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 September 30, 1997
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)
6035 Parkland Blvd., Cleveland, Ohio 44124-4141
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 896-3000
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 September 30, 1997 111,622,055
PART I - FINANCIAL INFORMATION
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
September 30,
_________________________
1997 1996
___________ ___________
Net sales $ 1,083,169 $ 959,328
Cost of sales 827,139 754,498
___________ ___________
Gross profit 256,030 204,830
Selling, general and
administrative expenses 125,275 114,444
___________ ___________
Income from operations 130,755 90,386
Other income (deductions):
Interest expense (10,437) (12,314)
Interest and other income, net 1,017 1,780
___________ ___________
(9,420) (10,534)
___________ ___________
Income before income taxes 121,335 79,852
Income taxes 43,074 28,747
___________ ___________
Net income $ 78,261 $ 51,105
=========== ===========
Earnings per share $ .70 $ .46
Cash dividends per common share $ .15 $ .12
See accompanying notes to consolidated financial statements.
- 2 -
PARKER-HANNIFIN CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
September 30, June 30,
1997 1997
___________ ___________
ASSETS
Current assets:
Cash and cash equivalents $ 39,456 $ 68,997
Accounts receivable, net 629,476 601,724
Inventories:
Finished products 369,661 317,494
Work in process 298,015 304,743
Raw materials 110,051 105,610
___________ ___________
777,727 727,847
Prepaid expenses 16,353 17,366
Deferred income taxes 86,035 83,627
___________ ___________
Total current assets 1,549,047 1,499,561
Plant and equipment 2,209,249 2,138,591
Less accumulated depreciation 1,149,384 1,117,848
___________ ___________
1,059,865 1,020,743
Other assets 588,789 478,642
___________ ___________
Total assets $ 3,197,701 $ 2,998,946
=========== ===========
LIABILITIES
Current liabilities:
Notes payable $ 188,756 $ 69,738
Accounts payable, trade 256,804 266,848
Accrued liabilities 313,011 328,051
Accrued domestic and foreign taxes 85,640 51,374
___________ ___________
Total current liabilities 844,211 716,011
Long-term debt 433,302 432,885
Pensions and other postretirement benefits 257,911 252,709
Deferred income taxes 29,151 26,007
Other liabilities 37,556 24,033
___________ ___________
Total liabilities 1,602,131 1,451,645
SHAREHOLDERS' EQUITY
Serial preferred stock, $.50 par value;
authorized 3,000,000 shares; none issued -- --
Common stock, $.50 par value; authorized
300,000,000 shares; issued 111,812,025 shares at
September 30 and 111,809,085 shares at June 30 55,906 55,905
Additional capital 138,751 150,702
Retained earnings 1,439,782 1,378,297
Currency translation adjustment (31,200) (27,345)
___________ ___________
1,603,239 1,557,559
Less treasury shares, at cost:
189,970 shares at September 30
and 282,915 shares at June 30 (7,669) (10,258)
___________ ___________
Total shareholders' equity 1,595,570 1,547,301
___________ ___________
Total liabilities and shareholders' equity $ 3,197,701 $ 2,998,946
=========== ===========
See accompanying notes to consolidated financial statements.
- 3 -
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
September 30,
_____________________
1997 1996
_________ _________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 78,261 $ 51,105
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation 39,518 37,882
Amortization 6,110 6,043
Deferred income taxes (2,611) (4,606)
Foreign currency transaction loss 1,108 45
(Gain) loss on sale of plant and equipment (864) 263
Changes in assets and liabilities:
Accounts receivable (13,458) 18,426
Inventories (30,074) 4,466
Prepaid expenses 993 875
Other assets (22,844) (2,780)
Accounts payable, trade (16,766) (36,909)
Accrued payrolls and other compensation (18,545) (18,245)
Accrued domestic and foreign taxes 33,859 26,201
Other accrued liabilities 9,065 12,349
Pensions and other postretirement benefits 5,094 3,582
Other liabilities 4,450 1,838
_________ _________
Net cash provided by operating activities 73,296 100,535
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (143,603) (17,224)
Capital expenditures (60,424) (42,962)
Proceeds from sale of plant and equipment 4,427 1,288
Other 4,384 (3,187)
_________ _________
Net cash used in investing activities (195,216) (62,085)
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments for common share purchases (10,337) (3,197)
Proceeds from (payments of) notes payable, net 120,726 (14,400)
Proceeds from long-term borrowings 2,277 163
Payments of long-term borrowings (2,507) (3,952)
Dividends (16,745) (13,384)
_________ _________
Net cash provided by (used in)
financing activities 93,414 (34,770)
Effect of exchange rate changes on cash (1,035) (510)
_________ _________
Net (decrease) increase in cash and
cash equivalents (29,541) 3,170
Cash and cash equivalents at beginning of year 68,997 63,953
_________ _________
Cash and cash equivalents at end of period $ 39,456 $ 67,123
========= =========
See accompanying notes to consolidated financial statements.
- 4 -
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 a significant portion of
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 and fuel applications.
