UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File number 1-4982
PARKER-HANNIFIN CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 34-0451060
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
17325 Euclid Avenue, Cleveland, Ohio 44112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 531-3000
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
Number of Common Shares outstanding at December 31, 1994 49,140,587
The Exhibit Index appears on sequential page 12.
PARKER-HANNIFIN CORPORATION
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income - Three
Months and Six Months Ended December 31,
1994 and 1993 3
Consolidated Balance Sheet -
December 31, 1994 and June 30, 1994 4
Consolidated Statement of Cash Flows -
Six Months Ended December 31, 1994
and 1993 5
Business Segment Information by Industry -
Three Months and Six Months Ended
December 31, 1994 and 1993 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
EXHIBIT 10(a)* - Non-Employee Directors' Stock Plan 13-14
EXHIBIT 10(b)* - Deferred Compensation Plan for Directors 15-21
EXHIBIT 10(c)* - Executive Deferral Plan 22-36
EXHIBIT 10(d)* - Savings Restoration Plan 37-52
EXHIBIT 10(e)* - Pension Restoration Plan 53-62
EXHIBIT 11* - Computation of Earnings per Common Share 63
EXHIBIT 27* - Financial Data Schedule 64
*Numbered in accordance with Item 601 of Regulation S-K.
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PART I - FINANCIAL INFORMATION
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1994 1993 1994 1993
Net sales $ 738,231 $ 592,226 $ 1,450,688 $ 1,199,637
Cost of sales 572,862 485,145 1,123,389 979,199
Gross profit 165,369 107,081 327,299 220,438
Selling, general and administrative expenses 91,168 70,070 172,703 142,840
Provision for business restructuring activities 5,044 6,705
Income from operations 74,201 31,967 154,596 70,893
Other income (deductions)
Interest expense (7,654) (10,206) (14,878) (21,817)
Interest and other income, net 148 1,222 336 3,171
(7,506) (8,984) (14,542) (18,646)
Income before income taxes
and extraordinary item 66,695 22,983 140,054 52,247
Income taxes 25,611 8,922 55,321 22,121
Income before extraordinary item 41,084 14,061 84,733 30,126
Extraordinary item - extinguishment of debt (4,207) (4,207)
Net income $ 41,084 $ 9,854 $ 84,733 $ 25,919
Earnings per share before extraordinary item $ .84 $ .29 $ 1.73 $ .62
Earnings per share $ .84 $ .20 $ 1.73 $ .53
Cash dividends per common share $ .25 $ .24 $ .50 $ .48
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
December 31, June 30,
1994 1994
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 43,553 $ 81,590
Accounts receivable, net 408,879 388,515
Inventories:
Finished products 276,446 245,068
Work in process 184,191 171,114
Raw materials 91,955 76,748
552,592 492,930
Prepaid expenses 12,666 14,263
Deferred income taxes 41,506 41,056
Total current assets 1,059,196 1,018,354
Plant and equipment 1,701,323 1,621,828
Less accumulated depreciation 950,183 904,528
751,140 717,300
Other assets 234,230 177,136
Total assets $ 2,044,566 $ 1,912,790
LIABILITIES
Current liabilities:
Notes payable $ 95,776 $ 26,973
Accounts payable, trade 170,946 181,148
Accrued liabilities 234,368 238,682
Accrued domestic and foreign taxes 51,753 57,641
Total current liabilities 552,843 504,444
Long-term debt 252,769 257,259
Pensions and other postretirement benefits 179,078 169,081
Deferred income taxes 4,930 8,052
Other liabilities 7,045 7,603
Total liabilities 996,665 946,439
SHAREHOLDERS' EQUITY
Serial preferred stock, $.50 par value;
authorized 3,000,000 shares; none issued -- --
Common stock, $.50 par value; authorized
150,000,000 shares; issued 49,273,618 shares at
December 31 and 49,265,074 shares at June 30 24,637 24,633
Additional capital 169,152 165,942
Retained earnings 866,412 806,240
Deferred compensation related to guarantee
of ESOP debt (19,733) (25,697)
Currency translation adjustment 10,420 2,538
1,050,888 973,656
Less treasury shares, at cost: 133,031 shares at
December 31 and 325,371 shares at June 30 (2,987) (7,305)
Total shareholders' equity 1,047,901 966,351
