Ladies and gentlemen, thank you for standing by and welcome to the Parker-Hannifin Fiscal 2020 Fourth Quarter and Full Year Earnings Release Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentations, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today Cathy Suever, Chief Financial Officer. Please go ahead.

Thank you, Sarah. Good morning everyone. Welcome to our teleconference this morning. Joining me today are 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 2, 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 also posted on Parker's website at phstock.com. Today's agenda appears on Slide number 3. We'll begin with our Chairman and Chief Executive Officer, Tom Williams, providing an update on Parker's response to COVID-19. Tom will then discuss highlights from the fourth quarter and full year. Following Tom's comments, I'll provide a review of our fourth quarter performance together with guidance for fiscal year 2021. Tom will then provide a few summary comments and we'll open the call for a question-and-answer session. We'll do our best to take all the calls we can today. Please prefer now to Slide 4 and Tom will get us started.

Thank you, Cathy, and good morning everybody. A couple of comments from me before we start Slide 4; firstly, I hope everybody listening in that you and your families are safe and healthy. And I'd like to extend our thoughts to those affected by this crisis. And our deepest sympathies go out for those that have lost loved ones as a result of virus. I have a special thank you for all Parker team members that are listening in for their hard work and our dedication really delivering two high level accomplishments. First, we delivered outstanding performance during the unprecedented times as you saw by the quarter and by the full year results, and we're living up to our purpose. We're providing products and technologies are helping society to the prices, and we're hoping to do our part to create a better tomorrow for people. So on Slide 4, we talk about our response to the pandemic. It starts with safety as the first column, strategy and really when we made that change in 2015. It provided a great foundation for us to respond to this pandemic. We're helping society to the crisis. Our technologies are essential what was interesting with all the government orders that came out almost every one of those deemed those as an essential manufacturer. Our purpose and actions are more clear than ever and I'll give you a few examples of that. And our manufacturing capacities stayed near normal levels throughout the pandemic. The governing principle is really the takeaway on this page which is our two safest places that we want for our people to be at work at home, and we're doing everything we can to live up for that. So in Slide 5, the performance during this health and economic crisis and…

Thanks Tom. I'd like you to now refer to Slide 24 and I'll summarize the fourth quarter financial results. This slide presents as reported and adjusted earnings per share for the fourth quarter. Current year adjusted earnings per share of $2.55 compares to $3.31 last year. Adjustments from the 2020 as reported results netted to $0.28, including business alignment, expenses of $0.37 and lower acquisition integration and transaction expenses of $0.05. These were offset by the tax effect of these adjustments of $0.09 and the result of a favorable tax settlement of $0.05. Prior year, fourth quarter earnings per share had been adjusted by $0.14. The details of which are included in the reconciliation tables for non-GAAP financial measures. Moving to Slide 25, you'll find the significant components of the $0.76 loss from prior year, fourth quarter adjusted earnings per share to $2.55 for this year. With organic sales down 21% adjusted segment operating income decreased the equivalent of $0.61 per share, or $99 million. Decremental margins on a year over year basis were 19%. Decremental margins without the impact of acquisitions were just 16%, demonstrating excellent cost containment and productivity by the teams. Offsetting this decline, we gained $0.07 from lower corporate GNA as a result of salary reductions taken during the quarter and type cost controls on discretionary spending. Interest expense costs an additional $0.15 of earnings per share as debt is currently at a higher level because of the acquisitions. Income taxes accounted for an additional $0.08 of expense because we had fewer discrete tax credits in the current quarter. Slide 26 shows, total Parker segment sales -- total Parker's sales and segment operating margin for the fourth quarter. The fourth quarter organic sales decreased year-over-year by 21.1% and currency had a negative impact of 1.1%. Acquisition…

Thank you, Cathy. I thought we would close with what is probably an honest question on most people's minds is, how do you feel about the FY '23 targets that you just outlined in IRD, given the pandemic and what is done? And the short answer is, we're still committed. We've made tremendous progress on margins, and our top line is clearly becoming more resilient. While the top line revenue that Cathy articulated in IRD was 16.4 trillion, that will be very hard to hit. But we can still grow fast in the market, which is our intentions for these, targets to see in the space growing fast and global industrial production next to margin targets of 21% of the margin of EBITDA, free cash flow conversion and in EPS. Barring a recession in FY '23 and recognize we have three full fiscal years left to get here and provided we get some modest growth is going up like '22 and '23, we believe we can hit these numbers. So again, I want to just close by saying thank you to the partner team, especially thank you for keeping each other safe and for what you've been doing on all of our safety protocols and for the great results in the FY '20. And I'll turn it over to Sarah to start the Q&A.

