<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 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 No. 1-4982
PARKER-HANNIFIN CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0451060
- ----------------------------------- ---------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
6035 Parkland Boulevard, Cleveland, Ohio 44124-4141
- ----------------------------------------- ---------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (216) 896-3000
---------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
------------------- ---------------------
Common Shares, $.50 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, during the preceding 12 months, and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
--- ---
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of August 31, 1999, excluding, for purposes of this
computation, only stock holdings of the Registrant's Directors and Officers.
$4,839,474,763.
The number of Common Shares outstanding on August 31, 1999 was
111,904,364.
Portions of the following documents are incorporated by reference:
(1) Annual Report to Shareholders of the Company for the fiscal year ended
June 30, 1999. Incorporated by reference into Parts I, II and IV
hereof.
(2) Definitive Proxy Statement for the Company's 1999 Annual Meeting of
Shareholders. Incorporated by reference into Part III hereof.
<PAGE> 3
PARKER-HANNIFIN CORPORATION
FORM 10-K
Fiscal Year Ended June 30, 1999
PART I
ITEM 1. BUSINESS. Parker-Hannifin Corporation is a leading worldwide
full-line manufacturer of motion control products, including fluid power
systems, electromechanical controls and related components. Fluid power involves
the transfer and control of power through the medium of liquid, gas or air, in
hydraulic, pneumatic and vacuum applications. Fluid power systems move and
position materials, control machines, vehicles and equipment and improve
industrial efficiency and productivity. Components of a simple fluid power
system include a pump or compressor which generates pressure, valves which
control the fluid's flow, an actuator which translates the pressure in the fluid
into mechanical energy, a filter to insure proper fluid condition and numerous
hoses, couplings, fittings and seals. Electromechanical control involves the use
of electronic components and systems to control motion and precisely locate or
vary speed in automation applications. In addition to motion control products,
the Company also is a leading worldwide producer of fluid purification, fluid
flow, process instrumentation, air conditioning, refrigeration, and
electromagnetic shielding and thermal management products.
The Company was incorporated in Ohio in 1938. Its principal executive
offices are located at 6035 Parkland Boulevard, Cleveland, Ohio 44124-4141,
telephone (216) 896-3000. As used in this Report, unless the context otherwise
requires, the term "Company" or "Parker" refers to Parker-Hannifin Corporation
and its subsidiaries.
The Company's manufacturing, service, distribution and administrative
facilities are located in 36 states, Puerto Rico and worldwide in 38 foreign
countries. Its motion control technology is used in the products of its two
business Segments: Industrial and Aerospace. The products are sold as original
and replacement equipment through product and distribution centers worldwide.
The Company markets its products through its direct-sales employees and more
than 7,500 independent distributors. Parker products are supplied to
approximately 400,000 customers in virtually every significant manufacturing,
transportation and processing industry. For the fiscal year ended June 30, 1999,
net sales were $4,958,800,000; Industrial Segment products accounted for 77% of
net sales and Aerospace Segment products for 23%.
MARKETS
- -------
Motion control systems are used throughout industry in applications
which include moving of materials, controlling machines, vehicles and equipment
and positioning materials during the manufacturing process. Motion control
systems contribute to the efficient use of energy and improve industrial
productivity.
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The approximately 400,000 customers who purchase the Company's products
are found throughout virtually every significant manufacturing, transportation
and processing industry. No customer accounted for more than 6% of the Company's
total net sales for the fiscal year.
The major markets for products of the Fluid Connectors, Hydraulics,
Automation and Seal Groups of the Industrial Segment are agricultural machinery,
automotive, construction equipment, electronic equipment, fabricated metals,
food production, industrial machinery, lumber and paper, machine tools, marine,
medical equipment, mining, mobile equipment, chemicals, robotics, semi-conductor
equipment, telecommunications, textiles, transportation and every other major
production and processing industry. Products manufactured by the Industrial
Segment's Climate and Industrial Controls Group are utilized principally in
automotive and mobile air conditioning systems, industrial refrigeration systems
and home and commercial air conditioning equipment. The major markets for
products manufactured by the Instrumentation Group of the Industrial Segment are
power generation, oil and gas exploration, petrochemical and chemical
processing, pulp and paper, semi-conductor manufacturing, medical and analytical
applications. The major markets for products of the Filtration Group of the
Industrial Segment are industrial machinery, mobile equipment, process
equipment, marine, aviation, environmental and semi-conductor manufacturing.
Sales of Industrial Segment products are made to original equipment
manufacturers and their replacement markets.
Aerospace Segment sales are made primarily to the commercial, military
and general aviation markets and are made to original equipment manufacturers
and to end users for maintenance, repair and overhaul.
PRINCIPAL PRODUCTS, METHODS OF DISTRIBUTION AND COMPETITIVE CONDITIONS
- ----------------------------------------------------------------------
INDUSTRIAL SEGMENT. The product lines of the Company's Industrial
Segment cover most of the components of motion control systems. The Fluid
Connectors Group manufactures connectors, including tube fittings and hose
fittings, valves, hoses and couplers, which control, transmit and contain fluid.
The Hydraulics Group produces hydraulic components and systems for builders and
users of industrial and mobile machinery and equipment, such as cylinders,
accumulators, rotary actuators, valves, motors and pumps, hydrostatic steering
units, power units, integrated hydraulic circuits, electrohydraulic systems and
metering pumps. The Automation Group supplies pneumatic and electromechanical
components and systems, including pneumatic valves, air preparation units,
indexers, stepper and servo drives, multi-axis positioning tables, electric and
pneumatic cylinders, structural extrusions, vacuum products, pneumatic logic and
human/machine interface hardware and software. The Climate and Industrial
Controls Group manufactures components for use in industrial, residential,
automotive and mobile air conditioning and refrigeration systems and other
applications, including pressure regulators, solenoid valves, expansion valves,
filter-dryers, gerotors and hose assemblies. The Seal Group manufactures sealing
devices, including o-rings and o-seals, gaskets and packings, which insure
leak-proof connections and electromagnetic interference shielding and thermal
management products. The Filtration Group manufactures filters, systems and
instruments to monitor and to remove contaminants from fuel, air, oil, water and
other fluids and gases, including hydraulic, lubrication and coolant filters;
process, chemical and microfiltration filters; compressed air and gas
purification filters; lube oil and fuel filters; fuel conditioning filters; fuel
filters/water separators; cabin air filters and condition monitoring devices.
The Instrumentation
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Group manufactures high quality critical flow components for process
instrumentation, ultra-high-purity, medical and analytical applications,
including instrumentation and ultra-high-purity tube fittings, ball, plug and
needle valves, packless ultra-high-purity valves, Teflon(R) fittings, valves and
spray guns, miniature solenoid valves, multi-solenoid manifolds, regulators,
transducers, quick connects, hose products and cylinder connections.
Industrial Segment products include both standard items which are
produced in large quantities and custom units which are engineered and produced
to original equipment manufacturers' specifications for application to a
particular end product. Both standard and custom products are also used in the
replacement of original motion control system components. Industrial Segment
products are marketed primarily through field sales employees and more than
7,500 independent distributors.
AEROSPACE SEGMENT. The principal products of the Company's Aerospace
Segment are hydraulic, fuel and pneumatic systems and components that are used
on most commercial and military airframe and engine programs in production in
the Western world today.
The Aerospace Segment offers complete hydraulic systems, as well as
components that include hydraulic, electrohydraulic and electromechanical
systems used for precise control of aircraft rudders, elevators, ailerons and
other aerodynamic control surfaces and utility hydraulic components such as
reservoirs, accumulators, selector valves, electrohydraulic servovalves,
thrust-reverser actuators, engine-driven pumps, nosewheel steering systems,
electromechanical actuators, engine controls and electronic controllers. The
Aerospace Segment also designs and manufactures aircraft wheels and brakes for
the general aviation and military markets.
The Aerospace fuel product line includes complete fuel systems as well
as components such as fuel transfer and pressurization controls, in-flight
refueling systems, fuel pumps and valves, fuel measurement and management
systems and center of gravity controls, engine fuel injection atomization
nozzles and augmentor controls, and electronic monitoring computers.
Pneumatic components include bleed air control systems, pressure
regulators, low-pressure pneumatic controls, heat transfer systems, engine start
systems, engine bleed control and anti-ice systems, and electronic control and
monitoring computers.
Aerospace Segment products are marketed by the Company's regional sales
organization and are sold directly to manufacturers and end users.
COMPETITION. All aspects of the Company's business are highly
competitive. No single manufacturer competes with respect to all products
manufactured and sold by the Company and the degree of competition varies with
different products. In the Industrial Segment, the Company competes on the basis
of product quality and innovation, customer service, its manufacturing and
distribution capability, and competitive price. The Company believes that, in
most of the major markets for its products, it is one of the principal suppliers
of motion control systems and components.
In the Aerospace Segment, the Company has developed alliances with key
customers based on Parker's advanced technological and engineering capabilities,
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superior performance in quality, delivery, and service, and price
competitiveness, which has enabled Parker to obtain significant original
equipment business on new aircraft programs for its systems and components and,
thereby, obtain the follow-on repair and replacement business for these
programs. The Company believes that it is one of the primary suppliers in the
aerospace marketplace.
