UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to ______________________
Commission File number 1-4982
PARKER-HANNIFIN CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 34-0451060
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
17325 Euclid Avenue, Cleveland, Ohio 44112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 531-3000
Indicate by check mark whether Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
Number of Common Shares outstanding at December 31, 1996 74,410,445
PARKER-HANNIFIN CORPORATION
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income - Three
Months and Six Months Ended December 31,
1996 and 1995 3
Consolidated Balance Sheet -
December 31, 1996 and June 30, 1996 4
Consolidated Statement of Cash Flows -
Six Months Ended December 31, 1996
and 1995 5
Business Segment Information by Industry -
Three Months and Six Months Ended
December 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
EXHIBIT 11* - Computation of Earnings per Common Share 13
EXHIBIT 27* - Financial Data Schedule 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 Six Months Ended
December 31, December 31,
_____________________ _________________________
1996 1995 1996 1995
_________ _________ ___________ ___________
Net sales $ 969,587 $ 824,376 $ 1,928,915 $ 1,663,430
Cost of sales 761,323 641,481 1,515,821 1,287,090
_________ _________ ___________ ___________
Gross profit 208,264 182,895 413,094 376,340
Selling, general and
administrative expenses 119,543 101,189 233,987 198,908
_________ _________ ___________ ___________
Income from operations 88,721 81,706 179,107 177,432
Other income (deductions):
Interest expense (11,942) (7,241) (24,256) (15,229)
Interest and other income, net 5,351 2,355 7,131 5,688
_________ _________ ___________ ___________
(6,591) (4,886) (17,125) (9,541)
_________ _________ ___________ ___________
Income before income taxes 82,130 76,820 161,982 167,891
Income taxes 29,566 28,424 58,313 62,120
_________ _________ ___________ ___________
Net income $ 52,564 $ 48,396 $ 103,669 $ 105,771
========= ========= =========== ===========
Earnings per share $ .70 $ .66 $ 1.39 $ 1.43
Cash dividends per common share $ .18 $ .18 $ .36 $ .36
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
December 31, June 30,
1996 1996
ASSETS
Current assets:
Cash and cash equivalents $ 42,732 $ 63,953
Accounts receivable, net 526,867 538,645
Inventories:
Finished products 343,797 332,213
Work in process 263,904 269,934
Raw materials 107,143 105,078
___________ ___________
714,844 707,225
Prepaid expenses 14,176 16,031
Deferred income taxes 83,974 76,270
___________ ___________
Total current assets 1,382,593 1,402,124
Plant and equipment 2,112,068 2,048,293
Less accumulated depreciation 1,119,619 1,056,516
___________ ___________
992,449 991,777
Excess cost of investments over
net assets acquired 312,819 320,152
Investments and other assets 199,761 173,071
___________ ___________
Total assets $ 2,887,622 $ 2,887,124
=========== ===========
LIABILITIES
Current liabilities:
Notes payable $ 145,811 $ 173,789
Accounts payable, trade 192,351 236,871
Accrued liabilities 309,012 306,504
Accrued domestic and foreign taxes 44,185 49,718
___________ ___________
Total current liabilities 691,359 766,882
Long-term debt 429,534 439,797
Pensions and other postretirement benefits 258,323 253,616
Deferred income taxes 25,558 24,683
Other liabilities 21,524 18,188
___________ ___________
Total liabilities 1,426,298 1,503,166
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 74,410,445 shares at
December 31 and 74,291,917 shares at June 30 37,205 37,146
Additional capital 166,680 165,259
Retained earnings 1,237,731 1,160,828
Currency translation adjustment 19,708 20,725
___________ ___________
Total shareholders' equity 1,461,324 1,383,958
___________ ___________
Total liabilities and shareholders' equity $ 2,887,622 $ 2,887,124
=========== ===========
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
December 31,
_____________________
1996 1995
_________ _________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 103,669 $ 105,771
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 75,807 63,969
Amortization 12,195 4,731
Deferred income taxes (10,401) (8,615)
Foreign currency transaction loss 918 751
Gain on sale of plant and equipment (10,877) (33)
Changes in assets and liabilities:
Accounts receivable 34,538 37,897
Inventories 589 (28,384)
Prepaid expenses 2,314 1,094
Other assets (8,784) (7,292)
Accounts payable, trade (45,762) (41,819)
Accrued liabilities (2,597) (15,213)
Accrued domestic and foreign taxes (5,308) 2,894
Pensions and other postretirement benefits 5,820 (5,489)
Other liabilities 3,412 479
_________ _________
Net cash provided by operating activities 155,533 110,741
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (excluding cash of $697 in 1996
and $68 in 1995) (17,926) (13,030)
Capital expenditures (83,051) (100,625)
Proceeds from sale of plant and equipment 8,419 7,649
Other (14,566) (3,468)
_________ _________
Net cash used in investing activities (107,124) (109,474)
CASH FLOWS FROM FINANCING ACTIVITIES
(Payments) proceeds from common share activity (2,618) 28
(Payments) proceeds from notes payable, net (27,827) 39,766
Proceeds from long-term borrowings 171 1,016
Payments of long-term borrowings (11,532) (5,011)
Dividends (26,766) (26,677)
_________ _________
Net cash (used in) provided by
financing activities (68,572) 9,122
Effect of exchange rate changes on cash (1,058) (442)
_________ _________
Net (decrease) increase in cash and
cash equivalents (21,221) 9,947
Cash and cash equivalents at beginning of year 63,953 63,830
_________ _________
Cash and cash equivalents at end of period $ 42,732 $ 73,777
========= =========
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 and fuel applications.
