David Pugh – Chairman and Chief Executive Officer Ben Mondics – President and Chief Operating Officer Mark O. Eisele – Vice President, Chief Financial Officer and Treasurer

Jeff Hammond – KeyBanc Capital Matt Duncan - Stephens Inc. [Brent Rikers] - Morgan Keegan Richard Marshall - Longbow Research Brian Carlson - Atlantic Investments Holden Lewis - BB&T Capital Markets Adam Uhlman - Cleveland Research Company

Welcome to the Applied Industrial Technologies fourth quarter 2008 financial earnings teleconference. (Operator Instructions) Applied issued its fourth quarter earnings release early this morning, before the market opened. You may retrieve a copy of the release by visiting the company’s website at www.Applied.com. A replay of today’s teleconference will be available for the next two weeks as noted in the news release. Before we begin the teleconference, I would like to remind everyone that there will be discussions regarding Applied's business outlook, and there will be statements that are forward looking. All forward-looking statements are based on current expectations regarding important risk factors, including trends in the industrial sector of the economy, the success of our various marketing strategies, and other risk factors identified in Applied’s most recent periodic report and other filings made with the SEC. Accordingly, actual results may differ materially from those expressed in the forward-looking statements. Our speakers today include David Pugh, Chairman and CEO of Applied, who will discuss Applied’s overall performance during the quarter. We’ll also hear from Mark Eisele, Vice President and Chief Financial Officer, who will discuss the financial performance in detail, and Ben Mondics, President and Chief Operating Officer, who will discuss operational activities. I would now like to turn the call over to David Pugh, Applied’s Chairman and CEO. David L. Pugh: It’s fun, and I’m pleased to announce that our fiscal 2008 was another record year for the company. Our business focus on profitable sales growth has yielded our sixth consecutive year of record sales and earnings, and while the economy dips off a little bit in the second half, the things that were under our control, such as inventory management, other asset management, productivity improvements, cost controls, all were handled well and allowed us to post the strong financial result that you’ve seen. You know, the sales did go up to $2.1 million, a 3.7% gain, and off of that 3.7% gain we took earnings per share up 13.5%. So our investments in information technologies and employee training programs continue to give us good operating efficiencies. The productivity that we’ve shown is reflected in the historically low SD&A as a percent of sales that we’ve shown for the year. We’re able to generate excellent cash at $110 million. It gives us a good cash balance at the end of the year and, you know, allows us to do some nice strategic things. In addition, we raised our dividend last year 25% to $0.60. So cash flow is going very well, and that’s going to position us to continue to run this company on a strong basis. Now I’m sure you’ve noticed that the top line of the sales was a tale of two significantly different halves. The softness that we experienced in the second half relates to a continued decline in some market segments that are key to us. Today’s market is unusually dichotomous with regard to strength of segments. It’s pretty obvious that anything related to housing is a problem. Anything related energy is in a boom situation. And Ben’s going to add more details about our market segments and their affect on our top line in his comments, but operationally, I want to assure you we are still strong and we continue to improve. The cost controls, the pricing discipline have kept our operating margins at great levels, and that, coupled with excellent asset management, has given us exemplary cash generation. So while the sales volume is of temporary concern, the rest of what we manage is well under control, and we feel like we have the plans to mitigate the market challenges that we’re going to face in fiscal 2009. So here’s Ben to give you a few thoughts about that.

