Exhibit (13)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1997
by Parker-Hannifin Corporation
Excerpts from Annual Report to Shareholders for the fiscal year ended
June 30, 1997.
*Numbered in accordance with Item 601 of Regulation S-K.
DISCUSSION OF STATEMENT OF INCOME
THE CONSOLIDATED STATEMENT OF INCOME summarizes Parker's operating performance
over the last three years.
NET SALES of $4.09 billion for fiscal 1997 were 14.1 percent higher than
$3.59 billion in 1996. Acquisitions accounted for more than half of this
increase. Order demand was strong for the North American Industrial
operations, especially within the factory automation, machine tool, and
agricultural and construction equipment markets. There was also increasing
demand for sealing products, and light-truck and automotive products. The
International Industrial operations' results were relatively flat with Europe
experiencing a soft economy for most of the year. Volume increases were
partially offset by currency rate changes. Fourth-quarter order demand began
to show signs of recovery in Europe. The Aerospace operations achieved the
majority of the sales growth as demand was strong within the OEM commercial
and general aviation industries and the maintenance, repair and overhaul
business.
Acquisitions contributed nearly 60 percent of the 1996 increase of 11.6
percent over 1995. During 1996 the North American Industrial operations
experienced strong growth in the semiconductor and telecommunications markets,
but this was partially offset by a slowdown in the heavy-duty truck market.
International Industrial operations experienced a soft economy in Europe
during 1996 following stronger performance in 1995. Aerospace operations
experienced strong growth during 1996 as gains were made in both original
equipment and maintenance, repair and overhaul markets.
The Company is anticipating strong growth for the next year as Industrial
markets are expected to continue to grow within North America. If the European
economy continues to strengthen, the Company expects significant growth within
the European operations. In addition, the Company expects to improve through
continuing growth in Latin America and Asia Pacific, and with the completion of
potential acquisitions. Strong demand within the Aerospace commercial markets
and a presumed stabilized military marketplace provide a positive outlook
for the Aerospace business as well.
NET INCOME of $274.0 million for 1997 was 14.3 percent higher than 1996.
Net income of $239.7 million for 1996 was 9.8 percent higher than income of
$218.2 million in 1995. Net income as a percentage of sales was 6.7 percent in
1997 and 1996, compared to 6.8 percent in 1995.
GROSS PROFIT MARGIN was 22.9 percent in 1997 compared to 23.1 percent in
1996 and 23.8 percent in 1995. Higher volume resulted in improved capacity
utilization and higher margins for most of the North American Industrial and
Aerospace operations. Offsetting this improvement, newly acquired operations
within Industrial International and Aerospace continued to contribute lower
margins, although improving throughout the year. In addition, weak demand
throughout Europe resulted in lower capacity utilization and reduced gross
profit for the International operations.
The margin decline in 1996 resulted from acquisitions contributing lower
margins and the Company incurring one-time integration costs. In addition, as
the mix of products and volume levels changed, certain business units within
the Industrial operations adjusted inventory levels and production schedules
to meet new levels of demand. Despite lower margins contributed by an
acquisition, Aerospace operations improved margins in 1996 due to a better
product mix and higher volume, which allowed better absorption of fixed costs.
Page 13-1
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES as a percent of sales
decreased to 11.6 percent, from 11.9 percent in 1996, and 12.0 percent in
1995. As volume increased in 1997 and 1996, these expenses remained relatively
even, except for additional expense from acquisitions. Also, additional
selling expenses were incurred as new sales offices were opened and marketing
efforts were increased within International markets during 1997 and 1996.
INTEREST EXPENSE increased by $10.0 million in 1997 and $5.7 million in
1996. During the second half of 1996 additional debt was incurred to finance
several acquisitions.
INTEREST AND OTHER INCOME, NET decreased to $5.6 million in 1997 from $8.5
million in 1996 primarily due to income received in 1996 from several minor
Corporate investments, which did not repeat in 1997. The income in 1996 from
these investments, along with additional interest income, caused the increase
from $2.3 million in 1995.
GAIN (LOSS) ON DISPOSAL OF ASSETS was a $3.0 million gain in 1997 as
compared to a $2.0 million loss in 1996 and $4.5 million loss in 1995. The
1997 gain includes $17.1 million income from the sale of real estate in
California. This income was substantially offset by $13.3 million accrued for
exit costs and charges for impaired assets related to the relocation of the
corporate headquarters. The decrease in the loss for 1996 is due to fewer
costs for facility relocations and a gain on the sale of a division.
INCOME TAXES decreased to an effective rate of 35.5 percent in 1997 as
compared to 36.0 percent in 1996 and 37.4 percent in 1995. The reduction in
the rate for 1997 is the result of an increased tax benefit based on the
export of product manufactured in the U.S. The reduction in the rate for 1996
was the result of foreign tax credit benefits and a reduction in the effective
state tax rate.
YEAR 2000 CONSIDERATIONS - The Company is taking actions to assure that
its computer systems are capable of processing periods for the year 2000 and
beyond. The costs associated with this are not expected to significantly
affect the results of the Company.
DISCUSSION OF BALANCE SHEET
THE CONSOLIDATED BALANCE SHEET shows the Company's financial position at year
end, compared with the previous year end. This statement provides information
to assist in assessing factors such as the Company's liquidity and financial
resources.
The effect of currency rate changes during the year caused a $48.1 million
decrease in the Foreign currency translation adjustments equity account. These
rate changes also caused significant decreases in accounts receivable,
inventories, goodwill and plant and equipment, as well as significant
decreases in accounts payable and the various accrual accounts.
Working capital and the current ratio improved in 1997 as follows:
Working Capital (millions) 1997 1996
_______________________________________________
Current Assets $ 1,500 $ 1,402
Current Liabilities 716 767
Working Capital 784 635
Current Ratio 2.1 1.8
===============================================
Page 13-2
ACCOUNTS RECEIVABLE are primarily due from customers for sales of product
($554.5 million at June 30, 1997, compared to $490.9 million at June 30,
1996). The current year increase in accounts receivable is primarily due to
the increased volume, especially in the last months of the fiscal year. Days
sales outstanding for the Company decreased slightly from 1996.
INVENTORIES were $727.8 million at June 30, 1997, compared to $707.2
million a year ago. This increase in inventories, due to acquisitions and
volume increases, was mostly within work in process. Months supply of
inventory on hand at June 30, 1997 decreased to 3.4 months from 3.9 months at
June 30, 1996.
PLANT AND EQUIPMENT, net of accumulated depreciation, increased $29.0
million in 1997 as a result of acquisitions and capital expenditures which
exceeded annual depreciation.
INVESTMENTS AND OTHER ASSETS increased $25.8 million in 1997 primarily as a
result of an increase in the cash surrender value of corporate-owned life
insurance contracts and a net receivable resulting from two currency hedges.
EXCESS COST OF INVESTMENTS OVER NET ASSETS ACQUIRED decreased $34.9 million
in 1997 as a result of currency rate fluctuations and amortization, partially
offset by increases from acquisitions. The additional excess cost of
investments in 1997 is being amortized over 15 years.
ACCOUNTS PAYABLE, TRADE increased $30.0 million in 1997 due to increased
volume near the end of the fourth quarter. The majority of the increase was
within the Industrial North American operations.
ACCRUED PAYROLLS AND OTHER COMPENSATION increased $16.3 million in 1997
primarily as a result of incentive plans based on sales and earnings.
NOTES PAYABLE and LONG-TERM DEBT decreased a total of $111.0 million in
1997 primarily due to the reduction of commercial paper notes. See the Cash
Flows From Financing Activities section on page 13-5 for further discussion.
The Company's goal is to maintain no less than an "A" rating on senior debt
to ensure availability and reasonable cost of external funds. To meet this
objective, the Company has established the financial goal of maintaining a
ratio of debt to debt-equity of 30 to 33 percent.
Debt to Debt-Equity Ratio (millions) 1997 1996
__________________________________________________________
Debt $ 503 $ 614
Debt & Equity 2,050 1,998
Ratio 24.5% 30.7%
==========================================================
In fiscal 1998 no additional borrowings are anticipated for the stock
repurchase program, capital investments, or working capital purposes, but may
be utilized for acquisitions.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS remained level at $252.7 million
in 1997. These costs are explained further in Note 8 to the Consolidated
Financial Statements.
OTHER LIABILITIES increased $5.8 million in 1997 due to increases within
unfunded deferred compensation plans.
Page 13-3
DISCUSSION OF CASH FLOWS
THE CONSOLIDATED STATEMENT OF CASH FLOWS reflects cash inflows and outflows
from the Company's operating, investing and financing activities.
Cash and cash equivalents increased $5.0 million in 1997 after remaining
level in 1996 and decreasing $17.8 million in 1995. The major components of
these changes in cash flows are as follows:
CASH FLOWS FROM OPERATING ACTIVITIES -- The Company's largest source of
cash continues to be net cash provided by operating activities. Net cash
provided by operating activities in 1997 was $392.3 million compared to $338.0
million in 1996. This increase of $54.3 million is principally the result of
an increase of $34.4 million in Net income and the noncash expenses of
Depreciation and Amortization increasing $28.5 million. Accounts receivable
used cash of $76.1 million in 1997 as a result of increased volume, compared
to providing cash of $8.7 million in 1996. Inventories also used cash of $27.0
million in 1997, an increase of $12.0 million compared to the cash used in
1996. Partially offsetting these uses of cash, Accounts payable, trade
provided cash of $31.7 million in 1997 compared to using cash of $15.5 million
in 1996. Current year increases in Other accrued liabilities also provided
cash of $16.0 million in 1997 compared to using cash of $31.8 million in 1996.