Thank you. [Operator Instructions] Our first question comes from the line of Nicole DeBlase with Deutsche Bank. Your line is now open.

So maybe starting with the expectations for decremental margins fall on the slide that you guys are anticipating 30% decremental, I think that's inclusive of the cost savings plan you laid out. So I guess just maybe frame for us why decremental should step up from here since the performance this quarter was so impressive?

Nicole, its Tom. So, I'll start. Our decremental, if you look at quarters for FY '21, our projection float in a range of 25% to 30%. So still best-in-class type of performance. The difference between say, where we were in Q4, and that because a couple things, one in Q4, we had a little bit of help with next, we had a lot less mobile business than we had in the past. And that business is typically significantly lower margins and distribution in industrial. So the distribution industrial portion of the Company's revenue in Q4 was disproportionately higher than it normally. So, that is not going to sustain itself is going to go back to more normal levels as mobile comes back as opposed to four years, so that will become a headwind. The other part in Q4 is we saw the results of terrific forms by aerospace, which was helped with some seasonal help on the international military MRO where we had a very sharp increase versus prior periods and that's very high margin that comes with that. So, those would be the two key reasons, but even with that, I would suggest to you that with these kinds of volume drops at 25% to 30% decremental and I looked at all of our peers before we came into this, would still put us in the top quartile decision.

Yes, absolutely. Thanks for that Tom. And just as my second question, I know you guys had said that you didn't see a ton of improvement from April to May when you spoke previously. But can you maybe characterize, what you guys saw in June in anything quarter to-date in July?

Yes, so I'll continue on Nicole. So through the quarter, we saw from North America and international bottom in May, improved in June and July orders are indicative of what, I'll give you kind of how we feel, what the first and second has splits for our guide and then aerospace weekend through the core. And I've give you more color on aerospace here in a second. So when you go to the full year, we saw our guide of minus 11, so that minus 11 is made up of a first half of minus 19, a second half of minus three. So what was our thinking, as we thought through that? So if you look at it by segment North America and I'll start with how Q4 ended, I kind of parlay that into how our thinking about the first half. So Q4 in North America, and then minus 25, based on the words we saw in June and July, we see some modest improvement going into the first half. We forecast at a minus 21 for the first half, then it gets to flat for the second half of FY '21 and international came in at minus 15 organically and again, based on order entry in June and July, we have that going to a minus 12 modest improvement and going to almost flat in the second half as well. And aerospace was minus 22, helped a little bit because of that high international military MRO. We see that weakening a little bit in the first half at minus 26 and then improved but still being a tough environment, a longer cycle minus 15. So again, you get the first half of minus 19 second, half minus three, but we get to Q4 when we anniversary the pandemic and we show high single positives. The thing that I would point our view on this, that, and our thinking behind the whole guidance is that the industrial coverage started, but it's going to be uneven and there's going to be a fair amount of demand. And certainly, and I think that that improvement is going to follow the more or less it lagged behind how the virus improves, in a sense why we forecast that a modest improvement in the first half. And we still had aerospace declining as it's a longer cycle taking a while to adjust out until some of those orders. And the second half we see things slowly starting to build. And what I would say is positioning for a really good Q4 but really positioning ourselves for an excellent FY '22. And those are obviously going to outpace aerospace here as far as performance, and Asia's going to, run fast within North America. So that's just a little color so far on what we think guide.

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

Thank you. Good day, everyone. Also maybe a little clarification on how the cost actions work through, if we could Tom or Cathy. It's the nature of my question, first just looking at slide 22. So should we think of discretionary actions then as a headwind in the first quarter of roughly $125 million, so we're going from $175 million in Q4 to $50 million in Q1 and running $50 million a quarter through '21 to get to that $200 million?

Jeff, this is Tom, no. Most of the discretionary things will continue in Q1 and will start to slowly meter them off in Q2. And so, most of that's going to happen. So Q1 will look a lot like Q4 a little less and Q2 will have a small note and then you'll have this very little about if I trickle into the second half of '21. That portion is hard to predict, because it will be very much sensitive to demand, just like how you saw what we did in Q4, how it flexed based on demand. It will flex based on what happens on demand as we go forward. But we're going to continue to discretionary pretty much full steam for Q1, but the permanent starts to compensate for that base on what we did in the second half and what we're doing in 2021 to cover those total costs need to come out, plus at the same time, our volumes is starting to get better as they move through those quarters.

