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Parker Hannifin Reports Record Year-End Sales, Earnings, and Cash Flow From Operations; Announces Q4 EPS up 31 Percent to $1.34

July 28, 2005

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CLEVELAND, July 28 /PRNewswire-FirstCall/ -- Parker Hannifin Corporation (NYSE: PH) today reported new records in sales, earnings and cash flow from operations for fiscal-year 2005. Sales topped $8 billion for the first time in the company's 87-year history; diluted earnings per share for the year were also at an all-time high; and cash flow from operations reached a record $871.8 million, or 10.6 percent of sales, surpassing last year's record of $649.5 million, or 9.3 percent of sales.

(Logo: http://www.newscom.com/cgi-bin/prnh/19990816/PHLOGO)

For the full year, Parker posted a 63-percent increase in income from continuing operations, at $548.0 million, or a 61-percent increase in earnings per diluted share of $4.55. Revenues reached a record $8.22 billion, up 17 percent. Last year, the company earned $336.2 million from continuing operations, or $2.82 per diluted share, on sales of $7.0 billion. Income from discontinued operations for fiscal 2005 was $56.7 million, or 47 cents per diluted share, which includes profit from operations and the gain on the divestiture of the Wynn Oil specialty chemicals business.

Fourth-quarter income from continuing operations increased 32 percent to $161.4 million, or a 31-percent increase in earnings per diluted share of $1.34 on sales of $2.21 billion for the period ended June 30, 2005, compared to income from continuing operations of $122.6 million, or $1.02 cents per diluted share on sales of $1.96 billion in the same period last year.

"We have just completed an exceptional year, driving significant shareholder value as evidenced by our Return on Invested Capital (ROIC), which should rank us among the upper tier of our peer group. We demonstrated that Parker can achieve significant growth, and produce the cash to invest in yet another year of strong results in fiscal 2006," said Chairman and CEO Don Washkewicz. "Parker employees made an incredible effort to execute our Win Strategy, and we have a solid foundation in place to build the future of our company. This will be seen as another great period in Parker's rich history of profitable growth."

Segment Results

In the North American Industrial segment, fourth-quarter operating income improved 16 percent to $128.4 million on sales of $940.1 million. For the full year, North American Industrial operating income was up 61 percent to $468.2 million on sales of $3.52 billion.

The International Industrial segment fourth-quarter operating income increased 36 percent to $76.0 million on sales of $642.9 million. For the full year, International Industrial operating income was up 67 percent to $267.2 million on sales of $2.40 billion.

In the company's Climate & Industrial Controls segment, fourth-quarter operating income increased six percent to $23.6 million on sales of $225.5 million. For the full year, the Climate & Industrial Controls segment recorded operating income up four percent to $74.8 million on sales of $794.3 million.

Aerospace reported a fourth-quarter increase in operating income of 24 percent to $54.4 million on sales of $364.0 million. For the full year, Aerospace reported operating income up 26 percent to $199.2 million on sales of $1.36 billion.

In the "Other" segment, comprised of Astron metal buildings, fourth- quarter operating income was $4.6 million on sales of $38.0 million. Full year operating income was up 127 percent to $18.5 million on sales of $146.3 million.


In fiscal year 2006, Parker for the first time will be expensing equity based compensation as required by FAS 123R. Without the impact of this accounting change, the fiscal-year 2006 earnings from continuing operations are projected to range from $5.00 to $5.40 per diluted share. With the impact of the accounting change, the company projects earnings from continuing operations for fiscal-year 2006 to range from $4.80 to $5.25 per diluted share, including an expense of approximately 15 to 20 cents per diluted share related to FAS 123R. Removal of the FAS 123R accounting change allows investors and the company to meaningfully evaluate future projected performance on a comparable basis with prior periods which were not impacted by the accounting change.

"Nearly all of our major end markets are performing very well and we are particularly pleased with the strong demand we're seeing in Aerospace. The performance of our traditional markets, plus the potential of our new growth platforms, lead us to project another year of solid sales and earnings in fiscal 2006," added Washkewicz.

"Going forward, we will continue to drive our Win Strategy goals of premier customer service and financial performance; with an even greater emphasis on profitable growth.

"Our focus for fiscal 2006 is on growth through innovation. We have the financial capacity to expand our business through strategic acquisitions and we plan to increase our investment in new product development, all in an effort to best serve our customers."

