PARKER-HANNIFIN CORPORATION
6035 PARKLAND BOULEVARD - MAYFIELD HEIGHTS, OHIO 44124-4141
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 28, 1998
The annual meeting of shareholders of Parker-Hannifin Corporation will be
held at the Corporation's headquarters at 6035 Parkland Boulevard, Mayfield
Heights, Ohio 44124, on Wednesday, October 28, 1998, at 9:00 a.m., Eastern
Standard Time, for the following purposes:
1. Electing four Directors in the class whose three-year term of office
will expire in 2001;
2. Electing one Director in the class whose term of office will expire in
2000;
3. Appointing PricewaterhouseCoopers LLP as independent public
accountants for the fiscal year ending June 30, 1999; and
4. Transacting such other business as may properly come before the
meeting.
Shareholders of record at the close of business on August 31, 1998, are
entitled to vote at the meeting. Please sign and return the enclosed Proxy
promptly. A return envelope is enclosed for your convenience.
By Order of the Board of Directors
THOMAS A. PIRAINO, JR.
THOMAS A. PIRAINO, JR.
Secretary
September 28, 1998
<PAGE>
PARKER-HANNIFIN CORPORATION
6035 Parkland Boulevard - Mayfield Heights, Ohio 44124-4141
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of the Corporation of proxies to be voted at the annual
meeting of shareholders scheduled to be held on October 28, 1998, and at all
adjournments thereof. Only shareholders of record at the close of business on
August 31, 1998 will be entitled to vote. On that date, 109,307,965 Common
Shares were outstanding and entitled to vote at the meeting, each share being
entitled to one vote. This Proxy Statement and the form of Proxy are being
mailed to shareholders on September 28, 1998.
Shareholders of the Corporation have cumulative voting rights in the
election of Directors, provided any shareholder gives notice in writing to the
President or a Vice President or the Secretary of the Corporation not less
than 48 hours before the time fixed for holding the meeting that cumulative
voting at such election is desired and an announcement of the giving of such
notice is made upon the convening of the meeting by the Chairman or the
Secretary or by or on behalf of the shareholder giving such notice. In such
event, each shareholder has the right to cumulate votes and give one nominee
the number of votes equal to the number of Directors to be elected multiplied
by the number of votes to which the shareholder is entitled, or distribute
votes on the same principle among two or more nominees, as the shareholder
sees fit. In the event that voting at the election is cumulative, the persons
named in the Proxy will vote Common Shares represented by valid Board of
Directors' Proxies on a cumulative basis for the election of the nominees
named below, allocating the votes of such Common Shares in accordance with
their judgment.
ELECTION OF DIRECTORS
The Directors of the class elected at each annual election hold office for
terms of three years. The Board of Directors of the Corporation presently
consists of 14 members divided into three classes. The class whose term
expires in 1998 consists of four members and the classes whose terms expire in
1999 and 2000 each consist of five members. Frank A. LePage, formerly a
member of the class whose term expires in 1999, retired from the Board of
Directors in October 1997.
Shareholder approval is sought to elect John G. Breen, Hector R. Ortino,
Patrick S. Parker and Dennis W. Sullivan, Directors whose terms of office
expire in 1998, to the class whose term will expire in 2001. Shareholder
approval is also sought to elect Klaus-Peter Muller to the class whose term
will expire in 2000. The addition of a director in this class is desirable
due to the anticipated retirement of several Directors in this class in the
near future. A plurality of the Common Shares voted in person or by proxy is
required to elect a Director.
Should any nominee become unable to accept nomination or election, the
proxies will be voted for the election of such other person as a Director as
the Board of Directors may recommend. However, the Board of Directors has no
reason to believe that this contingency will occur.
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NOMINEES FOR ELECTION AS DIRECTORS FOR TERM EXPIRING IN 2001
JOHN G. BREEN, 64, has served as a Director of the Corporation since 1980. He
is Chairman of the Compensation and Management Development Committee and a
member of the Nominating and Retirement Planning Committees. Mr. Breen is
the Chairman of the Board and Chief Executive Officer of The Sherwin
Williams Company (paints and coatings). Mr. Breen is also a Director of
National City Corporation, Mead Corporation and Goodyear Tire and Rubber
Company.
HECTOR R. ORTINO, 56, was elected to the Board of Directors in January 1997.
He is Chairman of the Audit Committee and a member of the Nominating
Committee. Mr. Ortino has been the President and Chief Operating Officer of
Ferro Corporation (specialty materials) since February 1996. He was
previously Executive Vice President and Chief Financial Administrative
Officer of Ferro Corporation from May 1993 to February 1996. Mr. Ortino is
also a Director of Ferro Corporation and Bunge International.
PATRICK S. PARKER, 68, has served as a Director of the Corporation since 1960.
Mr. Parker is the Chairman of the Board of Directors of the Corporation.
DENNIS W. SULLIVAN, 59, has served as a Director of the Corporation since
1983. Mr. Sullivan is Executive Vice President and, since April 1996, a
member of the Office of the President of the Corporation. Mr. Sullivan is
also a Director of Ferro Corporation and KeyCorp.
NOMINEE FOR ELECTION AS DIRECTOR FOR TERM EXPIRING IN 2000
KLAUS-PETER MULLER, 54, has been a member of the Board of Managing Directors
of Commerzbank AG in Frankfurt, Germany since May 1992. Mr. Muller is also
a member of the Supervisory Boards of the following companies:
Hypothekenbank in Essen AG, Hannover Papier AG, ABB Asea Brown Boveri AG,
Bank Rozwoju Eksportu S.A., Ford-Werke AG, Honsel AG, and Thyssen
Handelsunion AG.
PRESENT DIRECTORS WHOSE TERMS EXPIRE IN 2000
DUANE E. COLLINS, 62, has served as a Director of the Corporation since 1992.
Mr. Collins is President and Chief Executive Officer of the Corporation.
Mr. Collins is also a Director of National City Corporation and The Sherwin
Williams Company.