RESEARCH AND PRODUCT DEVELOPMENT
- --------------------------------
The Company continually researches the feasibility of new products
through its development laboratories and testing facilities in many of its
worldwide manufacturing locations. Its research and product development staff
includes chemists, mechanical, electronic and electrical engineers and
physicists.
Research and development costs relating to the development of new
products or services and the improvement of existing products or services
amounted to $86,953,000 in fiscal 1999, $83,117,000 in fiscal 1998 and
$103,155,000 in fiscal 1997. Reimbursements of customer-sponsored research
included in the total cost for each of the respective years were $15,239,000,
$15,753,000 and $35,986,000.
PATENTS, TRADEMARKS, LICENSES
- -----------------------------
The Company owns a number of patents, trademarks and licenses related
to its products and has exclusive and non-exclusive rights under patents owned
by others. In addition, patent applications on certain products are now pending,
although there can be no assurance that patents will be issued. The Company is
not dependent to any material extent on any single patent or group of patents.
BACKLOG AND SEASONAL NATURE OF BUSINESS
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The Company's backlog at June 30, 1999 was approximately $1,625,637,000
and at June 30, 1998 was approximately $1,649,377,000. Approximately 78% of the
Company's backlog at June 30, 1999 is scheduled for delivery in the succeeding
twelve months. The Company's business generally is not seasonal in nature.
ENVIRONMENTAL REGULATION
- ------------------------
The Company is subject to federal, state and local laws and regulations
designed to protect the environment and to regulate the discharge of materials
into the environment. Among other environmental laws, the Company is subject to
the federal "Superfund" law, under which the Company has been designated as a
"potentially responsible party" and may be liable for cleanup costs associated
with various waste sites, some of which are on the U.S. Environmental Protection
Agency Superfund priority list. The Company believes that its policies,
practices and procedures are properly designed to prevent unreasonable risk of
environmental damage and the consequent financial liability to the Company.
Compliance with environmental laws and regulations requires continuing
management effort and expenditures by the Company. Compliance with environmental
laws and regulations has not had in the past, and, the Company believes, will
not have in the future, material effects on the capital expenditures, earnings,
or competitive position of the Company. The information set forth in Footnote 13
to the Financial Statements contained on pages 34 and 35 of the Company's Annual
Report to Shareholders for the fiscal year ended June 30, 1999 ("Annual
Report"), as specifically excerpted on pages 13-32 and 13-33 of Exhibit 13
hereto, is incorporated herein by reference.
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ENERGY MATTERS AND SOURCES AND AVAILABILITY OF RAW MATERIALS
- ------------------------------------------------------------
The Company's primary energy source for each of its business segments
is electric power. While the Company cannot predict future costs of such
electric power, the primary source for production of the required electric power
will be coal from substantial, proven coal reserves available to electric
utilities. The Company is subject to governmental regulations in regard to
energy supplies both in the United States and elsewhere. To date the Company has
not experienced any significant disruptions of its operations due to energy
curtailments.
Steel, brass, aluminum and elastomeric materials are the principal raw
materials used by the Company. These materials are available from numerous
sources in quantities sufficient to meet the requirements of the Company.
EMPLOYEES
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The Company employed 38,928 persons as of June 30, 1999, of whom 13,974
were employed by foreign subsidiaries.
BUSINESS SEGMENT INFORMATION
- ----------------------------
The net sales, segment operating income and identifiable assets by
business segment and net sales and long-lived assets by geographic area for the
past three fiscal years, as set forth on page 25 of the Annual Report and
specifically excerpted on pages 13-16 to 13-17 of Exhibit 13 hereto, are
incorporated herein by reference.
ITEM 1A. EXECUTIVE OFFICERS OF THE COMPANY
The Company's Executive Officers are as follows:
<TABLE>
<CAPTION>
Officer
Name Position Since(1) Age
---- -------- -------- ---
<S> <C> <C> <C>
Duane E. Collins President, Chief Executive Officer, 1983 63
Member of the Office of the President
and Director
Dennis W. Sullivan Executive Vice President, Member of the 1978 60
Office of the President and Director
Lawrence M. Zeno Vice President and Member of the Office 1993 57
of the President
Claus Beneker Vice President - Technical Director 1999 59
Paul L. Carson Vice President - Information 1993 63
Services
Lynn M. Cortright Vice President and President, Climate & 1999 58
Industrial Controls Group
Dana A. Dennis Controller 1999 51
</TABLE>
<PAGE> 8
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Daniel T. Garey Vice President - Human Resources 1995 56
Stephen L. Hayes Vice President and President, 1993 58
Aerospace Group
Michael J. Hiemstra Vice President - Finance and 1987 52
Administration and
Chief Financial Officer
John D. Myslenski Vice President and President, 1997 48
Fluid Connectors Group
John K. Oelslager Vice President and President, 1997 56
Automation Group
Thomas A. Piraino, Jr. Vice President, General Counsel 1998 50
and Secretary
Timothy K. Pistell Treasurer 1993 52
Nickolas W. Vande Steeg Vice President and President, Seal Group 1995 56
Donald E. Washkewicz Vice President and President, 1997 49
Hydraulics Group
</TABLE>
(1) Officers of Parker-Hannifin serve for a term of office from the
date of election to the next organizational meeting of the
Board of Directors and until their respective successors are
elected, except in the case of death, resignation or removal.
Messrs. Collins, Carson, Hayes, Hiemstra and Pistell have
served in the executive capacities indicated above during the
past five years.
Mr. Sullivan was elected as Executive Vice President in 1981 and a
Member of the Office of the President in April 1996.
Mr. Zeno was elected as a Vice President in October 1993 and a Member
of the Office of the President in July 1997. He was President of the Motion and
Control Group from January 1994 to June 1997.
Mr. Beneker was elected as Vice President - Technical Director
effective in February 1999. He was Vice President of Business Development of the
Aerospace Group from July 1995 to February 1999 and General Manager of the Metal
Bellows Division from July 1994 to July 1995.
Mr. Cortright was elected as a Vice President in January 1999 and was
named President of the Climate & Industrial Controls Group in October 1998. He
was President of the Latin American Group from November 1987 to October 1998.
Mr. Dennis was elected Controller effective July 1999. He was Vice
President/Controller of the Automation Group from August 1997 to July 1999 and
Vice President/Controller of the Motion and Control Group from July 1994 to
August 1997.
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Mr. Garey was elected as a Vice President effective in January 1995. He
was Vice President-Human Resources of the Motion and Control Group (formerly the
Fluidpower Group) from July 1982 to December 1994.
Mr. Myslenski was elected as a Vice President in October 1997 and named
President of the Fluid Connectors Group in July 1997. He was Vice President-
Operations of the Fluid Connectors Group from March 1989 to June 1997.
Mr. Oelslager was elected as a Vice President in October 1997 and named
President of the Automation Group in July 1997. He was Vice President Operations
of the Motion and Control Group from July 1995 to June 1997 and General Manager
of the Cylinder Division from July 1989 to July 1995.
Mr. Piraino was elected as Vice President, General Counsel and
Secretary effective in July 1998. He was Vice President-Law from July 1990 to
June 1998.
Mr. Vande Steeg was elected as a Vice President effective in September
1995. He has been President of the Seal Group since 1987.
Mr. Washkewicz was elected as a Vice President and named President of
the Hydraulics Group in October 1997. He was Vice President-Operations of the
Fluid Connectors Group from October 1994 to October 1997 and General Manager of
the Parflex Division from July 1982 to September 1994.
ITEM 2. PROPERTIES. The following table sets forth the principal plants
and other materially important properties of the Company and its subsidiaries.
The leased properties are indicated with an asterisk. A "(1)" indicates that the
property is occupied by the Company's Industrial Segment and a "(2)" indicates
properties occupied by the Aerospace Segment.