In last quarter’s teleconference we made the statement that our indicators were pointing to additional slowing in our fourth quarter. The indicators turned out to be true, as we saw continued issues in a number of the key industries we serve. Despite a strong headwind, our associates worked hard to deliver good sales and earnings. The key to understanding our performance in the second half of 2008 lies in the industry mix of our sales. We have been very successful over the years in certain markets that match up well with our product and application knowledge. Today some of those markets are suffering, primarily due to the housing and automotive markets, and they have influenced our sales line and flattened it. Not surprisingly, we saw decreased sales to the lumber and wood products industry. Through the second half of our fiscal year, our business to that segment was down double digits compared to the same period of 2007. Mirroring that decline was the performance of our customers in the transportation equipment segment. Some, but not all, of that sales decline was countered by strong increases in power generation, primary metals, food and metal mining. Government sales also continued to produce double-digit increases and totaled over $72 million for the year. Our sales force continues to expand their efforts to include all types of government entities, local, county, state and federal. Catalog sales continue to grow, and we enjoyed a strong double digit increase compared to last fiscal year. Our new 1,100 page 2008-2009 catalog began distribution to customers last month. The new catalog includes more than 40,000 products of all types. During the year, we signed a number of new supplier agreements, including Dixon Sanitary, a maker of stainless fittings and valves for the food and pharmaceutical industries, and DEWALT Industrial Tool Company, a manufacturer of professional tools and accessories. Last month we announced authorization by NSK Corporation, further broadening our bearing product line. Our national account business continued to perform well and was up again this year. Conversely, we’ve lost some ground at the non-contractual side of our business, which we attribute to our served markets, as mentioned earlier. For the fiscal year, our U.S. fluid power subsidiaries increased their sales by 2.6%. Although our Canadian sales for the year increased 5% in U.S. dollars due to the impact of the currency translation factor, we continue to have our challenges in the forest products industries. Our same store Mexico and Puerto Rico operations continue to perform, improving annually by 1.2% and 4.6% respectively. Looking into fiscal 2009, we believe some markets we serve will continue to be soft. The latest economic indices, including the ISM Purchasing Manager’s Index at 50 and manufacturing capacity utilization below 80, are consistent with sluggish growth in the industrial economy. We believe that the economy will remain soft through our first and second quarters, but overall for the year we should see a sales increase of between 2% and 7%. In anticipation, we are continuing our efforts to keep expenses and assets under control, and we’ll balance our operating costs with our sales to position ourselves for a fair return on assets. At the same time, we will continue to invest in those areas that offer opportunities for profitable growth in the short term and the long term. Finally, we have been aggressively pursing acquisitions in the second half of 2008 and completed the purchase of two Mexican distributors, VYCMEX in December and Enol in June. As a result, Applied Mexico is now the largest bearing and power transmission distributor in Mexico. In July of 2008 we announced an agreement to purchase Fluid Power Resources and seven of its Fluid Power distribution businesses in the United States. Once this acquisition is completed, Applied will be the largest Fluid Power distributor in North America. It is gratifying to achieve our sixth consecutive year of record sales and earnings. We have ample opportunity for continuous improvement; better ways to run our company for the benefit of shareholders. We’ve made a lot of progress in our efforts to improve our annual operating margin over the last six years, improving from 2.5% to 7.3%. That improvement was generated by a focus on all aspects of the business, including profitable sales growth, margin improvement, expense control and asset management. These efforts will continue in fiscal 2009. Our operations in the United States, Canada, Mexico and Puerto Rico, as well as our Fluid Power subsidiaries, have all contributed to this past year’s success, and I thank all of our associates for their efforts. Keeping our focus on value creation, we expect to see a good year ahead. I’ll now turn the call over to Mark Eisele for a discussion of our financial results. Mark O. Eisele: Let me provide some additional insight for our fourth quarter and fiscal year financial performance. We had 64 and 63.5 selling days in fiscal 2008 and 2007 fourth quarters respectively. For the quarter, total U.S. service center sales were flat compared to prior year, and U.S. Fluid Power operation sales were up 4.1%. We estimate that overall sales were positively impacted by passing along supplier price increases of approximately 1 to 2 percentage points. Therefore, the volume and mix of sales at our U.S. service centers was slightly down for the quarter. Sales in our Canadian operations improved by 2.4% in the quarter. This represents an 11.4% increase due to currency translation, offset by a 9% decrease from volume, mix and pricing. The decline in Canadian sales in local currency was fully attributed to our Canadian service centers, as our Fluid Power businesses sales in Canada were relatively flat. Our same-store Mexican operations grew 3.7% in the quarter, with additional sales of $2.4 million attributable to the results of our VYCMEX acquisition. Our Puerto Rico operations also reflected a 4.1% increase in the fiscal 2008 fourth quarter versus the prior year comparable period. During the quarter, our number of operating facilities increased to 459 locations due to the inclusion of the 10 Enol locations acquired at year end. These Enol locations will begin to be included in our operating results starting July 1st. Our product mix during the quarter was 20.2% Fluid Power products and 79.8% industrial products. Our gross profit percentage for the quarter was 27.0%, slightly lower than our annual guidance but 10 basis points higher than last year’s fourth quarter. Overall, for the year our gross profit percentage was 27.2%, which is consistent with the prior period. Our selling, distribution and administrative expense as a percent of sales was 19.7% for the quarter. The absolute dollar increase in SD&A for the quarter was only 1.0%. We continue to invest in long-term sales growth, productivity improvements and cost control opportunities while still keeping SD&A increases at or below the rate of sales increases. Our fourth quarter operating margins were consistent at 7.3%, same as in the prior year’s fourth quarter. This represents the fifth consecutive quarter our operating margin surpassed the 7% level. The effective tax rate for the year came in at 37.1%, slightly below our projection of 37.2%. Our balance sheet remains solid, with shareholders equity at $502 million. Our pretax return on assets for the quarter was stable at 20.1% compared to last year. For the full fiscal year, we achieved a return on assets of 19.5% versus 18.1% for the prior year. Our June, 2008 inventory balances were $10.8 million higher than last year’s June 30th levels, primarily due to the impact of our acquisitions. Accounts receivable and days sales outstanding of approximately 40 days improved over the prior years but are not currently at our internal targets. Cash provided from operations for the quarter was a solid $49.4 million compared to $38.2 million in the prior year fourth quarter. In each of the last four years, our ratio of cash provided from operations to net income ranged from a low of 0.82 to 1, to a high of 1.46 to 1, demonstrating our strong cash-generating characteristics. Our cash position will be impacted by the previously announced acquisition of FPR for a purchase price of approximately $169 million. We plan to fund this through a combination of drawing down our existing, committed bank revolving facility and from our available cash. We expect to continue to be active with additional acquisitions and further stock buybacks in fiscal 2009, even after we complete the FPR deal. Since we have not yet closed on the FPR acquisition, we have not incorporated them into any of our fiscal 2009 forward-looking information. All guidance and forward-looking information reflects Applied as an entity today. Once we close the FPR acquisition, we will revise our guidance as appropriate. We provided annual financial guidance for fiscal 2009 in this morning’s press release for sales increasing between 2% and 7% to approximately $2.13 to $2.24 billion, with earnings per share in the range of $2.20 to $2.40 per share. We are not forecasting any gains on sales of property or other non-operating events for fiscal 2009. We expect fiscal 2009 gross profit levels to remain comparable to the fiscal 2008 annual rate of 27.2%. The rate of supplier price increases is uncertain at this point, and additional escalations could impact our ability to pass these along to our customers. We expect to realize purchasing incentives from suppliers at a rate similar to those achieved in 2008. We will continue to work our initiatives to improve pricing and freight recovery throughout 2009. While our aim is to keep a continued tight control on our selling, distribution and administrative expense growth in 2009, our expectation is that SD&A will grow at the same rate as sales. Therefore, we are anticipating a stable annual rate of SD&A expenses as a percent of sales when comparing fiscal ’09 to 2008. The overall growth in SD&A is being influenced by continued investments in initiatives that will help us build future profitable growth, such as our initiative to expand sales to government entities. For fiscal 2009, interest expense net of interest income should be flat compared to 2008. We also expect our overall tax rate for 2009 to be in the 37.0% to 37.5% range. Depreciation expense should remain in the $12.5 million to $13.5 million range for 2009 also. Due to our recent Mexican acquisitions, we expect fiscal 2009 amortization of intangible assets to increase to approximately $3.1 million. From a cash planning perspective, we expect property additions to be primarily in the computers and information technology area, with total additions in the $10 to $12 million range. We plan to continue to purchase stock for treasury periodically throughout the year depending on market conditions, and we’ll continue monitoring our quarterly dividend rate for consideration of further increases. We will also continue to pursue acquisitions that match our stated growth strategy of growing profitably in North America within our current product domain. Now here’s Dave for some final comments. David L. Pugh: And, you know, that’s pretty much it. Solid performance; solid forecast for next year. We feel like we have the management structure in place to get us through a pretty challenging market that’s going to be out there. So at this point we’ll open the floor for questions.

