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, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to _________________________ Commission File number 1-4982 PARKER-HANNIFIN CORPORATION - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) OHIO 34-0451060 - ------------------------------------------------------------------------------- (State or other (IRS Employer jurisdiction of Identification No.) incorporation) 6035 Parkland Blvd., Cleveland, Ohio 44124-4141 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (216) 896-3000 ------------- Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- ----- Number of Common Shares outstanding at December 31, 1999 112,086,749 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, --------------------------- ----------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Net sales $ 1,239,207 $ 1,199,021 $ 2,481,500 $ 2,417,745 Cost of sales 971,298 943,167 1,947,919 1,890,474 ----------- ----------- ----------- ----------- Gross profit 267,909 255,854 533,581 527,271 Selling, general and administrative expenses 140,157 141,370 278,305 275,528 Interest expense 14,028 17,341 28,571 33,416 Interest and other (income) expense, net (724) 333 (100) 406 ----------- ----------- ----------- ----------- Income before income taxes 114,448 96,810 226,805 217,921 Income taxes 39,485 33,278 78,248 76,272 ----------- ----------- ----------- ----------- Net income $ 74,963 $ 63,532 $ 148,557 $ 141,649 =========== =========== =========== =========== Earnings per share - Basic $ .69 $ .59 $ 1.36 $ 1.30 Earnings per share - Diluted $ .68 $ .58 $ 1.35 $ 1.29 Cash dividends per common share $ .17 $ .15 $ .34 $ .30
-2- See accompanying notes to consolidated financial statements. PARKER-HANNIFIN CORPORATION CONSOLIDATED BALANCE SHEET (Dollars in thousands) (Unaudited)
December 31, June 30, ASSETS 1999 1999 - ------------------ ----------- ----------- Current assets: Cash and cash equivalents $ 74,353 $ 33,277 Accounts receivable, net 692,357 738,773 Inventories: Finished products 488,875 442,361 Work in process 302,534 347,376 Raw materials 123,628 125,393 ----------- ----------- 915,037 915,130 Prepaid expenses 19,021 22,928 Deferred income taxes 66,722 64,576 ----------- ----------- Total current assets 1,767,490 1,774,684 Plant and equipment 2,572,878 2,506,812 Less accumulated depreciation 1,358,676 1,305,943 ----------- ----------- 1,214,202 1,200,869 Other assets 740,719 730,335 ----------- ----------- Total assets $ 3,722,411 $ 3,705,888 =========== =========== LIABILITIES - --------------------- Current liabilities: Notes payable $ 61,123 $ 60,609 Accounts payable, trade 253,798 313,173 Accrued liabilities 299,742 328,147 Accrued domestic and foreign taxes 39,130 52,584 ----------- ----------- Total current liabilities 653,793 754,513 Long-term debt 713,592 724,757 Pensions and other postretirement benefits 279,760 276,637 Deferred income taxes 31,247 30,800 Other liabilities 75,075 65,319 ----------- ----------- Total liabilities 1,753,467 1,852,026 SHAREHOLDERS' EQUITY - ---------------------------- Serial preferred stock, $.50 par value; authorized 3,000,000 shares; none issued -- -- Common stock, $.50 par value; authorized 600,000,000 shares; issued 112,130,445 shares at December 31 and 111,945,179 shares at June 30 56,065 55,973 Additional capital 134,536 132,227 Retained earnings 1,983,832 1,872,356 Unearned compensation related to guarantee of ESOP debt (105,035) (112,000) Deferred compensation related to stock options 1,304 Accumulated other comprehensive income (99,865) (92,858) ----------- ----------- 1,970,837 1,855,698 Common stock in treasury at cost; 43,696 shares at December 31 and 43,836 shares at June 30 (1,893) (1,836) ----------- ----------- Total shareholders' equity 1,968,944 1,853,862 ----------- ----------- Total liabilities and shareholders' equity $ 3,722,411 $ 3,705,888 =========== ===========
See accompanying notes to consolidated financial statements. -3- PARKER-HANNIFIN CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands) (Unaudited)
Six Months Ended December 31, ------------------------- CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998 - ------------------------------------ --------- --------- Net income $ 148,557 $ 141,649 Adjustments to reconcile net income to net cash provided by operations: Depreciation 88,019 85,636 Amortization 18,943 19,146 Deferred income taxes (3,019) (4,454) Foreign currency transaction loss (gain) 3,443 (3,752) (Gain) loss on sale of plant and equipment (6,955) 794 Changes in assets and liabilities: Accounts receivable, net 44,321 68,054 Inventories 657 (39,916) Prepaid expenses 3,904 5,430 Other assets 2,541 (15,381) Accounts payable, trade (59,077) (69,408) Accrued payrolls and other compensation (34,371) (58,234) Accrued domestic and foreign taxes (12,640) (5,990) Other accrued liabilities 4,978 (15,494) Pensions and other postretirement benefits 4,245 10,116 Other liabilities 9,706 4,649 --------- --------- Net cash provided by operating activities 213,252 122,845 CASH FLOWS FROM INVESTING ACTIVITIES - ------------------------------------- Acquisitions (less cash acquired of $2,609 in 1998) (5,711) (89,865) Capital expenditures (114,114) (114,650) Proceeds from sale of plant and equipment 20,203 2,364 Other (30,100) 1,045 --------- --------- Net cash used in investing activities (129,722) (201,106) CASH FLOWS FROM FINANCING ACTIVITIES - ------------------------------------ Net proceeds from (payments for) common share activity 3,649 (47,863) (Payments for) proceeds from notes payable, net (523) 75,569 Proceeds from long-term borrowings 3,692 206,621 Payments of long-term borrowings (8,867) (115,895) Dividends (37,081) (32,700) --------- --------- Net cash (used in) provided by financing activities (39,130) 85,732 Effect of exchange rate changes on cash (3,324) 1,981 --------- --------- Net increase in cash and cash equivalents 41,076 9,452 Cash and cash equivalents at beginning of year 33,277 30,488 --------- --------- Cash and cash equivalents at end of period $ 74,353 $ 39,940 ========= =========
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, -------------------------- -------------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Net sales Industrial: North America $ 658,542 $ 603,874 $1,326,211 $1,225,469 International 303,918 316,902 602,381 632,132 Aerospace 276,747 278,245 552,908 560,144 ---------- ---------- ---------- ---------- Total $1,239,207 $1,199,021 $2,481,500 $2,417,745 ========== ========== ========== ========== Segment operating income Industrial: North America $ 87,200 $ 67,170 $ 180,883 $ 149,325 International 21,787 21,315 32,999 48,137 Aerospace 36,939 41,937 71,987 85,776 ---------- ---------- ---------- ---------- Total segment operating income 145,926 130,422 285,869 283,238 Corporate general and administrative expenses 14,087 15,337 28,200 27,632 ---------- ---------- ---------- ---------- Income before interest expense and other 131,839 115,085 257,669 255,606 Interest expense 14,028 17,341 28,571 33,416 Other 3,363 934 2,293 4,269 ---------- ---------- ---------- ---------- Income before income taxes $ 114,448 $ 96,810 $ 226,805 $ 217,921 ========== ========== ========== ==========
-5- PARKER-HANNIFIN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dollars in thousands, except per share amounts _______________________ 1. Management Representation In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals except as discussed in Note 2) necessary to present fairly the financial position as of December 31, 1999, the results of operations for the three and six months ended December 31, 1999 and 1998 and cash flows for the six months then ended. 2. Charges related to business realignment During the first quarter of fiscal 2000 the Company recorded a $8,555 charge ($5,560 after-tax or $.05 per share) related to the costs of appropriately structuring its businesses to operate in their current economic environment. The charge primarily relates to severance costs attributable to approximately 260 employees principally associated with the Industrial International operations. As of December 31, 1999, the Company had made severance payments of $2,035 to approximately 130 employees. The remaining severance payments are expected to be made by the end of fiscal 2000. A change in the future utilization of long-lived assets at certain locations triggered an impairment review of these long-lived assets during the first quarter of fiscal 2000. The Company evaluated the recoverability of the long-lived assets and determined that the estimated future undiscounted cash flows were below the carrying value of these assets. Accordingly, the Company recorded a non-cash impairment loss of $4,875 ($3,169 after-tax or $.03 per share). Of the pre-tax amount, $3,499 relates to the Aerospace segment and $1,376 relates to the Industrial segment. The severance costs and impairment loss are presented in the Income statement for the six months ended December 31, 1999 in the following captions: $2,552 in Cost of sales; $2,476 in Selling, general and administrative expenses; and $8,402 in Interest and other (income) expense, net. Also recorded in the first quarter of fiscal 2000, was a gain of $6,423 ($4,175 after-tax or $.04 per share) realized primarily on the sale of real property. The gain is reflected in the Income statement for the six months ended December 31, 1999 in the Interest and other (income) expense, net caption. -6- 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, 1999 and 1998.
