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Parker Reports 4.5-Percent Increase in Fiscal Q2 Net Income; EPS of 68 Cents

January 16, 2001

Order Trends Suggest Moderation in Earnings Growth in Fiscal Q3 and Full Year

CLEVELAND, Jan. 16 /PRNewswire/ -- Parker Hannifin Corporation (NYSE: PH) today reported a 4.5-percent increase in its fiscal second-quarter net income for the period ended December 31, 2000. "We are pleased with these results, given that many of our domestic customers placed holds on shipments scheduled at the end of the calendar year," said Chairman and CEO Duane Collins. "The acquisitions we made last year are contributing to earnings, and in every case, integration is progressing well."

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

Net income for the quarter was $78.3 million, or 68 cents per diluted share, matching the 68 cents earned last year on net income of $75.0 million. The per-share results for the current period reflect an additional 4.6 million shares outstanding, which were primarily issued in connection with recent acquisitions. The company said sales and earnings for the quarter were running ahead of company expectations up until mid-December, when customers delayed approximately $30 million in shipments. Interest expense, which increased over the prior year quarter by more than $11.6 million, also was a factor. Before interest and other expenses, operating income for the company was up 17 percent.

"With the slowing North American Industrial order trend noted in past months, we remained lean on inventories," Collins said. "In December, we initiated spending cuts and selected workforce adjustments for the remainder of the fiscal year. While the late-December drop-off was a bit sudden, we're certainly prepared to manage through this climate, and are encouraged by the prospect of further interest-rate relief."

Sales for the quarter were $1.46 billion, up from $1.24 billion last year, reflecting rebounding activity in the Aerospace and International Industrial segments, as well as sales from recent acquisitions. Currency translation offset a substantial portion of the volume gains achieved in the international business, where continued strength was noted in Latin America and the Asia- Pacific region. In the company's North American Industrial business, further growth in the semiconductor, filtration and telecommunications markets was offset by softening in the heavy-duty truck, automotive and refrigeration industries.

Parker Aerospace posted a 38-percent increase in operating income, taking its operating margin to 17.4 percent. The North American Industrial segment also reported higher operating income, up 17 percent with a 12.3-percent operating margin. In the International Industrial segment, profits were negatively affected by the Euro and recent acquisitions, resulting in an operating margin of 6.4 percent. Without acquisitions, the international margin improved to 7.6 percent.


In the second half of fiscal 2001, the company said it plans to record further operating realignment charges and pursue early retirement of higher- interest debt, largely offsetting the gain recorded on the sale of property in the first quarter.

The outlook points to a moderation in earnings growth in the second half, due to weakening North American Industrial order trends. Excluding unusual items, the company currently expects per-share results for the quarter ended March 31 to range from $0.88 to $1.00, with results for the full fiscal year ranging from $3.30 to $3.55.

"We think these are prudent ranges given current economic uncertainty," said Collins. "Hopefully, these ranges will assist our shareholders and investors relative to performance expectations." In addition, the company noted that it discloses monthly orders several business days after the close of each month. This information is also available on the company's investor information web site.

With annual sales of $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 46 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 .

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call to discuss its fiscal second-quarter results is available to all interested parties via live webcast at 10:30 a.m. ET, on the company's investor information web site, www.phstock.com . To access the call, click on the "Live Webcast" link. From this link, users may also complete a pre-call system test and register for e-mail notification of future events and information available from Parker.

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 company's future performance and earnings projections may differ materially from current expectations expressed in these forward-looking statements, due to a variety of factors such as changes in: business relationships with and purchases by or from major customers or suppliers, including delays or cancellations in shipments; competitive market conditions and resulting effects on sales and pricing; increases in raw-material costs which cannot be recovered in product pricing; and global economic factors, including currency exchange rates and difficulties entering new markets and general economic conditions, including interest rate levels. In each quarterly earnings report, the company intends to provide a range stating expected earnings per share for the succeeding quarter and full fiscal year, reflecting these ranges as estimates of diluted earnings per share before unusual items. The company reserves the right to update the earnings projections for any reason during the quarter, including the occurrence of material events.


