UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ________________________
Commission File number 1-4982
PARKER-HANNIFIN CORPORATION
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(Exact name of registrant as specified in its charter)
OHIO 34-0451060
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(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
6035 Parkland Blvd., Cleveland, Ohio 44124-4141
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 896-3000
--------------
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X . No __.
---
Number of Common Shares outstanding at March 31, 2001 116,849,601
PART I - FINANCIAL INFORMATION
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------------------- --------------------------------------
2001 2000 2001 2000
----------------- ------------------ ----------------- -----------------
Net sales $1,534,202 $1,393,659 $4,471,644 $3,875,159
Cost of sales 1,213,387 1,074,133 3,509,472 3,022,052
----------------- ------------------ ----------------- -----------------
Gross profit 320,815 319,526 962,172 853,107
Selling, general and
administrative expenses 159,580 141,254 491,617 419,559
Interest expense 24,243 14,571 71,018 43,142
Interest and other (income)
expense, net (4,794) 796 (57,535) 696
----------------- ------------------ ----------------- -----------------
Income before income taxes 141,786 162,905 457,072 389,710
Income taxes 50,334 56,202 162,260 134,450
----------------- ------------------ ----------------- -----------------
Income before extraordinary item 91,452 106,703 294,812 255,260
Extraordinary item - extinguishment of debt (3,378) - (3,378) -
----------------- ------------------ ----------------- -----------------
Net income $ 88,074 $ 106,703 $ 291,434 $255,260
================= ================== ================= =================
Basic earnings per share before
extraordinary item $ 0.80 $ 0.98 $ 2.58 $ 2.34
Extraordinary item - extinguishment of debt (0.03) - (0.03) -
----------------- ------------------ ----------------- -----------------
Basic earnings per share $ 0.77 $ 0.98 $ 2.55 $ 2.34
----------------- ------------------ ----------------- -----------------
Diluted earnings per share before
extraordinary item $ 0.80 $ 0.97 $ 2.57 $ 2.32
Extraordinary item - extinguishment of debt (0.03) - (0.03) -
----------------- ------------------ ----------------- -----------------
Diluted earnings per share $ 0.77 $ 0.97 $ 2.54 $ 2.32
----------------- ------------------ ----------------- -----------------
Cash dividends per common share $ 0.18 $ 0.17 $ 0.52 $ 0.51
See accompanying notes to consolidated financial statements.
-2-
PARKER-HANNIFIN CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
March 31, June 30,
2001 2000
----------------- ------------------
ASSETS
- -----------
Current assets:
Cash and cash equivalents $ 45,209 $ 68,460
Accounts receivable, net 888,760 840,040
Inventories:
Finished products 531,580 483,017
Work in process 326,308 344,804
Raw materials 148,149 146,375
----------------- ------------------
1,006,037 974,196
Prepaid expenses 37,681 32,706
Deferred income taxes 93,671 73,711
Net assets held for sale 215,533 164,000
----------------- ------------------
Total current assets 2,286,891 2,153,113
Plant and equipment 2,951,820 2,714,250
Less accumulated depreciation 1,444,773 1,373,335
----------------- ------------------
1,507,047 1,340,915
Excess cost of investments over net assets acquired 852,973 570,740
Other assets 604,527 581,531
----------------- ------------------
Total assets $5,251,438 $4,646,299
================= ==================
LIABILITIES
- -------------------------
Current liabilities:
Notes payable $613,328 $ 335,298
Accounts payable, trade 333,212 372,666
Accrued liabilities 380,487 394,131
Accrued domestic and foreign taxes 60,252 84,208
----------------- ------------------
Total current liabilities 1,387,279 1,186,303
Long-term debt 865,456 701,762
Pensions and other postretirement benefits 305,186 299,741
Deferred income taxes 120,176 77,939
Other liabilities 82,997 71,096
----------------- ------------------
Total liabilities 2,761,094 2,336,841
SHAREHOLDERS' EQUITY
- -----------------------------------
Serial preferred stock, $.50 par value;
authorized 3,000,000 shares; none issued -- --
Common stock, $.50 par value; authorized
600,000,000 shares; issued 116,949,601 shares at
March 31 and 116,602,195 shares at June 30 58,471 58,301
Additional capital 333,047 328,938
Retained earnings 2,397,761 2,165,625
Unearned compensation related to guarantee of ESOP debt (98,192) (110,818)
Deferred compensation related to stock options 2,347 1,304
Accumulated other comprehensive (loss) (199,158) (125,458)
----------------- ------------------
2,494,276 2,317,892
Less treasury shares, at cost:
100,000 shares at March 31
and 214,487 shares at June 30 (3,932) (8,434)
----------------- ------------------
Total shareholders' equity 2,490,344 2,309,458
----------------- ------------------
Total liabilities and shareholders' equity $5,251,438 $4,646,299
================= ==================
See accompanying notes to consolidated financial statements.
