Good day, ladies and gentlemen, and welcome to the Parker-Hannifin Corp. Fiscal 2016 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Chief Financial Officer, Jon Marten. Please go ahead, sir. Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Thank you, Abigail, and good morning to everyone, and welcome to Parker-Hannifin's second quarter FY 2016 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 website at phstock.com for one year following today's call. On slide number two, you'll find the company's Safe Harbor disclosure statement addressing forward-looking statements as well as non-GAAP financial measures. Reconciliations for any reference to non-GAAP financial measures are included in this morning's press release and are posted on Parker's website at phstock.com. On slide number three for the agenda, to begin, our Chairman and Chief Executive Officer, Tom Williams, will provide highlights for the second quarter of fiscal year 2016. Following Tom's comments, I will provide a review of the company's second quarter FY 2016 performance together with the revised guidance for FY 2016. Tom will provide a few summary comments, and then we'll open the call for a Q&A session. At this time, I'll turn it over to Tom and ask that you refer to slide number four. Thomas L. Williams - Chairman & Chief Executive Officer: Thanks, Jon, and welcome to everyone on the call. We appreciate your participation…

Certainly. Our first question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Your line is open.

Hey, guys. This is James Picariello filling in for Jeff. Just a quick question on order trends. Can you speak to maybe the pace of what you're seeing through January and how that maybe compares to, in December and November? Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: This is Jon. I think, James, the pattern is consistent with what we saw during Q2. I think what we're seeing in January is consistent with what we're seeing in guidance. January is, of course – the first two weeks of January are a little bit – very difficult to judge, but I think from what we can tell so far that we're consistent with the guidance that we've got together for Q3. So, nothing really remarkable to give you an answer on there.

Okay. And just to follow-up. On Aerospace, what's the visibility in terms of the mix between OE and aftermarket for the back half? Just trying to get a better understanding for the margins? Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Well, it would be, in general, we have good visibility for the OE, and the question is always in the aftermarket. What is included in our guidance is 65% OE, 35% aftermarket. That's what we've been running consistently for the last several quarters. There's a little bit of variation periodically, but that's what we're projecting here for the balance of the year.

Thanks, guys. Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Okay.

Thank you. Our next question comes from the line of Nicole Deblase with Morgan Stanley. Your line is open. Nicole Deblase - Morgan Stanley & Co. LLC: Yeah. Thanks. Good morning, guys. Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Good morning, Nicole. Nicole Deblase - Morgan Stanley & Co. LLC: So, I guess, I'll ask the question that someone's bound to ask is, can you guys go through your usual spiel on how the end markets progressed during the quarter? Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Sure.

Nicole, this is Lee. Like I've done before in the past, I'll just kind of walk around the regions, and I'll make some comments on the end markets and I'll also comment on our distribution channel. I think one common thread that hasn't changed is the whole natural resource driven markets, ag, mining, construction equipment, oil and gas, they really by and large continue to be challenging everywhere around the world. So, starting off with North America, I think, oil and gas, in terms of distribution continues to be the big story when you think about distribution in aggregate. Having said that, if I focus on distribution that doesn't have heavy content in oil and gas, we've got positive year-over-year growth. But what's happened with oil and gas and its pervasiveness through the distribution base that is still very difficult. Looking at, really, air conditioning, refrigeration markets in North America, we've seen good North America residential air conditioning growth. This is a result, obviously, of the continued strengthening in the housing market. We've seen share gains on our behalf and then really an increase in product content which has to do with the SEER efficiency changes that incurred last year. So, we're really happy what's happening in those markets. Commercial air-conditioning and refrigeration markets really have been down year-over-year, but we are expecting growth in the balance of calendar 2016 and moving into 2017. And then lastly, if I look at the aftermarket channel in this segment, which would be different than the industrial distribution, we really remain solid year-to-date growth and this is really based on the markets but also a big part of some new products and some smart service toolkits that we've introduced into that market segment. So, very positive there. Touching back on North America oil…

