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Parker Profit Improves Despite Flat Sales; Cash Flow Remains Strong

July 29, 2003

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CLEVELAND, Jul 29, 2003 /PRNewswire-FirstCall via COMTEX/ -- Parker Hannifin Corporation (NYSE: PH) today reported fourth-quarter net income for the period ended June 30, 2003 of $49.1 million, or 42 cents per diluted share, on sales of $1.66 billion. Net income during the quarter was reduced by six cents per share in realignment costs, partially offset by a gain of four cents per share on the sale of a non-core business. For the same period last year, the company reported a quarterly net loss of $11.9 million -- 10 cents per diluted share - - on sales of $1.66 billion. Last year's fourth-quarter net loss included 44 cents per diluted share in business-realignment costs and asset impairments.

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

Net income for the full year was up 51 percent, at $196.3 million, or $1.68 per diluted share, including the four-cent per share divestiture gain and 16 cents per share in realignment costs. The company posted record revenues of $6.41 billion for the full year, although without acquisitions, divestitures made in fiscal-year 2002 and a favorable currency effect from business outside the United States, sales would have been down by one percent. In fiscal-year 2002, net income was $130.2 million, or $1.12 per diluted share, including a reduction of 25 cents per share in realignment costs and 32 cents per share in goodwill impairment.

"It was another difficult year in our industrial and aerospace markets, and we again absorbed a substantial increase in pension, insurance and medical costs," said Parker CEO Don Washkewicz. "Yet we still achieved margin improvement this year in all segments except aerospace. Clearly, execution of our Win Strategy is beginning to pay off, and we expect it to make another positive contribution to profitability in the coming year."

The company again had strong cash flow from operations, running at a rate of 10 percent of sales, and used a portion of cash generated during the year to contribute $108 million to its pension plans, consistent with its commitment to maintaining well funded plans for employees. Robust cash flow also enabled the company to pay down $146 million of debt and continue its 47- year record of returning higher dividends to shareholders. As of year end, the company had $246 million in cash, and is well positioned to invest in growth.

"We're managing our cash-to-cash cycle very well, and with our lean enterprise initiatives, we further reduced the number of days' inventory and capital expenditures this year," Washkewicz said. "In terms of realigning the business during the recession, we've closed more than 80 facilities in the past three years."

Operating Results

Industrial, mobile and aerospace demand remained severely depressed, with recent weakening in agriculture and air-conditioning markets. In aerospace, the company noted that JetBlue's recent order for 100 Embraer-190 jets is a positive for the company, as was another order by US Airways in May for regional jets. "In the aerospace business, we're concentrating on taking care of our customers, and engineering the best systems," said Washkewicz. "We continue to enjoy success by first positioning ourselves as a global engineering partner and systems integrator, and serving our customers well in the aftermarket, evidenced by Parker's recent top-five ranking among 35 different Airbus suppliers."

In the North American Industrial units, fourth-quarter operating income of $34.6 million was 11.6 percent lower than last year, while sales were 6.8 percent lower, at $716 million, consistent with the decline since March in North American order trends. Full-year operating income in this segment was up 10 percent, at $155.3 million on marginally higher revenues of $2.84 billion, for an operating margin of 5.5 percent.

In the International Industrial businesses, fourth-quarter operating income was $23.5 million on sales of $428.4 million, for an operating margin of 5.5 percent. For the year, the international businesses recorded sales of $1.58 billion, with operating income of $96.3 million, a 6.1-percent operating margin.

In the company's Climate & Industrial Controls business, which previously was included in the "Other" segment, fourth-quarter operating income was $19.1 million on sales of $181.4 million, a 10.5 percent return on sales. The business generated full-year operating income of $63.4 million on sales of $665.6 million, a return on sales of 9.5 percent.

Parker Aerospace saw a 3.5-percent drop in fourth-quarter sales to $276.8 million, while operating income fell nine percent to $34 million, for a return on sales of 12.3 percent. For the year, operating income in the aerospace business was $157.3 million on sales of $1.11 billion, a 14.2-percent return on sales.

In the "Other" segment, comprised of the Wynn Specialty Chemical and Astron metal buildings units, quarterly operating income was $4.6 million on $58 million in sales, for an operating margin of 8.0 percent. Full-year sales were $210.3 million, and operating income was $11.6 million, for a return on sales of 5.5 percent.