ALLEN H. FORD, 70, has served as a Director of the Corporation since 1975. He
is a member of the Audit, Nominating, and Retirement Planning Committees.
Now a Consultant, Mr. Ford was formerly the Senior Vice President-Finance
and Control of The Standard Oil Company (diversified natural resources).
Mr. Ford is also a Director of First Union Real Estate Investments.
ALLAN L. RAYFIELD, 63, has served as a Director of the Corporation since 1984.
He is a member of the Audit, Compensation and Management Development, and
Nominating Committees. Now retired, Mr. Rayfield previously served as
President, Chief Executive Officer and Director of M/A-COM, Inc. (microwave
manufacturing) from November 1993 to December 1994, and President and Chief
Operating Officer of M/A-COM, Inc. from March 1991 to November 1993. Mr.
Rayfield is also a Director of Acme Metals Inc. and Arch Communications
Group, Inc.
PAUL G. SCHLOEMER, 70, has served as a Director of the Corporation since 1982.
He is a member of the Nominating Committee. Now retired, Mr. Schloemer was
President and Chief Executive Officer of the Corporation from 1984 to 1993.
Mr. Schloemer is also a Director of Rubbermaid Incorporated, AMP
Incorporated and Esterline Technologies Corporation.
MICHAEL A. TRESCHOW, 55, has served as a Director of the Corporation since
1996. He is a member of the Audit and Nominating Committees. Mr. Treschow
has been the President and Chief Executive of AB Electrolux (electrical
appliances) in Sweden since April 1997. He was previously the President and
Chief Executive Officer of Atlas Copco AB from 1991 to 1997. Mr. Treschow
is also a Director of SKF AB and Saab Automobile AB.
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PRESENT DIRECTORS WHOSE TERMS EXPIRE IN 1999
PAUL C. ELY, JR., 66, has served as a Director of the Corporation since 1984.
He is Chairman of the Retirement Planning Committee and a member of the
Nominating Committee. Now retired, Mr. Ely was a General Partner of Alpha
Partners (venture capital seed financing) from July 1989 to May 1998. Mr.
Ely is also a Director of Tektronix, Inc. and The Sabre Group.
PETER W. LIKINS, 62, has served as a Director of the Corporation since 1989.
He is Chairman of the Nominating Committee and a member of the Audit and
Compensation and Management Development Committees. Dr. Likins is President
of the University of Arizona. He was previously the President of Lehigh
University from July 1982 to October 1997. Dr. Likins is also a Director of
Consolidated Edison Company of New York, Inc., Comsat Corporation and
Safeguard Scientifics, Inc.
WOLFGANG R. SCHMITT, 54, has served as a Director of the Corporation since
1992. He is a member of the Compensation and Management Development and
Nominating Committees. Mr. Schmitt is the Chairman of the Board and Chief
Executive Officer of Rubbermaid Incorporated (manufacturer of rubber and
plastic products). Mr. Schmitt is also a Director of Kimberly-Clark Inc.
DEBRA L. STARNES, 45, was elected to the Board of Directors in July 1997. She
is a member of the Compensation and Management Development, Nominating and
Retirement Planning Committees. Ms. Starnes is the Senior Vice President,
Petrochemicals of Lyondell Petrochemical Company (petrochemical production).
She was previously Senior Vice President, Polymers of Lyondell from May 1995
to January 1997 and Senior Vice President, Petrochemical Management and
Marketing at Lyondell from May 1992 to May 1995.
STEPHANIE A. STREETER, 41, has served as a Director of the Corporation since
1996. She is a member of the Audit and Nominating Committees. Ms. Streeter
is the Group Vice President of Worldwide Office Products of Avery Dennison
Corporation (adhesives and office products). She was previously Vice
President and General Manager of Avery Dennison Brands from November 1993 to
May 1996 and Vice President and General Manager of Office Labels at Avery
Dennison from June 1991 to November 1993.
No Director of the Corporation is related to any other Director. During
the fiscal year ended June 30, 1998, there were five meetings of the
Corporation's Board of Directors. Each Director attended at least 75% of the
meetings held by the Board of Directors and the Committees of the Board on
which he or she served.
THE AUDIT COMMITTEE, which met twice during the fiscal year ended June 30,
1998, is responsible for reviewing with the Corporation's financial management
and its independent auditors the proposed auditing program (including both the
independent and the internal audits) for each fiscal year, the results of the
audits and the adequacy of the Corporation's internal control structure. This
Committee recommends to the Board of Directors the appointment of the
independent auditors for the fiscal year.
THE RETIREMENT PLANNING COMMITTEE, which met once during the fiscal year
ended June 30, 1998, is responsible for reviewing with the Corporation's
management the funding and investment policies for defined benefit plans and
defined contribution plans sponsored by the Corporation.
THE COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE, which met twice
during the fiscal year ended June 30, 1998, is responsible for annually
reviewing and fixing the salaries and other compensation of the officers of
the Corporation, deciding upon the grant of stock options to the officers and
other employees of the Corporation and reviewing corporate policies and
programs for the development of management personnel.
THE NOMINATING COMMITTEE, which met once during the fiscal year ended June
30, 1998, is responsible for evaluating and recommending to the Board
qualified nominees for election as Directors of the Corporation and
considering other matters pertaining to the size and composition of the Board.
The Nominating Committee will give appropriate consideration to qualified
persons recommended by shareholders for nomination as Directors of the
Corporation, provided that such recommendations are accompanied by information
sufficient to enable the Committee to evaluate the qualifications of the
nominee. Nominations should be sent to the attention of the Secretary of the
Corporation.
COMPENSATION OF DIRECTORS. The Corporation compensates Directors, other
than officers who are Directors, for their services. The annual retainer for
such Directors was increased from $24,000 to $26,000 effective April 1, 1998.
