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 December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File number 1-4982
PARKER-HANNIFIN CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 34-0451060
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
17325 Euclid Avenue, Cleveland, Ohio 44112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 531-3000
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
Number of Common Shares outstanding at December 31, 1993 48,696,276
The Exhibit Index appears on sequential page 12.
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PARKER-HANNIFIN CORPORATION
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income - Three
Months and Six Months Ended December 31,
1993 and 1992 3
Consolidated Balance Sheet -
December 31, 1993 and June 30, 1993 4
Consolidated Statement of Cash Flows -
Six Months Ended December 31, 1993
and 1992 5
Business Segment Information by Industry -
Three Months and Six Months Ended
December 31, 1993 and 1992 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
EXHIBIT 11 - Computation of Earnings per Common Share* 13
*Numbered in accordance with Item 601 of Regulation S-K.
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PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Net sales $ 592,226 $ 588,676 $ 1,199,637 $ 1,196,850
Cost of sales 485,145 475,860 979,199 968,702
Gross profit 107,081 112,816 220,438 228,148
Selling, general and administrative expenses 70,070 75,009 142,840 152,426
Provision for business restructuring activities 5,044 3,013 6,705 3,945
Income from operations 31,967 34,794 70,893 71,777
Other income (deductions):
Interest expense (10,206) (11,837) (21,817) (23,232)
Interest and other income, net 1,222 1,103 3,171 1,790
(8,984) (10,734) (18,646) (21,442)
Income before income taxes and extraordinary item 22,983 24,060 52,247 50,335
Income taxes 8,922 9,384 22,121 19,631
Income before extraordinary item 14,061 14,676 30,126 30,704
Extraordinary item - extinguishment of debt (4,207) (4,207)
Net income $ 9,854 $ 14,676 $ 25,919 $ 30,704
Earnings per share before extraordinary item $ .29 $ .30 $ .62 $ .63
Earnings per share $ .20 $ .30 $ .53 $ .63
Cash dividends per common share $ .24 $ .24 $ .48 $ .48
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
PARKER-HANNIFIN CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
December 31, June 30,
1993 1993
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 29,756 $ 159,985
Accounts receivable, net 327,195 354,338
Inventories:
Finished products 237,071 236,160
Work in process 185,506 191,957
Raw materials 74,841 71,591
497,418 499,708
Prepaid expenses 14,062 13,934
Deferred income taxes 34,159 28,478
Total current assets 902,590 1,056,443
Plant and equipment 1,598,398 1,569,349
Less accumulated depreciation 875,380 833,293
723,018 736,056
Other assets 192,771 171,091
Total assets $ 1,818,379 $ 1,963,590
LIABILITIES
Current liabilities:
Notes payable $ 83,352 $ 86,641
Accounts payable, trade 110,264 125,127
Accrued liabilities 200,153 215,569
Accrued domestic and foreign taxes 31,119 40,917
Total current liabilities 424,888 468,254
Long-term debt 269,276 378,476
Pensions and other postretirement benefits 165,744 157,513
Deferred income taxes 14,794 17,349
Other liabilities 7,057 9,098
Total liabilities 881,759 1,030,690
SHAREHOLDERS' EQUITY
Serial preferred stock, $.50 par value;
authorized 3,000,000 shares; none issued
Common stock, $.50 par value; authorized
150,000,000 shares; issued 49,265,074 shares at
December 31 and 49,265,074 shares at June 30 24,633 24,633
Additional capital 163,882 164,430
Retained earnings 808,603 806,033
Deferred compensation related to guarantee
of ESOP debt (31,367) (36,764)
Currency translation adjustment (16,361) (10,533)
949,390 947,799
Less treasury shares, at cost: 568,798 shares
at December 31 and 663,701 shares at June 30 (12,770) (14,899)
Total shareholders' equity 936,620 932,900
Total liabilities and shareholders' equity $ 1,818,379 $ 1,963,590
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
December 31,
1993 1992
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 25,919 $ 30,704
Adjustments to reconcile net income to
net cash provided by operations:
Net effect of extraordinary loss 4,207
Depreciation 54,489 56,777
Amortization 2,624 2,112
Deferred income taxes (16,381) (6,245)
Foreign currency transaction loss (gain) 2,116 (374)
Gain on sale of plant and equipment (62) 125
Provision for restructuring (6,874) 502
Changes in assets and liabilities:
Accounts receivable 17,474 21,024
Inventories 3,344 4,342
Prepaid expenses (431) 1,970
Other assets (3,712) (1,014)
Accounts payable, trade (11,841) (6,176)
Accrued payrolls and other compensation (18,049) (19,020)
Accrued domestic and foreign taxes (4,845) 2,661
Other accrued liabilities 15,814 5,289
Pensions and other postretirement benefits 8,756 8,575
Other liabilities (2,029) (2,028)
Net cash provided by operating activities 70,519 99,224
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (excluding cash of $2,095 in 1993) (29,798)
Capital expenditures (41,554) (43,129)
Proceeds from sale of plant and equipment 1,827 1,459
Proceeds from disposition of business 3,205
Other 1,884 (1,212)
Net cash used in investing activities (64,436) (42,882)
CASH FLOWS FROM FINANCING ACTIVITIES
Exercise of stock options 1,581 459
Proceeds from (payments of) notes payable, net 2,113 7,273
Proceeds from long-term borrowings 1,637 5,584
Payments of long-term borrowings (110,179) (10,060)
Extraordinary loss on early retirement of debt (6,922)
Dividends (23,349) (23,242)
Net cash used in financing activities (135,119) (19,986)
Effect of exchange rate changes on cash (1,193) (2,249)
Net increase in cash and cash equivalents (130,229) 34,107
Cash and cash equivalents at beginning of year 159,985 100,053
Cash and cash equivalents at end of period $ 29,756 $ 134,160
See accompanying notes to consolidated financial statements.
