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, 2000
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
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(Exact name of registrant as specified in its charter)
OHIO 34-0451060
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(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
6035 Parkland Blvd., Cleveland, Ohio 44124-4141
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 896-3000
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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 __.
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Number of Common Shares outstanding at December 31, 2000 116,579,057
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,
--------------------------------- --------------------------------
2000 1999 2000 1999
------------ ----------- ----------- -----------
Net sales $ 1,460,076 $ 1,239,207 $ 2,937,442 $ 2,481,500
Cost of sales 1,144,821 971,298 2,296,085 1,947,919
----------- ----------- ----------- -----------
Gross profit 315,255 267,909 641,357 533,581
Selling, general and
administrative expenses 169,596 140,157 332,037 278,305
Interest expense 25,607 14,028 46,775 28,571
Interest and other (income), net (1,364) (724) (52,741) (100)
----------- ----------- ----------- -----------
Income before income taxes 121,416 114,448 315,286 226,805
Income taxes 43,102 39,485 111,926 78,248
----------- ----------- ----------- -----------
Net income $ 78,314 $ 74,963 $ 203,360 $ 148,557
=========== =========== =========== ===========
Earnings per share - Basic $ .68 $ .69 $ 1.78 $ 1.36
Earnings per share - Diluted $ .68 $ .68 $ 1.77 $ 1.35
Cash dividends per common share $ .17 $ .17 $ .34 $ .34
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,
ASSETS 2000 2000
- ---------------- ------------- -------------
Current assets:
Cash and cash equivalents $ 71,529 $ 68,460
Accounts receivable, net 870,510 840,040
Inventories:
Finished products 553,577 483,017
Work in process 350,277 344,804
Raw materials 161,459 146,375
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1,065,313 974,196
Prepaid expenses 36,455 32,706
Deferred income taxes 83,296 73,711
Net assets held for sale 239,356 164,000
----------- -----------
Total current assets 2,366,459 2,153,113
Plant and equipment 2,934,170 2,714,250
Less accumulated depreciation 1,437,238 1,373,335
----------- -----------
1,496,932 1,340,915
Excess cost of investments over net assets acquired 847,117 570,740
Other assets 597,863 581,531
----------- -----------
Total assets $ 5,308,371 $ 4,646,299
=========== ===========
LIABILITIES
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Current liabilities:
Notes payable $ 540,368 $ 335,298
Accounts payable, trade 378,778 372,666
Accrued liabilities 403,053 394,131
Accrued domestic and foreign taxes 55,945 84,208
----------- -----------
Total current liabilities 1,378,144 1,186,303
Long-term debt 981,953 701,762
Pensions and other postretirement benefits 307,226 299,741
Deferred income taxes 104,144 77,939
Other liabilities 79,759 71,096
----------- -----------
Total liabilities 2,851,226 2,336,841
SHAREHOLDERS' EQUITY
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Serial preferred stock, $.50 par value;
authorized 3,000,000 shares; none issued -- --
Common stock, $.50 par value; authorized
600,000,000 shares; issued 116,679,057 shares at
December 31 and 116,602,195 shares at June 30 58,340 58,301
Additional capital 327,247 328,938
Retained earnings 2,330,253 2,165,625
Unearned compensation related to guarantee of ESOP debt (102,942) (110,818)
Deferred compensation related to stock options 2,347 1,304
Accumulated other comprehensive (loss) (154,168) (125,458)
----------- -----------
2,461,077 2,317,892
Less treasury shares, at cost:
100,000 shares at December 31
and 214,487 shares at June 30 (3,932) (8,434)
----------- -----------
Total shareholders' equity 2,457,145 2,309,458
----------- -----------
Total liabilities and shareholders' equity $ 5,308,371 $ 4,646,299
=========== ===========
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,
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 2000 1999