The fee for attending each Board and Committee meeting is $1,000 for all such
Directors other than Committee Chairmen, whose fee is $1,500 for chairing
committee meetings. Patrick S. Parker, Chairman of the Board of
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Directors, receives an annual retainer of $135,000, plus meeting fees, club
memberships and the use of a leased automobile. Directors may elect to defer
all or a portion of their fees under the Corporation's Deferred Compensation
Plan for Directors or to elect to receive all or a portion of their fees in
Common Shares of the Corporation pursuant to the Corporation's Non-Employee
Directors' Stock Plan.
The Board of Directors adopted the Non-Employee Directors Stock Option
Plan in August 1996. Each Director who is not a current or retired employee
of the Corporation ("Non-Employee Director") was granted 750 stock options,
adjusted for the 3-for-2 Common Shares stock split paid on September 5, 1997,
under the Plan in August 1997 at an option price equal to the then current
fair market value of the Corporation's Common Shares. Such options have a
ten-year term and vest following one year of continued service as a Director.
In August 1998, each Non-Employee Director was granted an additional 1,000
stock options upon identical terms.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. The
following Directors serve as members of the Corporation's Compensation and
Management Development Committee: Messrs. Breen, Likins, Rayfield and Schmitt
and Ms. Starnes. Mr. Collins, the President and Chief Executive Officer of
the Corporation, serves on the Compensation Committee of The Sherwin Williams
Company. Mr. Breen is the Chairman and Chief Executive Officer of The Sherwin
Williams Company.
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation and Management Development Committee of the Board of
Directors (the "Committee") has furnished the following report on executive
compensation.
The Committee, which consists entirely of five outside non-employee
Directors, has overall responsibility to:
* review the performance and long-term management potential of the
executive officers of the Corporation; and
* review and fix the salaries and other compensation of the executive
officers of the Corporation.
Following review and approval by the Committee, all issues pertaining to
executive compensation are submitted to the full Board of Directors in
conjunction with its approval and review of the Corporation's strategies and
operating plans, thereby assuring that the Corporation's system of executive
compensation is reasonable and appropriate, meets its stated purpose and
effectively serves the interests of the shareholders and the Corporation.
The Corporation's executive compensation programs are designed to attract
and retain key executives critical to the long-term success of the Corporation
by remaining competitive with other multinational diversified manufacturing
companies of similar size. Comparative compensation information is used by
the Committee to establish competitive salary grade ranges at the market
median for base pay, annual bonus and long-term compensation. The group of
companies used for compensation comparison purposes is not the same as the S&P
Manufacturing (Diversified Industrials) Index, which is the peer group of
companies included in the performance graph on page 11. Comparative
compensation information is obtained by the Committee from independent surveys
of numerous diversified manufacturers, which the Committee believes is
important in order to establish competitive compensation ranges at the
appropriate levels. On the other hand, the S&P Manufacturing (Diversified
Industrials) Index utilized in the performance graph contains data only with
respect to a limited number of companies that are in businesses similar to the
Corporation, which data is theoretically reflective of the stock performance
of all diversified manufacturers as a whole.
The Corporation's executive compensation programs also are intended to
reward executives commensurate with performance and attainment of pre-
determined financial objectives. Accordingly, compensation of executive
officers is directly and materially linked to both operating and stock price
performance, thus aligning the financial interests of the Corporation's
executives with those of its shareholders.
Compensation for the Corporation's executives consists of three primary
elements:
1. A BASE SALARY within a competitively established range. The specific
base salary within the range is determined by length of service and
individual contributions and performance as measured against pre-
established goals and objectives. Goals and objectives for each
executive vary in accordance with each executive's responsibilities
and are established by each executive's supervisor.
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2. An ANNUAL CASH INCENTIVE BONUS that is comprised of two components:
a. An amount that is determined by the Corporation's pre-tax return
on average assets as compared to the Corporation's annual plan
established at the beginning of the fiscal year (the "Target
Incentive Bonus"); and
b. An amount that is determined based on the return on division net
assets for the divisions in each executive's individual operating
unit (or the average return for all divisions for corporate staff
executive officers) (the "RONA Bonus").
The target amounts of the annual cash incentive bonuses are
established in such a manner that base salary plus the target bonuses
will be within the competitively determined total annual compensation
range mentioned above. Target annual cash incentive bonuses represent
approximately 35-45% of total targeted annual compensation for the
executive officers with operational profit and loss responsibility
(including the Chief Executive Officer) and 25-35% of total targeted
annual compensation for the other executive officers.
The Chief Executive Officer, with the approval of the Committee, also
has the authority to establish additional annual incentive programs
for operating executives. In fiscal year 1998, under a Volume
Incentive Plan, operating group presidents had the opportunity to earn
an additional bonus of 1% of base salary for each 1% of sales by which
their group exceeded their previous year's sales by between 7.5% and
12.5%, and an additional bonus of 2% of base salary for each 1% of
sales by which their group exceeded their previous year's sales by
more than 12.5%; subject, however, to an overall maximum of 15% of the
participant's base salary. Acquisitions may only account for up to 5%
of the increase in sales. Also, sales growth above 12.5% resulted in
additional payments under the Plan only if the group exceeded
corporate goals with respect to its return on sales and its
assets/sales ratio. An identical Volume Incentive Plan has been
adopted for fiscal year 1999.
3. LONG-TERM INCENTIVE COMPENSATION that is comprised of two components:
a. A long-term incentive plan ("LTIP") award that is based upon
the Corporation's actual average return on equity for a three
fiscal year period, payable in restricted stock (unless the
participant elects to receive cash under the Corporation's
Executive Deferral Plan). The amount of the LTIP award in shares
is calculated by dividing a target LTIP dollar value (adjusted for
risk of forfeiture) by the market price of the Corporation's
Common Shares at the beginning of the three-year performance
period. The target LTIP value is established by the Committee at
the market median of comparative LTIP compensation.
b. A stock option grant determined by utilizing the Black-Scholes
valuation model to convert a target stock option dollar value
(adjusted for risk of non-vesting) into the number of stock
options to be granted. The target stock option value is
established by the Committee at the market median of comparative
stock option compensation. Stock options are granted with an
exercise price equal to the fair market value of the Corporation's
Common Shares on the day of grant and grants are generally
exercisable between one and ten years from the date granted. In
July 1998, the Committee approved a Stock Option Deferral Plan
which permits executives to defer the recognition of gain upon the
exercise of stock options under the Plan.