</TABLE>
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PARKER-HANNIFIN CORPORATION
BUSINESS SEGMENT INFORMATION BY INDUSTRY
(Dollars in thousands)
(Unaudited)
Parker operates in two industry segments: Industrial and Aerospace. The
Industrial Segment is the largest and includes the International operations.
Industrial - This segment produces a broad range of motion-control and fluid
systems and components used in all kinds of manufacturing, packaging,
processing, transportation, mobile construction, and agricultural and military
machinery and equipment. Sales are direct to major original equipment
manufacturers (OEMs) and through a broad distribution network to smaller OEMs
and the aftermarket.
Aerospace - This segment designs and manufactures products and provides
aftermarket support for commercial, military and general-aviation aircraft,
missile and spacecraft markets. The Aerospace Segment provides a full range of
systems and components for hydraulic, pneumatic, cryogenic and fuel
applications.
<TABLE>
<CAPTION>
Results by Business Segment:
Three Months Ended Six Months Ended
December 31, December 31,
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Net sales, including intersegment sales
Industrial $ 457,987 $ 440,943 $ 922,765 $ 893,222
Aerospace 134,297 147,806 277,020 303,793
Intersegment sales (58) (73) (148) (165)
Total $ 592,226 $ 588,676 $ 1,199,637 $ 1,196,850
Income from operations before corporate
general and administrative expenses
Industrial $ 31,449 $ 31,261 $ 67,532 $ 65,139
Aerospace 9,499 12,488 22,143 25,109
Total 40,948 43,749 89,675 90,248
Corporate general and administrative
expenses 8,981 8,955 18,782 18,471
Income from operations $ 31,967 $ 34,794 $ 70,893 $ 71,777
See accompanying notes to consolidated financial statements.
</TABLE>
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PARKER-HANNIFIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share amounts
1. Management Representation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position
as of December 31, 1993, the results of operations for the three and six
months ended December 31, 1993 and 1992 and cash flows for the six
months then ended.
2. Extraordinary Item
In November 1993 the Company early-retired $100 million of 9.45 percent
debentures due November 1997 through 2016. The resulting pre-payment
premium and unamortized deferred debt costs were reported as an
extraordinary charge.
3. Restatement
On June 30, 1993 the Company changed the reporting period for
subsidiaries outside of North America to provide uniform reporting on a
global basis. The following table compares the fiscal 1993 quarterly
results if restated for the change to uniform reporting periods. For
example, the Second Quarter was originally reported as the period
September - November, but restated as the period October - December.
<TABLE>
<CAPTION>
Fiscal 1993 First Quarter Second Quarter Third Quarter Fourth Quarter
<S> <C> <C> <C> <C>
As Reported:
Net Sales $ 608,174 $ 588,676 $ 607,225 $ 685,248
Net Income 16,028 14,676 14,934 19,418
Earnings
per share $ .33 $ .30 $ .31 $ .40
If Restated:
Net Sales $ 609,287 $ 567,016 $ 621,843 $ 640,376
Net Income 16,085 10,137 18,505 19,272
Earnings
per share $ .33 $ .21 $ .38 $ .40
</TABLE>
4. Earnings per share
Primary earnings per share are computed using the weighted average
number of shares of common stock and common stock equivalents
outstanding during the period. Fully diluted earnings per share are not
presented because such dilution is not material.