Yes. So on the permanent then Tom, it sounds like it was built over the course of the year. Is that, can you give us a little color on that trajectory? Is that indicative of the run rate also as you exit or did you actually exit, at a higher run rate in that $250 million?

The split on the $250 million is approximately 57% in the first half, 43% in the second half. And so part of what's making up $250 million, as we got $130 million, that's carry over from FY'20 actions. And then we've got $120 million coming from the new $65 million of cost currently for 2021. So, it's a combination of the two coming in there.

And just one last one if I could, on cash flow, greater than 10% now doesn't sound like a real high bar. But, are you assuming now given the performance that you've put up recently? But are you assuming, some kind of negative working capital swing in the next year that would be muting the cash flow?

No. This is Tom. We don't want to go backwards on that percent. As dollars become tougher, because we're forecasting at $1.2 billion less revenue. However, from a percent standpoint, CFOA margin and recognize that was a really great here at 15%. It's not that we can always do that every time. But I would tell you, I would not be happy if it came in at 10%. So, we're looking to be well north of that and where we come and we'll see what happens. But the expectations we would continue to work working capital. We have opportunities still on inventory. We have opportunities with acquisitions and inventory and we're going to work receivables and payables like we normally do. So, I would see it being a team effort on the cash flow, just like we've always done.

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

So, Tom maybe just digging in a little bit further into the end market trends. I know, a lot of your businesses short cycles. There is a tremendous amount of visibility, but it seems like if I heard you correctly, the modest improvement in both North America international, I mean, is that a way to think about it that that July for North America was down, let's say north of 20%, international still down double-digits mid-teens? And then I guess, the second part of the question is really as you talk to your distributors, what are they saying about inventory levels and the potential for restock?

So let me start with a restocking question. So, right now we're forecasting that distribution will continue to probably have some mild destocking for the first half, not as much as what we saw, obviously in Q4, with some mild restocking. To maybe give you a little bit more color on the markets. We -- so that minus 11, at the midpoint is North American minus 11. International minus 7, aerospace at minus 20, but I want to give you a little bit more insight on international. So we're forecasting EMEA and these are obviously put a plus or minus these numbers at minus 10 Asia-Pacific and flat and Latin America minus 10, a small part of the portfolio. But we have a number of markets that if I just gave you a couple of comments, I'll try not to make this too lengthy. Our view of end markets for FY '21. And again, my comments are not trying to position the entire market just speaking out Parker's going to do. But what we saw is positive is life sciences and we're going to continue to see a pretty good first half and based on the ventilator, but that will decline as we go into the second half power generation coming up on still being positive semiconductor being positive. And then we'll have aerospace military OEM, aerospace military MRO being positive in mid-single-digits. And automotive actually being probably for full year and automotive will be negative for the first half, but it turns out to be a positive second half as we see both combustion engine volume. And in particular content on EV and HEV things such a strong build material there, that that will drive a lot of growth for us and our engineering materials in the business. And…

Thanks and very helpful. My quick follow up and apologies if I missed it because I got cut out of the last question, and I think Jeff asked this question. But just thinking from a quantification perspective on the cost, just want to make sure it's clear. So for fiscal 21, you've got 450 million in cost benefits, getting that number against the 175 in discretionary actions from fiscal year 20, or what's the right number to think of it as the net benefit in fiscal 21.

So maybe I can help you out a little bit. We're keeping the permanent savings separate from the temporary action savings. So they're independent of each other. We did about the total year of fiscal year 20 and had about $76 million of costs. And we see carry over savings into fiscal 21 a lot of those costs came through the fourth quarter and we see the benefit coming into 21. So of the savings you see in fiscal year 21, some comes from the actions we already took. The rest will come about 120 million will come from the actions we plan to take in the fiscal year 21. Those actions will be heavily weighted into the first half about 75% of the dollars will come through the first half and 25% in the second half. So you'll see most of the savings coming into fiscal year 21 from those actions.

Our next question comes from the line of Nigel Coe with Wolfe Research. Your line is open.

Thanks. Good morning and lots of great detail. So, low free cash flow forecast for FY '21, so should we take the cash EPS has the best estimates for free cash flow, but we do have cash restructuring to think about? And I guess my real question is. Do you think that working capital will come down in line with sales? Or are we getting to a point now where we have to start rebuilding some during second half of fiscal?