(Operator Instructions) Your first question comes from Jeff Hammond – KeyBanc Capital. Jeff Hammond – KeyBanc Capital: I guess first I was wondering if you could give us a little more color on, you know, besides just the auto or the transport and the, you know, forest products weakness, it sounded like, you know, of your top 30 end markets or SIC codes that you’re seeing kind of broad, you know, broader weakness. Can you just talk about some of the other markets that you’re starting to see slow down?

Yes, Jeff. You know really those are the two markets that we saw. The deep, you know, downturn and maybe even like in the lumber and wood products area, we actually saw an acceleration in the downturn where we started to see it slow down around the December quarter; the slowdown accelerated through March and June, which was difficult to predict. And we’ve probably had six quarters now where that market segment has been down. Automotive is a struggle, also. We’ve had - the others are, you know, slight variations from throughout the year in the quarters - December, March and June quarters - so nothing really significant. But probably about half of the, you know, our top 30 industries we serve, were down, and the other half were flat to up. Jeff Hammond – KeyBanc Capital: So is it fair to say that the deceleration on a growth rate, you know, March quarter to June, is just further acceleration in those two problem end markets?

From all the data we have and everything we look at, that’s the best we can tell. We’re still struggling in Western Canada in the forest products area and, you know, really anything related to housing and light vehicles. So that’s what we attribute it to. Jeff Hammond – KeyBanc Capital: And then just on the guidance, I think at the mid-point you’re calling for 4.5% growth, which is a slight acceleration, you know, from what you just put up. And it just seems like the macro crosscurrents, you know, are getting broader versus, you know, narrower. And I just want to understand what you think, you know, gets worse, what you think gets better? You know, how you kind of got comfortable with that, you know, with that range of growth rates.

We’re seeing some markets showing signs of life. As a matter of fact, in the drilling area in Canada, we’re seeing some improvement there. Still some challenges there with wage pressures and such, but we’re seeing some improvement, you know. And then some of it really, you know, if you look at the full year, we’re expecting some improvement as the year goes on, especially in housing. It should be better as we go throughout the year. In addition, built into our numbers we have additional government growth. We’re looking for growth from a dollar standpoint in '09 similar to what we had in '08. And then we also have our two Mexican acquisitions in the numbers also. Jeff Hammond – KeyBanc Capital: Okay, so we should, in terms of the make up of the growth rates, you’d expect some acceleration the back half of the year?

