SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
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 No. 1-4982
PARKER-HANNIFIN CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 34-0451060
(State of Incorporation) (I.R.S. Employer
Identification No.)
6035 Parkland Boulevard, Cleveland, Ohio 44124-4141
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (216) 896-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class which Registered
Common Shares, $.50 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, during the preceding 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
Yes X . No .
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K [X].
The aggregate market value of the voting stock held by non-
affiliates of the Registrant as of September 10, 1997, excluding, for
purposes of this computation, only stock holdings of the Registrant's
Directors and Officers. $4,675,975,460.
The number of Common Shares outstanding on September 10, 1997 was
111,633,754.
Portions of the following documents are incorporated by reference:
(1) Annual Report to Shareholders of the Company for the fiscal year
ended June 30, 1997. Incorporated by reference into Parts I, II
and IV hereof.
(2) Definitive Proxy Statement for the Company's 1997 Annual Meeting of
Shareholders. Incorporated by reference into Part III hereof.
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PARKER-HANNIFIN CORPORATION
FORM 10-K
Fiscal Year Ended June 30, 1997
PART I
ITEM 1. Business. Parker-Hannifin Corporation is a leading
worldwide full-line manufacturer of motion control products, including
fluid power systems, electromechanical controls and related components.
Fluid power involves the transfer and control of power through the medium
of liquid, gas or air, in hydraulic, pneumatic and vacuum applications.
Fluid power systems move and position materials, control machines,
vehicles and equipment and improve industrial efficiency and productivity.
Components of a simple fluid power system include a pump which generates
pressure, valves which control the fluid's flow, an actuator which
translates the pressure in the fluid into mechanical energy, a filter to
remove contaminants and numerous hoses, couplings, fittings and seals.
Electromechanical control involves the use of electronic components and
systems to control motion and precisely locate or vary speed in automation
applications. In addition to motion control products, the Company also is
a leading worldwide producer of fluid purification, fluid flow, process
instrumentation, air conditioning, refrigeration, and electromagnetic
shielding and thermal management products.
The Company was incorporated in Ohio in 1938. Its principal
executive offices are located at 6035 Parkland Boulevard, Mayfield
Heights, Ohio 44124-4141, telephone (216) 896-3000. As used in this
Report, unless the context otherwise requires, the term "Company" or
"Parker" refers to Parker-Hannifin Corporation and its subsidiaries.
The Company's manufacturing, service, distribution and
administrative facilities are located in 35 states, Puerto Rico and
worldwide in 37 foreign countries. Its motion control technology is used
in the products of its two business Segments: Industrial and Aerospace.
The products are sold as original and replacement equipment through
product and distribution centers worldwide. The Company markets its
products through its direct-sales employees and more than 7,500
independent distributors. Parker products are supplied to over 350,000
customers in virtually every significant manufacturing, transportation and
processing industry. For the fiscal year ended June 30, 1997, net sales
were $4,091,081,000; Industrial Segment products accounted for 79% of net
sales and Aerospace Segment products for 21%.
Markets
Motion control systems are used throughout industry in
applications which include moving of materials, controlling machines,
vehicles and equipment and positioning materials during the manufacturing
process. Motion control systems contribute to the efficient use of energy
and improve industrial productivity.
The more than 350,000 customers which purchase the Company's parts
are found throughout virtually every significant manufacturing,
transportation and processing industry. No customer accounted for more
than 3% of the Company's total net sales for the fiscal year.
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The major markets for products of the Fluid Connectors,
Hydraulics, Automation, Seal and Filtration Groups of the Industrial
Segment are agricultural machinery, automotive, construction equipment,
electronic equipment, fabricated metals, food production, industrial
machinery, lumber and paper, machine tools, marine, medical equipment,
mining, mobile equipment, chemicals, robotics, semi-conductor equipment,
textiles, transportation and every other major production and processing
industry. Products manufactured by the Industrial Segment's Climate and
Industrial Controls Group are utilized principally in automotive and
mobile air conditioning systems, industrial refrigeration systems and home
and commercial air conditioning equipment. The major markets for products
manufactured by the Instrumentation Group of the Industrial Segment are
power generation, oil and gas exploration, petrochemical and chemical
processing, pulp and paper, semi-conductor manufacturing, medical and
analytical applications. Sales of Industrial Segment products are made to
original equipment manufacturers and their replacement markets.
Aerospace Segment sales are made primarily to the commercial,
military and general aviation markets and are made to original equipment
manufacturers and to end users for maintenance, repair and overhaul.
Principal Products, Methods of Distribution and Competitive Conditions
Industrial Segment. The product lines of the Company's Industrial
Segment cover most of the components of motion control systems. The Fluid
Connectors Group manufactures connectors, including tube fittings and hose
fittings, valves, hoses and couplers which control, transmit and contain
fluid. The Hydraulics Group produces hydraulic components and systems for
builders and users of industrial and mobile machinery and equipment, such
as cylinders, accumulators, rotary actuators, valves, motors and pumps,
hydrostatic steering units, power units, electrohydraulic systems and
metering pumps. The Automation Group supplies pneumatic and
electromechanical components and systems, including pneumatic valves, air
preparation units, indexers, stepper and servo drives, multi-axis
positioning tables, electric and pneumatic cylinders, structural
extrusions, vacuum products and pneumatic logic. The Climate and
Industrial Controls Group manufactures components for use in industrial,
residential and automotive air conditioning and refrigeration systems and
other automotive applications, including pressure regulators, solenoid
valves, expansion valves, filter-dryers, gerotors and hose assemblies.
The Seal Group manufactures sealing devices, including o-rings and o-
seals, gaskets and packings which insure leak proof connections and
electromagnetic interference shielding and thermal management products.
The Filtration Group manufactures filters to remove contaminants from
fuel, air, oil, water and other fluids and gases in industrial, process,
mobile, marine and environmental applications. The Instrumentation Group
manufactures high quality critical flow components for process
instrumentation, ultra-high-purity, medical and analytical applications,
including instrumentation and ultra-high-purity fittings, ball, plug and
needle valves, packless ultra-high-purity valves, Teflon fittings, valves
and spray guns, miniature solenoid valves and multi-solenoid manifolds.
Industrial Segment products include both standard items which are
produced in large quantities and custom units which are engineered and
produced to original equipment manufacturers' specifications for
application to a particular end product.
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Both standard and custom products are also used in the replacement of
original motion control system components. Industrial Segment products are
marketed primarily through field sales employees and more than 7,500
independent distributors.
Aerospace Segment. The principal products of the Company's
Aerospace Segment are hydraulic, fuel and pneumatic systems and components
that are used on most commercial and military airframe and engine programs
in production in the Western world today.
The Aerospace Segment offers complete hydraulic systems, as well
as components that include hydraulic and electrohydraulic systems used for
precise control of aircraft rudders, elevators, ailerons and other
aerodynamic control surfaces and utility hydraulic components such as
reservoirs, accumulators, selector valves, electrohydraulic servovalves,
thrust-reverser actuators, engine-driven pumps, nosewheel steering
systems, electromechanical actuators, engine controls and electronic
controllers. The Aerospace Segment also designs and manufactures aircraft
wheels and brakes for the general aviation and military markets.
The Aerospace fuel product line includes complete fuel systems as
well as components such as fuel transfer and pressurization controls, in-
flight refueling systems, fuel pumps and valves, fuel measurement and
management systems and center of gravity controls, engine fuel injection
atomization nozzles and augmentor controls, and electronic monitoring
computers.
Pneumatic components include bleed air control systems, pressure
regulators, low-pressure pneumatic controls, heat transfer systems, engine
start systems, engine bleed control and anti-ice systems, and electronic
control and monitoring computers.
Aerospace Segment products are marketed by the Company's regional
sales organization and are sold directly to manufacturers and end users.
Competition. All aspects of the Company's business are highly
competitive. No single manufacturer competes with respect to all products
manufactured and sold by the Company and the degree of competition varies
with different products. In the Industrial Segment, the Company competes
on the basis of product quality and innovation, customer service, its
manufacturing and distribution capability, and price. The Company
believes that, in most of its major product markets, it is one of the
principal suppliers of motion control systems and components.
In the Aerospace Segment, the Company has developed partnerships
with key customers based on Parker's advanced technological capability,
superior performance in quality, delivery, and service, and price
competitiveness, which has enabled Parker to obtain significant original
equipment business on new aircraft programs for its fluid control systems
and components and, thereby, to obtain the follow-on repair and
replacement business for these programs. The Company believes that it is
one of the primary suppliers in the aerospace marketplace.
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Research and Product Development
The Company continually researches the feasibility of new products
through its development laboratories and testing facilities in many of its
worldwide manufacturing locations. Its research and product development
staff includes chemists, mechanical, electronic and electrical engineers
and physicists.
Research and development costs relating to the development of new
products or services and the improvement of existing products or services
amounted to $103,155,000 in fiscal 1997, $91,706,000 in fiscal 1996 and
$74,129,000 in fiscal 1995. Reimbursements of customer-sponsored research
included in the total cost for each of the respective years were
$35,986,000, $33,018,000 and $21,202,000.
Patents, Trademarks, Licenses
The Company owns a number of patents, trademarks and licenses
related to its products and has exclusive and non-exclusive rights under
patents owned by others. In addition, patent applications on certain
products are now pending, although there can be no assurance that patents
will be issued. The Company is not dependent to any material extent on
any single patent or group of patents.
Backlog and Seasonal Nature of Business
The Company's backlog at June 30, 1997 was approximately
$1,486,981,000 and at June 30, 1996 was approximately $1,330,970,000.
Approximately 79% of the Company's backlog at June 30, 1997 is scheduled
for delivery in the succeeding twelve months. The Company's business
generally is not seasonal in nature.
Environmental Regulation
The Company is subject to federal, state and local laws and
regulations designed to protect the environment and to regulate the
discharge of materials into the environment. Among other environmental
laws, the Company is subject to the federal "Superfund" law, under which
the Company has been designated as a "potentially responsible party" and
may be liable for clean up costs associated with various waste sites, some
of which are on the U.S. Environmental Protection Agency Superfund
priority list. The Company believes that its policies, practices and
procedures are properly designed to prevent unreasonable risk of
environmental damage and the consequent financial liability to the
Company. Compliance with environmental laws and regulations requires
continuing management effort and expenditures by the Company. Compliance
with environmental laws and regulations has not had in the past, and, the
Company believes, will not have in the future, material effects on the
capital expenditures, earnings, or competitive position of the Company.
The information set forth in Footnote 14 to the Financial Statements
contained on page 45 of the Company's Annual Report to Shareholders for
the fiscal year ended June 30, 1997 ("Annual Report"), as specifically
excerpted on pages 13-34 and 13-35 of Exhibit 13 hereto, is incorporated
herein by reference.
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Energy Matters and Sources and Availability of Raw Materials
The Company's primary energy source for each of its business
segments is electric power. While the Company cannot predict future
costs of such electric power, the primary source for production of the
required electric power will be coal from substantial, proven coal
reserves available to electric utilities. The Company is subject to
governmental regulations in regard to energy supplies both in the United
States and elsewhere. To date the Company has not experienced any
significant disruptions of its operations due to energy curtailments.
Steel, brass, aluminum and elastomeric materials are the principal
raw materials used by the Company. These materials are available from
numerous sources in quantities sufficient to meet the requirements of the
Company.
Employees
The Company employed approximately 34,927 persons as of June 30,
1997, of whom approximately 11,790 were employed by foreign subsidiaries.
Business Segment Information
The net sales, income from operations before corporate general and
administrative expenses and identifiable assets by business segment and
by geographic area for the past three fiscal years, as set forth on page
37 of the Annual Report and specifically excerpted on pages 13-15 to 13-17
of Exhibit 13 hereto, is incorporated herein by reference.
Item 1A. Executive Officers of the Company
The Company's Executive Officers are as follows:
Officer
Name Position Since(1) Age
Duane E. Collins President, Chief Executive Officer 1983 61
and Director
Dennis W. Sullivan Executive Vice President, Member of 1978 58
Office of the President and Director
Lawrence M. Zeno Vice President, Member of Office of 1993 55
the President and Acting President,
Hydraulics
Paul L. Carson Vice President - Information 1993 61
Services
Daniel T. Garey Vice President - Human Resources 1995 54
Stephen L. Hayes Vice President and President, 1993 56
Aerospace
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Michael J. Hiemstra Vice President - Finance and 1987 50
Administration and
Chief Financial Officer
Lawrence J. Hopcraft Vice President and President, 1990 54
Climate and Industrial Controls
Nickolas W. Vande Steeg Vice President and President, Seal 1995 54
Joseph D. Whiteman Vice President, General Counsel 1977 64
and Secretary
William D. Wilkerson Vice President - Technical Director 1987 61
Donald A. Zito Vice President 1988 57
Harold C. Gueritey, Jr. Controller 1980 58
Timothy K. Pistell Treasurer 1993 50
(1) Officers of Parker-Hannifin serve for a term of office from
the date of election to the next organizational meeting of
the Board of Directors and until their respective successors
are elected, except in the case of death, resignation or
removal. Messrs. Hiemstra, Hopcraft, Whiteman, Wilkerson and
Gueritey have served in the executive capacities indicated
above during the past five years.
Mr. Collins was elected as President and Chief Executive Officer
of the Company effective July, 1993. He was elected as Vice Chairman of
the Board in July, 1992 and Executive Vice President in July, 1988. He
was President of the International Sector from January, 1987 until June,
1992.
Mr. Sullivan was elected as Executive Vice President in 1981 and
a Member of the Office of the President in April, 1996.
Mr. Zeno was elected a Vice President in October, 1993 and a
Member of the Office of the President in July, 1997. He has also been the
Acting President of the Hydraulics Group since July, 1997. He was
President of the Motion and Control Group (formerly the Fluidpower Group)
from January, 1994 to June, 1997 and was Vice President-Operations of the
Motion and Control Group from July, 1988 to December, 1993.
Mr. Carson was elected a Vice President in October, 1993. He was
Vice President of Management Information Systems from July 1, 1983 to
October, 1993.
Mr. Garey was elected Vice President effective in January, 1995.
He was Group Vice President Human Resources of the Motion and Control
Group (formerly the Fluidpower Group) from July, 1982 to December, 1994.
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Mr. Hayes was elected as Vice President and named President of the
Aerospace Group in April, 1993. He was a Group Vice President of the
Aerospace Group from February, 1985 to April, 1993.
Mr. Vande Steeg was elected as Vice President effective in
September, 1995. He has been President of the Seal Group since May, 1986.
Mr. Pistell was elected as Treasurer of the Company in July, 1993.
He was Director of Business Planning from January, 1993 to July, 1993; and
Vice President-Finance\Controller of the International Sector from
October, 1988 to December, 1992.
Mr. Zito was elected as a Vice President in July, 1988. He served
as President of the Fluid Connectors Group from January, 1987 to June,
1997. He has announced his retirement from the Company effective
September 30, 1997.
ITEM 2. Properties. The following table sets forth the
principal plants and other materially important properties of the Company
and its subsidiaries. The leased properties are indicated with an
asterisk. A "(1)" indicates that the property is occupied by the
Company's Industrial Segment and a "(2)" indicates properties occupied by
the Aerospace Segment.
