<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
--------------------- ------------------------
Commission File number 1-4982
PARKER-HANNIFIN CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-0451060
- ---------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
6035 Parkland Blvd., Cleveland, Ohio 44124-4141
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 896-3000
--------------
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No .
--- ---
Number of Common Shares outstanding at September 30, 1999 111,993,600
<PAGE> 2
PART I - FINANCIAL INFORMATION
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended
September 30,
-------------------------------
1999 1998
----------- -----------
Net sales $ 1,242,293 $ 1,218,724
Cost of sales 976,621 947,307
----------- -----------
Gross profit 265,672 271,417
Selling, general and administrative expenses 138,148 134,158
Interest expense 14,543 16,075
Interest and other (income) expense, net 624 73
----------- -----------
Income before income taxes 112,357 121,111
Income taxes 38,763 42,994
----------- -----------
Net income $ 73,594 $ 78,117
=========== ===========
Earnings per share - basic $ .67 $ .71
Earnings per share - diluted $ .67 $ .71
Cash dividends per common share $ 17 $ .15
See accompanying notes to consolidated financial statements.
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<PAGE> 3
PARKER-HANNIFIN CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1999 1999
------ ------------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 64,421 $ 33,277
Accounts receivable, net 739,682 738,773
Inventories:
Finished products 471,801 442,361
Work in process 321,221 347,376
Raw materials 127,821 125,393
---------- ----------
920,843 915,130
Prepaid expenses 21,141 22,928
Deferred income taxes 65,907 64,576
---------- ----------
Total current assets 1,811,994 1,774,684
Plant and equipment 2,547,147 2,506,812
Less accumulated depreciation 1,340,135 1,305,943
---------- ----------
1,207,012 1,200,869
Other assets 751,356 730,335
---------- ----------
Total assets $3,770,362 $3,705,888
========== ==========
LIABILITIES
-----------
Current liabilities:
Notes payable $ 59,462 $ 60,609
Accounts payable, trade 288,521 313,173
Accrued liabilities 308,951 328,147
Accrued domestic and foreign taxes 84,159 52,584
---------- ----------
Total current liabilities 741,093 754,513
Long-term debt 717,599 724,757
Pensions and other postretirement benefits 280,101 276,637
Deferred income taxes 32,813 30,800
Other liabilities 68,582 65,319
---------- ----------
Total liabilities 1,840,188 1,852,026
SHAREHOLDERS' EQUITY
--------------------
Serial preferred stock, $.50 par value;
authorized 3,000,000 shares; none issued -- --
Common stock, $.50 par value; authorized
600,000,000 shares; issued 112,042,491 shares at
September 30 and 111,945,179 shares at June 30 56,021 55,973
Additional capital 133,041 132,227
Retained earnings 1,927,429 1,872,356
Unearned compensation related to guarantee of ESOP debt (106,378) (112,000)
Deferred compensation related to stock options 1,304
Accumulated other comprehensive income (79,112) (92,858)
---------- ----------
1,932,305 1,855,698
Less treasury shares, at cost:
48,891 shares at September 30
and 43,836 shares at June 30 (2,131) (1,836)
---------- ----------
Total shareholders' equity 1,930,174 1,853,862
---------- ----------
Total liabilities and shareholders' equity $3,770,362 $3,705,888
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 4
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998
- ------------------------------------ ----------- ----------
<S> <C> <C>
Net income $ 73,594 $ 78,117
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 43,368 42,924
Amortization 9,835 6,655
Deferred income taxes (2,129) (2,134)
Foreign currency transaction loss (gain) 2,846 (136)
(Gain) loss on sale of plant and equipment (6,832) 628
Changes in assets and liabilities:
Accounts receivable 5,081 13,839
Inventories 1,892 (38,297)
Prepaid expenses 2,175 5,106
Other assets 4,170 (7,147)
Accounts payable, trade (26,411) (66,285)
Accrued payrolls and other compensation (33,047) (52,315)
Accrued domestic and foreign taxes 30,836 32,374
Other accrued liabilities 7,574 (10,639)
Pensions and other postretirement benefits 1,669 6,886
Other liabilities 3,165 9,628
----------- ----------
Net cash provided by operating activities 117,786 19,204
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Acquisitions (less acquired cash of $2,609 in 1998) (3,007) (89,466)
Capital expenditures (50,124) (56,668)
Proceeds from sale of plant and equipment 17,825 931
Other (29,805) 4,299
----------- ----------
Net cash used in investing activities (65,111) (140,904)
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Net proceeds from (payments for) common share activity 1,871 (29,581)
(Payments for) proceeds from notes payable, net (3,490) 79,383
Proceeds from long-term borrowings 4,177 206,028
Payments of long-term borrowings (4,213) (105,443)
Dividends (18,521) (16,429)
----------- ----------
Net cash (used in) provided by financing activities (20,176) 133,958
Effect of exchange rate changes on cash (1,355) 1,455
----------- ----------
Net increase in cash and cash equivalents 31,144 13,713
Cash and cash equivalents at beginning of year 33,277 30,488
----------- ----------
Cash and cash equivalents at end of period $ 64,421 $ 44,201
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
PARKER-HANNIFIN CORPORATION
BUSINESS SEGMENT INFORMATION BY INDUSTRY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Parker operates in two industry segments: Industrial and Aerospace. The
Industrial Segment is the largest and includes a significant portion of
International operations.
Industrial - This segment produces a broad range of motion control and fluid
systems and components used in all kinds of manufacturing, packaging,
processing, transportation, mobile construction, agricultural and military
machinery and equipment. Sales are made directly to major original equipment
manufacturers (OEMs) and through a broad distribution network to smaller OEMs
and the aftermarket.
Aerospace - This segment designs and manufactures products and provides
aftermarket support for commercial, military and general aviation aircraft,
missile and spacecraft markets. The Aerospace Segment provides a full range of
systems and components for hydraulic, pneumatic and fuel applications.
Results by Business Segment:
Three Months Ended
September 30,
--------------------------
1999 1998
------------ ----------
Net sales
Industrial:
North America $ 667,669 $ 621,595
International 298,463 315,230
Aerospace 276,161 281,899
---------- ----------
Total $1,242,293 $1,218,724
========== ==========
Segment operating income
Industrial:
North America $ 93,683 $ 82,155
International 11,212 26,822
Aerospace 35,048 43,839
---------- ----------
Total segment operating income 139,943 152,816
Corporate general and administrative expenses 14,113 12,295
---------- ----------
Income before interest expense and other 125,830 140,521
Interest expense 14,543 16,075
Other (1,070) 3,335
---------- ----------
Income before income taxes $ 112,357 $ 121,111
========== ==========
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<PAGE> 6
PARKER-HANNIFIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
-----------------------
1. Management representation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals except as discussed in Note 2) necessary to present fairly
the financial position as of September 30, 1999, the results of operations
for the three months ended September 30, 1999 and 1998 and cash flows for the
three months then ended.
