Exhibit (13)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1996
by Parker-Hannifin Corporation
Excerpts from Annual Report to Shareholders for the fiscal year ended
June 30, 1996.
*Numbered in accordance with Item 601 of Regulation S-K.
MANAGEMENT'S DISCUSSION & ANALYSIS AND FINANCIAL STATEMENTS
DISCUSSION OF STATEMENT OF INCOME
THE CONSOLIDATED STATEMENT OF INCOME summarizes Parker's operating
performance over the last three years.
NET SALES of $3.59 billion for fiscal 1996 were 11.6 percent higher than
$3.21 billion in 1995. Acquisitions contributed nearly 60 percent of this
increase. North American Industrial operations experienced strong growth in
the semiconductor and telecommunications markets, but this was partially
offset by a slow-down in the heavy-duty truck market. International
Industrial operations experienced a soft economy in Europe during 1996
following stronger performance in 1995. Latin America struggled with a weak
economy, but Asia Pacific continued to demonstrate strong growth during
1996. Aerospace operations experienced strong growth during 1996 as gains
were made in both original equipment and maintenance, repair and overhaul
markets.
Acquisitions contributed nearly one-fourth of the 1995 increase of 24.8
percent over 1994. During 1995 the North American Industrial operations
experienced strong demand in the heavy-duty truck, industrial machinery,
construction and farm equipment, semi-conductor, mobile, and
telecommunications markets. International Industrial operations experienced
significant growth, as much of Europe and Latin America recovered from
recessions. Aerospace markets were flat in 1995 compared to 1994, as lower
spending for military aircraft and a slumping commercial airline industry
continued.
The Company is anticipating double-digit growth for the next year.
Industrial markets are expected to stay relatively flat, but acquisitions
will contribute to the Company's growth. Aerospace markets are expected to
continue to show strong growth. With the additional aerospace product
lines from the Abex NWL acquisition, and a presence on virtually every
significant current commercial and military aircraft program, the Company
is very optimistic about the future of its Aerospace business.
NET INCOME of $239.7 million for 1996 was 9.8 percent higher than 1995.
Net income of $218.2 million for 1995 was 358.0 percent higher than income
of $47.7 million in 1994. Income for 1994 was reduced by $56.5 million,
primarily for the reduction in book value of certain long-term assets,
downsizing and relocation activities.
EXTRAORDINARY ITEM - extinguishment of debt of $4.5 million in 1994 was
due to redemption premiums and deferred issuance costs related to the early-
retirement of $100.0 million of 9.45 percent debentures and $3.5 million of
Australian long-term bearer bonds. See Note 7 for further description.
Page 13-1
INCOME BEFORE EXTRAORDINARY ITEM as a percentage of sales was 6.7 percent
in 1996, down slightly from 6.8 percent in 1995, but up from 2.0 percent in
1994. A summary of the changes follows:
...% to Sales Change...
(Decrease) Increase in Income 1996-95 1995-94
Gross profit (.7) 3.5
Selling, general & admin. expenses .1 (.3)
Provision for business restructuring activities .7
Impairment of long-term operating assets 1.4
Interest expense .5
Loss on disposal of assets .1 .7
Other .2
Income taxes .2 (1.7)
Income before extraordinary item (.1) 4.8
GROSS PROFIT MARGIN was 23.1 percent in 1996 compared to 23.8 percent in
1995 and 20.3 percent in 1994. Acquisitions contributed to the margin
decline in 1996 as the newly acquired operations contributed lower margins
and the Company incurred one-time integration costs. In addition, as the mix
of products and volume levels changed, certain business units within the
Industrial operations adjusted inventory levels and production schedules to
meet new levels of demand. Despite lower margins contributed by an
acquisition, Aerospace operations improved margins in 1996 due to a better
product mix, and higher volume which allowed better absorption of fixed
costs.
Higher production levels in 1995 in the Industrial operations provided
increased margins and better absorption of fixed costs in that year. Despite
level sales volume, the Aerospace operations improved margins during 1995 by
taking advantage of efficiencies resulting from previous reorganizations.
The benefits of prior years' restructuring activities are being realized in
the margin returns of all operations and are expected to continue to benefit
future years as well.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES as a percent of sales
decreased to 11.9 percent, from 12.0 percent in 1995, but increased from the
11.7 percent in 1994. As volume increased in 1996 these expenses remained
relatively even, except for additional expense from acquisitions. Also,
selling expenses increased in 1996 as new sales offices were opened and
marketing efforts were increased within International markets.
Acquisitions contributed to the increase in 1995 with an average selling,
general and administrative expense rate of 17.1 percent of sales. In
addition, the Company incurred higher sales-promotion expenses and higher
incentive compensation based on increased sales and earnings.
PROVISION FOR BUSINESS RESTRUCTURING ACTIVITIES in 1994 was the result of
actions aimed at reducing costs and included downsizing, plant closings and
relocations, and write-offs of related capital assets. These actions reduced
overhead charges in 1996 and 1995, and should continue to benefit future
periods.
The Industrial Segment incurred restructuring charges of $12.3 million in
1994. The North American Industrial operations incurred restructuring
charges of $5.4 million, which primarily involved the relocation or
consolidation of higher-cost and under-utilized facilities. Severance
charges of $1.2 million were recorded for the reduction of 51 employees in
1994 and the reduction of an additional 107 employees in 1995 and 1996. Due
to a management decision to sell a facility rather than relocate it, 44 of
the employees were not terminated and a portion of the previous provision
was reversed to income in 1995. International's restructuring charges of
Page 13-2
$6.9 million in 1994 were primarily for severance costs for 159 employees
(106 employees in 1994 and the remainder in 1995) and the consolidation of
under-utilized facilities. These activities have been completed and only
minor reserves remain for settlement of severance issues.
The Aerospace operations incurred restructuring costs of $6.5 million in
1994. These charges included a workforce reduction of 597 employees (296 in
1994, 159 in 1995 and 24 in 1996) and relocation costs for three facilities
which resulted in lower costs and enhanced capacity utilization. Due to a
change in the outlook for several product lines, 118 of the employees to be
terminated were maintained and a minor adjustment was recorded to income in
1995.
By June 30, 1996, the majority of the Company's restructuring activities
were completed and reserves were utilized with only minor adjustments to
income for the reversal of unnecessary reserves.
IMPAIRMENT OF LONG-TERM OPERATING ASSETS of $35.5 million in 1994
includes $28.9 million related to the write-down of goodwill and certain
permanently impaired assets of the continuing operations of the Aerospace
heat-transfer components product line. This product line was purchased
during a period of heavy defense spending in 1987 and the related goodwill
was being amortized over 40 years. However, with the completion of major
contracts and the decline of aerospace markets, future cash flows are now
estimated to be less than the carrying value of the related assets.
Accordingly, the assets were written down to their recoverable value. While
the effect of this charge had no cash impact, it reduced amortization and
depreciation expenses $1.6 million per year. The remaining impairment
charges related primarily to certain machinery and equipment used in
operations in unprofitable product lines in Brazil and Germany. Since future
cash flows of these product lines were anticipated to be less than the
carrying value of the related assets, the machinery and equipment for these
product lines were written down to their estimated recoverable value. The
effect of these charges had no cash impact but reduced depreciation expense
$.7 million per year.
INTEREST EXPENSE increased by $5.7 million in 1996 after a reduction of
$6.9 million in 1995. The interest expense reflects the level of debt
outstanding. During 1996 additional debt was incurred to finance several
acquisitions.
INTEREST AND OTHER INCOME, NET increased to $8.5 million in 1996 from
$2.3 million in 1995 and $3.9 million in 1994. The increase in 1996 was
primarily due to additional interest income and income from several minor
Corporate investments.
LOSS ON DISPOSAL OF ASSETS was $2.0 million in 1996 as compared to $4.5
million in 1995 and $19.6 million in 1994. The decrease in 1996 is due to
fewer costs for facility relocations and a gain on the sale of a division.
In 1994, $14.7 million was related to the impairment of idle properties.
These properties became idle due to downsizing activities and the assets
were written-down to their estimated recoverable value based on current
markets. The 1994 loss on disposal of assets was also affected by a charge
of $1.3 million for the estimated net loss on the sale of the Metal Bellows
operations. Losses on the disposal of assets from plant consolidations are
included in the Provision for business restructuring activities in 1994.
INCOME TAXES decreased to an effective rate of 36.0 percent in 1996 as
compared to 37.4 percent in 1995 and 53.6 percent in 1994. The reduction in
the rate for 1996 was the result of foreign tax credit benefits and a
Page 13-3
reduction in the effective state tax rate. The 1995 decrease was primarily
due to the unusually high effective rate in 1994 from receiving no federal
or state tax benefit for the charge taken to write down goodwill, and due to
the use of net operating loss carryforwards in the U.K. and Brazil. Profits
were higher-than-expected in these countries because of the International
industrial recovery in 1995.
DISCUSSION OF BALANCE SHEET
THE CONSOLIDATED BALANCE SHEET shows the Company's financial position at
year end, compared with the previous year end. This statement provides
information to assist in assessing factors such as the Company's liquidity
and financial resources.
The current ratio at June 30, 1996 dropped slightly from the ratio at
June 30, 1995.