-3-
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Nine Months Ended
March 31,
---------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 2001 2000
- ------------------------------------ --------------- ---------------
Net income $291,434 $255,260
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 154,215 128,409
Amortization 46,570 28,597
Deferred income taxes 24,144 (4,825)
Foreign currency transaction loss 3,807 3,182
(Gain) on sale of plant and equipment (57,412) (5,637)
Net effect of extraordinary loss 3,378 -
Changes in assets and liabilities:
Accounts receivable, net (4,979) (51,778)
Inventories (9,914) 20,395
Prepaid expenses 4,859 4,854
Net assets held for sale 33,197 -
Other assets (39,297) (18,599)
Accounts payable, trade (64,042) (15,911)
Accrued payrolls and other compensation (32,461) (8,224)
Accrued domestic and foreign taxes (14,753) 14,956
Other accrued liabilities (50,478) (3,592)
Pensions and other postretirement benefits 9,886 9,317
Other liabilities 10,138 8,512
--------------- ---------------
Net cash provided by operating activities 308,292 364,916
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Acquisitions (less cash acquired of $8,256 in 2001 and $431 in 2000) (512,716) (121,474)
Capital expenditures (263,812) (168,131)
Proceeds from sale of plant and equipment 76,496 23,027
Other 29,141 (20,590)
--------------- ---------------
Net cash used in investing activities (670,891) (287,168)
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Net proceeds from (payments for) common share activity 9,824 (4,410)
Proceeds from notes payable, net 278,565 23,123
Proceeds from long-term borrowings 290,908 3,654
Payments of long-term borrowings (178,257) (12,803)
Dividends (59,298) (55,661)
--------------- ---------------
Net cash provided by (used in) financing activities 341,742 (46,097)
Effect of exchange rate changes on cash (2,394) (4,213)
--------------- ---------------
Net (decrease) increase in cash and cash equivalents (23,251) 27,438
Cash and cash equivalents at beginning of year 68,460 33,277
--------------- ---------------
Cash and cash equivalents at end of period $ 45,209 $ 60,715
=============== ===============
See accompanying notes to consolidated financial statements.
-4-
PARKER-HANNIFIN CORPORATION
BUSINESS SEGMENT INFORMATION BY INDUSTRY
(Dollars in thousands)
(Unaudited)
Parker operates in two industry segments: Industrial and Aerospace. The
Industrial Segment is the largest and includes a significant portion of
International operations.
Industrial - This segment produces a broad range of motion control and fluid
systems and components used in all kinds of manufacturing, packaging,
processing, transportation, mobile construction, agricultural and military
machinery and equipment. Sales are made directly to major original equipment
manufacturers (OEMs) and through a broad distribution network to smaller OEMs
and the aftermarket.
Aerospace - This segment designs and manufactures products and provides
aftermarket support for commercial, military and general aviation aircraft,
missile and spacecraft markets. The Aerospace Segment provides a full range of
systems and components for hydraulic, pneumatic and fuel applications.