Yes. Jeff Hammond – KeyBanc Capital: Okay, and then final question. I know the deal hasn’t closed, but can you put some parameters around this new Fluid Power acquisition in terms of what you’re initially thinking in terms of accretion, etc.? Mark O. Eisele: Yes, Jeff. This is Mark. We’re really not prepared to talk about that now. And as we stated in our press release in mid-July, when we announced this, we do expect it to be accretive to us basically out of the gate, and I think that’s still our expectation. But we don’t have anything that we can really hang our hat on right now to talk more about that. Jeff Hammond – KeyBanc Capital: When do you expect that to close? Mark O. Eisele: You know, we’re working hard with the owners to try to, you know, get that closed as soon as possible. As you may or may not know, we did file for Hart-Scott-Rodino stuff at mid-July. And, you know, the government has, I guess, given us the okay for that, and so we’re working with them now to finalize the final deal points at this point in time. And, you know, we’re working hard to try to close it as soon as possible.

Your next question comes from Matt Duncan – Stephens Inc. Matt Duncan – Stephens Inc.: First question I’ve got is, Ben, last quarter you guys had mentioned that you saw kind of a dramatic slow down in sales to industrial machinery and equipment, guys, that SIC code. Did that continue this quarter?

Still down, you know, slightly, down a little bit more than the March quarter. Matt Duncan – Stephens Inc.: [Break in audio] think is going on there? What’s kind of behind that [softness]?

We see that as a macro economic indicator. It’s a very general category. Matt Duncan – Stephens Inc.: So then I guess, you know, kind of built into your guidance, then, would you expect that, you know, that’s a pretty big category for you guys. Do you expect that to kind of pick up as the year goes on then?

Yes. Matt Duncan – Stephens Inc.: Mark, can you address the impact of supplier price increases on gross margin this quarter? I know we’ve heard from other distributors that it kind of weighed on gross margins a bit that there was maybe more than normal price increases during the quarter. Did you guys see the same thing? Mark O. Eisele: A little bit, Matt. What we saw and what we talked about on the conference call was up to about 2 percentage points we felt was from supplier price increases. And if you go back and look at our previous conference calls this fiscal year, you know, that amount is higher, you know. So as we march through the year, the impact went from a low of 0.5 percentage point in our first quarter and last quarter was, I think, around 1 to 1.5 percentage points, and now we’re up to 2 percentage points. So we’ve seen a slight marching forward of that. And we would expect that, you know, the rate that we saw in the fourth quarter, which was up to 2 percentage points impact, you know, may be the rate that we continue, you know, walking into fiscal 2009 with as we’ll start seeing those things continue maybe to have small impacts as the inflationary drivers of the energy as well as raw material costs continue to impact our suppliers and the amount of price increases that they pass along through the distribution channels. David L. Pugh: Matt, with regard to your comment on its impact on margins, you know, you’re totally correct that typically it does have a downward impact on margins in the short term. It’s to the credit of our guys that we have mitigated that somewhat during this quarter, and I think the plans we’ve put in place have done a good job to manage that versus historical precedent. Matt Duncan – Stephens Inc.: So if I’m hearing you, then, you think these price increases will probably continue; there probably is a little bit of drag on gross margin from that early in the year, but it gets better as the year goes on? Mark O. Eisele: I think that’s fair. I think the more price increases you have, the more the potential drag is on margins because of, you know, the tougher it gets to continue to pass these along to our customers, although that’s our number one priority is to pass things along. Matt Duncan – Stephens Inc.: From a competitive point of view, as you guys look out in the marketplace and you look at the growth rates that some of your bigger competitors are putting up right now, they’re growing a little bit faster at the top line. I’m curious if you have any sense, is that end market differences or do you guys feel like right now you might be losing a little bit of share?

Matt, our belief is that we are not losing market share. If we look at the contractual agreements, we’re ahead more so than the remainder of the business. So the accounts that we can identify and the contractual business, we look good. And looking at it geographically, looking at it by industry, looking at it by customer size, all summed up, we do not believe we’re losing any share, and it’s really, as I said earlier, more of a case of mix of industries that we serve where we’re strong. And we’re not going to be able to turn on a dime, but we have actions in place to redeploy assets, as we’re doing with the government piece, to grow in areas that we see as good growth from midterm and the long term. And some of those industries where we’re not as strong right now, over time we’ll be stronger. But it doesn’t turn around quickly at times. Not quick enough for us. Matt Duncan – Stephens Inc.: And a few more things here. First, on the SD&A line you guys basically had flat sales sequentially, and you were able to cut another roughly $2 million out of that line. Did you have any branch closings or was that just, you know, small stuff that resulted in that decrease?

We did not have any branch closings. It's really the traditional stuff and watching our expenses, you know, headcount through attrition possibly, and looking at those market areas that are suffering and adjusting our costs in line with that, watching the assets, discretionary spending. And then also at the same time making sure that we're investing for the future. And, like I said, with government as a great example, we continue to invest in the government arena. We have not pulled back on that at all. So any of those areas where we see that we can see revenue increase, we're continuing to invest; those areas that are weak right now, we are watching the expenses. Matt Duncan - Stephens Inc.: Mark, have you guys said what Enol's annual sales are? Mark O. Eisele: I don't know if we disclosed that. You know, the Enol sales are, you know, they'll start in fiscal '09, but I think from the combined perspective of Enol and VYCMEX for the apples to oranges '09 to '08, that's going to add about, you know, 1.5 percentage points to our sales. Matt Duncan - Stephens Inc.: And then last thing here and I'll jump back in queue, can you guys just give us a little bit of insight into your Fluid Power business and talk about your position in that marketplace? You know, how many of your locations have Fluid Power? What's your sales growth been like there? Now that you guys have bought FPR it's becoming an increasingly larger piece of your business, so if you could just address that, I'd appreciate it. Thanks.

