UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
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 jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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 (or for such shorter period that the registrant was
required to file such reports), 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 September 30, 2001 117,275,168
PART I - FINANCIAL INFORMATION
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
September 30,
-----------------------------
2001 2000
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Net sales $ 1,475,867 $ 1,485,131
Cost of sales 1,197,625 1,159,029
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Gross profit 278,242 326,102
Selling, general and administrative expenses 165,415 162,441
Interest expense 20,454 21,168
Interest and other (income) expense, net (117) (51,377)
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Income before income taxes 92,490 193,870
Income taxes 31,909 68,824
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Net income $ 60,581 $ 125,046
============ =============
Earnings per share - basic $ .53 $ 1.10
Earnings per share - diluted $ .52 $ 1.09
Cash dividends per common share $ .18 $ .17
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
September 30, June 30,
ASSETS 2001 2001
- ---------------- ----------------- ----------------
Current assets:
Cash and cash equivalents $ 35,384 $ 23,565
Restricted investments 86,992 -
Accounts receivable, net 920,958 922,325
Inventories:
Finished products 546,606 495,704
Work in process 334,256 344,861
Raw materials 166,851 168,299
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1,047,713 1,008,864
Prepaid expenses 43,580 39,486
Deferred income taxes 109,376 91,439
Net assets held for sale - 110,683
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Total current assets 2,244,003 2,196,362
Plant and equipment 3,142,175 3,006,064
Less accumulated depreciation 1,542,018 1,457,376
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1,600,157 1,548,688
Goodwill 1,083,467 953,648
Intangible assets, net 17,492 8,584
Other assets 550,856 630,379
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Total assets $ 5,495,975 $ 5,337,661
============== ==============
LIABILITIES
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Current liabilities:
Notes payable $ 583,428 $ 546,502
Accounts payable, trade 380,009 367,806
Accrued liabilities 452,821 436,947
Accrued domestic and foreign taxes 81,315 61,874
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Total current liabilities 1,497,573 1,413,129
Long-term debt 874,228 857,078
Pensions and other postretirement benefits 206,427 318,527
Deferred income taxes 144,243 131,708
Other liabilities 192,866 88,304
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Total liabilities 2,915,337 2,808,746
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 117,466,709 shares at
September 30 and 117,409,197 shares at June 30 58,733 58,705
Additional capital 349,183 346,228
Retained earnings 2,466,347 2,426,496
Unearned compensation related to guarantee of ESOP debt (89,990) (96,398)
Deferred compensation related to stock options 2,347 2,347
Accumulated other comprehensive (loss) (198,918) (204,531)
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2,587,702 2,532,847
Less treasury shares, at cost:
191,541 shares at September 30
and 100,000 shares at June 30 (7,064) (3,932)
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Total shareholders' equity 2,580,638 2,528,915
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Total liabilities and shareholders' equity $ 5,495,975 $ 5,337,661
============== ==============
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
September 30,
-------------------------------
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net income $ 60,581 $ 125,046
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 59,159 51,415
Amortization 2,604 16,017
Deferred income taxes (8,750) 22,557
Foreign currency transaction loss 1,342 524
(Gain) on sale of plant and equipment (104) (58,231)
Changes in assets and liabilities:
Restricted investments (8,472) -
Accounts receivable 68,870 (64,532)
Inventories 2,522 (23,922)
Prepaid expenses 10,168 7,967
Net assets held for sale 35,683 6,973
Other assets 14,331 (28,369)
Accounts payable, trade (10,427) (35,989)
Accrued payrolls and other compensation (43,599) (49,930)
Accrued domestic and foreign taxes 14,485 34,922
Other accrued liabilities 7,537 287
Pensions and other postretirement benefits (4,492) 7,910
Other liabilities 1,659 7,319
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Net cash provided by operating activities 203,097 19,964
CASH FLOWS FROM INVESTING ACTIVITIES
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Acquisitions (less acquired cash of $5,240 in 2000) (135,545) (485,923)
Capital expenditures (59,296) (66,083)
Proceeds from sale of plant and equipment 5,679 67,486
Other (15,391) 4,472
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Net cash (used in) investing activities (204,553) (480,048)
CASH FLOWS FROM FINANCING ACTIVITIES
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Net (payments for) proceeds from common share activity (149) 1,725
Proceeds from notes payable, net 33,838 261,261
Proceeds from long-term borrowings 5,842 263,585
Payments of long-term borrowings (3,837) (58,839)
Dividends (20,731) (19,361)
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Net cash provided by financing activities 14,963 448,371
Effect of exchange rate changes on cash (1,688) (1,557)
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Net increase (decrease) in cash and cash equivalents 11,819 (13,270)
Cash and cash equivalents at beginning of year 23,565 68,460
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Cash and cash equivalents at end of period $ 35,384 $ 55,190
============ ==============
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
BUSINESS SEGMENT INFORMATION BY INDUSTRY
(Dollars in thousands)
(Unaudited)
The Company operates in two principal 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.