Good question, Nigel. Yes, you can expect that cash flow -- what we like to say for our target is more than 10% as Tom described, 10% only would be disappointing for us at this point. If sales decline as we're projecting then we would expect working capital to come out just accordingly, as we typically do. We're very good at pulling that working capital down as the volume comes down. The improvements that we talk about in the second half or in the fourth quarter, keep in mind is talking against some pretty low comparables. So, it shows improvement year over year, but it's not a significant dollar increase in terms of volume. So, it would not require a significant working capital and the fourth quarter.

My follow on is on price. It doesn't feel like there's a little price pressure across cap goods, right now. And clearly, your margin performance suggests, you don't see much price either. But commercial aero is an area where we, there are some concerns. So, I'm just curious, if you all have seen some price concession requests, so some get backs to your OEM customers in commercial aero?

It's Lee. Maybe I'll just couple that with commodity material inflation. We do see some modest material inflation across the channels. But our goal always has been from cost price standpoint to be margin neutral, and we still expect that to happen this coming fiscal year.

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

Just first question, I guess on supply chains, a, both global and North America. A, have you seen any disruption shipping stuff from Asia to North America and also Mexico to the U.S.? And have you made any adjustments to your supply chains post-COVID are you thinking about making structural adjustments? Thank you.

Andrew, it's Tom. So, I would take you back to really our strategy and what's just been a long-term strategy on supply chain, as we make buy sell on local. That helps us a lot on this and in that we do not have a tremendous amount of cross continent type of activity. We've not seen any disruption that's been material in nature and the supply chain team has done a great job. And part of our protocols, always we look at risk mitigation and we look at the solvency of suppliers and their ability to deliver. We always look at that and make sure that things are in great shape and we don't see any major things to worry about there. But, this is an opportunity for us as our customers look at this and they may have supply chains that are different than the way we're structured. And as that happens and that place team from a material standpoint, yes, that will provide a revenue opportunity for us as they move plants or re-relocate things. We have an opportunity since we have a global footprint to satisfy them as they move.

Tom, I guess the follow-up question on inventory from the channel on both distributors and sort of OEs. A, we really since the great financial crisis, we really haven't seen a big restocking cycle. Do you think we can adept one after a COVID-19? I know you said people have sort of destocked a little bit, but are we going to see anything materials coming out of it? And the second thing, what can you tell us about sort of the bullwhip effect in your OE customers, how much this sort of discourse sales and what you're seeing in the channel? Thanks.

Andrew, I can start and Lee if will willing to add on it, he can add on it. But I think what you see with both of OE, a lot of your question the answer will be the trajectory of any kind of recovery. At this point, based on what we just gave you as guidance, we're projecting a modest recovery and not some sharp type of recovery. If it's sharper than I do think you'll see some restocking type of opportunities. But based on what we're projecting, I think you can see just normal, kind of and pull through type of stock. So, we saw pretty major destocking in Q4. We think some of that will continue at a lower rate and both OEM and distribution in the first half. But I think the restocking opportunity. We're not projecting or counting on that right now. But if the trajectory of recovery was to be a lot more sure than obviously I think people will be looking at something they need to do.

Our next question comes from the line of David Raso with Evercore ISI. Your line is now open.

I'm trying to better understand the margin guide for the year. Now, you're looking at the guidance with amortization excluded. So you're guiding 18.9 goes down to 18.1, which that seems let's say reasonable. Given amortization this year, is it going to be a lot more helpful to the margins than last year last year that added 210 bps given sale guide adds 260? So when you strip that away, and we have more history, looking at the four this change of how you're reporting. You're implying of the margin before amortization being pulled out at 15.5. That's on a 12.5 billion sales base. The last time you had margins at low revenues were a billion or half a billion less than what you're guiding. And just given the improvement a company's been showing our margin. I'm just making sure that what we're trying to suggest that the margins the old way used to report it before you pull that amortization, the margins are going to be down to 15.5 that just seems 0.5 or 1 billion less than some years back, when you're doing 15.8 or 14.8. I'm just trying to say while the margins be that low I mean aerospace mix issue a little bit. But can just help us level that why would be lowered and even years ago, when revenues were even lower?

