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, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ___________________ Commission File number 1-4982 PARKER-HANNIFIN CORPORATION (Exact name of registrant as specified in its charter) OHIO 34-0451060 (State or other (IRS Employer jurisdiction of Identification No.) incorporation) 17325 Euclid Avenue, Cleveland, Ohio 44112 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (216) 531-3000 Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . Number of Common Shares outstanding at September 30, 1994 48,981,132 The Exhibit Index appears on sequential page 13. PARKER-HANNIFIN CORPORATION INDEX Page Nos. PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statement of Income - Three Months Ended September 30, 1994 and 1993 3 Consolidated Balance Sheet - September 30, 1994 and June 30, 1994 4 Consolidated Statement of Cash Flows - Three Months Ended September 30, 1994 and 1993 5 Business Segment Information by Industry - Three Months Ended September 30, 1994 and 1993 6 Notes to Consolidated Financial Statements 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-10 PART II - OTHER INFORMATION Item 4. Submission of Matters to a 11 Vote of Security Holders Item 6. Exhibits and Reports on Form 8-K 11 EXHIBIT 10* - Material Contract: Volume Incentive Plan for Fiscal Year 1995 14 EXHIBIT 11* - Computation of Earnings per Common Share 15 EXHIBIT 27* - Financial Data Schedule 16-17 *Numbered in accordance with Item 601 of Regulation S-K. - 2 - PART I - FINANCIAL INFORMATION PARKER-HANNIFIN CORPORATION CONSOLIDATED STATEMENT OF INCOME (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended September 30, 1994 1993 Net sales $ 712,457 $ 607,411 Cost of sales 550,527 494,054 Gross profit 161,930 113,357 Selling, general and administrative expenses 81,535 72,770 Provision for business restructuring activities 1,661 Income from operations 80,395 38,926 Other income (deductions): Interest expense (7,224) (11,611) Interest and other income, net 188 1,949 (7,036) (9,662) Income before income taxes 73,359 29,264 Income taxes 29,710 13,199 Net income $ 43,649 $ 16,065 Earnings per share $ .89 $ .33 Cash dividends per common share $ .25 $ .24 See accompanying notes to consolidated financial statements. - 3 - PARKER-HANNIFIN CORPORATION CONSOLIDATED BALANCE SHEET (Dollars in thousands) September 30, June 30, 1994 1994 ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 33,905 $ 81,590 Accounts receivable, net 422,441 388,515 Inventories: Finished products 259,016 245,068 Work in process 171,606 171,114 Raw materials 83,659 76,748 514,281 492,930 Prepaid expenses 13,247 14,263 Deferred income taxes 40,217 41,056 Total current assets 1,024,091 1,018,354 Plant and equipment 1,681,756 1,621,828 Less accumulated depreciation 930,824 904,528 750,932 717,300 Other assets 201,151 177,136 Total assets $ 1,976,174 $ 1,912,790 LIABILITIES Current liabilities: Notes payable $ 53,984 $ 26,973 Accounts payable, trade 166,626 181,148 Accrued liabilities 228,432 238,682 Accrued domestic and foreign taxes 76,177 57,641 Total current liabilities 525,219 504,444 Long-term debt 252,880 257,259 Pensions and other postretirement benefits 173,874 169,081 Deferred income taxes 8,578 8,052 Other liabilities 7,454 7,603 Total liabilities 968,005 946,439 SHAREHOLDERS' EQUITY Serial preferred stock, $.50 par value; authorized 3,000,000 shares; none issued -- -- Common stock, $.50 par value; authorized 150,000,000 shares; issued 49,267,533 shares at September 30 and 49,265,074 shares at June 30 24,634 24,633 Additional capital 166,603 165,942 Retained earnings 837,645 806,240 Deferred compensation related to guarantee of ESOP debt (25,697) (25,697) Currency translation adjustment 11,689 2,538 1,014,874 973,656 Less treasury shares, at cost: 286,401 shares at September 30 and 325,371 shares at June 30 (6,705) (7,305) Total shareholders' equity 1,008,169 966,351 Total liabilities and shareholders' equity $ 1,976,174 $ 1,912,790 See accompanying notes to consolidated financial statements. - 4 - PARKER-HANNIFIN CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands) (Unaudited) Three