Working Capital (millions) 1996 1995
Current Assets $ 1,402 $ 1,246
Current Liabilities 767 653
Working Capital 635 593
Current Ratio 1.8 1.9
ACCOUNTS RECEIVABLE are primarily due from customers for sales of product
($490.9 million at June 30, 1996, compared to $426.3 million at June 30,
1995). The current year increase in accounts receivable, as a result of
acquisitions, was partially offset by decreases caused by currency rate
changes and the collection of an income tax receivable during the year.
Days sales outstanding for the Company increased slightly over 1995.
INVENTORIES were $707.2 million at June 30, 1996, compared to $625.9
million a year ago. This increase in inventories, primarily due to
acquisitions, was mostly within Work in process. Currency rate changes
partially offset the overall increase. Months supply of inventory on hand
at June 30, 1996 remained the same as the prior year.
DEFERRED INCOME TAXES included in current assets increased by $19.6
million primarily due to acquisitions.
PLANT AND EQUIPMENT, net of accumulated depreciation, increased $176.0
million in 1996 as a result of significant capital expenditures and
additions from acquisitions.
INVESTMENTS AND OTHER ASSETS increased $45.7 million in 1996 primarily
as a result of increased long-term pension assets, mostly from
acquisitions.
EXCESS COST OF INVESTMENTS OVER NET ASSETS ACQUIRED increased $210.8
million in 1996 as a result of acquisitions. The additional excess cost of
investments in 1996 is being amortized over 15 years.
ACCOUNTS PAYABLE, TRADE increased $9.4 million in 1996 due to current-
year acquisitions and increases within the Aerospace segment due to volume
increases. These increases were partially offset by decreases within the
Industrial North American operations.
ACCRUED PAYROLLS AND OTHER COMPENSATION increased $17.9 million in 1996
primarily as a result of acquisitions and incentive plans based on sales
and earnings.
Page 13-4
OTHER ACCRUED LIABILITIES increased $7.7 million in 1996 as a result of
acquisitions. The increase from acquisitions was partially offset by
decreases in reserves for closing facilities and the current pension
accruals.
NOTES PAYABLE AND LONG-TERM DEBT increased a total of $279.1 million in
1996 primarily due to cash needed for acquisitions. See the Cash Flows From
Financing Activities section on page 13-6 for further discussion.
It is the Company's goal to maintain no less than an "A" rating on
senior debt to ensure availability and reasonable cost of external funds.
To meet this objective, the Company has established the financial goal of
maintaining a ratio of debt to debt-equity of 30 to 33 percent. The
calculation of the debt to debt-equity ratio at June 30, 1995 includes the
Company's previous loan guarantee to the trust established by the Company
for the Employee Stock Ownership Plan (ESOP) as described more fully in
Note 7. This loan was paid as of June 30, 1996.
Debt to Debt-Equity Ratio (millions) 1996 1995
Debt $ 614 $ 335
Debt & Equity 1,998 1,526
Ratio 30.7% 21.9 %
Excluding the effect of the ESOP loan guarantee on both Long-term debt and
Shareholders' equity, the debt to debt-equity ratio at June 30, 1995 was
21.0 percent.
In fiscal 1997 no additional borrowings are anticipated to be used for
the stock repurchase program, capital investments, or working capital
purposes, but may be utilized for acquisitions.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS increased $65.3 million to
$253.6 million in 1996, primarily due to acquisitions. These costs are
explained further in Note 10 to the Consolidated Financial Statements.
OTHER LIABILITIES increased $9.1 million in 1996 primarily due to
acquisitions.
DISCUSSION OF CASH FLOWS
THE CONSOLIDATED STATEMENT OF CASH FLOWS reflects cash inflows and outflows
from the Company's operating, investing and financing activities.
Cash and cash equivalents remained the same in 1996 after decreasing
$17.8 million in 1995 and $78.4 million in 1994. The major components of
these changes in cash flows are as follows:
CASH FLOWS FROM OPERATING ACTIVITIES -- The Company's largest source of
cash continues to be net cash provided by operating activities. Net cash
provided by operating activities in 1996 was $338.0 million, a year-to-year
increase of $97.9 million, over $240.1 million in 1995. The most
significant contribution to operating cash in 1996, as in 1995, was Net
income, which increased $21.4 million in 1996. Accounts receivable provided
cash of $8.7 million in 1996 compared to using $53.1 million cash in 1995.
Inventories increased in 1996 as a result of increased volume, using cash
of $15.0 million. This was much less than the use of $85.8 million cash for
inventory increases in 1995. Accounts payable, trade used cash of $15.5
million in 1996 as compared to providing cash of $29.7 million in 1995. Net
income for 1995 provided $170.6 more cash than in 1994, but the charge for
the impairment of long-term assets in 1994 ($52.4 million) did not require
Page 13-5
the use of cash. Increased volume caused Accounts receivable and
Inventories to increase, using $138.8 million cash in 1995 compared to
$34.1 million in 1994. Accounts payable in 1995 contributed cash of $29.7
million compared to $58.5 million in 1994.
Cash paid for income taxes was $135,380 in 1996, $123,590 in 1995 and
$71,375 in 1994.
CASH FLOWS FROM INVESTING ACTIVITIES -- The most significant use of cash
in 1996 was for Acquisitions. Cash used for Acquisitions was $365.6 million
in 1996; $126.7 million in 1995 and $39.4 million in 1994. Acquisition
amounts shown represent the net assets of the acquired companies at their
respective acquisition dates and consist of the following:
(In thousands) 1996 1995 1994
Assets acquired:
Accounts receivable $ 70,916 $ 31,160 $ 2,906
Inventories 77,582 30,528 6,278
Prepaid expenses 1,459 774 2,146
Deferred income taxes 18,942 149 256
Plant & equipment 124,222 57,613 10,299
Other assets 247,388 53,679 22,539
540,509 173,903 44,424
Liabilities assumed:
Notes payable 13,256 4,180
Accounts payable 26,880 11,680 1,260
Accrued payrolls 10,377 3,823 1,977
Accrued taxes 11,620 5,641 204
Other accrued liabilities 47,820 8,053 1,222
Long-term debt 8,235 10,772 375
Pensions and other postretirement
benefits 49,798 1,243
Other liabilities 6,900 1,798 (60)
174,886 47,190 4,978
Net assets acquired $ 365,623 $ 126,713 $ 39,446
Capital expenditures, another principal use of long-term funds, increased
to $201.7 million in 1996, demonstrating the Company's commitment to
efficient manufacturing technology. Financing for future capital
expenditures and acquisitions are expected to come primarily from
internally generated cash flows. Proceeds from dispositions of business
provided $13.7 million cash in 1994.
CASH FLOWS FROM FINANCING ACTIVITIES -- In 1996 the Company increased its
outstanding borrowings by a net total of $273.2 million compared to an
increase of $43.3 million in 1995 and a reduction of $172.3 million in
1994. Borrowings in both 1996 and 1995 were primarily to fund acquisitions.
During 1996 the Company registered $400,000 of debt securities for future
issuance. In May 1996, $100,000 of 15-year debentures were issued. In June
1996, an additional $95,000 of medium-term notes were issued. The remaining
increase in borrowings was primarily through the utilization of commercial
paper notes which have been classified as long-term because the intention
of management is to continue to utilize these notes beyond the next year.
In 1994 payments of long-term borrowings were primarily the early-
retirement of $100.0 million of debentures, the retirement of $35.1 million
in foreign bearer bonds and the elimination of certain foreign bank loans.
Proceeds from common share activity is primarily from the exercise of
stock options and common shares issued for an acquisition in 1995.
Dividends have been paid for 184 consecutive quarters, including a yearly
Page 13-6
increase in dividends for the last 40 fiscal years. The current annual
dividend rate is $.72 per share.
Cash paid for interest, net of capitalized interest, was $35,554 in
1996, $29,573 in 1995 and $34,221 in 1994. Noncash financing activities
included the reduction in principal of the ESOP debt guarantee, which
amounted to $13,468 in 1996, $12,229 in 1995 and $11,067 in 1994.
In summary, based upon the Company's past performance and current
expectations, management believes that the cash flows generated from future
operating activities, combined with the Company's worldwide financial
capabilities, will provide adequate funds to support planned growth and
continued improvements in Parker's manufacturing facilities and equipment.
DISCUSSION OF BUSINESS SEGMENT INFORMATION
THE BUSINESS SEGMENT INFORMATION presents sales, operating income and
assets by the principal industries and geographic areas in which Parker's
various businesses operate.
INDUSTRIAL SEGMENT
1996 1995 1994
Operating income as a percent of sales 12.4% 13.6% 9.2%
Return on average assets 18.3% 22.3 % 13.9%
Sales for the Industrial segment increased 10.1 percent in 1996 and 31.3
percent in 1995. Sales for the North American operations increased to a
record $2.0 billion in 1996, 7.4 percent over 1995, following 1995's
increase of 20.9 percent over 1994. One-half of the 1996 increase and one-
fifth of the 1995 increase were due to acquisitions. The 1996 growth was
primarily within the telecommunication and semi-conductor markets as new
products were introduced and the markets themselves expanded. This growth
was offset by reduced demand within the heavy-duty truck market which had
reached record-level volume in 1995. The increase in 1995 occurred within
the heavy-duty truck, industrial machinery, construction and farm
equipment, mobile, and telecommunications markets. Many indicators predict
slow growth in the North American markets within the year, however the
Company expects to again increase sales in 1997 through the benefit of
acquisitions and continuing success in gaining market share.
International Industrial sales increased to a record $989.4 million,
15.9 percent over 1995, after a 1995 increase of 61.1 percent over 1994.