UNITED STATES
_____________
State City
_____ ____
Alabama Boaz(1)
Decatur(1)
Huntsville(1)
Jacksonville(1)
Arizona Glendale(2)
Tolleson(2)
Tucson*(1)
Arkansas Siloam Springs(1)
Trumann(1)
California Irvine(1)(2)
Modesto(1)
Newbury Park*(1)
Rohnert Park(1)
San Diego(1)
San Luis Obispo*(1)
Connecticut New Britain(1)
Florida Longwood(1)
Miami*(1)
Georgia Dublin(2)
Idaho Boise*(1)
Illinois Broadview(1)
Des Plaines(1)
Hampshire(1)
Niles*(1)
Rockford(1)
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State City
_____ ____
Indiana Albion(1)
Ashley(1)
Ft. Wayne(1)
Lebanon(1)
Tell City(1)
Iowa Red Oak(1)
Kansas Manhattan(1)
Kentucky Berea(1)
Lexington(1)
Louisiana Harvey*(1)
Maine Portland(1)
Massachusetts Waltham(2)
Woburn(1)
Michigan Kalamazoo(2)
Lakeview(1)
Otsego(1)
Oxford(1)
Richland(1)
Troy*(1)
Minnesota Golden Valley(1)
Mississippi Batesville(1)
Booneville(1)
Madison(1)
Missouri Kennett(1)
Nebraska Lincoln(1)
New Hampshire Hollis*(1)
Hudson(1)
Portsmouth*(1)
New Jersey Belleville*(1)
Fairfield*(1)
New York Clyde(2)
Lyons(1)
Smithtown(2)
North Carolina Forest City(1)
Hillsborough(1)
Mooresville(1)
Sanford(1)
Wake Forest*(1)
Ohio Akron(1)
Andover(2)
Avon(2)
Brookville(1)
Columbus(1)
Cuyahoga Falls*(1)
Eaton(1)
Elyria(1)(2)
Forest(2)
Green Camp(1)
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State City
_____ ____
Kent(1)
Lewisburg(1)
Mayfield Heights(1)(2)
Mentor*(2)
Metamora(1)
Ravenna(1)
St. Marys(1)
Wadsworth(1)
Wickliffe(1)
Oklahoma Henryetta*(1)
Oregon Eugene(1)
Pennsylvania Canton(1)
Harrison City(1)
Reading(1)
South Carolina Beaufort(2)
Inman(1)
Spartanburg(1)
Tennessee Greenfield(1)
Greenville(1)
Memphis*(1)
Texas Cleburne(1)
Ft. Worth(1)
Mansfield(1)
Utah Ogden(2)
Salt Lake City(1)
Washington Seattle*(1)
Wisconsin Grantsburg(1)
Mauston(1)
Territory City
Puerto Rico Ponce*(2)
FOREIGN COUNTRIES
_________________
Country City
_______ ____
Argentina Buenos Aires(1)
Australia Castle Hill(1)
Wodonga(1)
Austria Wiener Neustadt(1)
Belgium Brussels*(1)
Brazil Jacarei(1)
Sao Paulo(1)
Canada Grimsby(1)
Owen Sound(1)
Czech Republic Chomutov*(1)
Prague*(1)
Sadska*(1)
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FOREIGN COUNTRIES
_________________
Country City
_______ ____
Denmark Espergarde(1)
Ishoj(1)
England Barnstaple(1)
Cannock(1)
Derby(1)
Hemel Hempstead(1)
Littlehampton(1)
Marlow*(1)
Morley(1)
Poole*(1)
Rotherham(1)
Stratford-upon-Avon*(1)
Watford(1)
Finland Hyrynsalmi*(1)
Urjala(1)
Vantaa(1)
France Annemasse(1)
Contamine(1)
Evreux(1)
Pontarlier(1)
Wissembourg(1)
Germany Berlin*(1)
Bielefeld(1)
Bietigheim-Bissingen(1)
Cologne(1)
Erfurt(1)
Hochmossingen(1)
Kaarst(1)
Lampertheim(1)
Limbach*(1)
Mainz-Kastel(2)
Mucke(1)
Offenburg*(1)
Pleidelsheim(1)
Queckborn(1)
Velbert(1)
Greece Athens*(1)
Hong Kong Hong Kong*(1)
Hungary Budapest*(1)
India Bombay*(1)
Italy Adro(1)
Arsago Seprio(1)
Corsico(1)
Gessate(1)
Japan Yokohama(1)(2)
Jordan Amman*(1)
Malaysia Selangor*(1)
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FOREIGN COUNTRIES
_________________
Country City
_______ ____
Mexico Matamoros(1)
Monterrey(1)
Naucalpan*(1)
Tijuana(1)
Toluca(1)
Netherlands Hoogezand(1)
Oldenzaal(1)
New Zealand Mt. Wellington(1)
Norway Langhus(1)
Peoples Republic of China Beijing*(1)(2)
Shanghai*(1)
Phillippines Manila*(1)
Poland Warsaw*(1)
Wroclaw*(1)
Russia Moscow*(1)
Singapore Singapore*(1)(2)
South Africa Johannesburg*(1)
South Korea Seoul*(1)
Spain Madrid*(1)
Sweden Boras(1)
Falkoping(1)
Spanga(1)
Trollhatten(1)
Ulricehamn(1)
Switzerland Geneva(1)
Taiwan Taipei*(1)
Thailand Bangkok*(1)
Venezuela Caracas*(1)
Puerto Ordaz*(1)
The Company believes that its properties have been adequately
maintained, are in good condition generally and are suitable and adequate
for its business as presently conducted. The extent of utilization of the
Company's properties varies among its plants and from time to time.
Additional capacity acquired through business combinations, offset by
restructuring efforts in prior years, has adjusted the Company's capacity
to proper levels for anticipated needs. The Company's material
manufacturing facilities remain capable of handling additional volume
increases.
ITEM 3. Legal Proceedings. None.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters. As of August 29, 1997, the approximate number of
shareholders of record of the Company was 4,340 and the approximate number
of beneficial owners was 43,014. The
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Company's common shares are traded on the New York Stock Exchange ("NYSE").
Set forth below is a quarterly summary of the high and low sales prices on the
NYSE for the Company's common shares and dividends declared for the two most
recent fiscal years (adjusted to reflect the 3-shares-for-2 stock split paid
on September 5, 1997):
Fiscal Year 1st 2nd 3rd 4th Full Year
1997 High $ 29-3/8 $ 28-1/4 $ 30-7/8 $ 41 $ 41
Low 22-1/4 24-1/8 24-7/8 27 22-1/4
Dividends .120 .120 .133 .133 .506
1996 High $ 27-5/8 $ 25-5/8 $ 26-1/2 $ 29-3/8 $ 29-3/8
Low 23-5/8 20-5/8 21-1/4 24-5/8 20-5/8
Dividends .120 .120 .120 .120 .480
ITEM 6. Selected Financial Data. The information set forth on
pages 46 and 47 of the Annual Report, as specifically excerpted on page
13-38 of Exhibit 13 hereto, is incorporated herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. The information set forth on pages
30, 32, 34, and 36 of the Annual Report, as specifically excerpted on
pages 13-1 to 13-8 of Exhibit 13 hereto, is incorporated herein by
reference.
ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risk. Not applicable.
ITEM 8. Financial Statements and Supplementary Data. The
information set forth on pages 29, 31, 33, 35 and 37 to 45 of the
Annual Report, as specifically excerpted on pages 13-9 to 13-37 of Exhibit
13 hereto, is incorporated herein by reference.
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
Information required as to the Directors of the Company is contained on
pages 1 to 3 of the Company's definitive Proxy Statement dated September
22, 1997 (the "Proxy Statement") under the caption "Election of
Directors." The foregoing information is incorporated herein by
reference. Information as to the executive officers of the Company is
included in Part I hereof.
ITEM 11. Executive Compensation. The information set forth under
the caption "Compensation of Directors" on page 4 of the Proxy Statement
and under the caption "Executive Compensation" on pages 8 to 11 of the
Proxy Statement is incorporated herein by reference.
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ITEM 12. Security Ownership of Certain Beneficial Owners and
Management. The information set forth under the caption ""Change in
Control" Severance Agreements with Officers" on pages 11 and 12 of the
Proxy Statement and under the caption "Principal Shareholders of the
Corporation" on page 16 of the Proxy Statement is incorporated herein by
reference.
ITEM 13. Certain Relationships and Related Transactions. Not
applicable.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
a. The following are filed as part of this report:
1. Financial Statements and Schedules
The financial statements and schedule listed in
the accompanying Index to Consolidated Financial
Statements and Schedules are filed or
incorporated by reference as part of this
Report.
2. Exhibits
The exhibits listed in the accompanying Exhibit
Index and required by Item 601 of Regulation S-K
(numbered in accordance with Item 601 of
Regulation S-K) are filed or incorporated by
reference as part of this Report.
b. The Registrant did not file a Current Report on Form 8-K
in the quarter ending June 30, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Michael J. Hiemstra
Michael J. Hiemstra
Vice President - Finance and
Administration and
Chief Financial Officer
September 29, 1997
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Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed below by the following persons in the
capacities and on the date indicated.
Signature and Title
PATRICK S. PARKER, Chairman of the Board of Directors;
DUANE E. COLLINS, President, Chief Executive Officer and
Director; HAROLD C. GUERITEY, JR., Controller and
Principal Accounting Officer; JOHN G. BREEN, Director;
PAUL C. ELY, JR., Director; ALLEN H. FORD, Director;
FRANK A. LePAGE, Director; PETER W. LIKINS, Director;
HECTOR R. ORTINO, Director; ALLAN L. RAYFIELD, Director;
PAUL G. SCHLOEMER, Director; WOLFGANG R. SCHMITT,
Director; DEBRA L. STARNES, Director; STEPHANIE A.
STREETER, Director; DENNIS W. SULLIVAN, Director; and
MICHAEL A. TRESCHOW, Director.
Date: September 29, 1997
Michael J. Hiemstra
Michael J. Hiemstra, Vice President - Finance and
Administration, Principal Financial Officer and
Attorney-in-Fact
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PARKER-HANNIFIN CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Reference
____________________________________
Excerpt from Annual
Form 10-K Report as set forth
Annual Report in Exhibit 13
(Page) (Page)
Data incorporated by reference from the
Annual Report as specifically excerpted
in Exhibit 13 hereto:
Report of Independent Accountants --- 13-37
Consolidated Statement of Income for the
years ended June 30, 1997, 1996 and 1995 --- 13-9
Consolidated Balance Sheet at June 30, 1997
and 1996 --- 13-11 and 13-12
Consolidated Statement of Cash Flows for
the years ended June 30, 1997, 1996 and 1995 --- 13-13 and 13-14
Notes to Consolidated Financial Statements --- 13-18 to 13-35
Consent and Report of Independent Accountants F-2 ---
Schedule:
II - Valuation and Qualifying Accounts F-3 ---
Individual financial statements and related applicable schedules for the
Registrant (separately) have been omitted because the Registrant is primarily
an operating company and its subsidiaries are considered to be totally-held.
Schedules other than those listed above have been omitted from this Annual
Report because they are not required, are not applicable, or the required
information is included in the consolidated financial statements or the notes
thereto.
F-1
<PAGE>
COOPERS Coopers & Lybrand L.L.P.
& LYBRAND
a professional services firm
CONSENT AND REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Parker Hannifin Corporation
Our report on the consolidated financial statements of Parker Hannifin
Corporation has been incorporated by reference from page 29 of the 1997 Annual
Report to Shareholders of Parker Hannifin Corporation, as specifically
excerpted on page 13-37 of Exhibit 13 to this Form 10-K. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule listed in the index on page F-1 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
We consent to the incorporation by reference in the registration statement of
Parker Hannifin Corporation on Form S-3 (File No. 333-2761) and Forms S-8
(File Nos. 33-53193, 33-43938 and 2-66732) of our report dated July 31, 1997
on our audits of the consolidated financial statements and financial statement
schedule of Parker Hannifin Corporation as of June 30, 1997 and 1996, and for
the years ended June 30, 1997, 1996, and 1995, which report is included in
Exhibit 13 of this Form 10-K.
Coopers & Lybrand L.L.P.
Cleveland, Ohio
September 29, 1997
F-2
<PAGE>
PARKER-HANNIFIN CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1995, 1996 and 1997
(Dollars in Thousands)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at Charged to Other Balance
Beginning Costs and (Deductions)/ At End
Description Of Period Expenses Additions (A) Of Period
----------- --------- ---------- ------------- ---------
Allowance for doubtful accounts:
- --------------------------------
Year ended June 30, 1995 $ 4,731 $ 2,411 $ (529) $ 6,613
Year ended June 30, 1996 6,613 2,158 (2,326) 6,445
Year ended June 30, 1997 6,445 1,288 (1,829) 5,904
(A) Net balance of deductions due to uncollectible accounts charged off
and additions due to acquisitions or recoveries.
F-3
<PAGE>
Exhibit Index
Exhibit No. Description of Exhibit
(3) Articles of Incorporation and By-Laws
(3)(a) Amended Articles of Incorporation(A).
(3)(b) Code of Regulations, as amended(B).
(4) Instruments Defining Rights of Security Holders:
(4)(a) Rights Agreement, dated January 31, 1997, between the
Registrant and Wachovia National Bank, as successor to Key
Bank National Association(C).
The Registrant is a party to other instruments, copies of
which will be furnished to the Commission upon request,
defining the rights of holders of its long-term debt
identified in Note 7 of the Notes to Consolidated Financial
Statements appearing on page 41 of the Annual Report as
specifically excerpted on pages 13-24 and 13-25 of Exhibit 13
hereto, which Note is incorporated herein by reference.
(10) Material Contracts:
(10)(a) Form of Change in Control Severance Agreement entered into by
the Registrant and certain executive officers, dated as of
August 15, 1996(D).*
(10)(b) Parker-Hannifin Corporation Change in Control Severance Plan,
as amended as of August 15, 1996(E).*
(10)(c) Form of Indemnification Agreement entered into by the
Registrant and its directors and certain executive
officers (F).
(10)(d) Parker-Hannifin Corporation Supplemental Executive Retirement
Benefits Program (August 15, 1996 Restatement)(G).*
(10)(e) Parker-Hannifin Corporation 1987 Employees Stock Option Plan,
as amended as of August 15, 1996(H).*
(10)(f) Parker-Hannifin Corporation 1990 Employees Stock Option Plan,
as amended as of October 28, 1993 and August 15, 1996(I).*
(10)(g) Parker-Hannifin Corporation 1993 Stock Incentive Program, as
amended as of August 15, 1996 (J).*
<PAGE>
Exhibit No. Description of Exhibit
(10)(h) Parker-Hannifin Corporation 1997 Target Incentive Bonus Plan
Description (K).*
(10)(i) Parker-Hannifin Corporation 1998 Target Incentive Bonus Plan
Description.*
(10)(j) Parker-Hannifin Corporation 1995-96-97 Long Term Incentive
Plan Description, as amended as of August 17, 1995 and August
15, 1996(L).*
(10)(k) Parker-Hannifin Corporation 1996-97-98 Long Term Incentive
Plan Description, as amended as of August 15, 1996(M).*
(10)(l) Parker-Hannifin Corporation 1997-98-99 Long Term Incentive
Plan Description(N).*
(10)(m) Parker-Hannifin Corporation 1998-99-00 Long Term Incentive
Plan Description.*
(10)(n) Parker-Hannifin Corporation Savings Restoration Plan, as
amended as of August 17, 1995 and August 15, 1996(O).*
(10)(o) Parker-Hannifin Corporation Pension Restoration Plan, as
amended as of August 17, 1995 and August 15, 1996(P).*
(10)(p) Parker-Hannifin Corporation Executive Deferral Plan, as
amended as of August 17, 1995 and August 15, 1996(Q).*
(10)(q) Parker-Hannifin Corporation Volume Incentive Plan(R).*
(10)(r) Parker-Hannifin Corporation Non-Employee Directors' Stock
Plan, as amended as of August 17, 1995 and August 15,
1996(S).*
(10)(s) Parker-Hannifin Corporation Non-Employee Directors Stock
Option Plan(T).*
(10)(t) Parker-Hannifin Corporation Deferred Compensation Plan for
Directors, as amended as of August 15, 1996(U).*
(11) Computation of Common Shares Outstanding and Earnings Per
Share.
(13) Excerpts from Annual Report to Shareholders for the fiscal
year ended June 30, 1997 which are incorporated herein by
reference thereto.
(21) List of subsidiaries of the Registrant.
(24) Consents of Experts (contained in Consent and Report of
Independent Accountants appearing on Page F-2 of this
Form 10-K).
<PAGE>
Exhibit No. Description of Exhibit
(25) Power of Attorney
(27) Financial Data Schedule
*Management contracts or compensatory plans or arrangements.
(A) Incorporated by reference to Exhibit 3(a) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
(B) Incorporated by reference to Exhibits to the Registrant's
Registration Statement on Form S-8 (No. 33-53193) filed with
the Commission on April 20, 1994.
(C) Incorporated by reference to Exhibit 4.1 to the Registrant's
Report on Form 8-K filed with the Commission on February 4,
1997.