2. Charges related to business realignment
During the first quarter of fiscal 2000 the Company recorded a $8,555 charge
($5,560 after-tax or $.05 per share) related to the costs of appropriately
structuring its businesses to operate in their current economic environment.
The charge primarily relates to severance costs attributable to approximately
260 employees principally associated with the Industrial International
operations. Substantially all severance payments are expected to be made by
the end of fiscal 2000.
A change in the future utilization of long-lived assets at certain locations
triggered an impairment review of these long-lived assets during the first
quarter of fiscal 2000. The Company evaluated the recoverability of the
long-lived assets and determined that the estimated future undiscounted cash
flows were below the carrying value of these assets. Accordingly, the Company
recorded a non-cash impairment loss of $4,875 ($3,169 after-tax or $.03 per
share). The impairment loss was calculated as the difference between the
carrying value and the estimated fair value of the assets. The Company
estimated fair values based on current sales prices of similar assets. Of the
pre-tax amount, $3,499 relates to the Aerospace segment and $1,376 relates to
the Industrial segment.
The severance costs and impairment loss are presented in the Income statement
in the following captions: $2,552 in Cost of sales; $2,476 in Selling,
general and administrative expenses; and $8,402 in Interest and other
(income) expense, net.
Also recorded in the first quarter of fiscal 2000, was a gain of $6,423
($4,175 after-tax or $.04 per share) realized primarily on the sale of real
property. The gain is reflected in the Income statement in the Interest and
other (income) expense, net caption.
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<PAGE> 7
3. Earnings per share
The following table presents a reconciliation of the numerator and
denominator of basic and diluted earnings per share for the three months
ended September 30, 1999 and 1998.
Three Months Ended
September 30,
-------------------------
Numerator: 1999 1998
---------- ----------- ----------
Net income applicable
to common shares $73,594 $ 78,117
Denominator:
------------
Basic - weighted average
common shares 109,069,288 109,366,054
Increase in weighted average
from dilutive effect of
exercise of stock options 1,025,434 761,963
----------- -----------
Diluted - weighted average
common shares, assuming
exercise of stock options 110,094,722 110,128,017
=========== ===========
Basic earnings per share $ .67 $ .71
Diluted earnings per share $ .67 $ .71
4. Stock repurchase program
The Board of Directors has approved a program to repurchase the Company's
common stock on the open market, at prevailing prices. The repurchase is
primarily funded from operating cash flows and the shares are initially held
as treasury stock. The Company did not purchase any shares of its common
stock during the three-month period ended September 30, 1999.
5. Comprehensive income
The Company's only item of other comprehensive income is foreign currency
translation adjustments recorded in shareholders' equity. Comprehensive
income for the three months ended September 30, 1999 and 1998 is as follows:
Three Months Ended
September 30,
---------------------
1999 1998
------- --------
Net income $73,594 $ 78,117
Foreign currency
translation adjustments 13,746 25,199
------- --------
Comprehensive income $87,340 $103,316
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<PAGE> 8
PARKER-HANNIFIN CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
AND COMPARABLE PERIOD ENDED SEPTEMBER 30, 1998
CONSOLIDATED STATEMENT OF INCOME
Net sales for the first quarter of fiscal 2000 increased 1.9 percent to $1,242.3
million. Prior-year first quarter sales were $1,218.7 million. Acquisitions
within the past twelve months accounted for approximately two-thirds of the
current-year increase. Higher volume in the North American Industrial operations
also contributed to the increase.
Income from operations for the quarter decreased 7.1 percent to $127.5 million.
As a percent of sales, the current-quarter operating income decreased to 10.3
percent from 11.3 percent in the prior year. Cost of sales, as a percent of
sales, increased to 78.6 percent from 77.7 percent. The declining margins
reflect the weakness experienced in the International Industrial and Aerospace
operations which resulted in lower volume as well as the effect of non-recurring
charges (as discussed in more detail below) recorded in the first quarter of
fiscal 2000. Selling, general and administrative expenses, as a percent of
sales, were 11.1 percent compared to 11.0 percent in the prior year.
Interest expense for the current-year quarter decreased $1.5 million due to
lower average debt outstanding for the quarter.
Interest and other (income) expense, net for fiscal 2000 includes $6.4 million
in gains primarily from the sale of real property and $8.4 million of asset
impairment losses and other plant closure costs.
Net income for the quarter was $73.6 million compared to $78.1 million in the
prior year and declined to 5.9 percent of sales compared to 6.4 percent in the
prior-year quarter.
Backlog declined to $1.63 billion at September 30, 1999 compared to $1.70
billion in the prior year and was the same as the June 30, 1999 level.
RESULTS BY BUSINESS SEGMENT
INDUSTRIAL - Net sales of the Industrial Segment increased 3.1 percent to $966.1
million compared to $936.8 million in the prior year. Industrial North American
sales increased 7.4 percent while Industrial International sales decreased 5.3
percent. Without the effect of acquisitions, North American sales would have
increased 5.6 percent and International sales would have decreased 6.4 percent.
Without the effect of currency rate fluctuations, International sales were
relatively unchanged. The increase in Industrial North American sales was
attributed to higher volume particularly in the semiconductor manufacturing,
telecommunications and filtration markets. International Industrial sales were
affected by the struggling industrial economy in Europe, although Asia Pacific
sales were higher.
Operating income for the Industrial Segment decreased 3.7 percent to $104.9
million. Industrial North America increased 14.0 percent and Industrial
International decreased 58.2 percent. Included in the current year operating
income for Industrial International was $9.0 million in non-recurring charges.
These charges were made as a result of actions the Company took to appropriately
structure the European operations to operate in their current economic
environment. Without the non-recurring charges, Industrial International
operating income decreased 24.8 percent from the prior year. North American
operating income, as a percent of sales, increased to 14.0 percent from 13.2
percent as margins benefited from the higher sales volume. Excluding the
non-recurring charges, Industrial
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<PAGE> 9
International operating income, as a percent of sales, decreased to 6.8 percent
from 8.5 percent primarily due to the underabsorption of overhead costs.
Industrial Segment backlog decreased 5.9 percent compared to a year ago, and
increased 2.6 percent since June 30, 1999. For the remainder of the fiscal year,
business conditions appear favorable for the North American operations and are
expected to remain the same or improve slightly for the European operations.
AEROSPACE - Net sales of the Aerospace Segment decreased 2.0 percent to $276.2
million compared to $281.9 million in the prior year. Operating income decreased
20.1 percent to $35.0 million compared to $43.8 million in the prior year.
