UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File number 1-4982
PARKER-HANNIFIN CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 34-0451060
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
17325 Euclid Avenue, Cleveland, Ohio 44112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 531-3000
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
Number of Common Shares outstanding at March 31, 1996 74,222,670
PARKER-HANNIFIN CORPORATION
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income -
Three Months and Nine Months Ended
March 31, 1996 and 1995 3
Consolidated Balance Sheet -
March 31, 1996 and June 30, 1995 4
Consolidated Statement of Cash Flows -
Nine Months Ended March 31, 1996
and 1995 5
Business Segment Information by Industry -
Three Months and Nine Months Ended
March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
EXHIBIT 10* - Parker-Hannifin Corporation Change in 13-29
Control Severance Plan
EXHIBIT 11* - Computation of Earnings per Common Share 30
EXHIBIT 27* - Financial Data Schedule 31
*Numbered in accordance with Item 601 of Regulation S-K.
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PART I - FINANCIAL INFORMATION
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
_____________________ _________________________
1996 1995 1996 1995
_________ _________ ___________ ___________
Net sales $ 931,356 $ 879,673 $ 2,594,786 $ 2,330,361
Cost of sales 707,927 666,968 1,995,017 1,790,357
_________ _________ ___________ ___________
Gross profit 223,429 212,705 599,769 540,004
Selling, general and
administrative expenses 106,504 98,863 305,412 271,566
_________ _________ ___________ ___________
Income from operations 116,925 113,842 294,357 268,438
Other income (deductions):
Interest expense (8,359) (7,801) (23,588) (22,679)
Interest and other income, net 1,161 (1,237) 6,849 (901)
_________ _________ ___________ ___________
(7,198) (9,038) (16,739) (23,580)
_________ _________ ___________ ___________
Income before income taxes 109,727 104,804 277,618 244,858
Income taxes 40,599 38,949 102,719 94,270
_________ _________ ___________ ___________
Net income $ 69,128 $ 65,855 $ 174,899 $ 150,588
========= ========= =========== ===========
Earnings per share (A) $ .93 $ .89 $ 2.36 $ 2.04
Cash dividends per common share $ .180 $ .167 $ .540 $ .500
(A) Fiscal 1995 per share amounts have been adjusted for the 3-shares-for-2 common stock
split paid June 2, 1995.
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
March 31, June 30,
1996 1995
(Unaudited)
___________ ___________
ASSETS
Current assets:
Cash and cash equivalents $ 63,935 $ 63,830
Accounts receivable, net 521,746 484,962
Inventories:
Finished products 332,889 314,180
Work in process 228,605 201,386
Raw materials 102,162 110,340
___________ ___________
663,656 625,906
Prepaid expenses 13,177 14,994
Deferred income taxes 65,891 56,690
___________ ___________
Total current assets 1,328,405 1,246,382
Plant and equipment 1,965,456 1,812,667
Less accumulated depreciation 1,045,018 996,896
___________ ___________
920,438 815,771
Other assets 334,762 240,056
___________ ___________
Total assets $ 2,583,605 $ 2,302,209
=========== ===========
LIABILITIES
Current liabilities:
Notes payable $ 171,834 $ 97,372
Accounts payable, trade 196,868 227,482
Accrued liabilities 283,717 280,891
Accrued domestic and foreign taxes 62,368 46,876
___________ ___________
Total current liabilities 714,787 652,621
Long-term debt 302,562 237,157
Pensions and other postretirement benefits 196,235 188,292
Deferred income taxes 30,487 23,512
Other liabilities 14,183 9,113
___________ ___________
Total liabilities 1,258,254 1,110,695
SHAREHOLDERS' EQUITY
Serial preferred stock, $.50 par value;
authorized 3,000,000 shares; none issued -- --
Common stock, $.50 par value; authorized
300,000,000 shares; issued 74,222,670
shares at March 31 and 74,002,402
shares at June 30 37,111 37,001
Additional capital 161,353 158,454
Retained earnings 1,109,356 974,486
Deferred compensation related to guarantee
of ESOP debt (6,895) (13,468)
Currency translation adjustment 24,426 35,041
___________ ___________
Total shareholders' equity 1,325,351 1,191,514
___________ ___________
Total liabilities and
shareholders' equity $ 2,583,605 $ 2,302,209
=========== ===========