In addition to the information provided herein, Parker advises shareholders to note order trends, for which the company makes a disclosure several business days after the conclusion of each month. This information is available on the company's investor information web site, at http://www.phstock.com.

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal fourth-quarter results is available to all interested parties via live webcast today at 10:00 a.m. ET, on the company's investor information web site, http://www.phstock.com. To access the call, click on the "Live Webcast" link. From this link, users also may complete a pre-call system test and register for e-mail notification of future events and information available from Parker.

With annual sales exceeding $8 billion, Parker Hannifin is the world's leading diversified manufacturer of motion and control technologies and systems, providing precision-engineered solutions for a wide variety of commercial, mobile, industrial and aerospace markets. The company employs more than 50,000 people in 46 countries around the world. Parker has increased its annual dividends paid to shareholders for 49 consecutive years, among the top five longest-running dividend-increase records in the S&P 500 index. For more information, visit the company's web site at http://www.parker.com, or its investor information site at http://www.phstock.com.

Forward-Looking Statements:

Forward-looking statements contained in this and other written and oral reports are made based on known events and circumstances at the time of release, and as such, are subject in the future to unforeseen uncertainties and risks. All statements regarding future performance, earnings projections, events or developments are forward-looking statements. It is possible that the future performance and earnings projections of the company and individual segments may differ materially from current expectations, depending on economic conditions within both its industrial and aerospace markets, and the company's ability to achieve anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins, and growth and innovation initiatives. A change in economic conditions in individual markets may have a particularly volatile effect on segment results. Among the other factors which may affect future performance are: changes in business relationships with and purchases by or from major customers or suppliers, including delays or cancellations in shipments; uncertainties surrounding timing, successful completion or integration of acquisitions; threats associated with and efforts to combat terrorism; competitive market conditions and resulting effects on sales and pricing; increases in raw- material costs that cannot be recovered in product pricing; the company's ability to manage costs related to employee retirement and health care benefits and insurance; and global economic factors, including currency exchange rates, difficulties entering new markets and general economic conditions such as inflation and interest rates. The company makes these statements as of the date of this disclosure, and undertakes no obligation to update them.


    (Dollars in thousands except per share amounts)

                          Three Months Ended June 30,    Year ended June 30,
                               2005         2004          2005         2004

    Net sales               $2,210,532   $1,964,259   $8,215,095   $6,998,761
    Cost of sales            1,738,471    1,549,313    6,508,111    5,672,294
    Gross profit               472,061      414,946    1,706,984    1,326,467
    Selling, general and
     administrative expenses   235,926      222,642      872,113      776,535
    Other income
       Interest expense        (16,410)     (16,972)     (67,030)     (73,219)
      Other (expense)
       income, net                (267)       6,601      (11,368)       3,413
                               (16,677)     (10,371)     (78,398)     (69,806)
    Income from continuing
     operations before
     income taxes              219,458      181,933      756,473      480,126
    Income taxes                58,046       59,381      208,500      143,953
    Income from continuing
     operations                161,412      122,552      547,973      336,173
    Discontinued operations                   2,921       56,719        9,610
    Net income                $161,412     $125,473     $604,692     $345,783

    Earnings per share:
       Basic earnings per
        share from continuing
        operations               $1.36        $1.04        $4.61        $2.86
       Discontinued operations                  .02          .48          .08
       Basic earnings per share  $1.36        $1.06        $5.09        $2.94
       Diluted earnings per
        share from continuing
        operations               $1.34        $1.02        $4.55        $2.82
       Discontinued operations                  .03          .47          .09
       Diluted earnings
        per share                $1.34        $1.05        $5.02        $2.91

    Average shares
     outstanding during
     period - Basic        118,816,542  118,194,932  118,794,564  117,707,772
    Average shares
     outstanding during
     period - Diluted      120,191,274  119,614,996  120,449,006  119,006,468

    Cash dividends per
     common share                 $.20         $.19         $.78         $.76

    Note:  Certain prior period amounts have been reclassified to conform to
           the current year presentation.