Included in the current year operating income was $4.4 million in non-recurring
charges. These charges were a result of the actions the Company took to resize
the business in response to a decline in OEM orders. Excluding the non-recurring
charges, operating income, as a percent of sales, decreased to 14.3 percent from
15.6 percent primarily due to an unfavorable product mix and a lower level of
commercial aviation business.
Backlog for the Aerospace Segment decreased 3.9 percent compared to a year ago
and 1.2 percent since June 30, 1999. Backlog for OEM business has declined as
new orders have not kept pace with current quarter shipments. The decline in
backlog was partially offset by a steady rate of MRO orders. The Company
anticipates reducing inventories for the balance of the year in anticipation of
softer commercial aviation sales.
Corporate general and administrative expenses increased to $14.1 million for
fiscal 2000 compared to $12.3 million in the prior year. The increase is
primarily due to the increased expense associated with incentive compensation
plans as a result of the Company's higher stock price.
Included in Other (in the Results by Business Segment) are gains primarily from
the sale of real property as discussed in the Consolidated Statement of Income
section.
BALANCE SHEET
Working capital increased to $1,070.9 million at September 30, 1999 from
$1,020.2 million at June 30, 1999, with the ratio of current assets to current
liabilities increasing to 2.45 to 1. The increase was primarily due to an
increase in Cash and decreases in Accounts payable and Accrued liabilities,
partially offset by an increase in Accrued domestic and foreign taxes.
Accounts receivable remained relatively flat since June 30, 1999 while
Inventories increased slightly. Days sales outstanding increased to 49 days from
47 days during the quarter while months supply remained the same.
Other assets increased $21.0 million since June 30, 1999, primarily due an
increase in equity investments.
Accrued liabilities decreased $19.2 million since June 30, 1999 primarily due to
the payment of incentive compensation during the quarter.
The increase in Accrued domestic and foreign taxes to $84.2 million at
September 30, 1999 from $52.6 million at June 30, 1999 is due to the timing of
the quarterly income tax payments.
The debt to debt-equity ratio decreased to 28.7 percent at September 30, 1999
compared to 29.8 percent as of June 30, 1999 primarily due to a decrease in
Long-term debt.
Due to the weakening of the dollar, foreign currency translation adjustments
resulted in an increase in net assets of $13.7 million during the first quarter
of fiscal 2000. The translation adjustments primarily affected Accounts
receivable, Inventories and Plant and equipment.
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<PAGE> 10
STATEMENT OF CASH FLOWS
Net cash provided by operating activities was $117.8 million in fiscal 2000
compared to $19.2 million for the three months ended September 30, 1998. The
increase in net cash provided was primarily the result of the activity within
the working capital items - Inventories, Accounts payable, Accrued payrolls and
Other accrued liabilities - which used cash of $50.0 million in fiscal 2000
compared to using cash of $167.5 million in fiscal 1999. In addition, activitiy
in Other assets provided cash in the current year compared to using cash in the
prior year.
Net cash used in investing activities declined to $65.1 million for fiscal 2000
compared to $140.9 million for fiscal 1999 primarily due to a reduction in the
amount spent on acquisitions and an increase in the proceeds received from the
sale of plant and equipment. Included in Other is an increase in cash used for
equity investments in fiscal 2000.
Financing activities used net cash of $20.2 million in fiscal 2000 as opposed to
providing cash of $134.0 million for the three months ended September 30, 1998.
The change resulted primarily from debt borrowings using cash of $3.5 million in
fiscal 2000 compared to providing cash of $180.0 million in the prior year,
partially offset by common stock activity providing cash of $1.9 million in the
current year versus using cash of $29.6 million in the prior year.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company enters into forward exchange contracts and cross-currency swap
agreements to reduce its exposure to fluctuations in related foreign currencies.
These contracts are with major financial institutions and the risk of loss is
considered remote. The Company does not hold or issue derivative financial
instruments for trading purposes. In addition, the Company's foreign locations,
in the ordinary course of business, enter into financial guarantees through
financial institutions which enable customers to be reimbursed in the event of
nonperformance by the Company. The total value of open contracts and any risk to
the Company as a result of these arrangements is not material to the Company's
financial position, liquidity or results of operations.
YEAR 2000 CONSIDERATONS
The Company has been taking actions to assure that its computerized products and
systems and all external interfaces are year 2000 compliant. These actions are
part of a formal information technology initiative which the Company began
several years ago. The cost for these actions is not material to the Company's
results of operations. As of September 30, 1999, all internal standard
application systems, including all information systems plus any equipment or
embedded systems which may be impacted, are year 2000 compliant.
In addition, the Company contacted its key suppliers, customers, distributors
and financial service providers regarding their year 2000 status. Follow-up
inquiries and audits indicate that substantially all key third parties will be
year 2000 compliant on a timely basis. The Company does not anticipate altering
its purchasing or production levels as a result of any key third party's year
2000 noncompliance.
While management does not expect that the consequences of any unsuccessful
modifications would significantly affect the financial position, liquidity, or
results of operations of the Company, there can be no assurance that any
unsuccessful modifications would not have an adverse impact on the Company.
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<PAGE> 11
FORWARD-LOOKING STATEMENTS
This Report on Form 10-Q and other written reports and oral statements made from
time to time by the Company may contain "forward-looking statements", all of
which are subject to risks and uncertainties. All statements which address
operating performance, events or developments that we expect or anticipate will
occur in the future, including statements relating to growth, operating margin
performance or earnings per share or statements expressing general opinions
about future operating results, are forward-looking statements.
These forward-looking statements rely on a number of assumptions concerning
future events, and are subject to a number of uncertainties and other factors,
many of which are outside the Company's control, that could cause actual results
to differ materially from such statements. Such factors include:
- - continuity of business relationships with and purchases by major customers,
including among others, orders and delivery schedules for aircraft components,
- - ability of suppliers to provide materials as needed,
- - uncertainties surrounding timing, successful completion or integration of
acquisitions,
- - competitive pressure on sales and pricing,
- - increases in material and other production costs which cannot be recovered in
product pricing,
- - uncertainties surrounding the year 2000 issues,
- - difficulties in introducing new products and entering new markets, and
- - uncertainties surrounding the global economy and global market conditions,
including among others, the potential devaluation of currencies.
Any forward-looking statements are based on known events and circumstances at
the time. The Company undertakes no obligation to update or publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date of this Report.
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<PAGE> 12
PARKER-HANNIFIN CORPORATION
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------
(a) The Annual Meeting of the Shareholders of the Registrant was held on
October 27, 1999.
(b) Not applicable.