The net cash provided by operating activities in 1996 increased $97.8
million compared to 1995. This increase is partially the result of an increase
of $21.4 million in Net income, in addition to the noncash expenses of
Depreciation and Amortization increasing $21.4 million. Accounts receivable
provided cash of $8.7 million in 1996 compared to using $53.1 million cash in
1995. Inventories increased in 1996 as a result of increased volume, using
cash of $15.0 million, much less than the use of $85.8 million cash for
inventory increases in 1995. Accounts payable, trade used cash of $15.5
million in 1996 as compared to providing cash of $29.7 million in 1995. Other
accrued liabilities used additional cash of $25.8 million in 1996 versus 1995.
Cash paid for income taxes was $145,663 in 1997, $135,380 in 1996 and
$123,590 in 1995.
CASH FLOWS FROM INVESTING ACTIVITIES -- Net cash used in investing
activities was $366.0 million lower in 1997 than 1996. The most significant
use of cash in 1997 was Capital expenditures, which at $189.2 million was
$12.5 million less than the previous year. Over the past three years the
Company has invested $542.9 million in Capital expenditures, which
demonstrates the Company's commitment to efficient manufacturing technology.
The most significant reduction in the use of cash was for investing in
Acquisitions which was reduced $334.2 million in 1997. Cash used for
Acquisitions was $31.5 million in 1997; $365.6 million in 1996 and $126.7
million in 1995. The use of cash for Acquisitions shown in the statement
represents the net assets of the acquired companies at their respective
acquisition dates and consists of the following:
Page 13-4
(In thousands) 1997 1996 1995
____________________________________________________________
Assets acquired:
Accounts receivable $ 4,549 $ 70,916 $ 31,160
Inventories 13,410 77,582 30,528
Prepaid expenses 247 1,459 774
Deferred income taxes 1,576 18,942 149
Plant & equipment 15,283 124,222 57,613
Other assets 10,475 247,388 53,679
____________________________________________________________
45,540 540,509 173,903
____________________________________________________________
Liabilities assumed:
Notes payable 2,050 13,256 4,180
Accounts payable 2,418 26,880 11,680
Accrued payrolls 471 10,377 3,823
Accrued taxes 941 11,620 5,641
Other accrued liabilities 4,582 47,820 8,053
Long-term debt 2,454 8,235 10,772
Pensions and other
postretirement benefits 1,163 49,798 1,243
Other liabilities 6,900 1,798
____________________________________________________________
14,079 174,886 47,190
____________________________________________________________
Net assets acquired $ 31,461 $ 365,623 $ 126,713
============================================================
CASH FLOWS FROM FINANCING ACTIVITIES -- In 1997 the Company decreased its
outstanding borrowings by a net total of $121.3 million. The Company paid off
all commercial paper and selected notes payable within the International
operations as of June 30, 1997. In 1996 the Company increased its outstanding
borrowings by a net total of $273.2 million primarily to fund acquisitions.
During 1996 the Company registered $400,000 of debt securities for future
issuance. In May 1996, $100,000 of 15-year debentures were issued. In June
1996, an additional $95,000 of medium-term notes were issued. The remaining
increase in borrowings was primarily through the utilization of commercial
paper notes. During 1995 outstanding borrowings increased $43.3 million.
Common share activity resulted from the repurchase of stock and the
exercise of stock options. Dividends have been paid for 188 consecutive
quarters, including a yearly increase in dividends for the last 41 fiscal
years. The current annual dividend rate, after a 3-shares-for-2 common stock
split paid on September 5, 1997, is $.60 per share.
Cash paid for interest, net of capitalized interest, was $46,812 in 1997,
$35,554 in 1996 and $29,573 in 1995. Noncash financing activities included the
reduction in principal of the ESOP debt guarantee, which amounted to $13,468
in 1996 and $12,229 in 1995.
In summary, based upon the Company's past performance and current
expectations, management believes that the cash flows generated from future
operating activities, combined with the Company's worldwide financial
capabilities, will provide adequate funds to support planned growth and
continued improvements in Parker's manufacturing facilities and equipment.
Page 13-5
DISCUSSION OF BUSINESS SEGMENT INFORMATION
THE BUSINESS SEGMENT INFORMATION presents sales, operating income and assets
by the principal industries and geographic areas in which Parker's various
businesses operate.
INDUSTRIAL SEGMENT
_____________________________________________________
1997 1996 1995
_____________________________________________________
Operating income as a
percent of sales 12.5% 12.4% 13.6%
Return on average assets 18.7% 18.3% 22.3%
_____________________________________________________
Sales for the Industrial segment increased 8.9 percent in 1997 and 10.1
percent in 1996. Sales for the North American operations increased to $2.2
billion in 1997, 9.1 percent over 1996, following 1996's increase of 7.4
percent over 1995. Nearly one-fifth of the 1997 increase and one-half of the
1996 increase were due to acquisitions. The growth in 1997 was spread among
numerous markets. The 1996 growth was due to new products as well as expanding
markets, offset by reduced demand within the heavy-duty truck market which had
reached record-level volume in 1995.
Recent order entry indicates strong growth for the North American
operations for 1998 as a result of gains in market share as well as market
growth. In addition, the Company expects to increase sales through
acquisitions.
International Industrial sales increased to a record $1.1 billion, 8.5
percent over 1996. Without the significant impact of changes in currency
rates, volume for 1997 increased nearly 15 percent. Net of the impact from
currencies, acquisitions accounted for a majority of the 1997 increase. Demand
in Europe was relatively weak for the majority of 1997 with some improvement
occurring in the fourth quarter. Latin America made an impressive recovery
during the year with strength returning in Brazilian markets. Asia Pacific
also contributed to the growth in 1997.
International sales for 1996 increased 15.9 percent over 1995, three-
fourths due to acquisitions. Without the effect of currencies, sales for 1996
would have increased approximately 15.7 percent. During 1996 sales growth in
Europe moderated after a strong recovery and peak performance in 1995. Latin
American operations suffered through a weakened economy throughout most of
1996.
Backlog for the Industrial Segment was $510.8 million at June 30, 1997,
compared to $464.6 million at the end of the prior period. Although
acquisitions contributed to this increase, the primary growth is due to the
increased volume within the North American operations. The 1996 increase over
backlog of $441.2 million at June 30, 1995 was due to acquisitions.
Operating income for the segment increased 9.7 percent in 1997 after
remaining flat from 1995 to 1996. North American operations increased 11.4
percent with Income from operations as a percent of sales improving to 15.3
percent from 15.0 percent in 1996. Higher capacity utilization resulting from
increased volume within the North American operations improved operating
margins. Raw material prices remained relatively stable during 1997 and
Page 13-6
customer pricing was very competitive.
International Income from operations increased 2.7 percent from 1996 while
Income as a percent of sales decreased to 6.9 percent from 7.3 percent. Soft
markets in Europe caused lower production levels and lower absorption of fixed
costs.
In 1996 and much of 1997 acquisitions contributed lower margins primarily
within International, but also within North America, because of the
integration costs incurred without the benefit of synergies yet to be
realized. A changing product mix in 1996 also had a negative effect on
manufacturing costs and overhead absorption in certain business units, as
inventory levels were re-aligned.
Assets for the Industrial segment increased only slightly in 1997 after an
increase of 15.2 percent in 1996 primarily due to acquisitions. In 1997
currency fluctuations offset increases from acquisitions and increases in
accounts receivable and inventories due to additional volume. During 1996
accounts receivable and inventories within North America increased as a result
of increased volume, while these assets, before the effect of acquisitions,
declined within International. In both years net plant and equipment increased
due to capital expenditures exceeding depreciation.
AEROSPACE SEGMENT
_____________________________________________________
1997 1996 1995
_____________________________________________________
Operating income as a
percent of sales 12.7% 13.7% 11.8%
Return on average assets 17.7% 19.2% 19.7%
_____________________________________________________
Sales increased 38.8 percent in 1997 and 19.2 percent in 1996. In both
years over one-half of the increase was due to the Abex NWL acquisition.
Aerospace markets experienced strong growth during 1997 following the slight
recovery in 1996 and the relatively flat volume for several years preceding
1996. Gains were primarily within the commercial-transport original equipment
market as the military market remained relatively flat during 1997 as in
several years prior. Market penetration in the maintenance, repair and
overhaul markets helped make significant gains in volume as well.
Backlog at June 30, 1997 was $976.2 million compared to $866.3 million in
1996, reflecting the strong growth of the commercial aircraft market. The Abex
acquisition contributed to the significant increase in backlog in 1996 from a
balance of $584.5 million at the end of 1995.
Operating income increased 28.3 percent in 1997 and 38.3 percent in 1996,
but declined as a percent of sales in 1997. The decline in margins from the
prior year is primarily the result of lower margins contributed by the Abex
operations which are still in the integration phase. In addition, the segment
incurred an increase in long-term contract reserves related to several new
contracts.
An improvement in margins in 1996 was the result of a very favorable product
mix, with contributions from aftermarket sales, initial spare-parts
provisioning for new commercial aircraft and original equipment military
sales.
