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The company's quarterly results reflect greater-than-anticipated operating costs amounting to 12 cents, including manufacturing under-absorption and obsolete inventory; higher medical and benefit costs; and increased warranty cost reserves in non-core businesses. Year-over-year, the company's medical, pension and insurance costs were approximately $47 million higher.
For the full year, fiscal 2002 brought a modest increase in annual sales, marking a new record at $6.15 billion, and net earnings of $130.2 million, or $1.12 per diluted share. Before $81.8 million in charges, $66.6 million after- tax, or 57 cents per share, annual earnings were $1.69 per diluted share. Last year, sales were $5.98 billion, and net income was $340.8 million, or $2.96 per diluted share. Results for FY 2001 include goodwill amortization and a net benefit of five cents from non-recurring items, which included a gain on the sale of real estate; business-realignment costs and other corporate accruals. For a clear comparison of last year's results, add 44 cents to reflect the adoption of the FASB 142 goodwill provision and subtract the five- cent benefit for a total of 39 cents. Therefore, earnings last year were $3.35 per diluted share, versus this year's results of $1.69.
The company generated a record $631 million in cash from operations during the year, compared with $532 million last year, due in large part to tight management of working capital, especially inventory, receivables and accounts payable. Washkewicz said, "Throughout the course of this tough recession year, we worked to strengthen our profitability for an eventual economic recovery. We addressed under-performing assets and realigned operations to reflect demand, cutting capital expenditures by more than a third. We also made difficult job-cut decisions, and in total, our divisions cut about 6,200 positions over the past two years." Specific actions include:
- Facility consolidations netting 50 fewer locations;
- Greater utilization of low-cost incubators in the Czech Republic, Poland, China, Mexico and Korea;
- A 5.8-percent inventory reduction in the company's base business (excluding current-year acquisitions);
- Divestiture of two non-core businesses, Commercial Metal Forming and Wynn Warranty; and
Operating Results
After a year of severely depressed demand in the company's industrial and aerospace markets, a few areas showing signs of life in the fourth quarter were residential air conditioning, defense, heavy-duty truck, semiconductor, construction and mobile equipment. Commercial aviation, aside from regional jets, remains on the downslide. The fourth quarter also proved the typical three-month market lag between North American and overseas markets, as demand in Europe and Asia followed North America's downward trend.
In the North American Industrial units, fourth-quarter operating income increased 3.1 percent from a year ago to $39.2 million on $768.4 million in sales. Including $2.6 million in business-realignment costs, the quarterly return on sales was 5.1 percent. Full-year operating income in the North American Industrial units was $141.3 million on revenues of $2.79 billion. With $8.9 million in business-realignment costs, the annual operating margin also was 5.1 percent.
Fourth-quarter income in the International Industrial businesses was 28.4 percent lower than last year. On $366.2 million in quarterly revenues, the units earned $10.6 million for a 2.9-percent operating margin. Business- realignment costs were $6.1 million in the quarter. For the year, the international businesses posted sales of $1.28 billion, with operating income of $55.7 million, including business-realignment costs and asset impairments totaling $14.7 million. With these costs, the full-year return on sales was 4.4 percent.
In the company's "Other" segment, including Climate & Industrial Controls and businesses previously classified as assets held for sale, fourth-quarter sales were $236.2 million. Including business-realignment costs of $2 million, quarterly income was 10.2-percent lower than last year, at $9.9 million, for an operating margin of 4.2 percent. Full-year sales were $905.5 million, and income was $54.6 million, for a return on sales of 6.0 percent. Business- realignment costs for the year were $4.7 million.
Parker Aerospace saw an 11.3-percent drop in fourth-quarter sales to $286.8 million, while income fell 38.8 percent, to $37.3 million, with $1.1 million in business-realignment costs. The quarterly return on sales was 13.0 percent. For the year, the aerospace business earned $189.4 million on sales of $1.2 billion, a 16.1-percent return on sales. Costs for business- realignment in the year were $4.7 million.
