SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 11-K [ X ]ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1997 OR [ ]TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ......................to ...................... Commission file number 1-4982 A. Full title of the plan and the address of the plan, if different from that of the issuer named below: PARKER RETIREMENT SAVINGS PLAN B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: PARKER-HANNIFIN CORPORATION 6035 PARKLAND BOULEVARD CLEVELAND, OHIO 44124-4141 PARKER RETIREMENT SAVINGS PLAN INDEX OF FINANCIAL STATEMENTS PAGE Independent Auditors' Report 1 to 2 Financial Statements: Statements of Net Assets Available for Benefits at December 31, 1997 and 1996 3 Statements of Changes in Net Assets Available for Benefits for the years ended December 31, 1997 and 1996 3 Notes to Financial Statements 4 to 14 Supplemental Schedules: Item 27a - Schedule of Assets Held for Investment Purposes for the year ended December 31, 1997 15 to 17 Item 27d - Schedule of Reportable Transactions for the year ended December 31, 1997 18 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of Parker-Hannifin Corporation We have audited the accompanying statements of net assets available for benefits of the Parker Retirement Savings Plan as of December 31, 1997, and the related statements of changes in net assets available for benefits for the year ended December 31, 1997. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Parker Retirement Savings Plan as of December 31, 1996, were audited by other auditors whose report dated June 27, 1997, expressed an unqualified opinion on those statements. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the December 31, 1997 financial statements referred to above present fairly, in all material respects the net assets available for benefits of the Parker Retirement Savings Plan as of December 31, 1997, and the changes in net assets available for benefits for the year ended December 31, 1997 in conformity with generally accepted accounting principles. Our audit was performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules listed in the accompanying index are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Plan's management. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, are fairly stated in all material aspects in relation to the basic financial statements taken as a whole. Ciuni & Panichi Inc. Cleveland, Ohio June 18, 1998 - 1 - INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors Parker-Hannifin Corporation We have audited the accompanying statement of Net Assets Available for Benefits of the Parker Retirement Savings Plan (the "Plan") as of December 31, 1996, and the related Statement of Changes in Net Assets Available for Benefits for the year ended December 31, 1996. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of the Parker Retirement Savings Plan as of December 31, 1996, and the changes in net assets available for plan benefits for the year ended December 31, 1996 in conformity with generally accepted accounting principles. Our audit was performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules listed in the accompanying index are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The Fund information in the Statement of Changes in Net Assets Available for Benefits and Note 11 to the financial statements is presented for purposes of additional analysis rather than to present the changes in net assets available for benefits of each fund. The supplemental schedules and Fund Information have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. Coopers & Lybrand L.L.P. Cleveland, Ohio June 27, 1997 - 2 - PARKER RETIREMENT SAVINGS PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS AT DECEMBER 31, 1997 AND 1996 (000's omitted) 1997 1996 _________ _________ [S] [C] [C] ASSETS Investments at fair value: Cash and cash equivalents (Notes 1 & 3) $ 10,351 $ 11,803 Parker-Hannifin Corporation common shares (Notes 1 & 3) 475,169 251,393 Investment contracts (Notes 1 & 5) 140,116 148,731 Other investments (Notes 1 & 3) 312,301 229,910 Participant loans 37,306 29,588 _________ _________ Total investments 975,243 671,425 _________ _________ Receivables: Participant contributions - 21 Accrued interest and dividends 1,187 1,031 Other 32 1,884 _________ _________ Total assets 976,462 674,361 _________ _________ LIABILITIES Dividends payable to participants (Note 6) 4,220 3,338 Other 2,669 1,427 _________ _________ Total liabilities 6,889 4,765 _________ _________ Net Assets Available for Benefits $ 969,573 $ 669,596 ========= ========= STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 (000's omitted) 1997 1996 _________ _________ [S] [C] [C] ADDITIONS Contributions (Notes 1 & 2): Participant payroll deductions $ 51,549 $ 54,439 Employer's contributions 22,313 19,703 _________ _________ Total contributions 73,862 74,142 Transfers from other plans (Note 2) - 1,946 Interest income 18,155 13,849 Dividend income - net 1,438 1,271 Net appreciation in the fair value of investments (Notes 1 & 3) 248,406 59,657 _________ _________ Total additions 341,861 150,865 _________ _________ DEDUCTIONS Withdrawals and terminations 40,356 34,478 Interest expense (Note 4) - 290 Trustee fees and expenses 1,528 1,495 _________ _________ Total deductions 41,884 36,263 _________ _________ Net increase in Assets Available for Benefits 299,977 114,602 Net Assets Available - Beginning of year 669,596 554,994 _________ _________ Net Assets Available - End of year $ 969,573 $ 669,596 ========= ========= The accompanying notes are an integral part of the financial statements. - 3 - NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVESTMENT VALUATION The investments in Parker-Hannifin Corporation (the Company) common shares, non-convertible corporate bonds, U.S. Government