Okay, I'll go first here. I guess first of all it is obviously becoming a larger part of our business, but still very, very fragmented. And we continue to expand our product portfolio, continue to expand our geographic footprint, but still a tremendous amount of room for growth there. Mark, anything you want to add to that? Mark O. Eisele: Yes, I think from the from Fluid Power perspective, we continue to see growth in sales of Fluid Power components through our normal service center channel as well as the separate business channel, and with this acquisition that we're still working on for FPR, I think that's just going to give us more and more opportunities to continue to take advantage of marketplace.

Your next question comes from [Brant Rikers] - Morgan Keegan. Brent Rikers - Morgan Keegan: I just wanted to follow up on the market share question. And I understand that the national account customers, the revenue from those is up year-over-year, but I'd like to take that a little bit different way. Could we get some sort of indication in terms of the number of national account customers, what the wins - the new wins of new customers there might be versus customer losses on that front, let's say, over the last six to nine months? Mark O. Eisele: Yes, without getting into any specific, Brent, you can look at it two ways. You can look at the national account business and look at the current business we have and how that's doing, so you could have current customers that are doing well or doing poorly. That's one way to look at it. The other way to look at it is, you know, recent wins and losses. And we look at it both ways, so my comments are really to cover both of those viewpoints. And looking at wins and losses within the current quarter within the last six months to 12 months, we are winning more than we're losing. Brent Rikers - Morgan Keegan: Would that be roughly in dollar terms, too, so your wins are the size of customers that are offsetting the size of the customers that are losses? Mark O. Eisele: Yes. Brent Rikers - Morgan Keegan: And then just to clarify again - again, I think I'm, like some of the other questioners, trying to understand the differentials between your growth rates the last couple of quarters and some of your peers - could you maybe expand upon the size of some of your end markets that are weak, particularly the Force Products business and maybe also the auto sector? Because it doesn't seem like down double digits, you know, at the 10% to 15% kind of number, would drag the overall sales growth down as much below your peers' numbers as it is.

I think, you know, Brent, from the overall sales perspective - in the total force products that's about 15% of our sales. And in the transportation arena, which is basically the automotive and, you know, light trucks, that's about 4% of our sales. So combining those, I'd say, I guess 19%. Brent Rikers - Morgan Keegan: And then, Mark, could you remind me, you said down double digits, for example, in force products. I mean, does that - do we put more color? I mean, is that down 25%, 30% double digits or are we talking down 10% to 15%? Mark O. Eisele: Low double-digits.

But for five consecutive quarters. Mark O. Eisele: Yes, but we've had five quarters of decline there. Brent Rikers - Morgan Keegan: And then, I guess, last question, on the supplier price increases, it seems to me that the announced price increases from the majority of your suppliers have averaged in the 5% to 10% range for, you know, anywhere from July 1 to August 1. I mean, obviously there's typically some pushback on that, but it would seem to me that your inflation targets of 1% to 2%, pretty similar levels going forward, seem very low. Is there something different that's maybe implied in your revenue guidance for the year? Mark O. Eisele: No, I don't think so Brent. You know, when we look at the impact of the supplier price increases on our sales, you know, we've got to look at that from a couple of ways. And how I view those things is that generally about, you know, one-half - a little under onehalf of the announced supplier price increases is sort of the top end of what we can expect to see within our arena for what we are actually selling, you know, compared to the prior year. So when I see those numbers of the price increase percentages, you know, I go back and I look at what's the weighted average impact on the actual products that we sell because those announced increases from the suppliers, that's a real - they are painting a very broad brush there with those percentage increases. And we don't see those increases on all of the products we sell. You know, some of them are more modest. Some of them are bigger and it depends how much we sell of each product as to what the impact is for us. So, you know, so we see a smaller impact to those things. And then, of course, you know, we then fight the battle of passing along 100% of that price increase to all of our customers, you know, from a margin perspective, too. Brent Rikers - Morgan Keegan: Mark, maybe one follow up to that. I mean, again, obviously different industries but similar, you know, metal content and petroleum-based product content, I think, to some of your suppliers but, I mean, you look at, you know, your MSCs and your Fastenals seeing, you know, 5%, 6%, 7% collective price increases from suppliers and you're seeing only a couple percentage points. I guess I'm confused about the disconnect there.

A couple percentage points is really what we realize in our sales. And I think, as Mark alluded to, it's a very complicated analysis to see what we realize as opposed to what's announced.