(c)(i) The Shareholders elected four directors to the three-year class whose
term of office will expire in 2002, as follows:
Votes For Votes Withheld
--------- --------------
Paul C. Ely, Jr. 100,519,469.024 1,304,093.782
Peter W. Likins 99,600,567.072 2,222,995.734
Wolfgang R. Schmitt 100,355,660.623 1,467,902.183
Debra L. Starnes 100,523,094.605 1,300,468.201
(ii) The Shareholders approved the appointment of PricewaterhouseCoopers LLP
as auditors of the Corporation for the fiscal year ending June 30, 2000,
as follows:
For 101,154,563.710
Against 224,863.277
Abstain 444,135.819
(d) Not applicable
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<PAGE> 13
Item 6. Exhibits and Reports on Form 8-K.
- -----------------------------------------
(a) The following documents are furnished as exhibits and are numbered pursuant
to Item 601 of Regulation S-K:
Exhibit 10(a) - Parker-Hannifin Corporation Pension Restoration Plan, as
amended and restated effective January 1, 1997.
Exhibit 10(b) - Parker-Hannifin Corporation Deferred Compensation Plan for
Directors, as amended and restated effective January 1, 1997.
Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for which this
Report is filed.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARKER-HANNIFIN CORPORATION
(Registrant)
/s/ Michael J. Hiemstra
Michael J. Hiemstra
Vice President - Finance and Administration
and Chief Financial Officer
Date: November 9, 1999
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<PAGE> 14
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
10(a) Parker-Hannifin Corporation Pension Restoration Plan,
as amended and restated effective January 1, 1997.
10(b) Parker-Hannifin Corporation Deferred Compensation
Plan for Directors, as amended and restated effective
January 1, 1997.
27 Financial Data Schedule
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<PAGE> 1
EXHIBIT 10(a)
PARKER-HANNIFIN CORPORATION
PENSION RESTORATION PLAN
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<PAGE> 2
PARKER-HANNIFIN CORPORATION
PENSION RESTORATION PLAN
Parker-Hannifin Corporation, an Ohio corporation (the "Company"),
hereby establishes this Pension Restoration Plan (the "Plan"), effective
January 1, 1995, for the purpose of attracting high quality executives and
promoting in its executives increased efficiency and an interest in the
successful operation of the Company by restoring benefits that are lost due to
legislative limits on the Company's qualified retirement plan(s). The benefits
provided under the Plan shall be provided in consideration for services to be
performed after the effective date of the Plan, but prior to the executive's
retirement.
ARTICLE 1
DEFINITIONS
1.1 ACTUARIAL VALUE shall mean the actuarial present value of the
benefits calculated by an actuary selected by the Administrator and using the
actuarial assumptions employed under the Qualified Plan.
1.2 ADMINISTRATOR shall mean the Company or, if applicable, the
committee appointed by the Board of Directors of the Company to administer the
Plan pursuant to Article 6 of the Plan.
1.3 BENEFICIARY shall mean the person or persons or entity designated
as such under the Qualified Plan.
1.4 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 the Company representing 20% or 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 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
- 2 -
<PAGE> 3
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
Participant, any acquisition by the Participant or any group of persons (within
the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act) including the
Participant (or any entity in which the Participant or a group of persons
including the Participant, 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 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
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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
Participant's employment is terminated prior to a Change in Control, and the
Participant 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 Participant.
1.5 CODE shall mean the Internal Revenue Code of 1986, as amended,
including any successor provisions.
1.6 EARLY RETIREMENT DATE shall mean the "Early Retirement Date" as
defined in the Qualified Plan.
1.7 ELIGIBLE EXECUTIVE shall mean an employee of the Company or any of
its subsidiaries who (i) participates in the Qualified Plan, (ii) is designated
by the Administrator as eligible to participate in the Plan, and (iii) qualifies
as a member of the "select group of management or highly compensated employees"
under ERISA.
1.8 ERISA shall mean the Employee Retirement Income Security Act of
1974,
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as amended.
1.9 NORMAL RETIREMENT DATE shall mean the "Normal Retirement Date" as
defined in the Qualified Plan.
1.10 PARTICIPANT shall mean an Eligible Executive who has become a
participant hereunder pursuant to Article 2.
1.11 QUALIFIED PLAN shall mean the Parker-Hannifin Corporation
Retirement Plan as it currently exists and as it may subsequently be amended, or
any other qualified defined benefit plan maintained by the Company and in which
an Eligible Executive participates.
1.12 STATUTORY LIMIT shall mean any limit on compensation taken into
account in calculating benefits under qualified retirement plans under Section
401(a)(17) of the Code or that directly or indirectly affects the amount of
benefits payable from a Qualified Plan.
1.13 TERMINATION OF EMPLOYMENT shall mean the date of the cessation of
the Participant's employment with the Company for any reason whatsoever, whether
voluntary or involuntary, other than as a result of the Participant's death.
ARTICLE 2
PARTICIPATION
Eligible Executives shall become Participants in the Plan on the first
day of the month following their appointment as Eligible Executives.
ARTICLE 3
RESTORATION BENEFITS
3.1 AMOUNT. Upon Termination of Employment on or after Normal or Early
Retirement Date, or after the Participant has a nonforfeitable right to a
deferred benefit under the Qualified Plan, the Participant shall be entitled to
a retirement benefit as provided in paragraph 3.2 of this Plan. The retirement
benefit shall equal the benefits that would be payable to the Participant under
the Qualified Plan calculated as if the Statutory Limit did not apply to such
benefits, less the benefits that are payable under the Qualified Plan taking the
Statutory Limit into account.
3.2 FORM OF RETIREMENT BENEFITS. (a) Subject to (b) and (c) below, the
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retirement benefit shall be paid in the same form and at the same time as the
Participant's benefits under the Qualified Plan.
(b) Notwithstanding (a) above, the Administrator may, in its sole
discretion, elect to pay the Actuarial Value of the benefit under this Plan in a
single lump sum if (i) with respect to distributions made prior to January 1,
1997, the monthly benefit otherwise payable hereunder is less than $50.00, or
(ii) with respect to distributions made on or after January 1, 1997, either the
monthly benefit otherwise payable hereunder is less than $200.00 or the
Actuarial Value of the benefit is less than $15,000.
(c) Notwithstanding (a) above, a Participant who has retired at or
after Normal or Early Retirement Date, or who reaches Normal or Early Retirement
Date after a Termination of Employment may elect at any time thereafter to
receive the remaining Actuarial Value of his benefit in a single lump sum,
provided that his lump sum payment shall be reduced by 10%.