bonds, Key Trust Employee Benefits Value Equity Fund, Key Trust Employee Benefits Fixed Income Fund, AIM Constellation Fund, Capital Guardian International Equity Fund and the Seven Seas S&P 500 Index Fund are valued as of the last reported trade price on the last business day of the period. The Parker Retirement Savings Plan (the Plan) presents in the Statement of Changes in Net Assets Available for Benefits the net appreciation (depreciation) in the fair value of its investments which consists of the realized gains or losses from the sale of investments and the unrealized appreciation (depreciation) on investments held by the Plan. Investments in the Key Trust Employee Benefits Money Market Fund are valued at market, which approximates cost. Refer to Note 5 for information relating to the Contract Income Fund. Management believes that the Plan's investments are well diversified and do not create a significant concentration of credit risk. Participants assume all risk in connection with any decrease in the market price of any securities in all the Funds. Although the annual rates of return with respect to the contracts held in the Contract Income Fund are guaranteed by major insurance and bank companies, the Company does not make any representations as to the financial capability of such companies or their ability to make payments under the contracts. CONTRIBUTIONS Contributions from employees and the Company are recorded in the period that payroll deductions are made from Plan participants. Company contributions are invested solely in the ESOP Fund, which holds Company stock and some cash. OTHER Purchases and sales of securities are reflected on a trade-date basis. Dividend income is recorded on the ex-dividend date. Interest and other income are recorded as earned on the accrual basis. Costs incident to the purchase and sale of securities, such as brokerage commissions and stock transfer taxes, as well as investment advisory fees, are charged to the Funds to which they relate and netted against interest income. All other costs and expenses incurred in administering the Plan, including fees of the Trustee, are paid out of the Plan's assets, unless the Company elects to pay such costs. 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. Benefits are recorded when paid. 2. DESCRIPTION OF PLAN GENERAL The following description of the Plan provides only general information. Participants should refer to the Plan agreement or summary plan description for a more complete description of the Plan's provisions. The Plan is a defined contribution plan covering all regular and part- time non-union employees who have 90 days of service. It is subject to the provisions of the Employee Retirement Income Security Act (ERISA) of 1974, as amended. - 4 - NOTES TO FINANCIAL STATEMENTS, continued 2. DESCRIPTION OF PLAN, Continued CONTRIBUTIONS AND TRANSFERS A participant may elect to contribute, through payroll deductions, not less than 1% nor more than 15% of his total compensation for a Plan year and may change such percentage upon request. The amount which a highly compensated employee may contribute may be limited in order to comply with Internal Revenue Code sections 401(k) and 401(m). A participant may suspend his contributions at any time. Upon enrollment or re-enrollment, each participant stipulates his contributions to be invested in accordance with the following investment options: (a) Company Stock Fund - Invested primarily in Common Shares of the Company purchased on the open market. A participant's contribution is limited to 50% invested in this fund. (b) Fixed Income Fund - Invested primarily in securities which have a fixed rate of return such as government and high-quality corporate bills, notes, bonds, and other similar investments of issuers other than the Company. (c) Equity Fund - Invested primarily in common stock of high-quality medium and large capitalization companies other than the Company. (d) Contract Income Fund - Invested primarily in high-quality fixed income investments such as contracts issued by insurance companies and banks which provide a return guaranteed by the issuer, and debt securities such as notes and bonds issued by Federal agencies or mortgage backed securities, with each of these investments typically providing a stable rate of return for a specific period of time. Refer to Note 5 for a further description of this fund. (e) Balanced Fund - Invested primarily in bonds, convertible securities, money market investments, and common stocks of high-quality medium and large capitalization companies other than the Company. (f) Small Capitalization Fund - Invested primarily in equity securities of small and medium-sized companies that have demonstrated or have the potential for above-average capital growth. (g) International Fund - Invested primarily in common stocks, preferred stocks, warrants and rights to subscribe to common stocks on non-U.S. issuers. (h) S&P 500 Index Fund - Invested in stocks which comprise the S&P 500 Index, most of which are listed on the New York Stock Exchange. TRANSFER OF PROFIT-SHARING ACCOUNT BALANCES A participant who has an account attributable to the old Profit-Sharing Plan (replaced by the Retirement Plan) may make an irrevocable election to have his entire account balance transferred to the Plan. The account balance may be transferred upon request. TRANSFERS FROM OTHER PLANS As a result of an acquisition in 1996, $1,945,530 was transferred into the Plan from the account balances of the Symmetrics Savings Plan. TRANSFERS AMONG SAVINGS PLAN FUNDS A participant may elect to reallocate at any time his account balances attributable to his contributions invested in any Fund (other than the ESOP Fund) to one or more of the other Funds. A participant age 55 or older, with 10 or more years of participation in the Plan, may