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
March 31,
_____________________
1996 1995
_________ _________
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 174,899 $ 150,588
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation 94,769 83,650
Amortization 8,210 6,692
Deferred income taxes (8,822) (6,030)
Foreign currency transaction loss 780 1,700
Loss on sale of plant and equipment 750 1,478
Changes in assets and liabilities:
Accounts receivable (8,321) (61,411)
Inventories (17,634) (35,438)
Prepaid expenses 1,385 1,981
Other assets (9,136) (8,302)
Accounts payable, trade (39,952) 821
Accrued payrolls and other compensation (5,236) 8,525
Accrued domestic and foreign taxes 11,043 (9,910)
Other accrued liabilities 3,304 (6,573)
Pensions and other postretirement benefits (1,789) 11,262
Other liabilities 5,190 580
_________ _________
Net cash provided by operating activities 209,440 139,613
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (excluding cash of $19,437 in 1996
and $5,699 in 1995) (166,975) (119,242)
Capital expenditures (147,236) (101,821)
Proceeds from sale of plant and equipment 8,386 9,920
Other (3,193) 2,215
_________ _________
Net cash used in investing activities (309,018) (208,928)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common share activity 1,025 7,164
Proceeds from notes payable, net 78,156 74,069
Proceeds from long-term borrowings 67,013 19,140
Payments of long-term borrowings (5,252) (32,321)
Dividends (40,029) (36,859)
_________ _________
Net cash provided by financing activities 100,913 31,193
Effect of exchange rate changes on cash (1,230) 1,048
_________ _________
Net increase (decrease) in cash and cash equivalents 105 (37,074)
Cash and cash equivalents at beginning of year 63,830 81,590
_________ _________
Cash and cash equivalents at end of period $ 63,935 $ 44,516
========= =========
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
BUSINESS SEGMENT INFORMATION BY INDUSTRY
(Dollars in thousands)
(Unaudited)
Parker operates in two industry segments: Industrial and Aerospace. The
Industrial Segment is the largest and includes the International operations.
Industrial - This segment produces a broad range of motion-control and fluid
systems and components used in all kinds of manufacturing, packaging,
processing, transportation, mobile construction, and agricultural and
military machinery and equipment. Sales are direct to major original
equipment manufacturers (OEMs) and through a broad distribution network to
smaller OEMs and the aftermarket.
Aerospace - This segment designs and manufactures products and provides
aftermarket support for commercial, military and general-aviation aircraft,
missile and spacecraft markets. The Aerospace Segment provides a full range of
systems and components for hydraulic, pneumatic and fuel applications.
Results by Business Segment:
Three Months Ended Nine Months Ended
March 31, March 31,
_____________________ _________________________
1996 1995 1996 1995
_________ _________ ___________ ___________
Net sales, including intersegment sales
Industrial:
North America $ 515,404 $ 500,649 $ 1,452,053 $ 1,340,708
International 263,802 243,486 720,970 604,326
Aerospace 152,363 135,587 422,257 385,687
Intersegment sales (213) (49) (494) (360)
_________ _________ ___________ ___________
Total $ 931,356 $ 879,673 $ 2,594,786 $ 2,330,361
========= ========= =========== ===========
Income from operations before corporate
general and administrative expenses
Industrial:
North America $ 79,101 $ 78,125 $ 205,511 $ 195,831
International 23,125 31,061 61,858 59,190
Aerospace 26,349 16,116 61,801 45,007
_________ _________ ___________ ___________
Total 128,575 125,302 329,170 300,028
Corporate general and administrative
expenses 11,650 11,460 34,813 31,590
_________ _________ ___________ ___________
Income from operations $ 116,925 $ 113,842 $ 294,357 $ 268,438
========= ========= =========== ===========
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share amounts
_______________________
1. Management Representation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as
of March 31, 1996, the results of operations for the three and nine months
ended March 31, 1996 and 1995 and cash flows for the nine months then
ended.