Three Months Ended Six Months Ended December 31, December 31, ------------------------------ ------------------------------ NUMERATOR: 1999 1998 1999 1998. ------------ ------------ ------------ ------------ Net income applicable to common shares $ 74,963 $ 63,532 $ 148,557 $ 141,649 DENOMINATOR: Basic - weighted average common shares 109,188,711 108,541,603 109,129,000 108,953,828 Increase in weighted average from dilutive effect of exercise of stock options 1,017,243 880,609 1,021,338 821,286 ------------------------------------------------------------------ Diluted - weighted average common shares, assuming exercise of stock options 110,205,954 109,422,212 110,150,338 109,775,114 ================================================================== Basic earnings per share $ .69 $ .59 $ 1.36 $ 1.30 Diluted earnings per share $ .68 $ .58 $ 1.35 $ 1.29
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, 1999. 5. Comprehensive income The Company's only item of other comprehensive income is foreign currency translation adjustments recorded in shareholders' equity. Comprehensive income for the three and six months ended December 31, 1999 and 1998 is as follows:
Three Months Ended Six Months Ended December 31, December 31, -------------------------- -------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Net income $ 74,963 $ 63,532 $ 148,557 $ 141,649 Foreign currency translation adjustments (20,753) (508) (7,007) 24,691 --------------------------------------------------------- Comprehensive income $ 54,210 $ 63,024 $ 141,550 $ 166,340 ==========================================================
-7- 6. Subsequent events On January 17, 2000, the Company and Commercial Intertech Corp. announced that their Boards of Directors had unanimously approved a definitive agreement pursuant to which Commercial Intertech will merge into the Company, with the Company as the surviving corporation, in a cash and stock transaction with an equity value of approximately $366 million. In addition, the Company will assume approximately $107 million of Commercial Intertech debt. Under the terms of the merger agreement, the Company will acquire all outstanding common stock of Commercial Intertech for $20.00 per share in exchange for Company common stock, subject to a collar. Commercial Intertech shareholders will receive the Company's common stock based on an exchange ratio that will be determined based on the average closing price of Company common stock for the 20 trading-day period ending five trading days immediately preceding the closing date of the merger. Commercial Intertech shareholders may elect to receive $20.00 per share in cash, subject to the limitation that no more than 49 percent of the total merger consideration is paid in cash. The merger is anticipated to close during the Company's quarter ending June 30, 2000. The Company plans to account for the transaction using the purchase method of accounting. On February 3, 2000, the Company announced their agreement to acquire the assets of Dana Corporation's Gresen Hydraulic business for approximately $112 million cash. Gresen manufactures a wide range of hydraulic pumps, motors, cylinders, control valves, filters and electronic controls for on- and off-highway vehicles and had prior-year annual sales of approximately $128 million. - 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, 1999 AND COMPARABLE PERIODS ENDED DECEMBER 31, 1998 CONSOLIDATED STATEMENT OF INCOME Net sales increased 3.4 percent for the second quarter of fiscal 2000 and 2.6 percent for the six-month period ended December 31, 1999. Without acquisitions, the increases would have been 3.2 percent and 2.0 percent, respectively. Excluding acquisitions, these increases primarily result from higher volume in the North American Industrial operations. Income from operations was $127.8 million for the current second quarter and $255.3 million for the current six months, an increase of 11.6 percent and 1.4 percent, respectively. As a percent of sales, Income from operations increased to 10.3 percent from 9.5 percent for the quarter and declined to 10.3 percent from 10.4 percent for the six months. Cost of sales as a percent of sales declined to 78.4 percent from 78.7 percent for the quarter and increased to 78.5 percent from 78.2 percent for the six months. The increased margins in the second quarter are primarily the result of higher volume experienced in the North American Industrial operations, partially offset by lower volume and mix of original-equipment programs in the Aerospace operations. The declining