transfer a portion of the shares of stock in the ESOP Fund to any of the investment funds within the Plan. Such transfer may be made anytime during the year. - 5 - NOTES TO FINANCIAL STATEMENTS, continued 2. DESCRIPTION OF PLAN, Continued PARKER-HANNIFIN CORPORATION CONTRIBUTIONS The Company makes matching contributions based on the first 5% of a participant's deferred compensation (before-tax) contributions. The Company contributes an amount equal to 100% of the first 3% of the monthly before-tax contributions and an amount equal to 25% of the 4th percent and 5th percent of the contribution. Effective in 1996, the Company eliminated the match on the first 3% of after-tax contributions and matches only the 4th percent and 5th percent at 25%. Company contributions match the before-tax contributions prior to the after-tax contributions. Company contributions are invested solely in the ESOP Fund. PARTICIPANT LOANS The Plan has a loan provision which allows an active participant to borrow a minimum of $500 and up to a maximum of a) 50% of his account balance or b) $50,000 minus the largest outstanding loan balance he had in the last 12 months, whichever is less. The loan must be repaid, with interest equal to the prime rate at the time the loan is entered into plus 1%, over a period from 1 year to 4 1/2 years for a general purpose loan and up to ten years for a residential loan. Participant loans are valued at cost, which approximates fair value. PLAN PARTICIPANTS The number of active participants in each fund at December 31, 1997 and 1996 are as follows: 1997 1996 ______ ______ ESOP Fund 17,663 17,170 Company Stock Fund 12,147 11,541 Fixed Income Fund 5,863 6,358 Equity Fund 12,009 11,189 Contract Income Fund 10,561 11,756 Balanced Fund 6,655 6,083 Small Capitalization Fund 3,923 2,839 International Fund 3,132 2,239 S&P 500 Index Fund 4,953 2,655 The total number of participants in the Plan is less than the sum of the number of participants shown above because many were participating in more than one fund. PARTICIPANT ACCOUNTS Effective March 1, 1996, the Plan converted to the unit value method for allocating Plan earnings for all funds with the exception of the Company Stock and ESOP Funds which were converted April 1, 1997. The unit values are determined on a daily basis and are presented excluding contributions receivable and benefits payable. The total number of units and unit values as of December 31, 1997 and 1996 by fund are as follows:
1997 1996 ____________________________ ____________________________ Total Net Asset Total Net Asset Investment Options Number of Units Unit Value Number of units Unit Value _________________________ _______________ __________ _______________ __________ ESOP 21,639,556.79 $16.21 - - Company Stock 7,778,762.78 $16.23 - - Fixed Income Fund 2,629,499.16 $11.34 2,629,706.83 $10.45 Equity Fund 9,945,404.96 $15.34 10,160,947.99 $11.90 Contract Income Fund 13,091,421.82 $11.20 14,801,663.07 $10.52 Balanced Fund 4,126,273.55 $13.78 3,768,542.95 $11.37 Small Capitalization Fund 844,330.36 $26.38 611,819.96 $25.26 International Fund 676,171.69 $19.74 497,833.72 $18.06 S&P 500 Index Fund 1,926,160.05 $19.66 1,000,933.38 $15.57
- 6 - NOTES TO FINANCIAL STATEMENTS, continued 3. INVESTMENTS
The Plan investments at December 31, were as follows: (000's omitted except on number of shares or units) Number of Shares or 1997 Units Fair Value Cost ____ ___________ _________ _________ Cash and cash equivalents Employee Benefits Money Market Fund 10,351,068 $ 10,351 $ 10,351 _________ _________ Common Shares Parker Hannifin Corporation - Allocated 10,357,909 475,169 162,976 _________ _________ Investment Contracts - estimated 140,116,435 140,116 140,116 _________ _________ Other Investments AIM Constellation Fund 844,330 22,273 22,281 Capital Guardian International Equity Fund 676,172 13,348 12,673 Seven Seas S&P 500 Index Fund 1,926,160 37,868 32,942 Employee Benefits Fixed Income Fund 257,380 23,235 20,083 Employee Benefits Value Equity Fund 451,757 186,358 92,875 U.S. Government Securities 13,376,799 13,778 13,640 Corporate Debt Instruments 14,901,498 15,441 15,257 _________ _________ 312,301 209,751 _________ _________ Participant Loans - estimated 37,306,280 37,306 37,306 _________ _________ Total Assets Held for Investment $ 975,243 $ 560,500 ========= ========= 1996 ____ Cash and cash equivalents Employee Benefits Money Market Fund 11,803,416 $ 11,803 $ 11,803 _________ _________ Common Shares Parker Hannifin Corporation - Allocated 6,487,567 251,393 128,034 _________ _________ Investment Contracts - estimated 148,730,778 148,731 148,731 _________ _________ Other Investments AIM Constellation Fund 611,820 15,455 15,216 Capital Guardian International Equity Fund 497,833 8,991 8,382 Seven Seas S&P 500 Index Fund 1,000,933 15,585 14,754 Employee Benefits Fixed Income Fund 169,171 13,956 12,275 Employee Benefits Value Equity Fund 470,963 150,176 82,635 U.S. Government Securities 17,692,244 18,154 18,040 Corporate Debt Instruments 7,600,000 7,593 7,590 _________ _________ 229,910 158,892 _________ _________ Participant Loans - estimated 29,588,434 29,588 29,588 _________ _________ Total Assets Held for Investment $ 671,425 $ 477,048 ========= =========