Results by Business Segment:
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------------------- -------------------------------------
2001 2000 2001 2000
------------------ ------------------- ------------------- ------------------
Net sales
Industrial:
North America $ 849,439 $ 774,353 $ 2,555,046 $ 2,100,564
International 367,317 331,104 1,034,339 933,485
Aerospace 317,446 288,202 882,259 841,110
------------------ ------------------- ------------------- ------------------
Total $ 1,534,202 $ 1,393,659 $ 4,471,644 $ 3,875,159
================== =================== =================== ==================
Segment operating income
Industrial:
North America $ 92,602 $ 115,123 $ 311,405 $ 296,006
International 34,342 29,015 81,660 62,014
Aerospace 62,490 49,126 157,863 121,113
------------------ ------------------- ------------------- ------------------
Total segment operating income 189,434 193,264 550,928 479,133
Corporate general and
administrative expenses 18,038 13,935 55,768 42,135
------------------ ------------------- ------------------- ------------------
Income before interest expense
and other 171,396 179,329 495,160 436,998
Interest expense 24,243 14,571 71,018 43,142
Other 5,367 1,853 (32,930) 4,146
------------------ ------------------- ------------------- ------------------
Income before income taxes $ 141,786 $ 162,905 $ 457,072 $ 389,710
================== =================== =================== ==================
-5-
PARKER-HANNIFIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share amounts
_______________________
1. Management representation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position as of March 31, 2001, the results of operations for the
three and nine months ended March 31, 2001 and 2000 and cash flows for the
nine months then ended.
2. Gain on sale of real property
In fiscal 2001 the Company recorded a $55.5 million gain ($34.7 million
after-tax or $.30 per share) realized on the sale of real property located
in Southern California. The property had served as a headquarters and
manufacturing locale for the Company's Aerospace Group and several of its
divisions. Such operations have relocated to other previously owned
facilities in the area. The Company does not currently anticipate additional
property sales of this magnitude occurring in the future. The gain is
reflected in the Consolidated Income Statement in the Interest and other
(income) expense, net caption.
3. Earnings per share
The following table presents a reconciliation of the numerator and
denominator of basic and diluted earnings per share for the three and nine
months ended March 31, 2001 and 2000.
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------------------------------------------
Numerator: 2001 2000 2001 2000
---------- -------------------------------------------------------------
Net income applicable
to common shares $ 88,074 $ 106,703 $ 291,434 $ 255,260
Denominator:
------------
Basic - weighted average
common shares 114,439,369 109,373,820 114,125,361 109,210,607
Increase in weighted average
from dilutive effect of
exercise of stock options 810,101 827,060 755,502 955,170
-------------------------------------------------------------
Diluted - weighted average
common shares, assuming
exercise of stock options 115,249,470 110,200,880 114,880,863 110,165,777
=============================================================
Basic earnings per share $ .77 $ .98 $ 2.55 $ 2.34
Diluted earnings per share $ .77 $ .97 $ 2.54 $ 2.32
-6-
4. Stock repurchase program
The Board of Directors has approved a program to repurchase the Company's
common stock on the open market, at prevailing prices. The repurchase is
primarily funded from operating cash flows and the shares are initially held
as treasury stock. The Company did not purchase any shares of its common
stock during the three-month and nine-month periods ended March 31, 2001.
5. Comprehensive income
The Company's items of other comprehensive income (loss) are foreign
currency translation adjustments and unrealized gains on marketable
securities. Comprehensive income for the three and nine months ended March
31, 2001 and 2000 is as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ------------------
2001 2000 2001 2000
------------------------------------------
Net income $ 88,074 $106,703 $291,434 $255,260
Foreign currency
translation adjustments (38,641) (18,815) (83,168) (25,822)
Unrealized (loss) gain on
marketable securities (net of
taxes of ($2,420) and $7,111) (4,016) - 11,801 -
Realized gain on marketable
securities included in net
income (net of taxes of
$1,406) (2,333) - (2,333) -
-----------------------------------------
Comprehensive income $ 43,084 $ 87,888 $217,734 $229,438
=========================================
6. Acquisitions
On July 21, 2000 the Company completed the acquisition of Wynn's
International, Inc. (Wynn's). Wynn's is a leading manufacturer of precision-
engineered sealing media for the automotive, heavy-duty truck and aerospace
markets with annualized calendar year 2000 sales of $573 million.
On September 29, 2000 the Company acquired the pneumatics business of
Invensys plc, with annual sales of $50 million, which specializes in the
design and production of equipment and controls for automated processes.
On April 30, 2001 the Company acquired the Miller Fluid Power and Wilkerson
Corporation businesses of CKD-Createc. Miller Fluid Power manufactures both
pneumatic and hydraulic cylinders and Wilkerson Corporation manufactures a
complete line of compressed air treatment and control products. The combined
sales of the two Createc businesses totaled $90 million during calendar
2000.