margins for the six months reflect the weakness experienced in the International Industrial and Aerospace operations as well as the effect of business realignment charges recorded in fiscal 2000 (as discussed in more detail below). Selling, general and administrative expenses, as a percent of sales, decreased to 11.3 percent of sales from 11.8 percent for the quarter and to 11.2 percent from 11.4 percent for the six months. Interest expense decreased $3.3 million for the quarter ended December 31, 1999 and $4.8 million for the six-month period ended December 31, 1999 due to lower average debt outstanding in both the current year quarter and six months. Interest and other (income) expense, net for six months includes $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. Net income increased 18.0 percent for the quarter, and 4.9 percent for the six months, as compared to the prior year. As a percent of sales, Net income increased to 6.0 percent from 5.3 percent for the quarter and to 6.0 percent from 5.9 percent for the six months. Backlog was $1.65 billion at December 31, 1999 compared to $1.61 billion in the prior year and $1.63 billion at June 30, 1999. The increase in the level of backlog reflects an improvement in orders in the North American Industrial operations. -9- RESULTS BY BUSINESS SEGMENT INDUSTRIAL - The Industrial Segment operations had the following changes in Net sales in the current year when compared to the equivalent prior-year period:
Period ending December 31, -------------------------- Three Months Six Months ------------ ---------- Industrial North America 9.1 % 8.2 % Industrial International (4.1) % (4.7) % Total Industrial 4.5 % 3.8 %
Without the effect of currency-rate changes, International sales would have increased 6.2 percent for the quarter and 3.3 percent for the six months. Without the effect of acquisitions completed within the past 12 months, the changes in Net sales would have been:
Period ending December 31, -------------------------- Three Months Six Months ------------ ---------- Industrial North America 9.1 % 7.3 % Industrial International (4.7) % (5.5) % Total Industrial 4.3 % 2.9 %
The increase in Industrial North American sales is attributed to higher volume, particularly in the semiconductor manufacturing and telecommunications markets. International Industrial sales were affected by the struggling industrial economy in Europe and Latin America while Asia Pacific sales were higher. Operating income for the Industrial segment increased 23.2 percent for the quarter and 8.3 percent for the six months. Industrial North American operating income increased 29.8 percent for the quarter and 21.1 percent for the six months. Industrial North American operating income, as a percent of sales, increased to 13.2 percent from 11.1 percent for the quarter and to 13.6 percent from 12.2 percent for the six months as margins benefited from the higher sales volume. Industrial International operating income increased 2.2 percent for the quarter and decreased 31.4 percent for the six months. Included in the International Industrial operating income for the current year six-month period was $9.0 million in business realignment charges. These charges were made as a result of actions the Company took to appropriately structure the European operations to operate in their current environment. Without the business realignment charges, International Industrial operating income decreased 12.8 percent for the current year first six months compared to the prior year six months. Excluding the business realignment charges, Industrial International operating income, as a percent of sales, increased to 7.2 percent from 6.7 percent for the quarter and decreased to 7.0 percent from 7.6 percent for the six months. The increase in margins for the current quarter is a result of the higher sales volume (excluding currency) while the six month margins reflect the weakness in the European operations. Total Industrial Segment backlog increased 4.4 percent compared to December 31, 1998 and 11.0 percent since June 30, 1999 driven primarily from an increase in order rates in the North American Industrial operations. Order demand for much of fiscal 2000 has been improving across virtually all of the Industrial operations. While this upward trend is expected to continue generally, a slight downward trend in order rates in the heavy-duty truck market is expected for the balance of fiscal 2000. The weakness in the European operations experienced in the first half of fiscal 2000 has moderated and are expected to continue