UNITED STATES
-------------
State City
----- ----
Alabama Boaz(1)
Decatur(1)
Huntsville(1)
Jacksonville(1)
Arizona Glendale(2)
Tolleson(2)
Tucson*(1)
Arkansas Siloam Springs(1)
Trumann(1)
California Cypress*(2)
Irvine(1)(2)
Modesto(1)
Newbury Park*(1)
Richmond(1)
Rohnert Park(1)
San Diego(1)
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State City
----- ----
Connecticut New Britain(1)
Florida Longwood(1)
Miami*(1)
Georgia Dublin(2)
Idaho Boise*(1)
Illinois Broadview(1)
Des Plaines(1)
Hampshire(1)
Lincolnshire*(1)
Mount Prospect*(1)
Rockford(1)
Indiana Albion(1)
Ashley(1)
Lebanon(1)
Tell City(1)
Iowa Red Oak(1)
Kansas Manhattan(1)
Kentucky Berea(1)
Lexington(1)
Louisiana Harvey*(1)
Maine Portland(1)
Massachusetts Ayer(2)
Woburn(1)
Michigan Kalamazoo(2)
Lakeview(1)
Otsego(1)
Oxford(1)
Richland(1)
Troy*(1)
Minnesota Golden Valley(1)
Mississippi Batesville(1)
Booneville(1)
Madison(1)
Missouri Kennett(1)
Nebraska Lincoln(1)
Nevada Carson City(1)
New Hampshire Hollis*(1)
Hudson(1)
Portsmouth*(1)
New Jersey Belleville*(1)
Fairfield*(1)
New York Clyde(2)
Lyons(1)
Smithtown(2)
North Carolina Forest City(1)
Hillsborough(1)
Mooresville(1)
Sanford(1)
Wake Forest*(1)
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State City
----- ----
Ohio Akron(1)
Andover(2)
Avon(2)
Brookville(1)
Columbus(1)
Cuyahoga Falls*(1)
Eastlake(1)
Eaton(1)
Elyria(1)(2)
Forest(2)
Green Camp(1)
Kent(1)
Lewisburg(1)
Mayfield Heights(1)(2)
Mentor(2)
Metamora(1)
Milford*(1)
Ravenna(1)
St. Marys(1)
Wadsworth(1)
Wickliffe(1)
Oklahoma Henryetta*(1)
Oregon Eugene(1)
Pennsylvania Canton(1)
Harrison City(1)
Reading(1)
South Carolina Beaufort(2)
Spartanburg(1)
Tennessee Greenfield(1)
Greeneville(1)
Memphis*(1)
Texas Cleburne(1)
Ft. Worth(1)
Mansfield(1)
Utah Ogden(2)
Salt Lake City(1)
Washington Seattle*(1)
Wisconsin Butler*(1)
Chetek(1)
Grantsburg(1)
Mauston(1)
Territory City
--------- ----
Puerto Rico Ponce*(2)
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FOREIGN COUNTRIES
-----------------
Country City
------- ----
Argentina Buenos Aires(1)
Australia Castle Hill(1)
Wodonga(1)
Austria Wiener Neustadt(1)
Belgium Brussels*(1)
Brazil Jacarei(1)
Sao Paulo(1)
Canada Grimsby(1)
Owen Sound(1)
Czech Republic Chomutov*(1)
Prague*(1)
Sadska*(1)
Denmark Espergarde(1)
Ishoj(1)
England Barnstaple(1)
Buxton(1)
Cannock(1)
Derby(1)
Dewsbury(1)
Hemel Hempstead(1)
Littlehampton(1)
Marlow*(1)
Ossett(1)
Poole*(1)
Rotherham(1)
Thetford(1)
Watford(1)
Finland Hyrynsalmi*(1)
Urjala(1)
Vantaa(1)
France Annemasse(1)
Contamine(1)
Evreux(1)
Pontarlier(1)
Wissembourg(1)
Germany Berlin*(1)
Bielefeld(1)
Bietigheim-Bissingen(1)
Chemnitz*(1)
Cologne(1)
Erfurt(1)
Hochmossingen(1)
Kaarst(1)
Lampertheim(1)
Mucke(1)
Offenburg*(1)
Pleidelsheim(1)
Queckborn(1)
Scholss-Holte(1)
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FOREIGN COUNTRIES
-----------------
Country City
------- ----
Wiesbaden(2)
Greece Athens*(1)
Hong Kong Hong Kong*(1)
Hungary Budapest*(1)
India Mumbai*(1)
Italy Adro(1)
Arsago Seprio(1)
Corsico(1)
Gessate(1)
Japan Yokohama(1)(2)
Malaysia Kuala Lumpur(2)
Mexico Matamoros(1)
Monterrey(1)
Tijuana(1)
Toluca(1)
Netherlands Amelo*(1)
Hendrik-Ido-Ambacht(1)
Hoogezand(1)
Oldenzaal(1)
New Zealand Mt. Wellington(1)
Norway Langhus(1)
Peoples Republic of China Beijing*(1)(2)
Shanghai*(1)
Philippines Manila*(1)
Poland Warsaw*(1)
Wroclaw*(1)
Russia Moscow*(1)
Singapore Singapore*(1)(2)
South Africa Kempton Park(1)
South Korea Chonan(1)
Seoul*(1)
Suwon*(1)
Yangsan(1)
Spain Madrid*(1)
Sweden Boras(1)
Falkoping(1)
Flen(1)
Spanga(1)
Trollhatten(1)
Ulricehamn(1)
Switzerland Geneva(1)
Taiwan Taipei*(1)
Thailand Bangkok*(1)
Ukraine Kiev*(1)
United Arab Emirates Abu Dhabi*(1)
Venezuela Caracas*(1)
Puerto Ordaz*(1)
The Company believes that its properties have been adequately
maintained, are in good condition generally and are suitable and adequate for
its business as
<PAGE> 14
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presently conducted. The extent of utilization of the Company's properties
varies among its plants and from time to time. Additional capacity has been
added as the Company expands through business combinations. The Company's
material manufacturing facilities remain capable of handling additional volume
increases.
ITEM 3. LEGAL PROCEEDINGS. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not
applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. As of August 31, 1999, the approximate number of
shareholders of record of the Company was 4,536 and the number of beneficial
owners was 39,380. Information regarding stock price and dividend information
with respect to the Company's common stock, as set forth on page 35 of the
Annual Report and specifically excerpted on page 13-35 of Exhibit 13 hereto, is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA. The information set forth on pages 36
and 37 of the Annual Report, as specifically excerpted on page 13-38 of Exhibit
13 hereto, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. The information set forth on pages 18, 20, 22, 24 and 38
of the Annual Report, as specifically excerpted on pages 13-1 to 13-9 of Exhibit
13 hereto, is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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
non-performance 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information
set forth on pages 17, 19, 21, 23, 25 to 35 and 38 of the Annual Report, as
specifically excerpted on pages 13-10 to 13-37 of Exhibit 13 hereto, is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required as to the Directors of the Company is contained on pages 1
to 3 of the Company's definitive Proxy Statement dated September 27, 1999 (the
"Proxy Statement") under the caption "Election of Directors." The foregoing
information is
<PAGE> 15
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incorporated herein by reference. Information as to the executive officers of
the Company is included in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION. The information set forth under the
caption "Compensation of Directors" on pages 3 and 4 of the Proxy Statement and
under the caption "Executive Compensation" on pages 7 to 10 of the Proxy
Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. The information set forth under the caption ""Change in Control"
Severance Agreements with Officers" on pages 10 and 11 of the Proxy Statement
and under the caption "Principal Shareholders of the Corporation" on page 12 of
the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Not
applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
a. The following are filed as part of this report:
1. FINANCIAL STATEMENTS AND SCHEDULES
The financial statements and schedule listed in
the accompanying Index to Consolidated
Financial Statements and Schedules are filed or
incorporated by reference as part of this
Report.
2. EXHIBITS
The exhibits listed in the accompanying Exhibit
Index and required by Item 601 of Regulation
S-K (numbered in accordance with Item 601 of
Regulation S-K) are filed or incorporated by
reference as part of this Report.
b. The Registrant did not file a Current Report on Form
8-K in the quarter ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PARKER-HANNIFIN CORPORATION
By: /s/ Michael J. Hiemstra
-----------------------
Michael J. Hiemstra
Vice President - Finance and
Administration
and Chief Financial Officer
September 24, 1999
<PAGE> 16
-14-
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report on Form 10-K has been signed below by the following persons in the
capacities and on the date indicated.
Signature and Title
-------------------
PATRICK S. PARKER, Chairman of the Board of Directors;
DUANE E. COLLINS, President, Chief Executive Officer
and Director; DANA A. DENNIS, Controller and Principal
Accounting Officer; JOHN G. BREEN, Director;
PAUL C. ELY, JR., Director; PETER W. LIKINS, Director;
GUILIO MAZZALUPI, Director; KLAUS-PETER MULLER, Director;
HECTOR R. ORTINO, Director; ALLAN L. RAYFIELD, Director;
WOLFGANG R. SCHMITT, Director; DEBRA L. STARNES, Director;
and DENNIS W. SULLIVAN, Director.
Date: September 24, 1999
/s/ Michael J. Hiemstra
- -----------------------
Michael J. Hiemstra, Vice President - Finance and
Administration, Principal Financial Officer and
Attorney-in-Fact
<PAGE> 17
-15-
PARKER-HANNIFIN CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Reference
-----------------------------------
Excerpt from Annual
Form 10-K Report as set forth
Annual Report in Exhibit 13
(Page) (Page)
------------- -------------------
<S> <C> <C>
DATA INCORPORATED BY REFERENCE FROM THE
ANNUAL REPORT AS SPECIFICALLY EXCERPTED
IN EXHIBIT 13 HERETO:
Report of Independent Accountants --- 13-37
Consolidated Statement of Income for the
years ended June 30, 1999, 1998 and 1997 --- 13-10
Consolidated Statement of Comprehensive Income
for the years ended June 30, 1999, 1998 and
1997. --- 13-11
Consolidated Balance Sheet at June 30, 1999
and 1998 --- 13-12 and 13-13
Consolidated Statement of Cash Flows for
the years ended June 30, 1999, 1998 and 1997 --- 13-14 and 13-15
Notes to Consolidated Financial Statements --- 13-18 to 13-35
Report of Independent Accountants on the
Financial Statement Schedule F-2
SCHEDULE:
II - Valuation and Qualifying Accounts F-3 ---
</TABLE>
Individual financial statements and related applicable schedules for
the Registrant (separately) have been omitted because the Registrant is
primarily an operating company and its subsidiaries are considered to be
totally-held.