2. Segment Reclassification
Fiscal 1995 results have been restated to reclassify an operating division
from the Aerospace Segment to the Industrial Segment (North America) to be
consistent with fiscal 1996 reporting. Existing business practices,
distribution methods and internal organization more properly align this
operating division with the Industrial Segment. The effect on both
Segments is immaterial.
3. Earnings Per Share
Fiscal 1995 per share amounts have been adjusted for the 3-shares-for-2
common stock split paid June 2, 1995.
Primary earnings per share are computed using the weighted average number
of shares of common stock and common stock equivalents outstanding during
the period. Fully diluted earnings per share are not presented because
such dilution is not material.
4. Acquisitions
Effective April 15, 1996 the Company completed an agreement with Power
Control Technologies, Inc. to purchase the aerospace assets of the
Abex / NWL Division of Pneumo Abex Corporation for approximately
$201 million cash. Abex / NWL, headquartered in Kalamazoo, Michigan, is
a major international producer of aerospace hydraulic actuation equipment,
engine thrust-reverser actuators, hydraulic pumps, electrohydraulic
servovalves, hydraulic systems, and electromechanical actuation equipment
with annual sales of approximately $200 million.
On February 29, 1996 the Company completed the acquisition of VOAC
Hydraulics AB of Boras, Sweden for approximately $163 million cash. VOAC
is a worldwide leader in the manufacturing of mobile hydraulic equipment
and had calendar 1995 annual sales of approximately $166 million. VOAC
had been owned by AVC Intressenter AB, a holding company jointly owned by
Atlas Copco AB and Volvo Aero Corporation, both of Sweden.
On July 31, 1995 the Company purchased the General Valve Corp. of
Fairfield, New Jersey, a leading producer of miniature solenoid valves for
high-technology applications for approximately 152,000 shares of common
stock. Also, on August 4, 1995 the Company purchased inventory and
machinery from Teledyne Fluid Systems consisting of the Republic Valve
product line, the Sprague double-diaphragm pump line and the Sprague
airborne accumulator product line for approximately $5.2 million in cash.
Sales by these operations for their most recent fiscal year prior to
acquisition approximated $16.8 million.
These acquisitions were accounted for by the purchase method.
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PARKER-HANNIFIN CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1996
AND COMPARABLE PERIODS ENDED MARCH 31, 1995
CONSOLIDATED STATEMENT OF INCOME
Net sales increased 5.9 percent for the third quarter and 11.3 percent for the
nine-month period ended March 31, 1996. Approximately one-half of these
increases were due to acquisitions in the Industrial Segment. Market
conditions for the Industrial Segment have been uneven with downturns in some
markets being offset by gains in others. Aerospace Segment sales continue to
build.
Income from operations was $116.9 million for the current third quarter and
$294.4 million for the current nine months, an increase of 2.7 percent for the
quarter and 9.7 percent for the nine months. Significant increases within the
Aerospace Segment were offset by decreases in operating income in the
International operations of the Industrial Segment. As a percent of sales,
Income from operations decreased to 12.6 percent from 12.9 percent for the
quarter and to 11.3 percent from 11.5 percent for the nine months. Cost of
sales as a percent of sales increased to 76.0 percent from 75.8 percent for
the quarter and to 76.9 percent from 76.8 percent for the nine-month period.
Selling, general and administrative expenses, as a percent of sales, increased
to 11.4 percent from 11.2 percent for the quarter and to 11.8 percent from
11.7 percent for the nine-month period.