Months Ended September 30, 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 43,649 $ 16,065 Adjustments to reconcile net income to net cash provided by operations: Depreciation 27,621 27,151 Amortization 1,806 1,272 Deferred income taxes 1,225 (3,576) Foreign currency transaction (gain) loss (847) 1,917 Loss (gain) on sale of plant and equipment 79 (135) Provision for restructuring (1,418) (6,192) Changes in assets and liabilities: Accounts receivable (14,423) 3,070 Inventories (4,282) 6,796 Prepaid expenses 1,824 352 Other assets (2,903) (2,523) Accounts payable, trade (22,793) 2,684 Accrued payrolls and other compensation (9,544) (13,204) Accrued domestic and foreign taxes 17,655 5,980 Other accrued liabilities (2,433) 9,127 Pensions and other postretirement benefits 3,964 6,485 Other liabilities (1,229) (375) Net cash provided by operating activities 37,951 54,894 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions (excluding cash of $4,825 in 1994) (72,192) Capital expenditures (27,565) (20,353) Proceeds from sale of plant and equipment 1,640 679 Other 4,691 916 Net cash used in investing activities (93,426) (18,758) CASH FLOWS FROM FINANCING ACTIVITIES Exercise of stock options 728 651 Proceeds from notes payable, net 23,735 9,829 Proceeds from long-term borrowings 10,044 282 Payments of long-term borrowings (15,151) (2,348) Dividends (12,244) (11,667) Net cash provided by (used in) financing activities 7,112 (3,253) Effect of exchange rate changes on cash 678 (386) Net (decrease) increase in cash and cash equivalents (47,685) 32,497 Cash and cash equivalents at beginning of year 81,590 159,985 Cash and cash equivalents at end of period $ 33,905 $ 192,482 See accompanying notes to consolidated financial statements. - 5 - PARKER-HANNIFIN CORPORATION BUSINESS SEGMENT INFORMATION BY INDUSTRY (Dollars in thousands) (Unaudited) Parker operates in two industry segments: Industrial and Aerospace. 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. This segment has manufacturing facilities located in North America and numerous International countries. Aerospace - This segment designs and manufactures products and provides aftermarket support for commercial, military and general-aviation aircraft, missile and spacecraft markets. The Aerospace Segment provides a full range of systems and components for hydraulic, pneumatic, cryogenic and fuel applications. This segment has manufacturing facilities located in North America. Results by Business Segment: Three Months Ended September 30, 1994 1993 Net sales, including intersegment sales: Industrial: North America $ 411,021 $ 346,350 International 170,151 118,428 Aerospace 131,381 142,723 Intersegment sales (96) (90) Total $ 712,457 $ 607,411 Income (loss) from operations before corporate general and administrative expenses: Industrial: North America $ 61,273 $ 41,674 International 12,920 (5,591) Aerospace 15,932 12,644 Total 90,125 48,727 Corporate general and administrative expenses 9,730 9,801 Income from operations $ 80,395 $ 38,926 See accompanying notes to consolidated financial statements. - 6 - 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, 1994, the results of operations for the three months ended September 30, 1994 and 1993 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. Acquisitions On August 1, 1994, the Company acquired the Automation Division of Atlas Copco AB, a Swedish manufacturer of pneumatic components for a variety of automation markets for $37 million in cash. On September 30, 1994, the Company acquired Chomerics Inc., a leading producer of electromagnetic interference-shielding materials and thermal interface products for commercial-electronics and defense-electronics applications for approximately $40 million in cash. Chomerics has manufacturing facilities in the U.S. and the U.K. On October 31, 1994, the Company acquired Symetrics, Inc., a manufacturer of aerospace quick-disconnect valved couplings, for 108,680 shares of Parker-Hannifin Common Stock. Symetrics is located in California. These acquisitions were accounted for by the purchase