Thank you. Nicole Deblase - Morgan Stanley & Co. LLC: So, just one quick follow-up, if you guys don't mind. So, on 3Q, you're guiding for $1.40 EPS at the midpoint. Typically, EPS steps up Q-on-Q. I know there were some below line puts and takes within the second quarter that are probably messing up that seasonality a bit. But I'm just curious are you guys embedding a deterioration in organic growth in 3Q compared to 2Q? Thomas L. Williams - Chairman & Chief Executive Officer: Yeah. Let me start, Nicole. This is Tom. And I'll let Jon add on. What we did for the second half is basically we took the order entry that we saw that Lee described all the regions of the markets in the second quarter, which really, Aerospace orders got better, less negative, and Industrial North America got worse by three points and International got worse by two points. So, we took that order entry and basically translated that into the second half on an organic growth standpoint. So, our second-half organic growth from our previous guide used to be minus 5% and now it's minus 7.5%. So, we dropped it 2.5 points organically and then we have the second half coming at a minus 15% decremental MROS and that's how you get the second half EPS numbers. Nicole Deblase - Morgan Stanley & Co. LLC: Okay. That's really helpful. Thanks, Tom. I'll pass it on.

Thank you. Our next question comes from the line of Eli Lustgarten with Longbow Securities. Your line is open.

Good morning, everyone. Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Good morning.

Let me just follow-up on Nicole's question and just clarify. As a clarification, what was the adjusted tax rate in the second quarter? And is the big difference between the third quarter and second quarter is a little bit of seasonality upturn being offset by a 28% tax rate assumption? Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Well, first of all, the effective tax rate for the three months in Q2 was 20.3% and that's related to the passage of the extenders. Going forward into Q3, our run rate going forward is 28%, although it's just slightly higher in our Q3 that we've built in here due to a couple of items that we will account for it in the quarter, Eli.

Yeah. But that 28% versus the 20.3% is sort of like $0.12 to $0.15 or some number like that of the... Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Yeah.

...difference in earnings and that almost accounts the difference between $1.52 and $1.40 that you're sort of forecasting for us. Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Yeah. We are not – we are down – are down in the top line versus our old guidance in Q3 and we're also down commensurately at the operating income. But I've got, like I said, a slightly higher rate in Q3 due to some discrete items that we're accounting for in our tax rate there.

All right. And can we talk a little bit about the profitability, the lower profitability you're forecasting for the year? Most of that, I assume, is volume. Is there any changes in pricing going on in the marketplace? Are you able to hold pricing? I mean, we assume cost will continue to trend downward just because of the lower input costs. But can you a little bit, talk a little bit about what's going on in the – I assume the drop in margins that sort of are embedded it's like drop is a little volume related and that pricing looks like it's relatively stable in the industry?

Eli, this is Lee. I think the drop is all volume-related. Pricing has been flat. We forecasted it to be flat going forward.

And input costs are still trending downward?

They've been favorable.

Yeah. All right. Thank you very much.

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

Thanks a lot. Good morning, everybody. Thomas L. Williams - Chairman & Chief Executive Officer: Good morning, Andy.

A couple of questions related to your guidance. First, if we look back on Q2, can you give us the components of – there was quite a bit of difference between the initial $1.16 midpoint guidance and the reported $1.52. Understand tax was part of it. But what else changed? Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Yeah. I mean, I think at the SG&A level for the quarter as Tom said, we've got some positive variance in the corporate G&A of about $18 million versus the prior guide. And that's due to the simplification efforts and a couple one-time adjustments that won't repeat. We've also got as compared to the prior guide, a small settlement of about $4 million for a contractual issue that we had in the other expense. That's about $4 million and that accounts for about $0.02. And, of course, Eli talked about the tax rate. And we had guided to a higher tax rate and again we did not know that the extenders was going to pass; and so of course, that turned out to be good news for us and that gave us $0.15 versus the prior guide. And then at the operating income level, even with the reduced – projected reduced revenues, we were able to get approximately $15 million in additional operating income versus the prior guide on a slight beat in revenues.

Okay. Thanks, Jon. And then on that $15 million, is that repeatable – that should carry through going forward? Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Yeah. Well, that is built into our guidance going forward and we feel very good about our cost structure and with the simplification efforts and our restructuring efforts are bringing for us and built into our guidance is additional savings that we're going to get from the restructuring efforts that we've been going through here in the first half of this year and at the end of last year.