The Company also reports an Other Segment consisting of several business units
which produce motion-control and fluid power system components for use primarily
in the transportation industry, a business unit which designs and manufactures
custom-engineered buildings and beginning in fiscal 2002, a business unit which
develops and manufactures chemical car care and industrial products and related
service programs and a business unit which administers vehicle service contract
programs.
Business Segment Results by Industry
Three Months Ended
September 30,
------------------------------
2001 2000
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Net sales
Industrial:
North America $ 650,840 $ 770,105
International 296,291 308,084
Aerospace 312,500 270,388
Other 216,236 136,554
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Total $ 1,475,867 $ 1,485,131
============== =============
Segment operating income
Industrial:
North America $ 40,465 $ 106,939
International 19,828 24,264
Aerospace 56,892 44,276
Other 16,992 11,865
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Total segment operating income 134,177 187,344
Corporate general and administrative expenses 16,939 17,384
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Income before interest expense and other 117,238 169,960
Interest expense 20,454 21,168
Other expense (income) 4,294 (45,078)
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Income before income taxes $ 92,490 $ 193,870
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Note: In July 2001, the Company adopted SFAS No. 142 and therefore, future
amortization of goodwill has been discontinued. Income before income
taxes for the three months ended September 30, 2000 includes $14,709 of
goodwill amortization ($6,691 in Industrial North America; $2,925 in
Industrial International; $1,860 in Aerospace; $1,088 in Other; and
$2,145 in Other expense (income)).
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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 September 30, 2001, the results of operations for the three months ended
September 30, 2001 and 2000 and cash flows for the three months then ended.
2. Restricted investments
Restricted investments are funds held in a separate trust account to be
used primarily to pay claims related to various vehicle service contract
programs marketed by the extended care warranty businesses acquired as part
of Wynn's International. The funds in the trust account are managed by the
Company and typically include money market accounts, commercial paper and
municipal securities which have maturities of three months or less when
purchased and are stated at cost, which approximates fair market value. Any
residual funds in the trust account and all investment income or loss
accrue to the benefit of the Company.
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 months
ended September 30, 2001 and 2000.
Three Months Ended
September 30,
--------------------------
2001 2000
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Numerator:
----------
Net income applicable
to common shares $ 60,581 $ 125,046
Denominator:
------------
Basic - weighted average
common shares 115,166,914 113,929,685
Increase in weighted average
from dilutive effect of
exercise of stock options 585,784 632,296
---------------------------
Diluted - weighted average
common shares, assuming
exercise of stock options 115,752,698 114,561,981
===========================
Basic earnings per share $ .53 $ 1.10
Diluted earnings per share $ .52 $ 1.09
-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. During the three- month period ended September 30,
2001 the Company purchased 85,000 shares of its common stock at an average
price of $33.59 per share.