Incentive compensation for the Corporation's executives is significantly
"at risk", based upon the financial performance of the Corporation. Indeed,
more than one-half of each executive's targeted total compensation (including
base salary, annual bonus, LTIP payouts and stock options) may fluctuate
significantly from year to year because it is directly tied to business and
individual performance.
Long-term incentive programs are designed to link the interests of the
executives with those of the shareholders. LTIP awards focus on long-term
return on equity and provide an incentive to increase the stock price during
the three year performance period. Restricted stock awards build stock
ownership and encourage a long-term focus on shareholder value, since the
stock is restricted from being sold, transferred or assigned for a specified
period. Stock option grants provide an incentive that aligns the executive's
interests with those of the shareholders, since stock options will provide
value to the executive only when the price of the Corporation's stock
increases above the option grant price.
In August 1996, the Board of Directors, at the recommendation of the
Committee, adopted stock ownership guidelines that are designed to encourage
the accumulation and retention of the Corporation's Common Shares by its
Directors, executive officers and other key executives. These guidelines,
stated as a multiple of executives' base
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salaries and of Directors' annual retainer, are as follows: Chief Executive
Officer: three times; Vice Presidents: two times; other executive officers and
group presidents: one time; and non-officer Directors: four times. The
recommended time period for reaching the above guidelines is five years. The
Chief Executive Officer reviews compliance with this policy with the Committee
on an annual basis.
The Corporation's executive compensation philosophy is specifically
evident in the compensation paid during the most recent fiscal year to the
Corporation's President and Chief Executive Officer, Duane E. Collins. Mr.
Collins' increase in base salary from fiscal 1997 to fiscal 1998 of 9.88% is
reflective of his "outstanding" performance rating for fiscal 1997. In
addition, based on the Corporation's fiscal 1998 operating plan, Mr. Collins
was entitled to receive 100% of his Target Incentive Bonus of $300,000 if the
Corporation's actual pre-tax return on average assets, adjusted primarily for
acquisitions and currency transactions, was 16%. A minimum payout of 15% of
the Target Incentive Bonus was established at a 3.6% pre-tax return on average
assets and a maximum payout of 150% of the Target Incentive Bonus was
established at a 19.3% pre-tax return on average assets. During the fiscal
year ended June 30, 1998, the Corporation's adjusted pre-tax return on average
assets was 16.8% and each executive officer, including Mr. Collins, received
an amount equal to 112.7% of his Target Incentive Bonus, which is included in
the "Bonus" column of the Summary Compensation Table on page 7.
Mr. Collins' RONA Bonus was targeted at $426,188 based upon an approximate
32.7% average return on division net assets. The average return on division
net assets was 35.95%, resulting in a RONA Bonus payment to Mr. Collins of
$462,708, which is included in the "Bonus" column of the Summary Compensation
Table on page 7. The other executive officers also received RONA Bonuses
based upon the return on division net assets by their respective operating
units (or the average return for all divisions for corporate staff executive
officers).
Based on the Corporation's average return on equity of 19.03% for the
three fiscal years ended June 30, 1998, Mr. Collins and the other executive
officers received a payment under the 1996-97-98 Long Term Incentive Plan in
the form of either restricted shares or contributions to their Executive
Deferral Plan accounts in an amount equal to the value of the restricted
shares earned, as reported in the "LTIP Payouts" column of the Summary
Compensation Table on page 7. Such payment represents 184% of the target
payment that would have been achieved had the Corporation merely achieved its
return on equity goal of 14% during such period.
During fiscal year 1998, Mr. Collins and the other executive officers also
received a long-term incentive award as described in the LTIP Table on page 9
and a stock option grant as reported in the Option Grants Table on page 8.
During the past fiscal year, the Corporation once again reported all-time
sales and earnings records, exceeding the prior year's record performance as
well as forecasted performance. Accordingly, incentive compensation payable
to each executive, including Mr. Collins, exceeded the target levels of annual
compensation established by the Committee at the beginning of the fiscal year
and greatly exceeded the 1996-97-98 LTIP target compensation.
During 1993, the Omnibus Budget Reconciliation Act of 1993 (the "Act") was
enacted by Congress. The Act includes potential limitations on the
deductibility of compensation in excess of $1 million paid to the
Corporation's Chief Executive Officer and four other highest paid executive
officers beginning in fiscal year 1995. The Committee has taken the necessary
actions to ensure the deductibility of compensation paid by the Corporation to
such individuals.