- ------------------------------------ ---------- ---------
Net income $ 203,360 $ 148,557
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 102,695 88,019
Amortization 30,859 18,943
Deferred income taxes 17,560 (3,019)
Foreign currency transaction loss 2,497 3,443
(Gain) on sale of plant and equipment (58,338) (6,955)
Changes in assets and liabilities:
Accounts receivable, net 25,243 44,321
Inventories (51,803) 657
Prepaid expenses 6,808 3,904
Net assets held for sale 9,284 -
Other assets (15,701) 2,541
Accounts payable, trade (20,600) (59,077)
Accrued payrolls and other compensation (54,660) (34,371)
Accrued domestic and foreign taxes (20,083) (12,640)
Other accrued liabilities (18,153) 4,978
Pensions and other postretirement benefits 8,921 4,245
Other liabilities 6,827 9,706
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Net cash provided by operating activities 174,716 213,252
CASH FLOWS FROM INVESTING ACTIVITIES
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Acquisitions (less cash acquired of $8,255 in 2000 and $2,609 in 1999) (485,235) (5,711)
Capital expenditures (169,573) (114,114)
Proceeds from sale of plant and equipment 68,813 20,203
Other 31,959 (30,100)
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Net cash used in investing activities (554,036) (129,722)
CASH FLOWS FROM FINANCING ACTIVITIES
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Net proceeds from common share activity 3,892 3,649
Proceeds from (payments of) notes payable, net 205,824 (523)
Proceeds from long-term borrowings 271,942 3,692
Payments of long-term borrowings (59,219) (8,867)
Dividends (38,731) (37,081)
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Net cash provided by (used in) financing activities 383,708 (39,130)
Effect of exchange rate changes on cash (1,319) (3,324)
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Net increase in cash and cash equivalents 3,069 41,076
Cash and cash equivalents at beginning of year 68,460 33,277
--------- ---------
Cash and cash equivalents at end of period $ 71,529 $ 74,353
========= =========
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, agricultural and military
machinery and equipment. Sales are made directly 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,
------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net sales
Industrial:
North America $ 829,357 $ 658,542 $ 1,705,607 $ 1,326,211
International 336,294 303,918 667,022 602,381
Aerospace 294,425 276,747 564,813 552,908
----------- ----------- ----------- -----------
Total $ 1,460,076 $ 1,239,207 $ 2,937,442 $ 2,481,500
=========== =========== =========== ===========
Segment operating income
Industrial:
North America $ 101,612 $ 87,200 $ 218,803 $ 180,883
International 21,441 21,787 47,318 32,999
Aerospace 51,097 36,939 95,373 71,987
----------- ----------- ----------- -----------
Total segment operating income 174,150 145,926 361,494 285,869
Corporate general and
administrative expenses 20,346 14,087 37,730 28,200
----------- ----------- ----------- -----------
Income before interest expense
and other 153,804 131,839 323,764 257,669
Interest expense 25,607 14,028 46,775 28,571
Other 6,781 3,363 (38,297) 2,293
----------- ----------- ----------- -----------
Income before income taxes $ 121,416 $ 114,448 $ 315,286 $ 226,805
=========== =========== =========== ===========
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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 necessary to present fairly the
financial position as of December 31, 2000, the results of operations for
the three and six months ended December 31, 2000 and 1999 and cash flows for
the six months then ended.
2. Gain on sale of real property
In fiscal 2001 the Company recorded a $55.5 million gain ($34.7 million
after-tax or $.30 per share) realized on the sale of real property. The gain
is reflected in the Consolidated Income Statement in the Interest and other
(income), net caption.
3. Earnings per share
The following table presents a reconciliation of the numerator and
denominator of basic and diluted earnings per share for the three and six
months ended December 31, 2000 and 1999.