Three-fourths of the 1996 increase and one-fourth of the 1995 increase were
attributable to acquisitions. Without the effects of acquisitions and
currency rate changes, sales for 1996 would have increased approximately
3.5 percent and sales for 1995 would have increased more than 30 percent
over the prior year. Sales growth in Europe moderated throughout 1996 after
a strong recovery and peak performance in 1995. Latin American operations
suffered through a weakened economy throughout 1996, but fourth quarter
results began to show signs of improvement. The Company continued to
experience significant growth in Asia Pacific in 1996, as in 1995. With
moderate growth in Europe and Latin America, increases from acquisitions,
and strong growth in the Asia Pacific markets, the Company anticipates an
improvement in the International Industrial operations in 1997.
Backlog for the Industrial Segment was $464.6 million at June 30, 1996,
compared to $441.2 million at the end of the prior period. This increase,
the result of acquisitions, was partially offset by decreases within both
the North American and International operations. Backlog was $328.9 million
at June 30, 1994.
Operating income for the segment increased less than 1 percent in 1996
Page 13-7
following a 94.3 percent increase in 1995. North American operations
improved 5.7 percent. International operations however, decreased 15.7
percent from 1995. Recent acquisitions contributed lower margins primarily
within International, but also within North America, because of the
integration costs incurred without the benefit of synergies yet to be
realized. The changing product mix also had a negative effect on
manufacturing costs and overhead absorption in certain business units, as
inventory levels were re-aligned. Within International, softening markets
in Europe caused lower production levels and lower absorption of fixed
costs. The weakened economy in Latin America diluted current-year
earnings, while Asia Pacific business remained strong. The significant
increase in operating income in 1995 was the result of unusual charges in
1994 including restructuring charges of $5.4 million for North America and
$6.9 million for the International operations. Also, in 1994 the
International operations recognized the impairment of long-term assets
totaling $6.6 million pretax. This restructuring and downsizing allowed the
operations to take full advantage of the benefits gained from increased
volume in 1995. Better absorption of fixed costs through increased capacity
utilization helped offset the effects of raw material price increases
experienced in 1995.
Assets for the Industrial segment increased 15.2 percent in 1996 and
32.6 percent in 1995 primarily due to acquisitions. Within North America
accounts receivable and inventories also increased as a result of increased
volume in both years, while these assets, before the effect of
acquisitions, declined within International in 1996. In addition to
acquisition increases, Net plant and equipment increased due to capital
expenditures exceeding depreciation.
AEROSPACE SEGMENT
1996 1995 1994
Operating income as a percent of sales 13.7% 11.8% 3.2%
Return on average assets 18.9% 19.7% 4.4%
Sales increased 19.2 percent in 1996, one-half of which was due to the
Abex NWL acquisition. Sales for 1995 declined only slightly despite the
divestiture of the Metal Bellows business in April 1994. Aerospace markets
began to recover in 1996 after being relatively flat throughout 1995 and
1994. Gains were made in both original equipment and maintenance, repair
and overhaul markets, primarily for commercial aircraft, but also for
worldwide military sales. Improvement in the commercial maintenance,
repair, and overhaul market began in 1995, but was offset by reduced
defense orders in that year. The Aerospace segment revenues continue to be
split approximately 60 percent commercial and 40 percent military. Backlog
at June 30, 1996 was $866.3 million compared to $584.5 million in 1995,
reflecting the Abex NWL acquisition and the resurgence of the commercial
aircraft build schedule. Backlog was $523.6 million at the end of 1994.
Operating income increased 38.3 percent in 1996 after 1995 income was
more than triple the previous year. Key factors were increased volume, and
a very favorable product mix, with contributions from aftermarket sales,
initial spare-parts provisioning for new commercial aircraft and OEM
military sales. These factors built on gains in productivity resulting from
prior years' restructuring activities. Higher margins were achieved using
fewer facilities and employees. The 1994 results included recognition of
pretax impairment losses of $28.9 million and restructuring charges of $6.5
million.
Assets more than doubled in 1996, primarily due to the Abex NWL
acquisition. In addition, increased volume caused increases in customer
Page 13-8
receivables and inventories in 1996. Assets in 1995 decreased 11.6 percent
primarily due to reductions in customer receivables, inventories and net
plant and equipment.
Page 13-9
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share amounts)
For the years ended June 30, 1996 1995 1994
NET SALES $ 3,586,448 $ 3,214,370 $ 2,576,337
Cost of sales 2,756,343 2,448,264 2,053,376
___________ ___________ ___________
Gross profit 830,105 766,106 522,961
Selling, general and administrative expenses 425,449 384,581 302,668
Provision for business restructuring activities 18,773
Impairment of long-term operating assets 35,483
___________ ___________ ___________
INCOME FROM OPERATIONS 404,656 381,525 166,037
Other income (deductions):
Interest expense (36,667) (30,922) (37,832)
Interest and other income, net 8,537 2,335 3,879
Loss on disposal of assets (2,047) (4,531) (19,635)
___________ ___________ ___________
(30,177) (33,118) (53,588)
___________ ___________ ___________
Income before income taxes 374,479 348,407 112,449
Income taxes (Note 3) 134,812 130,169 60,274
___________ ___________ ___________
Income before extraordinary item 239,667 218,238 52,175
Extraordinary item - extinguishment of debt (Note 7) (4,523)
___________ ___________ ___________
NET INCOME $ 239,667 $ 218,238 $ 47,652
=========== =========== ===========
EARNINGS PER SHARE: (Note 4)
Earnings per share before extraordinary item $ 3.23 $ 2.96 $ .71
Extraordinary item - extinguishment of debt (.06)
___________ ___________ ___________
Earnings per share $ 3.23 $ 2.96 $ .65
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
Page 13-10
QUARTERLY INFORMATION
(Dollars in thousands, except per share amounts)
1996 (a) 1st 2nd 3rd 4th Total
Net sales $ 839,054 $ 824,376 $ 931,356 $ 991,662 $ 3,586,448
Gross profit 193,445 182,895 223,429 230,336 830,105
Net income 57,375 48,396 69,128 64,768 239,667
Earnings per share .77 .66 .93 .87 3.23
1995 (a) 1st 2nd 3rd 4th Total
Net sales $ 712,457 $ 738,231 $ 879,673 $ 884,009 $ 3,214,370
Gross profit 161,930 165,369 212,705 226,102 766,106
Net income 43,649 41,084 65,855 67,650 218,238
Earnings per share .59 .56 .89 .92 2.96
<FN>
(a) Quarterly Information is unaudited.
</FN>
Page 13-11
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
June 30, 1996 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 63,953 $ 63,830
Accounts receivable, less allowance
for doubtful accounts
(1996 - $6,445; 1995 - $6,613) 538,645 484,962
Inventories (Notes 1 and 5):
Finished products 332,213 314,180
Work in process 269,934 201,386
Raw materials 105,078 110,340
___________ ___________
707,225 625,906
Prepaid expenses 16,031 14,994
Deferred income taxes (Notes 1 and 3) 76,270 56,690
___________ ___________
TOTAL CURRENT ASSETS 1,402,124 1,246,382
Plant and equipment (Note 1):
Land and land improvements 101,290 87,521
Buildings and building equipment 494,374 426,150
Machinery and equipment 1,373,150 1,234,962
Construction in progress 79,479 64,034
___________ ___________
2,048,293 1,812,667
Less accumulated depreciation 1,056,516 996,896
___________ ___________
991,777 815,771
Investments and other assets (Note 1) 148,363 102,669
Excess cost of investments over
net assets acquired (Note 1) 320,152 109,308
Deferred income taxes (Notes 1 and 3) 24,708 28,079
___________ ___________
TOTAL ASSETS $ 2,887,124 $ 2,302,209
=========== ===========
(Table continued on page 13-13)
Page 13-12
June 30, 1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, including long-term debt
payable within one year (Notes 6 and 7) $ 173,789 $ 97,372
Accounts payable, trade 236,871 227,482
Accrued payrolls and other compensation 128,136 110,186
Accrued domestic and foreign taxes 49,718 46,876
Other accrued liabilities 178,368 170,705
___________ ___________
TOTAL CURRENT LIABILITIES 766,882 652,621
Long-term debt (Note 7) 439,797 237,157
Pensions and other postretirement
benefits (Notes 1 and 10) 253,616 188,292
Deferred income taxes (Notes 1 and 3) 24,683 23,512
Other liabilities 18,188 9,113
___________ ___________
TOTAL LIABILITIES 1,503,166 1,110,695
SHAREHOLDERS' EQUITY (Note 9)
Serial preferred stock, $.50 par value,
authorized 3,000,000 shares, none issued
Common stock, $.50 par value,
authorized 300,000,000 shares; issued
74,291,917 shares in 1996 and
74,002,402 shares in 1995 at par value 37,146 37,001
Additional capital 165,259 158,454
Retained earnings 1,160,828 974,486
Deferred compensation related to
guarantee of ESOP debt (Note 7) (13,468)
Foreign currency translation adjustments 20,725 35,041
___________ ___________
TOTAL SHAREHOLDERS' EQUITY 1,383,958 1,191,514
___________ ___________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,887,124 $ 2,302,209
=========== ===========
The accompanying notes are an integral part of the financial statements.