JOHN G. BREEN DR. PETER W. LIKINS
JOHN G. BREEN DR. PETER W. LIKINS
ALLAN L. RAYFIELD WOLFGANG R. SCHMITT
ALLAN L. RAYFIELD WOLFGANG R. SCHMITT
DEBRA L. STARNES
DEBRA L. STARNES
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EXECUTIVE COMPENSATION
The following table summarizes compensation paid by the Corporation for each
of the last three fiscal years to its Chief Executive Officer and each of the
other four most highly compensated executive officers:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
____________________________________ _____________________________________
Awards Payouts
_________ ____________
Securities
Other Annual Underlying LTIP All Other
Fiscal Compensation Options Payouts Compensation
Name and Principal Position Year Salary ($) Bonus ($) ($) (a) (#) ($) (b) ($) (c)
______________________________ _____ __________ ________ ____________ ___________ _________ ____________
<S> <C> <C> <C> <C> <C> <C> <C>
Duane E. Collins, 1998 913,000 800,808 83,677 55,740 1,532,701 12,831
President, Chief Executive 1997 830,880 718,184 14,222 88,500 2,898,556 11,531
Officer and Member of the 1996 783,473 611,981 18,068 99,000 988,348 14,570
Office of the President
Dennis W. Sullivan, 1998 590,000 397,153 11,080 26,700 711,222 13,818
Executive Vice President and 1997 551,256 358,129 7,137 39,000 1,270,554 12,814
Member of the Office of the 1996 525,000 323,325 8,144 56,250 436,055 12,934
President
Michael J. Hiemstra, 1998 400,000 236,565 3,985 12,735 429,631 13,618
Vice President - 1997 376,392 215,491 2,939 18,000 678,972 12,637
Finance and Administration 1996 361,920 199,074 6,574 22,500 232,553 14,672
Lawrence M. Zeno, 1998 350,000 245,735 8,436 17,610 429,631 12,256
Vice President and Member of 1997 279,000 153,872 7,258 18,000 678,972 12,478
the Office of the President 1996 266,100 161,327 14,251 22,500 193,794 13,116
Stephen L. Hayes, 1998 345,600 274,674 31,385 12,735 429,631 13,116
Vice President, and President, 1997 314,196 235,623 9,727 18,000 678,972 11,448
Parker Aerospace Group 1996 299,244 215,668 9,734 22,500 232,553 13,507
<FN>
(a) Unless otherwise indicated, no executive officers named in the Summary
Compensation Table received personal benefits or perquisites in excess
of the lesser of $50,000 or 10% of his total compensation reported in
the Salary and Bonus columns. Reported in this column is annual
compensation consisting of (i) amounts reimbursed by the Corporation
for the payment of income taxes on certain executive perquisites and
(ii) $53,607 in executive perquisites received by Mr. Collins in fiscal
year 1998, including payments of $17,250 for country club dues and
$18,154 for reimbursed spousal travel.
(b) For fiscal 1998 and 1997, the amounts represent contributions to the
executives' Executive Deferral Plan ("EDP") accounts made under the
1996-97-98 and 1995-96-97 Long Term Incentive Plans, respectively. For
fiscal 1996 the amounts represent the dollar value of restricted shares
issued under the 1994-95-96 Long Term Incentive Plan based on the
Corporation's stock price on the date of issuance of the shares.
The restricted shares and EDP contributions are subject to a three-year
vesting period, with accelerated vesting in the event of the death,
disability or normal retirement of the Plan participant. Dividends are
paid by the Corporation on the restricted shares. The number and value
of the aggregate restricted stock holdings for each of the above-named
executive officers as of June 30, 1998 was as follows: Mr. Collins,
47,261 shares with a value of $1,801,807; Mr. Sullivan, 23,660 shares
with a value of $902,018; Mr. Hiemstra, 13,694 shares with a value of
$522,065; Mr. Zeno, 10,313 shares with a value of $393,164; and
Mr. Hayes, 13,196 shares with a value of $503,078.
(c) Represents matching contributions by the Corporation to the Parker
Retirement Savings Plan and the Parker-Hannifin Corporation Savings
Restoration Plan.
</FN>
</TABLE>
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The following table summarizes stock option grants by the Corporation
during the fiscal year ended June 30, 1998 to each of the executive officers
identified in the Summary Compensation Table on page 7:
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1998
Individual Grants
___________________________________________________
Potential realizable value
Number of % of Total at assumed annual rates of
Securities Options Exercise stock price appreciation for
Underlying Granted to Or Base option term (b)
Options Employees Price Expiration __________________________________
Name Granted(#)(a) in Fiscal 1998 ($/Sh) Date 5%($) 10%($) 9.0%($)(c)
___________________ ___________ ________________ _______ _________ _________ _________ __________
<S> <C> <C> <C> <C> <C> <C> <C>
Duane E. Collins 55,740 29.2% $43.042 8/12/07 1,508,826 3,823,653 3,280,522
Dennis W. Sullivan 26,700 14.0% $43.042 8/12/07 722,742 1,831,567 1,571,402
Michael J. Hiemstra 12,735 6.7% $43.042 8/12/07 344,724 873,596 749,506
Lawrence M. Zeno 17,610 9.2% $43.042 8/12/07 476,685 1,208,011 1,036,419
Stephen L. Hayes 12,735 6.7% $43.042 8/12/07 344,724 873,596 749,506
<FN>
(a) Options are exercisable on the date following completion of one year of
continuous employment after the date of grant (i.e., August 13, 1998).
Restorative or "reload" option rights are attached to each option and up
to two reload options will be granted upon exercise, subject to certain
provisions, if the exercise price is paid using shares of the
Corporation's common stock owned by the optionee.
(b) The potential realizable value illustrates the value that might be
realized upon the exercise of the options immediately prior to the
expiration of their term, assuming the specified compounded rates of
appreciation over the entire term of the option. Shareholders of the
Corporation, as a group, would realize $3,019,313,426 and $7,651,515,105
at assumed annual rates of appreciation of 5% and 10%, respectively,
over the ten-year life of the options. There can be no assurance that
the amounts reflected in this table will be achieved.
(c) Represents the Corporation's actual rate of stock price appreciation
over the 10-year period ending June 30, 1998.