Results by Business Segment:
Three Months Ended
September 30,
_________________________
1997 1996
___________ ___________
Net sales, including intersegment sales
Industrial:
North America $ 585,499 $ 503,750
International 264,398 259,760
Aerospace 233,554 195,936
Intersegment sales (282) (118)
___________ ___________
Total $ 1,083,169 $ 959,328
=========== ===========
Income from operations before corporate
general and administrative expenses
Industrial:
North America $ 89,682 $ 68,603
International 20,151 12,929
Aerospace 36,916 20,924
___________ ___________
Total 146,749 102,456
Corporate general and administrative
expenses 15,994 12,070
___________ ___________
Income from operations $ 130,755 $ 90,386
=========== ===========
See accompanying notes to consolidated financial statements.
- 5 -
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 September 30, 1997, the results of operations for the three months
ended September 30, 1997 and 1996 and cash flows for the three months
then ended.
2. 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.
3. Stock repurchase program
The Board of Directors has approved a program to repurchase the Company's
common stock on the open market, at prevailing prices. The repurchase
will be funded from operating cash flows and the shares will initially be
held as treasury stock. During the three-month period ended September 30,
1997 the Company purchased 263,645 shares of its common stock at an
average price of $43.497 per share.
4. Acquisitions
In September 1997 the Company acquired the assets of the Skinner and
Lucifer solenoid valve divisions of Honeywell. Skinner, headquartered in
New Britain, Connecticut and Lucifer, headquartered in Geneva,
Switzerland, had prior-year annual sales of approximately $94 million.
In August 1997 the Company acquired the assets of EWAL Manufacturing of
Belleville, New Jersey, a leading producer of precision fittings and
valves. EWAL, with annual sales of $33 million, serves ultra-high-purity
markets for the semiconductor, analytical, laboratory and specialty gas
industries.
Total purchase price for these businesses was approximately $140.2
million in cash. Both acquisitions are being accounted for by the
purchase method.
- 6 -
PARKER-HANNIFIN CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
AND COMPARABLE PERIOD ENDED SEPTEMBER 30, 1996
CONSOLIDATED STATEMENT OF INCOME
Net sales exceeded $1 billion for the first quarter of fiscal 1998,
increasing 12.9 percent to $1,083.2 million. Prior-year first quarter sales
were $959.3 million. Acquisitions within the past twelve months caused less
than 1 percent of the current-year increase.
Income from operations for the quarter increased 44.7 percent to $130.8
million. As a percent of sales the current-quarter operating income increased
to 12.1 percent from 9.4 percent the prior year. Cost of sales, as a percent
of sales, decreased to 76.4 percent from 78.6 percent. Selling, general and
administrative expenses, as a percent of sales, decreased to 11.6 percent
from 11.9 percent. Volume increases are improving capacity utilization and
benefiting operating margins. In addition, previous years' acquisitions are
now achieving higher margins as integration is being completed and synergies
are improving operating efficiencies.
Interest expense for the current-year quarter decreased $1.9 million due to
lower average debt outstanding for the quarter. Funds from the additional
Notes payable as of September 30, 1997 were borrowed late in the quarter.
Net Income for the quarter increased 53.1 percent to $78.3 million and
increased to 7.2 percent of sales compared to 5.3 percent the prior-year
quarter.
Backlog increased to $1.54 billion at September 30, 1997 compared to $1.36
billion the prior year and $1.49 billion at June 30, 1997.
RESULTS BY BUSINESS SEGMENT
INDUSTRIAL - Net sales of the Industrial Segment increased 11.3 percent to
$849.9 million compared to $763.5 million the prior year. Industrial North
American sales increased 16.2 percent while Industrial International sales
increased 1.8 percent. Without the significant impact of currency-rate
changes International sales volume increased more than 16 percent. A key
factor for the quarter was the strength of nearly all of the industrial
markets in North America and a continuing recovery in industrial markets
overseas. Favorable economic conditions in Latin America also contributed to
the volume growth.
Operating income for the Industrial Segment increased 34.7 percent to $109.8
million. Industrial North America increased 30.7 percent and Industrial
International increased 55.9 percent. North American operating income, as a
percent of sales, increased to 15.3 percent from 13.6 percent while
International increased to 7.6 percent from 5.0 percent. These increases
reflect better capacity utilization as market demand improved, especially
within the heavy duty truck, semiconductor fabrication and factory automation
product markets, resulting in increased volume and a more profitable product
mix.
Industrial Segment backlog increased 12.9 percent compared to a year ago, and
2.4 percent since June 30, 1997. Business conditions appear favorable for the
remainder of the fiscal year for both the North American and International
operations.
AEROSPACE - Net sales of the Aerospace Segment were up 19.2 percent for the
quarter primarily due to the continuing strong upswing of the commercial
aviation business.
- 7 -
Income from operations increased 76.4 percent year to year, resulting in
Income from operations as a percent of sales increasing to 15.8 percent from
10.7 percent. The current quarter benefited from a more favorable product mix
as commercial aftermarket sales were especially strong. Increased volume
throughout Aerospace has improved capacity utilization and has also
contributed to the higher margins. Fiscal 1997 margins had been negatively
impacted by the integration of the Abex acquisition.