Page 13-13
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
For the years ended June 30, 1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 239,667 $ 218,238 $ 47,652
Adjustments to reconcile net income to net cash
provided by operating activities:
Net effect of extraordinary loss 4,523
Depreciation 126,544 110,527 106,546
Amortization 14,819 9,403 6,523
Deferred income taxes (3,691) (4,299) (34,000)
Foreign currency transaction loss 1,733 1,903 3,563
Loss on sale of plant and equipment 3,506 3,728 2,849
Impairment losses on long-term assets 52,422
Changes in assets and liabilities, net of effects
from acquisitions and dispositions:
Accounts receivable 8,723 (53,052) (45,387)
Inventories (15,046) (85,795) 11,247
Prepaid expenses (157) 617 1,887
Other assets (20,444) (13,716) (6,719)
Accounts payable, trade (15,503) 29,668 58,497
Accrued payrolls and other compensation 11,586 24,726 9,568
Accrued domestic and foreign taxes (3,589) (9,159) 22,630
Other accrued liabilities (31,800) (5,987) 9,923
Pensions and other postretirement benefits 19,404 12,396 8,971
Other liabilities 2,229 937 (1,491)
_________ _________ _________
Net cash provided by operating activities 337,981 240,135 259,204
(Table continued on page 13-15)
Page 13-14
For the years ended June 30, 1996 1995 1994
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (excluding cash of $20,479 in 1996, $5,961
in 1995 and $2,661 in 1994) (365,623) (126,713) (39,446)
Capital expenditures (201,693) (151,963) (99,914)
Proceeds from sale of plant and equipment 9,387 13,045 5,774
Proceeds from disposition of business 13,689
Other (2,812) 1,409 (362)
_________ _________ _________
Net cash (used in) investing activities (560,741) (264,222) (120,259)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common share activity 4,967 11,528 9,105
Proceeds from (payments of) notes payable, net 81,194 62,021 (18,888)
Proceeds from long-term borrowings 201,724 20,764 3,619
Payments of long-term borrowings (9,696) (39,438) (157,026)
Extraordinary loss on early retirement of debt (7,238)
Dividends paid, net of tax benefit of ESOP shares (53,325) (49,961) (47,445)
_________ _________ _________
Net cash provided by (used in) financing activities 224,864 4,914 (217,873)
Effect of exchange rate changes on cash (1,981) 1,413 533
_________ _________ _________
Net increase (decrease) in cash and cash equivalents 123 (17,760) (78,395)
Cash and cash equivalents at beginning of year 63,830 81,590 159,985
_________ _________ _________
Cash and cash equivalents at end of year $ 63,953 $ 63,830 $ 81,590
========= ========= =========
The accompanying notes are an integral part of the financial statements.
Page 13-15
BUSINESS SEGMENT INFORMATION - BY INDUSTRY
(Dollars in thousands)
1996 1995(a) 1994(a)
NET SALES, including intersegment sales:
Industrial:
North America $ 1,976,351 $ 1,839,810 $ 1,521,331
International 989,359 853,537 529,891
Aerospace 621,465 521,451 525,372
Intersegment sales (727) (428) (257)
___________ ___________ ___________
$ 3,586,448 $ 3,214,370 $ 2,576,337
=========== =========== ===========
INCOME FROM OPERATIONS before corporate
general and administrative expenses:
Industrial:
North America $ 296,081 $ 280,189 $ 205,728
International 72,093 85,470 (17,502)
Aerospace 85,329 61,711 17,051
___________ ___________ ___________
453,503 427,370 205,277
Corporate general and administrative expenses 48,847 45,845 39,240
___________ ___________ ___________
Income from operations 404,656 381,525 166,037
Other deductions 30,177 33,118 53,588
___________ ___________ ___________
Income before income taxes $ 374,479 $ 348,407 $ 112,449
=========== =========== ===========
IDENTIFIABLE ASSETS:
Industrial $ 2,150,506 $ 1,866,336 $ 1,407,778
Aerospace 610,470 294,053 332,517
___________ ___________ ___________
2,760,976 2,160,389 1,740,295
Corporate assets (b) 126,148 141,820 185,449
___________ ___________ ___________
$ 2,887,124 $ 2,302,209 $ 1,925,744
=========== =========== ===========
PROPERTY ADDITIONS: (c)
Industrial $ 259,356 $ 199,294 $ 101,451
Aerospace 63,437 6,448 7,934
Corporate 3,122 3,834 828
___________ ___________ ___________
$ 325,915 209,576 $ 110,213
=========== =========== ===========
DEPRECIATION:
Industrial $ 106,553 $ 92,234 $ 84,152
Aerospace 17,267 15,661 19,119
Corporate 2,724 2,632 3,275
___________ ___________ ___________
$ 126,544 $ 110,527 $ 106,546
=========== =========== ===========
Page 13-16
<FN>
(a) Fiscal 1995 and 1994 results have been restated to reclassify an
operating division from the Aerospace Segment to the Industrial
Segment (North America) to be consistent with fiscal 1996 reporting.
Existing business practices, distribution methods and internal
organization more properly align this operating division with the
Industrial Segment. The effect on both Segments is immaterial.
(b) Corporate assets are principally cash and cash equivalents,
domestic deferred income taxes, investments, headquarters facilities,
idle facilities held for sale and the major portion of the Company's
domestic data processing equipment.
(c) Includes value of net plant and equipment at the date of
acquisition of acquired companies accounted for by the purchase
method (1996 - $124,222; 1995 - $57,613; 1994 - $10,299).
</FN>
BUSINESS SEGMENT INFORMATION - BY GEOGRAPHIC AREA
(Dollars in thousands)
1996 1995 1994
NET SALES, including interarea sales:
North America $ 2,669,201 $ 2,423,283 $ 2,091,974
Europe 918,493 728,642 433,844
All Other 155,963 156,455 109,113
Interarea (157,209) (94,010) (58,594)
___________ ___________ ___________
$ 3,586,448 $ 3,214,370 $ 2,576,337
=========== =========== ===========
INCOME FROM OPERATIONS before corporate
general and administrative expenses:
North America $ 381,154 $ 341,204 $ 222,779
Europe 63,083 66,368 (16,708)
All Other 9,266 19,798 (794)
___________ ___________ ___________
453,503 427,370 205,277
Corporate general and administrative expenses 48,847 45,845 39,240
___________ ___________ ___________
Income from operations $ 404,656 $ 381,525 $ 166,037
=========== =========== ===========
IDENTIFIABLE ASSETS:
North America $ 1,693,285 $ 1,346,601 $ 1,193,568
Europe 933,201 704,061 460,961
All Other 134,490 109,727 85,766
___________ ___________ ___________
2,760,976 2,160,389 1,740,295
Corporate assets (b) 126,148 141,820 185,449
___________ ___________ ___________
$ 2,887,124 $ 2,302,209 $ 1,925,744
=========== =========== ===========
<FN>
(b) Corporate assets are principally cash and cash equivalents,
domestic deferred income taxes, investments, headquarters facilities,
idle facilities held for sale and the major portion of the Company's
domestic data processing equipment.
</FN>
Page 13-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts.)
1. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of the
accompanying consolidated financial statements are summarized below.
NATURE OF OPERATIONS - The Company is a leading worldwide producer of
motion control products, including fluid power systems, electromechanical
controls and related components.
The Company operates in two principal business segments: Industrial and
Aerospace. The Industrial Segment produces motion-control and fluid power
system components for builders and users of various types of manufacturing,
packaging, processing, transportation, agricultural, construction, and
military machinery, vehicles and equipment. Industrial Segment products are
marketed primarily through field sales employees and more than 7,000
independent distributors. The North American Industrial business represents
the largest portion of the Company's manufacturing plants and distribution
networks and primarily services North America. The International Industrial
operations bring Parker products and services to countries throughout Europe,
Asia Pacific and Latin America.
The Aerospace Segment produces hydraulic, pneumatic and fuel systems and
components which are utilized on virtually every domestic commercial, military
and general aviation aircraft. Its components also perform a vital role in
naval vessels, land-based weapons systems, satellites and space vehicles. This
Segment serves original equipment and maintenance, repair and overhaul
customers worldwide. Its products are marketed by field sales employees and
are sold directly to the manufacturer and to the end user.
There are no individual customers to whom sales are 3 percent or more of
the Company's consolidated sales.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of all domestic and foreign subsidiaries. All material intercompany
transactions and profits have been eliminated in the consolidated financial
statements. Within the Business Segment Information, intersegment and
interarea sales are recorded at fair market value.
CASH - Cash equivalents consist of short-term highly liquid investments,
with a three month or less maturity, carried at cost plus accrued interest,
which are readily convertible into cash.
INVENTORIES - Inventories are stated at the lower of cost or market. The
majority of domestic inventories are valued by the last-in, first-out method
and the balance of the Company's inventories are valued by the first-in, first-
out method.
LONG-TERM CONTRACTS - The Company enters into long-term contracts for the
production of aerospace products. For financial statement purposes, sales
are recorded as deliveries are made (units of delivery method of percentage-
of-completion). Unbilled costs on these contracts are included in inventory.
Progress payments are netted against the inventory balances. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined.
Page 13-18
PLANT, EQUIPMENT AND DEPRECIATION - Plant and equipment are recorded at
cost and are depreciated principally using the straight-line method for
financial reporting purposes. Depreciation rates are based on estimated useful
lives of the assets. Improvements which extend the useful life of property are
capitalized, and maintenance and repairs are expensed. When property is
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the appropriate accounts and any gain or loss is included in
current income.