Total liabilities and shareholders' equity $ 2,044,566 $ 1,912,790
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
December 31,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 84,733 $ 25,919
Adjustments to reconcile net income to net cash
provided by operations:
Net effect of extraordinary loss 4,207
Depreciation 55,516 54,489
Amortization 3,982 2,624
Deferred income taxes (2,848) (16,381)
Foreign currency transaction loss 83 2,116
Loss (gain) on sale of plant and equipment 511 (62)
Provision for restructuring (4,115) (6,874)
Changes in assets and liabilities:
Accounts receivable 9,614 17,474
Inventories (31,724) 3,344
Prepaid expenses 2,806 (431)
Other assets (6,588) (3,712)
Accounts payable, trade (23,050) (11,841)
Accrued payrolls and other compensation (8,825) (18,049)
Accrued domestic and foreign taxes (7,651) (4,845)
Other accrued liabilities (2,393) 15,814
Pensions and other postretirement benefits 7,899 8,756
Other liabilities (1,553) (2,029)
Net cash provided by operating activities 76,397 70,519
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (excluding cash of $5,146 in 1994
and $2,095 in 1993) (105,750) (29,798)
Capital expenditures (59,548) (41,554)
Proceeds from sale of plant and equipment 8,937 1,827
Proceeds from disposition of business 3,205
Other 3,574 1,884
Net cash used in investing activities (152,787) (64,436)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares 6,998 1,581
Proceeds from notes payable, net 63,275 2,113
Proceeds from long-term borrowings 18,887 1,637
Payments of long-term borrowings (26,721) (110,179)
Extraordinary loss on early retirement of debt (6,922)
Dividends (24,560) (23,349)
Net cash provided by (used in)
financing activities 37,879 (135,119)
Effect of exchange rate changes on cash 474 (1,193)
Net decrease in cash and cash equivalents (38,037) (130,229)
Cash and cash equivalents at beginning of year 81,590 159,985
Cash and cash equivalents at end of period $ 43,553 $ 29,756
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
BUSINESS SEGMENT INFORMATION BY INDUSTRY
(Dollars in thousands)
(Unaudited)
Parker operates in two industry segments: Industrial and Aerospace. The
Industrial Segment is the largest and includes the International operations.
Industrial - This segment produces a broad range of motion-control and fluid
systems and components used in all kinds of manufacturing, packaging,
processing, transportation, mobile construction, and agricultural and military
machinery and equipment. Sales are direct to major original equipment
manufacturers (OEMs) and through a broad distribution network to smaller OEMs
and the aftermarket.
Aerospace - This segment designs and manufactures products and provides
aftermarket support for commercial, military and general-aviation aircraft,
missile and spacecraft markets. The Aerospace Segment provides a full range of
systems and components for hydraulic, pneumatic, cryogenic and fuel
applications.
Results by Business Segment:
Three Months Ended Six Months Ended
December 31, December 31,
1994 1993 1994 1993
Net sales, including intersegment sales
Industrial:
North America $ 414,206 $ 342,068 $ 825,227 $ 688,418
International 190,689 115,919 360,840 234,347
Aerospace 133,551 134,297 264,932 277,020
Intersegment sales (215) (58) (311) (148)
Total $ 738,231 $ 592,226 $ 1,450,688 $ 1,199,637
Income (loss) from operations before corporate
general and administrative expenses
Industrial:
North America $ 55,639 $ 41,491 $ 116,912 $ 83,165
International 15,209 (10,042) 28,129 (15,633)
Aerospace 13,753 9,499 29,685 22,143
Total 84,601 40,948 174,726 89,675
Corporate general and administrative
expenses 10,400 8,981 20,130 18,782
Income from operations $ 74,201 $ 31,967 $ 154,596 $ 70,893
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share amounts
_______________________
1. Management Representation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as of
December 31, 1994, the results of operations for the three and six months
ended December 31, 1994 and 1993 and cash flows for the six months then ended.