(D) Incorporated by reference to Exhibit 10(a) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
(E) Incorporated by reference to Exhibit 10(b) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
(F) Incorporated by reference to Exhibit 10(f) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1994.
(G) Incorporated by reference to Exhibit 10(e) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
(H) Incorporated by reference to Exhibit 10(f) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
(I) Incorporated by reference to Exhibit 10(g) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
(J) Incorporated by reference to Exhibit 10(h) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
(K) Incorporated by reference to Exhibit 10(j) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1995.
(L) Incorporated by reference to Exhibit 10(l) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
(M) Incorporated by reference to Exhibit 10(m) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
(N) Incorporated by reference to Exhibit 10(n) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
<PAGE>
(O) Incorporated by reference to Exhibit 10(o) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
(P) Incorporated by reference to Exhibit 10(p) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
(Q) Incorporated by reference to Exhibit 10(q) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
(R) Incorporated by reference to Exhibit 10(r) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
(S) Incorporated by reference to Exhibit 10(s) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
(T) Incorporated by reference to Exhibit 10(t) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
(U) Incorporated by reference to Exhibit 10(u) to the Registrant's
Report on Form 10-K for the fiscal year ended June 30, 1996.
Shareholders may request a copy of any of the exhibits to this Annual Report
on Form 10-K by writing to the Secretary, Parker-Hannifin Corporation,
6035 Parkland Boulevard, Cleveland, Ohio 44124-4141.
Exhibit (10)(i)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1997
by Parker-Hannifin Corporation
Parker-Hannifin Corporation 1998 Target Incentive
Bonus Plan Description
*Numbered in accordance with Item 601 of Regulation S-K.
<PAGE>
PARKER-HANNIFIN CORPORATION 1998 TARGET INCENTIVE BONUS PLAN
A. Payments earned under the Bonus Plan depend upon the Company's
performance against a pre-tax return on average assets (ROAA) schedule
which is based upon the Fiscal Year 1998 operating plan.
B. The payout under the Plan ranges from 15% to 150% of each participant's
target award, with 100% payout set at achievement of fiscal year 1998
planned ROAA.
C. Any payout pursuant to the Plan that will result in the exceedance of
the $1 million cap on the tax deductibility of executive compensation
will be deferred until such time in the earliest subsequent fiscal year
that such cap will not be exceeded.
D. Participants: All of the executive officers of the Company, plus Group
Presidents who are not executive officers.
E. Fiscal year 1998 Planned ROAA: 16.0%
ROAA Payout Schedule
--------------------
FY98` Percentage of Target
ROAA Award Paid*
---- --------------------
< 3.6% 0
3.6% 30%
5.5% 40%
7.4% 50%
9.2% 60%
11.0% 70%
11.4% 72%
12.7% 80%
14.3% 90%
16.0% 100%
16.8% 113%
17.7% 125%
18.5% 138%
19.3% 150%
* Fiscal year 1998 ROAA less than 11.4% will reduce the amount paid by 50%.
F. ROAA will not include the impact of:
1. Environmental costs in excess of planned amounts
2. Acquisitions/divestitures
3. Currency gains or losses
Exhibit (10)(m)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1997
by Parker-Hannifin Corporation
Parker-Hannifin Corporation 1998-99-00 Long Term
Incentive Plan Description
*Numbered in accordance with Item 601 of Regulation S-K.
<PAGE>
PARKER-HANNIFIN CORPORATION
1998-99-00
LONG TERM INCENTIVE PLAN
The purpose of the Plan is to provide a long-term incentive portion of bonus
compensation. The Plan's focus is on return on equity. It balances a
competitive base salary pay structure, an annual cash bonus compensation based
on a return on average assets, and a stock option plan with ten-year exercise
rights. The return on equity objective is a key financial goal and
comprehends return on sales at the net income level and asset utilization.
The participants in this Plan are limited to Corporate Officers and Group
Presidents. They clearly can affect broadly the overall financial performance
of the company.
The key elements of Parker-Hannifin's Plan are as follows:
Participation
Those key executives having a critical impact on the long term performance of
the Company selected by the Chief Executive Officer and approved by the
Compensation and Management Development Committee of the Board.
Performance Period
Three-year average Return on Equity with the grant to cover FY 98, 99 and 00.
Size of Awards
Commensurate with bonus compensation and stock option level of participants as
determined by the CEO with approval of the Compensation and Management
Development Committee.
Form of Awards
Awards will be expressed as a certain number of shares of Parker stock
calculated by dividing the dollar equivalent of the award by the
June 30, 1997 Parker stock price.
Performance Objective
The Return on Equity objective is 14%.
Value Range
Actual value of the payments under the Plan will be within a range of 25% to
200% of target value based on performance against the objective.
Performance Range
For performance below a threshold of 8% ROE objective, no payment will be
made. For performance between 8% and 20% ROE, payments will be earned between
25% and 200% of the target value on a proportional basis above and below the
target value. The Plan is capped at 200%.
Payment
Payments earned under the Plan will be paid at the end of the three-year
performance period. Payment will be made in restricted stock of the
- 1 -
<PAGE>
Corporation unless the participant is retired at the time of payment or has
previously elected a cash payment to be deferred under the Corporation's
Executive Deferral Plan. The value of the cash payment in lieu of restricted
shares is determined based upon the share price of Parker-Hannifin's Common
Shares on June 30, 2000. The restricted shares would be subject to a vesting
schedule and such other terms and conditions determined by the Compensation
Committee at the time of issuance. Any payout pursuant to this plan that will
result in the exceedance of the $1 million cap on the tax deductibility of
executive compensation will be deferred until such time in the earliest
subsequent fiscal year that such cap will not be exceeded.
Termination of Employment
If a participant dies, retires (with consent of the Compensation and
Management Development Committee if earlier than age 65) or is disabled during
the performance period, he/she will receive a pro rata portion of the award
payable upon completion of the performance period. A participant who resigns
or is otherwise terminated during the performance period forfeits the award.
Performance Schedule
The Plan performance schedule, based on the three-year simple average of
annual report return on average equity, is as follows:
Return on Equity
____________________________________________________________
<8.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%
_____ ____ _____ _____ _____ _____ _____ _____
Payout % 0 25 50 75 100 133 167 200
Change in Control
In the event of a "Change in Control" of the Corporation (as defined below),
the payout under the Plan will be accelerated to fifteen (15) days
after the Change in Control. The amount of the payout will be in cash and
will be the greater of the target award or the amount the payout would have
been had ROE during the Performance Period to the end of the fiscal quarter
immediately preceding the date of the Change in Control continued throughout
the Performance Period. The cash amount of such payout will be based upon
the closing New York Stock Exchange stock price of the Corporation's Common
Shares on the first day of the Performance Period or the date of the Change
in Control, whichever is greater. If the Participant will reach age 65 prior
to the end of the Performance Period, the payout in the event of a Change in
Control will be reduced on a pro rata basis.
"Change in Control" means the occurrence of one of the following events:
(i) any "person" (as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of Parker-Hannifin Corporation (the "Company") representing 20% or
- 2 -
<PAGE>
more of the combined voting power of the Company's then outstanding securities
eligible to vote for the election of the Board of Directors of the Company
(the "Board") (the "Company's Voting Securities"); provided, however, that the
event described in this paragraph shall not be deemed to be a Change in
Control by virtue of any of the following situations: (A) an acquisition by
the Company or any corporation or entity in which the Company has a direct or
indirect ownership interest of 50% or more of the total combined voting power
of the then outstanding securities of such corporation or other entity (a
"Subsidiary"); (B) an acquisition by any employee benefit plan sponsored or
maintained by the Company or any Subsidiary; (C) an acquisition by any
underwriter temporarily holding securities pursuant to an offering of such
securities; (D) a Non-Control Transaction (as defined in paragraph (iii)); (E)
as pertains to a Plan participant (the "Executive"), any acquisition by the
Executive or any group of persons (within the meaning of Sections 13(d)(3) and
14(d)(2) of the Exchange Act) including the Executive (or any entity in which
the Executive or a group of persons including the Executive, directly or
indirectly, holds a majority of the voting power of such entity's outstanding
voting interests); or (F) the acquisition of Company Voting Securities from
the Company, if a majority of the Board approves a resolution providing
expressly that the acquisition pursuant to this clause (F) does not constitute
a Change in Control under this paragraph (i);
(ii) individuals who, at the beginning of any period of twenty-four
(24) consecutive months, constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority thereof; provided, that (A)
any person becoming a director subsequent to the beginning of such twenty-four
(24) month period, whose election, or nomination for election, by the
Company's shareholders was approved by a vote of at least two-thirds of the
directors comprising the Incumbent Board who are then on the Board (either by a
specific vote or by approval of the proxy statement of the Company in which
such person is named as a nominee for director, without objection to such
nomination) shall be, for purposes of this paragraph (ii), considered as though
such person were a member of the Incumbent Board; provided, however, that no
individual initially elected or nominated as a director of the Company as a
result of an actual or threatened election contest with respect to directors
or any other actual or threatened solicitation of proxies or consents by or
on behalf of any person other than the Board shall be deemed to be a member
of the Incumbent Board;
(iii) the consummation of a merger, consolidation, share exchange or
similar form of corporate reorganization of the Company or any Subsidiary that
requires the approval of the Company's stockholders, whether for such
transaction or the issuance of securities in connection with the transaction
or otherwise (a "Business Combination"), unless (A) immediately following such
Business Combination: (1) more than 50% of the total voting power of the
corporation resulting from such Business Combination (the "Surviving
Corporation") or, if applicable, the ultimate parent corporation which
directly or indirectly has beneficial ownership of 100% of the voting
securities eligible to elect directors of the Surviving Corporation (the
"Parent Corporation"), is represented by Company Voting Securities that were
outstanding immediately prior to the Business Combination (or, if applicable,
shares into which such Company Voting Securities were converted pursuant to
- 3 -
<PAGE>
such Business Combination), and such voting power among the holders thereof is
in substantially the same proportion as the voting power of such Company
Voting Securities among the holders thereof immediately prior to the Business
Combination, (2) no person (other than any employee benefit plan sponsored or
maintained by the Surviving Corporation or the Parent Corporation) is or
becomes the beneficial owner, directly or indirectly, of 20% or more of the
total voting power of the outstanding voting securities eligible to elect
directors of the Parent Corporation (or, if there is no Parent Corporation,
the Surviving Corporation), and (3) at least a majority of the members of the
board of directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation), following the Business Combination,
were members of the Incumbent Board at the time of the Board's approval of the
execution of the initial agreement providing for such Business Combination
(a "Non-Control Transaction") or (B) the Business Combination is effected by
means of the acquisition of Company Voting Securities from the Company, and a
majority of the Board approves a resolution providing expressly that such
Business Combination does not constitute a Change in Control under this
paragraph (iii); or
(iv) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or the sale or other disposition of
all or substantially all of the assets of the Company and its Subsidiaries.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any person acquires beneficial ownership of more than 20%
of the Company Voting Securities as a result of the acquisition of Company
Voting Securities by the Company which, by reducing the number of Company
Voting Securities outstanding, increases the percentage of shares beneficially
owned by such person; provided, that if a Change in Control would occur as a
result of such an acquisition by the Company (if not for the operation of this
sentence), and after the Company's acquisition such person becomes the
beneficial owner of additional Company Voting Securities that increases the
percentage of outstanding Company Voting Securities beneficially owned by such
person, a Change in Control shall then occur.
Notwithstanding anything in this Plan to the contrary, if the Executive's
employment is terminated prior to a Change in Control, and the Executive
reasonably demonstrates that such termination was at the request of a third
party who has indicated an intention or taken steps reasonably calculated to
effect a Change in Control, (a "Third Party"), then for all purposes of this
Plan, the date immediately prior to the date of such termination of employment
shall be deemed to be the date of a Change in Control for such Executive.
- 4 -
Exhibit (11)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1997
by Parker-Hannifin Corporation
Computation of Common Shares Outstanding
and Earnings per Share
*Numbered in accordance with Item 601 of Regulation S-K.
<PAGE>
EXHIBIT (11)* TO REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED JUNE 30, 1997
PARKER-HANNIFIN CORPORATION
COMPUTATION OF COMMON SHARES OUTSTANDING**
AND EARNINGS PER SHARE**
(Dollars in thousands, except per share amounts)
1997 1996 1995
Net income applicable to common shares $ 274,039 $ 239,667 $ 218,238
=========== =========== ===========
Weighted average common shares
outstanding for the year 111,601,484 111,260,717 110,576,214
Increase in weighted average from:
Dilutive effect of stock options 916,569 928,000 572,400
___________ ___________ ___________
Weighted average common shares,
assuming issuance of the above
securities 112,518,053 112,188,717 111,148,614
=========== =========== ===========
Earnings per common share:
On the weighted average common
shares outstanding for the year $ 2.46 $ 2.15 $ 1.97
Assuming issuance of shares for
convertible debentures and
dilutive stock options* $ 2.44 $ 2.14 $ 1.96
* This Exhibit is numbered and submitted in accordance with Regulation S-K
Item 601(b)(11) although not required for income statement presentation
because it results in dilution less than three percent.
** Shares outstanding and per share amounts have been adjusted to reflect the
3-shares-for-2 Common Stock split paid on September 5, 1997.
Exhibit (13)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1997
by Parker-Hannifin Corporation
Excerpts from Annual Report to Shareholders for the fiscal year ended
June 30, 1997.
*Numbered in accordance with Item 601 of Regulation S-K.
<PAGE>
DISCUSSION OF STATEMENT OF INCOME
THE CONSOLIDATED STATEMENT OF INCOME summarizes Parker's operating performance
over the last three years.
NET SALES of $4.09 billion for fiscal 1997 were 14.1 percent higher than
$3.59 billion in 1996. Acquisitions accounted for more than half of this
increase. Order demand was strong for the North American Industrial
operations, especially within the factory automation, machine tool, and
agricultural and construction equipment markets. There was also increasing
demand for sealing products, and light-truck and automotive products. The
International Industrial operations' results were relatively flat with Europe
experiencing a soft economy for most of the year. Volume increases were
partially offset by currency rate changes. Fourth-quarter order demand began
to show signs of recovery in Europe. The Aerospace operations achieved the
majority of the sales growth as demand was strong within the OEM commercial
and general aviation industries and the maintenance, repair and overhaul
business.
Acquisitions contributed nearly 60 percent of the 1996 increase of 11.6
percent over 1995. During 1996 the North American Industrial operations
experienced strong growth in the semiconductor and telecommunications markets,
but this was partially offset by a slowdown in the heavy-duty truck market.
International Industrial operations experienced a soft economy in Europe
during 1996 following stronger performance in 1995. Aerospace operations
experienced strong growth during 1996 as gains were made in both original
equipment and maintenance, repair and overhaul markets.
The Company is anticipating strong growth for the next year as Industrial
markets are expected to continue to grow within North America. If the European
economy continues to strengthen, the Company expects significant growth within
the European operations. In addition, the Company expects to improve through
continuing growth in Latin America and Asia Pacific, and with the completion of
potential acquisitions. Strong demand within the Aerospace commercial markets
and a presumed stabilized military marketplace provide a positive outlook
for the Aerospace business as well.
NET INCOME of $274.0 million for 1997 was 14.3 percent higher than 1996.
Net income of $239.7 million for 1996 was 9.8 percent higher than income of
$218.2 million in 1995. Net income as a percentage of sales was 6.7 percent in
1997 and 1996, compared to 6.8 percent in 1995.
GROSS PROFIT MARGIN was 22.9 percent in 1997 compared to 23.1 percent in
1996 and 23.8 percent in 1995. Higher volume resulted in improved capacity
utilization and higher margins for most of the North American Industrial and
Aerospace operations. Offsetting this improvement, newly acquired operations
within Industrial International and Aerospace continued to contribute lower
margins, although improving throughout the year. In addition, weak demand
throughout Europe resulted in lower capacity utilization and reduced gross
profit for the International operations.
The margin decline in 1996 resulted from acquisitions contributing lower
margins and the Company incurring one-time integration costs. In addition, as
the mix of products and volume levels changed, certain business units within
the Industrial operations adjusted inventory levels and production schedules
to meet new levels of demand. Despite lower margins contributed by an
acquisition, Aerospace operations improved margins in 1996 due to a better
product mix and higher volume, which allowed better absorption of fixed costs.