The net realized gain on disposition of investments included in the Plan equity is as follows: 1997 1996 _________ ________ Selling price $ 209,435 $ 72,242 Cost* 181,395 59,321 _________ ________ Realized gain $ 28,040 $ 12,921 ========= ======== The net unrealized appreciation of investments included in the Plan equity is as follows: Balance at December 31, 1995 $ 147,641 Change for the fiscal period 46,736 _________ Balance at December 31, 1996 194,377 Change for the fiscal period 220,366 _________ Balance at December 31, 1997 $ 414,743 ========= * Cost of securities sold is determined on an average historical cost basis. - 7 - NOTES TO FINANCIAL STATEMENTS, continued 4. ESOP FUND NOTES PAYABLE During May and June of 1989, the ESOP Fund borrowed $70 million to purchase 3.75 million shares of the Company's common stock on the open market. The loan was guaranteed by the Company. Commencing July 1, 1989 and continuing over the period of the loan, the shares purchased by the ESOP Fund were allocated to participants making contributions to the Plan (see Note 2). The ESOP Fund used Company contributions and cash dividends received on unallocated shares to repay the loan plus interest (8.41% per annum for 1996). Graduated principal payments and related interest were due semiannually, commencing December 31, 1989 and ending on June 30, 1996. 5. CONTRACT INCOME FUND Reported in the aggregate for the Contract Income Fund at December 31: 1997 1996 _____________ _____________ Contract Value of Assets $ 146,626,466 $ 155,753,873 Fair Value of Assets $ 146,981,405 $ 155,405,312 Average Yield of Assets 6.39% 6.58% Return on assets for the 12 months ended December 31 6.55% 6.37% Duration 2.49 years 2.13 years The above information is provided in compliance with the AICPA Statement of Position 94-4 (SOP 94-4). SOP 94-4 requires that fair value be based upon the standard discounted cash flow methodology as referred to in the Statement of Financial Accounting Standards No. 107. To arrive at the above aggregate fair value, comparable duration Wall Street Journal Guaranteed Investment Contract (GIC) Index rates were used as the discount factor within the discounted cash flow formula. A standard present value calculation has been employed to arrive at a current value for each cash flow within a contract. The sum of the present values for each contract's cash flows is the estimated total fair value for that contract. All of the contract fair values are then added together to arrive at the above aggregate fair value for the portfolio. The Contract Income Fund contains a managed synthetic GIC. This is a portfolio of securities owned by the Fund with a benefit-responsive, book-value "wrap" contract associated with the portfolio. The wrap contract assures that book-value, benefit-responsive payments can be made for participant withdrawals. The managed synthetic GIC included in the above amounts at December 31, 1997 and 1996 had a contract value of $48,093,253 and $45,207,576, while the fair value was $49,116,395 and $44,960,145, respectively. The crediting rate on the managed synthetic GIC resets at least quarterly and will have an interest rate of no less than 0%. At December 31, 1997 and 1996 the Contract Income Fund contained a non- benefit responsive contract. SOP 94-4 recommends that this contract be carried at a fair value. However, the Fund's non-benefit responsive contract was not a large enough representation of the portfolio (1.8% and 1.6% at December 31, 1997 and 1996, respectively) to result in a material impact on the Contract Income Fund. Therefore, this contract has been reported at contract value in the financial statements. It is important to note that, in the absence of an actively traded market, discounted cash flows are only an estimate of the contract's economic value. These values are not a useful value for participant statement purposes nor are they representative of the value which may be received from these contracts in either a participant disbursement or an early termination of the contract. Certain employer initiated events (e.g., layoffs, bankruptcy, plant closings, plan termination, mergers, early retirement incentives) are not eligible for book value disbursements even from fully benefit responsive contracts. These events may cause liquidation of all or a portion of a contract at a market value adjustment. If the likelihood of such a non- book value withdrawal incident is imminent, it may be necessary to consider a revaluation of those particular Contract Income Fund contracts. - 8 - NOTES TO FINANCIAL STATEMENTS, continued 6. VESTING, WITHDRAWALS AND DISTRIBUTIONS A participant's interest in the Plan attributable to his own contributions and Company contributions is fully vested at all times. A participant may withdraw in cash a portion of his contributions, subject to certain limitations and restrictions. After a participant terminates employment for any reason, all amounts are distributable to him or, if he is deceased, to his designated beneficiary. If his interest exceeds $3,500 ($5,000 in 1998), he may defer his distribution up to his attainment of age 70 1/2. Distribution is either in a single payment, quarterly installments or, by purchase of an annuity. Amounts held in the Company Stock Fund and ESOP Fund are distributed in the form of Common Shares or cash, as the participant elects. All other amounts are distributed in the form of cash or annuity. Dividends received by the ESOP Fund with respect to allocated Company shares are paid to participants subsequent to the end of each plan year. 7. TAX STATUS The Internal Revenue Service has determined and informed the Company by letter dated July 24, 1995, that the Plan, and related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). Since receiving the determination letter the Plan has been amended to provide for various administrative changes including adding additional investment funds and furnishing daily valuations. The Plan administrator and the Plan's tax counsel believe that the Plan continues to be designed and operated in compliance with the applicable provisions of the IRC. Contributions matched by the Company and all earnings are not taxable until distributed to the participants. Participants are allowed to make deferred compensation contributions to the Plan in amounts up to 15% of their total compensation but not to exceed $9,500 in 1997 and 1996 (may be adjusted annually for cost-of-living increases). Such contributions are made in accordance with a salary reduction arrangement under Section 401(k) of the Internal Revenue Code of 1986, as amended, and are treated for federal income tax purposes as Company contributions. Contributions by highly compensated employees are limited in accordance with section 401(k). 