In the future, the company will provide guidance using a range of expected rate-of-change percentages (up or down from the prior year) for revenue and operating income by segment, in addition to assumptions for non-operating items such as administrative costs, interest expense and tax rates. The aim is for investors to supplement this information with real-time economic data, including the company's monthly disclosure of order rates, to factor into analytical models.

For fiscal-year 2004, the company said it expects sales to grow marginally, while further improvement in operating margins is expected for every segment except aerospace. A new table entitled "Outlook" is attached to provide detail on sales and operating-margin expectations by business segment, in addition to assumptions regarding non-operating items.

Washkewicz said the company has assumed no economic recovery in its plans for the new fiscal year. "So far, the only bright spots are the strong growth rates we're seeing in Asia and Latin America. Going forward, now that the financial performance initiatives of our Win Strategy are in place throughout our business worldwide, we will be placing additional emphasis on the growth goal of the Win Strategy." He noted that the company has established new funding priorities and incentive measures to stimulate investment in and increase its yield from organic growth, with a stronger focus on innovation.

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 www.phstock.com .

With annual sales exceeding $6 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 45,000 people in 44 countries around the world. For more information, visit the company's web site at www.parker.com, or its investor information site at www.phstock.com .

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 initiatives. A change in economic conditions in individual markets may have a particularly volatile effect on segment projections. 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; and global economic factors, including currency exchange rates, difficulties entering new markets and general economic conditions such as interest rates. The company makes these statements as of the date of this disclosure, and undertakes no obligation to update them.


                           Three Months Ended June 30,  Year Ended June 30,
    (Dollars in thousands
     except per share amounts)  2003         2002         2003         2002

    Net sales               $1,660,661   $1,657,593   $6,410,610   $6,149,122
    Cost of sales            1,382,628    1,405,807    5,309,775    5,116,570
    Gross profit               278,033      251,786    1,100,835    1,032,552
    Selling, general and
     expenses                  185,290      223,939      721,065      726,001
    Income from operations      92,743       27,847      379,770      306,551
    Other income
       Interest expense        (22,162)     (19,551)     (81,561)     (82,484)
       Interest and other
        (expense), net           3,108       (6,298)        (827)      (6,031)
                               (19,054)     (25,849)     (82,388)     (88,515)
    Income before income
     taxes                      73,689        1,998      297,382      218,036
    Income taxes                24,607       13,848      101,110       87,886
    Net income                 $49,082     $(11,850)    $196,272     $130,150

    Earnings per share:
       Basic earnings per
        share                     $.42        $(.10)       $1.69        $1.13
       Diluted earnings
        per share                 $.42        $(.10)       $1.68        $1.12

    Average shares
     outstanding during
     period - Basic        116,509,222  115,954,864  116,381,880  115,408,872
    Average shares
     outstanding during
     period - Diluted      116,961,265  116,589,133  116,894,506  116,060,719

    Cash dividends per
     common share                 $.19         $.18         $.74         $.72


                              Three Months Ended June 30,  Year Ended June 30,
    (Dollars in thousands)         2003        2002         2003        2002
    Net sales
           North America         $716,086    $768,368  $2,840,628  $2,792,315
           International          428,429     366,203   1,584,443   1,278,694
        Aerospace                 276,825     286,807   1,109,566   1,172,608
        Climate & Industrial
         Controls                 181,356     185,408     665,629     612,533
        Other                      57,965      50,807     210,344     292,972
    Total                      $1,660,661  $1,657,593  $6,410,610  $6,149,122
    Segment operating income

           North America          $34,624     $39,184    $155,258    $141,315
           International           23,482      10,560      96,301      60,721
       Aerospace                   33,971      37,333     157,295     189,353
       Climate & Industrial
        Controls                   19,055      16,912      63,441      47,980
       Other                        4,642      (7,048)     11,584       6,663
    Total segment operating
     income                       115,774      96,941     483,879     446,032
    Corporate general and
     administrative expenses       17,992      23,172      80,147      73,335
    Income from operations
     before interest
     expense and other             97,782      73,769     403,732     372,697
    Interest expense               22,162      19,551      81,561      82,484
    Other expense (income)          1,931      52,220      24,789      72,177
    Income before income taxes    $73,689      $1,998    $297,382    $218,036

