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Parker's Fiscal Q2 Net Income Up 49 Percent; Cash Flow Remains Strong

January 20, 2004

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CLEVELAND, Jan. 20 /PRNewswire-FirstCall/ -- Parker Hannifin Corporation (NYSE: PH) today reported a 49-percent increase in fiscal second-quarter net income to $55.8 million, or 47 cents per diluted share, on sales of $1.62 billion for the period ended December 31, 2003. For the same period last year, the company reported quarterly net income of $37.6 million, or 32 cents per diluted share on sales of $1.52 billion.

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

"This quarter's results come from improved volume, combined with solid operating performance as we see the benefits from our strategic financial performance initiatives," said Parker CEO Don Washkewicz. "All of the company's operating segments recorded year-over-year margin improvement except Aerospace, which still achieved a double-digit operating margin."

Leading the gain was the North American Industrial segment, which improved operating margin to 7.5 percent on a five percent increase in sales. The company noted improved strength in construction, heavy-duty truck and semiconductor markets. International Industrial units increased sales 18.1 percent (attributed mostly to currency rate changes) and operating margin was 6.7 percent.

In the company's Climate & Industrial Controls segment (previously included in the "Other" segment), second-quarter sales were relatively flat while operating margin increased to 7.2 percent.

In Aerospace, sales were 1.2 percent lower and operating margin was 11.3 percent.

In the "Other" segment, comprised of Wynn Specialty Chemicals and Astron metal buildings, sales were 11.4 percent higher than the prior year second quarter (mostly the result of currency rate changes) and operating margin improved to 7.0 percent.

Year-to-Date Results

For the first six months of fiscal 2004, the company recorded net income of $112.5 million, or 95 cents per diluted share on sales of $3.21 billion. Net income is up 14.1 percent over last year's $98.5 million, or 84 cents per diluted share on sales of $3.10 billion.

The company again noted strong cash flow from operations of $378.2 million, or 12 percent of sales, and will continue to look for growth opportunities, as evidenced by its recent tender offer for shares of Denison International plc, which is expected to close in the third fiscal quarter.

"Acquisitions are still an important part of our accelerated growth plan," said Washkewicz. "We're very excited about Denison's solid, profitable performance in Europe and significant presence in Asia, especially in China. We look forward to adding the Denison product line to Parker's and expanding our total systems capabilities."


For the second half of fiscal-year 2004, the company said it expects sales in the Industrial and Other segments to increase modestly, with continued profitability improvements. Sales and margins are expected to be down slightly in the Climate & Industrial Controls segment. In Aerospace, the company said sales should stabilize, but it did not expect near-term margins to improve without a corresponding improvement in aftermarket volume.

"While we are pleased to see some improvement in this quarter's operating performance and in recent order trends, we remain hopeful market conditions will continue to improve," said Washkewicz. "Our balance sheet is getting healthier and we're staying focused on our Win Strategy to drive growth, profitability and cash flow."

NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal second-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, 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. The call will be archived on the site for two weeks.

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 46,000 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 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; 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.


    (Unaudited)                  Three Months Ended          Six Months Ended
    (Dollars in thousands           December 31,                December 31,
     except per share
     amounts)                     2003         2002         2003         2002

    Net sales               $1,621,021   $1,517,201   $3,207,939   $3,103,105
    Cost of sales            1,331,644    1,258,827    2,630,420    2,558,717
    Gross profit               289,377      258,374      577,519      544,388
    Selling, general and
     expenses                  190,090      177,142      370,294      353,397
    Other income
       Interest expense        (17,342)     (19,356)     (39,122)     (39,050)
       Interest and other
        (expense), net            (574)      (3,830)      (2,119)      (2,204)
                               (17,916)     (23,186)     (41,241)     (41,254)
    Income before income
     taxes                      81,371       58,046      165,984      149,737
    Income taxes                25,600       20,494       53,522       51,210
    Net income                 $55,771      $37,552     $112,462      $98,527

    Earnings per share:
       Basic earnings per
        share                     $.47         $.33         $.96         $.85
       Diluted earnings
        per share                 $.47         $.32         $.95         $.84

    Average shares
     outstanding during
     period - Basic        117,490,153  116,279,317  117,196,923  116,255,974
    Average shares
     outstanding during
     period - Diluted      119,003,881  117,118,546  118,386,575  116,863,141

