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 March 31, 1995
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 March 31, 1995 49,196,698
The Exhibit Index appears on sequential page 13.
PARKER-HANNIFIN CORPORATION
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income -
Three Months and Nine Months Ended
March 31, 1995 and 1994 3
Consolidated Balance Sheet -
March 31, 1995 and June 30, 1994 4
Consolidated Statement of Cash Flows -
Nine Months Ended March 31, 1995
and 1994 5
Business Segment Information by Industry -
Three Months and Nine Months Ended
March 31, 1995 and 1994 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-11
PART II - OTHER INFORMATION
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
EXHIBIT 11 - Computation of Earnings per Common Share* 14
*Numbered in accordance with Item 601 of Regulation S-K.
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PART I - FINANCIAL INFORMATION
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
Net sales $ 879,673 $ 677,353 $ 2,330,361 $ 1,876,990
Cost of sales 666,968 537,964 1,790,357 1,517,163
Gross profit 212,705 139,389 540,004 359,827
Selling, general and
administrative expenses 98,863 78,417 271,566 221,257
Provision for business
restructuring activities 11,369 18,074
Impairment of long-term operating assets 35,483 35,483
Income from operations 113,842 14,120 268,438 85,013
Other income (deductions):
Interest expense (7,801) (7,791) (22,679) (29,608)
Interest and other income, net (1,237) (16,542) (901) (13,371)
(9,038) (24,333) (23,580) (42,979)
Income before income taxes
and extraordinary item 104,804 (10,213) 244,858 42,034
Income taxes 38,949 8,870 94,270 30,991
Income before extraordinary item 65,855 (19,083) 150,588 11,043
Extraordinary item -
extinguishment of debt (4,207)
Net income $ 65,855 $ (19,083) $ 150,588 $ 6,836
Earnings per share before
extraordinary item $ 1.34 $ (.39) $ 3.07 $ .23
Earnings per share $ 1.34 $ (.39) $ 3.07 $ .14
Cash dividends per common share $ .25 $ .25 $ .75 $ .73
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
March 31, June 30,
1995 1994
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 44,516 $ 81,590
Accounts receivable, net 493,874 388,515
Inventories:
Finished products 280,677 245,068
Work in process 193,424 171,114
Raw materials 102,036 76,748
576,137 492,930
Prepaid expenses 13,634 14,263
Deferred income taxes 46,825 41,056
Total current assets 1,174,986 1,018,354
Plant and equipment 1,777,416 1,621,828
Less accumulated depreciation 988,502 904,528
788,914 717,300
Other assets 234,769 177,136
Total assets $ 2,198,669 $ 1,912,790
LIABILITIES
Current liabilities:
Notes payable $ 107,669 $ 26,973
Accounts payable, trade 200,855 181,148
Accrued liabilities 263,914 238,682
Accrued domestic and foreign taxes 49,881 57,641
Total current liabilities 622,319 504,444
Long-term debt 250,903 257,259
Pensions and other postretirement benefits 187,439 169,081
Deferred income taxes 3,500 8,052
Other liabilities 9,172 7,603
Total liabilities 1,073,333 946,439
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 49,298,237
shares at March 31 and 49,265,074
shares at June 30 24,658 24,633
Additional capital 169,211 165,942
Retained earnings 919,969 806,240
Deferred compensation related to
guarantee of ESOP debt (19,733) (25,697)
Currency translation adjustment 34,132 2,538
1,128,237 973,656
Less treasury shares, at cost: 101,539
shares at March 31 and 325,371 shares
at June 30 (2,901) (7,305)
Total shareholders' equity 1,125,336 966,351
Total liabilities and
shareholders' equity $ 2,198,669 $ 1,912,790
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
March 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 150,588 $ 6,836
Adjustments to reconcile net income to net cash
provided by operations:
Net effect of extraordinary loss 4,207
Depreciation 83,650 80,819
Amortization 6,692 4,491
Deferred income taxes (6,030) (35,664)
Foreign currency transaction loss 1,700 2,727
Loss on sale of plant and equipment 1,478 170
Provision for restructuring (4,604) 1,811
Impairment losses on long-term assets 52,422
Changes in assets and liabilities:
Accounts receivable (61,411) (41,106)
Inventories (35,438) 21,923
Prepaid expenses 1,981 1,086
Other assets (8,302) (2,086)
Accounts payable, trade 821 10,178
Accrued payrolls and other compensation 8,525 (5,129)
Accrued domestic and foreign taxes (9,910) 10,524
Other accrued liabilities (1,969) 35,472
Pensions and other postretirement benefits 11,262 11,756
Other liabilities 580 (1,624)
Net cash provided by operating activities 139,613 158,813
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (excluding cash of $5,699 in 1995
and $2,548 in 1994) (119,242) (30,006)
Capital expenditures (101,821) (65,325)
Proceeds from sale of plant and equipment 9,920 4,366
Proceeds from disposition of business 3,205
Other 2,215 2,480
Net cash used in investing activities (208,928) (85,280)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares from treasury 7,164 3,711
Proceeds from notes payable, net 74,069 (12,042)
Proceeds from long-term borrowings 19,140 4,000
Payments of long-term borrowings (32,321) (115,311)
Extraordinary loss on early retirement of debt (6,922)
Dividends (36,859) (35,542)
Net cash provided by (used in)
financing activities 31,193 (162,106)
Effect of exchange rate changes on cash 1,048 (1,159)
Net decrease in cash and cash equivalents (37,074) (89,732)
Cash and cash equivalents at beginning of year 81,590 159,985
Cash and cash equivalents at end of period $ 44,516 $ 70,253
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
BUSINESS SEGMENT INFORMATION BY INDUSTRY
(Dollars in thousands)
(Unaudited)
Parker operates in two industry segments: Industrial and Aerospace. The
Industrial Segment is the largest and includes the International operations.
Industrial - This segment produces a broad range of motion-control and
fluid systems and components used in all kinds of manufacturing, packaging,
processing, transportation, mobile construction, and agricultural and
military machinery and equipment. Sales are direct to major original
equipment manufacturers (OEMs) and through a broad distribution network to
smaller OEMs and the aftermarket.
Aerospace - This segment designs and manufactures products and provides
aftermarket support for commercial, military and general-aviation aircraft,
missile and spacecraft markets. The Aerospace Segment provides a full range
of systems and components for hydraulic, pneumatic, cryogenic and fuel
applications.
Results by Business Segment:
Three Months Ended Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
Net sales, including intersegment sales
Industrial:
North America $ 491,511 $ 399,954 $ 1,316,738 $ 1,088,372
International 243,486 140,650 604,326 374,997
Aerospace 144,725 136,823 409,657 413,843
Intersegment sales (49) (74) (360) (222)
Total $ 879,673 $ 677,353 $ 2,330,361 $ 1,876,990
Income (loss) from operations before corporate
general and administrative expenses
Industrial:
North America $ 77,384 $ 51,524 $ 194,296 $ 134,689
International 31,061 (6,324) 59,190 (21,957)
Aerospace 16,857 (20,569) 46,542 1,574
Total 125,302 24,631 300,028 114,306
Corporate general and administrative
expenses 11,460 10,511 31,590 29,293
Income from operations $ 113,842 $ 14,120 $ 268,438 $ 85,013
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share amounts
_______________________
1. Management Representation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals and other significant known adjustments) necessary to
present fairly the financial position as of March 31, 1995, the results
of operations for the three and nine months ended March 31, 1995 and 1994
and cash flows for the nine 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
Effective March 30, 1995 the Company purchased the assets of Figgie
International's Power Systems Division, headquartered in Rockford,
Illinois, for approximately $7 million in cash. The Power Systems unit
produces hydraulic bladder accumulators and pneumatic cylinders. On
March 3, 1995 the Company purchased the assets of Byron Valve and Machine
Company, Inc. of Siloam Springs, Arkansas for $3.1 million in cash.
Byron Valve produces distributors and flow raters for air conditioning
equipment and heat pumps.