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


    (Dollars in thousands)   June 30,               2003              2002
    Current assets:
    Cash and cash equivalents                     $245,850           $46,384
    Accounts receivable, net                     1,002,060         1,006,313
    Inventories                                    997,167         1,051,968
    Prepaid expenses                                51,949            48,532
    Deferred income taxes                           99,781            82,421
    Total current assets                         2,396,807         2,235,618
    Plant and equipment, net                     1,657,425         1,696,965
    Goodwill                                     1,108,610         1,083,768
    Intangible assets, net                          59,444            51,286
    Other assets                                   763,347           684,946
    Total assets                                $5,985,633        $5,752,583

    Liabilities and shareholders' equity
    Current liabilities:
    Notes payable                                 $424,235          $416,693
    Accounts payable                               437,103           443,525
    Accrued liabilities                            497,295           451,310
    Accrued domestic and foreign taxes              65,094            48,309
    Total current liabilities                    1,423,727         1,359,837
    Long-term debt                                 966,332         1,088,883
    Pensions and other postretirement
     benefits                                      920,420           508,313
    Deferred income taxes                           20,780            76,955
    Other liabilities                              133,463           135,079
    Shareholders' equity                         2,520,911         2,583,516
    Total liabilities and shareholders'
     equity                                     $5,985,633        $5,752,583

                                                      Year Ended June 30,
    (Dollars in thousands)                          2003              2002

    Cash flows from operating activities:
    Net income                                    $196,272          $130,150
    Depreciation and amortization                  259,178           281,598
    Net change in receivables,
     inventories, and trade payables               140,625           171,078
    Net change in other assets and
     liabilities                                   (66,397)            1,371
    Other, net                                      27,811            46,849
    Net cash provided by operating
     activities                                    557,489           631,046
    Cash flows from investing activities:
    Acquisitions (less cash acquired of
     $196 in 2003 and $3,118 in 2002)              (16,648)         (388,315)
    Capital expenditures                          (158,260)         (206,564)
    Other, net                                      37,723           (13,839)
    Net cash (used in) investing
     activities                                   (137,185)         (608,718)
    Cash flows from financing activities:
    Net proceeds from common share
     activity                                        9,386            20,250
    Net (payments of) proceeds from debt          (145,764)           61,711
    Dividends                                      (85,833)          (82,838)
    Net cash (used in) financing
     activities                                   (222,211)             (877)
    Effect of exchange rate changes on
     cash                                            1,373             1,368
    Net increase  in cash and cash
     equivalents                                   199,466            22,819
    Cash and cash equivalents at
     beginning of period                            46,384            23,565
    Cash and cash equivalents at end of
     period                                       $245,850           $46,384
    Non-cash transactions:
      Stock issued for acquisitions                                  $13,081

Outlook: Parker Hannifin Corporation: Next quarter versus same quarter last year

     Segments: Sales Growth vs. FY 2003

     Industrial North America        2.0%       to     5.0%
     Industrial ROW                  5.0%       to     8.0%
     Aerospace                      -8.0%       to    -5.0%
     Climate & Industrial Controls  -3.0%       to     0.0%
     Other                           2.0%       to     5.0%

     Segments: Operating Income Change vs. FY 2003

     Industrial North America       20.0%      to     30.0%
     Industrial ROW                 20.0%      to     30.0%
     Aerospace                     -30.0%      to    -15.0%
     Climate & Industrial Controls   0.0%      to     10.0%
     Other                          10.0%      to     20.0%


     Corporate Admin.        + or -    5%    vs.    FY 2003
     Interest Expense        + or -    5%    vs.    FY 2003
     Other                             same as FY 2003
     Tax Rate                              34.5%

     Earnings per diluted share are expected to be 20% to 30% below the first
      quarter of FY 2003

SOURCE Parker Hannifin Corporation

Media, Lorrie Paul Crum, VP - Corp. Communications, +1-216-896-2750, or After hours, +1-330-666-4196, or lcrum@parker.com, or Financial Analysts, Pamela Huggins, VP & Treasurer, +1-216-896-2240, or phuggins@parker.com, both of Parker Hannifin

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