Okay. Thanks. And then a couple detail, I guess. First, on North American Industrial, did you see inventory destocking change during the quarter, meaning did it intensify, moderate or kind of stay the same versus the prior quarter?

Andy, it's Lee. I would say it just stayed about the same. I mean at the end of the day it's really hard for us to get a gauge on that. But it certainly didn't get worse.

Okay. Thanks, Lee. And then real quick on the last one, Aerospace outlook. Are you embedding the same sort of fourth-quarter bump up that you've seen in the last couple of years? Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Andy, we really are not. What we've embedded in there is the continuation of the 35% MRO, 65% OEM at around the same relative profitability that we see right now. These last couple of years we've seen these one-time settlements get agreed to. And they have impacted the number so I understand completely your question. But that's not something that we would project in our guidance going forward here and so I don't really have any context for you on that point.

Okay. Thank you very much. Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Okay.

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

Hi. Good morning, everyone. Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Morning, Ann.

Morning. You know, Don used to talk about the 3-12 and the 12-12. I'm just curious about the end markets that are really weak. Are you seeing any kind of an inflection point looking at your 3-12s and your 12-12s? Anything bottoming out there, particularly in North America?

Ann, in all candor, I don't have my 3-12 and 12-12s in front of me. I can bring those back in the future. But, I would say the comps are going to start getting easier in some of those numbers, so it's just a matter of time. I mean obviously oil and gas, just from memory it is still decelerating. But, I would just be winging it here if I tried to give you any more context than that. Thomas L. Williams - Chairman & Chief Executive Officer: Ann, it's Tom. I think our assumption is there's really no meaningful recovery in the second half and what you see if you do the comparables it's just really easier comparables for us in the second half.

Okay. That's helpful, I appreciate it. And then you did comment on customers talking about how weak the end markets are. Were you talking about distribution customers, particularly in oil and gas, or were you talking about OEMs? If you just could tell us what are the conversations like between OEMs versus your distribution?

They are the same, quite frankly. Our distribution is involved with MRO but also with some projects, and handling it's very, very much the same. It's the same conversation.

Okay. I'll leave it there and let somebody else take it over. Thanks.

Thank you.

Thank you. Our next question comes from the line of Jamie Cook with Credit Suisse. Your line is open. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): Hi. Good morning. I guess a couple questions. One, I know someone asked before on material costs and you said it was a benefit, but could you quantify what you're assuming for material costs and your guidance versus when you initially guided? Because I'm just trying to understand the decrementals that you guys are putting up, which have been much better than expected. I get that it's the simplification initiatives and restructuring as well. And then also, Tom, if you could just comment on the sustainability of sort of mid-to-high teen decremental margins. We haven't seen that before from Parker? And then my last question is just balance sheet; given the depressed markets you're seeing, are any – I know when we spoke last, you said valuations on acquisitions were still quite elevated. Has there been any change in the market? Thank you. Thomas L. Williams - Chairman & Chief Executive Officer: Okay, Jamie. This is Tom. So, I'll start with the material costs side. I would say compared to our previous guidance, we're seeing a consistent gap between pricing and the material side, that our ability to maintain the decrementals is driven by the simplification and the restructuring actions. And remember that the bulk of our savings is in the second half, so that is going to help carry us. And we feel good about this fiscal year, I'm not going to go beyond this fiscal year in trying to tell you what the margin return on sales are going to be. But for this fiscal year, we feel very good about sustainability. We've done it three quarters in a…

