as to where that restructuring is going to occur. I do not think we have. So, I can not really get into that, but that is another $0.05. All right and then we do end up with a gain. We do have a pickup on the tax rate and we have a pickup on the – having done the share repurchase and that should be worth about $0.10 a quarter for us positive. Then there are some other miscellaneous items that are about a nickel in the second quarter.

Eli Lustgarten - Longbow Securities

Okay.

Tim Pistell

Against us.

Eli Lustgarten - Longbow Securities

Basically your implication is that the third and fourth quarter bounces back to basically around near the first quarter level, I mean…?

Tim Pistell

Yes, it does; which by the way would be disappointing compared to years gone by. Certainly Eli, you would expect our third and fourth quarter to be better than the first quarter and on a normal type and economy environment it would be.

So, that is what we have. Again as I told Alex, frankly, we do not know. We will know a lot more a few months from now after the election in the United States and after these markets settle down and everything else. We will be a lot smarter a few months from now.

Don Washkewicz

Eli, this is Don. One other thing to remember is that we did not put in a continuation of the Boeing strike any impact of that in the third and fourth quarters. So, if that were to continue, we are talking maybe $0.04 negative for each of those quarters in the third and fourth but we do not have that in this guidance as you are seeing it today.

We do have some in the second quarter. We are hopeful that they will be able to get this resolved. Already, it is run longer than they had in the past and they have had these issues in the past. Hopefully we will be able to get this resolved in this second quarter. If we do not, remember that we will be – this guidance will be high by about $0.04 a quarter going out.

Eli Lustgarten - Longbow Securities

All right, thank you.

Pam Huggins

Thanks, Eli.

Operator

Your next question comes from the line of Ann Duignan of JPMorgan. Please proceed.

Ann Duignan - JPMorgan

Good morning.

Pam Huggins

Hi, Ann.

Ann Duignan - JPMorgan

Could we talk a little bit about your outlook for the integration of your recent acquisitions in terms of both on the P&L and on the balance sheet and the cash flows?

Tim Pistell

Ann, this is Tim. I would love to talk about that outlook, because we have rolled out a whole – I think we have always been extremely good acquirers for decades and I think we have done a decent job on integration, but I think that we – there were occasions where things would slip through the crack. We have now introduced a whole new process and some software and some new discipline and we are very excited about it.

We – in both – all three, we actually did three; Legris, and Origa overseas and Hargraves here. I mean, we have people there on day one, welcomed them, and introduced everything to them. We have integration managers in place. Our goal is not to lose a customer and not to lose a key employee and make it as smooth as possible and it is really beginning to work. We have run it out of fuel and it is really wonderful.

So, I am very encouraged. We think that is gone very well so far. People are extremely happy to be part of the family. They now know that they are part of a big strategic package and all in all, we are very encouraged.

Ann Duignan - JPMorgan

Could you be more specific, how much did you pay for the recent acquisitions, what inventory writes up will you be looking at over the next couple of quarters? So, when would you expect the recent acquisitions to be accretive, just a little bit more granularity?

Tim Pistell

So, we expect them to be accretive right away. These were all very – margins were all very good in all three of these. These were not fixer-uppers; they were all successful, good businesses.

In terms of getting the actual entries done, the purchase accounting takes anywhere from three to six months and we do not have that finalized yet. So but we do expect them to be accretive within the year and I am sure by later in the year we will be able to tell you how much they gave us.

Ann Duignan - JPMorgan

How much did you pay for them?

Tim Pistell

So, I do not know if we have that information out now, I do not believe. We have not disclosed that information.

Ann Duignan - JPMorgan

Would it be from a modeling standpoint we should assume it is not much different from historical?

Tim Pistell

It is not much different although multiples have come down slightly; multiples are little lower the way you have been used to see them but still, these are multiples. They were good companies.

Ann Duignan - JPMorgan

Okay. On the interest expense side, you took up your interest expense on the back of these acquisitions but can you just talk a little bit about is there – did you have to pay more in terms of – for your debt or are your distributors finding any problems on the financing side out there?

Tim Pistell

Well, that is too extremes. Let me try to deal with both of them. In terms of these acquisitions, we did most of these on commercial paper with their Single A, on our A-1, P-1. We have had no liquidity issues and we actually did very well in acquiring the euros necessary to do the two big deals in Europe. Right now, it is all sitting out there as commercial paper and it is at a level that is within our range of how we like our debt portfolio to look.