2. Extraordinary Item
In November 1993 the Company early-retired $100 million of 9.45 percent
debentures due November 1997 through 2016. The resulting pre-payment premium
and unamortized deferred debt costs were reported as an extraordinary charge.
3. Earnings per share
Primary earnings per share are computed using the weighted average number of
shares of common stock and common stock equivalents outstanding during the
period. Fully diluted earnings per share are not presented because such
dilution is not material.
4. Acquisitions
Effective December 31, 1994 the Company purchased the Polyflex Schwarz Group
of companies with operating plants in Huttenfeld and Viernheim, Germany and in
Wissembourg, France as well as the wholly-owned subsidiary, Rogan & Shanley,
in Houston, Texas for $18.1 million in cash. Polyflex manufactures reinforced
high- and ultra-high-pressure hoses, hose fittings and assemblies. Also
effective December 31, 1994 the Company purchased Hauser Elektronik GmbH, a
producer of automation components and systems based in Offenburg, Germany for
$11.6 million in cash. Effective December 21, 1994 the Company sold its 49
percent interest in its Mexican joint venture Conductores de Fluidos Parker,
purchased inventory and accounts receivable from such joint venture, and
formed a new wholly-owned subsidiary - Parker Fluid Connectors de Mexico. The
net purchase price was approximately $2.5 million in cash. On October 31,
1994, the Company acquired Symetrics, Inc., a Newbury Park, California
manufacturer of aerospace quick-disconnect valved couplings, for 108,680
shares of Parker-Hannifin Common Stock.
On September 30, 1994, the Company acquired Chomerics Inc., a leading producer
of electromagnetic interference-shielding materials and thermal interface
products for commercial-electronics and defense-electronics applications for
approximately $40 million in cash. Chomerics has manufacturing facilities in
the U.S. and the U.K. On August 1, 1994, the Company acquired the Automation
Division of Atlas Copco AB, a Swedish manufacturer of pneumatic components for
a variety of automation markets for $37 million in cash.
These acquisitions were accounted for by the purchase method, and the
accompanying statements include their results of operations since the
respective dates of acquisition. Sales by these operations for their most
recent fiscal year prior to acquisition exceeded $171 million.
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PARKER-HANNIFIN CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1994
AND COMPARABLE PERIODS ENDED DECEMBER 31, 1993
CONSOLIDATED STATEMENT OF INCOME
Net sales increased 24.7 percent for the second quarter and 20.9 percent for
the six-month period. Without the effect of acquisitions and dispositions the
increases would have been 20.5 percent and 18.5 percent, respectively. This
growth is the result of market-share gains and the worldwide recovery of the
industrial markets. The aerospace market, which had been declining, also
began to show signs of recovery in order entry although sales were down
slightly from the prior year.
Income from operations of $74.2 million for the current second quarter and
$154.6 million for the current six months was more than double the $32.0
million for the quarter and $70.9 million for the six months of the prior
year. As a percent of sales, Income from operations increased to 10.1 percent
from 5.4 percent for the quarter and to 10.7 percent from 5.9 percent for the
six months. Cost of sales as a percent of sales decreased to 77.6 percent
from 81.9 percent for the quarter and to 77.4 percent from 81.6 percent for
the six-month period as a result of the benefits achieved from prior years'
restructuring activities and the positive effects of higher production levels
in relation to fixed costs. Selling, general and administrative expenses, as
a percent of sales, increased to 12.3 percent from 11.8 percent for the
quarter and remained at 11.9 percent for the six-month period. The majority
of this increase is due to acquisitions, increased sales-promotion expenses
and charges related to incentive compensation based on sales and earnings.
The fiscal 1994 second quarter and six month results included a Provision for
business restructuring activities amounting to $5,044 and $6,705,
respectively. These provisions were for employment reductions, plant closings
and relocations, and write-offs of related capital assets for the European
Industrial and Aerospace operations. The Company has not incurred
restructuring charges in fiscal 1995. Restructuring activities relating to
prior-year provisions are continuing as planned and the remaining accruals are
appropriate.