INVESTMENTS AND OTHER ASSETS - Investments in joint-venture companies in
which ownership is 50% or less are stated at cost plus the Company's equity
in undistributed earnings. These investments and the related earnings are not
material to the consolidated financial statements.
EXCESS COST OF INVESTMENTS - The excess cost of investments over net assets
acquired is being amortized, on a straight-line basis, primarily over 15 years
and not exceeding 40 years. Unamortized cost in excess of associated expected
operating cash flows is considered to be impaired and is written down to fair
value.
INCOME TAXES - Income taxes are provided based upon income for financial
reporting purposes. Deferred income taxes arise from temporary differences in
the recognition of income and expense for tax purposes. Tax credits and
similar tax incentives are applied to reduce the provision for income taxes
in the year in which the credits arise.
FOREIGN CURRENCY TRANSLATION - Assets and liabilities of most foreign
subsidiaries are translated at current exchange rates, and income and expenses
are translated using weighted average exchange rates. The effects of these
translation adjustments, as well as gains and losses from certain intercompany
transactions, are reported in a separate component of Shareholders' equity.
Such adjustments will affect Net income only upon sale or liquidation of the
underlying foreign investments, which is not contemplated at this time.
Exchange gains and losses from transactions in a currency other than the local
currency of the entity involved, and translation adjustments in countries
with highly inflationary economies (Brazil and Venezuela), are included in
income.
DERIIVATIVE FINANCIAL INSTRUMENTS - Derivative financial instruments are
utilized by the Company to manage risks generally associated with foreign
exchange rate and interest rate market volatility. The Company does not hold
or issue derivative financial instruments for trading purposes.
Through the use of foreign currency forward exchange contracts (forward
contracts) and cross-currency swap agreements, the Company reduces its
exposure to fluctuations in related foreign currencies. These contracts are
with major financial institutions and the risk of loss is considered remote.
Gains or losses on forward contracts which hedge dividends from
consolidated subsidiaries are accrued in Shareholders' equity. Gains or losses
on forward contracts which hedge specific transactions are recognized in Net
income, offsetting the underlying foreign currency gains or losses.
Cross-currency swap agreements are recorded in Long-term debt as dollar-
denominated receivables with offsetting foreign-currency payables. Gains or
losses are accrued monthly as an adjustment to Net income, offsetting the
underlying foreign currency gains or losses. The differential between interest
to be received and interest to be paid is accrued monthly as an adjustment to
Interest expense.
Page 13-19
The Company has an interest rate agreement to convert fixed-rate debt to
variable-rate debt. The interest rate swap involves the exchange of fixed and
floating rate interest payment obligations over the life of the agreement
without the exchange of the notional payment obligation. The differential to
be paid or received is accrued monthly as interest rates change and is
recognized over the life of the agreement as an adjustment to Interest expense.
2. ACQUISITIONS AND DIVESTITURES
ACQUISITIONS - Effective April 15, 1996 the Company completed an agreement
with Power Control Technologies, Inc. to purchase the aerospace assets of the
Abex NWL Division of Pneumo Abex Corporation for approximately $201 million
cash. Abex NWL, headquartered in Kalamazoo, Michigan, is a major
international producer of aerospace hydraulic and electromechanical actuation
equipment, engine thrust-reverser actuators, hydraulic pumps, and
electrohydraulic servovalves, with annual sales of approximately $200 million.
On February 29, 1996 the Company completed the acquisition of VOAC
Hydraulics AB of Boras, Sweden for approximately $163 million cash. VOAC is a
worldwide leader in manufacturing mobile hydraulic equipment and had calendar
1995 annual sales of approximately $166 million.
If the above acquisitions had occurred on July 1, 1995 the unaudited pro
forma consolidated results of operations for the Company would have been:
Years ended June 30, 1996 1995
Net sales $ 3,857,601 $ 3,552,462
Net income 240,270 213,805
Earnings per share 3.24 2.90
This pro forma information is based on historical information and does not
necessarily reflect the actual results that would have occurred, nor is it
necessarily indicative of future results of operations.
In June 1996 the Company acquired the remaining 60 percent of Schrader
Bellows Parker, S.A. de C.V., a Mexico City-based manufacturer of pneumatic
and hydraulic products, for an additional investment of $4.0 million. On
August 4, 1995 the Company purchased inventory and machinery from Teledyne
Fluid Systems consisting of the Republic Valve product line, the Sprague
double-diaphragm pump line and the Sprague airborne accumulator product line
for approximately $5.2 million in cash. On July 31, 1995 the Company purchased
the General Valve Corp. of Fairfield, New Jersey, a leading producer of
miniature solenoid valves for high-technology applications for approximately
152,000 shares of common stock, valued at $6.1 million. Sales by these
operations for their most recent fiscal year prior to acquisition approximated
$24.8 million.
Effective March 30, 1995 the Company acquired the assets of Figgie
International's Power Systems Division, a manufacturer of hydraulic bladder
accumulators and pneumatic cylinders headquartered in Rockford, Illinois, for
$7.0 million cash. On March 3, 1995 the Company purchased the stock of Byron
Valve and Machine Company, Inc. of Siloam Springs, Arkansas, a producer of
distributors and flow raters, for $3.1 million cash. As of December 31, 1994
the Company purchased the Polyflex Schwarz Group of companies located in
Germany, France and Texas, a manufacturer of reinforced high-pressure hoses,
fittings and assemblies, for $18.1 million cash. The Company also purchased
Hauser Elektronik GmbH, a producer of automation components and systems, based
in Offenburg, Germany, for $11.6 million cash on December 31, 1994. Effective
December 21, 1994 the Company sold its 49 percent interest in its Mexican
joint venture, Conductores de Fluidos Parker and purchased its inventory and
accounts receivable to form a new wholly-owned subsidiary, Parker Fluid
Page 13-20
Connectors de Mexico, for a net purchase price of $2.5 million 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, valued at $5.1 million. On
September 30, 1994 the Company acquired Chomerics, Inc., a leading producer
of electromagnetic interference-shielding materials, with plants in
Massachusetts, New Hampshire and the United Kingdom, for $40.0 million cash.
On August 1, 1994 the Company acquired the Automation Division of Atlas
Copco AB, a Swedish manufacturer of pneumatic components, for $37.0 million
cash. Combined annual sales for these operations, for their most recent fiscal
year prior to acquisition, were approximately $200 million.
In April 1994 the Company purchased the assets of a leading Scandinavian
filter manufacturer, Finn-Filter Oy, for $9.6 million cash which included
manufacturing locations in Finland and a sales subsidiary in Sweden. In
December 1993 the Company acquired the remaining 60 percent of LDI Pneutronics
Corp., which specializes in advanced-technology pneumatic valves and
components for an additional investment of $5.7 million. In November 1993 the
Company acquired the Electro-pneumatic Division of Telemecanique in Evreux,
France, a leading European manufacturer of pneumatic products, for $26.7
million cash. Combined annual sales for these operations for their most recent
fiscal year prior to acquisition exceeded $63.2 million.
These acquisitions were accounted for by the purchase method, and results
are included as of the respective dates of acquisition.
DIVESTITURES - Effective April 1, 1994 the Company divested nearly all of
the assets related to its Metal Bellows operations, which manufactured welded
and formed bellows, accumulators and other fabricated assemblies, principally
for the aerospace market. The sale resulted in proceeds of $14.2 million.
Annual sales for this product line were approximately $30 million in fiscal
1993.
3. INCOME TAXES
Income taxes before extraordinary items include the following:
1996 1995 1994
Federal $ 95,127 $ 90,956 $ 70,332
Foreign 29,635 23,350 10,004
State and local 14,897 14,631 14,376
Deferred (4,847) 1,232 (34,438)
$ 134,812 $ 130,169 $ 60,274
A reconciliation of the Company's effective income tax rate to the statutory
Federal rate follows:
1996 1995 1994
Statutory Federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes 2.3 2.6 6.1
FSC income not taxed (1.1) (1.3) (3.0)
Foreign tax rate difference 1.4 1.0 .8
Foreign losses with no tax benefit .2 1.5
Foreign tax credits (.9) 1.1
Recognized loss carryforwards (1.1) (1.8)
Impairment losses with no tax benefit 9.0
Other .2 1.9 3.1
Effective income tax rate 36.0% 37.4% 53.6%
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of assets and liabilities.
Page 13-21
The differences comprising the net deferred taxes shown on the Consolidated
Balance Sheet at June 30 were as follows:
1996 1995
Postretirement benefits $ 50,485 $ 45,965
Other liabilities and reserves 50,445 44,741
Long-term contracts 14,870 9,365
Operating loss carryforwards 32,227 35,669
Valuation allowance (2,770) (8,867)
Depreciation (55,890) (59,892)
Acquisitions (23,549) (9,183)
Inventory 13,834 5,746
Net deferred tax asset (liability) $ 79,652 $ 63,544
Change in net deferred tax asset (liability):
Provision for deferred tax $ 4,847 $ (1,232)
Translation adjustment (2,918) 4,323
Acquisitions 14,179 (1,977)
Total change in net deferred tax $ 16,108 $ 1,114
At June 30, 1996, foreign subsidiaries had benefits for operating loss
carryforwards of $32,227 for tax and $31,782 for financial reporting, most
of which can be carried forward indefinitely. Use of operating loss
carryforwards and currency adjustments reduced the valuation allowance.