5. Comprehensive income
The Company's items of other comprehensive income (loss) are foreign
currency translation adjustments and unrealized gains (losses) on
marketable securities. Comprehensive income for the three months ended
September 30, 2001 and 2000 is as follows:
Three Months Ended
September 30,
-------------------
2001 2000
-------------------
Net income $60,581 $125,046
Foreign currency
translation adjustments 10,886 (44,787)
Unrealized (loss) gain on marketable
securities (net of taxes of $(3,177)
in 2001 and $9,321 in 2000) (5,273) 15,469
-------------------
Comprehensive income $66,194 $ 95,728
===================
6. Gain on sale of real property
During the first quarter of fiscal 2001 the Company recorded a $55,548 gain
($34,662 after-tax or $.30 per share) realized on the sale of real
property. The gain is reflected in the Consolidated Statement of Income in
Interest and other (income) expense, net.
7. Charges related to business realignment
During the first quarter of fiscal 2002, the Company recorded a $5,041
charge ($3,302 after-tax or $.03 per share) for the costs of appropriately
structuring its businesses to operate in their current economic
environment. The charge primarily relates to severance costs attributable
to 288 employees in the Industrial Segment, 139 employees in the Aerospace
Segment and 8 employees in the Other Segment. As of September 30, 2001, the
Company had made the majority of the severance payments with the remaining
payments expected to be made by December 31, 2001. Of the pre-tax amount,
$3,317 relates to the Industrial Segment, $1,207 relates to the Aerospace
Segment and $517 relates to the Other Segment.
The business realignment costs are presented in the Consolidated Statement
of Income for the three months ended September 30, 2001 as follows: $4,634
in Cost of sales and $407 in Selling, general and administrative expenses.
-7-
8. Goodwill and Intangible Assets
On July 1, 2001 the Company adopted the provisions of SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that all business combinations be accounted
for by the purchase method and that certain acquired intangible assets be
recognized as assets apart from goodwill. SFAS No. 142 provides that
goodwill should not be amortized but instead be tested for impairment
annually at the reporting unit level. In accordance with SFAS No. 142, the
Company intends to complete a transitional goodwill impairment test by
December 31, 2001 and does not anticipate recognizing an impairment loss.
No reclassification of intangible assets apart from goodwill was necessary
as a result of the adoption of SFAS No. 142. Goodwill amortization expense
in the first quarter of fiscal 2001 was $14,709 ($12,641 after tax or $.11
per share).
The following table reflects the consolidated results adjusted as though
the adoption of SFAS No. 142 occurred as of the beginning of the three-
month period ended September 30, 2000:
Three Months Ended
September 30,
------------------
2001 2001
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Net income:
As reported $60,581 $125,046
Goodwill amortization 12,641
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Adjusted net income $60,581 $137,687
==================
Basic earnings per share:
As reported $ 0.53 $ 1.10
Goodwill amortization 0.11
------------------
Adjusted basic earnings per share $ 0.53 $ 1.21
==================
Diluted earnings per share:
As reported $ 0.52 $ 1.09
Goodwill amortization 0.11
------------------
Adjusted diluted earnings per share $ 0.52 $ 1.20
==================
The changes in the carrying amount of goodwill for the three months ended
September 30, 2001 are as follows:
Industrial Aerospace Other
Segment Segment Segment Total
---------- --------- -------- ----------
Balance as of June 30, 2001 $769,675 $76,090 $107,883 $ 953,648
Acquisitions 25,558 48,110 73,668
Balance sheet reclassification 31,055 31,055
Goodwill adjustments and other 18,939 107 6,050 25,096
-------------------------------------------
Balance as of September 30, 2001 $814,172 $76,197 $193,098 $1,083,467
===========================================
Balance sheet reclassification represents the change in balance sheet
presentation during the first quarter of fiscal 2002 for net assets held for
sale (see Note 10 for further discussion). Goodwill adjustments and other
represents final adjustments to the purchase price allocation for acquisitions
completed within the last fiscal year and foreign currency translation
adjustments.
-8-
9. Acquisitions
On July 16, 2001 the Company completed the acquisition of Dana
Corporation's Chelsea Products Division (Chelsea). Chelsea is a supplier of
power take-offs and related auxiliary power devices for medium and heavy-
duty vocational equipment with annual sales of $67 million.