F-1
<PAGE> 18
Report of Independent Accountants on the
Financial Statement Schedule
To the Board of Directors
of Parker-Hannifin Corporation
Our audits of the consolidated financial statements referred to in our report
dated July 29, 1999 included in the 1999 Annual Report to Shareholders of
Parker-Hannifin Corporation (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the financial statement schedule listed in Item 14(a)(1) of this
Form 10-K. In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Cleveland, Ohio
July 29, 1999
F-2
<PAGE> 19
PARKER-HANNIFIN CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1998 and 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
------------------------------ -------------- --------------- -------------- ---------------
Additions
Balance at Charged to Other Balance
Beginning Costs and (Deductions)/ At End
Description Of Period Expenses Additions(A) Of Period
------------------------------ -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended June 30, 1997 $ 6,445 $ 1,288 $ (1,829) $ 5,904
Year ended June 30, 1998 5,904 2,267 833 9,004
Year ended June 30, 1999 9,004 2,318 (1,925) 9,397
</TABLE>
(A) Net balance of deductions due to uncollectible accounts charged off
and additions due to acquisitions or recoveries.
F-3
<PAGE> 20
Exhibit Index
EXHIBIT NO. Description Of Exhibit
- ----------- ----------------------
(3) Articles Of Incorporation And By-laws
- ----------- -------------------------------------
(3)(a) Amended Articles of Incorporation(A).
(3)(b) Code of Regulations, as amended(B).
(4) Instruments Defining Rights of Security Holders:
- ----------- ------------------------------------------------
(4)(a) Rights Agreement, dated January 31, 1997, between the
Registrant and KeyBank National Association
("KeyBank")(C), as amended by the First Addendum to
Shareholder Protection Rights Agreement, dated April
21, 1997, between the Registrant and Wachovia Bank of
North Carolina N.A. ("Wachovia"), as successor to
KeyBank, and the Second Addendum to Shareholder
Protection Rights Agreement, dated June 15, 1999,
between the Registrant and National City Bank, as
successor to Wachovia.
The Registrant is a party to other instruments,
copies of which will be furnished to the Commission
upon request, defining the rights of holders of its
long-term debt identified in Note 7 of the Notes to
Consolidated Financial Statements appearing on pages
29 and 30 of the Annual Report as specifically
excerpted on page 13-24 of Exhibit 13 hereto, which
Note is incorporated herein by reference.
(10) Material Contracts:
- ----------- -------------------
(10)(a) Form of Change in Control Severance Agreement entered
into by the Registrant and executive officers(D).*
(10)(b) Parker-Hannifin Corporation Change in Control
Severance Plan, as amended(E).*
(10)(c) Form of Indemnification Agreement entered into by the
Registrant and its directors and executive
officers(F).
(10)(d) Exchange Agreement entered into as of May 11, 1999
between the Registrant and Duane E. Collins including
an Executive Estate Protection Plan comprised of the
Executive Estate Protection Agreement entered into by
the Registrant, Duane E. Collins and The Duane E.
Collins Irrevocable Trust dated 5/10/99 (the
"Trust"), the Collateral Assignment between the
Registrant and the Trust and the "as sold"
illustration of an Executive Estate Protection Plan
Insurance Policy.*
(10)(e) Form of Executive Life Insurance Agreement entered
into by the Registrant and executive officers.*
<PAGE> 21
Exhibit No. Description of Exhibit
- ----------- ----------------------
(10)(f) Parker-Hannifin Corporation Supplemental Executive
Retirement Benefits Program (August 15, 1996
Restatement)(G).*
(10)(g) Parker-Hannifin Corporation 1987 Employees Stock
Option Plan, as amended(H).*
(10)(h) Parker-Hannifin Corporation 1990 Employees Stock
Option Plan, as amended(I).*
(10)(i) Parker-Hannifin Corporation 1993 Stock Incentive
Program, as amended(J).*
(10)(j) Parker-Hannifin Corporation 1999 Target Incentive
Bonus Plan Description (K).*
(10)(k) Parker-Hannifin Corporation 2000 Target Incentive
Bonus Plan Description.*
(10)(l) Parker-Hannifin Corporation 1997-98-99 Long Term
Incentive Plan Description, as amended(L).*
(10)(m) Parker-Hannifin Corporation 1998-99-00 Long Term
Incentive Plan Description, as amended(M).*
(10)(n) Parker-Hannifin Corporation 1999-00-01 Long Term
Incentive Plan Description(N).*
(10)(o) Parker-Hannifin Corporation 2000-01-02 Long Term
Incentive Plan Description.*
(10)(p) Parker-Hannifin Corporation Savings Restoration Plan,
as amended.*
(10)(q) Parker-Hannifin Corporation Pension Restoration Plan,
as amended(O).*
(10)(r) Parker-Hannifin Corporation Executive Deferral Plan,
as amended(P).*
(10)(s) Parker-Hannifin Corporation Volume Incentive
Plan(Q).*
(10)(t) Parker-Hannifin Corporation Non-Employee Directors'
Stock Plan, as amended(R).*
(10)(u) Parker-Hannifin Corporation Non-Employee Directors
Stock Option Plan(S).*
(10)(v) Parker-Hannifin Corporation Deferred Compensation
Plan for Directors, as amended(T).*
<PAGE> 22
Exhibit No. Description of Exhibit
- ----------- ----------------------
(10)(w) Parker-Hannifin Corporation Stock Option Deferral
Plan(U).*
(11) Computation of Common Shares Outstanding and Earnings
Per Share is incorporated by reference to Note 4 of
the Notes to Consolidated Financial Statements
appearing on page 29 of the Annual Report as
specifically excerpted on pages 13-22 and 13-23 of
Exhibit 13 hereto.
(12) Computation of Ratio of Earnings to Fixed Charges as
of June 30, 1999.
(13) Excerpts from Annual Report to Shareholders for the
fiscal year ended June 30,1999 which are incorporated
herein by reference thereto.
(21) List of subsidiaries of the Registrant.
(23) Consent of Independent Accountants.
(24) Power of Attorney.
(27) Financial Data Schedule.
*Management contracts or compensatory plans or arrangements.
- -----------
(A) Incorporated by reference to Exhibit 3 to the
Registrant's Report on Form 10-Q for the quarterly
period ended September 30, 1997.
(B) Incorporated by reference to Exhibits to the
Registrant's Registration Statement on Form S-8 (No.
33-53193) filed with the Commission on April 20,
1994.
(C) Incorporated by reference to Exhibit 4.1 to the
Registrant's Report on Form 8-K filed with the
Commission on February 4, 1997.
(D) Incorporated by reference to Exhibit 10(a) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1996.
(E) Incorporated by reference to Exhibit 10(b) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1996.
(F) Incorporated by reference to Exhibit 10(f) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1994.
<PAGE> 23
(G) Incorporated by reference to Exhibit 10(e) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1996.
(H) Incorporated by reference to Exhibit 10(f) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1996.
(I) Incorporated by reference to Exhibit 10(g) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1996.
(J) Incorporated by reference to Exhibit 10 to
the Registrant's Report on Form 10-Q for the
quarterly period ended September 30, 1997.
(K) Incorporated by reference to Exhibit 10(i) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1998.
(L) Incorporated by reference to Exhibit 10(n) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1996.
(M) Incorporated by reference to Exhibit 10(m) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1996.
(N) Incorporated by reference to Exhibit 10(m) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1998.
(O) Incorporated by reference to Exhibit 10(p) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1996.
(P) Incorporated by reference to Exhibit 10(p) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1998.
(Q) Incorporated by reference to Exhibit 10(r) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1996.
(R) Incorporated by reference to Exhibit 10(s) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1996.
(S) Incorporated by reference to Exhibit 10(t) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1996.
<PAGE> 24
(T) Incorporated by reference to Exhibit 10(u) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1996.
(U) Incorporated by reference to Exhibit 10(u) to the
Registrant's Report on Form 10-K for the fiscal year
ended June 30, 1998.
Shareholders may request a copy of any of the exhibits to this Annual Report on
Form 10-K by writing to the Secretary, Parker-Hannifin Corporation, 6035
Parkland Boulevard, Cleveland, Ohio 44124-4141.
<PAGE> 1
Exhibit 4a
Exhibit (4)(a)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1999
by Parker-Hannifin Corporation
First Addendum to Shareholder Protection Rights
Agreement, dated April 21, 1997, between Wachovia
Bank of North Carolina N.A. ("Wachovia"), as
successor to KeyBank National Association and
Second Addendum to Shareholder Protection Rights
Agreement, dated June 15, 1999, between the
Registrant and National City Bank, as successor to
Wachovia.
* Numbered in accordance with Item 601 of Regulation S-K.
<PAGE> 2
FIRST ADDENDUM TO
SHAREHOLDER PROTECTION RIGHTS AGREEMENT
Reference is made to that certain Shareholder Protection Rights
Agreement (the "Agreement") dated as of January 31, 1997, between
Parker-Hannifin Corporation, an Ohio corporation (the "Company"), and KeyBank
National Association, a National Banking Association ( the "Predecessor Rights
Agent").
WHEREAS, the Predecessor Rights Agent has given written notice to the
Company of the Predecessor Rights Agent's intention to resign as the "Rights
Agent" pursuant to the Agreement; and
WHEREAS, the Company desires to hereby appoint a successor to the
Predecessor Rights Agent.
Accordingly, effective April 21, 1997, ("Effective Date"), the Company
does hereby appoint Wachovia Bank of North Carolina, N.A. to be the successor
Rights Agent and to act in such capacity pursuant to the Agreement (the
"Successor Rights Agent"). Pursuant to the provisions of Section 4.4 of the
Agreement, the Successor Rights Agent is vested with the powers, rights, duties
and responsibilities as if the Successor Rights Agent had been originally named
as Rights Agent pursuant to the Agreement.