Non-current deferred income tax assets include a $22,336 tax benefit for
the net operating loss carryforwards of the Company's German operations. The
Company has not provided a valuation allowance that would be required under
Statement of Financial Accounting Standards (SFAS) No. 109 if it is more
likely that these benefits would not be realized. Although future events
cannot be predicted with certainty, management continues to believe these
benefits will be realized because: the tax loss carryforward period is
unlimited; there are several tax planning strategies that can be used to
reduce the carryforward; 26 percent of the losses were due to non-recurring
restructuring charges with the remainder primarily the result of the recession
in Europe; and the Company expects its German operations will return to
profitability.
Provision has not been made for additional U.S. or foreign taxes on
undistributed earnings of certain international operations as those earnings
will continue to be reinvested. It is not practicable to estimate the
additional taxes, including applicable foreign withholding taxes, that might
be payable on the eventual remittance of such earnings.
4. EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of shares
of common stock outstanding during the year, adjusted for shares issued in
acquisitions accounted for as poolings of interests and stock splits
distributed to shareholders. Fully diluted earnings per share are not
presented because such dilution is not material.
5. INVENTORIES
Inventories valued on the last-in, first-out cost method are approximately 37%
in 1996 and 40% in 1995 of total inventories. The current cost of these
inventories exceeds their valuation determined on the LIFO basis by $142,049
in 1996 and $138,974 in 1995. Progress payments of $22,810 in 1996 and
$11,665 in 1995 are netted against inventories.
Page 13-22
6. FINANCING ARRANGEMENTS
The Company has committed lines of credit totaling $450,000 through several
multi-currency unsecured revolving credit agreements with a group of banks,
of which $333,829 was available at June 30, 1996. Agreements totaling $50,000
expire December, 1996 and the remainder expire October, 2000. The interest on
borrowings is based upon the terms of each specific borrowing and is subject
to market conditions. The agreements also require facility fees of up to .095%
of the commitment per annum. Covenants in some of the agreements include a
limitation on the Company's debt to debt-equity ratio.
The Company has other lines of credit, primarily short-term, aggregating
$77,526, from various foreign banks, of which $39,393 is available at
June 30, 1996. Most of these agreements are reviewed annually.
During June 1996, the Company announced a Medium-Term Note Program and
registered $300,000 of medium-term notes of which $95,000 were issued and
outstanding at June 30, 1996.
The Company is authorized to sell up to $400,000 of short-term commercial
paper notes, rated A-1 by Standard & Poor's, P-1 by Moody's and D-1 by Duff &
Phelps. At June 30, 1996 there were $98,400 of commercial paper notes
outstanding which are supported by the available domestic lines of credit.
There were no commercial paper notes outstanding at June 30, 1995.
Commercial paper, along with short-term borrowings from foreign banks,
primarily make up the balance of Notes payable. The balance and weighted
average interest rate of the Notes payable at June 30, 1996 and 1995 were
$165,597 and 6.2% and $74,855 and 6.6%, respectively.
7. DEBT
June 30, 1996 1995
Domestic:
Debentures and notes
10.375%, due 1999-2018 $ 100,000 $ 100,000
9.75%, due 2002-2021 100,000 100,000
7.3%, due 2011 100,000
9.6%, due 1997-1998 4,571 7,428
9.86%, due 1996-1997 2,000
Medium-term notes
7.33% to 7.39%, due 2007-2010 95,000
Variable rate demand bonds
3.40%, due 2010-2025 15,535 15,535
Industrial revenue bonds
3.3% to 5.3625%, due 2002-2015 4,370 4,660
ESOP loan guarantee
8.41%, due 1996 13,468
Foreign:
Bank loans, including revolving credit
1.5% to 13.2%, due 1997-2013 26,493 15,541
Other long-term debt, including capitalized leases 2,020 1,042
Total long-term debt 447,989 259,674
Less long-term debt payable within one year 8,192 22,517
Long-term debt, net $ 439,797 $ 237,157
Principal amounts of long-term debt payable in the five years ending
June 30, 1997 through 2001 are $8,192, $8,529, $9,798, $8,983, and $7,692,
respectively.
In November 1993, the Company used cash from operating activities to early-
retire $100,000 of 9.45% debentures due November 1997 through 2016, resulting
in an early redemption premium and write-off of deferred issuance costs
Page 13-23
totaling $4,207, which is net of applicable income taxes of $3,515. In
addition, the Company early-retired $3,509 of 15.08% Australian debt due in
1995, resulting in early redemption premium of $316.
ESOP LOAN GUARANTEE - During 1989, Parker established a leveraged Employee
Stock Ownership Plan. A trust established under the plan borrowed $70,000,
which was unconditionally guaranteed by the Company, to purchase 2.5 million
shares of Parker-Hannifin Common Stock on the open market. This loan was paid
off on June 30, 1996. At June 30, 1995 the unpaid balance of the loan was
recorded as Long-term debt and an equivalent amount, representing deferred
compensation, was a deduction to Shareholders' equity.
LEASE COMMITMENTS - Future minimum rental commitments as of June 30, 1996,
under noncancelable operating leases, which expire at various dates, are as
follows: 1997-$24,170; 1998-$17,300; 1999-$10,910; 2000-$6,032; 2001-$4,698;
and after 2001-$23,108.
Rental expense in 1996, 1995 and 1994 was $29,899, $26,374 and $21,470,
respectively.
8. FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of investments in cash,
cash equivalents and long-term investments as well as obligations under notes
payable and long-term debt. The carrying values for Cash and cash equivalents,
Investments and other assets and Notes payable approximate fair value. The
estimated fair value of the Company's Long-term debt (excluding leases and
cross-currency swaps) was estimated using discounted cash flow analyses based
on the Company's current incremental borrowing rate for similar types of
borrowing arrangements. The carrying value of this debt, $453,661 and $259,359
at June 30, 1996 and 1995, respectively, was estimated to have a fair value of
$462,725 and $288,935, at June 30, 1996 and 1995, respectively.
The Company has entered into forward contracts and cross-currency swaps to
hedge specific transactions. The Company also has an interest-rate swap
agreement with a triple-A-rated counterparty which effectively changes the
Company's interest rate exposure from a fixed rate to a variable rate on a
notional amount of $50,000. In addition, Company's foreign locations, in the
ordinary course of business, enter into financial guarantees, through
financial institutions, which enable customers to be reimbursed in the event
of nonperformance by the Company. Any risk to the Company as a result of
these arrangements is immaterial.
9. SHAREHOLDERS' EQUITY AND OTHER STOCK-RELATED INFORMATION
COMMON SHARES 1996 1995 1994
Balance July 1 $ 37,001 $ 24,633 $ 24,633
Shares issued under stock option plans
(1996 - 342,557; 1995 - 282,880;
1994 - 129,801) less shares of stock-
for-stock exchange (1996 - 91,124;
1995 - 190,556; 1994 - 129,801) 126 46
Shares issued (24,642,547) in connection
with 3-for-2 stock split 12,321
Shares issued as restricted stock 19
Shares issued for prior-year pooled
acquisition 1
Balance June 30 $ 37,146 $ 37,001 $ 24,633
Page 13-24
ADDITIONAL CAPITAL 1996 1995 1994
Balance July 1 $ 158,454 $ 165,942 $ 164,430
Shares issued under stock option plans,
less shares of stock-for-stock exchange 5,544 1,890 1,512
Shares issued in connection with 3-for-2
stock split (12,321)
Shares issued for purchase acquisition (176) 2,641
Shares issued as restricted stock 1,437 287
Shares issued for prior-year pooled
acquisition 15
Balance June 30 $ 165,259 $ 158,454 $ 165,942
RETAINED EARNINGS
Balance July 1 $ 974,486 $ 806,240 $ 806,033
Net income 239,667 218,238 47,652
Cash dividends paid on common shares,
net of tax benefit of ESOP shares
(1996 - $.72 per share; 1995 - $.68
per share; 1994 - $.65 per share) (53,325) (49,961) (47,445)
Cash payments for fractional shares in
connection with 3-for-2 stock split (31)
Balance June 30 $ 1,160,828 $ 974,486 $ 806,240
DEFERRED COMPENSATION RELATED TO ESOP DEBT
Balance July 1 $ (13,468) $ (25,697) $ (36,764)
Reduction of ESOP debt (Note 7) 13,468 12,229 11,067
Balance June 30 $ -- $ (13,468) $ (25,697)
TRANSLATION ADJUSTMENTS
Balance July 1 $ 35,041 $ 2,538 $ (10,533)
Translation adjustments (Note 11) (14,316) 32,503 13,071
Balance June 30 $ 20,725 $ 35,041 $ 2,538
COMMON STOCK IN TREASURY
Balance July 1 $ -- $ (7,305) $ (14,899)
Shares purchased at cost (6,703) (1,364)
Shares issued under stock option plans
(1995 - 230,234; 1994 - 338,330) 5,890 7,594
Shares issued for purchase acquisition 6,176 2,440
Shares issued as restricted stock 527 339
Balance June 30 $ -- $ -- $ (7,305)
The Company's stock option and stock incentive plans provide for the
granting of incentive stock options and/or nonqualified options to officers
and key employees to purchase shares of common stock at a price not less than
100% of the fair market value of the stock on the dates options are granted.
All outstanding options are exercisable one year after the date of grant and
expire no more than ten years after grant.
The Company derives a tax deduction measured by the excess of the market
value over the option price at the date nonqualified options are exercised.
The related tax benefit is credited to additional capital. The Company makes
no charges against capital with respect to options granted.