Thank you. Our next question comes from the line of Joseph Ritchie with Goldman Sachs. Your line is open. Joseph Alfred Ritchie - Goldman Sachs & Co.: Thanks. Good morning, everyone. Thomas L. Williams - Chairman & Chief Executive Officer: Morning, Joe. Joseph Alfred Ritchie - Goldman Sachs & Co.: Tom, maybe staying on the simplification and restructuring spend for a second, it looks like the first couple of quarters, the spend is coming a little bit lighter than we anticipated. And so, I guess, my question is really just around your confidence on your ability to complete the actions this year and to get the roughly $70 million in benefits that you are expecting to receive from those actions. Any color there would be great. Thomas L. Williams - Chairman & Chief Executive Officer: Yeah, Joe. It's Tom. So, our restructuring year-to-date is right on the money. So, we've forecasted 60% of the $100 million and we're at $57 million. So, we're very, very close to that number. And our savings are tracking and so I am very confident we're going to deliver both the cost that we had planned, the $100 million of cost and deliver the savings. And the savings is indicative of that is the marginal return on sales. We could not be delivering these kind of returns without the actions that we've taken, simplification being one of them that's helping us. Joseph Alfred Ritchie - Goldman Sachs & Co.: Got it. So, yeah, maybe my numbers are off a little bit in the first half. I can follow up after the call. But, maybe one other key point is I noticed the free cash flow thus far has been pretty impressive and looks like this quarter working capital was a source of cash. I was wondering was there anything one-time or anything special – like I saw both the receivables and the inventory line down? Just curious what's driving the strong free cash flow. Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Jon, here, Joe. We are very much focused on cash flow every single day here in the company here and watching as the top lines moves, what's going on there. All of our operating metrics are very good, nothing is deteriorating. We remain focused on the simplification efforts and our company is doing everything we can from a lean standpoint to improve every single process that we've got throughout the company. And we're seeing it in the cash flow statement. So, we're very proud of that. Joseph Alfred Ritchie - Goldman Sachs & Co.: Okay. Great. Thanks, guys. I'll get back in queue.

Thank you. Our next question comes from the line of Nathan Jones, Stifel. Your line is open. Nathan Jones - Stifel, Nicolaus & Co., Inc.: Good morning, Tom, Jon, Lee. Thomas L. Williams - Chairman & Chief Executive Officer: Morning, Nathan. Nathan Jones - Stifel, Nicolaus & Co., Inc.: Lee, in some of your comments about the end markets, you said that North American distribution was positive ex-oil and gas. I think our checks had indicated your North American distribution overall was down about 3%. Is that pretty close to right?

Total North American distribution? Nathan Jones - Stifel, Nicolaus & Co., Inc.: Yeah.

Yeah. It would be down single-digits year-over-year. Nathan Jones - Stifel, Nicolaus & Co., Inc.: So, I think that implies that the direct channel from 2Q to – I'm sorry from 1Q to 2Q saw a fairly significant decline in the comp. Can you talk about any specific end markets that might have driven that?

I want to make sure I understand your question. You're talking about our direct customers? Nathan Jones - Stifel, Nicolaus & Co., Inc.: Direct or OEM, the non-distribution channel. Thomas L. Williams - Chairman & Chief Executive Officer: Nathan, it's Tom. I'll chime in. What we saw in distribution in Q2 was primarily North America took a step down, but outside of North America it held up pretty well, Europe, Asia held up pretty nicely. So, the step down in North America really was indicative of the same step down we saw OEMs, which was the natural resource markets, a little bit of a knock-on into the general industrial space that knocked both distribution and the OEMs down. But, in general, OEMs have been down about two times what distribution has been down if you were to characterize the difference. Nathan Jones - Stifel, Nicolaus & Co., Inc.: Okay. That helps. And then with nine months to go on the original plan for $2 billion to $3 billion of share repurchase, it looks like you're kind of gliding into more of the low end of that. Is that keeping powder dry for some expected correction in the pricing in the M&A market for you and with an eye to getting perhaps more aggressive as we go forward on M&A? Thomas L. Williams - Chairman & Chief Executive Officer: Yeah, Nathan, this is Tom. Good question. I'm sure this is on top of everybody's mind. So, we feel very good about what we've done so far. We're 87% of the way through to the low end of the $2 billion to $3 billion range. And maybe if I could just give a little color to the process that we – so every quarter, we sit down and it's really a cash…

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

Good morning, guys. Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Morning, Andrew.

Hi. Can I just ask first just a very simple question? Did I hear it right that you highlighted automotive slowing or did I misheard that?

Andrew, I was talking about in-plant automotive, so CapEx going into the plants.

So, is that related to new platforms at OEs?

I think there's been a – I'm not going to be that specific. But, what I've noticed is, there's been a lot of retooling activity with a lot of plants and some of that we're being told is going to start to slow down.