David, this is Tom I'll start, I'll let Cathy add on. First of all, it's a little bit typical if you do have to back out acquisitions, because acquisitions in the first quarter do throw off the MROs is a little bit. So if you and we can share this with you more privately and one on one, you'll have with Robin and Jeff with the decremental without acquisition and we kept them in one a lapped are now 25% to 30% range. For a guidance in an uncertain times that is a really good guy MRO. So the MRO is come out the probably position. When you look at their respective segments, so North America 18.9 versus 19.3, again, this is a make an apples-to-apples amortization put back and both years. We had 11% volume drop, and we have a mobile next, a headline. So that seems dropping 40 bps seems reasonable, International, we've got lower volume and so that's dropping 30 bps, 17.1 versus 17.4. And aerospace perhaps the most, which is what, helped a lot here in FY '20, 20.5 to 17.9. And the big difference there is the international military MRO that we had which really gave us a strong fourth quarter. And then they had the most severe volume drop for the full year and 20% organically. So I think these are really good numbers. MROSs for an August guide are best-in-class as far as what we would guide to. I can tell you we've never, ever guided to a 25% to 30% MROSs. We always typically guide into higher than a 20% to 30% range. So we are reflecting how the business has gotten better, or we're also forecasting into a very uncertain period of time. Hence why, we didn’t go down to the teams because that's a difficult thing to repeat.

I think when you strip out the change and you look at a pre adding back amortization, what really sticks out is international, which just put up margins year over year pre amortization add back in last year in total at 59, you’re driving around 14 with a decremental of around 40. I'm just trying to understand, is there something unique going on internationally, creating that in the modernization, something going on international to mix on this thing.

Yes, for me international is a lot less amortization, it's getting allocated. You got to look at both years with amortization in, and that's why it was articulated to FY '20 with amortization all in is 17.4 and it's only dropping 17.1. So, it's not much of a drop at all for international, and it matches what you would expect with the kind of volume drop.

We'll talk offline about the add-backs for -- by section.

Yes, you're throwing in international amortization as if it has the bulk of the amortization. The bulk of the amortization would reside in North America.

Yes, I'm just taking the quarter you just reported and times-ing it by four essential keeping it as a run rate by quarter. So maybe Robin or Kathy offline, we can get the exact ad that by segment for 21 would be great. Thank you so much. Appreciate it.

Our next question comes from the line of Nathan Jones with Stifel. Your line is open.

I've got one that's probably for Lee. Can you guys talk about what kind of friction you're seeing in your own operations from safety protocols that you've had to put in as part of your processes, whether that's changing how the U-shaped cells are laid out or anything like that or additional costs that you've incurred and if that's meaningful to your results? And then are there plans for you to be able to improve those processes and eliminate some or all of those frictions as we go forward?

Well, that's a great question. Thank you. first off, because I know there's a lot of team members listening, I can't say enough about what our worldwide team has done and putting in these safety protocol, that's been audited by a lot of outside, governments, and they've always applaud what we're doing internally to separate things out and keep our workers safe, but remark. Yes, there is a cost. It's not material things up, but it's remarkable what our teams continue to do in terms of reconfiguring ourselves, still getting the same productivity flow, but separating our workers from each other, giving them the space, giving them the many cases plexiglass separations, and just organizing a production system that you know is consistent with our lean production system. It gives us excellent flow and keeps everybody safe. So, nothing meaningful to talk about, doing a great job and the results I think prove it out.

Fair enough. Maybe on capital allocation, Tom, we're getting down to net debt in the low 3, probably by this time next year, it's going to be in the 2.5, maybe a little bit better than that even. Depending on how the recovery goes. When -- how are you guys thinking about when to reenter the M&A market in a meaningful fashion, what kind of leverage metrics do you need to get down to before you look at that? And how is the cultivation of the pipeline going in the meantime?

Nathan, I'm going to start with that and then I'll turn it over to Tom. I'd like to recalibrate you a little bit. Keep in mind that EBITDA is dropping. So, the denominator gets a little bit more difficult. I think 2.5 times next year is a pretty aggressive projection and not what we're anticipating we will be able to do. So, Tom, you want to comment?

Yes. So, we're probably going to be still north of three when we finish. But obviously, we're going to do what we possibly can to saw the pace of debt reduction. We did this last fiscal year. But on acquisitions, we continue to always build those relationships and look at those strategic targets and have those discussions. But we're not going to enter into those until we get the M&A to get the covers down into those low 2s. And we're going to work very hard as soon as we get the lever.

Thank you. Out next question comes from the line of John Inch with Gordon Haskett. Your line is now open.