    (Unaudited)                Three Months Ended         Six Months Ended
    (Dollars in thousands          December 31,              December 31,
     except per share
     amounts)                   2000         1999         2000         1999

    Net sales               $1,460,076   $1,239,207   $2,937,442   $2,481,500
    Cost of sales            1,144,821      971,298    2,296,085    1,947,919
    Gross profit               315,255      267,909      641,357      533,581
    Selling, general and
     expenses                  169,596      140,157      332,037      278,305
    Income from operations     145,659      127,752      309,320      255,276
    Other income
       Interest expense        (25,607)     (14,028)     (46,775)     (28,571)
       Interest and other
        income, net              1,364          724       52,741          100
      Total                    (24,243)     (13,304)       5,966      (28,471)
    Income before income
     taxes                     121,416      114,448      315,286      226,805
    Income taxes                43,102       39,485      111,926       78,248
    Net income                 $78,314      $74,963     $203,360     $148,557

    Earnings per share:
       Basic earnings per
        share                     $.68         $.69        $1.78        $1.36
       Diluted earnings
        per share                 $.68         $.68        $1.77        $1.35

    Average shares
     outstanding during
     period - Basic        114,007,029  109,188,711  113,968,357  109,129,000
    Average shares
     outstanding during
     period - Diluted      114,831,139  110,205,954  114,696,560  110,150,338

    Cash dividends per
     common share                 $.17         $.17         $.34         $.34

                                 Three Months Ended        Six Months Ended
    (Unaudited)                      December 31,             December 31,
    (Dollars in thousands)        2000        1999        2000        1999
    Net sales
           North America        $829,357    $658,542  $1,705,607  $1,326,211
           International         336,294     303,918     667,022     602,381
        Aerospace                294,425     276,747     564,813     552,908
    Total                     $1,460,076  $1,239,207  $2,937,442  $2,481,500

    Segment operating income
           North America        $101,612     $87,200    $218,803    $180,883
           International          21,441      21,787      47,318      32,999
        Aerospace                 51,097      36,939      95,373      71,987
    Total segment operating
     income                      174,150     145,926     361,494     285,869
    Corporate general and
     administrative expenses      20,346      14,087      37,730      28,200
    Income from operations
     before interest
     expense and other           153,804     131,839     323,764     257,669
    Interest expense              25,607      14,028      46,775      28,571
    Other                          6,781       3,363     (38,297)      2,293
    Income before income
     taxes                      $121,416    $114,448    $315,286    $226,805

    (Dollars in thousands)   December 31,           2000              1999
    Current assets:
    Cash and cash equivalents                      $71,529           $74,353
    Accounts receivable, net                       870,510           692,357
    Inventories                                  1,065,313           915,037
    Prepaid expenses                                36,455            19,021
    Deferred income taxes                           83,296            66,722
    Assets held for sale                           239,356                 -
    Total current assets                         2,366,459         1,767,490
    Plant and equipment, net                     1,496,932         1,214,202
    Other assets                                 1,444,980           740,719
    Total assets                                $5,308,371        $3,722,411

    Liabilities and shareholders' equity
    Current liabilities:
    Notes payable                                 $540,368           $61,123
    Accounts payable                               378,778           253,798
    Accrued liabilities                            403,053           299,742
    Accrued domestic and foreign taxes              55,945            39,130
    Total current liabilities                    1,378,144           653,793
    Long-term debt                                 981,953           713,592
    Pensions and other postretirement
     benefits                                      307,226           279,760
    Deferred income taxes                          104,144            31,247
    Other liabilities                               79,759            75,075
    Shareholders' equity                         2,457,145         1,968,944
    Total liabilities and shareholders'
     equity                                     $5,308,371        $3,722,411

    (Unaudited)                                 Six Months Ended December 31,
    (Dollars in thousands)                          2000              1999

    Cash flows from operating activities:
    Net income                                    $203,360          $148,557
    Depreciation and amortization                  133,554           106,962
    Net change in receivables,
     inventories, and trade payables               (47,160)          (14,099)
    Net change in other assets and
     liabilities                                   (76,757)          (21,637)
    Other, net                                     (38,281)           (6,531)
    Net cash provided by operating
     activities                                    174,716           213,252
    Cash flows from investing activities:
    Acquisitions (less cash acquired of
     $8,255 in 2000
     and $2,609 in 1999)                          (485,235)           (5,711)
    Capital expenditures                          (169,573)         (114,114)
    Other, net                                     100,772            (9,897)
    Net cash used in investing activities         (554,036)         (129,722)
    Cash flows from financing activities:
    Net proceeds from common share
     activity                                        3,892             3,649
    Net proceeds from (payments for) debt          418,547            (5,698)
    Dividends                                      (38,731)          (37,081)
    Net cash provided by (used in)
     financing activities                          383,708           (39,130)
    Effect of exchange rate changes on
     cash                                           (1,319)           (3,324)
    Net increase in cash and cash
     equivalents                                     3,069            41,076
    Cash and cash equivalents at
     beginning of period                            68,460            33,277
    Cash and cash equivalents at end of
     period                                        $71,529           $74,353

SOURCE Parker Hannifin Corporation

CONTACT: Media, Lorrie Paul Crum, VP - Corp. Communications, 216-896- 2750, or lcrum@parker.com, or Financial Analysts, Timothy K. Pistell, Treasurer, 216-896-2130, or tpistell@parker.com, both of Parker Hannifin Corporation/

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