Effective December 31, 1994 the Company purchased the Polyflex Schwarz
Group of companies with operating plants in Huttenfeld and Viernheim,
Germany and in Wissembourg, France as well as the wholly-owned subsidiary,
Rogan & Shanley, in Houston, Texas for $18.1 million in cash. Polyflex
manufactures reinforced high- and ultra-high-pressure hoses, hose fittings
and assemblies. Also effective December 31, 1994 the Company purchased
Hauser Elektronik GmbH, a producer of automation components and systems
based in Offenburg, Germany for $11.6 million in cash. Effective
December 21, 1994 the Company sold its 49 percent interest in its Mexican
joint venture, Conductores de Fluidos Parker. The Company purchased
inventory and accounts receivable from such joint venture, and formed a
new wholly-owned subsidiary - Parker Fluid Connectors de Mexico. The net
purchase price was approximately $2.5 million in cash. On October 31, 1994,
the Company acquired Symetrics, Inc., a Newbury Park, California
manufacturer of aerospace quick-disconnect valved couplings, for
108,680 shares of Parker-Hannifin Common Stock.
On September 30, 1994, the Company acquired Chomerics Inc., a leading
producer of electromagnetic interference-shielding materials and thermal
interface products for commercial-electronics and defense-electronics
applications for approximately $40 million in cash. Chomerics has
manufacturing facilities in the U.S. and the U.K. On August 1, 1994, the
Company acquired the Automation Division of Atlas Copco AB, a Swedish
manufacturer of pneumatic components for a variety of automation markets
for $37 million in cash.
These acquisitions were accounted for by the purchase method, and the
accompanying statements include their results of operations since the
respective dates of acquisition. Sales by these operations for their
most recent fiscal year prior to acquisition were approximately
$200 million.
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PARKER-HANNIFIN CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1995
AND COMPARABLE PERIODS ENDED MARCH 31, 1994
CONSOLIDATED STATEMENT OF INCOME
Net sales increased 29.9 percent for the third quarter and 24.2
percent for the nine-month period. Without the effect of
acquisitions and dispositions the increases would have been 25.3
percent and 20.9 percent, respectively. Strong global demand
continues for the Industrial Segment products and the Company is
capitalizing on market-share gains in these markets. The aerospace
market continued to show signs of recovery as sales increased for
the Aerospace Segment in the third quarter.
Income from operations of $113.8 million for the current third
quarter and $268.4 million for the current nine months was a
significant increase from $14.1 million for the quarter and $85.0
million for the nine months of the prior year. As a percent of
sales, Income from operations increased to 12.9 percent from 2.1
percent for the quarter and to 11.5 percent from 4.5 percent for the
nine months. The fiscal 1994 third quarter and nine month results
included Provisions for business restructuring activities amounting
to $11.4 million and $18.1 million, respectively. These provisions
were for employment reductions, plant closings and relocations, and
write-offs of related capital assets for the European Industrial and
Aerospace operations. In addition to these business restructuring
provisions, the fiscal 1994 results included Impairment of long-term
operating assets of $35.5 million. Without the effect of business
restructuring and asset impairment, Income from operations as a
percent of sales for fiscal 1994 was 9.0 percent for the quarter and
7.4 percent for the nine months.
Cost of sales as a percent of sales decreased to 75.8 percent from
79.4 percent for the quarter and to 76.8 percent from 80.8 percent
for the nine-month period as a result of the benefits achieved from
prior years' restructuring activities and the positive effects of
higher production levels in relation to fixed costs. Selling,
general and administrative expenses, as a percent of sales,
decreased to 11.2 percent from 11.6 percent for the quarter and to
11.7 percent from 11.8 percent for the nine-month period. The
advantages achieved as a result of higher volume were somewhat
offset by acquisitions, increased sales-promotion expenses and
variable charges related to incentive compensation based on sales
and earnings.
Interest expense increased slightly for the quarter, but decreased
23.4 percent for the nine months, primarily due to lower borrowings,
but also due to lower interest rates on new borrowings.
Interest and other income for fiscal 1994 includes a loss on
disposal of assets of $14.7 million due to impairment of idle
properties. These facilities, primarily Aerospace properties, became
idle due to the downsizing activities and were written-down to their
estimated recoverable value based on the current market.
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
The current-year effective income tax rate was further reduced to
38.5 percent due to the utilization of previously reported net
operating losses in the U.K. and Brazil. The Company experienced
higher-than-expected profits in these countries because of the
International Industrial recovery. Income taxes for the nine months
of fiscal 1994 resulted in an effective tax rate of 73.7 percent.