Outlook
With assumptions for a slow recovery in fiscal year 2003, the company said it expects earnings for the fiscal first quarter ending September 30 to be between 35 and 45 cents per share before business-realignment costs. For the full year, earnings are expected to be between $2.20 and $2.50 per share, not including business-realignment costs previously announced, including severance, operating realignments, plant closures and consolidations in the company's industrial segment.
These additional costs, currently projected at $23 million ($15 million after-tax), or 13 cents per share, will be reflected on the income statement during fiscal year 2003 as they are implemented. As a result of these planned actions and those taken in fiscal year 2002, the company is on track to achieve savings of approximately $12 million in fiscal year 2003. With another $20 million in savings planned for fiscal year 2004, the company should thereby achieve running savings of $32 million per year.
In addition to providing earnings estimates, 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 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 .
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 are subject to future uncertainties and risks. All earnings projections and statements regarding future performance, 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, depending on economic conditions in industrial and aerospace markets, including any adverse effects related to the events of September 11, 2001, as well as the company's ability to achieve anticipated benefits associated with its "Win Strategy" initiatives, business-realignment and acquisition-integration activities and its ability to increase sales of higher margin products. 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; competitive market conditions and resulting effects on sales and pricing; increases in raw-material costs that cannot be recovered in product pricing; threats associated with terrorism; and global economic factors, including potential devaluation of currencies and general economic conditions such as interest rates. In each quarterly earnings report, the company states a range of expected earnings per share for the succeeding quarter and full fiscal year, as estimates of diluted earnings per share before unusual items. The company makes these statements as of the date of disclosure, and while it undertakes no obligation to update them, reserves the right to update earnings projections for any reason during the quarter, including the occurrence of material events.
PARKER HANNIFIN CORPORATION - JUNE 30, 2002
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended June 30, Year Ended June 30,
(Dollars in thousands
except per share
amounts) 2002 2001 2002 2001
Net sales $1,657,593 $1,484,796 $6,149,122 $5,979,604
Cost of sales 1,405,807 1,195,520 5,116,570 4,728,156
Gross profit 251,786 289,276 1,032,552 1,251,448
Selling, general and
administrative
expenses 184,423 188,346 686,485 679,963
Goodwill impairment
loss 39,516 - 39,516 -
Other income
(deductions):
Interest expense (19,551) (19,344) (82,484) (90,362)
Interest and other
income, net (6,298) (5,062) (6,031) 52,473
(25,849) (24,406) (88,515) (37,889)
Income before income
taxes 1,998 76,524 218,036 533,596
Income taxes 13,848 27,166 87,886 189,426
Income (loss) before
extraordinary item (11,850) 49,358 130,150 344,170
Extraordinary item -
extinguishment of
debt (3,378)
Net income (loss) $(11,850) $49,358 $130,150 $340,792
Earnings (loss) per
share:
Basic earnings
(loss) per share
before
extraordinary item $(.10) $.43 $1.13 $3.01
Extraordinary item
- extinguishment
of debt (.03)
Basic earnings
(loss) per share $(.10) $.43 $1.13 $2.98
Diluted earnings
(loss) per share
before
extraordinary item $(.10) $.42 $1.12 $2.99
Extraordinary item
- extinguishment
of debt (.03)
Diluted earnings
(loss) per share $(.10) $.42 $1.12 $2.96
Average shares
outstanding during
period - Basic 115,954,864 114,843,825 115,408,872 114,304,977
Average shares
outstanding during
period - Diluted 116,589,133 115,615,197 116,060,719 115,064,447
Cash dividends per
common share $.18 $.18 $.72 $.70
Note: Selling, general and administrative expenses for the three months
and year ended June 30, 2001 includes $15,834 ($13,608 after tax or $.12
per share) and $59,582 ($51,206 after tax or $.44 per share) of goodwill
amortization, respectively.