Assets increased 8.0 percent in 1997. Increases in customer receivables and
Page 13-7
inventories were partially offset by a decrease in net goodwill. Assets more
than doubled in 1996, primarily due to the Abex NWL acquisition. In addition,
increased volume caused increases in customer receivables and inventories in
1996.
CORPORATE ASSETS increased 33.2 percent in 1997 as a result of the
construction of a new corporate headquarters, a net receivable resulting from
two currency hedges and an increase in short-term investments.
Page 13-8
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share amounts)
For the years ended June 30, 1997 1996 1995
NET SALES $ 4,091,081 $ 3,586,448 $ 3,214,370
Cost of sales 3,152,988 2,756,343 2,448,264
___________ ___________ ___________
Gross profit 938,093 830,105 766,106
Selling, general and administrative expenses 475,180 425,449 384,581
___________ ___________ ___________
INCOME FROM OPERATIONS 462,913 404,656 381,525
Other income (deductions):
Interest expense (46,659) (36,667) (30,922)
Interest and other income, net 5,623 8,537 2,335
Gain (loss) on disposal of assets 2,990 (2,047) (4,531)
___________ ___________ ___________
(38,046) (30,177) (33,118)
___________ ___________ ___________
Income before income taxes 424,867 374,479 348,407
Income taxes (Note 3) 150,828 134,812 130,169
___________ ___________ ___________
NET INCOME $ 274,039 $ 239,667 $ 218,238
=========== =========== ===========
EARNINGS PER SHARE (Note 4) $ 2.46 $ 2.15 $ 1.97
The accompanying notes are an integral part of the financial statements.
Page 13-9
QUARTERLY INFORMATION
(Dollars in thousands, except per share amounts)
1997 (a) 1st 2nd 3rd 4th Total
Net sales $ 959,328 $ 969,587 $ 1,047,100 $ 1,115,066 $ 4,091,081
Gross profit 204,830 208,264 246,522 278,477 938,093
Net income 51,105 52,564 77,964 92,406 274,039
Earnings per share (b) .46 .47 .70 .83 2.46
1996 (a) 1st 2nd 3rd 4th Total
Net sales $ 839,054 $ 824,376 $ 931,356 $ 991,662 $ 3,586,448
Gross profit 193,445 182,895 223,429 230,336 830,105
Net income 57,375 48,396 69,128 64,768 239,667
Earnings per share (b) .52 .43 .62 .58 2.15
(a) Quarterly Information is unaudited.
(b) Earnings per share have been adjusted for the 3-shares-for-2 common stock
split paid September 5, 1997.
Page 13-10
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
June 30, 1997 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 68,997 $ 63,953
Accounts receivable, less allowance
for doubtful accounts
(1997 - $5,904; 1996 - $6,445) 601,724 538,645
Inventories (Notes 1 and 5):
Finished products 317,494 332,213
Work in process 304,743 269,934
Raw materials 105,610 105,078
___________ ___________
727,847 707,225
Prepaid expenses 17,366 16,031
Deferred income taxes (Notes 1 and 3) 83,627 76,270
___________ ___________
TOTAL CURRENT ASSETS 1,499,561 1,402,124
Plant and equipment (Note 1):
Land and land improvements 96,995 101,290
Buildings and building equipment 486,655 494,374
Machinery and equipment 1,443,820 1,373,150
Construction in progress 111,121 79,479
___________ ___________
2,138,591 2,048,293
Less accumulated depreciation 1,117,848 1,056,516
___________ ___________
1,020,743 991,777
Investments and other assets (Note 1) 174,142 148,363
Excess cost of investments over
net assets acquired (Note 1) 285,264 320,152
Deferred income taxes (Notes 1 and 3) 19,236 24,708
___________ ___________
TOTAL ASSETS $ 2,998,946 $ 2,887,124
=========== ===========
Page 13-11
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, including long-term debt
payable within one year (Notes 6 and 7) $ 69,738 $ 173,789
Accounts payable, trade 266,848 236,871
Accrued payrolls and other compensation 144,481 128,136
Accrued domestic and foreign taxes 51,374 49,718
Other accrued liabilities 183,570 178,368
___________ ___________
TOTAL CURRENT LIABILITIES 716,011 766,882
Long-term debt (Note 7) 432,885 439,797
Pensions and other postretirement
benefits (Notes 1 and 8) 252,709 253,616
Deferred income taxes (Notes 1 and 3) 26,007 24,683
Other liabilities 24,033 18,188
___________ ___________
TOTAL LIABILITIES 1,451,645 1,503,166
SHAREHOLDERS' EQUITY (Note 9)
Serial preferred stock, $.50 par value,
authorized 3,000,000 shares; none issued
Common stock, $.50 par value,
authorized 300,000,000 shares; issued
111,809,085 shares in 1997 and
111,437,875 shares in 1996 at par value 55,905 55,719
Additional capital 150,702 146,686
Retained earnings 1,378,297 1,160,828
Foreign currency translation adjustments (27,345) 20,725
___________ ___________
1,557,559 1,383,958
Common stock in treasury at cost;
282,915 shares in 1997 (10,258) ---
___________ ___________
TOTAL SHAREHOLDERS' EQUITY 1,547,301 1,383,958
___________ ___________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,998,946 $ 2,887,124
=========== ===========
The accompanying notes are an integral part of the financial statements.
Page 13-12
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
For the years ended June 30, 1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 274,039 $ 239,667 $ 218,238
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 146,253 126,544 110,527
Amortization 23,580 14,819 9,403
Deferred income taxes (1,269) (3,691) (4,299)
Foreign currency transaction loss 1,947 1,733 1,903
(Gain) loss on sale of plant and equipment (9,811) 3,506 3,728
Changes in assets and liabilities, net of effects
from acquisitions and dispositions:
Accounts receivable (76,081) 8,723 (53,052)
Inventories (27,007) (15,046) (85,795)
Prepaid expenses (1,234) (157) 617
Other assets (26,130) (20,444) (13,716)
Accounts payable, trade 31,672 (15,503) 29,668
Accrued payrolls and other compensation 23,929 11,586 24,726
Accrued domestic and foreign taxes 4,282 (3,589) (9,159)
Other accrued liabilities 16,026 (31,800) (5,987)
Pensions and other postretirement benefits 6,823 19,404 12,396
Other liabilities 5,291 2,229 937
_________ _________ _________
Net cash provided by operating activities 392,310 337,981 240,135
Page 13-13
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (excluding cash of $1,394 in 1997,
$20,479 in 1996 and $5,961 in 1995) (31,461) (365,623) (126,713)
Capital expenditures (189,201) (201,693) (151,963)
Proceeds from sale of plant and equipment 11,307 9,387 13,045
Other 14,624 (2,812) 1,409
_________ _________ _________
Net cash (used in) investing activities (194,731) (560,741) (264,222)
CASH FLOWS FROM FINANCING ACTIVITIES
(Payments of) proceeds from common share activity (10,184) 4,967 11,528
(Payments of) proceeds from notes payable, net (100,655) 81,194 62,021
Proceeds from long-term borrowings 9,390 201,724 20,764
(Payments of) long-term borrowings (30,059) (9,696) (39,438)
Dividends paid, net of tax benefit of ESOP shares (56,570) (53,325) (49,961)
_________ _________ _________
Net cash (used in) provided by
financing activities (188,078) 224,864 4,914
Effect of exchange rate changes on cash (4,457) (1,981) 1,413
_________ _________ _________
Net increase (decrease) in cash and cash equivalents 5,044 123 (17,760)
Cash and cash equivalents at beginning of year 63,953 63,830 81,590
_________ _________ _________
Cash and cash equivalents at end of year $ 68,997 $ 63,953 $ 63,830
========= ========= =========
The accompanying notes are an integral part of the financial statements.
Page 13-14
BUSINESS SEGMENT INFORMATION - BY INDUSTRY
(Dollars in thousands)
1997 1996 1995
NET SALES, including intersegment sales:
Industrial:
North America $ 2,156,043 $ 1,976,351 $ 1,839,810
International 1,073,201 989,359 853,537
Aerospace 862,659 621,465 521,451
Intersegment sales (822) (727) (428)
___________ ___________ ___________
$ 4,091,081 $ 3,586,448 $ 3,214,370
=========== =========== ===========
INCOME FROM OPERATIONS before corporate
general and administrative expenses:
Industrial:
North America $ 329,967 $ 296,081 $ 280,189
International 74,058 72,093 85,470
Aerospace 109,470 85,329 61,711
___________ ___________ ___________
513,495 453,503 427,370
Corporate general and
administrative expenses 50,582 48,847 45,845
___________ ___________ ___________
Income from operations 462,913 404,656 381,525
Other deductions 38,046 30,177 33,118
___________ ___________ ___________
Income before income taxes $ 424,867 $ 374,479 $ 348,407
=========== =========== ===========
IDENTIFIABLE ASSETS:
Industrial $ 2,167,820 $ 2,150,506 $ 1,866,336
Aerospace (a) 643,694 595,865 294,053
___________ ___________ ___________
2,811,514 2,746,371 2,160,389
Corporate assets (a)(b) 187,432 140,753 141,820
___________ ___________ ___________
$ 2,998,946 $ 2,887,124 $ 2,302,209
=========== =========== ===========
PROPERTY ADDITIONS: (c)
Industrial $ 173,635 $ 259,356 $ 199,294
Aerospace 20,608 63,437 6,448
Corporate (d) 32,078 3,122 3,834
___________ ___________ ___________
$ 226,321 $ 325,915 $ 209,576
=========== =========== ===========
Page 13-15
DEPRECIATION:
Industrial $ 119,948 $ 106,553 $ 92,234
Aerospace 19,517 17,267 15,661
Corporate 6,788 2,724 2,632
___________ ___________ ___________
$ 146,253 $ 126,544 $ 110,527
=========== =========== ===========
(a) Fiscal 1996 results have been restated to correct the classification of
certain deferred taxes.