Your next question comes from Richard Marshall - Longbow Research. Richard Marshall - Longbow Research: I have a question about your operating margins. Do you think the 7.3% number is sustainable looking out towards '09?

Yes. Mark O. Eisele: Yes, I think that's exactly what we have in our, you know, in the concepts that we have in our projections and guidance that we have going forward. Richard Marshall - Longbow Research: And it seems like your comments about the government business have been pretty upbeat. I'm just curious about what you see the impact of the change in administration having on your government business?

We're not going to make any political statements, but no matter which party wins, we see tremendous opportunity in the government arena. Richard Marshall - Longbow Research: So basically no impact depending on [inaudible].

We have such a large opportunity for growth that it shouldn't have an impact on our plans. Richard Marshall - Longbow Research: Now looking a little bit at your acquisition strategy, from a geographic standpoint, I mean, are you targeting more sort of North America versus Mexico at this point or can you kind of flesh that out a little bit?

We have opportunities in all geographic areas. We're looking at both Fluid Power and the bearing and PT side. Some of it is proactive; some of it is reactive. We have geographic holes we need to fill, and our business is still so fragmented that we have a lot of opportunities, and we really are kind of looking at what matches well with our company culture and meeting our parameters for where we're looking to grow. Richard Marshall - Longbow Research: And just the last thing, you mentioned that you expect to continue to repurchase shares. I mean, is that just to counter share creep or do you expect, you know, to fulfill the remaining, say, million shares that remain on your current authorization?

Richard, I think it would be a little bit of both. Obviously we'll be very opportunistic out in the marketplace and, you know, see how things are going with that. But one of the core objectives is to try to counter the share creep. But also, you know, we're looking out there to be active in the marketplace, and if and when we would use a lot of those million share buyback things, then we would then ask the Board for considering another reauthorization.

Your next question comes from Brian Carlson - Atlantic Investments. Brian Carlson - Atlantic Investments: I just wanted to ask a little bit about the authorization by NSK that you mentioned getting a month ago. How did you come to distribute for NSK and how were they doing it previously? And then sort of what is the opportunity that you see with that product line?

That's an interesting question, and we've got to be careful how we would talk about this. But we know - we've talked with NSK for quite awhile and with regard to whether it makes sense for the two of us to get together, and we have found that this timing is right. As we continue to look at global expansion for ourselves, they're a global supplier. This has nothing to do or negative comments about our current suppliers. But, you know, we want to make sure that we are at parity, at least at party, with what competition is offering in the marketplace, and we'll utilize that accordingly. Brian Carlson - Atlantic Investments: Would the NSK product line have the same kind of margins you have with SKF or Timken?

We don't comment on margin with regard to products and suppliers. Mark O. Eisele: But I think it would be fair to state that we don't expect any significant changes in the overall margins because of NSK being part of the team here.

I think overall, to use a financial term, we look at the authorization as being accretive to sales and earnings. Brian Carlson - Atlantic Investments: And just to go back to the question, can you talk to us at all about how they did it before? Are they still going to continue to distribute the way they did before and then also through AIT or are they giving up some distribution to be with AIT?

No. You know, they operate very similarly to our other suppliers, and they have other distributors for their products.

Your next question comes from Jeff Hammond – KeyBanc Capital. Jeff Hammond – KeyBanc Capital: I just wanted to come back to the sales guidance. I know you've said in the past, you know, historically you guys correlate pretty well to capacity utilization, which has been stagnant to coming in, so I guess it just seems like things on the margin are getting more challenging, so I'm just struggling to understand, you know, the reacceleration. Is it just optimism into the second half or, you know, do we indeed see, you know, some better pricing dynamics into fiscal '09? I just want to understand those dynamics better?

Jeff, it's a combination of things. If you look at, you know, the charts for PMI and MCU and looking out into the future, they're relatively flat. So if we look at a, you know, relatively flat market with, you know, some positive signs for improvement and you put in, you know, some pricing appreciation, you look at some of our initiatives like the government and look at our acquisitions in Mexico, you can come up with some numbers in that 2 to 7 range pretty quickly. Jeff Hammond - KeyBanc Capital: And then, you know, just back on the price increases, given, you know, I guess a flatter environment, more challenged environment, are you finding that it is becoming more difficult to fully pass along these price increases?

It's always a challenge, and our team has done a great job of continuing to provide the value that we provide and have customers see the value that we provide. So I don't think it's anymore challenging today than it's been over the years.

Your next question comes from Matt Duncan - Stephens Inc. Matt Duncan - Stephens Inc.: Mark, this is really just for you. I just want to clarify that all of this guidance you gave us is all excluding FPR so that once that deal closes you would have clearly probably much higher D&A after that deal than your guiding to today, correct? Mark O. Eisele: That is correct. Matt Duncan - Stephens Inc.: Okay. Just wanted to make sure I had that right. So if I look at their business just on one other front, do their margins look relatively similar to yours in terms of SD&A as a percent of sales and gross margin both or are there some differences in the businesses? Mark O. Eisele: I'd say on an overall basis, you know, their businesses are looking similar to our businesses, although, you know, once we acquire them, you know, we will be having a significant dollar amount of intangible assets that we will be putting on the books that will then require a significant amount of intangible asset amortization on our books. So when you look at operating margin and operating profits that they'll be generating for us, you will really need to look at the EBITDA margins for them in looking at the benefits that they'll be providing that way. And it's similar to what we're getting, you know, with our businesses today. Matt Duncan - Stephens Inc.: So your EBITDA margin after you close this deal is going to be pretty close to what it's been in the past, but your operating margin's probably going to be lower because of the D&A that they're bringing with them? Mark O. Eisele: Correct.