On August 31, 2001 the Company acquired the Aeroquip Air Conditioning and
Refrigeration (AC&R) business from Eaton Corporation. AC&R produces
mechanical controls and fluid systems for the residential and commercial
air conditioning and refrigeration markets with annual sales of $75
million.
On October 19, 2001 the Company acquired assets associated with the global
fluid management business of Dayco Industrial from MarkIV/BC Partners. With
annual revenues of $304 million, the Dayco assets acquired include
Imperial-Eastman products and a wide array of hydraulic and industrial hose
and connectors.
Total purchase price for these businesses was approximately $300 million in
cash. These acquisitions are being accounted for by the purchase method.
10. Net assets held for sale
At June 30, 2001, Net assets held for sale included 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 business, which was acquired as part of Commercial Intertech
in fiscal 2000, and the specialty chemical and warranty businesses, which
were acquired as part of Wynn's International in fiscal 2001.
During the first quarter of fiscal 2002, the Company completed the
divestiture of the metal forming business. No gain or loss was recognized
on the transaction. In July 2001 the one-year period during which the
earnings of the specialty chemical and warranty businesses were excluded
from the Company's Consolidated Statement of Income expired. Due to market
conditions, the Company decided to suspend its efforts to sell the
specialty chemical and warranty businesses. As such, the net assets of the
specialty chemical and warranty businesses are presented in the
Consolidated Balance Sheet as of September 30, 2001 in their respective
individual line items and their results of operations have been included in
the Consolidated Statement of Income of the Company beginning in July 2001.
The specialty chemical and warranty businesses are included in the Other
Segment for segment reporting purposes.
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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 ENDED SEPTEMBER 30, 2001
AND COMPARABLE PERIOD ENDED SEPTEMBER 30, 2000
CONSOLIDATED STATEMENT OF INCOME
Net sales for the first quarter of fiscal 2002 were $1,475.9 million, a slight
decrease over prior-year first quarter sales of $1,485.1 million. Without
acquisitions and the inclusion of the results from businesses previously
classified as assets held for sale, net sales decreased 11.4 percent, primarily
the result of lower volume in the Industrial North American operations.
Income from operations in the current quarter were $112.8 million, a 31.1
percent decrease over the prior-year quarter income from operations of $163.7
million. Included in the current-year income from operations was $5.0 million
in business realignment charges (see Note 7 on page 7 for further discussion).
Included in the prior-year income from operations was $14.7 million of goodwill
amortization. Excluding the business realignment charges and goodwill
amortization, current-year operating income, as a percent of sales, decreased to
8.0 percent from 12.0 percent in the prior year. Excluding the business
realignment charges and goodwill amortization, cost of sales, as a percent of
sales, increased to 80.8 percent from 78.0 percent. The decreasing margins
reflect the weakness experienced in the North American Industrial operations,
resulting in underabsorption of overhead costs, partially offset by higher
volume and margins experienced in the Aerospace operations. Excluding business
realignment charges and goodwill amortization, selling, general and
administrative expenses, as a percent of sales, were 11.2 percent compared to
9.9 percent in the prior year primarily due to the lower sales volume as well as
higher selling expenses experienced by businesses previously held for sale.
Interest expense for the current-year quarter decreased 3.4 percent due
primarily to lower weighted-average interest rates.
Interest and other (income) expense, net for the first quarter of fiscal 2001
included a $55.5 million gain realized on the sale of real property and $5.4
million of certain asset impairments.
The effective tax rate decreased to 34.5 percent for the current-year quarter,
compared to 35.5 percent in the prior-year quarter. The decrease in the rate is
primarily due to the deductibility of certain goodwill amortization for tax
purposes that is no longer being amortized for financial reporting purposes due
to the Company's adoption of SFAS No. 142 in the first quarter of fiscal 2002.
Net income for the quarter was $60.6 million compared to $125.0 million in the
prior year. Net income decreased to 4.1 percent of sales compared to 8.5
percent in the prior-year.
Backlog decreased to $1.91 billion at September 30, 2001 compared to $1.98
billion in the prior year and $1.99 billion at June 30, 2001. The decrease in
backlog reflects lower order rates experienced across most markets in the
Industrial North American operations, as well as a decrease in Aerospace orders
rates that began in the latter part of the first quarter.