Total purchase price for these businesses was approximately $506 million in
cash and assumed debt of $62 million. These acquisitions are being accounted
for by the purchase method.
-7-
7. Net assets held for sale
Net assets held for sale represents the estimated net cash proceeds and
estimated net earnings during the holding period (including incremental
interest expense on debt incurred in the acquisition) of the metal forming
and building systems businesses, which were acquired as part of Commercial
Intertech in fiscal 2000, and the specialty chemical and warranty businesses
of Wynn's.
During the third quarter of fiscal 2001, approximately $3.5 million of
income from operations and $1.7 million of interest expense were excluded
from the Consolidated Income Statement and included in the carrying value of
Net assets held for sale. During the first nine months of fiscal 2001,
approximately $19.9 million of income from operations and $5.5 million of
interest expense were excluded from the Consolidated Income Statement and
included in the carrying value of Net assets held for sale.
In April 2001 the one-year period in which the earnings of the metal forming
and building systems businesses are excluded from the Company's Consolidated
Income Statement expired. The Company still intends to divest, and is
currently in active negotiations to divest, the metal forming business. As
such, the net assets of the metal forming business will continue to be
presented as one line item in the Consolidated Balance Sheet and the results
of operations of the metal forming business will be included (and presented
as a single line item) in the Consolidated Income Statement of the Company
beginning in the fourth quarter of the current fiscal year. The Company has
decided to suspend its efforts to sell the building systems business. As
such, the net assets of the building systems business will be presented in
the Consolidated Balance Sheet as individual line items and the results of
operations of the building systems business will be included in the
Consolidated Income Statement of the Company beginning in the fourth quarter
of the current fiscal year.
8. Financial instruments
Effective July 1, 2000 the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Due to the immaterial amount of
derivative and hedging activity within the Company, the effect of adopting
SFAS 133 on the Company's results of operations and financial position was
immaterial.
9. Debt
In November 2000 the Company issued EUR 300 million of five-year Euro Notes
in the European debt capital market. The Notes bear interest of 6.25
percent, payable annually, and mature in a balloon payment on November 21,
2005. The proceeds from the Note issuance were used to retire the principal
and interest due on the bridge loan created to help finance the Wynn's
acquisition.
10. Extraordinary Item - Extinguishment of Debt
In February 2001 the Company redeemed its outstanding $100 million, 9.75
percent debentures due 2002-2021. The extraordinary loss for this
transaction, including an early-redemption premium and the write-off of
deferred issuance costs, was $5,413 ($3,378 after-tax or $.03 per share).
Commercial paper borrowings were used to finance the redemption.
-8-
PARKER-HANNIFIN CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2001
AND COMPARABLE PERIODS ENDED MARCH 31, 2000
CONSOLIDATED STATEMENT OF INCOME
Net sales increased 10.1 percent for the third quarter of fiscal 2001 and 15.4
percent for the nine-month period ended March 31, 2001. Without acquisitions,
Net sales decreased 4.5 percent for the current-year quarter and declined
slightly for the first nine months of fiscal 2001, primarily the result of lower
volume in the Industrial North American operations.
Income from operations was $161.2 million for the current-year third quarter and
$470.6 million for the first nine months of fiscal 2001, a decrease over the
prior-year third quarter of 9.6 percent and an increase of 8.5 percent over the
prior-year first nine months, respectively. As a percent of sales, Income from
operations declined to 10.5 percent from 12.8 percent for the quarter and
declined to 10.5 percent from 11.2 percent for the first nine months. Cost of
sales, as a percent of sales, increased to 79.1 percent from 77.1 percent for
the quarter and increased to 78.5 percent from 78.0 percent for the first nine
months. The decline in margins for the current-year third quarter and the first
nine months of fiscal 2001 are primarily the result of lower volume in the
Industrial North American operations as well as lower margins contributed by
recent acquisitions not yet fully integrated. Improved operating performance in
the Aerospace operations partially offset the decline in margins. Selling,
general and administrative expenses, as a percent of sales, increased to 10.4
percent of sales from 10.1 percent for the quarter and to 11.0 percent from 10.8
percent for the first nine months, primarily due to goodwill amortization
related to recent acquisitions.