8. PLAN TERMINATION Although it has not expressed any intent to do so, the Company, by action of its Board of Directors, without further approval by the shareholders, has the right to amend, modify, suspend, or terminate the Plan in its entirety, or as to any subsidiary or operating location. No amendment, modification, suspension, or termination shall provide that assets held in trust by the Trustee may be used for or diverted to purposes other than for the exclusive benefit of participants or their beneficiaries. If the Plan is terminated, the Company contributions credited to each affected participant shall continue to be fully vested. - 9 - NOTES TO FINANCIAL STATEMENTS, continued 9. RECONCILIATION WITH FORM 5500 The Department of Labor requires that amounts owed to withdrawing but unpaid former participants be classified as a plan liability on Form 5500, while these amounts are not reported as a liability in the Statements of Net Assets Available for Benefits. As a result, the following reconciliations were prepared: 1997 1996 _____________ _____________ Net assets per Form 5500 $ 969,417,579 $ 669,509,061 Distributions payable that are allocated but unpaid to former participants 156,485 87,212 _____________ _____________ Plan Equity per financial statements $ 969,574,064 $ 669,596,273 ============= ============= Distributions to former participants per Form 5500 $ 40,425,753 $ 31,947,842 Distributions payable that are allocated but unpaid to former participants (156,485) (87,212) Prior year distributions payable that were paid to former participants in the current year 87,212 2,616,830 _____________ _____________ Distributions to former participants per financial statements $ 40,356,480 $ 34,477,460 ============= ============= 10. 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 Company is also determining whether third party service providers have reasonable plans in place to become year 2000 compliant. This project is currently expected to be substantially complete in early 1999 and the Company does not expect this project to have a significant effect on plan operations. 11. ASSET ALLOCATION As described in Note 2, the participants may elect to invest their contributions in eight investment funds and Company contributions are invested in the ESOP Fund. The allocation of assets and liabilities, and the additions and deductions among the investment funds as well as the ESOP and Loan Funds follows on pages 11 through 14. - 10 - NOTES TO FINANCIAL STATEMENTS, continued 11). ASSET ALLOCATION, continued
PARKER RETIREMENT SAVINGS PLAN ALLOCATION OF NET ASSETS AVAILABLE FOR BENEFITS - INVESTMENT PROGRAMS DECEMBER 31, 1997 (000's omitted) Company Fixed Contract ESOP Stock Income Equity Income Balanced Fund Fund Fund Fund Fund Fund _________ _________ ________ _________ _________ ________ ASSETS Investments, at fair value: Cash and cash equivalents $ 3,416 $ 214 $ 202 $ 42 $ 6,477 $ - Parker-Hannifin Corporation common shares 347,955 127,214 - - - - Investment contracts - - - - 140,116 - Other investments - - 29,219 152,594 - 56,999 Participant loans - - - - - _________ _________ ________ _________ _________ ________ Total investments 351,371 127,428 29,421 152,636 146,593 56,999 _________ _________ ________ _________ _________ ________ Receivables: Accrued interest and dividends 20 7 385 - 775 - Other - - 32 - - - _________ _________ ________ _________ _________ ________ Total assets 351,391 127,435 29,838 152,636 147,368 56,999 _________ _________ ________ _________ _________ ________ LIABILITIES Dividends payable to participants 4,220 - - - - - Other 600 1,266 14 - 789 - _________ _________ ________ _________ _________ ________ Total liabilities 4,820 1,266 14 - 789 - _________ _________ ________ _________ _________ ________ Net Assets Available for Benefits $ 346,571 $ 126,169 $ 29,824 $ 152,636 $ 146,579 $ 56,999 ========= ========= ======== ========= ========= ======== (Table continued) Small Capitali- Inter- S&P 500 zation national Index Loan Fund Fund Fund Fund Total ________ ________ ________ _______ _________ ASSETS Investments, at fair value: Cash and cash equivalents $ - $ - $ - $ - $ 10,351 Parker-Hannifin Corporation common shares - - - - 475,169 Investment contracts - - - - 140,116 Other investments 22,273 13,348 37,868 - 312,301 Participant loans - - - 37,306 37,306 ________ ________ ________ _______ _________ Total investments 22,273 13,348 37,868 37,306 975,243 ________ ________ ________ _______ _________ Receivables: Accrued interest and dividends - - - - 1,187 Other - - - - 32 ________ ________ ________ _______ _________ Total assets 22,273 13,348 37,868 37,306 976,462 ________ ________ ________ _______ _________ LIABILITIES Dividends payable to participants - - - - 4,220 Other - - - - 2,669 ________ ________ ________ _______ _________ Total liabilities - - - - 6,889 ________ ________ ________ _______ _________ Net Assets Available for Benefits $ 22,273 $ 13,348 $ 37,868 $ 37,306 $ 969,573 ======== ======== ======== ======== =========
- 11 - NOTES TO FINANCIAL STATEMENTS, continued 11). ASSET ALLOCATION, continued