Your next question comes from Holden Lewis - BB&T Capital Markets. Holden Lewis - BB&T Capital Markets: Throughout most of this year you did a really good, obviously, on the SD&A containment and boosting the SD&A to revenue ratio. This quarter obviously revenue has been a little bit flat, you know, and the SD&A in terms of sales numbers were up about 10 basis points, you know, flattish, a little bit up. What happens going forward? I mean, you've done a great job limiting the expenses but, I mean, do you have many triggers to pull to sort of pull expenses meaningfully lower so that even if you get, you know, 1% or 2% down revenue that you can avoid deleveraging the P&L or, you know, at this point are you running pretty lean and therefore, if revenues went negative, you know, that would be exacerbated at the bottom line by deleverage? Mark O. Eisele: Holden, looking out, you know, a couple different ways, I guess first of all we continue to see opportunities to control our expenses every day. The challenge we have, as you stated, is to make sure that we're not concentrated on cost control and we make sure that we are investing properly for the top line. The good news is we believe that our SD&A now is best in class, and we can compete in whatever arena we need to where it makes sense. But we are going to look at, you know, making sure that we're balancing, you know, the margin with the expenses that it takes to service that business. So we have a good control on the total picture, but our low SD&A gives us the opportunity to be more aggressive if we choose to be. Holden Lewis - BB&T Capital Markets: But coming out of the last downturn, I guess during the last downturn, I mean, you guys did a lot of stuff in terms of closing branches, headcount. You just had a lot of stuff that you could, you know, that you could or needed to work on to sort of improve the profitability, all of which has sort of come to roost here as the cycle has played out. I guess my question is, I mean, do you have those similar things this time or, you know, are you at such a level, like you say, of pretty lean SD&A that you're really - there's no more cutting to be done, you know, and therefore you just kind of have to weather the volume stuff however it comes? Mark O. Eisele: Holden, obviously we're not in the same position we were back in, you know, 2000 or so, and we're running leaner than we were then. But I think, as evidenced by our latest quarterly results, with flat sales, you know, we maintained, you know, and actually, you know, grew our operating margin above 7%. So we're confident that we can continue to control in the right places without losing operating margin.

And obviously it makes it harder without the sales increase. There's no question about that. But we're going to continue to focus on these things, but we also want to make sure that we're investing in the business to make sure we capture the growth opportunities that are there. Holden Lewis - BB&T Capital Markets: Just to ask it another way, you know, when revenues were growing, you know, your goal was to limit SD&A increases to I think half or less of the revenue growth. Do you have any similar rule of thumb as it relates to revenues coming down?

Well, the short answer's no, but we do have the disciplines in place to manage the costs. And I think, as you referred to back in the last downturn, I view that as a time period where we were putting in the disciplines and actually working the disciplines. And now we've continued to work them on an ongoing basis, and I would expect us to continue to work them even if, you know, the sales levels remain at a low increase amount. So we're going to work hard on it. Holden Lewis - BB&T Capital Markets: And then can you just lastly comment on trends thus far in July and August? You're almost halfway through the current quarter, I think.

Yes. You know, as we talked about earlier in the conference call, we expect the first six months of our fiscal '09 to be slower than the last six months. So, you know, we have not seen a big ramp up in our sales per day, you know, so far through July. And, you know, we're managing close to our expectations per our budget and our plan at this point in time from a top line perspective.

Your next question comes from Adam Uhlman - Cleveland Research Company. Adam Uhlman - Cleveland Research Company: Just to follow up on that last question, Mark, how shall we think about seasonality of earnings this year? Should we think of earnings declining for the first two quarters off the year and then ramping back up, or how would you characterize the year progressing? Mark O. Eisele: Adam, that's a good question. You know, we really don't give quarterly guidance, you know, as to how we think each quarter's going to be. I think if you would look backwards on our quarterly results, you know, for fiscal '08 and even prior years, you'd see more of a smoothing of the actual results and that each quarter seems very comparable as to what we were able to provide on earnings per share based upon sales dollars and that you don't see large swings in that seasonality. If you go back, you know, many years, you see large swings in our seasonality where we were getting a large percentage of our annual earnings from our last two fiscal quarters versus our first two. I think those days are gone, and it's a much more stable basis from an earnings perspective. Adam Uhlman - Cleveland Research Company: So maybe earnings growth within your zero to 10% growth range consistent through the fiscal year? Mark O. Eisele: Well, sure. And obviously each quarter, when we announce our results, we'll be updating the annual guidance, whether it's appropriate, you know, plus or minus. Adam Uhlman - Cleveland Research Company: And then, Dave, just a couple of high level questions for you. You know, it's been some time since we've talked about the potential China opportunity and building a distribution presence there. Could you update us on your thoughts in regards to that?