</FN>
</TABLE>
The following table summarizes exercises of stock options during the
fiscal year ended June 30, 1998 by each of the executive officers identified
in the Summary Compensation Table on page 7 and the fiscal year-end value of
unexercised options for such executive officers:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR-END OPTION VALUES
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money
Shares Value at FY-End (#) Options at FY-End ($)
Acquired on Realized ___________________________ ___________________________
Name Exercise (#) ($) Exercisable / Unexercisable Exercisable /Unexercisable
_____________________ ____________ _________ ___________________________ __________________________
<S> <C> <C> <C> <C>
Duane E. Collins - - 408,000 / 55,740 7,621,009 / -
Dennis W. Sullivan 18,000 613,571 294,375 / 26,700 6,127,017 / -
Michael J. Hiemstra 130,500 4,059,015 63,000 / 12,735 957,296 / -
Lawrence M. Zeno - - 63,000 / 17,610 957,296 / -
Stephen L. Hayes 15,000 436,738 63,000 / 12,735 957,296 / -
</TABLE>
8
<PAGE>
The following table summarizes awards by the Corporation during the fiscal
year ended June 30, 1998 to each of the executive officers identified in
the Summary Compensation Table on page 7 under the Corporation's Long Term
Incentive Plan:
<TABLE>
<CAPTION>
LONG TERM INCENTIVE PLAN - AWARDS IN FISCAL 1998
Estimated Future Payouts under
Number of Performance or Non-Stock Price-Based Plans
Shares Other Period Until ________________________________________
Name (#) Maturation or Payout Threshold (#) Target (#) Maximum (#)
____________________ _________ ____________________ _____________ __________ ___________
<S> <C> <C> <C> <C> <C>
Duane E. Collins 15,660 3 Years 3,915 15,660 31,320
Dennis W. Sullivan 7,500 3 Years 1,875 7,500 15,000
Michael J. Hiemstra 4,380 3 Years 1,095 4,380 8,760
Lawrence M. Zeno 6,075 3 Years 1,519 6,075 12,150
Stephen L. Hayes 4,380 3 Years 1,095 4,380 8,760
</TABLE>
Target awards under the Corporation's Long Term Incentive Plan ("LTIP")
during the last fiscal year were made in the form of restricted Common Shares
of the Corporation and entitle each executive officer to receive a pro rata
share of his award based upon the Corporation's actual average return on
equity (threshold of 8%; target of 14%; maximum of 20%) for the three
fiscal years ending June 30, 2000. Awards are payable in August 2000.
Executive officers will receive cash in lieu of restricted shares under the
LTIP if they are retired at the time of payment or if they elect, prior to
May 31, 1999, to defer the amount earned under the LTIP pursuant to the
Corporation's Executive Deferral Plan.
PENSION PLAN TABLE
The following table summarizes the estimated annual benefits payable upon
retirement to the executive officers identified in the Summary Compensation
Table on page 7:
Years of Service
Remuneration 15 or more
$ 300,000 $ 165,000
500,000 275,000
700,000 385,000
900,000 495,000
1,100,000 605,000
1,300,000 715,000
1,500,000 825,000
1,700,000 935,000
1,900,000 1,045,000
2,100,000 1,155,000
The foregoing table sets forth the straight-life annuity payable under the
Corporation's Supplemental Executive Retirement Benefits Program at the
normal retirement age of 65. The years of service under the Program for
each of the executive officers identified in the Summary Compensation Table
on page 7, at their respective retirement dates, will be as follows: Mr.
Collins, 40 years; Mr. Sullivan, 44 years; Mr. Hiemstra, 25 years; Mr. Zeno,
41 years; and Mr. Hayes, 34 years. The Program provides an annual benefit
based upon the average of the participant's three highest years of cash
compensation (Salary, RONA Bonus and Target Incentive Bonus) with the
Corporation. Benefits payable under the Program are based on calendar year
compensation. Since the amounts set forth in the "Salary" and "Bonus"
columns in the Summary Compensation Table on page 7 are determined on a
fiscal year basis and since the amounts set forth in the "Bonus" column for
Mr. Zeno in fiscal 1997 and 1996 and Mr. Hayes in fiscal
9
<PAGE>
1998, 1997 and 1996 include payments received under the Volume Incentive Plan
(which is not included in determining benefits under the Program), such
amounts do not reflect the benefits payable under the Program. If the
benefits were to be payable to each named participant based on retirement as
of June 30, 1998, the average of the three highest calendar years of cash
compensation included in determining benefits under the Program for each of
the named participants would be as follows: Mr. Collins, $1,476,326; Mr.
Sullivan, $910,346; Mr. Hiemstra, $592,467; Mr. Zeno, $439,948; and Mr. Hayes,
$488,927. Benefits are subject to reduction for payments received under the
Corporation's Retirement Plan plus 50% of primary social security benefits.
"CHANGE IN CONTROL" SEVERANCE AGREEMENTS WITH OFFICERS. The Corporation
has entered into separate agreements (collectively the "Agreements") with
Messrs. Collins, Sullivan, Hiemstra, Zeno and Hayes. The Agreements are
designed to retain the executives and provide for continuity of management in
the event of any actual or threatened change in the control of the
Corporation. Each Agreement only becomes operative upon a "Change in Control"
of the Corporation, as that term is defined in the Agreements, and the
subsequent termination of the employment of the executive pursuant to the
terms of the Agreement. A Change in Control of the Corporation shall be
deemed to have occurred if and when: (i) subject to certain exceptions, any
"person" (as such term is used in Sections 13(d)(3) and 14(d)(2) of the
Exchange Act) is or becomes a beneficial owner, directly or indirectly, of
securities of the Corporation representing 20% or more of the combined voting
power of the Corporation's then outstanding securities eligible to vote for
the election of the Board; (ii) during any period of twenty-four consecutive
months, individuals who at the beginning of such twenty-four month period were
Directors of the Corporation (the "Incumbent Board") cease to constitute at
least a majority of the Board of Directors of the Corporation, unless the
election, or nomination for election, of any person becoming a Director
subsequent to the beginning of such twenty-four month period was approved by a
vote of at least two-thirds of the Incumbent Board; (iii) the Corporation
enters into a merger, consolidation or other reorganization, or sells all its
assets, unless (a) immediately following the business combination: (1) more
than 50% of the total voting power eligible to elect directors of the
resulting corporation is represented by shares that were Common Shares
immediately prior to the business combination, (2) subject to certain
exceptions, no person becomes the beneficial owner, directly or indirectly, of
20% or more of the voting power of the corporation resulting from the business
combination, and (3) at least a majority of the members of the board of
directors of the resulting corporation were members of the Incumbent Board at
the time of the Board of Directors of the Corporation's approval of the
execution of the initial agreement providing for such business combination, or
(b) the business combination is effected by means of the acquisition of Common
Shares from the Corporation, and the Board of Directors of the Corporation
approves a resolution providing expressly that such business combination does
not constitute a "Change in Control"; or (iv) the shareholders of the
Corporation approve a plan of complete liquidation or dissolution of the
Corporation.