PARKER RETIREMENT SAVINGS PLAN ALLOCATION OF NET ASSETS AVAILABLE FOR BENEFITS - INVESTMENT PROGRAMS DECEMBER 31, 1996 (000's omitted) Company Fixed Contract ESOP Stock Income Equity Income Balanced Fund Fund Fund Fund Fund Fund _________ ________ ________ _________ _________ ________ ASSETS Investments, at fair value: Cash and cash equivalents $ 2,902 $ 653 $ 1,271 $ - $ 6,977 $ - Parker-Hannifin Corporation common shares 187,635 63,758 - - - - Investment contracts - - - - 148,731 - Other investments - - 25,747 121,331 - 42,802 Participant loans - - - - - - _________ ________ ________ _________ _________ ________ Total investments 190,537 64,411 27,018 121,331 155,708 42,802 _________ ________ ________ _________ _________ ________ Receivables: Participants' contributions - - - 21 - - Accrued interest and dividends 17 2 436 - 548 - Other 1,318 - 28 - 263 136 _________ ________ ________ _________ _________ ________ Total assets 191,872 64,413 27,482 121,352 156,519 42,938 _________ ________ ________ _________ _________ ________ LIABILITIES Dividends payable to participants 3,338 - - - - - Other - 35 17 415 627 40 _________ ________ ________ _________ _________ ________ Total liabilities 3,338 35 17 415 627 40 _________ ________ ________ _________ _________ ________ Net Assets Available for Benefits $ 188,534 $ 64,378 $ 27,465 $ 120,937 $ 155,892 $ 42,898 ========= ======== ======== ========= ========= ======== (Table continued) Small Capitali- Inter- S&P 500 zation national Index Loan Fund Fund Fund Fund Total ________ _______ ________ ________ _________ ASSETS Investments, at fair value: Cash and cash equivalents $ - $ - $ - $ - $ 11,803 Parker-Hannifin Corporation common shares - - - - 251,393 Investment contracts - - - - 148,731 Other investments 15,454 8,991 15,585 - 229,910 Participant loans - - - 29,588 29,588 ________ _______ ________ ________ _________ Total investments 15,454 8,991 15,585 29,588 671,425 ________ _______ ________ ________ _________ Receivables: Participants' contributions - - - - 21 Accrued interest and dividends - - 28 - 1,031 Other 61 35 43 - 1,884 ________ _______ ________ ________ _________ Total assets 15,515 9,026 15,656 29,588 674,361 ________ _______ ________ ________ _________ LIABILITIES Dividends payable to participants - - - - 3,338 Other 188 14 91 - 1,427 ________ _______ ________ ________ _________ Total liabilities 188 14 91 - 4,765 ________ _______ ________ ________ _________ Net Assets Available for Benefits $ 15,327 $ 9,012 $ 15,565 $ 29,588 $ 669,596 ======== ======= ======== ======== =========
- 12 - NOTES TO FINANCIAL STATEMENTS, continued 11) ASSET ALLOCATION, continued
PARKER RETIREMENT SAVINGS PLAN ALLOCATION OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS - INVESTMENT PROGRAMS DECEMBER 31, 1997 (000's omitted) Company Fixed Contract ESOP Stock Income Equity Income Balanced Fund Fund Fund Fund Fund Fund _________ _________ ________ _________ _________ ________ ADDITIONS Contributions: Participant payroll deductions $ - $ 8,413 $ 3,699 $ 14,512 $ 9,632 $ 6,050 Employer 22,313 - - - - - _________ _________ ________ _________ _________ ________ Total contributions 22,313 8,413 3,699 14,512 9,632 6,050 _________ _________ ________ _________ _________ ________ Interfund transfers (2,092) 6,311 (1,277) (11,617) (14,834) 1,266 Interest income 205 137 1,824 62 9,877 - Dividend income - net - 1,438 - - - - Net appreciation in the fair value of investments 147,306 49,467 485 35,310 - 9,590 _________ _________ ________ _________ _________ ________ Total additions 167,732 65,766 4,731 38,267 4,675 16,906 _________ _________ ________ _________ _________ ________ DEDUCTIONS Withdrawals and terminations 9,695 3,975 2,263 5,890 13,613 2,500 Trustee fees and expenses - - 109 678 375 305 _________ _________ ________ _________ _________ ________ Total deductions 9,695 3,975 2,372 6,568 13,988 2,805 _________ _________ ________ _________ _________ ________ Net increase (decrease) in Assets Available for Benefits 158,037 61,791 2,359 31,699 (9,313) 14,101 Net Assets Available - Beginning of year 188,534 64,378 27,465 120,937 155,892 42,898 _________ _________ ________ _________ _________ ________ Net Assets Available - End of year $ 346,571 $ 126,169 $ 29,824 $ 152,636 $ 146,579 $ 56,999 ========= ========= ======== ========= ========= ======== (Table continued) Small Capitali- Inter- S&P 500 zation national Index Loan Fund Fund Fund Fund Total ________ ________ ________ ________ _________ ADDITIONS Contributions: Participant payroll deductions $ 3,376 $ 2,037 $ 3,830 $ - $ 51,549 Employer - - - - 22,313 ________ ________ ________ ________ _________ Total contributions 3,376 2,037 3,830 - 73,862 ________ ________ ________ ________ _________ Interfund transfers 2,158 1,939 12,300 5,846 - Interest income 1,653 1 1,648 2,748 18,155 Dividend income - net - - - - 1,438 Net appreciation in the fair value of investments 389 811 5,048 - 248,406 ________ ________ ________ ________ _________ Total additions 7,576 4,788 22,826 8,594 341,861 ________ ________ ________ ________ _________ DEDUCTIONS Withdrawals and terminations 608 440 496 876 40,356 Trustee fees and expenses 22 12 27 - 1,528 ________ ________ ________ ________ _________ Total deductions 630 452 523 876 41,884 ________ ________ ________ ________ _________ Net increase (decrease) in Assets Available for Plan Benefits 6,946 4,336 22,303 7,718 299,977 Net Assets Available - Beginning of year 15,327 9,012 15,565 29,588 669,596 ________ ________ ________ ________ _________ Net Assets Available - End of year $ 22,273 $ 13,348 $ 37,868 $ 37,306 $ 969,573 ======== ======== ======== ======== =========
- 13 - NOTES TO FINANCIAL STATEMENTS, continued 11). ASSET ALLOCATION, continued