From and after the Effective Date and so long as the Successor Rights
Agent shall continue as the Rights Agent under the Agreement, all references to
the Rights Agent or to KeyBank National Association or any abbreviation thereof,
contained in any of the Rights Certificates issued pursuant to the Agreement or
any other document relating to or issued pursuant to the Agreement, or any
legend referring to the Agreement contained on any outstanding common stock
certificates, shall be deemed automatically to refer to Wachovia Bank of North
Carolina, N.A., without the necessity of a restatement, amendment or those Right
Certificates which refer to the Predecessor Rights Agent, the registered holders
thereof shall not be required to surrender such Rights Certificates for
reassurance to reflect this appointment.
IN WITNESS WHEREOF, the Company has caused this First Addendum to be
duly executed and its corporate seal to be affixed and attested as of this 21
day of April, 1997.
ATTEST: PARKER-HANNIFIN CORPORATION
By: /s/ Thomas L Meyer By: /s/ Joseph D. Whiteman
----------------------- -----------------------------
Title: Asst. Secretary V. P.
-------------------- -----------------------------
[Corporate Seal]
<PAGE> 3
The undersigned, Wachovia Bank of North Carolina, N.A., hereby accepts
the above appointment by the Company as the Successor Rights Agent under the
Agreement, hereby agreeing to be vested with and assume the powers, rights,
duties and responsibilities of the Rights Agent under the Agreement. This
acceptance has been duly executed by the undersigned and its corporate seal
affixed and attested, as of this 21 day of April, 1997.
ATTEST: WACHOVIA BANK OF NORTH CAROLINA,
N.A., as Successor Rights Agent
By: /s/ Christopher A. Spillare By: /s/ John P. Modica
---------------------------- ---------------------
Title: Asst. Secretary Title: V. P.
------------------------- ------------------
[Corporate Seal]
<PAGE> 4
SECOND ADDENDUM TO
SHAREHOLDER PROTECTION RIGHTS AGREEMENT
Reference is made to that certain Shareholder Protection Rights
Agreement (the "Agreement") dated as of January 31, 1997, between
Parker-Hannifin Corporation, an Ohio corporation (the "Company"), and KeyBank
National Association, a National Banking Association ("KeyBank"), and the First
Addendum to the Agreement (the "First Addendum") dated as of April 21, 1997
between the Company and Wachovia Bank of North Carolina, N.A. ("Wachovia")
(together with KeyBank, the "Predecessor Rights Agents").
WHEREAS, Wachovia has given written notice to the Company of Wachovia's
intention to resign as the "Rights Agent" pursuant to the Agreement and the
First Addendum,
WHEREAS, there have been no actions brought against the Company by the
Predecessor Rights Agents in their capacity as Rights Agents under the
Agreement, and
WHEREAS, the Company desires to hereby appoint a successor to Wachovia.
Accordingly, effective June 15, 1999, ("Effective Date"), the Company
does hereby appoint National City Bank to be the successor Rights Agent and to
act in such capacity pursuant to the Agreement, (the "Successor Rights Agent").
Pursuant to the provisions of Section 4.4 of the Agreement, the Successor Rights
Agent is vested with the powers, rights, duties and responsibilities as if the
Successor Rights Agent had been originally named as Rights Agent pursuant to the
Agreement.
From and after the Effective Date and so long as the Successor Rights
Agent shall continue as the Rights Agent under the Agreement, all references to
the Rights Agent or to KeyBank National Association or to Wachovia Bank of North
Carolina, N.A. or any abbreviation thereof, contained in any of the Rights
Certificates issued pursuant to the Agreement or any other document relating to
or issued pursuant to the Agreement, or any legend referring to the Agreement
contained on any outstanding common stock certificates, shall be deemed
automatically to refer to National City Bank, without the necessity of a
restatement or amendment of those Rights Certificates which refer to the
Predecessor Rights Agents, and the registered holders thereof shall not be
required to surrender such Rights Certificates for reissuance to reflect this
appointment.
IN WITNESS WHEREOF, the Company has caused this Second Addendum to be
duly executed and its corporate seal to be affixed and attested as of this 15th
day of June, 1999.
ATTEST: PARKER-HANNIFIN CORPORATION
By: /s/ Thomas L. Meyer By: /s/ Thomas A. Piraino, Jr.
----------------------- -----------------------------
Thomas L. Meyer Thomas A. Piraino, Jr.
Assistant Secretary Vice President and Secretary
(Corporate Seal)
<PAGE> 5
The undersigned, National City Bank, hereby accepts the above
appointment by the Company as the Successor Rights Agent under the Agreement,
hereby agreeing to be vested with and assume the powers, rights, duties and
responsibilities of the Rights Agent under the Agreement. This acceptance has
been duly executed by the undersigned and its corporate seal affixed and
attested, as of this 15th day of June, 1999.
ATTEST: NATIONAL CITY BANK
By: /s/ J. Dean Presson By: /s/ Marlayna J. Miller
--------------------- -------------------------
Title: Vice President Title: Vice President
------------------ ----------------------
(Corporate Seal)
<PAGE> 1
Exhibit 10d
Exhibit (10)(d)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1999
by Parker-Hannifin Corporation
Exchange Agreement entered into as of May 11, 1999 between the
Registrant and Duane E. Collins including an Executive Estate
Protection Plan comprised of the Executive Estate Protection
Agreement entered into by the Registrant, Duane E. Collins and
The Duane E. Collins Irrevocable Trust dated 5/10/99 (the
"Trust"), the Collateral Assignment between the Registrant and
the Trust and the "as sold" illustration of an Executive
Estate Protection Plan Insurance Policy.
*Numbered in accordance with Item 601 of Regulation S-K.
<PAGE> 2
EXCHANGE AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into as of May 11, 1999 between
Parker- Hannifin Corporation ("Parker"), and Duane E. Collins (the
"Participant").
RECITALS
--------
A. The Participant, as a participant in the Parker-Hannifin Corporation
Long Term Incentive Plan ("LTIP") received 38,633 shares of restricted
Parker stock (the "Restricted Shares") which are scheduled to vest on
August 21, 1999 pursuant to the terms of the LTIP.
B. However, pursuant to the terms of the LTIP, the vesting of the
Restricted Shares will be delayed due to the application of Section
162(m) of the Internal Revenue Code (the "Code"), which limits the
deductibility by Parker of Participant's compensation to $1,000,000 per
year.
C. The Participant and Parker mutually desire to resolve the issues
resulting from such delayed vesting. Parker has offered the Participant
certain benefits under an Executive Estate Protection Agreement in
exchange for the surrender by the Participant of the Restricted Shares
to Parker.
D. The Participant desires to surrender all of the Restricted Shares in
order to induce Parker to enter into the Executive Estate Protection
Agreement.
E. The Restricted Shares will become treasury shares of Parker and will be
utilized by Parker to meet its obligations under various stock-based
compensation plans. Parker will also recognize significant net income
as a result of the surrender of the Restricted Shares.
AGREEMENT
---------
NOW THEREFORE, it is mutually agreed that:
1. RESTRICTED SHARE SURRENDER. The Participant hereby agrees to surrender,
transfer and convey all of his right, title and interest in and to the
Restricted Shares to Parker effective immediately. The Participant
acknowledges that he shall have no further rights or claims of any sort
whatsoever to the Restricted Shares.
2. EXECUTIVE ESTATE PROTECTION. Parker has provided the Participant with
an Executive Estate Protection Plan, comprised of that certain
Executive Estate Protection Agreement dated May 11, 1999 by and between
Parker, the Participant and The Duane E. Collins Irrevocable Trust
dated 5/10/99, and the "as sold" illustration of an Executive Estate
Protection Plan Insurance Policy to be issued by John Hancock Life
Insurance Company (together, the "Executive Estate Protection Plan
Document"). By his signature below, the Participant acknowledges that
he has received a copy of the Executive Estate Protection Plan
Document. A further copy of the Executive Estate Protection Plan
Document is attached hereto and is hereby incorporated into and made a
part of this Agreement as though set forth in full in this
- -------------------------------------------------------------------------------
1
<PAGE> 3
Agreement. The parties to this Agreement agree to enter into the
Executive Estate Protection Agreement and shall be bound by, and have
the benefit of, each and every provision of the Executive Estate
Protection Plan Document as set forth in the Executive Estate
Protection Agreement. This Agreement and the Executive Estate
Protection Plan Document, collectively, shall be considered one
complete contract between the parties.
3. ACKNOWLEDGMENT. The Participant hereby acknowledges that he has read
and understands this Agreement and the Executive Estate Protection Plan
Document.
4. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of,
and be binding upon, Parker and its successors and assigns, and the
Participant and his assignees, devisees and heirs.
5. GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the State of Ohio, as in effect at the time of the
execution of this Agreement.
IN WITNESS WHEREOF, Parker and the Participant have signed this
Agreement as of the date first written above.