Each Agreement provides that, if the employment of the executive is
terminated during the three years following a Change in Control of the
Corporation, either by the Corporation without "Cause" (as defined in the
Agreements) or by the executive for "Good Reason" (as defined in the
Agreements and described below), the executive shall be entitled to receive
(a) pro rata salary and bonus for the year of termination of employment; (b)
severance pay equal to three times the executive's annual salary and bonus;
(c) continuation of welfare benefits (e.g., medical, life insurance,
disability coverage) for a period of three years; (d) to the extent not
previously received, all amounts previously deferred under the Corporation's
non-qualified income deferral plans together with a "make whole" amount
designed to compensate the executive for the lost opportunity to continue to
defer receipt of such income (and the earnings thereon) pursuant to elections
made under such deferral plans; and (e) a "gross-up" payment to offset the
effect, if any, of the excise tax imposed by Section 4999 of the Internal
Revenue Code. "Good Reason" for termination of employment by the executive
includes, without limitation, diminution in duties, reduction in compensation
or benefits or relocation. In addition, termination of employment by the
executive for any or no reason during the 180-day period beginning on the 91st
day after the Change in Control shall constitute Good Reason.
A Change in Control of the Corporation also has an effect under other
executive compensation plans of the Corporation, as follows: (1) any
outstanding unvested stock option held by an executive vests immediately upon
a Change in Control; (2) any outstanding unvested restricted stock issued or
unvested Executive Deferral Plan amounts credited to an executive pursuant to
the Corporation's Long Term Incentive Plans ("LTIP") vests immediately in the
event of a Change in Control; (3) any outstanding LTIP award to an executive
will be paid in full in cash upon a Change in Control, at the target amount or
on the basis of corporate financial performance to the date of the Change in
Control, whichever is greater; (4) if previously elected by the executive,
upon a Change in Control, all amounts previously deferred by the executive
under the Executive Deferral Plan, together with the "make whole" amount
(described in subsection (d) of the preceding paragraph), will be paid to the
executive; (5) upon a Change in
10
<PAGE>
Control, all shares the receipt of which were previously deferred by the
executive under the Stock Option Deferral Plan will be issued to the
executive; and (6) upon a Change in Control, each participant under the
Corporation's Supplemental Executive Retirement Benefits Program will receive
three additional years of age and service credit under the Program and will
receive a lump-sum payment equal to the present value of the participant's
vested benefit under the Program.
COMMON SHARE PRICE PERFORMANCE GRAPH
The following graph sets forth a comparison of the cumulative share-
holder return on the Corporation's Common Shares with the S&P 500 Index and
the S&P Manufacturing (Diversified Industrials) Index during the period
June 30, 1993 through June 30, 1998, assuming the investment of $100 on
June 30, 1993, and the reinvestment of dividends.
<TABLE>
<CAPTION>
Comparison of Five Year Cumulative Total Return Among
Parker-Hannifin Corporation, the S&P 500 Index and the
S&P Manufacturing (Diversified Industrials) Index
6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 6/30/98
<S> <C> <C> <C> <C> <C> <C>
Parker-Hannifin Corporation 100 132 172 205 299 286
S&P 500 Index 100 101 128 161 217 282
S&P Manufacturing (Diversified Industrials) Index 100 112 148 188 280 302
</TABLE>
- 11 -
<PAGE>
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee and the Board of Directors recommend the appointment
of PricewaterhouseCoopers LLP as certified public accountants to examine the
financial statements of the Corporation as of and for the fiscal year ending
June 30, 1999. PricewaterhouseCoopers LLP, in the form of its predecessor,
Coopers & Lybrand L.L.P., has made the annual audit of the Corporation's
accounts since its organization in 1938. A representative of
PricewaterhouseCoopers LLP is expected to be present at the meeting with an
opportunity to make a statement if he desires to do so and to respond to
appropriate questions. Ratification of the appointment of
PricewaterhouseCoopers LLP as certified public accountants requires the
affirmative vote of the holders of at least a majority of the votes present or
represented and entitled to vote on the proposal at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL.
PRINCIPAL SHAREHOLDERS OF THE CORPORATION
The following table sets forth, as of August 31, 1998, the name and
address of each person believed to be a beneficial owner of more than 5% of
the Common Shares of the Corporation, the number of shares and the percentage
so owned, as well as the beneficial ownership of Common Shares of the
Corporation by the Directors, the executive officers of the Corporation named
in the Summary Compensation Table on page 7, and all Directors and executive
officers as a group:
Amount and Nature Percentage
Name of of of
Beneficial Owner Beneficial Ownership(a) Class(b)
Capital Research and Management Company 6,292,100(c) 5.6%
333 South Hope Street
Los Angeles, CA 90071
J. G. Breen 11,750(d)
P. C. Ely 6,424(d)
A. H. Ford 11,250(d)
P. W. Likins 7,311(d)
H. R. Ortino 2,754(d)
P. S. Parker 709,864(d)
A. L. Rayfield 5,282(d)
P. G. Schloemer 324,052(d)
W. R. Schmitt 6,201(d)
D. L. Starnes 2,474(d)
S. A. Streeter 3,976(d)
M. A. Treschow 6,101(d)
D. E. Collins 599,822(d)
D. W. Sullivan 528,704(d)
M. J. Hiemstra 121,002(d)
L. M. Zeno 113,175(d)
S. L. Hayes 95,110(d)
All Directors and executive 3,150,315(d) 2.8%
officers as a group
(28 persons)
(a) Unless otherwise indicated, the beneficial owner has sole voting and
investment power.
(b) No Director or executive officer beneficially owned more than 1% of the
Corporation's Common Stock as of August 31, 1998.
(c) Pursuant to a statement filed by Capital Research and Management Company
with the SEC in accordance with Rule 13d-1 of the Exchange Act, Capital
Research and Management Company has reported that as of December 31, 1997,
it had sole investment power over 6,292,100 Common Shares.