PARKER RETIREMENT SAVINGS PLAN ALLOCATION OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS - INVESTMENT PROGRAMS DECEMBER 31, 1996 (000's omitted) Company Fixed Contract ESOP Stock Income Equity Income Balanced Fund Fund Fund Fund Fund Fund _________ ________ ________ _________ _________ ________ ADDITIONS Contributions: Participant payroll deductions $ - $ 7,388 $ 4,293 $ 14,792 $ 10,534 $ 7,323 Employer 19,703 - - - - - _________ ________ ________ _________ _________ ________ Total contributions 19,703 7,388 4,293 14,792 10,534 7,323 _________ ________ ________ _________ _________ ________ Transfers from other plans - 205 65 554 274 442 Interfund transfers (1,378) (5,915) (2,330) (8,798) (17,673) (2,097) Interest income 259 62 1,684 2 9,840 32 Dividend income - net 67 1,204 - - - - Net appreciation (depreciation) in the fair value of investments 20,647 7,514 (652) 23,318 - 5,844 _________ ________ ________ _________ _________ ________ Total additions 39,298 10,458 3,060 29,868 2,975 11,544 _________ ________ ________ _________ _________ ________ DEDUCTIONS Withdrawals and terminations 6,957 2,911 1,424 4,289 16,604 1,610 Interest expense 290 - - - - - Trustee fees and expenses - 6 111 637 441 231 _________ ________ ________ _________ _________ ________ Total deductions 7,247 2,917 1,535 4,926 17,045 1,841 _________ ________ ________ _________ _________ ________ Net increase (decrease) in Assets Available for Benefits 32,051 7,541 1,525 24,942 (14,070) 9,703 Net Assets Available - Beginning of year 156,483 56,837 25,940 95,995 169,962 33,195 _________ ________ ________ _________ _________ ________ Net Assets Available - End of year $ 188,534 $ 64,378 $ 27,465 $ 120,937 $ 155,892 $ 42,898 ========= ======== ======== ========= ========= ======== (Table continued) Small Capitali- Inter- S&P 500 zation national Index Loan Fund Fund Fund Fund Total ________ _______ ________ ________ _________ ADDITIONS Contributions: Participant payroll deductions $ 3,988 $ 2,448 $ 3,673 $ - $ 54,439 Employer - - - - 19,703 ________ _______ ________ ________ _________ Total contributions 3,988 2,448 3,673 - 74,142 ________ _______ ________ ________ _________ Transfers from other plans 127 93 186 - 1,946 Interfund transfers 10,432 5,871 10,256 11,632 - Interest income - 1 160 1,809 13,849 Dividend income - net - - - - 1,271 Net appreciation (depreciation) in the fair value of investments 881 665 1,440 - 59,657 ________ _______ ________ ________ _________ Total additions 15,428 9,078 15,715 13,441 150,865 ________ _______ ________ ________ _________ DEDUCTIONS Withdrawals and terminations 88 60 100 435 34,478 Interest expense - - - - 290 Trustee fees and expenses 13 6 50 - 1,495 ________ _______ ________ ________ _________ Total deductions 101 66 150 435 36,263 ________ _______ ________ ________ _________ Net increase (decrease) in Assets Available for Benefits 15,327 9,012 15,565 13,006 114,602 Net Assets Available - Beginning of year - - - 16,582 554,994 ________ _______ ________ ________ _________ Net Assets Available - End of year $ 15,327 $ 9,012 $ 15,565 $ 29,588 $ 669,596 ======== ======= ======== ======== =========
- 14 -
PARKER RETIREMENT SAVINGS PLAN ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES FOR THE YEAR ENDED DECEMBER 31, 1997 Identity of issue, borrower, lessor, Description of investment including maturity date, Current or similar party rate of interest, collateral, par, or maturity value Cost value _____________________________________ _________________________________________________________ _____________ _____________ Employee Benefits Money Market Fund Cash and cash equivalents $ 10,351,068 $ 10,351,068 Parker Hannifin Corporation 10,357,909 Common Shares 162,976,655 475,169,075 AIM 844,330 units of AIM Constellation Fund 22,280,588 22,273,435 Capital Guardian 676,172 units of Capital Guardian Intl Equity Fund 12,672,747 13,347,629 Seven Seas 1,926,160 units of Seven Seas S&P 500 Index Fund 32,941,896 37,868,307 Key Bank 257,380 units of Employee Benefits Fixed Income Fund 20,082,844 23,235,321 Key Bank 451,757 units of Employee Benefits Value Equity Fund 92,875,012 186,357,572 Participant Loans Participant loans - variable interest rates 37,306,280 37,306,280 U.S. Government Securities: ___________________________ Federal Home Loan Mortgage Corp. 6% due 06-01-2009 260,677 268,258 Federal Home Loan Mortgage Corp. 7% due 12-01-2026 683,611 688,286 Federal Home Loan Mortgage Corp. 7% due 12-01-2027 710,977 713,186 Federal Home Loan Mortgage Corp. 6.5% due 12-01-2010 286,496 294,781 Federal Home Loan Mortgage Corp. 8% due 09-01-2017 430,573 435,588 Federal Home Loan Mortgage Corp. 6.5% due 07-01-2010 92,233 94,901 Federal Home Loan Mortgage Corp. 6.24% due 10-06-2004 362,452 369,676 Federal Home Loan Mortgage Corp. 5.9% due 10-10-2002 556,786 559,126 Federal Home Loan Mortgage Corp. 6.56% due 12-10-2007 300,000 301,593 Federal Home Loan Mortgage Corp. 7% due 11-01-2027 167,890 169,016 GNMA 7.5% due 9-15-2021 1,014,584 1,018,663 GNMA 7% due 01-15-2024 70,520 72,537 GNMA 7.5% due 01-15-2027 151,437 151,483 GNMA 7.5% due 02-15-2027 185,998 186,623 GNMA 8% due 08-15-2027 162,734 163,056 GNMA 8% due 06-15-2027 145,808 146,060 GNMA 7.5% due 07-15-2027 135,244 135,699 GNMA 7.5% due 07-15-2027 106,083 106,115 GNMA 8% due 10-15-2027 285,047 285,646 GNMA 7.5% due 08-15-2027 140,899 140,941 GNMA 7.5% due 10-15-2027 184,498 185,119 GNMA 7.5% due 8-15-2027 98,454 98,785 GNMA 7.5% due 8-15-2027 107,145 107,177 GNMA 7.5% due 12-15-2027 508,894 510,136 GNMA 9% due 6-15-2022 337,790 341,542 GNMA 8% due 7-15-2017 439,990 440,575 GNMA 7.5% due 12-15-2025 661,654 662,558 United States Treasury Bonds 6.5% due 11-15-2026 2,855,519 2,919,613 United States Treasury Bonds 6.375% due 8-15-2027 282,348 289,955 United States Treasury Notes 5% due 1-31-1999 846,930 848,398 United States Treasury Notes 6.375% due 3-31-2001 431,531 435,006 United States Treasury Notes 6.625% due 3-31-2002 15,434 15,488 United States Treasury Notes 6% due 8-15-2000 467,979 468,343 United States Treasury Notes 6.125% due 8-15-2007 151,875 154,172 _____________ _____________ Total U.S. Govt. Securities 13,640,090 13,778,101 Continued on next page - 15 - PARKER RETIREMENT SAVINGS PLAN ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES, continued FOR THE YEAR ENDED DECEMBER 31, 1997 Identity of issue, borrower, lessor, Description