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Acquisitions
In November 1993 the Company acquired the Electro-pneumatic Division of
Telemecanique of France, a leading European manufacturer of pneumatic
products for industrial applications. In December 1993 the Company
acquired the remaining 60 percent of LDI Pneutronics, which specializes
in advanced-technology pneumatic valves and components for medical,
semiconductor, and analytical instrumentation markets. The combined
purchase price for the two businesses was $31.9 million. Both
acquisitions will be accounted for by the purchase method. Prior year
sales for these operations exceeded $51.5 million for the last fiscal
year.
In December 1992, the company purchased the assets of Gromelle S.A., a
manufacturer of hydraulic and pneumatic quick couplings in Annemasse,
France. In August 1993, a French Court of Appeals rescinded the
purchase and on September 1 control of the operations was returned to an
administrator. On November 9, 1993 the Court of Appeals accepted a
purchase proposal submitted by another party and ordered the return of
the purchase price to the Company. The effects of this transaction are
not material to the Company's consolidated financial statements and were
reported as a disposition of business in fiscal 1994.
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<PAGE>
PARKER-HANNIFIN CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1993
AND COMPARABLE PERIODS ENDED DECEMBER 31, 1992
CONSOLIDATED STATEMENT OF INCOME
Net sales remained nearly level, increasing only 0.6 percent for the
second quarter and 0.2 percent for the first half of fiscal 1994. If
Net sales for fiscal 1993 were restated to report consistent periods
(July through December) for subsidiaries outside of North America,
results would have shown an increase of 4.4 percent for the quarter and
2.0 percent for the half. The improvement in sales was due to
continuing increases in the North American Industrial markets which were
offset by the continuing recession in Europe and ongoing declines in the
Aerospace business.
Income before the extraordinary item decreased slightly for the quarter
and for the six months. Improvements in North American Industrial
margins were more than offset by the losses incurred by the
International Industrial businesses. This decrease was also due to a
higher current year provision for business restructuring, primarily
involving the European operations, and a higher current year effective
tax rate. Income taxes for the period ended September 30, 1993 included
a cumulative charge of $1.6 million for tax law changes in Germany and
the United States. The decreases to income were partially offset by an
insurance recovery for previously expensed environmental costs.
If Income before the extraordinary item is compared to equivalent
reporting periods for fiscal 1993 (July through December), the results
would have shown an increase of 38.7 percent for the quarter and 14.9
percent for the half. The difference between the reported results and
the restated comparison reflect the losses incurred by operations
outside of North America in the month of December.
Net income decreased 32.9 percent for the quarter and 15.6 percent for
the half. An extraordinary charge of $4,207 was recorded in the second
quarter of fiscal 1994 for the early-retirement of $100 million of 9.45
percent debentures.
Income from operations as a percent of sales decreased to 5.4 percent
from 5.9 percent for the quarter and to 5.9 percent from 6.0 percent for
the six months. Cost of sales, as a percent of sales, increased
slightly to 81.9 percent from 80.8 percent for the quarter and to 81.6
percent from 80.9 percent for the six months. The effects of lower
production levels in relation to fixed costs continues to cause lower
margins for the International operations. Selling, general and
administrative expenses, as a percent of sales, decreased to 11.8
percent from 12.7 percent for the quarter and to 11.9 percent from 12.7
percent for the six months. Prior years' restructuring efforts have
contributed to this decrease.
Interest expense decreased 13.8 percent for the quarter and 6.1 percent
for the six months, primarily due to lower borrowings.
Backlog declined to $824.4 million at December 31, 1993 as compared to
$953.7 million the prior year. Backlog at June 30, 1993 was $856.5
million. The continuing decline is due to lower Aerospace orders.
BUSINESS SEGMENT INFORMATION BY INDUSTRY
Net sales of the Industrial Segment increased 3.9 percent for the second
quarter, and 3.3 percent for the six month period. Without the effect
of currency rate changes, sales would have increased 6.6 percent for the
quarter and 7.0 percent for the half. North American Industrial sales
were up substantially for the quarter and the half, while sales were
down for the International Industrial business.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Operating income for the Industrial Segment was up 0.6 percent for the
quarter and 3.7 percent for the six months. Earnings in North America
were up substantially for the quarter and the half, while the
International business recorded a loss for both the quarter and the
half. Benefits are being realized in North America as a result of prior
years' restructuring activities and increased volume, while
restructuring charges continue to be recorded by the International
operations and lower production levels are not covering fixed costs.