(b) Corporate assets are principally cash and cash equivalents, domestic
deferred income taxes, investments, headquarters facilities, idle
facilities held for sale and the major portion of the Company's
domestic data processing equipment.
(c) Includes value of net plant and equipment at the date of acquisition of
acquired companies accounted for by the purchase method (1997 - $15,283;
1996 - $124,222; 1995 - $57,613).
(d) Fiscal 1997 includes $21,837 for real estate acquired in a tax-free
exchange of property.
Page 13-16
BUSINESS SEGMENT INFORMATION - BY GEOGRAPHIC AREA
(Dollars in thousands)
1997 1996 1995
NET SALES, including interarea sales:
North America $ 3,062,947 $ 2,669,201 $ 2,423,283
Europe 1,055,401 918,493 728,642
All Other 190,584 155,963 156,455
Interarea (217,851) (157,209) (94,010)
___________ ___________ ___________
$ 4,091,081 $ 3,586,448 $ 3,214,370
=========== =========== ===========
INCOME FROM OPERATIONS before
corporate general and administrative expenses:
North America $ 429,432 $ 381,154 $ 341,204
Europe 70,926 63,083 66,368
All Other 13,137 9,266 19,798
___________ ___________ ___________
513,495 453,503 427,370
Corporate general and
administrative expenses 50,582 48,847 45,845
___________ ___________ ___________
Income from operations $ 462,913 $ 404,656 $ 381,525
=========== =========== ===========
IDENTIFIABLE ASSETS:
North America (a) $ 1,808,154 $ 1,678,680 $ 1,346,601
Europe 859,774 933,201 704,061
All Other 143,586 134,490 109,727
___________ ___________ ___________
$ 2,811,514 $ 2,746,371 $ 2,160,389
Corporate assets (a)(b) 187,432 140,753 141,820
___________ ___________ ___________
$ 2,998,946 $ 2,887,124 $ 2,302,209
=========== =========== ===========
(a) Fiscal 1996 results have been restated to correct the classification of
certain deferred taxes.
(b) Corporate assets are principally cash and cash equivalents, domestic
deferred income taxes, investments, headquarters facilities, idle
facilities held for sale and the major portion of the Company's domestic
data processing equipment.
Page 13-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of the
accompanying consolidated financial statements are summarized below.
NATURE OF OPERATIONS - The Company is a leading worldwide producer of
motion control products, including fluid power systems, electromechanical
controls and related components.
The Company operates in two principal business segments: Industrial and
Aerospace. The Industrial Segment produces motion-control and fluid power
system components for builders and users of various types of manufacturing,
packaging, processing, transportation, agricultural, construction, and
military machinery, vehicles and equipment. Industrial Segment products are
marketed primarily through field sales employees and more than 7,500
independent distributors. The North American Industrial business represents
the largest portion of the Company's manufacturing plants and distribution
networks and primarily services North America. The International Industrial
operations bring Parker products and services to countries throughout Europe,
Asia Pacific and Latin America.
The Aerospace Segment produces hydraulic, pneumatic and fuel systems and
components which are utilized on virtually every domestic commercial,
military and general aviation aircraft. Its components also perform a vital
role in naval vessels, land-based weapons systems, satellites and space
vehicles. This Segment serves original equipment and maintenance, repair and
overhaul customers worldwide. Its products are marketed by field sales
employees and are sold directly to the manufacturer and to the end user.
There are no individual customers to whom sales are 3 percent or more of
the Company's consolidated sales. Due to the diverse group of customers
throughout the world the Company does not consider itself exposed to any
concentration of credit risks.
The Company manufactures and markets its products throughout the world.
Although certain risks and uncertainties exist, the diversity and breadth of
the Company's products and geographic operations mitigate significantly the
risk that adverse changes in any event would materially affect the Company's
operating results.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of all domestic and foreign subsidiaries. All material intercompany
transactions and profits have been eliminated in the consolidated financial
statements. Within the Business Segment Information, intersegment and
interarea sales are recorded at fair market value.
Page 13-18
CASH - Cash equivalents consist of short-term highly liquid investments,
with a three-month or less maturity, carried at cost plus accrued interest,
which are readily convertible into cash.
INVENTORIES - Inventories are stated at the lower of cost or market. The
majority of domestic inventories are valued by the last-in, first-out method
and the balance of the Company's inventories are valued by the first-in,
first-out method.
LONG-TERM CONTRACTS - The Company enters into long-term contracts for the
production of aerospace products. For financial statement purposes, sales are
recorded as deliveries are made (units of delivery method of percentage-of-
completion). Unbilled costs on these contracts are included in inventory.
Progress payments are netted against the inventory balances. Provisions for
estimated losses on uncompleted contracts are made in the period in which
such losses are determined.
PLANT, EQUIPMENT AND DEPRECIATION - Plant and equipment are recorded at
cost and are depreciated principally using the straight-line method for
financial reporting purposes. Depreciation rates are based on estimated
useful lives of the assets. Improvements which extend the useful life of
property are capitalized, and maintenance and repairs are expensed. When
property is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the appropriate accounts and any gain or loss
is included in current income.
INVESTMENTS AND OTHER ASSETS - Investments in joint-venture companies in
which ownership is 50% or less are stated at cost plus the Company's equity
in undistributed earnings. These investments and the related earnings are not
material to the consolidated financial statements.
EXCESS COST OF INVESTMENTS - The excess cost of investments over net
assets acquired is being amortized, on a straight-line basis, primarily over
15 years and not exceeding 40 years. Unamortized cost in excess of associated
expected operating cash flows is considered to be impaired and is written
down to fair value.
INCOME TAXES - Income taxes are provided based upon income for financial
reporting purposes. Deferred income taxes arise from temporary differences in
the recognition of income and expense for tax purposes. Tax credits and
similar tax incentives are applied to reduce the provision for income taxes
in the year in which the credits arise.
STOCK SPLIT - On July 10, 1997 the Company's Board of Directors authorized
a 3-shares-for-2 split of the Company's common shares, payable on September
5, 1997 to shareholders of record August 21, 1997. Shareholders' equity has
been restated to give retroactive recognition to the stock split for all
periods presented by reclassifying from Additional capital to Common shares
the par value of the additional shares arising from the split. In addition,
all references in the financial statements to number of shares, per share
amounts, stock option data, and market prices of the Company's common stock
have been restated.
Page 13-19
FOREIGN CURRENCY TRANSLATION - Assets and liabilities of most foreign
subsidiaries are translated at current exchange rates, and income and
expenses are translated using weighted average exchange rates. The effects of
these translation adjustments, as well as gains and losses from certain
intercompany transactions, are reported in a separate component of
Shareholders' equity. Such adjustments will affect Net income only upon sale
or liquidation of the underlying foreign investments, which is not
contemplated at this time. Exchange gains and losses from transactions in a
currency other than the local currency of the entity involved, and
translation adjustments in countries with highly inflationary economies, are
included in income.
FINANCIAL INSTRUMENTS - The Company's financial instruments consist
primarily of investments in cash, cash equivalents and long-term investments
as well as obligations under notes payable and long-term debt. The carrying
values for Cash and cash equivalents, Investments and other assets and Notes
payable approximate fair value.
The Company enters into forward exchange contracts (forward contracts) and
cross-currency swap agreements to reduce its exposure to fluctuations in
related foreign currencies. These contracts are with major financial
institutions and the risk of loss is considered remote. The Company does not
hold or issue derivative financial instruments for trading purposes.
Gains or losses on forward contracts which hedge dividends from
consolidated subsidiaries are accrued in Shareholders' equity. Gains or
losses on forward contracts which hedge specific transactions are recognized
in Net income, offsetting the underlying foreign currency gains or losses.
Cross-currency swap agreements are recorded in Long-term debt as dollar-
denominated receivables with offsetting foreign-currency payables. If the
receivables more than offset the payables, the net difference is reclassified
to an asset. Gains or losses are accrued monthly as an adjustment to Net
income, offsetting the underlying foreign currency gains or losses. The
differential between interest to be received and interest to be paid is
accrued monthly as an adjustment to Interest expense.
In addition, the Company's foreign locations, in the ordinary course of
business, enter into financial guarantees, through financial institutions,
which enable customers to be reimbursed in the event of nonperformance by the
Company.
The total value of open contracts and any risk to the Company as a result
of the above mentioned arrangements is not material.