/s/ Duane E. Collins
Duane E. Collins
PARKER-HANNIFIN CORPORATION
/s/ Michael J. Hiemstra
Michael J. Hiemstra
Vice President - Finance and
Administration and Chief Financial
Officer
- -------------------------------------------------------------------------------
2
<PAGE> 4
EXECUTIVE ESTATE PROTECTION AGREEMENT
This Executive Estate Protection Agreement ("Agreement") is made as of
May 11, 1999, among Parker-Hannifin Corporation, an Ohio corporation, (the
"Corporation"), Duane E. Collins (the "Participant") and The Duane E. Collins
Irrevocable Trust dated 5/10/99 ( the "Owner").
RECITALS
--------
A. The Participant desires to insure his life and his wife's life for the
benefit and protection of the Participant's family or other beneficiary
under the Policy (as defined below);
B. The Corporation desires to help the Participant provide life insurance
for the benefit and protection of his family or beneficiary by
providing funds from time to time to pay the premiums due on the Policy
in accordance with this Agreement; and
C. The Owner desires to assign certain rights and interests in the Policy
to the Corporation, to the extent provided herein, as security for
repayment of certain funds provided by the Corporation for the
acquisition and/or maintenance of the Policy.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing, and the mutual agreements and
covenants set forth below, the parties to this Agreement agree as follows:
1. DEFINITIONS. For purposes of this Agreement, unless otherwise clearly
apparent from the context, the following phrases or terms shall have
the following indicated meanings:
(a) "Aggregate Premiums Paid" shall mean, at any time, an amount
equal to the cumulative premiums paid by the Corporation on
the Policy.
(b) "Cash Surrender Value" shall mean an amount that equals, at
any specified time, the cash surrender value as determined
under the terms of the Policy.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Collateral Assignment" shall mean an assignment made by the
Owner in favor of the Corporation in a form attached to this
Agreement as Exhibit 1.
(e) "Collateral Interest" shall mean the Corporation's interest in
the Policy, which shall equal, at any time, the lesser of
Aggregate Premiums Paid or Cash Surrender Value, and which
shall be repaid to the Corporation in accordance with Section
6 below.
(f) "Corporation's Death Benefit" shall mean the portion of the
Policy's death benefit, if any, that exceeds the sum of the
Collateral Interest and the Owner's Death Benefit.
(g) "Decedent" shall mean the second to die of the Participant and
his wife.
- -------------------------------------------------------------------------------
1
<PAGE> 5
(h) "Designated Beneficiary" shall mean the beneficiary designated
under the Policy.
(i) "Economic Income" shall mean an amount equal to the value of
the "economic benefit" derived by the Participant from the
Policy's life insurance protection, as determined for Federal
income tax purposes under the Code. Economic Income shall
include any increase in economic benefit attributable to the
death of the first to die under the Policy.
(j) "Insurer(s)" shall mean John Hancock Life Insurance Company.
(k) "Owner" shall mean The Duane E. Collins Irrevocable Trust
dated 5/10/99.
(l) "Owner's Death Benefit" shall mean the lesser of $11,400,000
or the Policy's death benefit at the time of the Decedent's
death. As used herein, the phrase "Owner's Death Benefit"
shall be used solely to calculate the Corporation's Death
Benefit and shall not be interpreted as a guarantee by the
Corporation of a certain amount of death benefit under the
Policy. The ultimate amount of death benefit payable under the
Policy is dependent upon the financial performance of the
Policy.
(m) "Participant" shall mean Duane E. Collins.
(n) "Policy" shall mean the following joint life policy on the
life of the Participant and his wife that is issued by the
Insurer:
<TABLE>
<CAPTION>
INSURER POLICY NUMBER TYPE OF POLICY
--------------------------------------- ----------------------------- -------------------------
<S> <C> <C>
John Hancock Life Insurance 8018924-4 Estate Protection Life
Company Insurance
--------------------------------------- ----------------------------- -------------------------
</TABLE>
(o) "Split Dollar Maturity Date" shall mean the date on which the
first of either of the following events occurs:
(i) the fifteenth (15th) anniversary of the issuance of
the Policy; or
(ii) the death of the Decedent.
2. ACQUISITION OF POLICY; OWNERSHIP OF INSURANCE. The parties to this
Agreement shall cooperate in applying for and obtaining the Policy. The
Policy shall be issued to the Owner as the sole and exclusive owner of
the Policy, subject to the rights and interests granted to the
Corporation as provided in this Agreement and the Collateral
Assignment. Concurrent with the signing of this Agreement, the Owner
will collaterally assign the Policy to the Corporation, in the form of
the Collateral Assignment, as security for the payment of the
Collateral Interest, which assignment shall not be altered or changed
without the mutual consent of the Corporation and the Owner.
- -------------------------------------------------------------------------------
2
<PAGE> 6
3. PREMIUM PAYMENTS ON POLICY.
(a) PAYMENTS AND REIMBURSEMENTS. Prior to the occurrence of the
Split Dollar Maturity Date, the Corporation shall pay to the
Insurer, on or before each applicable premium due date, all
applicable premiums for the Policy, less the amount payable by
the Owner as described in subsection (b) below. The
Corporation shall promptly notify Owner in writing of the
amount and date of such premium payments. In the event that
the Corporation fails to make any such payment, the Owner or
the Participant may make (but is not required to make) any
such payment, and the Corporation shall immediately reimburse
the Owner or the Participant, as the case may be, for any
amount so paid.
(b) PREMIUM PAYMENT BY OWNER. Prior to the occurrence of the Split
Dollar Maturity Date, Owner shall pay to the Insurer, on or
before each applicable premium due date, a premium payment
equal to the Economic Income for such calendar year, as
mutually determined by the Corporation and the Participant.
(c) PREMIUM REIMBURSEMENT. At least sixty (60) days prior to each
applicable premium due date, the Corporation shall make a
payment to the Participant equal to the premium payable by the
Owner pursuant to subsection (b) above.
(d) TAX REIMBURSEMENT. On or before March 15 following each
calendar year until the Split Dollar Maturity Date, the
Corporation shall reimburse the Participant for the
Participant's state, local and federal income tax liability
attributable to (i) the Participant's Economic Income for such
calendar year, if any; (ii) the payment by the Corporation to
the Participant pursuant to subsection (c) above; and (iii)
payments made pursuant to this subsection (d). The tax rates
used by the Corporation in calculating the reimbursement under
this Section 3(c) shall be the appropriate federal, state and
local income tax rates in effect at the time of payment, as
mutually determined by the Corporation and the Participant.
4. CORPORATION'S RIGHTS. The Corporation's rights and interests in and to
the Policy shall be specifically limited to (i) the right to be paid
its Collateral Interest and the Corporation's Death Benefit, if any, in
accordance with Section 6 below, (ii) the rights specified in the
Collateral Assignment, and (iii) the right to obtain one (1) or more
loans or advances on the Policy, provided, however, that any such loans
shall not, in the aggregate, exceed the Aggregate Premiums Paid by the
Corporation at any specified date without the written consent of the
Participant.
5. OWNER'S RIGHTS. Subject to the terms of this Agreement and the
Collateral Assignment, the Owner of the Policy shall be entitled to
exercise all rights in the Policy; provided, however, that while the
Collateral Assignment is in effect, the following rights may be
exercised only with the consent of the Corporation, which consent may
be withheld at the sole discretion of the Corporation:
(a) To borrow against or pledge the Policy;
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3
<PAGE> 7
(b) To surrender or cancel the Policy; or
(c) To take a distribution or withdrawal from the Policy.
In particular, subject to the terms and conditions of the Policy, and
the provisions of Section 6 below, the Owner may assign its rights
under this Agreement and the Collateral Agreement, including but not
limited to an assignment to an insurance trust of which the Participant
is a settlor. In the event of an assignment of its rights, the Owner
shall promptly notify the Corporation of the name and address of the
new Owner or assignee, including the name and address of any trustee.
6. COLLATERAL INTEREST. On the Split Dollar Maturity Date, the Collateral
Interest (and, if applicable under Section 6(a) below, the
Corporation's Death Benefit) shall be paid or repaid to the Corporation
in the following manner:
(a) Notwithstanding any provision of this Agreement or the Policy
that may be construed to the contrary, if the Split Dollar
Maturity Date occurs due to the death of the Decedent, (i) the
Corporation shall be entitled to that portion of the Policy's
death proceeds that equals the sum of the Collateral Interest
and the Corporation's Death Benefit, if any, and (ii) the
Owner or the Designated Beneficiary, as the case may be, shall
be entitled to the Owner's Death Benefit; provided, however,
if the Split Dollar Maturity Date occurs due to the suicide of
the Decedent, and the proceeds from the Policy are limited by
either a suicide or contestability provision under the Policy,
the Corporation shall be entitled to that portion of the
higher of the Policy's Cash Surrender Value or death proceeds
that does not exceed the Aggregate Premiums Paid. In either
event, promptly following the Decedent's death, the
Corporation and the Owner or the Designated Beneficiary shall
take all steps necessary to collect the death proceeds of the
Policy by submitting the proper claims forms to the Insurer.
The Corporation shall notify the Insurer of the amount of the
Owner's Death Benefit (except when the Policy's proceeds are
limited because of the Decedent's death by suicide) and the
Corporation's Collateral Interest in the Policy at the time of
such death. Such amounts shall be paid, respectively, by the
Insurer to the Owner or to the Designated Beneficiary, as the
case may be, and the Corporation.