Statement of Financial Accounting Standard No. 123, Accounting for Stock-
Based Compensation, requires the Company, beginning in 1997, to either adopt
the fair value method of accounting for stock options in its financial
statements or to retain its existing method and disclose in the notes to the
financial statements the pro forma effects of using the fair value method. The
Company intends to retain its existing method of accounting for stock options
Page 13-25
and to include pro forma disclosures in the notes to the consolidated
financial statements. Accordingly, the standard will have no effect on the
Company's financial condition or results of operations.
Additional information as to shares subject to options is as follows:
Shares Subject Average Option
To Options Price Per Share
Outstanding June 30, 1994 1,681,763 $ 28.85
Granted (pre-split) 454,200 44.79
Exercised (pre-split) (370,514) 29.22
Additional shares for split 876,131
Exercised (post-split) (142,600) 19.75
Cancelled (14,287)
Outstanding June 30, 1995 2,484,693 $ 22.05
Granted 255,150 39.12
Exercised (342,557) 20.02
Cancelled (11,625)
Outstanding June 30, 1996 2,385,661 $ 24.14
Options exercisable and shares available for future grant were:
June 30, 1996 1995
Options exercisable 2,130,511 1,808,643
Shares available for grant 2,196,898 2,189,660
Restricted stock was issued, under the Company's 1993 Stock Incentive
Program to certain key employees as payments under the Company's 1993-94-95
Long Term Incentive Plan (LTIP). Value of the payments was set as the market
value of the Company's common stock on the date of issuance. Shares were
earned and awarded, and an estimated value was accrued, based upon attainment
of criteria specified in the LTIP over the cumulative years of the 3-year
Plan. Plan participants are entitled to cash dividends and to vote their
respective shares, but the shares are restricted as to transferability for
three years following issuance.
Restricted Shares for LTIP Plan 1996 1995
Number of shares issued 48,907 19,444
Per share value on date of issuance $ 39.08 $ 27.50
Total value $ 1,911 $ 534
Under the Company's 1994-95-96 LTIP, a payout of 101,944 shares of
restricted stock, from the Company's 1993 Stock Incentive Program, will be
issued to certain key employees. This payout, accrued over the three years
of the plan, will be made in 1997.
In addition, non-employee members of the Board of Directors have been
given the opportunity to receive all or a portion of their fees in the form
of restricted stock. These shares vest ratably, on an annual basis, over the
term of office of the director. In 1996 and 1995, 2,162 and 2,991 shares were
issued, respectively, in lieu of directors' fees.
At June 30, 1996, the Company had 4,582,559 common shares reserved for
issuance in connection with all of these plans.
10. RETIREMENT BENEFITS
PENSIONS -- The Company has noncontributory defined benefit pension plans
covering eligible employees, including certain employees in foreign countries.
Plans for most salaried employees provide pay-related benefits based on years
Page 13-26
of service. Plans for hourly employees generally provide benefits based on
flat-dollar amounts and years of service. The Company also has contractual
arrangements with certain key employees which provide for supplemental
retirement benefits. In general, the Company's policy is to fund these plans
based on legal requirements, tax considerations, local practices and
investment opportunities. The Company also sponsors defined contribution plans
and participates in government-sponsored programs in certain foreign countries.
Pension costs for all plans were $22,514, $17,246 and $10,850 for 1996,
1995 and 1994, respectively. Pension costs were reduced in 1994 by
curtailment gains of $1,899 for the Metal Bellows divestiture. Pension costs
for all defined benefit plans accounted for using SFAS No. 87, Employers'
Accounting for Pensions, are as follows:
1996 1995 1994
Service cost-benefits earned
during the period $ 20,731 $ 18,801 $ 16,889
Interest cost on projected benefit
obligation 44,384 37,929 34,330
Actual return on assets (74,926) (77,321) (3,088)
Net amortization and deferral 30,111 35,665 (38,364)
Net periodic pension costs $ 20,300 $ 15,074 $ 9,767
For domestic plans, the weighted average discount rates and the rates of
increase in future compensation levels used in determining the actuarial
present value of the projected benefit obligations were 8% and 5%,
respectively, at June 30, 1996 and 1995. The expected long-term rate of
return on assets was 9% at June 30, 1996 and 1995. For the principal foreign
plans located in the United Kingdom and Germany, the weighted average discount
rates used were 8% and 7%, respectively, at June 30, 1996 and 1995 and the
rates of increase in future compensation used were 6% and 4.5%, respectively,
at June 30, 1996 and 1995. The rates of return on assets used in the United
Kingdom and Germany were 8.5% and 7%, respectively, at June 30, 1996 and 1995.
The following tables set forth the funded status of all the plans accounted
for under SFAS No. 87 and the amounts recognized in the Company's consolidated
balance sheet:
Assets Exceed Accumulated Benefits
1996 1995
Actuarial present value of benefit obligations:
Vested benefit obligation $ (445,798) $ (371,240)
Accumulated benefit obligation $ (458,720) $ (380,902)
Projected benefit obligation $ (529,564) $ (437,653)
Plan assets at fair value 654,495 507,015
Projected benefit obligation less than plan assets 124,931 69,362
Unrecognized net (gain) or loss (34,822) (6,415)
Unrecognized prior service cost 13,361 12,033
Unrecognized net (asset) obligation (20,164) (23,700)
Prepaid pension cost (pension liability)
recognized $ 83,306 $ 51,280
Page 13-27
Accumulated Benefits Exceed Assets
1996 1995
Actuarial present value of benefit obligations:
Vested benefit obligation $ (95,054) $ (73,642)
Accumulated benefit obligation $ (108,165) $ (83,387)
Projected benefit obligation $ (127,001) $ (99,537)
Plan assets at fair value 22,436 17,440
Projected benefit obligation in excess of
plan assets (104,565) (82,097)
Unrecognized net (gain) or loss 3,643 3,937
Unrecognized prior service cost 5,540 4,883
Unrecognized net (asset) obligation 2,247 2,900
Prepaid pension cost (pension liability)
recognized $ (93,135) $ (70,377)
The majority of the underfunded plans relate to foreign and supplemental
executive plans.
The plans' assets consist primarily of listed common stocks,
corporate and government bonds, and real estate investments. At June 30, 1996
and 1995, the plans' assets included Company stock with market values of
$15,014 and $12,844, respectively.
EMPLOYEE SAVINGS PLAN -- During 1989, the Company established a leveraged
Employee Stock Ownership Plan (ESOP) as part of its existing savings and
investment 401(k) plan, which is available to eligible domestic employees.
Parker-Hannifin Common Stock, within the ESOP, is used to match contributions
made by employees to the savings plan up to a maximum of 5% of an employee's
annual compensation.
1996 1995 1994
Allocated shares 4,622,796 4,156,716 3,671,907
Committed to be released 40,154 44,365 12,267
Unreleased shares 562,178 1,117,098
Total shares held by the ESOP 4,662,950 4,763,259 4,801,272
Company contributions to the ESOP, recorded as compensation and interest
expense, were $18,626 in 1996, $17,106 in 1995 and $15,764 in 1994. The
interest expense portion (interest on ESOP debt) was $856 in 1996, $1,910 in
1995 and $2,848 in 1994. Dividends earned by the unallocated shares and
interest income within the ESOP are used to service the ESOP debt. These were
$218 in 1996, $793 in 1995 and $1,059 in 1994.
OTHER POSTRETIREMENT BENEFITS--The Company provides postretirement medical
and life insurance benefits to certain retirees and eligible dependents. Most
plans are contributory, with retiree contributions adjusted annually. The
plans are unfunded and pay stated percentages of covered medically necessary
expenses incurred by retirees, after subtracting payments by Medicare or other
providers and after stated deductibles have been met. For most plans, the
Company has established cost maximums to more effectively control future
medical costs. The Company has reserved the right to change or eliminate these
benefit plans. Postretirement benefit costs included the following components:
1996 1995 1994
Service cost-benefits attributed to
service during the period $ 3,515 $ 3,598 $ 3,414
Interest cost on accumulated
postretirement benefit obligations 11,126 9,638 9,656
Net amortization and deferral (708) 72 364
Net periodic postretirement benefit costs $13,933 $ 13,308 $ 13,434
Page 13-28
The following table reconciles the plans' combined funded status to amounts
recognized in the Company's consolidated balance sheet:
1996 1995
Accumulated postretirement benefit obligation:
Retirees $ (91,419) $ (68,452)
Fully eligible active plan participants (34,912) (26,602)
Other active plan participants (42,517) (34,373)
Unrecognized (gain) loss 2,721 316
Unrecognized prior service cost 144 606
Accrued postretirement benefit costs $ (165,983) $ (128,505)
For measurement purposes, a 10.75% annual rate of increase in the per
capita cost of covered benefits (i.e., health care cost trend rate) was assumed
for 1997. The rate was assumed to decrease gradually to 6% by 2007 and remain
at that level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by 1 percentage point in each year would
increase the accumulated postretirement benefit obligation as of June 30, 1996
by $9,382, and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year then ended by $568. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8% at June 30, 1996 and 1995.
OTHER -- In 1995 the Company established nonqualified deferred compensation
programs which permit officers, directors and certain management employees to
annually elect to defer a portion of their compensation, on a pre-tax basis,
until their retirement. The retirement benefit to be provided is based on the
amount of compensation deferred, Company match, and earnings on the deferrals.
Deferred compensation expense was $4,129 and $2,530 in 1996 and 1995,
respectively.