Page 13-1
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES as a percent of sales
decreased to 11.6 percent, from 11.9 percent in 1996, and 12.0 percent in
1995. As volume increased in 1997 and 1996, these expenses remained relatively
even, except for additional expense from acquisitions. Also, additional
selling expenses were incurred as new sales offices were opened and marketing
efforts were increased within International markets during 1997 and 1996.
INTEREST EXPENSE increased by $10.0 million in 1997 and $5.7 million in
1996. During the second half of 1996 additional debt was incurred to finance
several acquisitions.
INTEREST AND OTHER INCOME, NET decreased to $5.6 million in 1997 from $8.5
million in 1996 primarily due to income received in 1996 from several minor
Corporate investments, which did not repeat in 1997. The income in 1996 from
these investments, along with additional interest income, caused the increase
from $2.3 million in 1995.
GAIN (LOSS) ON DISPOSAL OF ASSETS was a $3.0 million gain in 1997 as
compared to a $2.0 million loss in 1996 and $4.5 million loss in 1995. The
1997 gain includes $17.1 million income from the sale of real estate in
California. This income was substantially offset by $13.3 million accrued for
exit costs and charges for impaired assets related to the relocation of the
corporate headquarters. The decrease in the loss for 1996 is due to fewer
costs for facility relocations and a gain on the sale of a division.
INCOME TAXES decreased to an effective rate of 35.5 percent in 1997 as
compared to 36.0 percent in 1996 and 37.4 percent in 1995. The reduction in
the rate for 1997 is the result of an increased tax benefit based on the
export of product manufactured in the U.S. The reduction in the rate for 1996
was the result of foreign tax credit benefits and a reduction in the effective
state tax rate.
YEAR 2000 CONSIDERATIONS - The Company is taking actions to assure that
its computer systems are capable of processing periods for the year 2000 and
beyond. The costs associated with this are not expected to significantly
affect the results of the Company.
DISCUSSION OF BALANCE SHEET
THE CONSOLIDATED BALANCE SHEET shows the Company's financial position at year
end, compared with the previous year end. This statement provides information
to assist in assessing factors such as the Company's liquidity and financial
resources.
The effect of currency rate changes during the year caused a $48.1 million
decrease in the Foreign currency translation adjustments equity account. These
rate changes also caused significant decreases in accounts receivable,
inventories, goodwill and plant and equipment, as well as significant
decreases in accounts payable and the various accrual accounts.
Working capital and the current ratio improved in 1997 as follows:
Working Capital (millions) 1997 1996
_______________________________________________
Current Assets $ 1,500 $ 1,402
Current Liabilities 716 767
Working Capital 784 635
Current Ratio 2.1 1.8
===============================================
Page 13-2
<PAGE>
ACCOUNTS RECEIVABLE are primarily due from customers for sales of product
($554.5 million at June 30, 1997, compared to $490.9 million at June 30,
1996). The current year increase in accounts receivable is primarily due to
the increased volume, especially in the last months of the fiscal year. Days
sales outstanding for the Company decreased slightly from 1996.
INVENTORIES were $727.8 million at June 30, 1997, compared to $707.2
million a year ago. This increase in inventories, due to acquisitions and
volume increases, was mostly within work in process. Months supply of
inventory on hand at June 30, 1997 decreased to 3.4 months from 3.9 months at
June 30, 1996.
PLANT AND EQUIPMENT, net of accumulated depreciation, increased $29.0
million in 1997 as a result of acquisitions and capital expenditures which
exceeded annual depreciation.
INVESTMENTS AND OTHER ASSETS increased $25.8 million in 1997 primarily as a
result of an increase in the cash surrender value of corporate-owned life
insurance contracts and a net receivable resulting from two currency hedges.
EXCESS COST OF INVESTMENTS OVER NET ASSETS ACQUIRED decreased $34.9 million
in 1997 as a result of currency rate fluctuations and amortization, partially
offset by increases from acquisitions. The additional excess cost of
investments in 1997 is being amortized over 15 years.
ACCOUNTS PAYABLE, TRADE increased $30.0 million in 1997 due to increased
volume near the end of the fourth quarter. The majority of the increase was
within the Industrial North American operations.
ACCRUED PAYROLLS AND OTHER COMPENSATION increased $16.3 million in 1997
primarily as a result of incentive plans based on sales and earnings.
NOTES PAYABLE and LONG-TERM DEBT decreased a total of $111.0 million in
1997 primarily due to the reduction of commercial paper notes. See the Cash
Flows From Financing Activities section on page 13-5 for further discussion.
The Company's goal is to maintain no less than an "A" rating on senior debt
to ensure availability and reasonable cost of external funds. To meet this
objective, the Company has established the financial goal of maintaining a
ratio of debt to debt-equity of 30 to 33 percent.
Debt to Debt-Equity Ratio (millions) 1997 1996
__________________________________________________________
Debt $ 503 $ 614
Debt & Equity 2,050 1,998
Ratio 24.5% 30.7%
==========================================================
In fiscal 1998 no additional borrowings are anticipated for the stock
repurchase program, capital investments, or working capital purposes, but may
be utilized for acquisitions.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS remained level at $252.7 million
in 1997. These costs are explained further in Note 8 to the Consolidated
Financial Statements.
OTHER LIABILITIES increased $5.8 million in 1997 due to increases within
unfunded deferred compensation plans.
Page 13-3
<PAGE>
DISCUSSION OF CASH FLOWS
THE CONSOLIDATED STATEMENT OF CASH FLOWS reflects cash inflows and outflows
from the Company's operating, investing and financing activities.
Cash and cash equivalents increased $5.0 million in 1997 after remaining
level in 1996 and decreasing $17.8 million in 1995. The major components of
these changes in cash flows are as follows:
CASH FLOWS FROM OPERATING ACTIVITIES -- The Company's largest source of
cash continues to be net cash provided by operating activities. Net cash
provided by operating activities in 1997 was $392.3 million compared to $338.0
million in 1996. This increase of $54.3 million is principally the result of
an increase of $34.4 million in Net income and the noncash expenses of
Depreciation and Amortization increasing $28.5 million. Accounts receivable
used cash of $76.1 million in 1997 as a result of increased volume, compared
to providing cash of $8.7 million in 1996. Inventories also used cash of $27.0
million in 1997, an increase of $12.0 million compared to the cash used in
1996. Partially offsetting these uses of cash, Accounts payable, trade
provided cash of $31.7 million in 1997 compared to using cash of $15.5 million
in 1996. Current year increases in Other accrued liabilities also provided
cash of $16.0 million in 1997 compared to using cash of $31.8 million in 1996.
The net cash provided by operating activities in 1996 increased $97.8
million compared to 1995. This increase is partially the result of an increase
of $21.4 million in Net income, in addition to the noncash expenses of
Depreciation and Amortization increasing $21.4 million. Accounts receivable
provided cash of $8.7 million in 1996 compared to using $53.1 million cash in
1995. Inventories increased in 1996 as a result of increased volume, using
cash of $15.0 million, much less than the use of $85.8 million cash for
inventory increases in 1995. Accounts payable, trade used cash of $15.5
million in 1996 as compared to providing cash of $29.7 million in 1995. Other
accrued liabilities used additional cash of $25.8 million in 1996 versus 1995.
Cash paid for income taxes was $145,663 in 1997, $135,380 in 1996 and
$123,590 in 1995.
CASH FLOWS FROM INVESTING ACTIVITIES -- Net cash used in investing
activities was $366.0 million lower in 1997 than 1996. The most significant
use of cash in 1997 was Capital expenditures, which at $189.2 million was
$12.5 million less than the previous year. Over the past three years the
Company has invested $542.9 million in Capital expenditures, which
demonstrates the Company's commitment to efficient manufacturing technology.
The most significant reduction in the use of cash was for investing in
Acquisitions which was reduced $334.2 million in 1997. Cash used for
Acquisitions was $31.5 million in 1997; $365.6 million in 1996 and $126.7
million in 1995. The use of cash for Acquisitions shown in the statement
represents the net assets of the acquired companies at their respective
acquisition dates and consists of the following:
Page 13-4
<PAGE>
(In thousands) 1997 1996 1995
____________________________________________________________
Assets acquired:
Accounts receivable $ 4,549 $ 70,916 $ 31,160
Inventories 13,410 77,582 30,528
Prepaid expenses 247 1,459 774
Deferred income taxes 1,576 18,942 149
Plant & equipment 15,283 124,222 57,613
Other assets 10,475 247,388 53,679
____________________________________________________________
45,540 540,509 173,903
____________________________________________________________
Liabilities assumed:
Notes payable 2,050 13,256 4,180
Accounts payable 2,418 26,880 11,680
Accrued payrolls 471 10,377 3,823
Accrued taxes 941 11,620 5,641
Other accrued liabilities 4,582 47,820 8,053
Long-term debt 2,454 8,235 10,772
Pensions and other
postretirement benefits 1,163 49,798 1,243
Other liabilities 6,900 1,798
____________________________________________________________
14,079 174,886 47,190
____________________________________________________________
Net assets acquired $ 31,461 $ 365,623 $ 126,713
============================================================
CASH FLOWS FROM FINANCING ACTIVITIES -- In 1997 the Company decreased its
outstanding borrowings by a net total of $121.3 million. The Company paid off
all commercial paper and selected notes payable within the International
operations as of June 30, 1997. In 1996 the Company increased its outstanding
borrowings by a net total of $273.2 million primarily to fund acquisitions.
During 1996 the Company registered $400,000 of debt securities for future
issuance. In May 1996, $100,000 of 15-year debentures were issued. In June
1996, an additional $95,000 of medium-term notes were issued. The remaining
increase in borrowings was primarily through the utilization of commercial
paper notes. During 1995 outstanding borrowings increased $43.3 million.
Common share activity resulted from the repurchase of stock and the
exercise of stock options. Dividends have been paid for 188 consecutive
quarters, including a yearly increase in dividends for the last 41 fiscal
years. The current annual dividend rate, after a 3-shares-for-2 common stock
split paid on September 5, 1997, is $.60 per share.
Cash paid for interest, net of capitalized interest, was $46,812 in 1997,
$35,554 in 1996 and $29,573 in 1995. Noncash financing activities included the
reduction in principal of the ESOP debt guarantee, which amounted to $13,468
in 1996 and $12,229 in 1995.
In summary, based upon the Company's past performance and current
expectations, management believes that the cash flows generated from future
operating activities, combined with the Company's worldwide financial
capabilities, will provide adequate funds to support planned growth and
continued improvements in Parker's manufacturing facilities and equipment.
Page 13-5
<PAGE>
DISCUSSION OF BUSINESS SEGMENT INFORMATION
THE BUSINESS SEGMENT INFORMATION presents sales, operating income and assets
by the principal industries and geographic areas in which Parker's various
businesses operate.
INDUSTRIAL SEGMENT
_____________________________________________________
1997 1996 1995
_____________________________________________________
Operating income as a
percent of sales 12.5% 12.4% 13.6%
Return on average assets 18.7% 18.3% 22.3%
_____________________________________________________
Sales for the Industrial segment increased 8.9 percent in 1997 and 10.1
percent in 1996. Sales for the North American operations increased to $2.2
billion in 1997, 9.1 percent over 1996, following 1996's increase of 7.4
percent over 1995. Nearly one-fifth of the 1997 increase and one-half of the
1996 increase were due to acquisitions. The growth in 1997 was spread among
numerous markets. The 1996 growth was due to new products as well as expanding
markets, offset by reduced demand within the heavy-duty truck market which had
reached record-level volume in 1995.
Recent order entry indicates strong growth for the North American
operations for 1998 as a result of gains in market share as well as market
growth. In addition, the Company expects to increase sales through
acquisitions.
International Industrial sales increased to a record $1.1 billion, 8.5
percent over 1996. Without the significant impact of changes in currency
rates, volume for 1997 increased nearly 15 percent. Net of the impact from
currencies, acquisitions accounted for a majority of the 1997 increase. Demand
in Europe was relatively weak for the majority of 1997 with some improvement
occurring in the fourth quarter. Latin America made an impressive recovery
during the year with strength returning in Brazilian markets. Asia Pacific
also contributed to the growth in 1997.
International sales for 1996 increased 15.9 percent over 1995, three-
fourths due to acquisitions. Without the effect of currencies, sales for 1996
would have increased approximately 15.7 percent. During 1996 sales growth in
Europe moderated after a strong recovery and peak performance in 1995. Latin
American operations suffered through a weakened economy throughout most of
1996.
Backlog for the Industrial Segment was $510.8 million at June 30, 1997,
compared to $464.6 million at the end of the prior period. Although
acquisitions contributed to this increase, the primary growth is due to the
increased volume within the North American operations. The 1996 increase over
backlog of $441.2 million at June 30, 1995 was due to acquisitions.
Operating income for the segment increased 9.7 percent in 1997 after
remaining flat from 1995 to 1996. North American operations increased 11.4
percent with Income from operations as a percent of sales improving to 15.3
percent from 15.0 percent in 1996. Higher capacity utilization resulting from
increased volume within the North American operations improved operating
margins. Raw material prices remained relatively stable during 1997 and
Page 13-6
<PAGE>
customer pricing was very competitive.
International Income from operations increased 2.7 percent from 1996 while
Income as a percent of sales decreased to 6.9 percent from 7.3 percent. Soft
markets in Europe caused lower production levels and lower absorption of fixed
costs.
In 1996 and much of 1997 acquisitions contributed lower margins primarily
within International, but also within North America, because of the
integration costs incurred without the benefit of synergies yet to be
realized. A changing product mix in 1996 also had a negative effect on
manufacturing costs and overhead absorption in certain business units, as
inventory levels were re-aligned.
Assets for the Industrial segment increased only slightly in 1997 after an
increase of 15.2 percent in 1996 primarily due to acquisitions. In 1997
currency fluctuations offset increases from acquisitions and increases in
accounts receivable and inventories due to additional volume. During 1996
accounts receivable and inventories within North America increased as a result
of increased volume, while these assets, before the effect of acquisitions,
declined within International. In both years net plant and equipment increased
due to capital expenditures exceeding depreciation.
AEROSPACE SEGMENT
_____________________________________________________
1997 1996 1995
_____________________________________________________
Operating income as a
percent of sales 12.7% 13.7% 11.8%
Return on average assets 17.7% 19.2% 19.7%
_____________________________________________________
Sales increased 38.8 percent in 1997 and 19.2 percent in 1996. In both
years over one-half of the increase was due to the Abex NWL acquisition.
Aerospace markets experienced strong growth during 1997 following the slight
recovery in 1996 and the relatively flat volume for several years preceding
1996. Gains were primarily within the commercial-transport original equipment
market as the military market remained relatively flat during 1997 as in
several years prior. Market penetration in the maintenance, repair and
overhaul markets helped make significant gains in volume as well.
Backlog at June 30, 1997 was $976.2 million compared to $866.3 million in
1996, reflecting the strong growth of the commercial aircraft market. The Abex
acquisition contributed to the significant increase in backlog in 1996 from a
balance of $584.5 million at the end of 1995.
Operating income increased 28.3 percent in 1997 and 38.3 percent in 1996,
but declined as a percent of sales in 1997. The decline in margins from the
prior year is primarily the result of lower margins contributed by the Abex
operations which are still in the integration phase. In addition, the segment
incurred an increase in long-term contract reserves related to several new
contracts.
An improvement in margins in 1996 was the result of a very favorable product
mix, with contributions from aftermarket sales, initial spare-parts
provisioning for new commercial aircraft and original equipment military
sales.
Assets increased 8.0 percent in 1997. Increases in customer receivables and
Page 13-7
<PAGE>
inventories were partially offset by a decrease in net goodwill. Assets more
than doubled in 1996, primarily due to the Abex NWL acquisition. In addition,
increased volume caused increases in customer receivables and inventories in
1996.
CORPORATE ASSETS increased 33.2 percent in 1997 as a result of the
construction of a new corporate headquarters, a net receivable resulting from
two currency hedges and an increase in short-term investments.