ARTICLE 4
SURVIVOR BENEFITS
4.1 SURVIVOR BENEFIT. If benefits are payable to the Participant's
Beneficiary under the Qualified Plan following the Participant's death (whether
the Participant's death occurs before or after Termination of Employment), the
Company shall pay to the Participant's Beneficiary a survivor benefit equal to
the benefits that would be payable to the Beneficiary under the Qualified Plan
calculated as if the Statutory Limit did not apply to such benefits, less the
survivor benefits that are payable under the Qualified Plan taking the Statutory
Limit into account.
4.2 FORM OF SURVIVOR BENEFIT. The survivor benefit shall be paid in the
same form and at the same time as the survivor benefits under the Qualified
Plan; provided, however that the Administrator may, in its sole discretion,
elect to pay the Actuarial Value of the survivor benefit under this Plan in a
single lump sum, if the monthly benefit otherwise payable hereunder is less than
$50.00.
ARTICLE 5
CONDITIONS RELATED TO BENEFITS
5.1 NONASSIGNABILITY. The benefits provided under the Plan may not be
alienated, assigned, transferred, pledged or hypothecated by or to any person or
entity, at any time or any manner whatsoever. These benefits shall be exempt
from the claims of creditors of any Participant or other claimants and from all
orders, decrees, levies, garnishment or executions against any Participant to
the fullest extent allowed by law.
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<PAGE> 7
5.2 NO RIGHT TO COMPANY ASSETS. The benefits paid under the Plan shall
be paid from the general funds of the Company, and the Participant and any
Beneficiary shall be no more than unsecured general creditors of the Company
with no special or prior right to any assets of the Company for payment of any
obligations hereunder.
5.3 PROTECTIVE PROVISIONS. The Participant shall cooperate with the
Company by furnishing any and all information requested by the Administrator, in
order to facilitate the payment of benefits hereunder, taking such physical
examinations as the Administrator may deem necessary and taking such other
actions as may be requested by the Administrator. If the Participant refuses to
cooperate, the Company shall have no further obligation to the Participant under
the Plan. In the event of a Participant's suicide during the first two (2) years
of participation in the Plan, or if the Participant makes any material
misstatement of information or nondisclosure of medical history, then no
benefits shall be payable to the Participant or the Participant's Beneficiary or
estate under the Plan.
5.4 WITHHOLDING. The Participant or the Beneficiary shall make
appropriate arrangements with the Company for satisfaction of any federal, state
or local income tax withholding requirements and Social Security or other
employee tax requirements applicable to the payment of benefits under the Plan.
If no other arrangements are made, the Company may provide, at its discretion,
for such withholding and tax payments as may be required.
ARTICLE 6
ADMINISTRATION OF PLAN
The Company shall administer the Plan, provided, however, that the
Company may elect by action of its Board of Directors to appoint a committee of
three (3) or more individuals to administer the Plan. All references to the
Administrator herein shall refer to the Company or, if such committee has been
appointed, the committee.
The Administrator shall administer the Plan and interpret, construe and
apply its provisions in accordance with its terms. The Administrator shall
further establish, adopt or revise such rules and regulations as it may deem
necessary or advisable for the administration of the Plan. All decisions of the
Administrator shall be final and binding. The individuals serving on the
committee shall, except as prohibited by law, be indemnified and held harmless
by the Company from any and all liabilities, costs, and expenses (including
legal fees), to the extent not covered by liability insurance arising out
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<PAGE> 8
of any action taken by any member of the committee with respect to the Plan,
unless such liability arises from the individual's own gross negligence or
willful misconduct.
ARTICLE 7
CHANGE IN CONTROL
In the event there is a Change in Control, each Participant shall
receive the Actuarial Value of his benefit earned hereunder to the date of the
Change in Control. Such benefit shall be paid in monthly installments over
thirty-six (36) months commencing within 3 months of the Change in Control;
provided, however, that the Administrator may elect, in its sole discretion, to
make payment in a single lump sum.
ARTICLE 8
AMENDMENT AND TERMINATION OF PLAN
8.1 AMENDMENT OF PLAN. The Company may at any time amend the Plan in
whole or in part, provided, however, that such amendment shall not decrease the
value of benefits accrued under the Plan prior to the time of such amendment.
8.2 TERMINATION OF PLAN. The Company may at any time terminate the
Plan. If the Company terminates the Plan, the date of such termination shall be
treated as the date of Termination of Employment for the purpose of calculating
Plan benefits. The Company shall pay to the Participant the benefits the
Participant is entitled to receive under the Plan in monthly installments over a
thirty-six (36) month period; provided, however, that the Administrator may
elect, in its sole discretion, to make payment in a single lump sum.
8.3 AMENDMENT OR TERMINATION AFTER CHANGE IN CONTROL. Notwithstanding
the foregoing, the Company shall not amend or terminate the Plan without the
prior written consent of affected Participants for a period of two calendar
years following a Change in Control and shall not thereafter amend or terminate
the Plan in any manner which affects any Participant (or Beneficiary of a
deceased Participant) who commences receiving payment of benefits under the Plan
prior to the end of such two year period following a Change in Control.
8.4 COMPANY ACTION. Except as provided in paragraph 8.5, the Company's
power to amend or terminate the Plan shall be exercisable by the Company's Board
of Directors or by the committee or individual authorized by the Company's Board
of Directors to exercise such powers.
8.5 CONSTRUCTIVE RECEIPT TERMINATION. In the event the Administrator
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<PAGE> 9
determines that benefits under the Plan have been constructively received by
Participants and must be recognized as income for federal income tax purposes,
the Plan shall terminate and distributions shall be made to Participants in
accordance with the provisions of paragraph 8.2 or as may be determined by the
Administrator. The determination of the Administrator under this paragraph 8.5
shall be binding and conclusive.
ARTICLE 9
MISCELLANEOUS
9.1 SUCCESSORS OF THE COMPANY. The rights and obligations of the
Company under the Plan shall inure to the benefit of, and shall be binding upon,
the successors and assigns of the Company.
9.2 ERISA PLAN. The Plan is intended to be an unfunded plan maintained
primarily to provide deferred compensation benefits for "a select group of
management or highly compensated employees" within the meaning of Sections 201,
301 and 401 of ERISA and therefore to be exempt from Parts 2, 3 and 4 of Title I
of ERISA.
9.3 TRUST. The Company shall be responsible for the payment of all
benefits under the Plan. At its discretion, the Company may establish one or
more grantor trusts for the purposes of providing for payment of benefits under
the Plan. Such trust or trusts may be irrevocable, but the assets thereof shall
be subject to the claims of the Company's creditors. Benefits paid to the
Participant from any such trust shall be considered paid by the Company for
purposes of meeting the obligations of the Company under the Plan.