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------------- --------------------------------
Numerator: 2000 1999 2000 1999
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Net income applicable
to common shares $ 78,314 $ 74,963 $ 203,360 $ 148,557
Denominator:
------------
Basic - weighted average
common shares 114,007,029 109,188,711 113,968,357 109,129,000
Increase in weighted average
from dilutive effect of
exercise of stock options 824,110 1,017,243 728,203 1,021,338
--------------------------------------------------------------------
Diluted - weighted average
common shares, assuming
exercise of stock options 114,831,139 110,205,954 114,696,560 110,150,338
====================================================================
Basic earnings per share $ .68 $ .69 $ 1.78 $ 1.36
Diluted earnings per share $ .68 $ .68 $ 1.77 $ 1.35
-6-
4. 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 is
primarily funded from operating cash flows and the shares are initially held
as treasury stock. The Company did not purchase any shares of its common
stock during the three-month and six-month periods ended December 31, 2000.
5. Comprehensive income
The Company's items of other comprehensive income (loss) are foreign
currency translation adjustments and unrealized gains on marketable
securities. Comprehensive income for the three and six months ended December
31, 2000 and 1999 is as follows:
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- ------------------------
2000 1999 2000 1999
--------------------------------------------------
Net income $ 78,314 $ 74,963 $ 203,360 $ 148,557
Foreign currency
translation adjustments 260 (20,753) (44,527) (7,007)
Unrealized gain on marketable
securities (net of taxes of
$210 and $9,531) 348 - 15,817 -
-------------------------------------------------
Comprehensive income $ 78,922 $ 54,210 $ 174,650 $ 141,550
=================================================
6. Acquisitions
On July 21, 2000 the Company completed the acquisition of Wynn's
International, Inc. (Wynn's). Wynn's is a leading manufacturer of precision-
engineered sealing media for the automotive, heavy-duty truck and aerospace
markets with annualized calendar year 2000 sales of $573 million.
On September 29, 2000 the Company acquired the pneumatics business of
Invensys plc, with annual sales of $50 million, which specializes in the
design and production of equipment and controls for automated processes.
Total purchase price for these businesses was approximately $458 million in
cash and assumed debt of $44 million. Both acquisitions are being accounted
for by the purchase method.
-7-
7. Net assets held for sale
Net assets held for sale represents the estimated net cash proceeds and
estimated net earnings during the holding period (including incremental
interest expense on debt incurred in the acquisition) of the metal forming
and building systems businesses, which were acquired as part of Commercial
Intertech in fiscal 2000, and the specialty chemical and warranty businesses
of Wynn's.
During the second quarter of fiscal 2001, approximately $5.8 million of
income from operations was excluded from the Consolidated Income Statement
and included in the carrying value of Net assets held for sale. During the
first six months of fiscal 2001, approximately $16.4 million of income from
operations and $3.8 million of interest expense were excluded from the
Consolidated Income Statement and included in the carrying value of Net
assets held for sale.
8. Financial instruments
Effective July 1, 2000 the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Due to the immaterial amount of
derivative and hedging activity within the Company, the effect of adopting
SFAS 133 on the Company's results of operations and financial position was
immaterial.
9. Debt
During the second quarter of fiscal 2001, the Company issued EUR 300 million
of five-year Euro Notes in the European debt capital market. The Notes bear
interest of 6.25 percent, payable annually, and mature in a balloon payment
on November 21, 2005. The proceeds from the Note issuance were used to
retire the principal and interest due on the bridge loan created to help
finance the Wynn's acquisition.
10. Subsequent event
In January 2001, the Company initiated proceedings for the redemption of its
outstanding $100 million, 9.75 percent debentures due 2002-2021, with the
redemption date expected to occur during the third quarter of fiscal 2001.
The Company expects to incur an after-tax extraordinary loss for this
transaction, including an early-redemption premium and the write-off of
deferred issuance costs, of approximately $3,400 or $.03 per share.
-8-
PARKER-HANNIFIN CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2000
AND COMPARABLE PERIODS ENDED DECEMBER 31, 1999
CONSOLIDATED STATEMENT OF INCOME
Net sales increased 17.8 percent for the second quarter of fiscal 2001 and 18.4
percent for the six-month period ended December 31, 2000. Without acquisitions,
Net sales would have remained flat for both the current-year quarter and the
first half of fiscal 2001.