    Cash dividends per
     common share                 $.19         $.18         $.38         $.36


    (Unaudited)                   Three Months Ended      Six Months Ended
    (Dollars in thousands)           December 31,           December 31,
                                  2003         2002       2003        2002
    Net sales
           North America         $703,071    $669,905  $1,388,412  $1,397,482
           International          441,605     373,921     863,663     739,580
        Aerospace                 271,973     275,400     538,806     552,721
        Climate & Industrial
         Controls                 144,697     144,403     300,647     309,141
        Other                      59,675      53,572     116,411     104,181
    Total                      $1,621,021  $1,517,201  $3,207,939  $3,103,105

    Segment operating income
           North America          $52,869     $27,423     $99,476     $78,468
           International           29,602      22,321      60,901      48,967
        Aerospace                  30,823      42,651      64,778      85,184
       Climate & Industrial
        Controls                   10,459       9,965      27,973      24,977
       Other                        4,162       2,480       9,896       6,312
    Total segment operating
     income                      $127,915    $104,840    $263,024    $243,908
    Corporate general and
     administrative expenses       25,164      19,395      48,126      39,493
    Income from operations
     before interest
      expense and other           102,751      85,445     214,898     204,415
    Interest expense               17,342      19,356      39,122      39,050
    Other expense                   4,038       8,043       9,792      15,628
    Income before income taxes    $81,371     $58,046    $165,984    $149,737

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

    (Dollars in
     thousands)        December 31,                   2003              2002
    Current assets:
    Cash and cash equivalents                     $138,047           $35,365
    Accounts receivable, net                       926,393           898,888
    Inventories                                    999,779         1,058,579
    Prepaid expenses                                39,603            41,298
    Deferred income taxes                          103,106            87,483
    Total current assets                         2,206,928         2,121,613
    Plant and equipment, net                     1,632,764         1,674,837
    Goodwill                                     1,140,104         1,079,808
    Intangible assets, net                          60,561            54,495
    Other assets                                   759,138           660,467
    Total assets                                $5,799,495        $5,591,220

    Liabilities and shareholders' equity
    Current liabilities:
    Notes payable                                  $36,142          $580,816
    Accounts payable                               444,076           371,835
    Accrued liabilities                            447,744           409,126
    Accrued domestic and foreign taxes              88,003            54,899
    Total current liabilities                    1,015,965         1,416,676
    Long-term debt                                 975,235           773,733
    Pensions and other postretirement
     benefits                                      937,697           510,206
    Deferred income taxes                           15,152            90,629
    Other liabilities                              151,173           128,850
    Shareholders' equity                         2,704,273         2,671,126
    Total liabilities and shareholders'
     equity                                     $5,799,495        $5,591,220

    (Unaudited)                                Six Months Ended December 31,
    (Dollars in thousands)                            2003              2002

    Cash flows from operating activities:
    Net income                                    $112,462           $98,527
    Depreciation and amortization                  127,664           129,827
    Net change in receivables,
     inventories, and trade payables               135,298            52,551
    Net change in other assets and
     liabilities                                     6,594           (31,920)
    Other, net                                      (3,861)           11,464
    Net cash provided by operating
     activities                                    378,157           260,449
    Cash flows from investing activities:
    Acquisitions (less cash acquired of
     $8 in 2002)                                    (6,877)           (1,999)
    Capital expenditures                           (70,736)          (79,053)
    Other, net                                      11,018            10,402
    Net cash (used in) investing
     activities                                    (66,595)          (70,650)
    Cash flows from financing activities:
    Net proceeds from common share
     activity                                       32,551             2,222
    Net (payments of) debt                        (408,964)         (162,644)
    Dividends                                      (44,437)          (41,696)
    Net cash (used in) financing
     activities                                   (420,850)         (202,118)
    Effect of exchange rate changes on
     cash                                            1,485             1,300
    Net (decrease) in cash and cash
     equivalents                                  (107,803)          (11,019)
    Cash and cash equivalents at
     beginning of period                           245,850            46,384
    Cash and cash equivalents at end of
     period                                       $138,047           $35,365

SOURCE Parker Hannifin Corporation

CONTACT: Media, Lorrie Paul Crum, VP - Corp. Communications, +1-216-896-2750, 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 Corporation

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

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