(b) If the Split Dollar Maturity Date is other than the date of
the Decedent's death, the Corporation's Collateral Interest in
the Policy shall be paid to the Corporation in one of the
following ways, as elected by the Owner in writing within
thirty (30) days after the date the Corporation first notifies
the Participant and Owner in writing of the occurrence of the
Split Dollar Maturity Date:
(i) By the Owner authorizing the Insurer to make a loan
against the Policy in an amount equal to the
Corporation's Collateral Interest and to pay the
proceeds to the Corporation, in which case the Owner
shall be considered the borrower for all purposes
under the loan;
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4
<PAGE> 8
(ii) By the Owner authorizing the Insurer to withdraw from
the Cash Surrender Value of the Policy an amount
equal to the Corporation's Collateral Interest and to
pay the proceeds to the Corporation; or
(iii) By the Owner paying to the Corporation, from the
Owner's separate funds, an amount equal to the
Corporation's Collateral Interest.
(c) If the Owner fails to timely exercise any of the options under
Section 6(b) above, the Corporation shall be entitled to
instruct the Insurer to pay to the Corporation from the Cash
Surrender Value of the Policy an amount equal to the
Corporation's Collateral Interest.
(d) The Corporation agrees to keep records of its premium payments
and to furnish the Owner and the Insurer with a statement of
its Collateral Interest whenever either party requires such
statement.
(e) Upon and after the Corporation's Collateral Interest in the
Policy has been repaid pursuant to Section 6(b) above, the
Corporation shall execute and file with the Insurer an
appropriate release of the Corporation's interest in the
Policy and shall have no further interest in the Policy.
Further, the Participant and/or Owner hereby acknowledge,
understand and agree that, upon the release of the
Corporation's Collateral Interest, the Corporation shall
continue not to have any responsibility for the future
performance of the Policy and shall have no obligation to make
any additional premium payments.
(f) Upon payment to the Corporation of its Collateral Interest in
accordance with this Section 6, this Agreement shall terminate
and no party shall have any further rights or obligations
under the Agreement with respect to any other party provided
that the Corporation has complied with all provisions of this
Agreement.
7. INSURER.
(a) The Insurer is not a party to this Agreement, shall in no way
be bound by or charged with notice of its terms, and is
expressly authorized to act only in accordance with the terms
of the Policy. The Insurer shall be fully discharged from any
and all liability under the Policy upon payment or other
performance of its obligations in accordance with the terms of
the Policy.
(b) The signature(s) required for the Insurer to recognize the
exercise of a right under the Policy shall be specified in the
Collateral Assignment.
8. CLAIMS PROCEDURE.
The following claims procedure shall be followed in handling any
benefit claim under this Agreement:
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5
<PAGE> 9
(a) The Owner, Participant, or the Designated Beneficiary, as the
case may be, (the "Claimant"), shall file a claim for benefits
by notifying the Corporation in writing. If the claim is
wholly or partially denied, the Corporation shall provide a
written notice within ninety (90) days (unless special
circumstances require an extension of time for processing the
claim, in which case an extension not to exceed ninety (90)
days shall be allowed) specifying the reasons for the denial,
the provisions of this Agreement on which the denial is based,
and additional material or information, if any, that is
necessary for the Claimant to receive benefits. Such written
notice shall also indicate the steps to be taken by the
Claimant if a review of the denial is desired.
(b) If a claim is denied, and a review is desired, the Claimant
shall notify the Corporation in writing within sixty (60) days
after receipt of written notice of a denial of a claim. In
requesting a review, the Claimant may submit any written
issues and comments the Claimant feels are appropriate. The
Corporation shall then review the claim and provide a written
decision within sixty (60) days of receipt of a request for a
review (unless special circumstances require an extension of
time for processing the claim, in which case an extension not
to exceed ninety (60) days shall be allowed). This decision
shall state the specific reasons for the decision and shall
include references to specific provisions of this Agreement,
if any, upon which the decision is based.
(c) If no event shall the Corporation's liability under this
Agreement exceed the amount of proceeds from the Policy.
9. AMENDMENT OF AGREEMENT. This Agreement shall not be modified or amended
except by a writing signed by all the parties hereto.
10. BINDING AGREEMENT. This Agreement shall be binding upon the heirs,
administrators, executors, successors and assigns of each party to this
Agreement.
11. STATE LAW. This Agreement shall be subject to and construed under the
internal laws of the State of Ohio, without regard to its conflicts of
laws principles.
12. VALIDITY. In case any provision of this Agreement shall be illegal or
invalid for any reason, said illegality or invalidity shall not affect
the remaining parts of this Agreement, but this Agreement shall be
construed and enforced as if such illegal or invalid provision had
never been inserted in this Agreement.
13. NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this
Agreement shall not be deemed to constitute a contract of employment
between the Corporation and the Participant. Nothing in this Agreement
shall be deemed to give the Participant the right to be retained in the
service of the Corporation or to interfere with the right of the
Corporation to discipline or discharge the Participant at any time.
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6
<PAGE> 10
14. NOTICE. Any notice or filing required or permitted to be given under
this Agreement to the Owner, Participant or the Corporation shall be
sufficient if in writing and hand-delivered, or sent by registered or
certified mail, to the address below:
To the Owner: The Duane E. Collins Irrevocable
Trust dated 5/10/99
c/o Sharon Anne Collins, Trustee
7205 Whitetail Trail
Centerville, OH 45459
To the Participant: Duane E. Collins
8695 Sanctuary Drive
Kirtland Hills, OH 44060
To the Corporation: Parker Hannifin Corporation
6035 Parkland Boulevard
Cleveland, OH 44124
Attn: General Counsel
or to such other address as may be furnished to the Owner, Participant
or the Corporation in writing in accordance with this notice provision.
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 on the
receipt for registration or certification. Any notice or filing
required or permitted to be given to the Owner and/or the Participant
or the Designated Beneficiary under this Agreement shall be sufficient
if in writing and hand-delivered, or sent by mail, to the last known
address of the Owner and/or the Participant, as the case may be.
15. CREDITWORTHINESS OF INSURER; TAX CONSEQUENCES. The Participant and
Owner assume all risk of the creditworthiness of the Insurer and
acknowledge that the Corporation makes no representation or guarantee
of the creditworthiness of any Insurer. The Participant and Owner
acknowledge responsibility for all federal, state and local tax
consequences imposed on the Participant and Owner as a result of this
Agreement and further acknowledge that the Corporation has not made any
representations or guarantees of present or future tax consequences.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with regard to the subject matter of this
Agreement and supersedes all previous negotiations, agreements and
commitments in respect thereto. No oral explanation or oral information
by the parties to this Agreement shall alter the meaning or
interpretation of this Agreement.
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7
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the date first written above.
PARKER-HANNIFIN CORORATION
/s/ Michael J. Hiemstra
Michael J. Hiemstra
Vice President - Finance and Administration and
Chief Financial Officer
/s/ Duane E. Collins
Duane E. Collins
THE DUANE E. COLLINS IRREVOCABLE TRUST DATED 5/10/99
/s/ Sharon Ann Collins, Trustee
Sharon Ann Collins, Trustee
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8
<PAGE> 12
EXHIBIT 1
---------
COLLATERAL ASSIGNMENT
---------------------
This Collateral Assignment (this "Assignment") is made and entered into
as of May 11, 1999, by and between The Duane E. Collins Irrevocable Trust dated
5/10/99 (the "Owner"), as the owner of a life insurance policy, No. 8018924-4
(the "Policy"), issued by John Hancock Life Insurance Company (the "Insurer"),
on the lives of Duane E. Collins (the "Participant") and Barbara J. Collins,
Participant's wife (the "Wife"), and Parker-Hannifin Corporation, an Ohio
corporation (the "Corporation").
RECITALS
--------
A. The Corporation desires to help the Owner provide life insurance for
the benefit and protection of the Participant's family or beneficiary
by providing funds from time to time to pay the premiums due on the
Policy as more specifically provided in the Executive Estate Protection
Agreement entered into between the Participant, the Owner and the
Corporation as of the date hereof (the "Agreement"); and
B. In consideration of the Corporation agreeing to provide such funds in
accordance with the terms and conditions of the Agreement, the Owner
agrees to grant to the Corporation, as a security interest in the
Policy, a collateral security interest for the payment of the
Corporation's Collateral Interest (as defined in the Agreement).
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing, and the mutual agreements and
covenants set forth below, the parties to this Assignment agree as follows:
1. ASSIGNMENT. The Owner hereby assigns, transfers and sets over to the
Corporation, and its successors and assigns, those certain rights and
interests described in the Agreement that are to be assigned to the
Corporation in accordance with the Agreement. Furthermore, this
Assignment is made, and the Policy is to be held as collateral security
for, any and all liabilities of the Owner to the Corporation, either
now existing, or that may hereafter arise, pursuant to the terms of the
Agreement.
2. SIGNATURES.
(a) To facilitate the operation of this Assignment, the parties
agree that the Insurer is hereby notified that the following
rights under the Policy may be exercised while the Assignment
is in effect without the signature or consent of any other
party:
(i) The Owner may sign a request to change the
beneficiary under the Policy without the signature or
consent of the Corporation.
(ii) The Corporation may sign a request to take a loan
without the Owner's or Participant's signature or
consent.
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1
<PAGE> 13
(iii) The Corporation may sign an instruction to the
Insurer to pay an amount equal to the Corporation's
Collateral Interest from the Policy's Cash Surrender
Value to the Corporation without the Participant's or
the Owner's signature or consent; provided that the
Corporation simultaneously delivers to the Insurer a
notarized statement that the Corporation is
exercising its rights in accordance with Section 6(c)
of the Agreement.