Page 13-8
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended June 30, 1997 1996 1995
<S> <C> <C> <C>
NET SALES $ 4,091,081 $ 3,586,448 $ 3,214,370
Cost of sales 3,152,988 2,756,343 2,448,264
___________ ___________ ___________
Gross profit 938,093 830,105 766,106
Selling, general and administrative expenses 475,180 425,449 384,581
___________ ___________ ___________
INCOME FROM OPERATIONS 462,913 404,656 381,525
Other income (deductions):
Interest expense (46,659) (36,667) (30,922)
Interest and other income, net 5,623 8,537 2,335
Gain (loss) on disposal of assets 2,990 (2,047) (4,531)
___________ ___________ ___________
(38,046) (30,177) (33,118)
___________ ___________ ___________
Income before income taxes 424,867 374,479 348,407
Income taxes (Note 3) 150,828 134,812 130,169
___________ ___________ ___________
NET INCOME $ 274,039 $ 239,667 $ 218,238
=========== =========== ===========
EARNINGS PER SHARE (Note 4) $ 2.46 $ 2.15 $ 1.97
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 13-9
<PAGE>
QUARTERLY INFORMATION
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 (a) 1st 2nd 3rd 4th Total
<S> <C> <C> <C> <C> <C>
Net sales $ 959,328 $ 969,587 $ 1,047,100 $ 1,115,066 $ 4,091,081
Gross profit 204,830 208,264 246,522 278,477 938,093
Net income 51,105 52,564 77,964 92,406 274,039
Earnings per share (b) .46 .47 .70 .83 2.46
1996 (a) 1st 2nd 3rd 4th Total
Net sales $ 839,054 $ 824,376 $ 931,356 $ 991,662 $ 3,586,448
Gross profit 193,445 182,895 223,429 230,336 830,105
Net income 57,375 48,396 69,128 64,768 239,667
Earnings per share (b) .52 .43 .62 .58 2.15
<FN>
(a) Quarterly Information is unaudited.
(b) Earnings per share have been adjusted for the 3-shares-for-2 common stock
split paid September 5, 1997.
</FN>
</TABLE>
Page 13-10
<PAGE>
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
June 30, 1997 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 68,997 $ 63,953
Accounts receivable, less allowance
for doubtful accounts
(1997 - $5,904; 1996 - $6,445) 601,724 538,645
Inventories (Notes 1 and 5):
Finished products 317,494 332,213
Work in process 304,743 269,934
Raw materials 105,610 105,078
___________ ___________
727,847 707,225
Prepaid expenses 17,366 16,031
Deferred income taxes (Notes 1 and 3) 83,627 76,270
___________ ___________
TOTAL CURRENT ASSETS 1,499,561 1,402,124
Plant and equipment (Note 1):
Land and land improvements 96,995 101,290
Buildings and building equipment 486,655 494,374
Machinery and equipment 1,443,820 1,373,150
Construction in progress 111,121 79,479
___________ ___________
2,138,591 2,048,293
Less accumulated depreciation 1,117,848 1,056,516
___________ ___________
1,020,743 991,777
Investments and other assets (Note 1) 174,142 148,363
Excess cost of investments over
net assets acquired (Note 1) 285,264 320,152
Deferred income taxes (Notes 1 and 3) 19,236 24,708
___________ ___________
TOTAL ASSETS $ 2,998,946 $ 2,887,124
=========== ===========
Page 13-11
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, including long-term debt
payable within one year (Notes 6 and 7) $ 69,738 $ 173,789
Accounts payable, trade 266,848 236,871
Accrued payrolls and other compensation 144,481 128,136
Accrued domestic and foreign taxes 51,374 49,718
Other accrued liabilities 183,570 178,368
___________ ___________
TOTAL CURRENT LIABILITIES 716,011 766,882
Long-term debt (Note 7) 432,885 439,797
Pensions and other postretirement
benefits (Notes 1 and 8) 252,709 253,616
Deferred income taxes (Notes 1 and 3) 26,007 24,683
Other liabilities 24,033 18,188
___________ ___________
TOTAL LIABILITIES 1,451,645 1,503,166
SHAREHOLDERS' EQUITY (Note 9)
Serial preferred stock, $.50 par value,
authorized 3,000,000 shares; none issued
Common stock, $.50 par value,
authorized 300,000,000 shares; issued
111,809,085 shares in 1997 and
111,437,875 shares in 1996 at par value 55,905 55,719
Additional capital 150,702 146,686
Retained earnings 1,378,297 1,160,828
Foreign currency translation adjustments (27,345) 20,725
___________ ___________
1,557,559 1,383,958
Common stock in treasury at cost;
282,915 shares in 1997 (10,258) ---
___________ ___________
TOTAL SHAREHOLDERS' EQUITY 1,547,301 1,383,958
___________ ___________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,998,946 $ 2,887,124
=========== ===========
The accompanying notes are an integral part of the financial statements.
Page 13-12
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the years ended June 30, 1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 274,039 $ 239,667 $ 218,238
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 146,253 126,544 110,527
Amortization 23,580 14,819 9,403
Deferred income taxes (1,269) (3,691) (4,299)
Foreign currency transaction loss 1,947 1,733 1,903
(Gain) loss on sale of plant and equipment (9,811) 3,506 3,728
Changes in assets and liabilities, net of effects
from acquisitions and dispositions:
Accounts receivable (76,081) 8,723 (53,052)
Inventories (27,007) (15,046) (85,795)
Prepaid expenses (1,234) (157) 617
Other assets (26,130) (20,444) (13,716)
Accounts payable, trade 31,672 (15,503) 29,668
Accrued payrolls and other compensation 23,929 11,586 24,726
Accrued domestic and foreign taxes 4,282 (3,589) (9,159)
Other accrued liabilities 16,026 (31,800) (5,987)
Pensions and other postretirement benefits 6,823 19,404 12,396
Other liabilities 5,291 2,229 937
_________ _________ _________
Net cash provided by operating activities 392,310 337,981 240,135
Page 13-13
<PAGE>
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (excluding cash of $1,394 in 1997,
$20,479 in 1996 and $5,961 in 1995) (31,461) (365,623) (126,713)
Capital expenditures (189,201) (201,693) (151,963)
Proceeds from sale of plant and equipment 11,307 9,387 13,045
Other 14,624 (2,812) 1,409
_________ _________ _________
Net cash (used in) investing activities (194,731) (560,741) (264,222)
CASH FLOWS FROM FINANCING ACTIVITIES
(Payments of) proceeds from common share activity (10,184) 4,967 11,528
(Payments of) proceeds from notes payable, net (100,655) 81,194 62,021
Proceeds from long-term borrowings 9,390 201,724 20,764
(Payments of) long-term borrowings (30,059) (9,696) (39,438)
Dividends paid, net of tax benefit of ESOP shares (56,570) (53,325) (49,961)
_________ _________ _________
Net cash (used in) provided by
financing activities (188,078) 224,864 4,914
Effect of exchange rate changes on cash (4,457) (1,981) 1,413
_________ _________ _________
Net increase (decrease) in cash and cash equivalents 5,044 123 (17,760)
Cash and cash equivalents at beginning of year 63,953 63,830 81,590
_________ _________ _________
Cash and cash equivalents at end of year $ 68,997 $ 63,953 $ 63,830
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 13-14
<PAGE>
BUSINESS SEGMENT INFORMATION - BY INDUSTRY
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
NET SALES, including intersegment sales:
Industrial:
North America $ 2,156,043 $ 1,976,351 $ 1,839,810
International 1,073,201 989,359 853,537
Aerospace 862,659 621,465 521,451
Intersegment sales (822) (727) (428)
___________ ___________ ___________
$ 4,091,081 $ 3,586,448 $ 3,214,370
=========== =========== ===========
INCOME FROM OPERATIONS before corporate
general and administrative expenses:
Industrial:
North America $ 329,967 $ 296,081 $ 280,189
International 74,058 72,093 85,470
Aerospace 109,470 85,329 61,711
___________ ___________ ___________
513,495 453,503 427,370
Corporate general and
administrative expenses 50,582 48,847 45,845
___________ ___________ ___________
Income from operations 462,913 404,656 381,525
Other deductions 38,046 30,177 33,118
___________ ___________ ___________
Income before income taxes $ 424,867 $ 374,479 $ 348,407
=========== =========== ===========
IDENTIFIABLE ASSETS:
Industrial $ 2,167,820 $ 2,150,506 $ 1,866,336
Aerospace (a) 643,694 595,865 294,053
___________ ___________ ___________
2,811,514 2,746,371 2,160,389
Corporate assets (a)(b) 187,432 140,753 141,820
___________ ___________ ___________
$ 2,998,946 $ 2,887,124 $ 2,302,209
=========== =========== ===========
PROPERTY ADDITIONS: (c)
Industrial $ 173,635 $ 259,356 $ 199,294
Aerospace 20,608 63,437 6,448
Corporate (d) 32,078 3,122 3,834
___________ ___________ ___________
$ 226,321 $ 325,915 $ 209,576
=========== =========== ===========
Page 13-15
<PAGE>
DEPRECIATION:
Industrial $ 119,948 $ 106,553 $ 92,234
Aerospace 19,517 17,267 15,661
Corporate 6,788 2,724 2,632
___________ ___________ ___________
$ 146,253 $ 126,544 $ 110,527
=========== =========== ===========
<FN>
(a) Fiscal 1996 results have been restated to correct the classification of
certain deferred taxes.
(b) Corporate assets are principally cash and cash equivalents, domestic
deferred income taxes, investments, headquarters facilities, idle
facilities held for sale and the major portion of the Company's
domestic data processing equipment.
(c) Includes value of net plant and equipment at the date of acquisition of
acquired companies accounted for by the purchase method (1997 - $15,283;
1996 - $124,222; 1995 - $57,613).
(d) Fiscal 1997 includes $21,837 for real estate acquired in a tax-free
exchange of property.
</FN>
</TABLE>
Page 13-16
<PAGE>
BUSINESS SEGMENT INFORMATION - BY GEOGRAPHIC AREA
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
NET SALES, including interarea sales:
North America $ 3,062,947 $ 2,669,201 $ 2,423,283
Europe 1,055,401 918,493 728,642
All Other 190,584 155,963 156,455
Interarea (217,851) (157,209) (94,010)
___________ ___________ ___________
$ 4,091,081 $ 3,586,448 $ 3,214,370
=========== =========== ===========
INCOME FROM OPERATIONS before
corporate general and administrative expenses:
North America $ 429,432 $ 381,154 $ 341,204
Europe 70,926 63,083 66,368
All Other 13,137 9,266 19,798
___________ ___________ ___________
513,495 453,503 427,370
Corporate general and
administrative expenses 50,582 48,847 45,845
___________ ___________ ___________
Income from operations $ 462,913 $ 404,656 $ 381,525
=========== =========== ===========
IDENTIFIABLE ASSETS:
North America (a) $ 1,808,154 $ 1,678,680 $ 1,346,601
Europe 859,774 933,201 704,061
All Other 143,586 134,490 109,727
___________ ___________ ___________
$ 2,811,514 $ 2,746,371 $ 2,160,389
Corporate assets (a)(b) 187,432 140,753 141,820
___________ ___________ ___________
$ 2,998,946 $ 2,887,124 $ 2,302,209
=========== =========== ===========
<FN>
(a) Fiscal 1996 results have been restated to correct the classification of
certain deferred taxes.
(b) Corporate assets are principally cash and cash equivalents, domestic
deferred income taxes, investments, headquarters facilities, idle
facilities held for sale and the major portion of the Company's domestic
data processing equipment.
</FN>
</TABLE>
Page 13-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of the
accompanying consolidated financial statements are summarized below.
NATURE OF OPERATIONS - The Company is a leading worldwide producer of
motion control products, including fluid power systems, electromechanical
controls and related components.
The Company operates in two principal business segments: Industrial and
Aerospace. The Industrial Segment produces motion-control and fluid power
system components for builders and users of various types of manufacturing,
packaging, processing, transportation, agricultural, construction, and
military machinery, vehicles and equipment. Industrial Segment products are
marketed primarily through field sales employees and more than 7,500
independent distributors. The North American Industrial business represents
the largest portion of the Company's manufacturing plants and distribution
networks and primarily services North America. The International Industrial
operations bring Parker products and services to countries throughout Europe,
Asia Pacific and Latin America.
The Aerospace Segment produces hydraulic, pneumatic and fuel systems and
components which are utilized on virtually every domestic commercial,
military and general aviation aircraft. Its components also perform a vital
role in naval vessels, land-based weapons systems, satellites and space
vehicles. This Segment serves original equipment and maintenance, repair and
overhaul customers worldwide. Its products are marketed by field sales
employees and are sold directly to the manufacturer and to the end user.
There are no individual customers to whom sales are 3 percent or more of
the Company's consolidated sales. Due to the diverse group of customers
throughout the world the Company does not consider itself exposed to any
concentration of credit risks.
The Company manufactures and markets its products throughout the world.
Although certain risks and uncertainties exist, the diversity and breadth of
the Company's products and geographic operations mitigate significantly the
risk that adverse changes in any event would materially affect the Company's
operating results.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of all domestic and foreign subsidiaries. All material intercompany
transactions and profits have been eliminated in the consolidated financial
statements. Within the Business Segment Information, intersegment and
interarea sales are recorded at fair market value.
Page 13-18
<PAGE>
CASH - Cash equivalents consist of short-term highly liquid investments,
with a three-month or less maturity, carried at cost plus accrued interest,
which are readily convertible into cash.
INVENTORIES - Inventories are stated at the lower of cost or market. The
majority of domestic inventories are valued by the last-in, first-out method
and the balance of the Company's inventories are valued by the first-in,
first-out method.
LONG-TERM CONTRACTS - The Company enters into long-term contracts for the
production of aerospace products. For financial statement purposes, sales are
recorded as deliveries are made (units of delivery method of percentage-of-
completion). Unbilled costs on these contracts are included in inventory.
Progress payments are netted against the inventory balances. Provisions for
estimated losses on uncompleted contracts are made in the period in which
such losses are determined.
PLANT, EQUIPMENT AND DEPRECIATION - Plant and equipment are recorded at
cost and are depreciated principally using the straight-line method for
financial reporting purposes. Depreciation rates are based on estimated
useful lives of the assets. Improvements which extend the useful life of
property are capitalized, and maintenance and repairs are expensed. When
property is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the appropriate accounts and any gain or loss
is included in current income.
INVESTMENTS AND OTHER ASSETS - Investments in joint-venture companies in
which ownership is 50% or less are stated at cost plus the Company's equity
in undistributed earnings. These investments and the related earnings are not
material to the consolidated financial statements.
EXCESS COST OF INVESTMENTS - The excess cost of investments over net
assets acquired is being amortized, on a straight-line basis, primarily over
15 years and not exceeding 40 years. Unamortized cost in excess of associated
expected operating cash flows is considered to be impaired and is written
down to fair value.
INCOME TAXES - Income taxes are provided based upon income for financial
reporting purposes. Deferred income taxes arise from temporary differences in
the recognition of income and expense for tax purposes. Tax credits and
similar tax incentives are applied to reduce the provision for income taxes
in the year in which the credits arise.
STOCK SPLIT - On July 10, 1997 the Company's Board of Directors authorized
a 3-shares-for-2 split of the Company's common shares, payable on September
5, 1997 to shareholders of record August 21, 1997. Shareholders' equity has
been restated to give retroactive recognition to the stock split for all
periods presented by reclassifying from Additional capital to Common shares
the par value of the additional shares arising from the split. In addition,
all references in the financial statements to number of shares, per share
amounts, stock option data, and market prices of the Company's common stock
have been restated.
Page 13-19
<PAGE>
FOREIGN CURRENCY TRANSLATION - Assets and liabilities of most foreign
subsidiaries are translated at current exchange rates, and income and
expenses are translated using weighted average exchange rates. The effects of
these translation adjustments, as well as gains and losses from certain
intercompany transactions, are reported in a separate component of
Shareholders' equity. Such adjustments will affect Net income only upon sale
or liquidation of the underlying foreign investments, which is not
contemplated at this time. Exchange gains and losses from transactions in a
currency other than the local currency of the entity involved, and
translation adjustments in countries with highly inflationary economies, are
included in income.
FINANCIAL INSTRUMENTS - The Company's financial instruments consist
primarily of investments in cash, cash equivalents and long-term investments
as well as obligations under notes payable and long-term debt. The carrying
values for Cash and cash equivalents, Investments and other assets and Notes
payable approximate fair value.