Results by Business Segment:
Three Months Ended Six Months Ended
December 31, December 31,
_____________________ _________________________
1996 1995 1996 1995
_________ _________ ___________ ___________
Net sales, including intersegment sales
Industrial:
North America $ 498,975 $ 462,576 $ 1,002,725 $ 936,649
International 264,603 227,405 524,363 457,168
Aerospace 206,257 134,563 402,193 269,894
Intersegment sales (248) (168) (366) (281)
_________ _________ ___________ ___________
Total $ 969,587 $ 824,376 $ 1,928,915 $ 1,663,430
========= ========= =========== ===========
Income from operations before corporate
general and administrative expenses
Industrial:
North America $ 66,422 $ 59,848 $ 135,025 $ 126,410
International 9,190 16,549 22,119 38,733
Aerospace 25,315 17,073 46,239 35,452
_________ _________ ___________ ___________
Total 100,927 93,470 203,383 200,595
Corporate general and administrative
expenses 12,206 11,764 24,276 23,163
_________ _________ ___________ ___________
Income from operations $ 88,721 $ 81,706 $ 179,107 $ 177,432
========= ========= =========== ===========
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share amounts
_______________________
1. Management Representation
In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present
fairly the financial position as of December 31, 1996, the results
of operations for the three and six months ended December 31, 1996
and 1995 and cash flows for the six 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.
The Board of Directors has reaffirmed the repurchase, from time to
time, of up to 2.8 million shares of 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. The Company purchased 102,000 shares of its common
stock at an average price of $37.48 during the three-month period
ended September 30, 1996. No further purchases occurred during the
three-month period ended December 31, 1996.
3. Acquisitions
On February 3, 1997, following receipt of Mexican government approval, the
Company purchased Hydroflex S.A. de C.V, a leading Mexican manufacturer of
hydraulic hose, fittings and adapters located in Toluca, Mexico for
approximately $9.2 million cash. Annual sales for this operation for the
most recent year prior to acquisition were approximately $11 million.
On September 5, 1996 the Company purchased the assets of the
industrial hydraulic product line of Hydraulik-Ring AG, of
Nurtingen, Germany, for approximately $17 million cash. Annual sales
for this operation for the most recent year prior to acquisition
were approximately $31 million.
Both acquisitions are being accounted for by the purchase method.
4. Contingencies
In November 1996 a jury verdict was rendered against the Company in
connection with the termination of ASI Marine Industrial as a
Company distributor. The verdict against the Company included $1.6
million in compensatory damages and $6.0 million in punitive
damages. The Company intends to seek a new trial on all issues and
believes that substantial grounds exist for the punitive damages, at a
minimum, to be reversed on appeal. In the opinion of management, the
ultimate liability with respect to this litigation, will not have a
material adverse effect on the results of operations, cash flows or
financial position of the Company.
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PARKER-HANNIFIN CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1996
AND COMPARABLE PERIODS ENDED DECEMBER 31, 1995
CONSOLIDATED STATEMENT OF INCOME
Net sales increased 17.6 percent for the second quarter and 16.0 percent
for the six-month period ended December 31, 1996. Without the effect of
acquisitions the increases would have been 5.7 percent and 5.0 percent,
respectively. Revenue growth is occurring in all segments of the
business, with the Aerospace operations achieving significant gains.