Income from operations was $145.7 million for the current-year second quarter
and $309.3 million for the first half of fiscal 2001, an increase over the prior
periods of 14.0 percent and 21.2 percent, respectively. Included in the prior-
year first six months income from operations was $5.0 million in business
realignment charges. As a percent of sales, Income from operations declined to
10.0 percent from 10.3 percent for the quarter and excluding the business
realignment charges, remained constant at 10.5 percent for the first six months.
Cost of sales as a percent of sales remained constant at 78.4 percent for the
quarter and excluding the business realignment charges, declined to 78.2 percent
from 78.4 percent for the first six months. The increased margins for the first
half of fiscal 2001 are primarily the result of improved operating performance
in the Aerospace operations, partially offset by the lower margins in the
Industrial businesses, which were negatively impacted by recent acquisitions.
Excluding business realignment charges, Selling, general and administrative
expenses, as a percent of sales, increased to 11.6 percent of sales from 11.3
percent for the quarter and to 11.3 percent from 11.1 percent for the first six
months, primarily due to goodwill amortization related to recent acquisitions.
Interest expense increased $11.6 million for the quarter ended December 31, 2000
and $18.2 million for the six-month period ended December 31, 2000 due to higher
average debt outstanding in both the current-year quarter and first six months
as a result of increased borrowings to complete acquisitions.
Interest and other (income), net for the first six months of fiscal 2001
includes a $55.5 million gain realized on the sale of real property and $5.4
million of certain asset writedowns. Interest and other (income), net for the
first six months of fiscal 2000 included $6.4 million in gains primarily from
the sale of real property and $8.4 million of asset impairment losses and other
plant closure costs.
The effective tax rate increased to 35.5 percent for the first six months of
fiscal 2001, compared to 34.5 percent in the prior-year first six months. The
increase in the rate is due to the non-deductibility of goodwill recognized as a
result of the Company's recent acquisitions.
Net income increased 4.5 percent for the quarter, and 36.9 percent for the first
six months, as compared to the prior year. As a percent of sales, Net income
decreased to 5.4 percent from 6.0 percent for the quarter and increased to 6.9
percent from 6.0 percent for the first six months.
Backlog was $2.03 billion at December 31, 2000 compared to $1.65 billion in the
prior year and $1.80 billion at June 30, 2000. Current fiscal year acquisitions
accounted for two-fifths of the increase in backlog since June 30, 2000, with
the balance coming from strong order rates in the Aerospace and Industrial
International operations.
In January 2001, the Company initiated proceedings for the redemption of its
outstanding $100 million, 9.75 percent debentures due 2002-2021, with the
redemption date expected to occur during the third quarter of fiscal 2001. The
Company expects to incur an after-tax extraordinary loss for this transaction,
including an early-redemption premium and the write-off of deferred issuance
costs, of approximately $3,400 or $.03 per share.
-9-
RESULTS BY BUSINESS SEGMENT
INDUSTRIAL - The Industrial Segment operations had the following percentage
changes in Net sales in the current year when compared to the equivalent prior-
year period:
Period ending December 31,
--------------------------
Three Six
Months Months
----------- ---------
Industrial North America 25.9% 28.6%
Industrial International 10.7% 10.7%
Total Industrial 21.1% 23.0%
Without the effect of currency-rate changes, International sales would have
increased 24.3 percent for the quarter and 23.8 percent for the six months.