So, the commercial paper for us had been running anywhere in the 220 to 240 basis points range and as I say, we are not having any issues with that. If there is an opportunity to term some of that out later, we will look for it. We will take it. We are very comfortable where we are. So that is it.

In terms of our distributors, at this point in time we are not hearing any issues. Most of our distributors frankly are very successful business people. We really rarely see an issue with a distributor even when they go to downturns because we work with them to be good financial managers and they are in pretty good shape.

Ann Duignan - JPMorgan

Okay. Thank you. I will get back in line.

Pam Huggins

Thanks, Ann.

Operator

Your next question comes from the line of Joel Tiss of Buckingham Research. Please proceed.

Joel Tiss - Buckingham Research

Good morning. How is it going?

Pam Huggins

Good morning, Joe. How are you?

Joel Tiss - Buckingham Research

All right, I will just glue two together to make it quick. Can you talk anything you are hearing from your operating managers real-time, what is happening to the pricing conversations? How much resistance you are getting or price increases still going through.

Then also maybe a little philosophical, Don, how do you feel about going into what could be a more difficult environment for the next couple years and your debt's already 35%, you are going to stick to your 37% target or do you see enough opportunities at realistic prices to go higher? That is the two. Thank you.

Don Washkewicz

Yes, is good questions Joe. Just a little bit about the pricing. Most of the pricing activity now for this year is behind us. We are pretty much caught up. I would say probably 99% caught up on price increases that we have roll out this year. As I have said in the past we have either an increase in the aftermarket part of our business, either once or twice a year depending on our requirements and that goes on pretty routinely. On the OEM side, we are negotiating those on typically on an annual basis because typically these are annual contracts that we are dealing with.

I would want to point out that as far as raw materials, we see good things happening from the standpoint of raw materials, where the escalations that we have seen in the past, which have necessitated big increases and pretty troublesome increases, frankly, when you looked at what happened in the last several months on steel, for instance, where we had one increase, one month. We went out, tried to recoup that and then, four weeks later we get another increase and we are up of a magnitude that we had to go out again.

Well, that is behind us. We do not see that now. Actually, there is a lot of pressure on raw materials. I think we are going to see a lot of softening there over time and flattening out of this inflation from a raw material standpoint. I feel comfortable with our debt levels. We have a 37% target and we are comfortably within that right now.

We are generating wonderful operating earnings in the company and I think that number is going to continue to drift down over time here. We are certainly disciplined about the acquisition activity. We have made several here. We told you that we would. We have told you that we wanted to grow 5% from acquisitions. We will do that and we are generating the cash to be able to do that and so I do not see any real issues there.

Of course, we are going to be prudent going forward. We are going to be monitoring the environmental conditions out there and making sure that we are not getting ahead of our self, but we feel comfortable what we have done so far. We think we have taken the right actions. We have brought on some tremendous businesses here, matter of fact one of these we have been talking with for probably 25 years. So, the fact that we are able to bring somebody is onboard is a tremendous success for the company.

So, I feel pretty positive going forward and I do not think we are going to have a need, hopefully, to really be pushing a lot of price increases through, not in this environment. I think everyone is going to pretty much hold the line here. I do not think you are going to see demand in the near-term anywhere near what it was just a few months back.

You know, and if you could tell me what the oil price is going to be? I would give you a little more color on and what we think might happen. When oil goes from 150 one week down to 88 and actually well I tell you, it is a rollercoaster ride we have never seen before so, but I think that basically characterizes my feelings about what we see coming.

Joel Tiss - Buckingham Research

Okay. Thank you.

Don Washkewicz

Sure.

Pam Huggins

Thanks, Joe.

Operator

Your next question comes from the line of Terry Darling of Goldman Sachs. Please proceed.

Pam Huggins

Good morning, Terry.

Terry Darling - Goldman Sachs

I am wondering if you could give us the organic acquisition and FX breakout for the other segments, Aerospace, CIC and International North America, as you did on the Industrial International.

Pam Huggins

Boy, you want a lot from me, do not you?

Terry Darling - Goldman Sachs

We are having fun today. Let's keep it going.

Pam Huggins

Okay. You want all of them, North America?

Terry Darling - Goldman Sachs

Probably save yourself a lot of time with the after calls here to, right?