The Company enters into forward exchange contracts (forward contracts) and
cross-currency swap agreements to reduce its exposure to fluctuations in
related foreign currencies. These contracts are with major financial
institutions and the risk of loss is considered remote. The Company does not
hold or issue derivative financial instruments for trading purposes.
Gains or losses on forward contracts which hedge dividends from
consolidated subsidiaries are accrued in Shareholders' equity. Gains or
losses on forward contracts which hedge specific transactions are recognized
in Net income, offsetting the underlying foreign currency gains or losses.
Cross-currency swap agreements are recorded in Long-term debt as dollar-
denominated receivables with offsetting foreign-currency payables. If the
receivables more than offset the payables, the net difference is reclassified
to an asset. Gains or losses are accrued monthly as an adjustment to Net
income, offsetting the underlying foreign currency gains or losses. The
differential between interest to be received and interest to be paid is
accrued monthly as an adjustment to Interest expense.
In addition, the Company's foreign locations, in the ordinary course of
business, enter into financial guarantees, through financial institutions,
which enable customers to be reimbursed in the event of nonperformance by the
Company.
The total value of open contracts and any risk to the Company as a result
of the above mentioned arrangements is not material.
2. ACQUISITIONS
On June 4, 1997 the Company acquired the remaining 50 percent of SAES-Parker
UHP Components Corp., a manufacturer of valves for ultra-pure gas used in
semiconductor manufacturing. On February 3, 1997 the Company purchased
Hydroflex S.A. de C.V., a leading Mexican manufacturer of hydraulic hose,
fittings and adapters located in Toluca, Mexico. On September 5, 1996 the
Company purchased the assets of the industrial hydraulic product line of
Hydraulik-Ring AG, of Nurtingen, Germany. Total purchase price for these
businesses was approximately $29.3 million cash. Combined annual sales for
these operations, for their most recent fiscal year prior to acquisition,
Page 13-20
<PAGE>
were approximately $52 million.
Effective April 15, 1996 the Company acquired the aerospace assets of the
Abex NWL Division of Pneumo Abex Corporation, a major international producer
of aerospace hydraulic and electromechanical actuation equipment, engine
thrust-reverser actuators, hydraulic pumps, and electrohydraulic servovalves
headquartered in Kalamazoo, Michigan, for approximately $201 million cash. On
February 29, 1996 the Company acquired VOAC Hydraulics AB, a worldwide
leader in manufacturing mobile hydraulic equipment located in Boras, Sweden
for approximately $163 million cash. Sales by these operations for their most
recent fiscal year prior to acquisition approximated $366 million.
In June 1996 the Company acquired the remaining 60 percent of Schrader
Bellows Parker, S.A. de C.V., a Mexico City-based manufacturer of pneumatic
and hydraulic products. On August 4, 1995 the Company purchased inventory and
machinery from Teledyne Fluid Systems consisting of the Republic Valve
product line, the Sprague double-diaphragm pump line and the Sprague airborne
accumulator product line. On July 31, 1995 the Company purchased the assets
of General Valve Corp. of Fairfield, New Jersey, a leading producer of
miniature solenoid valves for high-technology applications. Total purchase
price for these businesses was approximately $9.2 million cash and 152,000
shares of common stock valued at $6.1 million. Sales by these operations for
their most recent fiscal year prior to acquisition approximated $24.8
million.
Effective March 30, 1995 the Company acquired the assets of Figgie
International's Power Systems Division, a manufacturer of hydraulic bladder
accumulators and pneumatic cylinders headquartered in Rockford, Illinois. On
March 3, 1995 the Company purchased the stock of Byron Valve and Machine
Company, Inc. of Siloam Springs, Arkansas, a producer of distributors and
flow raters. As of December 31, 1994 the Company purchased the Polyflex
Schwarz Group of companies located in Germany, France and Texas, a
manufacturer of reinforced high-pressure hoses, fittings and assemblies. The
Company also purchased Hauser Elektronik GmbH, a producer of automation
components and systems, based in Offenburg, Germany on December 31, 1994.
Effective December 21, 1994 the Company sold its 49 percent interest in its
Mexican joint venture, Conductores de Fluidos Parker and purchased its
inventory and accounts receivable to form a new wholly-owned subsidiary,
Parker Fluid Connectors de Mexico. On October 31, 1994 the Company acquired
Symetrics, Inc., a Newbury Park, California manufacturer of aerospace quick-
disconnect valved couplings. On September 30, 1994 the Company acquired
Chomerics, Inc., a leading producer of electromagnetic interference-shielding
materials, with plants in Massachusetts, New Hampshire and the United
Kingdom. On August 1, 1994 the Company acquired the Automation Division of
Atlas Copco AB, a Swedish manufacturer of pneumatic components. Total
purchase price for these businesses was approximately $119.3 million cash and
108,680 shares of common stock valued at $5.1 million. Combined annual sales
for these operations, for their most recent fiscal year prior to acquisition,
were approximately $200 million.
These acquisitions were accounted for by the purchase method, and results
are included as of the respective dates of acquisition.
Page 13-21
<PAGE>
3. INCOME TAXES
Income taxes include the following:
1997 1996 1995
__________________________________________________________
Federal $ 113,819 $ 95,127 $ 90,956
Foreign 27,411 29,635 23,350
State and local 13,587 14,897 14,631
Deferred (3,989) (4,847) 1,232
__________________________________________________________
$ 150,828 $ 134,812 $ 130,169
==========================================================
A reconciliation of the Company's effective income tax rate to the
statutory Federal rate follows:
1997 1996 1995
____________________________________________________________
Statutory Federal income tax rate 35.0 % 35.0 % 35.0 %
State and local income taxes 2.0 2.3 2.6
FSC income not taxed (1.8) (1.1) (1.3)
Foreign tax rate difference .3 .7 1.0
Recognized loss carryforwards (.6) (1.1) (1.8)
Other .6 .2 1.9
____________________________________________________________
Effective income tax rate 35.5 % 36.0 % 37.4 %
============================================================
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of assets and liabilities.
The differences comprising the net deferred taxes shown on the Consolidated
Balance Sheet at June 30 were as follows:
1997 1996
___________________________________________________________________
Postretirement benefits $ 51,257 $ 50,485
Other liabilities and reserves 61,061 50,445
Long-term contracts 16,349 14,870
Operating loss carryforwards 23,286 32,227
Foreign tax credit carryforwards 1,405
Valuation allowance (1,768) (2,770)
Depreciation (63,963) (55,890)
Acquisitions (20,956) (23,549)
Inventory 11,620 13,834
___________________________________________________________________
Net deferred tax asset (liability) $ 78,291 $ 79,652
===================================================================
Change in net deferred tax asset (liability):
Provision for deferred tax $ 3,989 $ 4,847
Translation adjustment (2,932) (2,918)
Acquisitions (2,418) 14,179
___________________________________________________________________
Total change in net deferred tax $ (1,361) $ 16,108
===================================================================
At June 30, 1997, foreign subsidiaries had benefits for operating loss
Page 13-22
<PAGE>
carryforwards of $23,286 for tax and $25,554 for financial reporting, most of
which can be carried forward indefinitely. Use of operating loss
carryforwards and currency adjustments reduced the valuation allowance.
Non-current deferred income tax assets include an $18,707 tax benefit for
the net operating loss carryforwards of the Company's German operations. The
Company has not provided a valuation allowance that would be required under
Statement of Financial Accounting Standards (SFAS) No. 109 if it is more
likely that these benefits would not be realized. Although future events
cannot be predicted with certainty, management continues to believe these
benefits will be realized because: the tax loss carryforward period is
unlimited; there are several tax planning strategies that can be used to
reduce the carryforward; 26 percent of the losses were due to non-recurring
restructuring charges with the remainder primarily the result of the
recession in Europe; and the Company's German operations are returning to
profitability.
Provision has not been made for additional U.S. or foreign taxes on
undistributed earnings of certain international operations as those earnings
will continue to be reinvested. It is not practicable to estimate the
additional taxes, including applicable foreign withholding taxes, that might
be payable on the eventual remittance of such earnings.
4. EARNINGS PER SHARE
Earnings per share are computed using the weighted average number of shares
of common stock outstanding during the year, adjusted for shares issued in
acquisitions accounted for as poolings of interests and stock splits. Fully
diluted earnings per share are not presented because such dilution is not
material.
5. INVENTORIES
Inventories valued on the last-in, first-out cost method are approximately
36% in 1997 and 37% in 1996 of total inventories. The current cost of these
inventories exceeds their valuation determined on the LIFO basis by $140,364
in 1997 and $142,049 in 1996. Progress payments of $20,728 in 1997 and
$22,810 in 1996 are netted against inventories.
6. FINANCING ARRANGEMENTS
The Company has committed lines of credit totaling $450,000 through several
multi-currency unsecured revolving credit agreements with a group of banks,
of which $419,555 was available at June 30, 1997. Agreements totaling $50,000
expire December, 1997 and the remainder expire October, 2001. The interest on
borrowings is based upon the terms of each specific borrowing and is subject
to market conditions. The agreements also require facility fees of up to
8/100ths of one percent of the commitment per annum. Covenants in some of the
agreements include a limitation on the Company's ratio of secured debt to net
tangible assets.
The Company has other lines of credit, primarily short-term, aggregating
Page 13-23
<PAGE>
$98,703, from various foreign banks, of which $69,923 was available at June
30, 1997. Most of these agreements are renewed annually.
During June 1996, the Company announced a Medium-Term Note Program and
registered $300,000 of medium-term notes of which $95,000 were issued and
outstanding at June 30, 1997 and 1996.
The Company is authorized to sell up to $400,000 of short-term commercial
paper notes, rated A-1 by Standard & Poor's, P-1 by Moody's and D-1 by Duff &
Phelps. There were no commercial paper notes outstanding at June 30, 1997. At
June 30, 1996 there were $98,400 of commercial paper notes outstanding which
were supported by the available domestic lines of credit.
Commercial paper, along with short-term borrowings from foreign banks,
primarily make up the balance of Notes payable. The balance and weighted
average interest rate of the Notes payable at June 30, 1997 and 1996 were
$58,945 and 5.7% and $165,597 and 6.2%, respectively.
7. DEBT
June 30, 1997 1996
________________________________________________________________________
Domestic:
Debentures and notes
10.375%, due 1999-2018 $ 100,000 $ 100,000
9.75%, due 2002-2021 100,000 100,000
7.3%, due 2011 100,000 100,000
9.6%, due 1998 1,714 4,571
Medium-term notes
7.33% to 7.39%, due 2007-2010 95,000 95,000
Variable rate demand bonds
4.2% to 4.25%, due 2010-2025 20,035 15,535
Industrial revenue bonds
3.3% to 5.3625%, due 2002-2015 4,370
Foreign:
Bank loans, including revolving credit
1.0% to 25.0%, due 1998-2013 25,704 26,493
Other long-term debt, including capitalized leases 1,225 2,020
________________________________________________________________________
Total long-term debt 443,678 447,989
Less long-term debt payable within one year 10,793 8,192
________________________________________________________________________
Long-term debt, net $ 432,885 $ 439,797
========================================================================
Principal amounts of long-term debt payable in the five years ending June
30, 1998 through 2002 are $10,793, $10,524, $10,216, $7,743, and $11,017,
respectively. The carrying value of the Company's Long-term debt (excluding
leases and cross-currency swaps) was $443,673 and $453,661 at June 30, 1997
and 1996, respectively, and was estimated to have a fair value of $454,689
and $462,725, at June 30, 1997 and 1996, respectively. The estimated fair
value of the Long-term debt was estimated using discounted cash flow analyses
based on the Company's current incremental borrowing rate for similar types
of borrowing arrangements.
Page 13-24
<PAGE>
LEASE COMMITMENTS - Future minimum rental commitments as of June 30, 1997,
under noncancelable operating leases, which expire at various dates, are as
follows: 1998-$27,505; 1999-$19,325; 2000-$12,796; 2001-$6,954; 2002-
$5,900 and after 2002-$27,343.
Rental expense in 1997, 1996 and 1995 was $33,305, $29,899, and $26,374,
respectively.
8. RETIREMENT BENEFITS
PENSIONS -- The Company has noncontributory defined benefit pension plans
covering eligible employees, including certain employees in foreign
countries. Plans for most salaried employees provide pay-related benefits
based on years of service. Plans for hourly employees generally provide
benefits based on flat-dollar amounts and years of service. The Company also
has contractual arrangements with certain key employees which provide for
supplemental retirement benefits. In general, the Company's policy is to
fund these plans based on legal requirements, tax considerations, local
practices and investment opportunities. The Company also sponsors defined
contribution plans and participates in government-sponsored programs in
certain foreign countries.
Pension costs for all plans were $22,773, $22,514 and $17,246 for 1997,
1996 and 1995, respectively. Pension costs for all defined benefit plans
accounted for using SFAS No. 87, Employers' Accounting for Pensions, are as
follows:
1997 1996 1995
____________________________________________________________________
Service cost-benefits earned
during the period $ 23,715 $ 20,731 $ 18,801
Interest cost on projected benefit
obligation 52,726 44,384 37,929
Actual return on assets (89,614) (74,926) (77,321)
Net amortization and deferral 33,703 30,111 35,665
____________________________________________________________________
Net periodic pension costs $ 20,530 $ 20,300 $ 15,074
====================================================================
For domestic plans, the weighted average discount rates and the rates of
increase in future compensation levels used in determining the actuarial
present value of the projected benefit obligations were 8% and 5%,
respectively, at June 30, 1997 and 1996. The expected long-term rate of
return on assets was 9% at June 30, 1997 and 1996. For the principal foreign
plans located in the United Kingdom and Germany, the weighted average
discount rates used were 8% and 7%, respectively, at June 30, 1997 and 1996
and the rates of increase in future compensation used were 6% and 4.5%,
respectively, at June 30, 1997 and 1996. The rates of return on assets used
in the United Kingdom and Germany were 8.5% and 7%, respectively, at June 30,
1997 and 1996.
The following tables set forth the funded status of all the plans
accounted for under SFAS No. 87 and the amounts recognized in the Company's
consolidated balance sheet:
Page 13-25
<PAGE>
Assets Exceed Accumulated Benefits
1997 1996
____________________________________________________________________________
Actuarial present value of benefit obligations:
Vested benefit obligation $ (493,681) $ (445,798)
============================================================================
Accumulated benefit obligation $ (510,385) $ (458,720)
============================================================================
Projected benefit obligation $ (593,241) $ (529,564)
Plan assets at fair value 749,386 654,495
____________________________________________________________________________
Projected benefit obligation less than plan assets 156,145 124,931
Unrecognized net (gain) or loss (61,122) (34,822)
Unrecognized prior service cost 15,198 13,361
Unrecognized net (asset) obligation (16,848) (20,164)
____________________________________________________________________________
Prepaid pension cost (pension liability)
recognized $ 93,373 $ 83,306
============================================================================
Accumulated Benefits Exceed Assets
1997 1996
____________________________________________________________________________
Actuarial present value of benefit obligations:
Vested benefit obligation $ (79,521) $ (95,054)
============================================================================
Accumulated benefit obligation $ (95,707) $ (108,165)
============================================================================
Projected benefit obligation $ (121,458) $ (127,001)
Plan assets at fair value 18,301 22,436
____________________________________________________________________________
Projected benefit obligation in excess of
plan assets (103,157) (104,565)
Unrecognized net (gain) or loss 6,000 3,643
Unrecognized prior service cost 4,714 5,540
Unrecognized net (asset) obligation 1,794 2,247
____________________________________________________________________________
Prepaid pension cost (pension liability)
recognized $ (90,649) $ (93,135)
============================================================================
The majority of the underfunded plans relate to foreign and supplemental
executive plans.
The plans' assets consist primarily of listed common stocks, corporate and
government bonds, and real estate investments. At June 30, 1997 and 1996, the
plans' assets included Company stock with market values of $21,502 and
$15,014, respectively.