2. ACQUISITIONS
On June 4, 1997 the Company acquired the remaining 50 percent of SAES-Parker
UHP Components Corp., a manufacturer of valves for ultra-pure gas used in
semiconductor manufacturing. On February 3, 1997 the Company purchased
Hydroflex S.A. de C.V., a leading Mexican manufacturer of hydraulic hose,
fittings and adapters located in Toluca, Mexico. On September 5, 1996 the
Company purchased the assets of the industrial hydraulic product line of
Hydraulik-Ring AG, of Nurtingen, Germany. Total purchase price for these
businesses was approximately $29.3 million cash. Combined annual sales for
these operations, for their most recent fiscal year prior to acquisition,
Page 13-20
were approximately $52 million.
Effective April 15, 1996 the Company acquired the aerospace assets of the
Abex NWL Division of Pneumo Abex Corporation, a major international producer
of aerospace hydraulic and electromechanical actuation equipment, engine
thrust-reverser actuators, hydraulic pumps, and electrohydraulic servovalves
headquartered in Kalamazoo, Michigan, for approximately $201 million cash. On
February 29, 1996 the Company acquired VOAC Hydraulics AB, a worldwide
leader in manufacturing mobile hydraulic equipment located in Boras, Sweden
for approximately $163 million cash. Sales by these operations for their most
recent fiscal year prior to acquisition approximated $366 million.
In June 1996 the Company acquired the remaining 60 percent of Schrader
Bellows Parker, S.A. de C.V., a Mexico City-based manufacturer of pneumatic
and hydraulic products. 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. On July 31, 1995 the Company purchased the assets
of General Valve Corp. of Fairfield, New Jersey, a leading producer of
miniature solenoid valves for high-technology applications. Total purchase
price for these businesses was approximately $9.2 million cash and 152,000
shares of common stock valued at $6.1 million. Sales by these operations for
their most recent fiscal year prior to acquisition approximated $24.8
million.
Effective March 30, 1995 the Company acquired the assets of Figgie
International's Power Systems Division, a manufacturer of hydraulic bladder
accumulators and pneumatic cylinders headquartered in Rockford, Illinois. On
March 3, 1995 the Company purchased the stock of Byron Valve and Machine
Company, Inc. of Siloam Springs, Arkansas, a producer of distributors and
flow raters. As of December 31, 1994 the Company purchased the Polyflex
Schwarz Group of companies located in Germany, France and Texas, a
manufacturer of reinforced high-pressure hoses, fittings and assemblies. The
Company also purchased Hauser Elektronik GmbH, a producer of automation
components and systems, based in Offenburg, Germany on December 31, 1994.
Effective December 21, 1994 the Company sold its 49 percent interest in its
Mexican joint venture, Conductores de Fluidos Parker and purchased its
inventory and accounts receivable to form a new wholly-owned subsidiary,
Parker Fluid Connectors de Mexico. On October 31, 1994 the Company acquired
Symetrics, Inc., a Newbury Park, California manufacturer of aerospace quick-
disconnect valved couplings. On September 30, 1994 the Company acquired
Chomerics, Inc., a leading producer of electromagnetic interference-shielding
materials, with plants in Massachusetts, New Hampshire and the United
Kingdom. On August 1, 1994 the Company acquired the Automation Division of
Atlas Copco AB, a Swedish manufacturer of pneumatic components. Total
purchase price for these businesses was approximately $119.3 million cash and
108,680 shares of common stock valued at $5.1 million. Combined annual sales
for these operations, for their most recent fiscal year prior to acquisition,
were approximately $200 million.
These acquisitions were accounted for by the purchase method, and results
are included as of the respective dates of acquisition.
Page 13-21
3. INCOME TAXES
Income taxes include the following:
1997 1996 1995
__________________________________________________________
Federal $ 113,819 $ 95,127 $ 90,956
Foreign 27,411 29,635 23,350
State and local 13,587 14,897 14,631
Deferred (3,989) (4,847) 1,232
__________________________________________________________
$ 150,828 $ 134,812 $ 130,169
==========================================================
A reconciliation of the Company's effective income tax rate to the
statutory Federal rate follows:
1997 1996 1995
____________________________________________________________
Statutory Federal income tax rate 35.0 % 35.0 % 35.0 %
State and local income taxes 2.0 2.3 2.6
FSC income not taxed (1.8) (1.1) (1.3)
Foreign tax rate difference .3 .7 1.0
Recognized loss carryforwards (.6) (1.1) (1.8)
Other .6 .2 1.9
____________________________________________________________
Effective income tax rate 35.5 % 36.0 % 37.4 %
============================================================
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of assets and liabilities.
The differences comprising the net deferred taxes shown on the Consolidated
Balance Sheet at June 30 were as follows:
1997 1996
___________________________________________________________________
Postretirement benefits $ 51,257 $ 50,485
Other liabilities and reserves 61,061 50,445
Long-term contracts 16,349 14,870
Operating loss carryforwards 23,286 32,227
Foreign tax credit carryforwards 1,405
Valuation allowance (1,768) (2,770)
Depreciation (63,963) (55,890)
Acquisitions (20,956) (23,549)
Inventory 11,620 13,834
___________________________________________________________________
Net deferred tax asset (liability) $ 78,291 $ 79,652
===================================================================
Change in net deferred tax asset (liability):
Provision for deferred tax $ 3,989 $ 4,847
Translation adjustment (2,932) (2,918)
Acquisitions (2,418) 14,179
___________________________________________________________________
Total change in net deferred tax $ (1,361) $ 16,108
===================================================================
At June 30, 1997, foreign subsidiaries had benefits for operating loss
Page 13-22
carryforwards of $23,286 for tax and $25,554 for financial reporting, most of
which can be carried forward indefinitely. Use of operating loss
carryforwards and currency adjustments reduced the valuation allowance.
Non-current deferred income tax assets include an $18,707 tax benefit for
the net operating loss carryforwards of the Company's German operations. The
Company has not provided a valuation allowance that would be required under
Statement of Financial Accounting Standards (SFAS) No. 109 if it is more
likely that these benefits would not be realized. Although future events
cannot be predicted with certainty, management continues to believe these
benefits will be realized because: the tax loss carryforward period is
unlimited; there are several tax planning strategies that can be used to
reduce the carryforward; 26 percent of the losses were due to non-recurring
restructuring charges with the remainder primarily the result of the
recession in Europe; and the Company's German operations are returning to
profitability.
Provision has not been made for additional U.S. or foreign taxes on
undistributed earnings of certain international operations as those earnings
will continue to be reinvested. It is not practicable to estimate the
additional taxes, including applicable foreign withholding taxes, that might
be payable on the eventual remittance of such earnings.
4. EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of shares
of common stock outstanding during the year, adjusted for shares issued in
acquisitions accounted for as poolings of interests and stock splits. Fully
diluted earnings per share are not presented because such dilution is not
material.
5. INVENTORIES
Inventories valued on the last-in, first-out cost method are approximately
36% in 1997 and 37% in 1996 of total inventories. The current cost of these
inventories exceeds their valuation determined on the LIFO basis by $140,364
in 1997 and $142,049 in 1996. Progress payments of $20,728 in 1997 and
$22,810 in 1996 are netted against inventories.
6. FINANCING ARRANGEMENTS
The Company has committed lines of credit totaling $450,000 through several
multi-currency unsecured revolving credit agreements with a group of banks,
of which $419,555 was available at June 30, 1997. Agreements totaling $50,000
expire December, 1997 and the remainder expire October, 2001. The interest on
borrowings is based upon the terms of each specific borrowing and is subject
to market conditions. The agreements also require facility fees of up to
8/100ths of one percent of the commitment per annum. Covenants in some of the
agreements include a limitation on the Company's ratio of secured debt to net
tangible assets.
The Company has other lines of credit, primarily short-term, aggregating
Page 13-23
$98,703, from various foreign banks, of which $69,923 was available at June
30, 1997. Most of these agreements are renewed annually.
During June 1996, the Company announced a Medium-Term Note Program and
registered $300,000 of medium-term notes of which $95,000 were issued and
outstanding at June 30, 1997 and 1996.
The Company is authorized to sell up to $400,000 of short-term commercial
paper notes, rated A-1 by Standard & Poor's, P-1 by Moody's and D-1 by Duff &
Phelps. There were no commercial paper notes outstanding at June 30, 1997. At
June 30, 1996 there were $98,400 of commercial paper notes outstanding which
were supported by the available domestic lines of credit.
Commercial paper, along with short-term borrowings from foreign banks,
primarily make up the balance of Notes payable. The balance and weighted
average interest rate of the Notes payable at June 30, 1997 and 1996 were
$58,945 and 5.7% and $165,597 and 6.2%, respectively.
7. DEBT
June 30, 1997 1996
________________________________________________________________________
Domestic:
Debentures and notes
10.375%, due 1999-2018 $ 100,000 $ 100,000
9.75%, due 2002-2021 100,000 100,000
7.3%, due 2011 100,000 100,000
9.6%, due 1998 1,714 4,571
Medium-term notes
7.33% to 7.39%, due 2007-2010 95,000 95,000
Variable rate demand bonds
4.2% to 4.25%, due 2010-2025 20,035 15,535
Industrial revenue bonds
3.3% to 5.3625%, due 2002-2015 4,370
Foreign:
Bank loans, including revolving credit
1.0% to 25.0%, due 1998-2013 25,704 26,493
Other long-term debt, including capitalized leases 1,225 2,020
________________________________________________________________________
Total long-term debt 443,678 447,989
Less long-term debt payable within one year 10,793 8,192
________________________________________________________________________
Long-term debt, net $ 432,885 $ 439,797
========================================================================
Principal amounts of long-term debt payable in the five years ending June
30, 1998 through 2002 are $10,793, $10,524, $10,216, $7,743, and $11,017,
respectively. The carrying value of the Company's Long-term debt (excluding
leases and cross-currency swaps) was $443,673 and $453,661 at June 30, 1997
and 1996, respectively, and was estimated to have a fair value of $454,689
and $462,725, at June 30, 1997 and 1996, respectively. The estimated fair
value of the Long-term debt was estimated using discounted cash flow analyses
based on the Company's current incremental borrowing rate for similar types
of borrowing arrangements.