Well, while that's still in our sights, we have no current plans to make any moves in China at this point in time. Adam Uhlman - Cleveland Research Company: And that's still under evaluation?

It is and will be until there's some deal breaker that say you definitely shouldn't go there. Adam Uhlman - Cleveland Research Company: And then could you also talk about your acquisition appetite with FPR coming into the fold, hopefully soon. You know, would the emphasis shift back to smaller deals or would there still be some sights on some larger potential opportunities?

It depends on what's out there. You know, we would not shy away from the larger opportunities. I think we have the credit facilities in place to allow us to do that. You know, we'll just see what comes with this, but we certainly expect the FPR acquisition to give us some additional opportunity to do some tag ons to that to make it - to even grow that one out. So we feel - we are still on the aggressive path with regard to acquisitions, and we're fully capable of handling those. Adam Uhlman - Cleveland Research Company: And then, Mark, the last question for you, how shall we think of working capital this year? Do you have any internal goals of where you want inventories and receivables? Mark O. Eisele: Right. Yes, I think that our inventory levels should be comparable in fiscal '09 versus '08. Obviously, they'll grow some, you know, through just the normal inflationary perspectives, but we do not expect to have a major inventory increase or decrease during fiscal '09. The same thing for receivables. You know, we've been managing our collections and our DSOs very well the last several years, and each year we've seen our DSOs go down from the prior year. We do not expect to see any big change in that in fiscal '09. You know, we've had great experience with our collections and the quality of our receivables, and we expect that to continue. Adam Uhlman - Cleveland Research Company: Could you talk about bad debt trends? Mark O. Eisele: Yes. In fiscal '08 the overall bad debts, you know, that we experienced as a company were right around our normal levels that we've experienced. We did have, you know, one large bankruptcy over the wintertime that really impacted that negatively. So for the whole year, total bad debt expense in fiscal '08 is greater than what it was in fiscal '07. You know, our expectation looking into fiscal '09 is, you know, we've looked at the overall economy and looked at how, you know, we've viewed that, and we've said that, you know, we may see a small increase in bad debt expense in fiscal '09 versus '08, but nothing significant. So we've incorporated that into our plans.

Your next question comes from Brent Rikers - Morgan Keegan. Brent Rikers - Morgan Keegan: I think, Mark, you mentioned amortization in 2009 of $3.1 million? Mark O. Eisele: Yes. Brent Rikers - Morgan Keegan: Is that a total number or is that just the number for the acquisition that is still pending? Mark O. Eisele: That would be the total number for how we are right now, you know, before the FPR acquisition. So that includes the increases due to the Mexican acquisitions that we completed during fiscal '08 but, you know, their amortization was not fully in the fiscal '08 numbers yet. So they'll be in fiscal '09 for a full 12 months. So [inaudible] the increase. And that really is the same, you know, line item on our cash flow statement in the press release, which shows $1.663 million for fiscal '08 amortization. You know, that's the line item that we're saying well that should be $3.1 million next year. And when we close FPR and when we talk about that acquisition and the actual results upon closing, we will then give another number for the additional for that. Brent Rikers - Morgan Keegan: And then your depreciation in the quarter I think was up about $700,000 sequentially. Could you comment on that? Mark O. Eisele: Our expectation is for depreciation expense for the year for fiscal '09 to be right around $13 million. I think we said around $12.5 to $13.5. So, you know, I don't have specifically anything on this sequentially for each of our quarters this year, but we did end up the year lower than last year, and our expectation is, you know, when we look at the - what we have on the books as well as our potential acquisitions of capital expenditures, you know, we don't expect depreciation expense to change much, but it will be up a little bit. Brent Rikers - Morgan Keegan: Within SD&A, any sort of year end, you know, true ups or adjustments to bonus compensation or anything like that that either positively or negatively affected that number? Mark O. Eisele: Obviously, we always have year end true ups within all of the accounts that we have, Brent. And, you know, we do have - we make our estimates throughout the years, throughout the quarters, for what we've accomplished for that. Within the numbers for the fourth quarter, the year-end true ups, you'll get - did provide us a small benefit, you know, compared to what we've done in the past, you know, for this quarter as our [break in audio] in the fourth quarter this year were very comparable to what they were last year, whereas in last year, you know, the fourth quarter earnings were significantly better than the fourth quarter of fiscal '06. So we didn't experience that same thing for that, for the incentive compensation throughout the organization, so on a comparable basis, it was, you know, a slight benefit. Brent Rikers - Morgan Keegan: And this largely ties to I guess the fourth quarter numbers maybe coming into - closer to the lower to midpoint of the range than the high end or above the range. Mark O. Eisele: That's correct.

And there are no further questions at this time.

Thanks for being with us today. Looking forward to giving you a solid year in 2009, so we'll be with you in October. Thanks a bunch.