Backlog for the Aerospace Segment increased 14.3 percent compared to a year
ago and increased 4.6 percent since June 30, 1997. As backlog for the
commercial aviation business continues to increase, management anticipates
continuing growth for the Aerospace Segment. A change in product mix in the
future, to heavier OEM volume, could result in lower margins than were
achieved in the first quarter.
Corporate general and administrative expenses increased to $16.0 million for
fiscal 1998 compared to $12.1 million the prior year. The increase is
primarily due to the current classification of certain staff as Corporate
rather than segment operating staff as in prior years.
BALANCE SHEET
Working capital decreased to $704.8 million at September 30, 1997 from $783.6
million at June 30, 1997, with the ratio of current assets to current
liabilities decreasing to 1.8 to 1. The decrease in working capital was
primarily due to increased Notes payable as a result of recent acquisitions.
Accounts receivable and Inventories increased since June 30, 1997, as a
result of acquisitions within the Industrial segment and volume increases
throughout both the Industrial and Aerospace operations. Days sales
outstanding and months supply increased slightly during the quarter.
Other assets increased $110.1 million since June 30, 1997, primarily due to
an increase in goodwill from acquisitions.
The increase in Accrued domestic and foreign taxes to $85.6 million at
September 30, 1997 from $51.4 million at June 30, 1997 is essentially due to
the timing of the quarterly income tax payments.
Other liabilities increased $13.5 million to $37.6 million at September 30,
1997 primarily due to a reclassification from current Accrued liabilities
resulting from participants electing to defer certain incentive compensation
benefits.
The debt to debt-equity ratio increased to 28.1 percent at September 30, 1997
compared to 24.5 percent as of June 30, 1997 primarily due to an increase in
Notes payable.
STATEMENT OF CASH FLOWS
Net cash provided by operating activities was $73.3 million in fiscal 1998
compared to $100.5 million for the three months ended September 30, 1996. The
reduction in cash provided was primarily due to $43.5 million in cash used
for increases in Accounts receivable and Inventories in the current year,
compared to $22.9 million cash provided by decreases in fiscal 1997. Also,
increases in long-term investments in the current year resulted in an
incremental use of $20.0 million cash within Other assets. These uses were
partially offset by the $27.2 million increase in Net income and a $20.1
million reduction in the cash used for Accounts payable during the quarter.
Net cash used in investing activities increased to $195.2 million for fiscal
1998 compared to $62.1 million for fiscal 1997 primarily due to an additional
$126.4 million used for acquisitions. Capital expenditures also increased to
$60.4 million in fiscal 1998 compared to $43.0 million in fiscal 1997.
Financing activities provided net cash of $93.4 million in fiscal 1998 as
opposed to using cash of $34.8 million for the three months ended September
30, 1996. The change resulted primarily from Notes payable providing cash of
$120.7 million in fiscal 1998 compared to using cash of $14.4 million the
prior year.
- 8 -
PARKER-HANNIFIN CORPORATION
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of the Shareholders of the Registrant
was held on October 22, 1997.
(b) Not applicable.
(c) (i) The Shareholders elected five directors to the three-
year class whose term of office will expire in 2000,
as follows:
Votes For Votes Withheld
Duane E. Collins 60,750,922 2,773,037
Allen H. Ford 60,739,512 2,784,447
Allan L. Rayfield 60,757,197 2,766,762
Paul G. Schloemer 60,659,383 2,864,576
Michael A. Treschow 60,753,804 2,770,155
No Shareholders abstained.
(ii) The Shareholders approved an amendment to the
Corporation's Amended Articles of Incorporation to
increase the authorized number of Common Shares
from 300,000,000 to 600,000,000, as follows:
For 56,548,234
Against 6,634,028
Abstain 341,697
(iii) The Shareholders approved an amendment to the
Corporation's Amended Articles of Incorporation to
change the principal place of business of the
Corporation in Ohio from the City of Cleveland to
the City of Mayfield Heights, as follows:
For 63,010,844
Against 163,280
Abstain 349,835
(iv) The Shareholders approved an amendment to the
Corporation's 1993 Stock Incentive Program to
limit to 500,000 the number of stock options
which may be granted to any employee in any
three-year period, as follows:
For 60,270,363
Against 2,898,486
Abstain 355,110
(v) The Shareholders approved the appointment of Coopers
& Lybrand L.L.P. as auditors of the Corporation for
the fiscal year ending June 30, 1998, as follows:
For 63,169,652
Against 86,747
Abstain 267,560
(d) Not applicable.
- 9 -
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 3 - Amended Articles of Incorporation, as
amended on October 22, 1997
Exhibit 10 - 1993 Stock Incentive Program, as
amended on October 22, 1997
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 and Chief
Financial Officer
Date: November 14, 1997
- 10 -
EXHIBIT INDEX
Exhibit No. Description of Exhibit
3 Amended Articles of Incorporation, as
amended on October 22, 1997
10 1993 Stock Incentive Program, as amended
on October 22, 1997
11 Computation of Earnings
Per Common Share
27 Financial Data Schedule
- 11 -