PRO FORMA RESULTS EXCLUDING GOODWILL AMORTIZATION
Three Months Ended Year Ended
June 30, June 30,
(Dollars in thousands except per
share amounts) 2002 2001 2002 2001
Reported net income (loss) $(11,850) $49,358 $130,150 $340,792
Add back goodwill amortization 13,608 51,206
Adjusted net income (loss) $(11,850) $62,966 $130,150 $391,998
Earnings (loss) per share:
Reported basic earnings (loss)
per share $(.10) $.43 $1.13 $2.98
Goodwill amortization .12 .44
Adjusted basic earnings (loss)
per share $(.10) $.55 $1.13 $3.42
Reported diluted earnings (loss)
per share $(.10) $.42 $1.12 $2.96
Goodwill amortization .12 .44
Adjusted diluted earnings (loss)
per share $(.10) $.54 $1.12 $3.40
BUSINESS SEGMENT INFORMATION BY INDUSTRY
Three Months Ended Year Ended
June 30, June 30,
(Dollars in thousands) 2002 2001 2002 2001
Net sales
Industrial:
North America $768,368 $691,119 $2,792,315 $2,941,697
International 366,203 311,117 1,278,694 1,275,516
Aerospace 286,807 323,365 1,172,608 1,205,624
Other 236,215 159,195 905,505 556,767
Total $1,657,593 $1,484,796 $6,149,122 $5,979,604
Segment operating income
Industrial:
North America $39,183 $37,990 $141,314 $322,786
International 10,561 14,755 55,749 92,561
Aerospace 37,333 60,988 189,353 218,851
Other 9,864 10,988 54,643 41,451
Total segment operating
income 96,941 124,721 441,059 675,649
Corporate general and
administrative expenses 23,172 29,970 73,335 85,738
Income from operations
before interest
expense and other 73,769 94,751 367,724 589,911
Interest expense 19,551 19,344 82,484 90,362
Other expense (income) 52,220 (1,117) 67,204 (34,047)
Income before income taxes $1,998 $76,524 $218,036 $533,596
Note: Income before income taxes for the three months and year ended June
30, 2001 includes $15,834 ($8,982 in Industrial North America; $3,270
in Industrial International; $1,951 in Aerospace; $1,095 in Other; and
$536 in Other expense (income)) and $59,582 ($31,056 in Industrial North
America; $12,369 in Industrial International; $7,800 in Aerospace; $4,347
in Other; and $4,010 in Other expense (income)) of goodwill amortization,
respectively.
BUSINESS SEGMENT INFORMATION BY INDUSTRY
EXCLUDING GOODWILL AMORTIZATION
Three Months Ended Year Ended
June 30, June 30,
(Dollars in thousands) 2002 2001 2002 2001
Net sales
Industrial:
North America $768,368 $691,119 $2,792,315 $2,941,697
International 366,203 311,117 1,278,694 1,275,516
Aerospace 286,807 323,365 1,172,608 1,205,624
Other 236,215 159,195 905,505 556,767
Total $1,657,593 $1,484,796 $6,149,122 $5,979,604
Segment operating income
Industrial:
North America $39,183 $46,972 $141,314 $353,842
International 10,561 18,025 55,749 104,930
Aerospace 37,333 62,939 189,353 226,651
Other 9,864 12,083 54,643 45,798
Total segment operating
income 96,941 140,019 441,059 731,221
Corporate general and
administrative expenses 23,172 29,970 73,335 85,738
Income from operations
before interest
expense and other 73,769 110,049 367,724 645,483
Interest expense 19,551 19,344 82,484 90,362
Other expense (income) 52,220 (1,653) 67,204 (38,057)
Income before income taxes $1,998 $92,358 $218,036 $593,178
Note: Amounts for the three months and year ended June 30, 2001 eliminates
goodwill amortization, reflecting the Company's early adoption of FAS 142.
It is intended to assist investors in making year-over-year comparisons
with the three months and year ended June 30, 2002.