RESULTS BY BUSINESS SEGMENT
INDUSTRIAL - Net sales of the Industrial Segment decreased 12.2 percent to
$947.1 million compared to $1,078.2 million in the prior year. Industrial North
American sales decreased 15.5 percent, and Industrial International sales
decreased 3.8 percent. Without the effect of currency rate changes,
International sales would have increased 1.3 percent. Without the effect of
acquisitions, North American sales decreased 23.6 percent, and International
sales decreased 7.2 percent. The decrease in Industrial North American sales
reflects lower volume experienced across virtually all of the Industrial
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North American markets, particularly in the semiconductor manufacturing and
telecommunications markets. The decrease in International Industrial sales is
attributed to lower volume across most markets in Europe, Latin America and the
Asia Pacific region.
Operating income for the Industrial Segment decreased 54.0 percent to $60.3
million compared to $131.2 million in the prior year with Industrial North
American operating income decreasing 62.2 percent and Industrial International
operating income decreasing 18.3 percent. Included in the current-year
operating income was $2.5 million and $0.8 million of business realignment
charges in Industrial North America and Industrial International, respectively.
These charges were made as a result of actions the Company took to appropriately
structure the Industrial operations to operate in their current economic
environment and primarily consisted of severance costs for 186 employees in the
Industrial North American operations and 102 employees in the Industrial
International operations. Included in the prior-year operating income was $6.7
million and $2.9 million of goodwill amortization in Industrial North America
and Industrial International, respectively. Excluding the business realignment
charges and goodwill amortization, Industrial North American operating income
decreased 62.2 percent from the prior year and Industrial International
operating income decreased 24.2 percent from the prior year.
Excluding business realignment charges and goodwill amortization, North American
operating income, as a percent of sales, decreased to 6.6 percent from 14.8
percent and Industrial International operating income, as a percent of sales,
decreased to 7.0 percent from 8.8 percent. The decline in Industrial North
American margins is primarily due to lower sales volume experienced across
virtually all markets which resulted in the underabsorption of fixed overhead
costs. The decline in Industrial International margins is primarily due to the
lower sales volume experienced across most international markets.
Industrial Segment backlog decreased 18.5 percent compared to a year ago, and
decreased 6.3 percent since June 30, 2001, primarily due to lower order rates
within most Industrial markets.
The tragic events of September 11, 2001 and their near-term effect on the U.S.
economy has made it difficult to assess the business conditions that are likely
to be experienced by the Industrial Segment operations for the remainder of
fiscal year 2002. At the present time, business conditions are expected to be
the same as those experienced in the first quarter with some improvement
anticipated in the second half of the fiscal year. The second half improvement
assumes the Industrial Segment markets experience an increase in demand
resulting from an economic stimulus package provided by the federal government,
although no assurance can be given that the stimulus package will create such
demand. The Company expects to continue to take the necessary actions to
appropriately structure the Industrial Segment operations to operate in their
current economic environment. Such actions may include the necessity to record
additional business realignment charges in fiscal 2002.
AEROSPACE - Net sales of the Aerospace Segment increased 15.6 percent to $312.5
million compared to $270.4 million in the prior year. Operating income
increased 28.5 percent to $56.9 million compared to $44.3 million in the prior
year. Operating income for the current-year first quarter includes $1.2 million
in business realignment charges, and operating income for the prior-year first
quarter included $1.9 million in goodwill amortization. The business
realignment charge relates to actions the Company took to appropriately
structure the Aerospace operations to operate in their current economic
environment and consisted of severance costs related to 139 employees.
Excluding the business realignment charges and goodwill amortization, operating
income, as a percent of sales, increased to 18.6 percent from 17.1 percent
primarily due to a higher mix of aftermarket business, as well as an increase in
OEM activity.