Page 13-24
LEASE COMMITMENTS - Future minimum rental commitments as of June 30, 1997,
under noncancelable operating leases, which expire at various dates, are as
follows: 1998-$27,505; 1999-$19,325; 2000-$12,796; 2001-$6,954; 2002-
$5,900 and after 2002-$27,343.
Rental expense in 1997, 1996 and 1995 was $33,305, $29,899, and $26,374,
respectively.
8. RETIREMENT BENEFITS
PENSIONS -- The Company has noncontributory defined benefit pension plans
covering eligible employees, including certain employees in foreign
countries. Plans for most salaried employees provide pay-related benefits
based on years of service. Plans for hourly employees generally provide
benefits based on flat-dollar amounts and years of service. The Company also
has contractual arrangements with certain key employees which provide for
supplemental retirement benefits. In general, the Company's policy is to
fund these plans based on legal requirements, tax considerations, local
practices and investment opportunities. The Company also sponsors defined
contribution plans and participates in government-sponsored programs in
certain foreign countries.
Pension costs for all plans were $22,773, $22,514 and $17,246 for 1997,
1996 and 1995, respectively. Pension costs for all defined benefit plans
accounted for using SFAS No. 87, Employers' Accounting for Pensions, are as
follows:
1997 1996 1995
____________________________________________________________________
Service cost-benefits earned
during the period $ 23,715 $ 20,731 $ 18,801
Interest cost on projected benefit
obligation 52,726 44,384 37,929
Actual return on assets (89,614) (74,926) (77,321)
Net amortization and deferral 33,703 30,111 35,665
____________________________________________________________________
Net periodic pension costs $ 20,530 $ 20,300 $ 15,074
====================================================================
For domestic plans, the weighted average discount rates and the rates of
increase in future compensation levels used in determining the actuarial
present value of the projected benefit obligations were 8% and 5%,
respectively, at June 30, 1997 and 1996. The expected long-term rate of
return on assets was 9% at June 30, 1997 and 1996. For the principal foreign
plans located in the United Kingdom and Germany, the weighted average
discount rates used were 8% and 7%, respectively, at June 30, 1997 and 1996
and the rates of increase in future compensation used were 6% and 4.5%,
respectively, at June 30, 1997 and 1996. The rates of return on assets used
in the United Kingdom and Germany were 8.5% and 7%, respectively, at June 30,
1997 and 1996.
The following tables set forth the funded status of all the plans
accounted for under SFAS No. 87 and the amounts recognized in the Company's
consolidated balance sheet:
Page 13-25
Assets Exceed Accumulated Benefits
1997 1996
____________________________________________________________________________
Actuarial present value of benefit obligations:
Vested benefit obligation $ (493,681) $ (445,798)
============================================================================
Accumulated benefit obligation $ (510,385) $ (458,720)
============================================================================
Projected benefit obligation $ (593,241) $ (529,564)
Plan assets at fair value 749,386 654,495
____________________________________________________________________________
Projected benefit obligation less than plan assets 156,145 124,931
Unrecognized net (gain) or loss (61,122) (34,822)
Unrecognized prior service cost 15,198 13,361
Unrecognized net (asset) obligation (16,848) (20,164)
____________________________________________________________________________
Prepaid pension cost (pension liability)
recognized $ 93,373 $ 83,306
============================================================================
Accumulated Benefits Exceed Assets
1997 1996
____________________________________________________________________________
Actuarial present value of benefit obligations:
Vested benefit obligation $ (79,521) $ (95,054)
============================================================================
Accumulated benefit obligation $ (95,707) $ (108,165)
============================================================================
Projected benefit obligation $ (121,458) $ (127,001)
Plan assets at fair value 18,301 22,436
____________________________________________________________________________
Projected benefit obligation in excess of
plan assets (103,157) (104,565)
Unrecognized net (gain) or loss 6,000 3,643
Unrecognized prior service cost 4,714 5,540
Unrecognized net (asset) obligation 1,794 2,247
____________________________________________________________________________
Prepaid pension cost (pension liability)
recognized $ (90,649) $ (93,135)
============================================================================
The majority of the underfunded plans relate to foreign and supplemental
executive plans.
The plans' assets consist primarily of listed common stocks, corporate and
government bonds, and real estate investments. At June 30, 1997 and 1996, the
plans' assets included Company stock with market values of $21,502 and
$15,014, respectively.
EMPLOYEE SAVINGS PLAN -- The Company sponsors an employee stock ownership
plan (ESOP) as part of its existing savings and investment 401(k) plan, which
is available to eligible domestic employees. Parker-Hannifin Common Stock is
used to match contributions made by employees to the savings plan up to a
maximum of 5 percent of an employee's annual compensation. A breakdown of
shares held by the ESOP is as follows:
Page 13-26
1997 1996 1995
__________________________________________________________________
Allocated shares 7,460,378 6,934,194 6,235,074
Committed to be released 60,231 66,548
Unreleased shares 843,267
__________________________________________________________________
Total shares held by the ESOP 7,460,378 6,994,425 7,144,889
==================================================================
Through June 30, 1996 the ESOP was leveraged and the loan was
unconditionally guaranteed by the Company. Company contributions to the
ESOP, recorded as compensation and interest expense, were $21,235 in 1997,
$18,626 in 1996 and $17,106 in 1995. The interest expense portion (interest
on ESOP debt) was $856 in 1996 and $1,910 in 1995. Dividends earned by the
unallocated shares and interest income within the ESOP were used to service
the ESOP debt. These were $218 in 1996 and $793 in 1995. ESOP shares are
considered outstanding for purposes of earnings per share computations.
In addition to shares within the ESOP, as of June 30, 1997 employees have
elected to invest in 2,456,367 shares of Common Stock within the Company
Stock Fund of the Parker Retirement Savings Plan.
OTHER POSTRETIREMENT BENEFITS--The Company provides postretirement medical
and life insurance benefits to certain retirees and eligible dependents. Most
plans are contributory, with retiree contributions adjusted annually. The
plans are unfunded and pay stated percentages of covered medically necessary
expenses incurred by retirees, after subtracting payments by Medicare or
other providers and after stated deductibles have been met. For most plans,
the Company has established cost maximums to more effectively control future
medical costs. The Company has reserved the right to change or eliminate
these benefit plans. Postretirement benefit costs included the following
components:
1997 1996 1995
__________________________________________________________________________
Service cost-benefits attributed to
service during the period $ 3,296 $ 3,515 $ 3,598
Interest cost on accumulated
postretirement benefit obligations 11,316 11,126 9,638
Net amortization and deferral (830) (708) 72
__________________________________________________________________________
Net periodic postretirement benefit costs $ 13,782 $ 13,933 $ 13,308
==========================================================================
Page 13-27
The following table reconciles the plans' combined funded status to
amounts recognized in the Company's consolidated balance sheet:
1997 1996
________________________________________________________________________
Accumulated postretirement benefit obligation:
Retirees $ (78,114) $ (91,419)
Fully eligible active plan participants (31,019) (34,912)
Other active plan participants (40,741) (42,517)
Unrecognized (gain) loss (15,918) 2,721
Unrecognized prior service cost 131 144
________________________________________________________________________
Accrued postretirement benefit costs $ (165,661) $ (165,983)
========================================================================
For measurement purposes, a 10.5% annual rate of increase in the per
capita cost of covered benefits (i.e., health care cost trend rate) was
assumed for 1998. The rate was assumed to decrease gradually to 6% by 2007
and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. To illustrate,
increasing the assumed health care cost trend rates by 1 percentage point in
each year would increase the accumulated postretirement benefit obligation as
of June 30, 1997 by $8,161, and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for the year then
ended by $772. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 8% at June 30, 1997 and
1996.
OTHER -- In 1995 the Company established nonqualified deferred
compensation programs which permit officers, directors and certain management
employees to annually elect to defer a portion of their compensation, on a
pre-tax basis, until their retirement. The retirement benefit to be provided
is based on the amount of compensation deferred, Company match, and earnings
on the deferrals. Deferred compensation expense was $4,862, $4,129 and $2,530
in 1997, 1996 and 1995, respectively.
The Company has invested in corporate-owned life insurance policies to
assist in funding these programs. The cash surrender values of these policies
are in an irrevocable rabbi trust and are recorded as assets of the Company.