Income from operations was $88.7 million for the current second quarter
and $179.1 million for the current six months, an increase of 8.6 percent
for the quarter and .9 percent for the six months. As a percent of
sales, Income from operations decreased to 9.2 percent from 9.9 percent
for the quarter and 9.3 percent from 10.7 percent for the six months.
Cost of sales as a percent of sales increased to 78.5 percent from 77.8
percent for the quarter and 78.6 percent from 77.4 percent for the six-
month period. The decline in gross profit is partially due to lower
margins achieved by newly acquired operations, but is also the result of
lower volume, and therefore lower absorption of fixed costs, within
certain businesses in Europe. Selling, general and administrative
expenses, as a percent of sales, remained steady for both the three and
six month periods.
Interest expense increased $4.7 million for the quarter and $9.0 million
for the six months ended December 31, 1996, compared to the same periods
ended December 31, 1995, due to the increased borrowings incurred to
complete recent acquisitions.
Interest and other income for the quarter ended December 31, 1996
includes $17.1 million income from the sale of real estate in California.
This income was substantially offset by $13.3 million accrued for exit
costs and charges for impaired assets related to the relocation of the
corporate headquarters.
Net income increased 8.6 percent for the quarter, but decreased 2.0
percent for the half, as compared to the prior year. As a percent of
sales, Net income decreased to 5.4 percent from 5.9 percent for the
quarter and to 5.4 percent from 6.4 percent for the six months.
Backlog increased to $1.4 billion at December 31, 1996 as compared to
$1.0 billion the prior year and $1.3 billion at June 30, 1996. A
majority of the increase in backlog over the prior year was due to
acquisitions, while the remaining increase was the result of growth
within the Aerospace Segment.
BUSINESS SEGMENT INFORMATION BY INDUSTRY
INDUSTRIAL - The Industrial Segment operations achieved the following Net
sales increases in the current year when compared to the equivalent
prior-year period:
Period ending December 31,
__________________________
Three Months Six Months
____________ __________
Industrial North America 7.9 % 7.1 %
Industrial International 16.4 % 14.7 %
Total Industrial 10.7 % 9.6 %
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Without the effect of currency-rate changes, International sales would
have increased over 20 percent for the quarter and 18 percent for the six
months. Without the effect of acquisitions completed within the past 12
months, the fluctuations in Net sales would have been:
Period ending December 31,
_________________________
Three Months Six Months
____________ __________
Industrial North America 6.1 % 5.1 %
Industrial International (1.3) % (0.6) %
Total Industrial 3.7 % 3.2 %
Operating income for the Industrial Segment was down 1.0 percent for the
quarter and 4.8 percent for the six months. Industrial North American
Operating income increased 11.0 percent for the quarter and 6.8 percent
for the six months while Industrial International results decreased 44.5
percent for the quarter and 42.9 percent for the six months. Without the
effect of acquisitions the total Industrial Segment Operating income
would have remained relatively flat for the quarter and would have
decreased 4.2 percent for the six months. As a percent of sales,
Industrial North American Operating income increased to 13.3 percent from
12.9 percent for the quarter and remained at 13.5 percent for the six
months. Industrial International Operating income decreased to 3.5
percent from 7.3 percent for the quarter, and 4.2 percent from 8.5
percent for the six months.
On balance, North American Industrial markets remain healthy. Demand for
products from industries such as factory automation, agricultural and
construction equipment, and for electromagnetic interference-prevention
products offset slowness in sales of components to large-truck and
semiconductor manufacturers. International earnings were affected by
continued weak demand in Europe, resulting in lower capacity utilization
and reduced operating margins. The International operations experienced
lower-than-anticipated results from several European operations,
including VOAC, an acquisition within the industrial hydraulics business.
VOAC was faced with a sharp decline in demand for some of its products,
due to recessionary conditions in the forest and pulp and paper
industries. Sales volume within the Asia Pacific and Latin American
operations remains encouraging.
Total Industrial Segment backlog increased 9.7 percent compared to
December 31, 1995 and 5.5 percent since June 30, 1996. The increase from
the prior year is primarily the result of acquisitions, while the growth
since June 30 is internal to the North American operations.
Management expects continuing favorable economic conditions in North
America and Asia Pacific, a gradual recovery in Europe and a continuation
of recent improvement in selective countries in Latin America during the
second half of the fiscal year.