The effective income tax rate for the current quarter and nine-month period
was 37.0 percent compared to fiscal 1995 rates of 37.2 percent for the quarter
and 38.5 percent for the nine-month period. The lower rate in fiscal 1996 is
due to the continuing benefit realized from the use of net operating loss
carry-forwards and a change in the geographic mix of earnings.
Net income increased 5.0 percent for the quarter and 16.1 percent for the
nine-month period, as compared to the prior year. As a percent of sales, Net
income decreased to 7.4 percent from 7.5 percent for the quarter but increased
to 6.7 percent from 6.5 percent for the nine months.
Backlog increased to $1,068.2 million at March 31, 1996 as compared to $998.1
million the prior year and $1,025.7 million at June 30, 1995. The increase in
backlog was partially due to acquisitions, but was primarily due to increased
volume for both the Aerospace and Industrial Segments.
BUSINESS SEGMENT INFORMATION BY INDUSTRY
INDUSTRIAL - The Industrial Segment operations achieved the following Net
sales increases in the current year when compared to the equivalent prior-year
period:
Period ending March 31,
Three Months Nine Months
Industrial North America 2.9 % 8.3 %
Industrial International 8.3 % 19.3 %
Total Industrial 4.7 % 11.7 %
- 8 -
Without the effect of currency-rate changes, International sales would have
increased more than 10 percent for the quarter and nearly 17 percent for the
nine months. Without the effect of acquisitions, the increases would have
been:
Period ending March 31,
Three Months Nine Months
Industrial North America 0.7 % 4.5 %
Industrial International 2.4 % 9.1 %
Total Industrial 1.3 % 5.9 %
The rate of sales growth for the Industrial operations has moderated
appreciably in Europe and in some North American markets as compared to the
significant growth rate experienced during fiscal 1995. The sales increases
achieved were the result of market growth and the market share gains the
Company achieved through concentrated efforts towards reaching expanding
markets and providing premier customer service. For fiscal 1996, Industrial
North America volume is expected to modestly exceed prior year volume
(excluding the effect of acquisitions) while the moderate growth in the
Industrial International volume is expected to continue. Sales in Latin
America have slowed due to a weakened general economy and are expected to be
at lower levels through the remainder of the fiscal year.
Operating income for the Industrial Segment decreased 6.4 percent for the
quarter but increased 4.8 percent for the nine months. Industrial North
America Operating income increased 1.2 percent for the quarter and 4.9 percent
for the nine months. Without the effect of acquisitions results would have
remained flat for the quarter and increased 1.8 percent for the nine months.
As a percent of sales, Industrial North America Operating income decreased to
15.3 percent from 15.6 percent for the quarter and to 14.2 percent from 14.6
percent for the nine months. Industrial International results decreased 25.5
percent for the quarter compared to an unusually high third quarter in 1995,
but increased 4.5 percent for the nine months. Without the effect of
acquisitions these results would have decreased 32.5 percent for the quarter
and 5.9 percent for the nine months. As a percent of sales, Industrial
International Operating income decreased to 8.8 percent from 12.8 percent for
the quarter and to 8.6 percent from 9.8 percent for the nine months.
A downturn in heavy-duty truck and automotive markets, offset by gains in
factory automation, process control, and electromagnetic-interference
protection markets is causing the Industrial Segment to re-align inventories,
resulting in a negative impact on manufacturing costs and overhead absorption.
Results in Asia Pacific are stronger than anticipated, but a weakened economy
in Latin America has diluted current-year earnings $.05 per share for the
quarter and $.14 per share for the nine months compared to last year.
Management expects margin improvements during the fourth quarter in both North
America and overall International operations, although conditions in Latin
America remain uncertain.
Total Industrial Segment backlog increased 6.3 percent compared to March 31,
1995 and 6.5 percent since June 30, 1995 with the increases occurring within
the International operations.