9.4 EMPLOYMENT NOT GUARANTEED. Nothing contained in the Plan nor any
action taken hereunder shall be construed as a contract of employment or as
giving any Participant any right to continued employment with the Company.
9.5 GENDER, SINGULAR AND PLURAL. All pronouns and variations thereof
shall be deemed to refer to the masculine, feminine, or neuter, as the identity
of the person or persons may require. As the context may require, the singular
may be read as the plural and the plural as the singular.
9.6 CAPTIONS. The captions of the articles and paragraphs of the Plan
are for convenience only and shall not control or affect the meaning or
construction of any of its provisions.
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<PAGE> 10
9.7 VALIDITY. If any provision of the Plan is held invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provisions of the Plan.
9.8 WAIVER OF BREACH. The waiver by the Company of any breach of any
provision of the Plan by the Participant shall not operate or be construed as a
waiver of any subsequent breach by the Participant.
9.9 APPLICABLE LAW. The Plan shall be governed and construed in
accordance with the laws of the Ohio except where the laws of the Ohio are
preempted by ERISA.
9.10 NOTICE. Any notice or filing required or permitted to be given to
the Company under the Plan shall be sufficient if in writing and hand-delivered,
or sent by first class mail to the principal office of the Company, directed to
the attention of the Administrator. Such notice shall be deemed given as of the
date of delivery, or, if delivery is made by mail, as of the date shown on the
postmark.
ARTICLE 10
CLAIMS AND REVIEW PROCEDURES
10.1 CLAIMS PROCEDURE. The Company shall notify a Participant in
writing, within ninety (90) days after his or her written application for
benefits, of his or her eligibility or noneligibility for benefits under the
Plan. If the Company determines that a Participant is not eligible for benefits
or full benefits, the notice shall set forth (1) the specific reasons for such
denial, (2) a specific reference to the provisions of the Plan on which the
denial is based, (3) a description of any additional information or material
necessary for the claimant to perfect his or her claim, and a description of why
it is needed, and (4) an explanation of the Plan's claims review procedure and
other appropriate information as to the steps to be taken if the Participant
wishes to have the claim reviewed. If the Company determines that there are
special circumstances requiring additional time to make a decision, the Company
shall notify the Participant of the special circumstances and the date by which
a decision is expected to be made, and may extend the time for up to an
additional ninety-day period.
10.2 REVIEW PROCEDURE. If a Participant is determined by the Company
not to be eligible for benefits, or if the Participant believes that he or she
is entitled to greater or different benefits, the Participant shall have the
opportunity to have such claim reviewed by the Company by filing a petition for
review with the Company within sixty (60) days after receipt of the notice
issued by the Company. Said petition shall state the specific reasons which the
Participant believes entitle him or her to benefits or to greater or
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<PAGE> 11
different benefits. Within sixty (60) days after receipt by the Company of the
petition, the Company shall afford the Participant (and counsel, if any) an
opportunity to present his or her position to the Company orally or in writing,
and the Participant (or counsel) shall have the right to review the pertinent
documents. The Company shall notify the Participant of its decision in writing
within the sixty-day period, stating specifically the basis of its decision,
written in a manner calculated to be understood by the Participant and the
specific provisions of the Plan on which the decision is based. If, because of
the need for a hearing, the sixty-day period is not sufficient, the decision may
be deferred for up to another sixty-day period at the election of the Company,
but notice of this deferral shall be given to the Participant. In the event of
the death of the Participant, the same procedures shall apply to the
Participant's beneficiaries.
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<PAGE> 1
EXHIBIT 10(b)
DEFERRED COMPENSATION PLAN
FOR DIRECTORS OF PARKER-HANNIFIN CORPORATION
Parker-Hannifin Corporation has established the Deferred Compensation
Plan for Directors of Parker-Hannifin Corporation to provide Directors with the
opportunity to defer payment of their directors' fees in accordance with the
provisions of this Plan. The Plan is hereby amended as of January 1, 1997.
ARTICLE I
DEFINITIONS
For the purposes hereof, the following words and phrases shall have the
meaning indicated.
1. "ACCOUNT" shall mean the aggregate of a Participant's Deferral
Account and his or her Parker Stock Account, if any.
2. "BENEFICIARY" shall mean the person designated by a Participant in
accordance with the Plan to receive payment of the remaining balance of a
Participant's Account in the event of the death of the Participant prior to
receipt of the entire amount credited to the Participant's Account.
3. "CHANGE IN CONTROL" shall mean 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 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 of Directors of the Corporation the "Board") (the
"Corporation 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 Corporation or any
corporation or entity in which the Corporation 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
Corporation 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
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pertains to a Participant, any acquisition by the Participant or any group of
persons (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange
Act) including the Participant (or any entity in which the Participant or a
group of persons including the Participant, directly or indirectly, holds a
majority of the voting power of such entity's outstanding voting interests); or
(F) the acquisition of Corporation Voting Securities from the Corporation, 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 Corporation'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 Corporation 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 Corporation 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 Corporation or any Subsidiary
that requires the approval of the Corporation'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 Corporation Voting Securities that were outstanding immediately
prior to the Business Combination (or, if applicable, shares into which such
Corporation Voting Securities were converted pursuant to such Business
Combination), and such voting power among the holders thereof is in
substantially the same proportion as the voting power of such Corporation 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
2
<PAGE> 3
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 Corporation Voting Securities from the Corporation, 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 Corporation approve a plan of complete
liquidation or dissolution of the Corporation or the sale or other disposition
of all or substantially all of the assets of the Corporation 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 Corporation Voting Securities as a result of the acquisition of
Corporation Voting Securities by the Corporation which, by reducing the number
of Corporation 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 Corporation (if not for the
operation of this sentence), and after the Corporation's acquisition such person
becomes the beneficial owner of additional Corporation Voting Securities that
increases the percentage of outstanding Corporation Voting Securities
beneficially owned by such person, a Change in Control shall then occur.
Notwithstanding anything in this Plan to the contrary, if the
Participant's employment is terminated prior to a Change in Control, and the
Participant 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 Participant.
4. "CORPORATION" shall mean Parker-Hannifin Corporation, an Ohio
corporation, its corporate successors, and the surviving corporation resulting
from any merger of Parker-Hannifin Corporation with any other corporation or
corporations.
5. "DEFERRAL ACCOUNT" shall mean the bookkeeping account to which is
credited Fees deferred by a Director and any earnings or losses credited thereto
in accordance with the Plan.
6. "DIRECTOR" shall mean any member of the Board of Directors of the
Corporation who is not an officer or common-law employee of the Corporation.
7. "FEES" shall mean the retainer and cash meeting fees earned by the
Director for his or her services as such.