Without the effect of acquisitions completed within the past 12 months, the
percentage changes in Net sales would have been:
Period ending December 31,
--------------------------
Three Months Six Months
------------ ----------
Industrial North America (1.4)% 1.6%
Industrial International 1.0 % 1.0%
Total Industrial (0.7)% 1.4%
Excluding the effect of acquisitions, the decrease in Industrial North American
sales for the quarter is attributable to lower volume in the heavy-duty truck,
automotive and refrigeration markets partially offset by growth in the
semiconductor, filtration and telecommunications markets. The increase in
Industrial North American sales for the first six months of fiscal 2001 is
attributable to higher volume, particularly in the semiconductor manufacturing
and telecommunications markets, partially offset by lower volume in the heavy-
duty truck market. The increase in Industrial International sales for the
current-year quarter and first six months is attributed to higher volume in the
Asia Pacific region and Latin America, partially offset by lower volume in
Europe.
Operating income for the Industrial segment increased 12.9 percent for the
quarter and 24.4 percent for the first six months of fiscal 2001. Industrial
North American operating income increased 16.5 percent for the quarter and 21.0
percent for the first six months. Industrial North American operating income,
as a percent of sales, declined to 12.3 percent from 13.2 percent for the
quarter and to 12.8 percent from 13.6 percent for the first six months. The
decrease in margins for the current-year quarter and first six months was
primarily due to recent acquisitions, not yet fully integrated, contributing
lower margins. Lower volume also contributed to the margin decline in the
current-year quarter.
Industrial International operating income declined 1.6 percent for the quarter
and increased 43.4 percent for the first six months of fiscal 2001. Included in
the Industrial International operating income for the prior year six-month
period was $9.0 million in business realignment charges. Without the business
realignment charges, Industrial International operating income increased 12.8
percent for the current year first six months compared to the prior year six
months. Industrial International operating income, as a percent of sales,
decreased to 6.4 percent from 7.2 percent for the quarter and increased to 7.1
percent from 7.0 percent for the six months, excluding the business realignment
charges. The decrease in margins for the current quarter is primarily due to
lower volume in Europe partially offset by higher volume and improved margins in
the Asia Pacific region and Latin America. Excluding the business realignment
charges, the increase in margins for the first six months is primarily due to
the higher volume in the Asia Pacific region and Latin America, as well as
improved margins in Europe. Margins for both the current-year quarter and first
six months were negatively impacted by recent acquisitions which are not yet
fully integrated.
-10-
Total Industrial Segment backlog increased 44.3 percent compared to December 31,
1999 and 16.7 percent since June 30, 2000, primarily due to recent acquisitions,
with the remaining increase coming from strong order rates in the Industrial
International operations.
For the remainder of the fiscal year, business conditions are expected to be
favorable in a number of markets including semiconductor manufacturing and
telecommunications but the rate of growth in these markets is expected to
moderate. However, the decline in order rates experienced in the first half in
the heavy-duty truck and automotive markets are expected to continue for the
balance of the fiscal year. Profit improvement teams have been established to
study the logistics system and recommend improvements to enhance operating
margins in Europe. The Company expects to record charges during the second half
of the current fiscal year based upon the recommendations of the review teams,
but these charges are not expected to exceed the one-time gain realized in the
current-year first quarter on the sale of real property.
AEROSPACE - Net sales of the Aerospace Segment increased 6.4 percent for the
current-year quarter and 2.2 percent for the first six months of fiscal 2001 as
a result of an increase in the level of both the OEM and aftermarket businesses.
Operating income for the Aerospace Segment increased 38.3 percent for the
quarter and 32.5 percent for the six-month period. Included in the Aerospace
operating income for the prior year six-month period was $4.4 million in
business realignment charges. Excluding the business realignment charges,
operating income, as a percent of sales, increased to 17.4 percent from 13.3
percent for the quarter and to 16.9 percent from 13.8 percent for the six-month
period due to higher volume as well as a higher mix of aftermarket business.
Backlog for the Aerospace Segment increased 11.4 percent compared to December
31, 1999 and 10.7 percent since June 30, 2000. Backlog increased primarily due
to an increase in the level of OEM business, as well as strong aftermarket
orders. For the remainder of the fiscal year, the recent increase in the level
of order rates for the OEM business is expected to continue, while the level of
order rates in the aftermarket business is expected to moderate. A change to
heavier OEM volume in future product mix could result in lower margins.