method, and the accompanying statements include their results of operations since the respective dates of acquisition. Sales for these operations for their most recent fiscal year prior to acquisition exceeded $98 million. - 7 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. Business Segment Information by Industry The Business Segment Information by Industry did not previously disclose the breakdown of the Industrial Segment between North America and International. A comparable breakdown of the fiscal 1994 quarterly information follows: First Second Third Fourth Total Fiscal 1994 - Industrial Segment Quarter Quarter Quarter Quarter Year Net sales, including intersegment sales: North America $ 346,350 $ 342,068 $ 399,954 $ 410,240 $ 1,498,612 International 118,428 115,919 140,650 154,894 529,891 Income from operations before corporate general and administrative expenses: North America $ 41,674 $ 41,491 $ 51,524 $ 70,089 $ 204,778 International (5,591) (10,042) (6,324) 4,455 (17,502)
- 8 - 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, 1994 AND COMPARABLE PERIOD ENDED SEPTEMBER 30, 1993 CONSOLIDATED STATEMENT OF INCOME Net sales for the first quarter of fiscal 1995 increased 17.3 percent to $712.5 million from $607.4 million for the first quarter of fiscal 1994. Without the effect of acquisitions or divestitures the increase would have been 15.9 percent. Strongly improved industrial sales in North America and the beginning of an industrial recovery in Europe provided increased sales worldwide in the industrial, farm and construction equipment, and heavy-duty truck markets. Income from operations increased 106.5 percent to $80.4 million and as a percent of sales increased to 11.3 percent from 6.4 percent compared to the prior-year quarter. Cost of sales, as a percent of sales, decreased to 77.3 percent from 81.3 percent. Selling, general and administrative expenses, as a percent of sales, decreased to 11.4 percent from 12.0 percent. These improvements are the result of the benefits achieved from prior years' restructuring activities and the positive effects of higher production levels in relation to fixed costs. The fiscal 1994 first quarter results included a Provision for business restructuring activities amounting to $1.7 million. This provision was for employment reductions, plant closings and relocations, and write-offs of related capital assets primarily for the European Industrial operations. The Company incurred no material restructuring charges in the first quarter of the current year. The effective income tax rate for the first quarter of fiscal 1995 is 40.5 percent. This compares to a rate of 39.6 percent for fiscal 1994, computed after eliminating the effect of a one-time charge of $1.6 million for tax law changes in Germany and the United States. Net Income increased 171.7 percent to $43.6 million compared to the prior year, and increased to 6.1 percent of sales compared to 2.6 percent for the prior-year quarter. Backlog increased to $869.9 million at September 30, 1994 compared to $810.2 million the prior year, and $852.5 million at June 30, 1994. The increases occurred within the Industrial Segment, while Aerospace backlog remained steady. RESULTS BY BUSINESS SEGMENT Net sales of the Industrial Segment increased 25.0 percent to $581.2 million compared to $464.8 million the prior year. North America sales increased 18.7 percent while International sales increased 43.7 percent. Without the effects of currency rate changes, International sales would have increased approximately 36 percent. The increased sales are the result of increased shipments in the industrial, farm and construction equipment, and heavy-duty truck markets as well as gains made in market share. The sales levels achieved in the first quarter are expected to continue throughout the fiscal year. Operating income for the Industrial Segment increased 105.6 percent to $74.2 million. North America increased 47.0 percent while International moved from a loss to income of $12.9 million. Operating income for the quarter, as a percent of sales, improved to 12.8 percent from 7.8 percent