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8. "PARTICIPANT" shall mean any Director who has at any time elected to
defer the receipt of Fees in accordance with the Plan or with respect to whom
there has been established a Parker Stock Account under Article III.
9. "PARKER STOCK ACCOUNT" shall mean the bookkeeping account to which
is credited notional stock with respect to certain Participants under
Article III, and any earnings and losses credited thereto in accordance with the
Plan.
10. "PLAN" shall mean the deferred compensation plan as set forth
herein, together with all amendments hereto, which Plan shall be called the
Deferred Compensation Plan for Directors of Parker-Hannifin Corporation.
11. "YEAR" shall mean a calendar year.
ARTICLE II
ELECTION TO DEFER
1. ELIGIBILITY. Any Director may elect to defer receipt of all or a
specified part of his or her Fees in accordance with Section 2 of this Article.
2. ELECTION TO DEFER. A Director who desires to defer the payment of
all or a portion of his or her Fees shall complete and deliver to the Secretary
of the Corporation an Election Agreement, as prescribed by the Corporation, to
be effective as of the first day of any calendar quarter beginning at least
three (3) months after the date of the election. An election to defer Fees shall
remain effective until cancelled by the Participant, provided that any such
cancellation shall be effective only with respect to Fees earned after the
September 30 following such election.
3. DEFERRAL ACCOUNT; EARNINGS
(a) The percentage of Fees which a Participant elects to defer
shall be credited to a bookkeeping Deferral Account under the Plan
as of the date the Fees otherwise would have been paid to the
Participant. A Participant's Deferral Account shall be credited with
gains or losses each calendar quarter based on the applicable
Crediting Rate as described below. A Participants Deferral Account
shall be fully vested at all times.
(b) The Crediting Rate shall mean any notional gains or losses
equal to those that would have been generated if part or all of the
Deferral Account balance had been invested in one or more of the
investment portfolios designated as available by the Corporation,
and/or as if part or all of the Deferral Account balance were
credited with interest at the prime rate, as elected by the
Participant, less any separate account fees and less
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any applicable administrative charges determined annually by the
Administrator.
(c) The allocation of the Deferral Account shall be determined
by the Participant among one or more of the available options
pursuant to rules determined by the Corporation. The gains or losses
shall be credited based upon the daily unit values from the
portfolio(s) selected by the Participant and/or the average prime
rate as in effect for the preceding month, as applicable. Gains and
losses will be compounded daily and will be credited to
Participants' Deferral Accounts as of the first day of the calendar
quarter following the quarter to which they relate. Notwithstanding
the method of calculating the Crediting Rate, the Company shall be
under no obligation to purchase any investments designated by a
Participant.
4. PAYMENT OF DEFERRAL ACCOUNT. The amount of a Participant's Deferral
Account shall be paid to the Participant in a lump sum or in a number of
approximately equal quarterly installments (not to exceed 20), as designated by
the Participant on the Election Agreement. The lump sum payment or the first
quarterly installment, as the case may be, shall be made as of the first day of
the calendar quarter following termination of the Participant's services as a
director. An election as to form of payment may be changed by filing a new
election with the Secretary of the Corporation; provided, however, that if the
election is received less than thirteen months before the date payment is to be
made or begin, the Participant's Deferral Account shall be reduced by ten
percent (10%). If payment is made in quarterly installments, the Deferral
Account shall continue to be credited with earnings in accordance with the
appropriate Crediting Rate in accordance with Section 3. The number of years
over which quarterly installments shall be paid will be reduced as needed to
insure that each quarterly installment, when added to any payments under
Section 3 of Article III, is at least $3,000.
5. DEATH OF PARTICIPANT. In the event of the death of a Participant,
the amount of the Participant's Deferral Account shall be paid to the
Beneficiary or Beneficiaries designated in a writing in such form as shall be
prescribed by the Corporation for such purpose, in accordance with the
Participant's Election Agreement and Section 5 of this Article. A Participant's
Beneficiary designation may be changed at any time prior to his or her death by
execution and delivery of a new Beneficiary designation form. The form on file
with the Corporation at the time of the Participant's death which bears the
latest date shall govern. In the absence of a Beneficiary designation or the
failure of any Beneficiary to survive the Participant, the amount of the
Participant's Deferral Account shall be paid to the Participant's estate in a
lump sum within ninety days after the appointment of an executor or
administrator. In the event of the death of a Beneficiary or all of the
Beneficiaries after the death of a Participant, but before all amounts credited
to the Participant's Deferral Account have been paid to such Beneficiary or
Beneficiaries according to the Participant's designation, the remaining
applicable amount of the Deferral
5
<PAGE> 6
Account shall be paid in a lump sum to the estate of the deceased Beneficiary or
estates of the deceased Beneficiaries within ninety days after the appointment
of an executor or administrator.
6. ACCELERATION. Notwithstanding the foregoing: (i) within 15 days
following a Change in Control, the value of a Participant's Deferral Account as
of the date of the Change in Control shall be paid to the Participant in a lump
sum; and (ii) the Board of Directors of the Corporation may, in its sole
discretion, accelerate payment of the amount of the Deferral Account of a
Participant in the event of financial hardship of the Participant due to causes
not within the control of the Participant.
7. NONCOMPETITION. During the time any Participant is a Director of the
Corporation, he or she shall not, directly or indirectly, as officer, director,
shareholder (other than an interest of less than 1% of the stock of any publicly
held company), partner, employee or in any other capacity, engage in competition
with the Corporation in the manufacture, sale or distribution of products or
parts thereof. In the event of a breach of this provision, a Participant shall
forfeit all right and interest in the amounts credited to his or her Deferral
Account, and shall not be entitled to any distribution of any deferred Fees.
ARTICLE III
PARKER STOCK ACCOUNTS
1. ESTABLISHMENT OF PARKER STOCK ACCOUNT. There may be credits under
the Plan to a bookkeeping Parker Stock Account of amounts other than Fees to
which a Director may become entitled from the Corporation at the election of the
Board of Directors of the Corporation. Such amounts shall be credited to the
Parker Stock Account on the date of entitlement in the form of a number of
bookkeeping shares (calculated to the second decimal point) calculated at the
"Stock Value" as determined as follows. The "Stock Value" on a particular date
shall mean the closing sale price of a share of common stock of the Corporation
on the New York Stock Exchange ("NYSE") on such date as reported in the
principal consolidated transaction reporting system with respect to securities
listed as admitted to trading on the NYSE. A Participant's Parker Stock Account
shall be fully vested at all times.
2. EARNINGS ON PARKER STOCK ACCOUNT. A Participant's Parker Stock
Account shall be credited with gains or losses based on the "Stock Rate,"
determined as follows. The "Stock Rate" shall mean any notional gains or losses
equal to those generated as if the Parker Stock Account balance had been
invested in the common stock of the Corporation, including reinvestment of
dividends on the dividend payment date at the Stock Value.