Corporate general and administrative expenses increased to $20.3 million from
$14.1 million for the quarter and increased to $37.7 million from $28.2 million
for the six months. As a percent of sales, corporate general and administrative
expenses increased to 1.4 percent from 1.1 percent for the quarter and to 1.3
percent from 1.1 percent for the six months. The increase in both the current-
year quarter and first six months are the result of higher expenses associated
with non-qualified benefit plans.
Other (in the Results by Business Segment) increased $3.4 million for the
current-year quarter as a result of currency transaction losses and decreased
$40.6 million for the first six months of fiscal 2001 primarily as a result of a
$55.5 million gain realized on the sale of real property, partially offset by
$7.7 million of certain asset writedowns. In the prior-year first six months,
Other included $6.4 million in gains primarily from the sale of real property.
BALANCE SHEET
Working capital increased to $988.3 million at December 31, 2000 from $966.8
million at June 30, 2000 with the ratio of current assets to current liabilities
decreasing to 1.7 to 1. The increase in working capital was primarily due to an
increase in Accounts receivable, Inventories, and Net assets held for sale and a
decrease in Accrued domestic and foreign taxes, partially offset by an increase
in Notes payable.
Accounts receivable increased to $870.5 million at December 31, 2000 from $840.0
million at June 30, 2000, primarily due to an account receivable recognized on
the sale of real property. Days sales outstanding have increased to 52 days at
December 31, 2000 from 45 days at June 30, 2000, primarily
-11-
due to recent acquisitions. Inventories increased $91.1 million since June 30,
2000 primarily due to acquisitions, with months supply increasing slightly.
Plant and equipment, net of accumulated depreciation, increased $156.0 million
since June 30, 2000, primarily as a result of acquisitions.
The increase in Excess cost of investments over net assets acquired since June
30, 2000 reflects the goodwill recognized as a result of current-year
acquisitions.
The debt to debt-equity ratio increased to 38.3 percent at December 31, 2000
compared to 31.0 percent as of June 30, 2000, primarily due to increased
borrowings to fund acquisitions.
Due to the strength of the dollar, foreign currency translation adjustments
resulted in a decrease in net assets of $44.5 million during the first half of
fiscal 2001. The translation adjustments primarily affected Accounts
receivable, Inventories and Plant and equipment.
STATEMENT OF CASH FLOWS
Net cash provided by operating activities was $174.7 million for the six months
ended December 31, 2000, as compared to $213.3 million for the same six months
of 1999. The decrease in net cash provided was primarily the result of activity
within the working capital items - Inventories, Accounts payable, trade, Accrued
payrolls and other compensation and Other accrued liabilities - which used cash
of $145.2 million in fiscal 2001 compared to using cash of $87.8 million in
fiscal 2000. In addition, cash provided by operating activities excluded a
(Gain) on sale of plant and equipment of $58.3 million in fiscal 2001 compared
to $6.9 million in fiscal 2000. These uses of cash were partially offset by an
increase in Net income of $54.8 million and Deferred income taxes, which
increased $17.6 million in fiscal 2001 as opposed to decreasing $3.0 million in
fiscal 2000.
Net cash used in investing activities increased to $554.0 million for the first
half of fiscal 2001 compared to $129.7 million for the first half of fiscal 2000
primarily due to an increase of $479.5 million in the amount spent on
acquisitions and an increase in capital expenditures of $55.5 million, partially
offset by an increase of $48.6 million in proceeds received from the sale of
plant and equipment. Included in Other is an increase in cash provided for
long-term receivables in fiscal 2001, and an increase in cash used for equity
investments in fiscal 2000.