compared to the prior year. The higher margins are the result of increased volume and the benefits from previous restructuring efforts. No further restructuring charges are anticipated and the improved margin levels are expected to continue. - 9 - Industrial Segment backlog increased 32.0 percent compared to a year ago, and 4.7 percent since June 30, 1994. North America backlog increased 26.2 percent and International backlog increased 56.0 percent from the prior year. International backlog increased 15.0 percent since June 30, 1994, further reflecting the recovery occurring in International markets. Net sales of the Aerospace Segment were down 7.9 percent for the quarter. A portion of the decrease in sales is the result of divesting the Metal Bellows operations in the fourth quarter of fiscal 1994. The remaining decrease is the result of reduced original equipment shipments compared to the prior year quarter. In spite of the decreased sales, Income from operations increased 26.0 percent and Income from operations as a percent of sales increased to 12.1 percent from 8.9 percent. The Aerospace Segment has carried out a substantial downsizing over the past several years to adjust to the changing markets. These actions have helped the Segment to achieve improved margin levels which are expected to continue. No further restructuring charges are anticipated. Backlog for the Aerospace Segment decreased 4.3 percent compared to a year ago, but increased slightly since June 30, 1994. The order-entry rate for the Aerospace Segment has been growing in recent months, although a substantial portion of the resulting sales will occur beyond fiscal 1995. BALANCE SHEET Working capital decreased to $498.9 million at September 30, 1994 from $513.9 million at June 30, 1994, with the ratio of current assets to current liabilities decreasing slightly to 1.9 to 1. This decrease is primarily the result of a $47.7 million decrease in Cash and cash equivalents and a $27.0 million increase in Notes payable, offset by increases in Accounts receivable, net and Inventories. Accounts receivable, net increased $33.9 million from June 30, 1994, $15.6 million of which was due to acquisitions, with the remainder due to increased volume and a slight increase in days sales outstanding. Inventories increased $21.4 million since June 30, 1994, of which $13.1 million is the result of acquisitions. Increases in Plant and equipment and Other assets since June 30, 1994 are also the result of acquisitions. The debt to debt-equity ratio, excluding the effect of the ESOP loan guarantee on both Long-term debt and Shareholders' equity, increased to 21.4 percent at September 30, 1994 from 20.7 percent at June 30, 1994, principally due to the increase in Notes payable. STATEMENT OF CASH FLOWS Net cash provided by operating activities was $38.0 million and $54.9 million for the three months ended September 30, 1994 and 1993, respectively. Net income, adjusted for non-cash items included therein, provided $72.1 million net cash in fiscal 1995 compared to $36.5 million in the same three months of fiscal 1994. This additional net cash provided was more than offset by changes in the principal working capital items - Accounts receivable, Inventories, and Accounts payable, trade - which used net cash of $41.5 million in fiscal 1995 compared to providing cash of $12.6 million in the same three months of fiscal 1994. Net cash used in investing activities increased to $93.4 million in fiscal 1995 compared to $18.8 million in fiscal 1994, as Acquisitions used net cash of $72.2 million. Also, net cash used for Capital expenditures increased $7.2 million in fiscal 1995. Financing activities provided net cash of $7.1 million and used net cash of $3.3 million for the three months ended September 30, 1994 and 1993, respectively. The net cash provided was due to an increase in notes payable which provided $23.7 million cash in fiscal 1995 compared to $9.8 million in fiscal 1994. Payments of long-term borrowings, net of proceeds from long-term borrowings, used an additional $3.0 million net cash in fiscal 1995 compared to the same three