of investment including maturity date, Current or similar party rate of interest, collateral, par, or maturity value Cost value _____________________________________ _________________________________________________________ _____________ _____________ Corporate Debt Instruments: ___________________________ Applied Materials Inc Senior NT 6.75% due 10-15-2007 100,179 100,386 Archer Daniels Midland Bond 6.75% due 12-15-2027 197,744 200,346 Bankers Trust NY Corp Med Term Note due 6.7% 10-1-2007 274,299 274,508 Chase Manhattan Auto Owner ABS 5.95% due 11-15-2000 348,359 349,563 Chase Manhattan Auto Owner ABS 6.25% due 11-15-2000 349,836 350,875 Chesapeake & Potomac Telephone Deb 8.375% due 10-01-2029 1,574,833 1,609,777 Citicorp Note 5.625% due 02-15-2001 979,100 984,080 Commercial Credit Note 6.75% due 05-15-2000 504,760 505,845 Copelco Capital FDG Corp ABS 6.74% due 4-20-2005 349,921 352,844 Dr Invts Note 7.1% due 5-15-2002 274,843 281,828 EQCC Home Equity Loan Tr ABS 6.41% due 12-15-2004 179,972 180,338 First Union - Lehman Bros Coml Note 7.38% due 4-18-2007 252,463 264,453 Ford Motor Credit Corporation Note 6.25% due 02-26-1998 1,000,640 1,000,260 Gannett Incorporated Notes 5.85% due 05-01-2000 466,500 497,830 General Electric Company Deb 7.875% due 09-15-1998 509,050 506,495 Lehman Bros Holdings Inc Note 7.625% due 7-15-1999 1,022,090 1,019,350 Liberty Mutual Ins Co Note 8.2% due 5-4-2007 327,644 332,475 Lockheed Martin Note 7.25% due 05-15-2006 499,530 524,045 Lockheed Martin Deb 7.2% due 5-1-2036 149,702 162,558 Loews Corp Note 6.75% due 12-15-2006 176,624 176,230 Merrill Lynch Mtg Invs Inc CMO 7.12% due 6-18-2029 201,938 208,500 Nationsbank Credit Card CMO 6% due 12-15-2005 173,995 173,413 Phillip Morris Company Inc Note 6.375% due 01-15-1998 868,904 850,017 Premier Auto ABS 6.35% due 4-6-2002 349,560 351,859 Railcar ABS 7.75% due 6-1-2004 341,028 348,153 Service Corp International Note 6.375% due 10-01-2000 998,540 1,001,820 Lehman Large Loan CMO 6.79% due 6-12-2004 454,629 458,248 Money Store Home Equity ABS 7.5% due 1-15-2026 412,080 415,804 Tele Communications Inc Note 8.25% due 1-15-2003 105,844 106,789 Time Warner Inc Deb 8.11% due 8-15-2006 420,531 433,040 Toyota Auto Rec ABS 6.45% due 4-15-2002 288,043 289,305 USX Marathon Group Note 7.2% due 2-15-2004 803,880 825,304 Western Resources Inc Note 6.875% due 8-01-2004 299,679 304,482 _____________ _____________ Total Corporate Debt Instruments 15,256,740 15,440,820 Continued on next page - 16 - PARKER RETIREMENT SAVINGS PLAN ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES, continued FOR THE YEAR ENDED DECEMBER 31, 1997 Identity of issue, borrower, lessor, Description of investment including maturity date, Current or similar party rate of interest, collateral, par, or maturity value Cost value _____________________________________ _________________________________________________________ _____________ _____________ Investment Contracts: _____________________ Business Mens Assurance Co 6.9% due 10-01-2001 3,051,438 3,051,438 Caisse Des Depots ET Consignations 5.44% due 12-26-2000 3,340,236 3,340,236 Caisse Des Depots ET Consignations 6.51% due 1-15-2002 4,053,575 4,053,575 Capital Holding Corp 5.91% due 07-15-2000 2,997,684 2,997,684 Commonwealth Life Insurance 5.47% due 10-25-2004 10,004,734 10,004,734 Commonwealth Life Insurance 6.648% due 08-08-1999 9,993,080 9,993,080 Confederation Life 9.29% due 02-23-1995 69,977 69,977 Metropolitan Life 6.75% due 11-14-2000 2,546,523 2,546,523 New York Life Insurance Co 7.15% due 09-15-1998 2,552,400 2,552,400 New York Life Insurance Co 5.8% due 11-15-1999 6,239,740 6,239,740 Ohio National Life 7.12% due 6-15-2002 3,205,737 3,205,737 Principal Mutual Life Insurance Co 5.45% due 06-15-1999 4,946,631 4,946,631 Protective Life Insurance Co 6.89% due 9-15-2002 4,222,854 4,222,854 Safeco Life Insurance Co 7.04% due 12-15-2002 3,647,165 3,647,165 Safeco Life Insurance Co 6.49% due 11-15-2002 2,540,007 2,540,007 Union Bank Switzerland 6.64% due 08-15-1999 10,017,762 10,017,762 Union Bank Switzerland 5.9271% due 03-25-2000 10,304,524 10,304,524 Bankers Trust Basic Contract # 94-773 7.74% due 04-07-1999 2,013,100 2,013,100 Bankers Trust Synthetic GIC No maturity Floating rate 48,093,253 48,093,253 Bankers Trust FL RT% due 03-25-1999 507,215 507,215 Bankers Trust Contract # 92-286 7.204998% due 11-15-1998 249,407 249,407 Transamerica Occidental Life # 76524 8.12% due 11-07-1998 2,521,452 2,521,452 Transamerica Synthetic GIC # 76554 FL RT% due 6-15-2000 2,997,940 2,997,940 _____________ _____________ Total Investment Contracts 140,116,434 140,116,434 _____________ _____________ Total Assets Held for Investment $ 560,500,354 $ 975,244,042 ============= =============
- 17 -
THE PARKER RETIREMENT SAVINGS PLAN ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 1997 The following schedule represents Plan transactions or series of transactions in excess of 5% of current value of Plan assets for the year ended December 31, 1997. # of Purchase Cost of Description Transactions Price Proceeds Asset Gain or loss Key Trust Employee Benefits Money Market 557 $ 155,369,893 Key Trust Employee Benefits Money Market 520 $ 156,822,239 $ 156,822,239 $ - Parker Hannifin Corp Common 61 40,757,938 Parker Hannifin Corp Common 36 13,143,540 5,203,082 7,940,458 Employee Benefit Value Equity Fund 253 29,110,737 Employee Benefit Value Equity Fund 268 36,003,710 18,870,538 17,133,172
NOTE: There is no separate determination of expenses related to the above transactions. - 18 - SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Administrator of the Plan has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. PARKER RETIREMENT SAVINGS PLAN BY: Michael J. Hiemstra Michael J. Hiemstra Vice President-Finance & Administration & Chief Financial Officer Parker-Hannifin Corporation June 26, 1998