to improve over the balance of fiscal 2000. -10- AEROSPACE - Aerospace Net sales declined slightly for the quarter and 1.3 percent for the six months due to lower volume in the large aircraft business. Operating income for the Aerospace Segment declined 11.9 percent for the quarter and 16.1 percent for the six-month period. Included in the Aerospace operating income for current year six-month period was $4.4 million in business realignment charges. These charges were a result of the actions the Company took to resize the business in response to a decline in OEM orders. Excluding the business realignment charges, operating income, as a percent of sales, decreased to 13.3 percent from 15.1 percent for the quarter and to 13.8 percent from 15.3 percent for the six-month period reflecting the lower volume, a mix of original-equipment programs, as well as lower capacity utilization. Backlog for the Aerospace Segment remained essentially the same from December 31, 1998 and decreased 3.6 percent since June 30, 1999. The decline in backlog compared to June 30, 1999 reflects the expected slowdown in OEM order rates. The Company anticipates further inventory reductions for the balance of the fiscal year in anticipation of softer commercial aviation sales. Corporate general and administrative expenses decreased to $14.1 million from $15.3 million for the quarter and increased to $28.2 million from $27.6 million for the six months. The lower expense in the quarter is a result of reduced expenses associated with non-qualified benefit plans. Other (in the Results by Business Segment) increased $2.4 million for the quarter as a result of currency transaction losses and decreased $2.0 million for the six months primarily as a result of gains from the sale of real property as discussed in the Consolidated Statement of Income section, partially offset by currency transaction losses. BALANCE SHEET Working capital increased to $1,113.7 million at December 31, 1999 from $1,020.2 million at June 30, 1999 with the ratio of current assets to current liabilities increasing to 2.7 to 1. The increase was primarily due to an increase in Cash and decreases in Accounts payable and Accrued liabilities, partially offset by a decrease in Accounts receivable. Accounts receivable were lower by $46.4 million on December 31, 1999 compared to June 30, 1999 primarily due to the holiday induced lower level of sales in December. Days sales outstanding have increased to 49 days at December 31, 1999 from 47 days at June 30, 1999. Inventories remained flat since June 30, 1999 while months supply declined slightly. Accounts payable, trade decreased $59.4 million since June 30, 1999 with the reduction occurring consistently throughout the operations. A portion of the decrease was the result of lower production during the holidays. Accrued liabilities decreased $28.4 million since June 30, 1999 primarily as a result of lower incentive compensation and payroll accruals occurring throughout most of the operations. The debt to debt-equity ratio decreased to 28.2 percent at December 31, 1999 from 29.8 percent at June 30, 1999 primarily due to a decrease in Long-term debt. Due to the strength of the dollar, foreign currency translation adjustments resulted in a decrease in net assets of $7.0 million during the first half of fiscal 2000. The translation adjustments primarily affected Accounts receivable, Inventories and Notes payable. -11- STATEMENT OF CASH FLOWS Net cash provided by operating activities was $213.3 million for the six months ended December 31, 1999, as compared to $122.8 million for the same six months of 1998. The increase in net cash provided was primarily the result of activity within the working capital items - Inventories, Accounts receivable, Accrued payrolls and Other accrued liabilities - which provided cash of $15.6 million in fiscal 2000 compared to using cash of $45.6 million in fiscal 1999. In addition, activity in Other assets provided cash of $2.5 million in the current year compared to using cash of $15.4 million in the prior year. Net cash used in investing activities declined to $129.7 million for fiscal 2000 compared to $201.1 million for fiscal 1999 primarily due to a reduction in the amount spent on acquisitions and an increase in the proceeds received from the sale of plant and equipment. Included in Other is an increase in cash used for equity investments in fiscal 2000. Financing activities used cash of $39.1 million for the six months ended December 31, 1999 compared to providing cash of $85.7 million for the same period in 1998. The change resulted primarily from net debt borrowings using cash of $5.7 million in fiscal 2000 compared to providing cash of $166.3 million in the prior year, partially offset by common stock activity providing cash of $3.6 million in the current year versus using cash of $47.9 million, primarily for the repurchase of shares, in the prior year. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company enters into forward exchange 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. YEAR 2000 CONSIDERATONS The Company took action to assure that its computerized products and systems and all external interfaces were Year 2000 compliant. These actions were part of a formal information technology initiative which the Company began several years ago. The Company has not experienced any business interruptions as a result of the Year 2000. In addition, the Company contacted its key suppliers, customers, distributors and financial service providers regarding their Year 2000 status. Follow-up inquiries and audits indicated that substantially all key third parties would be year 2000 compliant on a timely basis. The Company is unaware of any key suppliers, customers, distributors or financial service providers who have experienced problems regarding their Year 2000 compliance. While there have been no known adverse consequences of any unsuccessful modifications significantly affecting the financial position, liquidity, or results of operations of the Company, there can be no assurance that any unknown unsuccessful modifications would not have an adverse impact on the Company. -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 we expect or anticipate will occur in the future, including statements relating to growth, operating margin performance or earnings per share or statements expressing general opinions about future operating results, 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, including among others, orders and delivery schedules for aircraft components, - 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, - uncertainties surrounding the year 2000 issues, - difficulties in introducing new products and entering new markets, and - uncertainties surrounding the global economy and global market conditions, including among others, 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. -13- PARKER-HANNIFIN CORPORATION PART II - OTHER INFORMATION ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS. During the quarter ended December 31, 1999, in reliance upon Section 4(2) of the Securities Act of 1933, as amended, the Registrant issued the following shares of Common Stock, $.50 par value: (a) 6,012 shares valued at $44.90625 per share pursuant to the Registrant's Non-Employee Directors Stock Plan in lieu of fees; and (b) 1,054 shares upon exercise of stock options granted under the Registrant's Non-Employee Directors Stock Option Plan in exchange for an average option exercise price of $30.952. The option price was paid by previously owned shares as permitted under the Non-Employee Directors Stock Option Plan. 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 29, 1999 between the Registrant and Michael J. Hiemstra including an Executive Estate Protection Plan comprised of the Executive Estate Protection Agreement among the Registrant, Michael J. Hiemstra, and the Irrevocable Trust Creating Vested Trusts for Children of Michael J. Hiemstra dated August 16, 1999 (the "Trust") and the Collateral Assignment between the Trust and the Registrant. Exhibit 27 - Financial Data Schedule (b) The Registrant filed a report on Form 8-K on January 19, 2000 to file the press release issued by the Registrant announcing that the Registrant entered into an Agreement and Plan of Merger with Commercial Intertech Corp. whereby Commercial Intertech Corp. will be merged with and into the Registrant, with the Registrant as the surviving corporation and to file the Agreement and Plan of Merger. 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 4, 2000 - 14 - EXHIBIT INDEX Exhibit No. Description of Exhibit ----------- ---------------------- 10(a) Exchange Agreement entered into as of October 29, 1999 between the Registrant and Michael J. Hiemstra including an Executive Estate Protection Plan comprised of the Executive Estate Protection Agreement among the Registrant, Michael J. Hiemstra, and the Irrevocable Trust Creating Vested Trusts for Children of Michael J. Hiemstra dated August 16, 1999 (the "Trust") and the Collateral Assignment between the Trust and the Registrant. 27 Financial Data Schedule - 15 -