Pam Huggins

Okay. North America, let's start there. We had first quarter as you well know 10% forecasted of which 8% was acquisition, really no currency and then 2% organic. Going into second quarter, North America is 7%; acquisitions are about 9% and then of course organic is minus 2%. Again, let me give you first half and second half, I think that is easier.

Terry Darling - Goldman Sachs

Okay.

Pam Huggins

Okay, let me start back. North America 8%, total 8% acquisitions, zero currency and of course flat organic growth. Going into the second half; total minus 3%, 5% acquisitions and minus 8% organic.

Okay, moving to Aerospace, 6% total for the first half, 2% acquisition, really no currency and about 4% organic. Going to the second half for Aerospace, it is relatively flat, no acquisitions or currency and so it is flat organic.

Moving to Climate Industrial Controls, first half, total negative 2%, no acquisitions, just no currency to speak of. It is really a rounding and then negative 2% organic. Going to the second half for Climate, minus 4% in total, again no acquisitions or currency and negative 4% organic.

Terry Darling - Goldman Sachs

Okay.

Pam Huggins

Does that help?

Terry Darling - Goldman Sachs

Yes, that is great. Is there a headcount number across the company you can give us today versus last quarter?

Pam Huggins

It did not change a whole lot. It is about the same, 61,000.

Terry Darling - Goldman Sachs

Okay. Then lastly, wondering if you can help us understand the Boeing strike assumption. I think you mentioned $0.03 next quarter. Can you help us with cost versus revenue; revenue goes to zero, are you scaling cost down as well or is it the full effect of the under absorption, there is nothing you could do to flex the cost on a temporary basis.

Pam Huggins

It is the latter.

Terry Darling - Goldman Sachs

Okay. Just we had this discussion in past quarters where you are spending a lot on R&D, for these programs. We are now getting a number of the financing agencies in the airline industry signaling to Boeing and Airbus that it might be a good idea for you to scale back production.

If we were just to assume that for Boeing and Airbus, the strike ends for Boeing but production cuts in the second half '09 and then in 2010 to where production is down in 2010 versus '09, how do you reconcile that situation that you have spent a lot of money here, is it just that the math over the 30-year life of the program you are going to take a little bit of hit on the return over the life of the program and it is a little more backend loaded and there is not a lot you can do there or is there something else you can do there?

Don Washkewicz

That is a good question. This is Don. Maybe that is a good lead into clarification of some things I said earlier. The one thing that we will not do in this downturn is we are not going to cut research and development; we are not going to cut engineering talent in this organization. If anything we are going to be putting more and more emphasis on innovation.

We have launched that initiative several years ago. We have wonderful things coming through the pipeline and I will not allow that. We are building for the future; we are building for the long-term here, so I am not going to allow that to be cut. I have already made that very clear to everyone in this organization. So I just to make that clear because even though we are talking about productivity and other metrics that we are going to be monitoring here very closely, when it comes to our engineering talent and our innovation investments, they are going to go on as they have in the past.

Now, more specifically to Aerospace and your question, those things happen. I mean, we get sometimes into these situations where we have a lot of sunk cost here; as far as research and development, we have spent $30 million in the last several years. We are adding to that this year as far as these new programs. As I mentioned earlier, we have about $10 billion in new programs now.

It is not the thing that you can start and then shut off. We have to complete those development programs and I think you answered your own question a little bit when you say that it is a push out effect and that is exactly what happens. If they do not make as many planes this year or next year, we are just going to have to wait a couple more years for the payback and the payback is going to be basically in the aftermarket and MRO part of that business.

As you know, we do not have a great margin on OEM side of that business to begin with. So, it is a matter of when those planes get into service and how much aftermarket activity we generate from that – the fleet that is out there. So, we will not slow down. We are going to stay focused. Of course, if a customer cancels a program, of course, we would cancel any additional investment on development. All of these programs as far as I know right now are going forward; not only on the commercial side of the business, but also on the military side, the business aircraft side and the regional aircraft side.

There is a tremendous number of new programs going forward and I have not heard of any cancellations. So hopefully that answers your question, but it is really a push out effect. We will just have to wait a little bit longer. Never the less, it will have been a good investment.

Terry Darling - Goldman Sachs

Thanks very much.

Pam Huggins

Thanks, Terry.