Interest expense increased $9.7 million for the quarter ended March 31, 2001 and
$27.9 million for the nine-month period ended March 31, 2001 due to higher
average debt outstanding in both the current-year quarter and first nine months
as a result of increased borrowings to complete acquisitions.
Interest and other (income) expense, net for the quarter and the first nine
months of fiscal 2001 includes a $3.7 million gain on the sale of marketable
equity securities. Interest and other (income) expense, net for the first nine
months of fiscal 2001 also includes a $55.5 million gain realized on the sale of
real property and $5.4 million of certain asset writedowns. Interest and other
(income) expense, net for the first nine months of fiscal 2000 included $6.4
million in gains primarily from the sale of real property and $8.4 million of
asset impairment losses and other plant closure costs.
The effective tax rate increased to 35.5 percent for the first nine months of
fiscal 2001, compared to 34.5 percent in the prior-year first nine months. The
increase in the rate is due to the non-deductibility of goodwill recognized as a
result of the Company's recent acquisitions.
In the current-year quarter the Company redeemed its outstanding $100 million,
9.75 percent debentures due 2002-2021 resulting in an after-tax extraordinary
loss of $3.4 million or $.03 per share.
Net income decreased 17.5 percent for the quarter and increased 14.2 percent for
the first nine months, as compared to the prior year. As a percent of sales,
Net income decreased to 5.7 percent from 7.7 percent for the quarter and
decreased to 6.5 percent from 6.6 percent for the first nine months.
Backlog was $2.01 billion at March 31, 2001 compared to $1.74 billion in the
prior year and $1.80 billion at June 30, 2000. Current fiscal year acquisitions
accounted for 47 percent of the increase in backlog since June 30, 2000, with
the balance coming from strong order rates in the Aerospace operations.
-9-
RESULTS BY BUSINESS SEGMENT
INDUSTRIAL - The Industrial Segment operations had the following percentage
changes in Net sales in the current year when compared to the equivalent prior-
year period:
Period ending March 31,
-----------------------
Three Months Nine Months
------------ -----------
Industrial North America 9.7% 21.6%
Industrial International 10.9% 10.8%
Total Industrial 10.1% 18.3%
Without the effect of currency-rate changes, Industrial International sales
would have increased 19.4 percent for the quarter and 22.3 percent for the first
nine months of fiscal 2001.
Without the effect of acquisitions completed within the past 12 months, the
percentage changes in Net sales would have been:
Period ending March 31,
-----------------------
Three Months Nine Months
------------ -----------
Industrial North America (12.2)% (3.5)%
Industrial International 0.9 % 1.0 %
Total Industrial (8.3)% (2.1)%
Excluding the effect of acquisitions, the decrease in Industrial North American
sales for the current-year quarter reflects lower volume experienced across most
of the Industrial North American markets, particularly in heavy-duty truck and
automotive as well as semiconductor manufacturing in the latter part of the
quarter. The decrease in Industrial North American sales for the first nine
months of fiscal 2001 is attributable to lower volume in a number of markets,
particularly in heavy-duty truck and automotive, partially offset by higher
volume in the semiconductor manufacturing and telecommunications markets.
Slight volume gains in the Asia Pacific region and Latin America accounted for
the increase in Industrial International sales for the current-year quarter.
The increase in Industrial International sales for the first nine months is
attributed to higher volume in the Asia Pacific region (particularly in the
semiconductor manufacturing and telecommunications markets) and Latin America,
partially offset by lower volume (including the negative effect of currency
rates) experienced across most markets in Europe.
Operating income for the Industrial segment decreased 11.9 percent for the
quarter and increased 9.8 percent for the first nine months of fiscal 2001.
Industrial North American operating income decreased 19.6 percent for the
quarter and increased 5.2 percent for the first nine months of fiscal 2001.
Industrial North American operating income, as a percent of sales, declined to
10.9 percent from 14.9 percent for the quarter and to 12.2 percent from 14.1
percent for the first nine months. The decline in margins for the current-year
quarter and first nine months reflect the weakness experienced in most of the
Industrial North American markets, resulting in the underabsorption of fixed
costs. Margins for both the current-year quarter and first nine months were
also negatively impacted by recent acquisitions not yet fully integrated.