Operating income as a percent of sales decreased to 6.9 percent from 7.1
percent for the second quarter, and remained steady at 7.3 percent for
the six months.
Management expects these trends to continue through the second half.
The Industrial business in North America is expected to continue to
grow. Improvement is not expected in the International business until
the overseas economies improve. Industrial Segment backlog increased
11.4 percent compared to a year ago and 9.1 percent since June 30, 1993.
Net sales of the Aerospace Segment were down 9.1 percent for the quarter
and 8.8 percent for the six months. Operating income decreased 23.9
percent for the quarter and 11.8 percent for the six months. Operating
income as a percent of sales decreased to 7.1 percent from 8.4 percent
for the quarter and to 8.0 percent from 8.3 percent for the six months.
The reduced level of military original equipment business combined with
reduced aftermarket sales to the commercial airlines has lowered sales
and production levels, causing margins to decline. The Segment
continues to restructure to reflect this shift in business to current
markets.
Management believes the Aerospace business is stabilizing and expects to
maintain favorable margins despite the lower volume. Backlog for the
Aerospace Segment decreased 22.5 percent compared to a year ago, and 9.2
percent since June 30, 1993.
CONSOLIDATED BALANCE SHEET
Working capital decreased to $477.7 million at December 31, 1993 from
$588.2 million at June 30, 1993 primarily due to the reduction in cash
as a result of the retirement of the $100 million 9.45 percent
debentures. The ratio of current assets to current liabilities
decreased to 2.1 to 1 at December 31, 1993 from 2.3 to 1 at June 30,
1993.
Accounts receivable, net decreased $27.1 million since June 30, 1993,
$11.6 million of which was due to changes in foreign exchange rates.
Inventories have remained fairly steady since June 30, 1993.
The debt to debt-equity ratio, excluding the effect of the ESOP loan
guarantee on both Long-term debt and Shareholders' equity, decreased to
24.9 percent at December 31, 1993 from 30.6 percent at June 30, 1993.
The decrease is the result of the retirement of the $100 million 9.45 percent
debentures.
CONSOLIDATED STATEMENT OF CASH FLOWS
Net cash provided by operating activities was $70.5 million and $99.2
million for the six months ended December 31, 1993 and 1992,
respectively. Changes in the principal working capital items - Accounts
receivable, Inventories, and Accounts payable, trade - provided cash of
$9.0 million in fiscal 1994 as compared to $19.2 million in fiscal 1993.
An increase in the Deferred income taxes asset and the reduction of the
Deferred income taxes liability lowered cash provided by operating
activities by $10.1 million more in fiscal 1994 than in fiscal 1993.
Net cash used in investing activities increased to $64.4 million from
$42.9 million for the six months ended December 31, 1993 and 1992 as a
result of several acquisitions in fiscal 1994.
Net cash used in financing activities was $135.1 million and $20.0
million for the six months ended December 31, 1993 and 1992,
respectively. This increase of $115.1 million is due to the payments of
long-term borrowings and the extraordinary loss for the early-retirement
of debt.
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<PAGE>
PARKER-HANNIFIN CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The following document is furnished as an exhibit and
numbered pursuant to Item 601 of Regulation S-K:
Exhibit 11 - Statement regarding computation of per share
earnings.
(b) No reports on Form 8-K have been filed during the quarter for
which this Report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARKER-HANNIFIN CORPORATION
(Registrant)
Michael J. Hiemstra
Michael J. Hiemstra
Vice President - Finance and Administration
Date: February 11, 1994
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<PAGE>
EXHIBIT INDEX
Sequential
Exhibit No. Description of Exhibit Page
11 Computation of Earnings
Per Common Share 13
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<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
PARKER-HANNIFIN CORPORATION
FORM 10-Q
COMPUTATION OF EARNINGS PER COMMON SHARE
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1993 1992 1993 1992
<S> <C> <C> <C> <C>
Net income applicable
to common shares $ 9,854 $ 14,676 $ 25,919 $ 30,704
Weighted average common shares
outstanding for the period 48,671,373 48,429,079 48,643,784 48,420,706
Increase in weighted average from:
Dilutive effect of exercise
of stock options 262,733 95,880 233,678 118,077
Conversions of 4% convertible
debentures -- -- -- 1,743
Weighted average common shares,
assuming issuance of the
above securities 48,934,106 48,524,959 48,877,462 48,540,526
Earnings per common share:
Primary $ .20 $ .30 $ .53 $ .63
Fully diluted (A) $ .20 $ .30 $ .53 $ .63
</TABLE>
[FN]
(A) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required for income statement presentation
because it results in dilution of less than 3 percent.
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