Backlog for the Aerospace Segment increased 4.6 percent compared to a year ago
and decreased 3.3 percent since June 30, 2001. Backlog decreased during the
first quarter of fiscal 2002 primarily due to a decline in both commercial OEM
and aftermarket order rates, particularly those experienced in the latter part
of the first quarter. For the remainder of the fiscal year, the Company expects
further slowdowns in commercial OEM and aftermarket orders, especially in light
of the impact on the commercial airline industry resulting from the tragic
events of September 11, 2001. However, an increase in orders is anticipated in
the military and defense market. The Company expects to continue to take the
necessary actions to appropriately structure the Aerospace operations to operate
in their
-11-
current economic environment. Such actions may include the necessity to record
additional business realignment charges in fiscal 2002.
OTHER - Net Sales of the Other Segment for the first quarter of fiscal 2002
increased 58.4 percent to $216.2 million compared to $136.6 million in the
prior-year first quarter. Without the effect of acquisitions and the inclusion
of the results from businesses previously classified as assets held for sale
(see Note 10 on page 9 for further discussion), sales decreased 5.4 percent as a
result of lower demand across virtually all businesses. Operating income
increased 43.2 percent to $17.0 million compared to $11.9 million in the prior
year. Included in the current-year operating income was $0.5 million in
business realignment charges and included in the prior-year operating income was
$1.1 million in goodwill amortization. Excluding the business realignment
charges and goodwill amortization, operating income, as a percent of sales,
decreased to 8.1 percent from 9.5 percent primarily due to recent acquisitions
and the inclusion of the results from businesses previously classified as assets
held for sale, which have not yet been fully integrated, contributing lower
margins.
Backlog for the Other Segment increased 14.1 percent compared to a year ago and
increased 0.3 percent since June 30, 2001. Backlog increased primarily due to
the inclusion of backlog from businesses previously classified as assets held
for sale, offset by a decrease in order rates by businesses that produce motion-
control and fluid power system components for use primarily in the
transportation industry. For the remainder of fiscal year 2002, business
conditions are expected to be the same as those experienced in the first quarter
with some improvement anticipated in the second half of the fiscal year. The
second half improvement assumes several markets within the Other Segment
experience an increase in demand resulting from an economic stimulus package
provided by the federal government, although no assurance can be given that the
stimulus package will create such demand.
Corporate general and administrative expenses decreased to $16.9 million for
fiscal 2002 compared to $17.4 million in the prior year. As a percent of sales,
corporate general and administrative expenses for the current-year quarter
decreased slightly to 1.1 percent compared to 1.2 percent in the prior year.
Included in Other expense (income) (in the Business Segment Results by Industry)
for fiscal 2001 is a $55.5 million gain realized on the sale of real property
and $7.7 million of certain asset impairments.
BALANCE SHEET
Working capital declined to $746.4 million at September 30, 2001 from $783.2
million at June 30, 2001, with the ratio of current assets to current
liabilities decreasing to 1.5:1. The decrease was primarily due to the
reclassification of Net assets held for sale into their respective individual
line items and an increase in Notes payable, partially offset by an increase in
Inventories.
Restricted investments are funds held in a separate trust account to be used
primarily to pay claims related to various vehicle service contract programs
marketed by the extended care warranty businesses acquired as part of Wynn's
International. The corresponding reserve for estimated future warranty claims
to which the trust account relates is included in Accrued liabilities and Other
liabilities.
Accounts receivable decreased slightly to $921.0 million at September 30, 2001
from $922.3 million at June 30, 2001, primarily due to a reduction in volume
experienced in the Industrial operations, mostly offset by acquisitions and the
reclassification of businesses previously held for sale. Days sales outstanding
increased to 51 days from 49 days during the quarter. Inventories increased
$38.8 million since June 30, 2001, primarily the result of acquisitions and the
reclassification of businesses previously held for sale, with months supply
increasing slightly.
Net assets held for sale at June 30, 2001 included the metal forming business,
which was acquired as part of Commercial Intertech in fiscal 2000, and the
specialty chemical and warranty businesses, which
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were acquired as part of Wynn's International in fiscal 2001. During the first
quarter of fiscal 2002, the Company completed the divestiture of the metal
forming business and suspended its efforts to sell the specialty chemical and
warranty businesses. As such, the net assets of the specialty chemical and
warranty businesses are presented in the Consolidated Balance Sheet as of
September 30, 2001 in their respective individual line items.