Got you. So, let's not count this question. But, are you guys getting any transaction benefit? I think a year-ago, you were talking about that it takes about a year to recertify some of the plants to ship stuff from Europe to the U.S. Are you doing it? Are you being able to do it? Are we seeing any benefit from this? Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Well, Andrew, you know we are constantly trying to make sure that we're producing the right parts at the right locations and the right plants. And so we are not, from a transactional standpoint, getting hurt as bad as we would have been say this time last year in terms of the margins. So that is one piece of progress that we've been making, it is not – that's one of about 10 or 15 things that are going our way that are helping us with our margins and our decrementals. So, we don't see that getting bad. We're adjusting. It was this time last year where the euro and the Swiss franc decoupled and also when the dollar was really getting stronger. And so, we have adjusted to that where we stand right now today and that's what's built into our guidance going forward.

And just a question on capital allocation, given where the high-yield markets are, given that PE can no longer play, given where the stock prices are, how do you guys feel about your M&A funnel? Thomas L. Williams - Chairman & Chief Executive Officer: Yeah, Andrew, it's Tom again. Same comments that I mentioned earlier about acquisitions that the valuations right now are still a little bit high. I think it's a little bit of a delayed effect as the seller's expectations on revenue hasn't come down to earth yet. But, time is on our side. They will come down and we continue those discussions. And what we've seen over time is eventually we come to the terms with better revenue forecast. We haven't taken action on some deals in the past mainly because of the difference in pricing and that pricing difference is primarily geared by differences in what we thought the revenue expectation was going to be for that business. Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Abigail, if I could ask you please, if we could just have one more question, I see we're getting ready to run out of time here. So, thank you.

Certainly. Our last question comes from the line of Joel Tiss with BMO. Your line is open.

Hi. How's it going? Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Good, Joel.

That's good. I'll make it quick. Is the run rate in your corporate G&A, is that the new level that we should be using going forward or is that a moving target that either got a benefit this quarter and is going to rise again or is it going to continue to structurally lower as we go forward? Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: We're structurally going to be down slightly from our past run rate, but it was more of a couple one-time things in the corporate G&A. We're focused on about between $45 million to $48 million going forward here in the corporate G&A going forward as compared to in the mid-$50 million in Q1 and in prior years. So, this has some structural benefits from the simplification, but it would be wrong for me to not mention that there were some one-time items in Q2 for our G&A expense.

Okay. And is there a big target on the business simplification? I think you used to have 240 divisions and now you mentioned it's down by 28. Is there any sort of a goal or is it just – it's going to end up where it naturally ought to be? Thomas L. Williams - Chairman & Chief Executive Officer: Joel, just to – it's Tom. To clarify, the number of divisions that we have operating divisions is 115. So, the 28 is in the 115. So, both Lee and I, the message we've left with the group presidents is we're looking for natural combinations that helps us just be more efficient, give us the scale that we need to better grow synergies and better cost synergies. We have some divisions that I think if we looked at it in hindsight had too much technology or product charter overlap, and it made more sense to put them together. So, it's not going to be one division. We still believe in a decentralized model. We still believe in driving that P&L ownership closest to our team members. But, I think you'll continue to see us do more in 2017 not at the rate that you saw us do in 2016.

And is there a lot of other – this is the last one, sorry to take so long. Is there a lot of product line simplification underneath those business combinations or is that the next stage that you haven't dug into as deeply yet? Thomas L. Williams - Chairman & Chief Executive Officer: Yeah, that's what I was referring to that revenue profile – again, it's Tom, that revenue profile complexity. That is where we're very, very early days. And I think that's where the real juice and the tank here is. And that will help us in multi-years going forward.

All right. Great. Thank you so much.

Thank you. I'd like to turn the call back to management for closing remarks. Thomas L. Williams - Chairman & Chief Executive Officer: Abigail, I made my closing remarks already. So, I think we can conclude the call. Jon P. Marten - Executive Vice President-Finance & Adminstration and Chief Financial Officer: Yes, this concludes our call. Thank everybody for joining us today. Robin is going to be available throughout the day to take your calls should you have any further questions. Thanks again and have a good day.