Interest expense decreased 25.0 percent for the quarter and 31.8 percent for
the six months, primarily due to lower borrowings, but also due to lower
interest rates on new borrowings.
The current-year effective income tax rate was reduced to 39.5 percent due to
the utilization of previously reported net operating losses in the U.K. and
Brazil. The Company experienced higher-than-expected profits in these
countries during the second quarter because of the International Industrial
recovery. For the first half of fiscal 1994 the rate had increased to 42.3
percent due to a $1.6 million charge for tax-law changes in Germany and the
United States.
Net income for the quarter was $41.1 million, more than four times the $9.9
million reported for the prior year after the extraordinary charge of $4.2
million for the early-retirement of $100 million of 9.45 percent debentures.
As a percent of sales, Net income increased to 5.6 percent from 1.7 percent
for the quarter. Six-month Net income increased to $84.7 million from $25.9
million after the extraordinary charge for the early-retirement of debentures.
As a percent of sales, Net income increased to 5.8 percent from 2.2 percent
for the six months.
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Backlog increased to $950.2 million at December 31, 1994 as compared to $824.4
million the prior year and $852.5 million at June 30, 1994. The increase was
partially due to acquisitions, but was primarily due to increases within the
Industrial Segment in both North American and International operations.
BUSINESS SEGMENT INFORMATION BY INDUSTRY
The Industrial Segment operations achieved the following Net sales increases
in the current year when compared to the equivalent prior-year period:
Period ending December 31,
Three Months Six Months
Industrial North America 21.1 % 19.9 %
Industrial International 64.5 % 54.0 %
Total Industrial 32.1 % 28.5 %
Without the effect of currency-rate changes, International sales would have
increased 52.0 percent for the quarter and 43.9 percent for the six months.
Without the effect of acquisitions, the increases would have been:
Period ending December 31,
Three Months Six Months
Industrial North America 17.1 % 17.5 %
Industrial International 49.2 % 42.4 %
Total Industrial 25.2 % 23.8 %
The Industrial International markets continue to demonstrate sharp improvement
while the North American markets are maintaining their high demand. In
addition to the global recovery, the Company is achieving market-share gains
as a result of concentrated efforts towards reaching expanding markets and
premier customer service. The sales levels achieved to date in fiscal 1995 are
expected to continue throughout the year in addition to the benefit to be
realized from recent acquisitions.
Operating income for the Industrial Segment was up 125.3 percent for the
quarter and 114.8 percent for the six months. Industrial North America
Operating income increased 34.1 percent for the quarter and 40.6 percent for
the six months while Industrial International results moved from a loss to
income of $15.2 million for the quarter and $28.1 million for the six months.
Without the effect of acquisitions the total Industrial Segment Operating
income would have increased 113.6 percent for the quarter and 107.5 for the
six months. Benefits are being realized throughout the segment as a result of
increased volume and prior years' restructuring activities.
Fiscal 1994 results included a Provision for restructuring activities for the
Industrial Segment of $3.3 million for the quarter and $4.6 million for the
six months ended December 31, 1993. Prior-year restructuring actions are
progressing as planned and the remaining accruals are appropriate. No further
restructuring charges are anticipated and the improved margin levels resulting
from prior activities are expected to continue.
Total Industrial Segment backlog increased 47.4 percent compared to a year ago
and 25.5 percent since June 30, 1994. Without the effect of acquisitions the
increase would have been 40.5 percent and 19.5 percent, respectively. The
North American operations are being challenged to keep up with demand, but
productivity improvements and better utilization of existing capacity is
increasing throughput worldwide.
Aerospace Segment Net sales were down 0.6 percent for the quarter and 4.4
percent for the six months. A portion of the decrease in sales is the result
of divesting the Metal Bellows operations in the fourth quarter of fiscal
1994. The remaining decrease is the result of reduced original equipment
shipments compared to the prior year. While Aerospace markets remain at low
levels, long-term orders from original equipment customers and
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
near-term orders from maintenance, repair and overhaul customers are gradually
improving, with sales increases anticipated in fiscal year 1996 and beyond.