Financing activities provided cash of $383.7 million for the six months ended
December 31, 2000 compared to using cash of $39.1 million for the same period of
the prior year. The change resulted primarily from net debt borrowings
providing cash of $418.5 million in fiscal 2001 compared to using cash of $5.7
million in the prior year. The increase in net debt borrowings in fiscal 2001
was primarily to fund acquisitions.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company enters into forward exchange contracts, costless collar contracts
and cross-currency swap agreements to reduce its exposure to fluctuations in
related foreign currencies. These contracts are with major financial
institutions and the risk of loss is considered remote. The Company does not
hold or issue derivative financial instruments for trading purposes. In
addition, the Company's foreign locations, in the ordinary course of business,
enter into financial guarantees through financial institutions which enable
customers to be reimbursed in the event of nonperformance by the Company. The
total value of open contracts and any risk to the Company as a result of these
arrangements is not material to the Company's financial position, liquidity or
results of operations.
-12-
FORWARD-LOOKING STATEMENTS
This Report on Form 10-Q and other written reports and oral statements made from
time to time by the Company may contain "forward-looking statements", all of
which are subject to risks and uncertainties. All statements which address
operating performance, events or developments that the Company expects or
anticipates will occur in the future, including statements relating to growth,
operating margin performance, earnings per share or statements expressing
general opinions about future operating results or the markets in which the
Company does business, are forward-looking statements.
These forward-looking statements rely on a number of assumptions concerning
future events, and are subject to a number of uncertainties and other factors,
many of which are outside the Company's control, that could cause actual results
to differ materially from such statements. Such factors include:
. continuity of business relationships with and purchases by major customers,
. ability of suppliers to provide materials as needed,
. uncertainties surrounding timing, successful completion or integration of
acquisitions,
. competitive pressure on sales and pricing,
. increases in material and other production costs which cannot be recovered in
product pricing,
. difficulties in introducing new products and entering new markets, and
. uncertainties surrounding the global economy and global market conditions,
interest rate levels and the potential devaluation of currencies.
Any forward-looking statements are based on known events and circumstances at
the time. The Company undertakes no obligation to update or publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date of this Report.
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PARKER-HANNIFIN CORPORATION
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
------ -----------------------------------------
On October 25, 2000, the Registrant issued an aggregate of 5,464 shares of
Common Stock, $.50 par value, valued at $35.6875 per share to certain of its
non-employee directors pursuant to the Registrant's Non-Employee Directors Stock
Plan in lieu of a portion of their annual retainer. These transactions were
exempt from the registration provisions of the Securities Act of 1933, as
amended, pursuant to Section 4(2) of such Act for transactions not involving a
public offering based on the fact that the shares were sold to accredited
investors.
Item 6. Exhibits and Reports on Form 8-K.
------ --------------------------------
(a) The following documents are furnished as exhibits and are numbered
pursuant to Item 601 of Regulation S-K:
Exhibit 10(a) - Exchange Agreement entered into as of October 12,
2000 between the Registrant and Thomas A. Piraino,
Jr. including an Executive Estate Protection Plan
comprised of the Executive Estate Protection
Agreement among the Registrant, Thomas A. Piraino,
Jr., and the Thomas A. Piraino, Jr. and Barbara C.
McWilliams Irrevocable Trust dated September 1, 2000
(the "Trust") and the Collateral Assignment between
the Trust and the Registrant.
(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)
/s/ Michael J. Hiemstra
Michael J. Hiemstra
Vice President - Finance and Administration
and Chief Financial Officer
Date: February 13, 2001
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EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
10(a) Exchange Agreement entered into as of October 12, 2000
between the Registrant and Thomas A. Piraino, Jr. including
an Executive Estate Protection Plan comprised of the
Executive Estate Protection Agreement among the Registrant,
Thomas A. Piraino, Jr., and the Thomas A. Piraino, Jr. and
Barbara C. McWilliams Irrevocable Trust dated September 1,
2000 (the "Trust") and the Collateral Assignment between the
Trust and the Registrant.
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