AEROSPACE - Aerospace Segment Net sales were up 53.3 percent for the
quarter and 49.0 percent for the six months. Without the effect of the
Abex acquisition the increases would have been 16.0 percent and 12.6
percent, respectively. The spares, repair and overhaul business and
commercial original equipment manufacturer market continue to contribute
to increased growth and profitability within Aerospace.
Operating income for the Aerospace Segment increased 48.3 percent for the
quarter and 30.4 percent for the six-month period. As a percent of sales
Operating income declined to 12.3 percent from 12.7 percent for the
quarter and to 11.5 percent from 13.1 percent for the six-month period.
The decrease in margins was primarily the result of lower margins
contributed by the Abex acquisition. Plans have been announced to
consolidate these operations to strive for more cost-effective
manufacturing and administrative functions.
The Aerospace markets are expected to continue to grow through the second
half of the fiscal year. Backlog for the Aerospace Segment increased 56.3
percent from December 31, 1995, primarily as a result of the Abex
acquisition, and increased 4.1 percent since June 30, 1996.
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CONSOLIDATED BALANCE SHEET
Working capital increased to $691.2 million at December 31, 1996 from
$635.2 million at June 30, 1996 with the ratio of current assets to
current liabilities increasing slightly to 2.0 to 1. The increase was
primarily due to decreases in Accounts payable, trade and Notes payable,
partially offset by decreases in Cash and Accounts receivable, net.
Accounts receivable were lower on December 31, 1996 than on June 30, 1996
primarily due to the lower level of sales in the month of December as a
result of the holidays. The December 31, 1996 Accounts receivable balance
also includes a noncash receivable of $21.5 million related to a
transaction the Company entered into in December 1996 to sell real estate
in California. The proceeds from the sale will be used in a Section 1031
tax-free exchange for the new corporate headquarters.
Accounts payable, trade decreased $44.5 million since June 30, 1996 with
the reduction occurring consistently throughout the operations. A portion
of the decrease was the result of lower production in the month of
December.
The debt to debt-equity ratio decreased to 28.2 percent at December 31,
1996 from 30.7 percent at June 30, 1996 as a result of decreases in both
Notes payable and Long-term debt.
CONSOLIDATED STATEMENT OF CASH FLOWS
Net cash provided by operating activities was $155.5 million for the six
months ended December 31, 1996, as compared to $110.7 million for the
same six months in 1995. Net income for fiscal 1997 included noncash
Depreciation and Amortization expenses of $88.0 million as compared to
$68.7 million in fiscal 1996. Net income for fiscal 1997 also included a
net gain on sale of plant and equipment of $10.9 million compared to a
gain of less than $.1 million in fiscal 1996.
The principal working capital items - Accounts receivable, Inventories,
and Accounts payable, trade - used cash of $10.6 million in fiscal 1997
compared to $32.3 million in fiscal 1996. An increase in Other accrued
liabilities provided cash of $18.1 million in fiscal 1997 as compared to
$5.7 in fiscal 1996. Pensions and other postretirement benefits provided
cash of $5.8 million in fiscal 1997 compared to using cash of $5.4
million in the same period for fiscal 1996.
Net cash used in investing activities was relatively the same for the six
months ended December 31, 1996 and 1995. Capital expenditures were $17.6
million lower in fiscal 1997, but this decrease was partially offset by
an increase in cash used for Other investing activities. This increase is
due to cash placed in an escrow account pending Mexican government
approval of an acquisition.
Financing activities used cash of $68.6 million for the six months ended
December 31, 1996 compared to providing cash of $9.1 million for the same
period in 1995. Payments of Notes payable were $27.8 million in fiscal
1997 while proceeds from Notes payable were $39.8 million in fiscal 1996.
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PARKER-HANNIFIN CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The following documents are furnished as exhibits and
numbered pursuant to Item 601 of Regulation S-K:
Exhibit 11 - Statement regarding computation of per share earnings.
Exhibit 27 - Financial Data Schedule
(b) The Registrant filed a report on Form 8-K on February 4,
1997, as amended February 5, 1997, with respect to the declaration by the
Board of Directors of a dividend of rights under a Shareholder Protection
Rights Agreement.
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: February 13, 1997
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EXHIBIT INDEX
Sequential
Exhibit No. Description of Exhibit Page
11 Computation of Earnings
Per Common Share 13
27 Financial Data Schedule 14
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