Despite the decreased sales, Operating income for the Aerospace Segment
increased 44.8 percent for the quarter and 34.1 percent for the six-month
period. The Aerospace Segment has carried out a substantial downsizing over
the past several years to adjust to the changing markets. These prior-year
actions have helped the Segment to achieve improved margin levels in the
current year, which are expected to continue. Fiscal 1994 results included a
charge of $1.7 million for the quarter and $2.1 million for the six-month
period for restructuring activities. The restructuring activities provided
for in prior periods are continuing as planned and the remaining accruals are
appropriate. No further restructuring charges are anticipated.
Management believes the Aerospace business is stabilizing and expects to
maintain favorable margins despite the lower volume. Backlog for the
Aerospace Segment decreased slightly from a year ago, but increased 3.1
percent since June 30, 1994.
CONSOLIDATED BALANCE SHEET
Working capital decreased to $506.4 million at December 31, 1994 from $513.9
million at June 30, 1994 with the ratio of current assets to current
liabilities decreasing slightly to 1.9 to 1. A $38.0 million decrease in Cash
and cash equivalents and a $68.8 million increase in Notes payable contributed
to the decrease in working capital, but were partially offset by increases in
Accounts receivable, net and Inventories. Acquisitions caused more than the
$20.4 million increase in Accounts receivable, net and slightly less than half
of the $59.7 million increase in Inventories. The remaining increase in
Inventories was due to the increased volume in the Industrial operations as
months supply increased only slightly.
The increases in Plant and equipment, net and Other assets are also the result
of acquisitions.
The debt to debt-equity ratio, excluding the effect of the ESOP loan guarantee
on both Long-term debt and Shareholders' equity, increased to 23.5 percent at
December 31, 1994 from 20.7 percent at June 30, 1994 as a result of the
increase in Notes payable. The additional Notes payable were used to fund
recent acquisitions.
CONSOLIDATED STATEMENT OF CASH FLOWS
Net cash provided by operating activities was $76.4 million for the six months
ended December 31, 1994, slightly higher than the $70.5 million for the same
six months in 1993 primarily as a result of higher Net income which was offset
by an increase in cash used for working capital items. Changes in the
principal working capital items - Accounts receivable, Inventories, and
Accounts payable, trade - resulted in the use of $45.2 million cash in fiscal
1995 as compared to providing cash of $9.0 million in fiscal 1994. This
change reflects the building of Inventories and Accounts Payable as a result
of higher volume.
Net cash used in investing activities increased to $152.8 million from $64.4
million for the six months ended December 31, 1994 and 1993 as a result of
several acquisitions and increased capital expenditures in fiscal 1995.
Financing activities provided cash of $37.9 million for the six months ended
December 31, 1994 and used cash of $135.1 million for the same period in 1993.
Additional borrowings in the current year were used to fund recent
acquisitions. During the prior-year period, the Company aggressively retired
debt.
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PARKER-HANNIFIN CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The following documents are furnished as exhibits and
numbered pursuant to Item 601 of Regulation S-K:
Exhibit 10(a) - Non-Employee Directors' Stock Plan
Exhibit 10(b) - Deferred Compensation Plan for Directors
Exhibit 10(c) - Executive Deferral Plan
Exhibit 10(d) - Savings Restoration Plan
Exhibit 10(e) - Pension Restoration Plan
Exhibit 11 - Statement regarding computation of per share
earnings.
Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for
which this Report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARKER-HANNIFIN CORPORATION
(Registrant)
Michael J. Hiemstra
Michael J. Hiemstra
Vice President - Finance and Administration
Date: February 13, 1995
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EXHIBIT INDEX
Sequential
Exhibit No. Description of Exhibit Page
10(a) Non-Employee Directors' Stock Plan 13-14
10(b) Deferred Compensation Plan for Directors 15-21
10(c) Executive Deferral Plan* 22-36
10(d) Savings Restoration Plan* 37-52
10(e) Pension Restoration Plan* 53-62
11 Computation of Earnings
Per Common Share 63
27 Financial Data Schedule 64
*A management compensation plan.
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