CONSOLIDATED BALANCE SHEET
(Dollars in
thousands) June 30, 2002 2001
Assets
Current assets:
Cash and cash equivalents $46,384 $23,565
Accounts receivable, net 1,006,313 922,325
Inventories 1,051,968 1,008,864
Prepaid expenses 48,532 39,486
Deferred income taxes 82,421 91,439
Assets held for sale 110,683
Total current assets 2,235,618 2,196,362
Plant and equipment, net 1,696,965 1,548,688
Excess cost of investments over net
assets acquired 1,083,768 953,648
Other assets 736,232 638,963
Total assets $5,752,583 $5,337,661
Liabilities and shareholders' equity
Current liabilities:
Notes payable $416,693 $546,502
Accounts payable 443,525 367,806
Accrued liabilities 451,310 436,947
Accrued domestic and foreign taxes 48,309 61,874
Total current liabilities 1,359,837 1,413,129
Long-term debt 1,088,883 857,078
Pensions and other postretirement
benefits 508,313 318,527
Deferred income taxes 76,955 131,708
Other liabilities 135,079 88,304
Shareholders' equity 2,583,516 2,528,915
Total liabilities and shareholders'
equity $5,752,583 $5,337,661
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended June 30,
(Dollars in thousands) 2002 2001
Cash flows from operating activities:
Net income $130,150 $340,792
Depreciation and amortization 281,598 264,527
Net effect of extraordinary loss 3,378
Net change in receivables,
inventories, and trade payables 171,078 (42,557)
Net change in other assets and
liabilities 8,495 (14,729)
Other, net 39,725 (19,246)
Net cash provided by operating
activities 631,046 532,165
Cash flows from investing activities:
Acquisitions (less cash acquired of
$3,118 in 2002 and $10,143 in 2001) (388,315) (583,254)
Capital expenditures (206,564) (334,748)
Other, net (13,839) 98,174
Net cash used in investing activities (608,718) (819,828)
Cash flows from financing activities:
Net proceeds from common share
activity 20,250 15,971
Net proceeds from debt 61,711 308,087
Dividends (82,838) (79,921)
Net cash (used in) provided by
financing activities (877) 244,137
Effect of exchange rate changes on
cash 1,368 (1,369)
Net increase (decrease) in cash and
cash equivalents 22,819 (44,895)
Cash and cash equivalents at
beginning of period 23,565 68,460
Cash and cash equivalents at end of
period $46,384 $23,565
Non-cash transactions:
Stock issued for acquisitions $13,081
PARKER HANNIFIN CORPORATION
SEGMENT RESULTS FOURTH QUARTER 2002
RECONCILIATION OF REPORTED RESULTS TO RESULTS EXCLUDING BUSINESS
REALIGNMENT CHARGE, ASSET IMPAIRMENTS, GOODWILL AMORTIZATION AND OTHER
ITEMS
(amounts in thousands, except percentages)
FOURTH QUARTER FY 2002
Segment
results
excluding
business
Segment realignment
results Business Asset and
at realignment impairment asset
reported charges charges impairments
Net Sales
Industrial:
North America $768,368 $768,368
International 366,203 366,203
Aerospace 286,807 286,807
Other 236,215 236,215
Total Parker Hannifin 1,657,593 1,657,593
Segment Operating Income:
Industrial:
North America 39,183 $2,566 41,749
International 10,561 6,063 16,624
Aerospace 37,333 1,120 38,453
Other 9,864 1,961 11,825
Total segment operating
income 96,941 (11,710) 108,651
Corporate administration 23,172 23,172
Income before interest
expense and other 73,769 (11,710) 85,479
Interest expense 19,551 19,551
Other expense (income) 52,220 $48,904 3,316
Income before income taxes 1,998 (11,710) (48,904) 62,612
Income taxes 13,848 4,040 5,618 23,506
Income (loss) before
extraordinary item (11,850) (7,670) (43,286) 39,106
Extraordinary item
Net income (loss) (11,850) (7,670) (43,286) 39,106
Diluted earnings per share $(0.10) $0.07 $0.37 $0.34
Percent of Sales
Segment Operating Income:
Industrial:
North America 5.1% 5.4%
International 2.9% 4.5%
Aerospace 13.0% 13.4%
Other 4.2% 5.0%
Total segment operating
income 5.8% 6.6%
Corporate administration 1.4% 1.4%
Income before interest
expense and other 4.5% 5.2%
Interest expense 1.2% 1.2%
Other 3.2% 0.2%
Income before income taxes 0.1% 3.8%
Income taxes 0.8% 1.4%
Income (loss) before
extraordinary item -0.7% 2.4%
Extraordinary item 0.0% 0.0%
Net income (loss) -0.7% 2.4%
Explanation of "Other items" under Fourth Quarter FY 2001 - Amounts
include certain asset impairments and other corporate accruals.