Page 13-28
9. SHAREHOLDERS' EQUITY
COMMON SHARES 1997 1996 1995
_____________________________________________________________________________
Balance July 1 $ 55,719 $ 55,502 $ 55,431
Shares issued under stock option
plans (1997 - 432,096; 1996 -
513,836; 1995 - 424,320) less
shares of stock-for-stock
exchange (1997 - 153,770;
1996 - 136,686; 1995 - 285,834) 139 189 69
Shares issued for restricted stock 47 28
Shares issued for prior-year pooled
acquisition 2
_____________________________________________________________________________
Balance June 30 $ 55,905 $ 55,719 $ 55,502
=============================================================================
ADDITIONAL CAPITAL
_____________________________________________________________________________
Balance July 1 $ 146,686 $ 139,953 $ 135,144
Shares issued under stock option
plans, less shares of stock-for-
stock exchange 1,684 5,481 1,867
Shares issued for purchase acquisition (176) 2,641
Shares issued as restricted stock 2,332 1,428 287
Shares issued for prior-year pooled
acquisition 14
_____________________________________________________________________________
Balance June 30 $ 150,702 $ 146,686 $ 139,953
=============================================================================
RETAINED EARNINGS
_____________________________________________________________________________
Balance July 1 $ 1,160,828 $ 974,486 $ 806,240
Net income 274,039 239,667 218,238
Cash dividends paid on common shares,
net of tax benefit of ESOP shares
(1997 - $.51 per share; 1996 - $.48
per share; 1995 - $.45 per share) (56,570) (53,325) (49,961)
Cash payments for fractional shares in
connection with 3-for-2 stock split (31)
_____________________________________________________________________________
Balance June 30 $ 1,378,297 $ 1,160,828 $ 974,486
=============================================================================
Page 13-29
DEFERRED COMPENSATION RELATED TO ESOP DEBT
_____________________________________________________________________________
Balance July 1 $ -- $ (13,468) $ (25,697)
Reduction of ESOP debt -- 13,468 12,229
_____________________________________________________________________________
Balance June 30 $ -- $ -- $ (13,468)
=============================================================================
TRANSLATION ADJUSTMENTS
_____________________________________________________________________________
Balance July 1 $ 20,725 $ 35,041 $ 2,538
Translation adjustments (Note 12) (48,070) (14,316) 32,503
_____________________________________________________________________________
Balance June 30 $ (27,345) $ 20,725 $ 35,041
=============================================================================
COMMON STOCK IN TREASURY
_____________________________________________________________________________
Balance July 1 $ -- $ -- $ (7,305)
Shares purchased at cost (18,690) (6,703) (1,364)
Shares issued under stock option plans
(1997 - 223,184; 1995 - 345,351) 6,676 5,890
Shares issued for purchase acquisition 6,176 2,440
Shares issued as restricted stock 1,756 527 339
_____________________________________________________________________________
Balance June 30 $ (10,258) $ -- $ --
=============================================================================
ESOP LOAN GUARANTEE - During 1989, Parker established a leveraged Employee
Stock Ownership Plan. A trust established under the plan borrowed $70,000,
which was unconditionally guaranteed by the Company. This loan was paid off
on June 30, 1996. At June 30, 1995 the unpaid balance of the loan was
recorded as Long-term debt and an equivalent amount, representing deferred
compensation, was a deduction to Shareholders' equity.
10. STOCK INCENTIVE PLANS
EMPLOYEES' STOCK OPTIONS -- The Company's stock option and stock incentive
plans provide for the granting of incentive stock options and/or nonqualified
options to officers and key employees to purchase shares of common stock at a
price not less than 100 percent of the fair market value of the stock on the
dates options are granted. Outstanding options generally are exercisable one
year after the date of grant and expire no more than ten years after grant.
The Company derives a tax deduction measured by the excess of the market
value over the option price at the date nonqualified options are exercised.
The related tax benefit is credited to additional capital. The Company makes
no charges against capital with respect to options granted.
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation,
the Company continues to account for its stock option and stock incentive
Page 13-30
plans in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and makes no charges against
capital with respect to options granted. SFAS No. 123 does however require
the disclosure of pro forma information regarding Net Income and Earnings per
share determined as if the Company had accounted for its stock options under
the fair value method. For purposes of this pro forma disclosure the
estimated fair value of the options is amortized to expense over the options'
vesting period.
1997 1996
__________________________________________________________
Net income: As reported $ 274,039 $ 239,667
Pro forma $ 270,758 $ 238,330
Earnings per share: As reported $ 2.46 $ 2.15
Pro forma $ 2.43 $ 2.14
==========================================================
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to 1996, the above pro forma effect may not be
representative of that to be expected in future years.
The fair value for all options granted in 1997 and 1996 were estimated at
the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions:
Jan/97 Aug/96 Aug/95
__________________________________________________________
Risk-free interest rate 6.3% 6.4% 6.4%
Expected life of option 5 yrs 5 yrs 5 yrs
Expected dividend yield of stock 2.6% 2.6% 3.0%
Expected volatility of stock 26.5% 26.2% 25.2%
==========================================================
A summary of the status and changes of shares subject to options and the
related average price per share follows:
Shares Subject Average Option
To Options Price Per Share
__________________________________________________________________________
Outstanding June 30, 1995 3,727,039 $ 14.70
__________________________________________________________________________
Granted 382,725 26.08
Exercised (513,836) 13.35
Canceled (17,436)
__________________________________________________________________________
Outstanding June 30, 1996 3,578,492 $ 16.09
__________________________________________________________________________
Granted 1,351,500 27.37
Exercised (655,280) 14.48
Canceled (50,625)
__________________________________________________________________________
Outstanding June 30, 1997 4,224,087 $ 19.82
==========================================================================
Page 13-31
Options exercisable and shares available for future grant on June 30:
1997 1996 1995
_______________________________________________________________________
Options exercisable 2,905,887 3,195,767 2,712,965
Weighted-average option price
per share of options exercisable $ 16.41 $ 14.90 $ 12.75
Weighted-average fair value of
options granted during the year $ 7.30 $ 6.44 ---
Shares available for grant 3,304,627 3,295,347 3,284,490
=======================================================================
The range of exercise prices and the remaining contractual life of options
as of June 30, 1997 were:
______________________________________________________________________
Range of exercise prices $11-$15 $17-$21 $24-$29
______________________________________________________________________
Options outstanding:
Outstanding as of June 30, 1997 1,649,900 886,763 1,687,424
Weighted-average remaining
contractual life 4.2 yrs 7.4 yrs 9.2 yrs
Weighted-average exercise price $ 12.50 $ 19.66 $ 27.07
Options exercisable:
Outstanding as of June 30, 1997 1,649,900 886,763 369,224
Weighted-average remaining
contractual life 4.2 yrs 7.4 yrs 8.1 yrs
Weighted-average exercise price $ 12.50 $ 19.66 $ 26.08
======================================================================
RESTRICTED STOCK -- Restricted stock was issued, under the Company's 1993
Stock Incentive Program, to certain key employees under the Company's 1994-
95-96 and 1993-94-95 Long Term Incentive Plans (LTIP). Value of the payments
was set at the market value of the Company's common stock on the date of
issuance. Shares were earned and awarded, and an estimated value was
accrued, based upon attainment of criteria specified in the LTIP over the
cumulative years of the 3-year Plans. Plan participants are entitled to cash
dividends and to vote their respective shares, but the shares are restricted
as to transferability for three years following issuance.
Restricted Shares for LTIP Plan 1997 1996 1995
_________________________________________________________________________
Number of shares issued 152,916 73,361 29,166
Per share value on date of issuance $ 25.36 $ 26.05 $ 18.33
Total value $ 3,878 $ 1,911 $ 534
=========================================================================
Under the Company's 1995-96-97 LTIP, a payout of 34,962 shares of
restricted stock, from the Company's 1993 Stock Incentive Program, will be
issued to certain key employees. The balance of the 1995-96-97 LTIP payout
will be made as deferred cash compensation, as individually elected by the
participants. The total payout, valued at $10,729, which has been accrued
over the three years of the plan, will be made in 1998.
Page 13-32
In addition, non-employee members of the Board of Directors have been
given the opportunity to receive all or a portion of their fees in the form
of restricted stock. These shares vest ratably, on an annual basis, over the
term of office of the director. In 1997, 1996 and 1995, 9,923, 3,243 and
4,487 shares were issued, respectively, in lieu of directors' fees.
NON-EMPLOYEE DIRECTORS' STOCK OPTIONS -- In August, 1996, the Company
adopted a stock option plan for non-employee directors to purchase shares of
common stock at a price not less than 100 percent of the fair market value of
the stock on the dates options are granted. All outstanding options are
exercisable one year after the date of grant and expire no more than ten
years after grant. As of June 30, 1997, none of the 14,250 options granted
and outstanding were exercisable.
At June 30, 1997, the Company had 7,961,062 common shares reserved for
issuance in connection with all of the stock incentive plans.
11. SHAREHOLDERS' PROTECTION RIGHTS AGREEMENT
The Board of Directors of the Company declared a dividend of one Right for
each share of Common Stock outstanding on February 17, 1997 in relation to
the Company's Shareholder Protection Rights Agreement. As of June 30, 1997,
111,526,170 shares of Common Stock were reserved for issuance under this
Agreement. Under certain conditions involving acquisition of or an offer for
15 percent or more of the Company's Common Stock, all holders of Rights,
except an acquiring entity, would be entitled to purchase, at an exercise
price of $100, a value of $200 of Common Stock of the Company or an acquiring
entity, or at the option of the Board, to exchange each Right for one share
of Common Stock. The Rights remain in existence until February 17, 2007,
unless earlier redeemed (at one cent per Right), exercised or exchanged under
the terms of the agreement. In the event of an unfriendly business
combination attempt, the Rights will cause substantial dilution to the person
attempting the merger. The Rights should not interfere with any merger or
other business combination that is in the best interest of the Company and
its shareholders since the Rights may be redeemed.