AEROSPACE - Aerospace Segment Net sales were up 12.4 percent for the quarter
and 9.5 percent for the nine months. The increase is primarily attributable
to increased volume in aftermarket sales, initial provisioning for commercial
aircraft such as the Boeing 777, and OEM military sales to domestic airframe
manufacturers for foreign markets. Similar increases are expected to continue
through the fourth quarter.
Operating income for the Aerospace Segment increased 63.5 percent for the
quarter and 37.3 percent for the nine-month period. As a percent of sales
Operating income improved to 17.3 percent from 11.9 percent for the quarter
and to 14.6 percent from 11.7 percent for the nine-month period. This margin
improvement is due to the favorable product mix and the benefits being
realized from the ability to produce higher volume with downsized operations.
- 9 -
Management expects the trend of increasing volume to continue during the
remainder of this fiscal year, but margins are expected to normalize to levels
experienced in the prior year. Aerospace Segment backlog increased 7.6
percent from March 31, 1995, and 2.4 percent since June 30, 1995.
CONSOLIDATED BALANCE SHEET
Working capital increased to $613.6 million at March 31, 1996 from $593.8
million at June 30, 1995 with the ratio of current assets to current
liabilities remaining level at 1.9 to 1. Accounts receivable were $36.8
million higher on March 31, 1996 than on June 30, 1995 primarily due to
acquisitions. Inventory levels were $37.7 million higher at March 31, 1996
due to acquisitions and also due to increases in the Aerospace segment as a
result of higher volume. Accounts payable, trade decreased $30.6 million
since June 30, 1995 primarily as a result of the timing of payments for raw
material purchases.
Plant and equipment, net increased $104.7 million since June 30, 1995 with
$68.8 million of the increase the result of acquisitions. Other assets
increased $94.7 million since June 30, 1995, primarily as a result of
increased goodwill.
Notes payable increased $74.5 million and Long-term debt increased $65.4
million since June 30, 1995 primarily to provide cash for acquisitions. The
debt to debt-equity ratio, excluding the effect of the ESOP loan guarantee on
both Long-term debt and Shareholders' equity, increased to 26.0 percent at
March 31, 1996 from 21.0 percent at June 30, 1995.
CONSOLIDATED STATEMENT OF CASH FLOWS
Net cash provided by operating activities was $209.4 million for the nine
months ended March 31, 1996, as compared to $139.6 million for the same nine
months in 1995. Net income contributed an additional $24.3 million in fiscal
1996 as compared to fiscal 1995. Changes in the principal working capital
items (Accounts receivable, Inventories, and Accounts payable, trade) resulted
in the use of less cash - $65.9 million in fiscal 1996 as compared to $96.0
million in fiscal 1995. The change in Accrued domestic and foreign taxes
provided $11.0 million cash in fiscal 1996 as compared to using cash of $9.9
million in fiscal 1995.
Net cash used in investing activities increased to $309.0 million from $208.9
million for the nine months ended March 31, 1996 and 1995 as a result of more
cash used for Acquisitions and higher Capital expenditures in fiscal 1996.
Financing activities provided cash of $100.9 million for the nine months ended
March 31, 1996 and $31.2 million for the same period in 1995. Fiscal 1996
acquisition activity caused the need for a higher level of borrowings.
- 10 -
PARKER-HANNIFIN CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The following documents are furnished as exhibits and are
numbered pursuant to Item 601 of Regulation S-K:
Exhibit 10 - Parker-Hannifin Corporation Change in Control
Severance Plan
Exhibit 11 - Computation of Earnings per Common Share
Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARKER-HANNIFIN CORPORATION
(Registrant)
/s/ Michael J. Hiemstra
Michael J. Hiemstra
Vice President - Finance and Administration
Date: May 13, 1996
- 11 -
EXHIBIT INDEX
Sequential
Exhibit No. Description of Exhibit Page
10 Parker-Hannifin Corporation 13
Change in Control Severance Plan*
11 Computation of Earnings
Per Common Share 30
27 Financial Data Schedule 31
*Compensatory plan or arrangement
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