months of fiscal 1994. - 10 - 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 26, 1994. (b) Not applicable. (c) (i) The Shareholders elected four directors to the three- year class whose term of office will expire in 1997 as follows: Votes For Votes Withheld Duane E. Collins 43,103,774 234,338 Allen H. Ford 43,102,627 235,485 Allan L. Rayfield 43,105,376 232,736 Paul G. Schloemer 43,078,537 259,575 (ii) The Shareholders approved the appointment of Coopers & Lybrand as auditors of the Corporation for the fiscal year ending June 30, 1995 as follows: For 43,016,771 Against 157,226 Abstain 164,115 (d) Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) The following document is furnished as an exhibit and numbered pursuant to Item 601 of Regulation S-K: Exhibit 10 - Volume Incentive Plan for Fiscal Year 1995 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. - 11 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PARKER-HANNIFIN CORPORATION (Registrant) Michael J. Hiemstra Michael J. Hiemstra Vice President - Finance and Administration Date: November 11, 1994 - 12 - EXHIBIT INDEX Sequential Exhibit No. Description of Exhibit Page 10 Volume Incentive Plan for Fiscal Year 1995 * 14 11 Computation of Earnings Per Common Share 15 27 Financial Data Schedule 16 * A management compensation plan. - 13 - EXHIBIT 10 PARKER-HANNIFIN CORPORATION FORM 10-Q FOR FISCAL QUARTER ENDED SEPTEMBER 30, 1994 VOLUME INCENTIVE PLAN FOR FISCAL YEAR 1995 Participants: All Group Presidents, Trading Subsidiary Presidents and Group Operating Vice Presidents Terms: Participants will receive a bonus of 5 percent of base pay for each 1 percent increase, in excess of a 7.5 percent increase, in fiscal year 1995 customer sales for their respective operations over fiscal year 1994 customer sales. Acquisitions may only account for up to 5 percent of the increase in customer sales. - 14 - EXHIBIT 11 PARKER-HANNIFIN CORPORATION FORM 10-Q COMPUTATION OF EARNINGS PER COMMON SHARE (Dollars in thousands, except per share amounts) (Unaudited) Three Months Ended September 30, 1994 1993 Net income (loss) applicable to common shares $ 43,649 $ 16,065 Weighted average common shares outstanding for the period 48,968,837 48,616,195 Increase in weighted average from dilutive effect of exercise of stock options 336,702 204,623 Weighted average common shares, assuming issuance of the above securities 49,305,539 48,820,818 Earnings per common share: Primary $ .89 $ .33 Fully diluted (A) $ .89 $ .33 (A) This calculation is submitted in accordance with Regulation S-K Item 601(b)(11) although not required for income statement presentation because it results in dilution of less than 3 percent. - 15 - EXHIBIT 27 PARKER-HANNIFIN CORPORATION FORM 10-Q FINANCIAL DATA SCHEDULE (Dollars in thousands, except per share amounts) (Unaudited) [ARTICLE] 5 [LEGEND] THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PARKER-HANNIFIN CORPORATION'S REPORT ON FORM 10-Q FOR ITS QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. [MULTIPLIER] 1,000 [PERIOD-TYPE] QTR-1 [FISCAL-YEAR-END] JUN-30-1995 [PERIOD-END] SEP-30-1994 [CASH] 33,905 [SECURITIES] 0 [RECEIVABLES] 376,975 [ALLOWANCES] 5,130 [INVENTORY] 514,281 [CURRENT-ASSETS] 1,024,091 [PP&E] 1,681,756 [DEPRECIATION] 930,824 [TOTAL-ASSETS] 1,976,174 [CURRENT-LIABILITIES] 525,219 [BONDS] 273,097 [COMMON] 24,634 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [OTHER-SE] 983,535 [TOTAL-LIABILITY-AND-EQUITY] 1,976,174 [SALES] 712,457 [TOTAL-REVENUES] 712,457 [CGS] 550,527 [TOTAL-COSTS] 550,527 [OTHER-EXPENSES] 0 [LOSS-PROVISION] 483 [INTEREST-EXPENSE] 7,224 [INCOME-PRETAX] 73,359 [INCOME-TAX] 29,710 [INCOME-CONTINUING] 43,649 - 16 - FINANCIAL DATA SCHEDULE (continued) [DISCONTINUED] 0 [EXTRAORDINARY] 0 [CHANGES] 0 [NET-INCOME] 43,649 [EPS-PRIMARY] .89 [EPS-DILUTED] .89 Other Stockholders' Equity includes: Additional capital 166,603 Retained earnings 837,645 Deferred compensation related to guarantee of ESOP debt (25,697) Foreign currency translation adjustment 11,689 Common stock in treasury at cost (6,705) Total 983,535
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