(d) These amounts include 2,250 (except for 1,500 for Mr. Ortino and 750 for
each of Mr. Breen and Ms. Starnes), 150,000, 463,740, 321,075, 75,735,
80,610, 75,735 and 1,590,683 Common Shares subject to options exercisable
on or prior to October 30, 1998 granted under the Corporation's stock
option plans held by each Non-Employee Director, Messrs. Schloemer,
Collins, Sullivan, Hiemstra, Zeno and Hayes and all Directors and
executive officers as a group, respectively. Such Common Shares are
deemed to be outstanding only for the purpose of computing the percentage
of shares owned by each of the individuals and the officers and Directors
as a group. These amounts also include 30,431, 5,230, 6,753, 7,526,
3,906, 5,096, 6,144 and 135,188 Common Shares as to which Messrs. Parker,
Schloemer, Collins, Sullivan, Hiemstra, Zeno and Hayes and all Directors
and executive officers as a group, respectively, hold voting power pursuant
to the Corporation's Retirement Savings Plan as of June 30, 1998.
12
<PAGE>
SHAREHOLDERS' PROPOSALS
The deadline for shareholders to submit proposals to be considered for
inclusion in the proxy statement for the 1999 Annual Meeting of Shareholders
is expected to be May 28, 1999. Parker intends to exercise discretionary
voting authority with respect to shareholder proposals submitted outside the
processes of Regulation 14a-8 promulgated under the Securities Exchange Act
of 1934 which are received after August 8, 1998.
GENERAL
The Board of Directors knows of no other matters which will be presented
at the meeting. However, if any other matters properly come before the
meeting or any adjournment, the person or persons voting the proxies will vote
in accordance with their best judgment on such matters.
The Corporation will bear the expense of preparing, printing and mailing
this Proxy Statement. In addition to solicitation by mail, officers and other
employees of the Corporation may solicit the return of proxies. The
Corporation will request banks, brokers and other custodians, nominees and
fiduciaries to send proxy material to beneficial owners of Common Shares. The
Corporation will, upon request, reimburse them for their expenses in so doing.
The Corporation has retained Kissel-Blake Inc., 110 Wall Street, New York, New
York, to assist in the solicitation of proxies at an anticipated cost of
$14,000, plus disbursements.
You are urged to sign and return your Proxy promptly in order to make
certain your shares will be voted at the meeting. Common Shares represented
by properly executed proxies will be voted in accordance with any
specification made thereon and, if no specification is made, will be voted in
favor of the election of the four nominees for Directors in the class whose
three-year term of office will expire in 2001; in favor of the election of the
nominee for the additional Director in the class whose term of office will
expire in 2000; and in favor of the appointment of PricewaterhouseCoopers LLP
as independent public accountants for the fiscal year ending June 30, 1999.
Abstentions and broker non-votes are counted in determining the votes present
at a meeting. Consequently, an abstention or a broker non-vote has the same
effect as a vote against a proposal, as each abstention or broker non-vote
would be one less vote in favor of a proposal. You may revoke your Proxy by
giving notice to the Corporation in writing or in open meeting, without
affecting any vote previously taken. However, your mere presence at the
meeting will not operate to revoke your Proxy.
The Annual Report of the Corporation, including financial statements for
the fiscal year ended June 30, 1998, is being mailed to shareholders with this
Proxy Statement.
By Order of the Board of Directors
THOMAS A. PIRAINO, JR.
THOMAS A. PIRAINO, JR.
Secretary
September 28, 1998
- 13 -
<PAGE>
PARKER-HANNIFIN CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS ON OCTOBER 28, 1998
This Proxy is Solicited on behalf of the Board of Directors
The undersigned hereby appoints PATRICK S. PARKER, DUANE E. COLLINS and THOMAS
A. PIRAINO, JR., and any of them, as proxies to represent and to vote all
shares of stock of Parker-Hannifin Corporation which the undersigned is
entitled to vote at the Annual Meeting of Shareholders of the Corporation to
be held on October 28, 1998, and at any adjournments thereof, on the proposals
more fully described in the Proxy Statement for the Meeting in the manner
specified herein and on any other business that may properly come before the
Meeting.
You are encouraged to specify your choices by marking the appropriate boxes
(SEE REVERSE SIDE) but you need not mark any boxes if you wish to vote in
accordance with the Board of Directors' recommendations. The Proxies cannot
vote your shares unless you sign and return this Card.
PLEASE SIGN, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
Please sign exactly as your name(s) appear(s) hereon. Executors,
administrators, guardians, officers of corporations and others
signing in a fiduciary capacity should state their full titles as such.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
_________________________________ ____________________________________
_________________________________ ____________________________________
_________________________________ ____________________________________
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
FOR
ALL
NOMI- WITH- FOR ALL
NEES HOLD EXCEPT
___________________________ 1.Election of [ ] [ ] [ ]
PARKER-HANNIFIN CORPORATION Directors in the
___________________________ class whose three
year term of office
will expire in 2001.
John G. Breen
Patrick S. Parker
Hector R. Ortino
Dennis W. Sullivan
Mark box at right if an [ ] INSTRUCTION: To withhold authority to
address change or comment vote for a particular nominee, mark the
has been noted on the "For All Except" box and strike a line
reverse side of this card. through the name(s) of the nominee(s).
Your shares will be voted for the
remaining nominee(s).
RECORD DATE SHARES:
FOR THE WITH-
NOMINEE HOLD
2.Election of Klaus- [ ] [ ]
Peter Muller as a
Director in the class
whose term of office
will expire in 2000.
FOR AGAINST ABSTAIN
3.Appointment of [ ] [ ] [ ]
PricewaterhouseCoopers
LLP as auditors for
FY99.
The Board of Directors recommends a vote
FOR Items 1, 2 and 3.
Please be sure to sign and Date ___________________
date this Proxy.
___________________________ __________________________
Shareholder signs here Co-owner signs here