Hi, Cathy. Could you comment a little bit on the first quarter expectations for core growth? And obviously, the genesis of my question is, you've got North American orders and international orders much worse than the core growth you just put up and then the outlook that shows the substantial top line rebound, right in all of fiscal '21. So, I'm assuming we're heading to a pretty tough next quarter or two. Is there anything you could say about that?

John, it's Tom. So, in similar way what I mentioned when I went through the first half, first half is going to be minus 19 for the total company and North America is going to get a little better from minus 25 last quarter to minus 21, and International minus 15 to minus 12. So, we see that gradual improvement. It will be a little bit in Q1 and a little bit more in Q2. The only thing that will weaken will be aerospace as aerospace is a longer cycle in finding bottom, probably most likely kind of in the middle of a year as far as aerospace finds bottom.

And do you expect these businesses to good turn positive by the end of fiscal '21 just as part of your guide or still hovering negative?

Yes. We've thought in Q4, it'll be probably plus high single-digits on the industrial portion and aerospace.

And probably if you went over this before, there is just a lot of moving parts. I wanted to just as follow-up, the structural actions, I guess I was under a bit of an impression that, the Company was not looking to take structural actions based on all of the work that you've done before. So Tom, I'm wondering kind of what perhaps, maybe I got that wrong, but was there something that did trigger your thought process to go ahead and take structural actions like, do you think the outlook narrated that as the quarter proceeded, and can you tell us anything about sort of how you're allocating these actions across say, aerospace versus International versus the domestic ops?

Yes. I'll kind of give you more strategic view second, like Cathy comment as far as within the segments, but when we looked at it, John. We look at aerospace on gas going to be down for long. So we needed to take structural actions there. And we also just looked at the trajectory here. And the opportunity between all the things we've been doing for even more continuous improvement regarding the structure of the Company. So that's why we're looking at permanent if this was to bounce back sharply already could not be doing it, the face of effective, this is going to be a little longer trajectory. And we have some certain markets that are down proposed several years. We wanted to take the actions now to get the right decision. And we really felt that way, as we're going through it at the end of Q4, and that's why we took those actions. So, the actions we took in Q4 are really helping us springboard into FY '21 savings. I don't know if Cathy wants to add on as far as how it's going to split between the segments or not.

Yes, for FY '21, John, the split will be about half of the costs will be through the international operations. And then the remaining 50% will be fairly evenly split between aerospace and North America. And keep in mind that these actions are more workforce related than they are asset related.

I guess I would just add on. Something that we did by structuring about 50 blend a permanent discretionary is it gives us the flexibility to move depending on what happens on demand.

I'm sorry. I don't understand. Permanent discretionary gives you the flexibility to what?

To move based on demand. As an example, if we just made all permanent action, you probably have a little less flexibility by doing a mixture of both. So more flexibility and we're not taking out assets, which gives you even more flexibility. You can obviously have people vacant.

And at the numbers are definitely impressive on the paybacks. Thanks very much. Appreciate it.

In respect of everyone's day, we're going to take one more question and then let you go.

Our last question comes on the line of Andy Casey with Wells Fargo Securities.

I guess it dovetails with John's last question on the concept of workforce versus assets within the restructuring. Can you comment on, as other companies may have done similar things whether your experience with this pandemic has accelerated stuff you've already had in the pipeline? And what sort of things might those be?

Andy, it's Tom. So we always look at how to continuously get better, as far as our people or how we deploy them. And that's a combination of lean and kaizen simplification, all those types of things. So I would say, we always have a pipeline of those type of ideas to groups and divisions do. And when you run into where volume is down, if this volume is going to be down for longer, some of those things getting get accelerated. Clearly, when we look at the most distressed markets that is causing us to take more aggressive action there because we don't expect him to come back, aerospace as an example anytime soon, but we always look at I like better on the structure of the Company. And I haven't said that this is that plus our response to the end markets that are being the most distressed.

And then the last question, they've been quite a few questions around this. But if I take the midpoint of the first half, second half framework that Cathy put out, the decremental margins with all adjustments are slightly above 30 in the first half and then high 20s in the second half. Is that difference, I know, I’m splitting here a little bit, but is that difference really mix related and the impact of acquisition? Or is there something else?

No. Andy, you summarized it because when you take out the acquisitions and only have them when they've lapped so its apples-to-apples, the decremental are 25% to 30% range have been. So, that's pretty good because you're pointing mix it’s not going to help us next year as well.

So this concludes our Q&A and our earnings call. Thank you everybody for joining us today. Robin and Jeff will be available to take your calls should you have any further questions. We appreciate your times this morning. Enjoy rest of your day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.