Plant and equipment, net of accumulated depreciation, increased $51.5 million
since June 30, 2001, primarily as a result of acquisitions and capital
expenditures which exceeded depreciation.
The increase in Goodwill since June 30, 2001 reflects the goodwill recognized
from fiscal 2002 acquisitions and the reclassification of businesses previously
held for sale. In July 2001, the Company adopted SFAS No. 142 and therefore,
future amortization of goodwill has been discontinued.
The debt to debt-equity ratio increased slightly to 36.1 percent at September
30, 2001 compared to 35.7 percent as of June 30, 2001.
Other liabilities increased $104.6 million since June 30, 2001, primarily the
result of the reclassification of businesses previously held for sale.
Due to the weakness of the dollar, foreign currency translation adjustments
resulted in an increase in net assets of $10.9 million during the first quarter
of fiscal 2002. The translation adjustments primarily affected Accounts
receivable, Inventories, Goodwill, Plant and equipment and Long-term debt.
STATEMENT OF CASH FLOWS
Net cash provided by operating activities was $203.1 million for the three
months ended September 30, 2001, as compared to $20.0 million for the same three
months of 2000. The increase in net cash provided was primarily the result of
activity within the working capital items - Accounts receivable, Inventories,
Net assets held for sale and Accounts payable, trade - which provided cash of
$96.6 million in fiscal 2002 compared to using cash of $117.5 million in fiscal
2001. In addition, cash provided by operating activities excluded a (Gain) on
sale of plant and equipment of $0.1 million in fiscal 2002 compared to $58.2
million in fiscal 2001 and Other assets provided cash of $14.3 million in fiscal
2002 after using cash of $28.4 million in fiscal 2001. These providers of cash
were partially offset by a decrease in Net income of $64.5 million, a decrease
in amortization of $13.4 million and a net change in Deferred income taxes of
$31.3 million.
Net cash used in investing activities decreased to $204.6 million for fiscal
2002 compared to $480.0 million for fiscal 2001 primarily due to a decrease of
$350.4 million in the amount spent on acquisitions and a decrease in capital
expenditures of $6.8 million. These uses of cash were partially offset by a
decrease in the proceeds received from the sale of plant and equipment of $61.8
million in fiscal 2002.
Financing activities provided net cash of $15.0 million for the three months
ended September 30, 2001, compared to providing cash of $448.4 million for the
same three months of the prior year. The change resulted primarily from debt
borrowings providing cash of $35.8 million in fiscal 2002 compared to providing
cash of $466.0 million in the prior year. The decrease in debt borrowings in
fiscal 2002 was primarily due to a lower level of acquisition activity.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company enters into forward exchange contracts, costless collar contracts,
interest-rate swap agreements and cross-currency swap agreements to reduce its
exposure to fluctuations in related foreign currencies and interest rates.
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
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Company as a result of these arrangements as well as the market risk of changes
in near term interest rates is not material to the Company's financial position,
liquidity or results of operations.
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 to 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 or from major
customers or suppliers, including delays or cancellations in shipments,
. ability of suppliers to provide materials as needed,
. uncertainties surrounding timing, successful completion or integration of
acquisitions,
. competitive market conditions and resulting effects on sales and pricing,
. increases in raw-material and other production costs that cannot be
recovered in product pricing,
. threats associated with terrorism,
. difficulties in introducing new products and entering new markets, and
. uncertainties surrounding the global economy and global market conditions,
including the federal government's policies to stimulate the economy,
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 6. Exhibits and Reports on Form 8-K.
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(a) There are no exhibits for the quarter for which this Report is filed.
(b) The Registrant filed a report on Form 8-K on September 26, 2001 to
file under Item 5 its earnings release for the fiscal year ended June 30, 2001.
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
Executive Vice President - Finance and
Administration and Chief Financial Officer
Date: November 12, 2001
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