EMPLOYEE SAVINGS PLAN -- The Company sponsors an employee stock ownership
plan (ESOP) as part of its existing savings and investment 401(k) plan, which
is available to eligible domestic employees. Parker-Hannifin Common Stock is
used to match contributions made by employees to the savings plan up to a
maximum of 5 percent of an employee's annual compensation. A breakdown of
shares held by the ESOP is as follows:
Page 13-26
<PAGE>
1997 1996 1995
__________________________________________________________________
Allocated shares 7,460,378 6,934,194 6,235,074
Committed to be released 60,231 66,548
Unreleased shares 843,267
__________________________________________________________________
Total shares held by the ESOP 7,460,378 6,994,425 7,144,889
==================================================================
Through June 30, 1996 the ESOP was leveraged and the loan was
unconditionally guaranteed by the Company. Company contributions to the
ESOP, recorded as compensation and interest expense, were $21,235 in 1997,
$18,626 in 1996 and $17,106 in 1995. The interest expense portion (interest
on ESOP debt) was $856 in 1996 and $1,910 in 1995. Dividends earned by the
unallocated shares and interest income within the ESOP were used to service
the ESOP debt. These were $218 in 1996 and $793 in 1995. ESOP shares are
considered outstanding for purposes of earnings per share computations.
In addition to shares within the ESOP, as of June 30, 1997 employees have
elected to invest in 2,456,367 shares of Common Stock within the Company
Stock Fund of the Parker Retirement Savings Plan.
OTHER POSTRETIREMENT BENEFITS--The Company provides postretirement medical
and life insurance benefits to certain retirees and eligible dependents. Most
plans are contributory, with retiree contributions adjusted annually. The
plans are unfunded and pay stated percentages of covered medically necessary
expenses incurred by retirees, after subtracting payments by Medicare or
other providers and after stated deductibles have been met. For most plans,
the Company has established cost maximums to more effectively control future
medical costs. The Company has reserved the right to change or eliminate
these benefit plans. Postretirement benefit costs included the following
components:
1997 1996 1995
__________________________________________________________________________
Service cost-benefits attributed to
service during the period $ 3,296 $ 3,515 $ 3,598
Interest cost on accumulated
postretirement benefit obligations 11,316 11,126 9,638
Net amortization and deferral (830) (708) 72
__________________________________________________________________________
Net periodic postretirement benefit costs $ 13,782 $ 13,933 $ 13,308
==========================================================================
Page 13-27
<PAGE>
The following table reconciles the plans' combined funded status to
amounts recognized in the Company's consolidated balance sheet:
1997 1996
________________________________________________________________________
Accumulated postretirement benefit obligation:
Retirees $ (78,114) $ (91,419)
Fully eligible active plan participants (31,019) (34,912)
Other active plan participants (40,741) (42,517)
Unrecognized (gain) loss (15,918) 2,721
Unrecognized prior service cost 131 144
________________________________________________________________________
Accrued postretirement benefit costs $ (165,661) $ (165,983)
========================================================================
For measurement purposes, a 10.5% annual rate of increase in the per
capita cost of covered benefits (i.e., health care cost trend rate) was
assumed for 1998. The rate was assumed to decrease gradually to 6% by 2007
and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. To illustrate,
increasing the assumed health care cost trend rates by 1 percentage point in
each year would increase the accumulated postretirement benefit obligation as
of June 30, 1997 by $8,161, and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for the year then
ended by $772. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 8% at June 30, 1997 and
1996.
OTHER -- In 1995 the Company established nonqualified deferred
compensation programs which permit officers, directors and certain management
employees to annually elect to defer a portion of their compensation, on a
pre-tax basis, until their retirement. The retirement benefit to be provided
is based on the amount of compensation deferred, Company match, and earnings
on the deferrals. Deferred compensation expense was $4,862, $4,129 and $2,530
in 1997, 1996 and 1995, respectively.
The Company has invested in corporate-owned life insurance policies to
assist in funding these programs. The cash surrender values of these policies
are in an irrevocable rabbi trust and are recorded as assets of the Company.
Page 13-28
<PAGE>
9. SHAREHOLDERS' EQUITY
COMMON SHARES 1997 1996 1995
_____________________________________________________________________________
Balance July 1 $ 55,719 $ 55,502 $ 55,431
Shares issued under stock option
plans (1997 - 432,096; 1996 -
513,836; 1995 - 424,320) less
shares of stock-for-stock
exchange (1997 - 153,770;
1996 - 136,686; 1995 - 285,834) 139 189 69
Shares issued for restricted stock 47 28
Shares issued for prior-year pooled
acquisition 2
_____________________________________________________________________________
Balance June 30 $ 55,905 $ 55,719 $ 55,502
=============================================================================
ADDITIONAL CAPITAL
_____________________________________________________________________________
Balance July 1 $ 146,686 $ 139,953 $ 135,144
Shares issued under stock option
plans, less shares of stock-for-
stock exchange 1,684 5,481 1,867
Shares issued for purchase acquisition (176) 2,641
Shares issued as restricted stock 2,332 1,428 287
Shares issued for prior-year pooled
acquisition 14
_____________________________________________________________________________
Balance June 30 $ 150,702 $ 146,686 $ 139,953
=============================================================================
RETAINED EARNINGS
_____________________________________________________________________________
Balance July 1 $ 1,160,828 $ 974,486 $ 806,240
Net income 274,039 239,667 218,238
Cash dividends paid on common shares,
net of tax benefit of ESOP shares
(1997 - $.51 per share; 1996 - $.48
per share; 1995 - $.45 per share) (56,570) (53,325) (49,961)
Cash payments for fractional shares in
connection with 3-for-2 stock split (31)
_____________________________________________________________________________
Balance June 30 $ 1,378,297 $ 1,160,828 $ 974,486
=============================================================================
Page 13-29
<PAGE>
DEFERRED COMPENSATION RELATED TO ESOP DEBT
_____________________________________________________________________________
Balance July 1 $ -- $ (13,468) $ (25,697)
Reduction of ESOP debt -- 13,468 12,229
_____________________________________________________________________________
Balance June 30 $ -- $ -- $ (13,468)
=============================================================================
TRANSLATION ADJUSTMENTS
_____________________________________________________________________________
Balance July 1 $ 20,725 $ 35,041 $ 2,538
Translation adjustments (Note 12) (48,070) (14,316) 32,503
_____________________________________________________________________________
Balance June 30 $ (27,345) $ 20,725 $ 35,041
=============================================================================
COMMON STOCK IN TREASURY
_____________________________________________________________________________
Balance July 1 $ -- $ -- $ (7,305)
Shares purchased at cost (18,690) (6,703) (1,364)
Shares issued under stock option plans
(1997 - 223,184; 1995 - 345,351) 6,676 5,890
Shares issued for purchase acquisition 6,176 2,440
Shares issued as restricted stock 1,756 527 339
_____________________________________________________________________________
Balance June 30 $ (10,258) $ -- $ --
=============================================================================
ESOP LOAN GUARANTEE - During 1989, Parker established a leveraged Employee
Stock Ownership Plan. A trust established under the plan borrowed $70,000,
which was unconditionally guaranteed by the Company. This loan was paid off
on June 30, 1996. At June 30, 1995 the unpaid balance of the loan was
recorded as Long-term debt and an equivalent amount, representing deferred
compensation, was a deduction to Shareholders' equity.
10. STOCK INCENTIVE PLANS
EMPLOYEES' STOCK OPTIONS -- The Company's stock option and stock incentive
plans provide for the granting of incentive stock options and/or nonqualified
options to officers and key employees to purchase shares of common stock at a
price not less than 100 percent of the fair market value of the stock on the
dates options are granted. Outstanding options generally are exercisable one
year after the date of grant and expire no more than ten years after grant.
The Company derives a tax deduction measured by the excess of the market
value over the option price at the date nonqualified options are exercised.
The related tax benefit is credited to additional capital. The Company makes
no charges against capital with respect to options granted.
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation,
the Company continues to account for its stock option and stock incentive
Page 13-30
<PAGE>
plans in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and makes no charges against
capital with respect to options granted. SFAS No. 123 does however require
the disclosure of pro forma information regarding Net Income and Earnings per
share determined as if the Company had accounted for its stock options under
the fair value method. For purposes of this pro forma disclosure the
estimated fair value of the options is amortized to expense over the options'
vesting period.
1997 1996
__________________________________________________________
Net income: As reported $ 274,039 $ 239,667
Pro forma $ 270,758 $ 238,330
Earnings per share: As reported $ 2.46 $ 2.15
Pro forma $ 2.43 $ 2.14
==========================================================
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to 1996, the above pro forma effect may not be
representative of that to be expected in future years.
The fair value for all options granted in 1997 and 1996 were estimated at
the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions:
Jan/97 Aug/96 Aug/95
__________________________________________________________
Risk-free interest rate 6.3% 6.4% 6.4%
Expected life of option 5 yrs 5 yrs 5 yrs
Expected dividend yield of stock 2.6% 2.6% 3.0%
Expected volatility of stock 26.5% 26.2% 25.2%
==========================================================
A summary of the status and changes of shares subject to options and the
related average price per share follows:
Shares Subject Average Option
To Options Price Per Share
__________________________________________________________________________
Outstanding June 30, 1995 3,727,039 $ 14.70
__________________________________________________________________________
Granted 382,725 26.08
Exercised (513,836) 13.35
Canceled (17,436)
__________________________________________________________________________
Outstanding June 30, 1996 3,578,492 $ 16.09
__________________________________________________________________________
Granted 1,351,500 27.37
Exercised (655,280) 14.48
Canceled (50,625)
__________________________________________________________________________
Outstanding June 30, 1997 4,224,087 $ 19.82
==========================================================================
Page 13-31
<PAGE>
Options exercisable and shares available for future grant on June 30:
1997 1996 1995
_______________________________________________________________________
Options exercisable 2,905,887 3,195,767 2,712,965
Weighted-average option price
per share of options exercisable $ 16.41 $ 14.90 $ 12.75
Weighted-average fair value of
options granted during the year $ 7.30 $ 6.44 ---
Shares available for grant 3,304,627 3,295,347 3,284,490
=======================================================================
The range of exercise prices and the remaining contractual life of options
as of June 30, 1997 were:
______________________________________________________________________
Range of exercise prices $11-$15 $17-$21 $24-$29
______________________________________________________________________
Options outstanding:
Outstanding as of June 30, 1997 1,649,900 886,763 1,687,424
Weighted-average remaining
contractual life 4.2 yrs 7.4 yrs 9.2 yrs
Weighted-average exercise price $ 12.50 $ 19.66 $ 27.07
Options exercisable:
Outstanding as of June 30, 1997 1,649,900 886,763 369,224
Weighted-average remaining
contractual life 4.2 yrs 7.4 yrs 8.1 yrs
Weighted-average exercise price $ 12.50 $ 19.66 $ 26.08
======================================================================
RESTRICTED STOCK -- Restricted stock was issued, under the Company's 1993
Stock Incentive Program, to certain key employees under the Company's 1994-
95-96 and 1993-94-95 Long Term Incentive Plans (LTIP). Value of the payments
was set at the market value of the Company's common stock on the date of
issuance. Shares were earned and awarded, and an estimated value was
accrued, based upon attainment of criteria specified in the LTIP over the
cumulative years of the 3-year Plans. Plan participants are entitled to cash
dividends and to vote their respective shares, but the shares are restricted
as to transferability for three years following issuance.
Restricted Shares for LTIP Plan 1997 1996 1995
_________________________________________________________________________
Number of shares issued 152,916 73,361 29,166
Per share value on date of issuance $ 25.36 $ 26.05 $ 18.33
Total value $ 3,878 $ 1,911 $ 534
=========================================================================
Under the Company's 1995-96-97 LTIP, a payout of 34,962 shares of
restricted stock, from the Company's 1993 Stock Incentive Program, will be
issued to certain key employees. The balance of the 1995-96-97 LTIP payout
will be made as deferred cash compensation, as individually elected by the
participants. The total payout, valued at $10,729, which has been accrued
over the three years of the plan, will be made in 1998.
Page 13-32
<PAGE>
In addition, non-employee members of the Board of Directors have been
given the opportunity to receive all or a portion of their fees in the form
of restricted stock. These shares vest ratably, on an annual basis, over the
term of office of the director. In 1997, 1996 and 1995, 9,923, 3,243 and
4,487 shares were issued, respectively, in lieu of directors' fees.
NON-EMPLOYEE DIRECTORS' STOCK OPTIONS -- In August, 1996, the Company
adopted a stock option plan for non-employee directors to purchase shares of
common stock at a price not less than 100 percent of the fair market value of
the stock on the dates options are granted. All outstanding options are
exercisable one year after the date of grant and expire no more than ten
years after grant. As of June 30, 1997, none of the 14,250 options granted
and outstanding were exercisable.
At June 30, 1997, the Company had 7,961,062 common shares reserved for
issuance in connection with all of the stock incentive plans.
11. SHAREHOLDERS' PROTECTION RIGHTS AGREEMENT
The Board of Directors of the Company declared a dividend of one Right for
each share of Common Stock outstanding on February 17, 1997 in relation to
the Company's Shareholder Protection Rights Agreement. As of June 30, 1997,
111,526,170 shares of Common Stock were reserved for issuance under this
Agreement. Under certain conditions involving acquisition of or an offer for
15 percent or more of the Company's Common Stock, all holders of Rights,
except an acquiring entity, would be entitled to purchase, at an exercise
price of $100, a value of $200 of Common Stock of the Company or an acquiring
entity, or at the option of the Board, to exchange each Right for one share
of Common Stock. The Rights remain in existence until February 17, 2007,
unless earlier redeemed (at one cent per Right), exercised or exchanged under
the terms of the agreement. In the event of an unfriendly business
combination attempt, the Rights will cause substantial dilution to the person
attempting the merger. The Rights should not interfere with any merger or
other business combination that is in the best interest of the Company and
its shareholders since the Rights may be redeemed.
12. FOREIGN OPERATIONS
The Company's major foreign operations are located in Germany, the United
Kingdom, France, Sweden, Italy and Brazil. Their business activities are
conducted principally in their local currency. Net transaction and
translation adjustments reduced Net income in 1997 by $1,267, increased Net
income in 1996 by $873, and reduced Net income in 1995 by $195. Such amounts
are net of the tax benefits from monetary corrections for inflation and
exclude the effect on Cost of sales resulting from valuing inventories at
acquisition cost since sales price increases in each year more than offset
this effect.
Net sales, Income before income taxes and Net income include the following
amounts from foreign operations:
Page 13-33
<PAGE>
1997 1996 1995
_________________________________________________________________
Net sales $ 1,234,669 $ 1,085,676 $ 932,886
=================================================================
Income before income taxes 85,234 70,118 92,256
=================================================================
Net income 50,067 42,563 63,514
=================================================================
Net assets of foreign operations at June 30, 1997 and 1996 amounted to
$734,820 and $746,356, respectively.
Accumulated undistributed earnings of foreign operations reinvested in
their operations amounted to $121,871, $103,059, and $100,550, at June 30,
1997, 1996 and 1995, respectively.
13. RESEARCH AND DEVELOPMENT
Research and development costs amounted to $103,155 in 1997, $91,706 in 1996,
and $74,129 in 1995. Customer reimbursements included in the total cost for
each of the respective years were $35,986, $33,018 and $21,202. Costs include
those costs related to independent research and development as well as
customer reimbursed and unreimbursed development programs.
14. CONTINGENCIES
The Company is involved in various litigation arising in the normal course of
business, including proceedings based on product liability claims, workers'
compensation claims and alleged violations of various environmental laws. The
Company is self-insured in the U.S. for health care, workers' compensation,
general liability and product liability up to predetermined amounts, above
which third party insurance applies. The Company purchases third party
product liability insurance for products manufactured by its international
operations and for products that are used in aerospace applications.
Management regularly reviews the probable outcome of these proceedings, the
expenses expected to be incurred, the availability and limits of the
insurance coverage, and the established accruals for uninsured liabilities.
While the outcome of pending proceedings cannot be predicted with certainty,
management believes that any liabilities that may result from these
proceedings are not reasonably likely to have a material effect on the
Company's liquidity, financial condition or results of operations.
ENVIRONMENTAL - The Company is currently involved in environmental
remediation at 21 manufacturing facilities presently or formerly operated by
the Company and has been named as a "potentially responsible party", along
with other companies, at 10 off-site waste disposal facilities.