Industrial International operating income increased 18.4 percent for the quarter
and 31.7 percent for the first nine months of fiscal 2001. Included in the
Industrial International operating income for the prior year nine-month period
was $9.0 million in business realignment charges. Without the business
realignment charges, Industrial International operating income increased 15.1
percent for the current year first nine months compared to the prior year nine
months. Industrial International operating income, as a percent of sales,
increased to 9.3 percent from 8.8 percent for the quarter and to 7.9 percent
from 7.6 percent for the nine months, excluding the business realignment
charges. The increase in margins for the current quarter is primarily due to
improved operating efficiencies in Europe (a result of the business realignment
charges taken in the prior year). Excluding the business
-10-
realignment charges, the increase in margins for the first nine months is
primarily due to the higher volume and better capacity utilization in the Asia
Pacific region and Latin America, as well as improved operating efficiencies in
Europe. Margins for both the current-year quarter and first nine months were
negatively impacted by recent acquisitions not yet fully integrated.
Total Industrial Segment backlog increased 23.9 percent compared to March 31,
2000 and 8.9 percent since June 30, 2000, primarily due to recent acquisitions,
partially offset by a decrease in order rates in the Industrial North American
operations.
For the remainder of the fiscal year, management anticipates that business
conditions across most Industrial markets are expected to be similar to that
experienced in the current-year third quarter although the rate of decline in
order rates may lessen. Profit improvement teams have been established to study
the logistics system and recommend improvements to enhance operating margins in
Europe. The Company expects to record charges during the fourth quarter of the
current fiscal year based upon the recommendations of the review teams as well
as charges relating to plant rationalizations in North America. The costs of
these charges are expected to offset a significant amount of the one-time gain
realized in the current-year first quarter on the sale of real property.
AEROSPACE - Net sales of the Aerospace Segment increased 10.1 percent for the
current-year quarter and 4.9 percent for the first nine months of fiscal 2001 as
a result of an increase in the level of both the OEM and aftermarket businesses.
Operating income for the Aerospace Segment increased 27.2 percent for the
quarter and 30.3 percent for the nine-month period. Included in the Aerospace
operating income for the prior year nine-month period was $4.4 million in
business realignment charges. Excluding the business realignment charges,
operating income, as a percent of sales, increased to 19.7 percent from 17.0
percent for the quarter and to 17.9 percent from 14.9 percent for the nine-month
period due to higher volume as well as a higher mix of aftermarket business.
Backlog for the Aerospace Segment increased 11.0 percent compared to March 31,
2000 and 14.4 percent since June 30, 2000. Backlog increased primarily due to
an increase in the level of OEM business, as well as strong aftermarket orders.
For the remainder of the fiscal year, the recent increase in the level of order
rates for the OEM business is expected to continue, while the level of order
rates in the aftermarket business is expected to moderate. A change to heavier
OEM volume in future product mix could result in lower margins.
Corporate general and administrative expenses increased to $18.0 million from
$13.9 million for the quarter and increased to $55.8 million from $42.1 million
for the nine months. As a percent of sales, corporate general and
administrative expenses increased to 1.2 percent from 1.0 percent for the
quarter and to 1.2 percent from 1.1 percent for the nine months. The increase
in both the current-year quarter and first nine months are the result of
acquisitions as well as higher expenses associated with non-qualified benefit
plans.
Other (in the Results by Business Segment) decreased $37.1 million for the first
nine months of fiscal 2001 primarily as a result of a $55.5 million gain
realized on the sale of real property, partially offset by $7.7 million of
certain asset writedowns. In the prior-year first nine months, Other included
$6.4 million in gains primarily from the sale of real property.
-11-
BALANCE SHEET
Working capital decreased to $899.6 million at March 31, 2001 from $966.8
million at June 30, 2000 with the ratio of current assets to current liabilities
decreasing to 1.6 to 1. The decrease in working capital was primarily due to an
increase in Notes payable, partially offset by an increase in Accounts
receivable, Inventories, and Net assets held for sale and a decrease in Accounts
payable, trade.
Accounts receivable increased to $888.8 million at March 31, 2001 from $840.0
million at June 30, 2000 with days sales outstanding increasing to 49 days at
March 31, 2001 from 45 days at June 30, 2000. Inventories increased $31.8
million since June 30, 2000, with months supply remaining the same. The
increases were primarily the result of acquisitions.