Operator

Your next question comes from the line of Daniel Dowd. Please proceed.

Daniel Dowd - Sanford Bernstein

Good morning.

Pam Huggins

Good morning, Dan.

Daniel Dowd - Sanford Bernstein

Can you comment on how important the build out of the Parker stores is to your guidance here for Industrial North America and Industrial International?

Don Washkewicz

This is Don. I would say that it is not important in a total sense, quantitative sense. Of course, over a period of time the impact of the stores is going to have more and more impact on this company. As you know, we have a goal of adding one distributor location a day. It is like a McDonald's franchise if you want to look at it that way. Somewhere in the world we are adding one distributor location a day. That is been going on for quite a few years and I am pleased to say that we have a very strong network now and it is getting stronger every day and these by and large, the majority, I would say 98%, 99% are profitable and they turn profitable very quickly.

So, those stores and the distributor business, part of our business, which should not be underestimated by anyone on the call, is the strength of this company. It is the strength from a margin standpoint and what we are doing out there is we are servicing the hundreds and hundreds and hundreds of billions of dollars of installed equipment that is out there running every day that needs to have replacement parts, needs to have Parker service and parts on a daily basis.

So, to the extent that we can be close to the customer, does he who is close to the customer is going to get the business typically and that is our strategy, very simply put. As we are going to be everywhere and we are going to be located close to the customer everywhere around the world and capture as much of that installed base that we possibly can and that number will increase over time.

So, that is the strategy. We have been rolling it out. Obviously some of the impact that you are seeing today is a result of as I mentioned before, the seven years of rollout of the win strategy and by the way the store concept and the distribution strategy is a explicit right on the win strategy. This is all part of it. We just have not talked a lot about it, but we will be talking more as time goes on.

Daniel Dowd - Sanford Bernstein

Thanks. You mentioned previously that neither you nor your distributors were having problems in the debt markets. Have you seen anything with your suppliers, because it seems in some ways that may be the bigger risk to near-term earnings?

Don Washkewicz

This is Don again. Personally, I have not heard anything with respect to our suppliers or our distributors. Keep in mind, in the last downturn, which was a very long downturn for us. It started in October of 2000 and went three years. That was a pretty tough period for us. I did not recall any one that was having issues with respect to capital.

Of course everybody was playing it pretty tight back then, but I can not think of one distributor that went out of business through that time period, of the thousands that we have. So, and on the supply side, I have not heard anything. I am going to let Pam and Tim weigh in if they have heard anything. I have not personally heard anything from a supply side that they are having issues right now.

Tim Pistell

Don, just very quickly. As part of our overall risk management program, and working through the VP of Procurement, we monitor all the key suppliers and make sure that their balance sheets are healthy, they are in good shape. So, we have not had any issues now.

Pamela Huggins

Okay, Sandy. At this time we will take one more question and this will be our last question, please. Thank you, Dan.

Daniel Dowd - Sanford Bernstein

Thank You.

Operator

Your last question comes from the line of Robert McCarthy of Robert W. Baird. Please proceed.

Robert McCarthy - Robert W. Baird

Good morning, everybody. Thanks for taking another question.

Pamela Huggins

Good morning.

Robert McCarthy - Robert W. Baird

Could you talk a little bit about how you are thinking about share repurchases? You were very active in the quarter; stock of course has come in significantly since then. I am to understand that short-term outlook is difficult, and you pushed financial leverage the high end of your comfort range. I assume a little bit higher given the deals that you did at the outset of the quarter. So, you know, do you feel constrained by balance sheet or could we see you continue to be active in a meaningful level?

Tim Pistell

Well, Rob, really our outlook and our approach does not change now than any other time. Frankly, we are trying to generate at least 10% cash from operating activities, 10% of sales, which we did attain this quarter. So, we are trying to do that. You know, we are going to take care of that dividend, 52 years of increasing it. We will take care of that and we are going to look at any opportunities to grow the company, be it internal, which can be CapEx requirements or acquisitions.

Always hanging out there to the side, though, is the opportunity for share repurchase and we look at that and try to maintain some discipline between it all. So, those are our choices. We still have a little bit of capacity left, anything is possible. I will tell you, frankly, that we are positioning the company right now for the upturn and I make this real clear. We position the company for the downturn starting as we said, six, seven years ago with the win strategy and the lean enterprise and a more intensely even two or three years ago, when we really started getting into cyclicality.