This high rate was primarily due to receiving no tax benefit for the
charge taken to write down impaired assets, principally goodwill.
Also, Income taxes for fiscal 1994 included a cumulative charge of
$1.6 million for tax law changes in Germany and the United States.
Net income for the current quarter was $65.9 million compared to a
loss of $19.1 million in the prior year. Nine-month Net income was
$150.6 million in fiscal 1995 compared to $6.8 million in the prior
year. Results for fiscal 1994 include non-recurring charges of
$52.7 million for the three months, and $61.1 million for the nine
months ended March 31, 1994 for the impairment of long-term
operating assets, provisions for business restructuring, and for the
extraordinary charge of $4.2 million for the early-retirement of
$100 million of 9.45 percent debentures. As a percent of sales,
current year Net income increased to 7.5 percent for the quarter and
to 6.5 percent for the nine months.
Backlog increased to $1.0 billion at March 31, 1995 as compared to
$865.3 million the prior year and $852.5 million at June 30, 1994.
The increase was partially due to acquisitions, but was primarily
due to increases within the Industrial Segment in both North
American and International operations.
BUSINESS SEGMENT INFORMATION BY INDUSTRY
Industrial Segment operations achieved the following Net sales
increases in the current year when compared to the equivalent prior-
year period:
Period ending March 31,
Three Months Nine months
Industrial North America 22.9 % 21.0 %
Industrial International 73.1 % 61.2 %
Total Industrial 36.0 % 31.3 %
Without the effect of currency-rate changes, International sales
would have increased approximately 56 percent for the quarter and 48
percent for the nine months. Without the effect of acquisitions,
the increases would have been:
Period ending March 31,
Three Months Nine months
Industrial North America 19.6 % 18.3 %
Industrial International 55.1 % 47.1 %
Total Industrial 28.8 % 25.7 %
Industrial International markets continue to demonstrate sharp
improvement while the North American markets are maintaining their
high demand. In addition to the global recovery and minor price
increases, the Company is achieving market-share gains as a result
of concentrated efforts towards reaching expanding markets and
premier customer service. The sales levels achieved to date in
fiscal 1995 are expected to continue throughout the year in addition
to sales growth to be realized from recent acquisitions.
Operating income for the Industrial Segment was up 139.9 percent for
the quarter and 124.9 percent for the nine months. Industrial North
America Operating income increased 50.2 percent for the quarter and
44.3 percent for the nine months while Industrial International
results moved from a loss to income of $31.1 million for the quarter
and $59.2 million for the nine months. Without the effect of
acquisitions the total Industrial Segment Operating income would
have increased 28.8 percent for the quarter and 25.7 percent for the
nine months. Fiscal 1994 results included a Provision for
restructuring activities for the Industrial
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Segment of $7.7 million for the quarter and $12.3 million for the
nine months ended March 31, 1994. Additionally, in the third
quarter of fiscal 1994 the Industrial Segment recognized the
impairment of long-term operating assets, $6.6 million, primarily
relating to certain machinery and equipment used in operations for
unprofitable product lines in Brazil and Germany. Operating income
as a percent of sales for the Industrial Segment improved to 14.8
percent for the three months and 8.4 percent for the nine months as
compared to 11.0 percent and 9.0 percent for the prior year results
without the effect of business restructuring and asset impairment
charges.
Benefits are being realized throughout the segment as a result of
increased volume and prior years' restructuring activities. Prior-
year restructuring actions are progressing as planned and the
remaining accruals are appropriate. No further restructuring
charges are anticipated and the resulting improved margin levels are
expected to continue.
Total Industrial Segment backlog increased 43.7 percent compared to
a year ago and 34.8 percent since June 30, 1994. Without the effect
of acquisitions the increase would have been 31.2 percent and 23.0
percent, respectively. The North American operations are being
challenged to keep up with demand, but productivity improvements and
better utilization of existing capacity is increasing throughput
worldwide.
Aerospace Segment Net sales were up 5.8 percent for the quarter, but
down 1.0 percent for the nine months. Original equipment shipments
continue to lag behind prior years, but the primary cause of the
decline in sales for the nine months is the divestiture of the Metal
Bellows operations in the fourth quarter of fiscal 1994. Long-term
orders from original equipment customers and near-term orders from
commercial spares and maintenance, repair and overhaul customers are
gradually improving as evidenced by the third quarter results.