    (Dollars in thousands)

                            Three Months Ended June 30,   Year ended June 30,
                                 2005        2004           2005        2004
    Net sales
           North America         $940,071    $848,392  $3,516,627  $3,016,820
           International          642,902     564,824   2,398,439   1,969,727
        Aerospace                 364,022     326,846   1,359,431   1,215,920
        Climate & Industrial
         Controls                 225,501     189,337     794,308     671,157
        Other                      38,036      34,860     146,290     125,137
    Total                      $2,210,532  $1,964,259  $8,215,095  $6,998,761

    Segment operating income
           North America         $128,409    $110,296    $468,213    $290,783
           International           76,040      55,833     267,207     159,641
       Aerospace                   54,408      43,986     199,187     157,946
       Climate & Industrial
        Controls                   23,602      22,364      74,843      71,769
       Other                        4,556       5,389      18,452       8,138
    Total segment operating
     income                      $287,015    $237,868  $1,027,902    $688,277
    Corporate general and
     administrative expenses       32,414      32,840     111,832     106,281
    Income from continuing
     operations before interest
     expense and other            254,601     205,028     916,070     581,996
    Interest expense               16,410      16,972      67,030      73,219
    Other expense                  18,733       6,123      92,567      28,651
    Income from continuing
     operations before income
     taxes                       $219,458    $181,933    $756,473    $480,126

    Note:  Certain prior period amounts have been reclassified to conform to
           the current year presentation.

    (Dollars in thousands)

                    June 30,                       2005              2004
    Current assets:
    Cash and cash equivalents                     $336,080          $183,847
    Accounts receivable, net                     1,241,029         1,174,601
    Inventories                                  1,030,962           976,258
    Prepaid expenses                                49,956            43,907
    Deferred income taxes                          127,845           112,828
    Total current assets                         2,785,872         2,491,441
    Plant and equipment, net                     1,591,917         1,585,989
    Goodwill                                     1,443,811         1,177,532
    Intangible assets, net                         239,891           102,085
    Other assets                                   837,470           826,262
    Net assets of discontinued operations                             51,924
    Total assets                                $6,898,961        $6,235,233

    Liabilities and shareholders' equity
    Current liabilities:
    Notes payable                                  $31,962           $35,198
    Accounts payable                               584,253           525,113
    Accrued liabilities                            613,881           555,303
    Accrued domestic and foreign taxes             105,831           123,030
    Total current liabilities                    1,335,927         1,238,644
    Long-term debt                                 938,424           953,796
    Pensions and other postretirement benefits   1,058,814           813,635
    Deferred income taxes                           35,911            79,028
    Other liabilities                              189,738           167,676
    Shareholders' equity                         3,340,147         2,982,454
    Total liabilities and shareholders' equity  $6,898,961        $6,235,233

    Note:  Certain prior period amounts have been reclassified to conform to
           the current year presentation.

    (Dollars in thousands)

                                                      Year ended June 30,
                                                    2005              2004

    Cash flows from operating activities:
    Net income                                    $604,692          $345,783
    Net (income) from discontinued operations      (56,719)           (9,610)
    Depreciation and amortization                  264,699           251,753
    Net change in receivables, inventories,
     and trade payables                             36,028            14,246
    Net change in other assets and liabilities       5,965            53,810
    Other, net                                      17,150            (6,498)
    Net cash provided by operating activities      871,815           649,484
    Cash flows from investing activities:
    Acquisitions (net of cash of $21,720
     in 2005 and $63,691 in 2004)                 (558,569)         (200,314)
    Capital expenditures                          (156,567)         (140,138)
    Proceeds from sale of business                 120,000            33,213
    Other, net                                      30,576            36,978
    Net cash (used in) investing activities       (564,560)         (270,261)
    Cash flows from financing activities:
    Net (payments for) proceeds from
     common share activity                         (23,724)           56,223
    Net (payments of) debt                         (21,202)         (415,428)
    Dividends                                      (92,612)          (89,286)
    Net cash (used in) financing activities       (137,538)         (448,491)
    Net cash (used in) provided by
     discontinued operations                       (19,004)           12,969
    Effect of exchange rate changes on cash          1,520            (5,704)
    Net increase (decrease) in cash and
     cash equivalents                              152,233           (62,003)
    Cash and cash equivalents at
     beginning of period                           183,847           245,850
    Cash and cash equivalents at end of period    $336,080          $183,847

SOURCE Parker Hannifin Corporation

CONTACT: Media, Christopher M. Farage, VP, Corporate Communications, +1-216-896-2750, or cfarage@parker.com , or Financial Analysts, Pamela Huggins, VP & Treasurer, or +1-216-896-2240, or phuggins@parker.com , both of Parker Hannifin Corporation

Web site: http://www.phstock.com

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