As of June 30, 1997, the Company has a reserve of $9,635 for environmental
matters which are probable and reasonably estimable. This reserve is recorded
based upon the best estimate of net costs to be incurred in light of the
progress made in determining the magnitude of remediation costs, the timing
and extent of remedial actions required by governmental authorities, the
amount of the Company's liability in proportion to other responsible parties
Page 13-34
<PAGE>
and any recoveries receivable. This reserve is net of $626 for discounting,
at a 7.5% annual rate, a portion of the costs at 7 locations for established
treatment procedures required over periods ranging from 5 to 18 years. The
Company also has an account receivable of $490 for anticipated insurance
recoveries.
The Company's estimated total liability for the above mentioned sites
ranges from a minimum of $8,932 to a maximum of $24,837. The actual costs to
be incurred by the Company will be dependent on final delineation of
contamination, final determination of remedial action required, negotiations
with federal and state agencies with respect to cleanup levels, changes in
regulatory requirements, innovations in investigatory and remedial
technology, effectiveness of remedial technologies employed, the ultimate
ability to pay of the other responsible parties, and any insurance
recoveries.
Page 13-35
<PAGE>
REPORT OF MANAGEMENT
The Company's management is responsible for the integrity and accuracy of the
financial information contained in this annual report. Management believes
that the financial statements have been prepared in conformity with generally
accepted accounting principles appropriate in the circumstances and that the
other information in this annual report is consistent with those statements.
In preparing the financial statements, management makes informed judgments and
estimates where necessary to reflect the expected effects of events and
transactions that have not been completed.
Management is also responsible for maintaining an internal control system
designed to provide reasonable assurance at reasonable cost that assets are
safeguarded against loss or unauthorized use and that financial records are
adequate and can be relied upon to produce financial statements in accordance
with generally accepted accounting principles. The system is supported by
written policies and guidelines, by careful selection and training of
financial management personnel and by an internal audit staff which
coordinates its activities with the Company's independent accountants. To
foster a strong ethical climate, the Parker Hannifin Code of Ethics is
publicized throughout the Company. This addresses, among other things,
compliance with all laws and accuracy and integrity of books and records. The
Company maintains a systematic program to assess compliance.
Coopers & Lybrand, L.L.P., independent accountants, are retained to conduct
an audit of Parker Hannifin's consolidated financial statements in accordance
with generally accepted auditing standards and to provide an independent
assessment that helps ensure fair presentation of the Company's consolidated
financial position, results of operations and cash flows.
The Audit Committee of the Board of Directors is composed entirely of
outside directors. The Committee meets periodically with management, internal
auditors and the independent accountants to discuss internal accounting
controls and the quality of financial reporting. Financial management, as
well as the internal auditors and the independent accountants, have full and
free access to the Audit Committee.
Duane E. Collins Michael J. Hiemstra
Duane E. Collins Michael J. Hiemstra
President and Vice President -
Chief Executive Officer Finance and Administration
and Chief Financial Officer
Page 13-36
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Parker Hannifin Corporation
We have audited the accompanying consolidated balance sheet of Parker Hannifin
Corporation and its subsidiaries at June 30, 1997 and 1996, and the related
consolidated statements of income and cash flows for each of the three years
in the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Parker
Hannifin Corporation and its subsidiaries at June 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1997 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Cleveland, Ohio
July 31, 1997
Page 13-37
<PAGE>
FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
1997 1996 1995 1994 (a) 1993
______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Net sales $ 4,091,081 $ 3,586,448 $ 3,214,370 $ 2,576,337 $ 2,489,323
Cost of sales 3,152,988 2,756,343 2,448,264 2,053,376 2,004,955
Selling, general and administrative expenses 475,180 425,449 384,581 302,668 310,765
Provision for business restructuring activities 18,773 22,879
Impairment of long-term assets 35,483
Interest expense 46,659 36,667 30,922 37,832 47,056
Interest and other income, net (5,623) (8,537) (2,335) (3,879) (5,457)
(Gain) loss on disposal of assets (2,990) 2,047 4,531 19,635 1,059
Income taxes 150,828 134,812 130,169 60,274 43,010
Income before extraordinary item 274,039 239,667 218,238 52,175 65,056
Net income 274,039 239,667 218,238 47,652 65,056
Earnings per share - continuing operations 2.46 2.15 1.97 .48 .60
Earnings per share before extraordinary item 2.46 2.15 1.97 .48 .60
Earnings per share $ 2.46 $ 2.15 $ 1.97 $ .43 $ .60
Average number of shares outstanding (thousands) 111,602 111,261 110,576 109,661 109,064
Cash dividends per share $ .506 $ .480 $ .453 $ .436 $ .427
Cash dividends paid $ 56,570 $ 53,325 $ 49,961 $ 47,445 $ 46,121
Net income as a percent of net sales 6.7% 6.7% 6.8% 1.8% 2.6%
Return on average assets 9.3% 9.2% 10.3% 2.5% 3.3%
Return on average equity 18.7% 18.6% 20.2% 5.0% 7.0%
_______________________________________________________________________________________________________________________
Book value per share $ 13.87 $ 12.42 $ 10.73 $ 8.78 $ 8.53
Current assets 1,499,561 1,402,124 1,246,382 1,031,308 1,056,443
Current liabilities 716,011 766,882 652,621 504,444 468,254
Working capital $ 783,550 $ 635,242 $ 593,761 $ 526,864 $ 588,189
Ratio of current assets to current liabilities 2.1 1.8 1.9 2.0 2.3
Plant and equipment, net $ 1,020,743 $ 991,777 $ 815,771 $ 717,300 $ 736,056
Total assets 2,998,946 2,887,124 2,302,209 1,925,744 1,963,590
Long-term debt 432,885 439,797 237,157 257,259 378,476
Shareholders' equity $ 1,547,301 $ 1,383,958 $ 1,191,514 $ 966,351 $ 932,900
Debt to debt-equity percent 24.5% 30.7% 21.9% 22.7% 33.3%
_______________________________________________________________________________________________________________________
Depreciation $ 146,253 $ 126,544 $ 110,527 $ 106,546 $ 109,673
Capital expenditures $ 189,201 201,693 151,963 99,914 91,484
Number of employees 34,927 33,289 30,590 26,730 25,646
Number of shareholders 43,014 35,403 35,629 29,625 30,414
Number of shares outstanding at year-end (thousands) 111,527 111,438 111,003 110,115 109,352
_______________________________________________________________________________________________________________________
Shares and per share amounts have been adjusted for the 3-shares-for-2 common
stock split paid September 5, 1997.
<FN>
(a) Includes an extraordinary item for the early retirement of debt.
</FN>
</TABLE>
Page 13-38
<PAGE>
Exhibit (21)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1997
by Parker-Hannifin Corporation
The Company has the following subsidiaries:
Domestic Subsidiaries
Percentage
Name Incorporated Owned(1)
iPower Distribution Group Inc. Ohio 100
Parker AIP Corp. Delaware 100
Parker de Puerto Rico, Inc. Delaware 100
Parker Finance Corp. Delaware 100(2)
Parker-Hannifin Asia Pacific Co., Ltd. Delaware 100(3)
Parker-Hannifin International Corp. Delaware 100
Parker Intangibles Inc. Delaware 100
Parker Properties Inc. Delaware 100
Parker Services Inc. Delaware 100
Travel 17325 Inc. Delaware 100
Foreign Subsidiaries
Abex Japan Ltd. Japan 100(4)
Acadia International Insurance Limited Ireland 100
Alenco (Holdings) Limited United Kingdom 100(3)
Brownsville Rubber Co., S.A. de C.V. Mexico 100
Ermeto Productie Maatschappij B.V. Netherlands 100(5)
N. V. Parker-Hannifin S.A. Belgium 100(6)
P-H do Brasil Comercial Ltda. Brazil 100(3)
PH Finance Limited United Kingdom 100(7)
Parker Automotive de Mexico S.A. de C.V. Mexico 100
Parker Enzed (N.Z.) Limited New Zealand 100(3)
Parker Enzed (Australia) Pty. Ltd. Australia 100(8)
Parker Enzed Equipment (Australia) Pty. Ltd. Australia 100(8)
Parker Enzed Technologies Pty. Ltd. Australia 100(8)
Parker Ermeto GmbH Austria 100(9)
Parker Fluid Connectors de Mexico S.A. de C.V. Mexico 100(10)
Parker Lucifer S.A. Switzerland 100
Parker Seal de Baja S.A. de C.V. Mexico 100
Parker Seals S.p.A. Italy 100(11)
Parker Sistemas de Automatizacion S.A. de C.V. Mexico 100
Parker Zenith S.A. de C.V. Mexico 100(10)
Parker Hannifin (Africa) Pty. Ltd. South Africa 100
Parker Hannifin Argentina SAIC Argentina 100
Parker Hannifin A/S Norway 100(12)
Parker Hannifin (Australia) Pty. Ltd. Australia 100(3)
Parker Hannifin B.V. Netherlands 100(17)
Parker Hannifin (Canada) Inc. Canada 100(3)
Parker Hannifin Danmark A/S Denmark 100
Parker Hannifin de Venezuela, C.A. Venezuela 100(3)
Parker Hannifin (Espana) SA Spain 100(3)
Parker Hannifin Finance B.V. Netherlands 100(6)
<PAGE>
Parker Hannifin Foreign Sales Corp. Guam 100(3)
Parker Hannifin GmbH Germany 100(3)
Parker Hannifin Hong Kong Limited Hong Kong 100(13)
Parker Hannifin Industria e Comercio Ltda. Brazil 100(14)
Parker Hannifin Japan Ltd. Japan 100
Parker Hannifin Korea Ltd. Korea 100(3)
Parker Hannifin Motion & Control
(Shanghai) Co. Ltd. China 100
Parker Hannifin Naarden B.V. Netherlands 100(6)
Parker Hannifin AG Switzerland 100(9)
Parker Hannifin (N.Z.) Ltd. New Zealand 100
Parker Hannifin Oy Finland 100
Parker Hannifin plc United Kingdom 100(12)
Parker Hannifin S.A. France 100
Parker Hannifin S.p.A. Italy 100
Parker Hannifin Sp. z.o.o. Poland 100
Parker Hannifin s.r.o. Czech Republic 100(3)
Parker-Hannifin Singapore Pte. Ltd. Singapore 100
Parker Hannifin Sweden AB Sweden 100
Parker Hannifin Taiwan Ltd. Taiwan 100
Parker Hannifin Thailand Co., Ltd. Thailand 100
Parker Hannifin Thailand (1997) Co., Ltd. Thailand 100(15)
Parker Hannifin Verwaltungs GmbH Germany 100(9)
Hydroflex S.A. de C.V. Mexico 100(10)
Schrader Bellows Parker de Mexico S.A. de C.V. Mexico 100(10)
VOAC Hydraulics S.A. Spain 100(16)
(1) Excludes directors' qualifying shares
(2) Owned 100% by Parker de Puerto Rico, Inc.
(3) Owned 100% by Parker-Hannifin International Corp.
(4) Owned 100% by Parker Hannifin Japan Ltd.
(5) Owned 100% by Parker-Hannifin Naarden B.V.
(6) Owned 100% by Parker Hannifin B.V.
(7) Owned 100% by Parker Hannifin plc
(8) Owned 100% by Parker-Hannifin (Australia) Pty. Ltd.
(9) Owned 100% by Parker Hannifin GmbH
(10) Owned 100% by Parker Sistemas de Automatizacion S.A. de C.V.
(11) Owned 100% by Parker-Hannifin S.p.A.
(12) Owned 100% by Alenco (Holdings) Limited
(13) Owned 99.99% by Parker-Hannifin Corporation and .01% by Parker-
Hannifin International Corp.
(14) Owned 37.5% by P-H do Brasil Comercial Ltda. and 62.5% by Parker-
Hannifin International Corp.
(15) Owned 51% by Parker Hannifin Thailand Co., Ltd. and 49% by Parker-
Hannifin Corporation
(16) Owned 100% by Parker Hannifin (Espana) S.A.
(17) Owned 77.52% by Parker Hannifin International Corp. and 22.48% by
Parker AIP Corp.
All of the foregoing subsidiaries are included in the Company's
consolidated financial statements. In addition to the foregoing, the Company
owns three inactive or name holding companies.
*Numbered in accordance with Item 601 of Regulation S-K.
Exhibit (25)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1997
by Parker-Hannifin Corporation
Power of Attorney
*Numbered in accordance with Item 601 of Regulation S-K.
<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
Re: Parker-Hannifin Corporation
Commission File No. 1-4982
Annual Report on Form 10-K
Authorized Representatives
Gentlemen:
Parker-Hannifin Corporation (the "Company") is the issuer of Securities
registered under Section 12(b) of the Securities Exchange Act of 1934 (the
"Act"). Each of the persons signing his name below confirms, as of the date
appearing opposite his signature, that each of the following "Authorized
Representatives" is authorized on his behalf to sign and to submit to the
Securities and Exchange Commission Annual Reports on Form 10-K and amendments
thereto as required by the Act:
Authorized Representatives
Duane E. Collins
Michael J. Hiemstra
Dennis W. Sullivan
Joseph D. Whiteman
Each person so signing also confirms the authority of each of the Authorized
Representatives named above to do and perform, on his behalf, any and all acts
and things requisite or necessary to assure compliance by the signing person
with the Form 10-K filing requirements. The authority confirmed herein shall
remain in effect as to each person signing his name below until such time as
the Commission shall receive from such person a written communication
terminating or modifying the authority.
Date Date
P. S. Parker 8/14/97 Peter Likins 8/14/97
_____________________________ ____ ______________________________ ____
P. S. Parker, Chairman of P. W. Likins, Director
the Board of Directors
D. E. Collins 8/14/97 Hector R. Ortino 8/14/97
_____________________________ ____ ______________________________ ____
D. E. Collins, Principal H. R. Ortino, Director
Executive Officer and Director
M. J. Hiemstra 8/14/97 Allan L. Rayfield 8/14/97
_____________________________ ____ ______________________________ ____
M. J. Hiemstra, Principal A. L. Rayfield, Director
Financial Officer
H. C. Gueritey, Jr 14 Aug 1997 P. G. Schloemer 8/14/97
_____________________________ ____ ______________________________ ____
H. C. Gueritey, Jr., P. G. Schloemer, Director
Principal Accounting Officer
J. G. Breen 8/14/97 Wolf R. Schmitt 8/14/97
_____________________________ ____ ______________________________ ____
J. G. Breen, Director W. R. Schmitt, Director
Paul C. Ely, Jr. Aug 14, 1997 D. L. Starnes 8/14/97
_____________________________ ____ ______________________________ ____
P. C. Ely, Jr., Director D. L. Starnes, Director
Allen H. Ford 8/14/97 Stephanie A. Streeter 8/14/97
_____________________________ ____ ______________________________ ____
A. H. Ford, Director S. A. Streeter, Director
F. A. LePage 8/14/97 D. W. Sullivan 8/14/97
_____________________________ ____ ______________________________ ____
F. A. LePage, Director D. W. Sullivan, Director
Michael Treschow 8/14/97
______________________________ ____
M. A. Treschow, Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
PARKER-HANNIFIN CORPORATION'S REPORT ON FORM 10-K FOR ITS FISCAL YEAR
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 68,997
<SECURITIES> 0
<RECEIVABLES> 554,486
<ALLOWANCES> 5,904
<INVENTORY> 727,847
<CURRENT-ASSETS> 1,499,561
<PP&E> 2,138,591
<DEPRECIATION> 1,117,848
<TOTAL-ASSETS> 2,998,946
<CURRENT-LIABILITIES> 716,011
<BONDS> 443,678
<COMMON> 55,905
0
0
<OTHER-SE> 1,491,396
<TOTAL-LIABILITY-AND-EQUITY> 2,998,946
<SALES> 4,091,081
<TOTAL-REVENUES> 4,091,081
<CGS> 3,152,988
<TOTAL-COSTS> 3,152,988
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,288
<INTEREST-EXPENSE> 46,659
<INCOME-PRETAX> 424,867
<INCOME-TAX> 150,828
<INCOME-CONTINUING> 274,039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 274,039
<EPS-PRIMARY> 2.46
<EPS-DILUTED> 2.44
</TABLE>