So we did all the hard work in terms of the downturn several years ago and we think it is coming through now and we are feeling pretty good about that. Frankly, right now we are actually in a mode of positioning the company for the next upturn and part of that will be how do we use our capacity. So, we still have some left. We will generate quite a bit as each month ticks by, and then we just look at the alternatives. What are the growth alternatives and what is the share repurchase and I can not really – I will not make any commitments to either but that is what we are doing right now.

Robert McCarthy - Robert W. Baird

Okay so the underlying point then is that the current environment and the current credit environment has not really affected the way you are thinking about this over the next 90 days, say.

Don Washkewicz

Not at all, and we feel very good about all the actions we took. We used the accordion on our credit line over a year-and-a-half ago. We added more banks in. We have got a lot of healthy relationships. We strategically could not be in better shape and so right now it is a good time probably to accumulate some dry powder and see what opportunities come around.

Robert McCarthy - Robert W. Baird

If I could then follow-up, I just had one follow-up to the commentary before about your outlook for the Aerospace segment. The full year outlook, you have taken down by about $20 million of revenue, maybe $2.5 million of operating income and you have identified an impact of the Boeing strike in the second quarter.

So, am I to infer from this that this small reduction in the full year outlook is in effect the second quarter impact and we will – your expectation is that you will not make it up or do you expect to make it up and is this a small adjustment with the expectation that your commercial aftermarket business would soften up some with weaker economic conditions which I think has been your historical experience?

Pam Huggins

No, Rob. This is Pam speaking. What you are seeing in the guidance is exactly what you said. It is the second quarter impact. I think we feel that will not be made up and I think, Boeing, which is the biggest portion of that, it is the same way.

Robert McCarthy - Robert W. Baird

Okay. So then if the rest of your outlook is on a net-net basis unchanged; within that, have you lowered your expectations for the commercial aftermarket with some positive offset from some other piece of the business or is that a source of risk?

Pam Huggins

Well, what happened in the first quarter is really we did not see the impact from the commercial aftermarket, we did not see the decline that we thought that we would see to some extent, okay?

Robert McCarthy - Robert W. Baird

Okay.

Pam Huggins

We still expect that to come fast and furious. We gave you guidance before that already projected a decline in the commercial aftermarket was already built into the guidance and we think that will continue.

Robert McCarthy - Robert W. Baird

Okay. Very good, thanks.

Pam Huggins

Okay, thank you. At this time, I just want to thank everyone for attending our teleconference today. Thank you very much and we will conclude with Don. Don has just a few closing comments but again, thank you for attending today.

Don Washkewicz

Thanks, Pam. Just a few quick comments here. Again, we are very pleased that we are able to deliver a record quarter to start off this new fiscal year. As we talked about on the call, the outlook is really uncertain for the second half. We are giving our best look that we have right now but the one thing I can assure you of is that we expect to perform much better in this down cycle than we have ever done before.

We remain focused on growing the company; profitable growth is really the focus for the long run. Our work as we mentioned earlier to prepare for this economic slowdown as Tim indicated earlier began seven years ago when we launched the execution of the Win Strategy.

So we are in a much, much better position today and actually it is going to be fun for me to not have to answer what happened in 2002 going out here. So hopefully, some of those data points are going to fall off your charts. We are going to have some nice data points to be looking at here. We expect to do a lot better this go around no matter what hits us than what we have ever been in the past.

Lastly, Since many are listening in just like on behalf of the leadership team, I would like to thank Parker's worldwide team of employees for the great results this quarter and certainly for all the positive changes in Parker that they have driven over the last seven years. We know that they are going to be working hard through this period to deliver better and better results this go around and I want to thank them upfront for all their hard work and effort.

Then lastly, just thank you, the people on the call. I know you are going through a lot of tough times right now too in your own organizations. We want to wish you the best. I want to thank you for your participation on this call and certainly appreciate your interest in Parker and make sure you stay in touch with us. We want to know how each one of are you doing for sure.

So, if you have additional questions, feel free to call Pam. She is going to be around the rest of the day and I am sure there will be a few questions that still have to be answered out there. So once again, good bye and have a great day.

Operator

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Good day.

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Source: Parker Hannifin Corporation F1Q09 (Qtr End 09/30/08) Earnings Call Transcript
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