Plant and equipment, net of accumulated depreciation, increased $166.1 million
since June 30, 2000, as a result of acquisitions and capital expenditures which
exceeded depreciation for the current-year first nine months.
The increase in Excess cost of investments over net assets acquired since June
30, 2000 reflects the goodwill recognized as a result of current-year
acquisitions.
The debt to debt-equity ratio increased to 37.3 percent at March 31, 2001
compared to 31.0 percent as of June 30, 2000, primarily due to increased
borrowings to fund acquisitions.
Due to the strength of the dollar, foreign currency translation adjustments
resulted in a decrease in net assets of $83.2 million during the first nine
months of fiscal 2001. The translation adjustments primarily affected Accounts
receivable, Inventories and Plant and equipment.
STATEMENT OF CASH FLOWS
Net cash provided by operating activities was $308.3 million for the nine months
ended March 31, 2001, as compared to $364.9 million for the same nine months of
2000. The decrease in net cash provided was primarily the result of activity
within the working capital items - Accounts receivable, Inventories, Net assets
held for sale, Accounts payable, trade, Accrued domestic and foreign taxes and
Other accrued liabilities - which used cash of $111.0 million in fiscal 2001
compared to using cash of $35.9 million in fiscal 2000. In addition, cash
provided by operating activities excluded a (Gain) on sale of plant and
equipment of $57.4 million in fiscal 2001 compared to $5.6 million in fiscal
2000. These uses of cash were partially offset by an increase in Net income of
$36.2 million and Deferred income taxes, which increased $24.1 million in fiscal
2001 as opposed to decreasing $4.8 million in fiscal 2000.
Net cash used in investing activities increased to $670.9 million for the first
nine months of fiscal 2001 compared to $287.2 million for the first nine months
of fiscal 2000 primarily due to an increase of $391.2 million in the amount
spent on acquisitions and an increase in capital expenditures of $95.7 million,
partially offset by an increase of $53.5 million in proceeds received from the
sale of plant and equipment. Included in Other is an increase in cash provided
for long-term receivables in fiscal 2001, and an increase in cash used for
equity investments in fiscal 2000.
Financing activities provided cash of $341.7 million for the nine months ended
March 31, 2001 compared to using cash of $46.1 million for the same period of
the prior year. The change resulted primarily from net debt borrowings
providing cash of $391.2 million in fiscal 2001 compared to providing cash of
$14.0 million in the prior year. The increase in net debt borrowings in fiscal
2001 was primarily to fund acquisitions.
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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company enters into forward exchange contracts, costless collar 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. 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 these
arrangements is not material to the Company's financial position, liquidity or
results of operations.
FORWARD-LOOKING STATEMENTS
This Report on Form 10-Q and other written reports and oral statements made from
time to time by the Company may contain "forward-looking statements", all of
which are subject to risks and uncertainties. All statements which address
operating performance, events or developments that the Company expects or
anticipates will occur in the future, including statements relating to growth,
operating margin performance, earnings per share or statements expressing
general opinions about future operating results or the markets in which the
Company does business, are forward-looking statements.
These forward-looking statements rely on a number of assumptions concerning
future events, and are subject to a number of uncertainties and other factors,
many of which are outside the Company's control, that could cause actual results
to differ materially from such statements. Such factors include:
. continuity of business relationships with and purchases by major customers,
including delays or cancellations in shipments,
. ability of suppliers to provide materials as needed,
. uncertainties surrounding timing, successful completion or integration of
acquisitions,
. competitive market conditions and resulting effects on sales and pricing,
. increases in material and other production costs which cannot be recovered in
product pricing,
. difficulties in introducing new products and entering new markets, and
. uncertainties surrounding the global economy and global market conditions,
interest rate levels and the potential devaluation of currencies.
Any forward-looking statements are based on known events and circumstances at
the time. The Company undertakes no obligation to update or publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date of this Report.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARKER-HANNIFIN CORPORATION
(Registrant)
/s/ Michael J. Hiemstra
Michael J. Hiemstra
Vice President - Finance and Administration
and Chief Financial Officer
Date: May 11, 2001
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