PARKER HANNIFIN CORPORATION
SEGMENT RESULTS FOURTH QUARTER 2002
RECONCILIATION OF REPORTED RESULTS TO RESULTS EXCLUDING BUSINESS
REALIGNMENT CHARGE, ASSET IMPAIRMENTS, GOODWILL AMORTIZATION AND OTHER
ITEMS
(amounts in thousands, except percentages)
FOURTH QUARTER FY 2001
Segment
results
excluding
business
realignment,
Other goodwill
items amortization
Segment Business Goodwill (see and
results as realignment amort- detail other
reported charges ization below) items
Net Sales
Industrial:
North America $691,119 $691,119
International 311,117 311,117
Aerospace 323,365 323,365
Other 159,195 159,195
Total Parker Hannifin 1,484,796 1,484,796
Segment Operating
Income:
Industrial:
North America 37,990 $11,296 $8,982 58,268
International 14,755 3,521 3,270 21,546
Aerospace 60,988 1,951 62,939
Other 10,988 1,050 1,095 13,133
Total segment operating
income 124,721 (15,867) (15,298) 155,886
Corporate administration 29,970 $11,418 18,552
Income before interest
expense and other 94,751 (15,867) (15,298) (11,418) 137,334
Interest expense 19,344 19,344
Other expense (income) (1,117) 536 723 (2,376)
Income before income
taxes 76,524 (15,867) (15,834) (12,141) 120,366
Income taxes 27,166 5,981 2,226 4,550 39,923
Income (loss) before
extraordinary item 49,358 (9,886) (13,608) (7,591) 80,443
Extraordinary item
Net income (loss) 49,358 (9,886) (13,608) (7,591) 80,443
Diluted earnings per
share $0.42 $0.09 $0.12 $0.06 $0.69
Percent of Sales
Segment Operating
Income:
Industrial:
North America 5.5% 8.4%
International 4.7% 6.9%
Aerospace 18.9% 19.5%
Other 6.9% 8.2%
Total segment operating
income 8.4% 10.5%
Corporate administration 2.0% 1.2%
Income before interest
expense and other 6.4% 9.2%
Interest expense 1.3% 1.3%
Other -0.2% -0.2%
Income before income
taxes 5.2% 8.1%
Income taxes 1.8% 2.7%
Income (loss) before
extraordinary item 3.3% 5.4%
Extraordinary item 0.0% 0.0%
Net income (loss) 3.3% 5.4%
PARKER HANNIFIN CORPORATION
SEGMENT RESULTS TOTAL FISCAL YEAR 2002
RECONCILIATION OF REPORTED RESULTS TO RESULTS EXCLUDING BUSINESS
REALIGNMENT CHARGE, ASSET IMPAIRMENTS, GOODWILL AMORTIZATION AND OTHER
ITEMS
(amounts in thousands, except percentages)
TOTAL FISCAL YEAR 2002
Segment
results
excluding
business
Segment realignment
results Business Asset and
at realignment impairment asset
reported charges charges impairments
Net Sales
Industrial:
North America $2,792,315 $2,792,315
International 1,278,694 1,278,694
Aerospace 1,172,608 1,172,608
Other 905,505 905,505
Total Parker Hannifin 6,149,122 6,149,122
Segment Operating Income:
Industrial:
North America 141,314 $8,892 150,206
International 55,749 9,722 4,973 70,444
Aerospace 189,353 4,667 194,020
Other 54,643 4,683 59,326
Total segment operating income 441,059 (27,964) (4,973) 473,996
Corporate administration 73,335 73,335
Income before interest expense
and other 367,724 (27,964) (4,973) 400,661
Interest expense 82,484 82,484
Other expense (income) 67,204 48,904 18,300
Income before income taxes 218,036 (27,964) (53,877) 299,877
Income taxes 87,886 9,635 5,630 103,151