12. FOREIGN OPERATIONS
The Company's major foreign operations are located in Germany, the United
Kingdom, France, Sweden, Italy and Brazil. Their business activities are
conducted principally in their local currency. Net transaction and
translation adjustments reduced Net income in 1997 by $1,267, increased Net
income in 1996 by $873, and reduced Net income in 1995 by $195. Such amounts
are net of the tax benefits from monetary corrections for inflation and
exclude the effect on Cost of sales resulting from valuing inventories at
acquisition cost since sales price increases in each year more than offset
this effect.
Net sales, Income before income taxes and Net income include the following
amounts from foreign operations:
Page 13-33
1997 1996 1995
_________________________________________________________________
Net sales $ 1,234,669 $ 1,085,676 $ 932,886
=================================================================
Income before income taxes 85,234 70,118 92,256
=================================================================
Net income 50,067 42,563 63,514
=================================================================
Net assets of foreign operations at June 30, 1997 and 1996 amounted to
$734,820 and $746,356, respectively.
Accumulated undistributed earnings of foreign operations reinvested in
their operations amounted to $121,871, $103,059, and $100,550, at June 30,
1997, 1996 and 1995, respectively.
13. RESEARCH AND DEVELOPMENT
Research and development costs amounted to $103,155 in 1997, $91,706 in 1996,
and $74,129 in 1995. Customer reimbursements included in the total cost for
each of the respective years were $35,986, $33,018 and $21,202. Costs include
those costs related to independent research and development as well as
customer reimbursed and unreimbursed development programs.
14. CONTINGENCIES
The Company is involved in various litigation arising in the normal course of
business, including proceedings based on product liability claims, workers'
compensation claims and alleged violations of various environmental laws. The
Company is self-insured in the U.S. for health care, workers' compensation,
general liability and product liability up to predetermined amounts, above
which third party insurance applies. The Company purchases third party
product liability insurance for products manufactured by its international
operations and for products that are used in aerospace applications.
Management regularly reviews the probable outcome of these proceedings, the
expenses expected to be incurred, the availability and limits of the
insurance coverage, and the established accruals for uninsured liabilities.
While the outcome of pending proceedings cannot be predicted with certainty,
management believes that any liabilities that may result from these
proceedings are not reasonably likely to have a material effect on the
Company's liquidity, financial condition or results of operations.
ENVIRONMENTAL - The Company is currently involved in environmental
remediation at 21 manufacturing facilities presently or formerly operated by
the Company and has been named as a "potentially responsible party", along
with other companies, at 10 off-site waste disposal facilities.
As of June 30, 1997, the Company has a reserve of $9,635 for environmental
matters which are probable and reasonably estimable. This reserve is recorded
based upon the best estimate of net costs to be incurred in light of the
progress made in determining the magnitude of remediation costs, the timing
and extent of remedial actions required by governmental authorities, the
amount of the Company's liability in proportion to other responsible parties
Page 13-34
and any recoveries receivable. This reserve is net of $626 for discounting,
at a 7.5% annual rate, a portion of the costs at 7 locations for established
treatment procedures required over periods ranging from 5 to 18 years. The
Company also has an account receivable of $490 for anticipated insurance
recoveries.
The Company's estimated total liability for the above mentioned sites
ranges from a minimum of $8,932 to a maximum of $24,837. The actual costs to
be incurred by the Company will be dependent on final delineation of
contamination, final determination of remedial action required, negotiations
with federal and state agencies with respect to cleanup levels, changes in
regulatory requirements, innovations in investigatory and remedial
technology, effectiveness of remedial technologies employed, the ultimate
ability to pay of the other responsible parties, and any insurance
recoveries.
Page 13-35
REPORT OF MANAGEMENT
The Company's management is responsible for the integrity and accuracy of the
financial information contained in this annual report. Management believes
that the financial statements have been prepared in conformity with generally
accepted accounting principles appropriate in the circumstances and that the
other information in this annual report is consistent with those statements.
In preparing the financial statements, management makes informed judgments and
estimates where necessary to reflect the expected effects of events and
transactions that have not been completed.
Management is also responsible for maintaining an internal control system
designed to provide reasonable assurance at reasonable cost that assets are
safeguarded against loss or unauthorized use and that financial records are
adequate and can be relied upon to produce financial statements in accordance
with generally accepted accounting principles. The system is supported by
written policies and guidelines, by careful selection and training of
financial management personnel and by an internal audit staff which
coordinates its activities with the Company's independent accountants. To
foster a strong ethical climate, the Parker Hannifin Code of Ethics is
publicized throughout the Company. This addresses, among other things,
compliance with all laws and accuracy and integrity of books and records. The
Company maintains a systematic program to assess compliance.
Coopers & Lybrand, L.L.P., independent accountants, are retained to conduct
an audit of Parker Hannifin's consolidated financial statements in accordance
with generally accepted auditing standards and to provide an independent
assessment that helps ensure fair presentation of the Company's consolidated
financial position, results of operations and cash flows.
The Audit Committee of the Board of Directors is composed entirely of
outside directors. The Committee meets periodically with management, internal
auditors and the independent accountants to discuss internal accounting
controls and the quality of financial reporting. Financial management, as
well as the internal auditors and the independent accountants, have full and
free access to the Audit Committee.
Duane E. Collins Michael J. Hiemstra
Duane E. Collins Michael J. Hiemstra
President and Vice President -
Chief Executive Officer Finance and Administration
and Chief Financial Officer
Page 13-36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Parker Hannifin Corporation
We have audited the accompanying consolidated balance sheet of Parker Hannifin
Corporation and its subsidiaries at June 30, 1997 and 1996, and the related
consolidated statements of income and cash flows for each of the three years
in the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Parker
Hannifin Corporation and its subsidiaries at June 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1997 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Cleveland, Ohio
July 31, 1997
Page 13-37
FIVE-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
1997 1996 1995 1994 (a) 1993
______________________________________________________________________________________________________________________
Net sales $ 4,091,081 $ 3,586,448 $ 3,214,370 $ 2,576,337 $ 2,489,323
Cost of sales 3,152,988 2,756,343 2,448,264 2,053,376 2,004,955
Selling, general and administrative expenses 475,180 425,449 384,581 302,668 310,765
Provision for business restructuring activities 18,773 22,879
Impairment of long-term assets 35,483
Interest expense 46,659 36,667 30,922 37,832 47,056
Interest and other income, net (5,623) (8,537) (2,335) (3,879) (5,457)
(Gain) loss on disposal of assets (2,990) 2,047 4,531 19,635 1,059
Income taxes 150,828 134,812 130,169 60,274 43,010
Income before extraordinary item 274,039 239,667 218,238 52,175 65,056
Net income 274,039 239,667 218,238 47,652 65,056
Earnings per share - continuing operations 2.46 2.15 1.97 .48 .60
Earnings per share before extraordinary item 2.46 2.15 1.97 .48 .60
Earnings per share $ 2.46 $ 2.15 $ 1.97 $ .43 $ .60
Average number of shares outstanding (thousands) 111,602 111,261 110,576 109,661 109,064
Cash dividends per share $ .506 $ .480 $ .453 $ .436 $ .427
Cash dividends paid $ 56,570 $ 53,325 $ 49,961 $ 47,445 $ 46,121
Net income as a percent of net sales 6.7% 6.7% 6.8% 1.8% 2.6%
Return on average assets 9.3% 9.2% 10.3% 2.5% 3.3%
Return on average equity 18.7% 18.6% 20.2% 5.0% 7.0%
_______________________________________________________________________________________________________________________
Book value per share $ 13.87 $ 12.42 $ 10.73 $ 8.78 $ 8.53
Current assets 1,499,561 1,402,124 1,246,382 1,031,308 1,056,443
Current liabilities 716,011 766,882 652,621 504,444 468,254
Working capital $ 783,550 $ 635,242 $ 593,761 $ 526,864 $ 588,189
Ratio of current assets to current liabilities 2.1 1.8 1.9 2.0 2.3
Plant and equipment, net $ 1,020,743 $ 991,777 $ 815,771 $ 717,300 $ 736,056
Total assets 2,998,946 2,887,124 2,302,209 1,925,744 1,963,590
Long-term debt 432,885 439,797 237,157 257,259 378,476
Shareholders' equity $ 1,547,301 $ 1,383,958 $ 1,191,514 $ 966,351 $ 932,900
Debt to debt-equity percent 24.5% 30.7% 21.9% 22.7% 33.3%
_______________________________________________________________________________________________________________________
Depreciation $ 146,253 $ 126,544 $ 110,527 $ 106,546 $ 109,673
Capital expenditures $ 189,201 201,693 151,963 99,914 91,484
Number of employees 34,927 33,289 30,590 26,730 25,646
Number of shareholders 43,014 35,403 35,629 29,625 30,414
Number of shares outstanding at year-end (thousands) 111,527 111,438 111,003 110,115 109,352
_______________________________________________________________________________________________________________________
Shares and per share amounts have been adjusted for the 3-shares-for-2 common
stock split paid September 5, 1997.
(a) Includes an extraordinary item for the early retirement of debt.
Page 13-38