3. PAYMENT OF PARKER STOCK ACCOUNT. A Participant shall be entitled to
receive payment of his or her Parker Stock Account in 20 quarterly installments
beginning
6
<PAGE> 7
as of the first day of the calendar quarter following the time the Participant
ceases to be a Director. The amount of each quarterly payment shall be
determined by dividing the value of the Parker Stock Account as of the date as
of which payment is to be made by the number of remaining installments to be
made. The balance in the Parker Stock Account shall continue to be credited with
gains and losses at the Stock Rate described in Section 2 above. In lieu of
quarterly payments, the Participant may elect to receive a single lump sum
payment of the value of his or her Parker Stock Account as of the date he or she
ceases to be a Director; provided, that if the election to receive a lump sum
payment is received less than 13 months prior to the cessation of services, the
value of the Parker Stock Account shall be reduced by 10%. The number of years
over which quarterly installments shall be paid will be reduced as needed to
insure that each such installment, when added to any installment payments under
Section 4 of Article II, is at least $3,000. A Participant may not elect to
receive payment of his Parker Stock Account in a form different than the form
elected for his Deferral Account.
4. DEATH OF A PARTICIPANT. In the event of the death of a Participant
before his or her entire Parker Stock Account has been paid to him or her, his
or her designated Beneficiary, determined in accordance with the rules set forth
in paragraph 6 of Article 2, shall be entitled to receive a lump sum payment
equal to the value of the Parker Stock Account as of the date of death.
5. ACCELERATION. Notwithstanding the foregoing: (i) within 15 business
days following a Change in Control, the value of a Participant's Parker Stock
Account as of the date of the Change in Control shall be paid to the Participant
in a lump sum; and (ii) the Board may, in its sole discretion, accelerate
payment of the amount of the Parker Stock Account of a Participant in the event
of financial hardship of the Participant due to causes not within the control of
the Participant.
6. NONCOMPETITION. During the time any Participant is a Director of the
Corporation, he or she shall not, directly or indirectly, as officer, director,
shareholder (other than an interest of less than 1% of the stock of any publicly
held company), partner, employee or in any other capacity, engage in competition
with the Corporation in the manufacture, sale or distribution of products or
parts of a type manufactured, sold or distributed by the Corporation. In the
event of a breach of this provision, a Participant shall forfeit all right and
interest in the amounts credited to his or her Parker Stock Account.
7
<PAGE> 8
ARTICLE IV
ADMINISTRATION
The Corporation shall be responsible for the general administration of
the Plan and for carrying out the provisions hereof. The Corporation shall have
all such powers as may be necessary to carry out the provisions of the Plan,
including the power to determine all questions relating to eligibility for and
the amount in the Account and all questions pertaining to claims for benefits
and procedures for claim review; to resolve all other questions arising under
the Plan, including any questions of construction; and to take such further
action as the Corporation shall deem advisable in the administration of the
Plan. The actions taken and the decisions made by the Corporation hereunder
shall be final and binding upon all interested parties. The Corporation shall
provide a procedure for handling claims of Participants or their Beneficiaries
under this Plan. Such procedure shall provide adequate written notice within a
reasonable period of time with respect to the denial of any such claim as well
as a reasonable opportunity upon a Participant's request for a full and fair
review by the Corporation of any such denial.
ARTICLE V
AMENDMENT AND TERMINATION
The Corporation reserves the right to amend or terminate the Plan at
any time by action of its Board of Directors; provided, however, that no such
action shall adversely affect any Participant who has an Account or any
Beneficiary.
ARTICLE VI
PRIOR PLANS OR AGREEMENTS
The Plan supersedes all prior deferred compensation plans for Directors
and all prior deferred compensation arrangements with any individual Director,
except as to the obligation to make payment of the amount of the accounts of
participants in the prior plans or under the prior arrangements in accordance
with their respective terms. Fees earned after termination of the prior plan or
arrangement will not be eligible for deferral under such plan or arrangement and
deferral elections under the prior plan or arrangement will be of no force or
effect with respect to Fees earned after termination.
8
<PAGE> 9
ARTICLE VII
MISCELLANEOUS
1. NONALIENATION OF DEFERRED COMPENSATION. No Participant or
Beneficiary shall encumber or dispose of the right to receive any payments
hereunder.
2. INTEREST OF DIRECTORS. The obligation of the Corporation under the
Plan to make payment of amounts reflected on an Account merely constitutes the
unsecured promise of the Corporation to make payments from its general assets as
provided herein, and no Participant or Beneficiary shall have any interest in,
or a lien or prior claim upon, any property of the Corporation.
3. CLAIMS OF OTHER PERSONS. The provisions of the Plan shall in no
event be construed as giving any person, firm or corporation any legal or
equitable right as against the Corporation, or the officers, employees, or
directors of the Corporation, except any such rights as are specifically
provided for in the Plan or are hereafter created in accordance with the terms
and provisions of the Plan.
4. SEVERABILITY. The invalidity and unenforceability of any particular
provision of the Plan shall not affect any other provision hereof, and the Plan
shall be construed in all respects as if such invalid or unenforceable provision
were omitted herefrom.
5. GENDER, SINGULAR AND PLURAL. All pronouns and variations thereof
shall be deemed to refer to the masculine, feminine, or neuter, as the identity
of the person or persons may require. As the context may require, the singular
may be read as the plural and the plural as the singular.
6. GOVERNING LAW. The provisions of the Plan shall be governed and
construed in accordance with the laws of the State of Ohio.
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
PARKER-HANNIFIN CORPORATION'S REPORT ON FORM 10-Q FOR ITS QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 64,421
<SECURITIES> 0
<RECEIVABLES> 692,919
<ALLOWANCES> 9,102
<INVENTORY> 920,843
<CURRENT-ASSETS> 1,811,994
<PP&E> 2,547,147
<DEPRECIATION> 1,340,135
<TOTAL-ASSETS> 3,770,362
<CURRENT-LIABILITIES> 741,093
<BONDS> 740,811
0
0
<COMMON> 56,021
<OTHER-SE> 1,874,153
<TOTAL-LIABILITY-AND-EQUITY> 3,770,362
<SALES> 1,242,293
<TOTAL-REVENUES> 1,242,293
<CGS> 976,621
<TOTAL-COSTS> 976,621
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 148
<INTEREST-EXPENSE> 14,543
<INCOME-PRETAX> 112,357
<INCOME-TAX> 38,763
<INCOME-CONTINUING> 73,594
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,594
<EPS-BASIC> .67
<EPS-DILUTED> .67
</TABLE>