Income before extraordinary item 130,150 (18,329) (48,247) 196,726
Extraordinary item
Net income 130,150 (18,329) (48,247) 196,726
Diluted earnings per share $1.12 $0.16 $0.41 $1.69
Percent of Sales
Segment Operating Income:
Industrial:
North America 5.1% 5.4%
International 4.4% 5.5%
Aerospace 16.1% 16.5%
Other 6.0% 6.6%
Total segment operating income 7.2% 7.7%
Corporate administration 1.2% 1.2%
Income before interest expense
and other 6.0% 6.5%
Interest expense 1.3% 1.3%
Other 1.1% 0.3%
Income before income taxes 3.5% 4.9%
Income taxes 1.4% 1.2%
Income before extraordinary item 2.1% 3.2%
Extraordinary item 0.0% 0.0%
Net income 2.1% 3.2%
Explanation of "Other items" under Total Fiscal Year 2001 - Amounts
include gain on sale of real property, certain non-operating asset
impairments and other corporate accruals.
PARKER HANNIFIN CORPORATION
SEGMENT RESULTS TOTAL FISCAL YEAR 2002
RECONCILIATION OF REPORTED RESULTS TO RESULTS EXCLUDING BUSINESS
REALIGNMENT CHARGE, ASSET IMPAIRMENTS, GOODWILL AMORTIZATION AND OTHER
ITEMS
(amounts in thousands, except percentages)
TOTAL FISCAL YEAR 2001
Segment
results
excluding
business
realignment,
Other goodwill
items amortization
Segment Business Goodwill (see and
results as realignment amort- detail other
reported charges ization below) items
Net Sales
Industrial:
North America $2,941,697 $2,941,697
International 1,275,516 1,275,516
Aerospace 1,205,624 1,205,624
Other 556,767 556,767
Total Parker Hannifin 5,979,604 5,979,604
Segment Operating
Income:
Industrial:
North America 322,786 $13,182 $31,056 367,024
International 92,561 5,875 12,369 110,805
Aerospace 218,851 7,800 226,651
Other 41,451 1,250 4,347 47,048
Total segment
operating income 675,649 (20,307) (55,572) 751,528
Corporate
administration 85,738 11,418 74,320
Income before interest
expense and other 589,911 (20,307) (55,572) (11,418) 677,208
Interest expense 90,362 90,362
Other expense
(income) (34,047) 4,010 (47,131) 9,074
Income before income
taxes 533,596 (20,307) (59,582) 35,713 577,772
Income taxes 189,426 7,649 8,376 (13,992) 191,459
Income before
extraordinary item 344,170 (12,658) (51,206) 21,721 386,313
Extraordinary item (3,378) (3,378)
Net income 340,792 (12,658) (51,206) 21,721 382,935
Diluted earnings per
share $2.96 $0.14 $0.44 $(0.19) $3.35
Percent of Sales
Segment Operating
Income:
Industrial:
North America 11.0% 12.5%
International 7.3% 8.7%
Aerospace 18.2% 18.8%
Other 7.4% 8.5%
Total segment
operating income 11.3% 12.6%
Corporate
administration 1.4% 1.2%
Income before interest
expense and other 9.9% 11.3%
Interest expense 1.5% 1.5%
Other -0.7% 0.2%
Income before income
taxes 8.9% 9.7%
Income taxes 3.2% 3.2%
Income before
extraordinary item 5.8% 6.5%
Extraordinary item -0.1% -0.1%
Net income 5.7% 6.4%
Explanation of "Other items" under Total Fiscal Year 2001 - Amounts
include gain on sale of real property, certain non-operating asset
impairments and other corporate accruals.
SOURCE Parker Hannifin Corporation
CONTACT: 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, Timothy K. Pistell, Treasurer, +1-216-896-2130, or tpistell@parker.com