Continuing Sales increases are anticipated throughout the remainder
of the year and in fiscal year 1996.
Operating income for the Aerospace Segment was $16.9 million for the
quarter and $46.5 million for the nine-month period compared to a
loss of $20.6 million and income of $1.6 million, respectively.
Fiscal 1994 results included a Provision for restructuring
activities of $4.1 million for the quarter and $6.2 million for the
nine months ended March 31, 1994. Additionally, in the third
quarter of fiscal 1994 the Aerospace Segment recognized impairment
losses of $28.9 million related to the write-down of goodwill and
permanently impaired assets of the continuing operations of the
heat-transfer components product line. Operating income as a
percent of sales, for the Aerospace Segment, improved to 11.6
percent for the three months and 11.4 percent for the nine months as
compared to 8.8 percent for both periods of the prior year without
the effect of business restructuring and asset impairment charges.
The Aerospace Segment has substantially downsized over the past
several years to adjust to its changing markets. These prior-year
actions have helped the Segment achieve improved margin levels in
the current year, which are expected to continue. The restructuring
activities provided for in prior periods are continuing as planned
and the remaining accruals are appropriate. No further restructuring
charges are anticipated.
Backlog for the Aerospace Segment increased year to year, after
removing the backlog associated with the divested Metal Bellows
operations. Since June 30, 1994 backlog has increased 6.3 percent.
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MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
CONSOLIDATED BALANCE SHEET
Working capital increased to $552.7 million at March 31, 1995 from
$513.9 million at June 30, 1994 with the ratio of current assets to
current liabilities decreasing slightly to 1.9 to 1. Accounts
receivable increased $105.4 million and Inventories increased $83.2
million during the nine months ended March 31, 1995. Increased
volume and the effect of currency changes in the Industrial
operations are the primary causes of these increases, although
acquisitions also contributed $63.4 million. Both days sales
outstanding and months supply have improved since June 30, 1994.
Capital expenditures are exceeding depreciation in fiscal 1995 as
the Company responds to increasing production volume, but the
increase in Plant and equipment is primarily due to acquisitions.
The increase in Other assets is 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 22.8 percent at March 31, 1995 from 20.7 percent at June 30, 1994
as a result of an $80.7 million increase in Notes payable. The
additional cash from the increase in Notes payable was used to fund
recent acquisitions.
CONSOLIDATED STATEMENT OF CASH FLOWS
Net cash provided by operating activities was $139.6 million for the
nine months ended March 31, 1995, down from $158.8 million for the
same nine months in fiscal 1994. Higher Net income in fiscal 1995
was offset by an increase in cash used for working capital items.
Changes in the principal working capital items - Accounts
receivable, Inventories, and Accounts payable, trade - resulted in
the use of $96.0 million cash in fiscal 1995 (without the effect of
acquisitions) as compared to $9.0 million in fiscal 1994. This
change reflects the building of Inventories and Accounts Payable as
a result of higher volume.
Net cash used in investing activities increased to $208.9 million
from $85.3 million for the nine months ended March 31, 1995 and 1994
as a result of more acquisitions in fiscal 1995 and increased
capital expenditures.
Financing activities provided cash of $31.2 million for the nine
months ended March 31, 1995 and used cash of $162.1 million for the
same period in fiscal 1994. Additional borrowings in the current
year were used to fund recent acquisitions. During the prior-year
period, the Company aggressively retired debt.
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PARKER-HANNIFIN CORPORATION
PART II - OTHER INFORMATION
Item 5. Other Information.
On April 13, 1995, the Registrant declared a 3-shares-for-2 stock
split payable by the issuance of additional shares on June 2, 1995 to
shareholders of record May 18, 1995 and an eight percent increase in its
quarterly cash dividend from $.25 to $.27 per share on a pre-split basis.
Item 6. Exhibits and Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARKER-HANNIFIN CORPORATION
(Registrant)
Michael J. Hiemstra
Michael J. Hiemstra
Vice President - Finance and Administration
Date: May 12, 1995
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EXHIBIT INDEX
Sequential
Exhibit No. Description of Exhibit Page
11 Computation of Earnings
Per Common Share 14
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