The Company has invested in corporate-owned life insurance policies to
assist in funding these programs. The cash surrender value of these policies
are in an irrevocable rabbi trust and are recorded as assets of the Company.
11. FOREIGN OPERATIONS
The Company's major foreign operations are located in Germany, the United
Kingdom, Brazil, France, Sweden and Italy. Their business activities are
conducted principally in their local currency. Net transaction and translation
adjustments increased Net income in 1996 by $873 and reduced Net income in
1995 and 1994 by $195 and $382, respectively. Such amounts are net of the tax
benefits from monetary corrections for inflation and exclude the effect on
Cost of sales resulting from valuing inventories at acquisition cost since
sales price increases in each year more than offset this effect.
Net sales, Income before income taxes (and before extraordinary item in
1994) and Net income include the following amounts from foreign operations:
1996 1995 1994
Net sales $ 1,085,676 $ 932,886 $ 588,098
Income before income taxes 70,118 92,256 (17,070)
Net income 42,563 63,514 (14,594)
Net assets of foreign operations at June 30, 1996 and 1995 amounted to
$746,356 and $601,142, respectively.
Accumulated undistributed earnings of foreign operations reinvested in
their operations amounted to $ 103,059, $100,550, and $38,938, at June 30,
1996, 1995 and 1994, respectively.
Page 13-29
12. RESEARCH AND DEVELOPMENT
Research and development costs amounted to $91,706 in 1996, $74,129 in 1995,
and $64,518 in 1994. Customer reimbursements included in the total cost for
each of the respective years were $33,018, $21,202 and $22,640. Costs include
those costs related to independent research and development as well as
customer reimbursed and unreimbursed development programs.
13. CONTINGENCIES
The Company is involved in various litigations arising in the normal course
of business, including proceedings based on product liability claims, workers'
compensation claims and alleged violations of various environmental laws. The
Company is self-insured in the U.S. for health care, workers' compensation,
general liability and product liability up to predetermined amounts, above
which third party insurance applies. The Company purchases third party product
liability insurance for products manufactured by its international operations
and for products that are used in aerospace applications. Management regularly
reviews the probable outcome of these proceedings, the expenses expected to be
incurred, the availability and limits of the insurance coverage, and the
established accruals for uninsured liabilities. While the outcome of pending
proceedings cannot be predicted with certainty, management believes that any
liabilities that may result from these proceedings are not reasonably likely
to have a material effect on the Company's liquidity, financial condition or
results of operations.
ENVIRONMENTAL - The Company is currently involved in environmental
remediation at 20 manufacturing facilities presently or formerly operated by
the Company and has been named as a "potentially responsible party", along
with other companies, at 11 off-site waste disposal facilities.
As of June 30, 1996, the Company has a reserve of $9,365 for environmental
matters which are probable and reasonably estimable. This reserve is recorded
based upon the best estimate of net costs to be incurred in light of the
progress made in determining the magnitude of remediation costs, the timing
and extent of remedial actions required by governmental authorities, the
amount of the Company's liability in proportion to other responsible parties
and any recoveries receivable. This reserve is net of $1,042 for discounting,
at a 7.5% annual rate, a portion of the costs at 7 locations for established
treatment procedures required over periods ranging from 6 to 19 years. The
Company also has an account receivable of $490 for anticipated insurance
recoveries.
The Company's estimated total liability for the above mentioned sites
ranges from a minimum of $8,955 to a maximum of $23,719. The actual costs to
be incurred by the Company will be dependent on final delineation of
contamination, final determination of remedial action required, negotiations
with federal and state agencies with respect to cleanup levels, changes in
regulatory requirements, innovations in investigatory and remedial technology,
effectiveness of remedial technologies employed, the ultimate ability to pay
of the other responsible parties, and any insurance recoveries.
Page 13-30
Report of Management
The Company's management is responsible for the integrity and accuracy of the
financial information contained in this annual report. Management believes
that the financial statements have been prepared in conformity with generally
accepted accounting principles appropriate in the circumstances and that the
other information in this annual report is consistent with those statements.
In preparing the financial statements, management makes informed judgments and
estimates where necessary to reflect the expected effects of events and
transactions that have not been completed.
Management is also responsible for maintaining an internal control system
designed to provide reasonable assurance at reasonable cost that assets are
safeguarded against loss or unauthorized use and that financial records are
adequate and can be relied upon to produce financial statements in accordance
with generally accepted accounting principles. The system is supported by
written policies and guidelines, by careful selection and training of
financial management personnel and by an internal audit staff which
coordinates its activities with the Company's independent accountants. To
foster a strong ethical climate, the Parker Hannifin Code of Ethics is
publicized throughout the Company. This addresses, among other things,
compliance with all laws and accuracy and integrity of books and records. The
Company maintains a systematic program to assess compliance.
Coopers & Lybrand L.L.P., independent accountants, are retained to conduct
an audit of Parker Hannifin's consolidated financial statements in accordance
with generally accepted auditing standards and to provide an independent
assessment that helps ensure fair presentation of the Company's financial
position, results of operations and cash flows.
The Audit Committee of the Board of Directors is composed entirely of
outside directors. The Committee meets periodically with management, internal
auditors and the independent accountants to discuss internal accounting
controls and the quality of financial reporting. Financial management, as
well as the internal auditors and the independent accountants, have full and
free access to the Audit Committee.
Duane E. Collins Michael J. Hiemstra
Duane E. Collins Michael J. Hiemstra
President and Vice President -
Chief Executive Officer Finance and Administration
and Chief Financial Officer
Page 13-31
Report of Independent Accountants
To the Shareholders and Board of Directors
Parker Hannifin Corporation
We have audited the accompanying consolidated balance sheet of Parker Hannifin
Corporation and its subsidiaries at June 30, 1996 and 1995, and the related
consolidated statements of income and cash flows for each of the three years
in the period ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Parker
Hannifin Corporation and its subsidiaries at June 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Cleveland, Ohio
August 1, 1996
Page 13-32
FIVE-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
1996 1995 1994(a) 1993 1992(b)
Net sales $ 3,586,448 $ 3,214,370 $ 2,576,337 $ 2,489,323 $ 2,375,808
Cost of sales 2,756,343 2,448,264 2,053,376 2,004,955 1,925,800
Selling, general and administrative expenses 425,449 384,581 302,668 310,765 282,861
Provision for business restructuring activities 18,773 22,879 14,798
Impairment of long-term assets 35,483
Interest expense 36,667 30,922 37,832 47,056 52,190
Interest and other income, net (8,537) (2,335) (3,879) (5,457) (6,380)
Loss on disposal of assets 2,047 4,531 19,635 1,059 1,148
Income taxes 134,812 130,169 60,274 43,010 41,912
Income - continuing operations 239,667 218,238 52,175 65,056 63,479
Income before extraordinary item and cumulative
effect of changes in accounting principles 239,667 218,238 52,175 65,056 63,479
Net income 239,667 218,238 47,652 65,056 11,218
Earnings per share - continuing operations 3.23 2.96 .71 .89 .88
Earnings per share before extraordinary item
and cumulative effect of changes in
accounting principles 3.23 2.96 .71 .89 .88
Earnings per share $ 3.23 $ 2.96 $ .65 $ .89 $ .15
Average number of shares outstanding (thousands) 74,174 73,717 73,107 72,710 72,429
Cash dividends per share $ .72 $ .68 $ .65 $ .64 $ .62
Cash dividends paid $ 53,325 $ 49,961 $ 47,445 $ 46,121 $ 44,382
Net income as a percent of net sales 6.7% 6.8% 1.8% 2.6% 0.5%
Return on average assets 9.2% 10.3% 2.5% 3.3% 0.6%
Return on average equity 18.6% 20.2% 5.0% 7.0% 1.2%
Book value per share $ 18.63 $ 16.10 $ 13.16 $ 12.80 $ 12.86
Current assets 1,402,124 1,246,382 1,031,308 1,056,443 1,055,776
Current liabilities 766,882 652,621 504,444 468,254 383,603
Working capital $ 635,242 $ 593,761 $ 526,864 $ 588,189 $ 672,173
Ratio of current assets to current liabilities 1.8 1.9 2.0 2.3 2.8
Plant and equipment, net continuing $ 991,777 $ 815,771 $ 717,300 $ 736,056 $ 752,490
Total assets 2,887,124 2,302,209 1,925,744 1,963,590 1,958,120
Long-term debt 439,797 237,157 257,259 378,476 446,974
Shareholders' equity $ 1,383,958 $ 1,191,514 $ 966,351 $ 932,900 $ 934,019
Debt to debt-equity percent 30.7% 21.9% 22.7% 33.3% 34.0%
Depreciation continuing $ 126,544 $ 110,527 $ 106,546 $ 109,673 $ 102,628
Capital expenditures continuing $ 201,693 $ 151,963 $ 99,914 $ 91,484 $ 84,955
Number of employees 33,289 30,590 26,730 25,646 26,669
Number of shareholders 35,403 35,629 29,625 30,414 30,836
Number of shares outstanding at year-end (thousands) 74,292 74,002 73,410 72,902 72,614
<FN>
(a) Includes an extraordinary item for the early retirement of debt.
(b) Includes the cumulative effect of changes in accounting principles
for SFAS No. 106, Employer's Accounting for Postretirement Benefits
Other than Pensions and SFAS No. 109, Accounting for Income Taxes.
</FN>
Page 13-33