(b) The exercise of any other right under the Policy not
specifically set forth above shall be exercised with the
signature of both the Corporation and the Owner.
3. POLICY PROCEEDS. Any amount payable from the Policy during the
Participant's or the Wife's lives or at the Decedent's (as defined in
the Agreement) death shall first be paid to the Corporation to the
extent of its Collateral Interest and the Corporation's Death Benefit
(as defined in the Agreement). Any balance will be paid to the Owner
during the Participant's lifetime or to the Designated Beneficiary (as
defined in the Agreement) upon or after the Decedent's death. A
settlement option may be elected by the recipient of the proceeds. For
purposes of this Section, the amount of the Collateral Interest shall
be determined for purposes of the Insurer by a written statement
delivered to the Insurer and signed by the Corporation.
4. ENDORSEMENT. The Corporation shall hold the Policy while this
Assignment is operative and, upon request, forward the Policy to the
Insurer, without unreasonable delay, for endorsement of any designation
or change of beneficiary, any election of optional mode of settlement,
or the exercise of any other right reserved by the Owner in this
Assignment.
5. INSURER. The Insurer is hereby authorized to recognize the
Corporation's claims to rights hereunder without investigating the
reason for any action taken by the Corporation, the validity or amount
of any of the liabilities of the Owner to the Corporation under the
Agreement, the existence of any default therein, the giving of any
notice required herein, or the application to be made by the
Corporation of any amounts to be paid to the Corporation. The Insurer
shall not be responsible for the sufficiency or validity of this
Assignment and is not a party to the Agreement (or any other similar
executive life insurance agreement) between the Corporation and the
Owner or the Participant.
6. RELEASE OF ASSIGNMENT. Upon the full payment of the Corporation's
Collateral Interest in accordance with the terms and conditions of this
Assignment and the Agreement, the Corporation shall release to the
Owner, if the Owner retains the Policy in accordance with the
Agreement, the Policy and all specific rights included in this
Assignment.
7. AMENDMENT OF ASSIGNMENT. This Assignment shall not be modified, amended
or terminated, except by a writing signed by all the parties hereto.
8. NO RESTRICTION ON ASSIGNMENT . This Assignment does not limit the
rights of the Owner to assign the rights it has retained under the
Policy which rights may be assigned in accordance with Section 5 of the
Agreement.
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2
<PAGE> 14
9. BINDING AGREEMENT. This Assignment shall be binding upon the heirs,
administrators, executors and permitted successors and assigns of each
party to this Assignment.
10. STATE LAW. This Assignment shall be subject to and be construed under
the internal laws of the State of Ohio, without regard to its conflicts
of law principles.
11. VALIDITY. In case any provision of this Assignment shall be illegal or
invalid for any reason, said illegality or invalidity shall not affect
the remaining parts of this Assignment, but this Assignment shall be
construed and enforced as if such illegal or invalid provision had
never been inserted in this Assignment.
IN WITNESS WHEREOF, the Owner and the Corporation have signed this
Assignment as of the date first written above.
THE DUANE E. COLLINS IRREVOCABLE PARKER-HANNIFIN CORPORATION
TRUST DATED 5/10/99
/s/ Sharon Ann Collins, Trustee /s/ Michael J. Hiemstra
Sharon Ann Collins, Trustee Michael J. Hiemstra
Vice President-Finance and
Administration and Chief Financial
Officer
FILED WITH THE INSURER:
- --------------------------------------- Date: 6/1/99
Insurer
The John Hancock Mutual Life Insurance
Company without assuming any
responsibility for the validity or the
sufficiency of this instrument, has on
this date, filed a duplicate thereof at
it's Home Office.
Date 6/1/99
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By Secretary
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3
<PAGE> 15
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY & AFFILIATED COMPANIES
BOSTON, MA 02117
- --------------------------------------------------------------------------------
Life 1: Duane Collins Life 2: Joyce Collins A LIFE INSURANCE POLICY
Male Age 63 Female Age 62 ILLUSTRATION
Non Tobacco Use Non Tobacco Use ESTATE PROTECTION III
(Form 91-95)
Initial Billing Mode: Annual
- --------------------------------------------------------------------------------
ESTATE PROTECTION III
A Survivorship Whole Life Insurance Policy
Survivorship The Estate Protection Survivorship Whole Life insurance policy
Whole Life which you are considering provides permanent life insurance
Insurance protection with guaranteed premiums, cash values and death
benefits. Estate Protection insures two people - typically a
married couple - in one policy and pays a death benefit at the
second death. It is designed specifically to provide a
cost-efficient way to fund future estate taxes due at the
death of the surviving insured. The base policy death benefit
is guaranteed to be paid at the surviving insured's death,
provided that the required base policy contract premium is
paid each year when due.
Death Benefit The life insurance provided in this illustration reflects a
Total Initial Death Benefit of $11,402,460. This initial death
benefit includes Additional Insurance Protection Rider (AIP)
death benefit coverage.
Base Policy Estate Protection's modified premium structure provides a
Contract lower initial contract premium for the first 10 years,
Premium increasing in year 11 to the ultimate contract premium shown
on the Basic Illustration Policy Summary Page. The initial
annual base policy contract premium is $92,807.63.
Non-Guaranteed Many aspects of your life insurance contract are guaranteed,
Benefits including your premiums, cash values and death benefits.
However, certain aspects of the policy are based on
non-guaranteed dividends which can't be predicted with
absolute certainty, just as future interest rates or stock
dividends can't be predicted.
Dividends Dividends paid are based on the Company's experience which
depends on items such as the general interest rate
environment, the amount and timing of benefit claims that the
Company pays, and the Company's operating expenses. Dividends
actually paid may be higher or lower than illustrated.
Dividends are not guaranteed and are subject to change by the
Company.
Dividend The non-guaranteed benefits and values shown in this
Option illustration provide snapshots of your policy assuming the
dividends are applied under the AIP Rider dividend option to
purchase amounts of Paid-Up Insurance and One Year Term
Insurance.
Alternate The Alternate Premium Payment Option assumes that required
Premium premiums are paid by non-guaranteed policy values as reflected
Payment in the Net Premium Outlay column of the illustration. This
Option payment option is possible only if future dividends and/or cash
values are large enough to pay the required premium which is
due each year. Lower dividends, higher term charges (if
applicable), policy loans or partial surrenders taken from the
policy could cause additional premium outlay to be required.
Additional The Additional Insurance Protection (AIP) Rider provides a
Insurance combination of joint term and paid up insurance funded by
Protection additional premium and dividends. The rider death benefit is
Rider payable at the death of the surviving insured. The rider
premium is payable for the life of the contract but may be
paid by non-guaranteed policy values if sufficient values
exist to pay premiums and to fund coverage to maturity.
If the funds available are insufficient to purchase the entire
AIP Rider death benefit, we will apply all such funds to
purchase one year term insurance and you may pay us an amount
that will purchase the balance of coverage.
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<PAGE> 16
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY & AFFILIATED COMPANIES
BOSTON, MA 02117
- --------------------------------------------------------------------------------
Life 1: Duane Collins Life 2: Joyce Collins A LIFE INSURANCE POLICY
Male Age 63 Female Age 62 ILLUSTRATION
Non Tobacco Use Non Tobacco Use ESTATE PROTECTION III
(Form 91-95)
Initial Billing Mode: Annual
- --------------------------------------------------------------------------------
ESTATE PROTECTION III
A Survivorship Whole Life Insurance Policy
One Year One year joint term insurance rates are based on current
Joint Term experience and are guaranteed for the first 5 years. The death
Insurance benefit is payable on the death of the surviving insured. Any
one year term is not convertible to permanent insurance.
Premium The Premium Cost Recovery Benefit provides an additional AIP
Cost Recovery rider death benefit of $695,204 in the first year. In
Benefit subsequent years the additional death benefit is the prior
year's additional death benefit increase at a rate of 0% plus
$695,204, becoming level after 12 years.
AIP Provided that an AIP Rider Level Premium of $207,336.23 is
Level Premium paid in each year, beginning in year 1, the initial AIP Rider
Based on Death Benefit of 8,106,803 would remain in force, based on
Guaranteed guaranteed assumptions.
Assumptions
Taxation We suggest that you seek professional counsel regarding the
of Life interpretation of current tax laws and accounting practices as
Insurance they relate to your actual situation. The Technical and
Miscellaneous Revenue Act (TAMRA) of 1999 classifies some
policies as Modified Endowment Contracts. Distributions from
these policies (excluding death benefits but including policy
loans, certain partial surrenders, and some dividends) are
taxed differently and may be subject to an IRS 10% penalty
tax. TAMRA testing has been performed on the current scale
only. The initial annual 7-pay premium for this policy is
$695,209.00. Based on our interpretation of TAMRA, this policy
as illustrated would not be considered a Modified Endowment
Contract.
Other THIS IS AN ILLUSTRATION ONLY. AN ILLUSTRATION IS NOT INTENDED
Considerations TO PREDICT ACTUAL PERFORMANCE. INTEREST RATES, DIVIDENDS, AND
VALUES SET FORTH IN THE ILLUSTRATION ARE NOT GUARANTEED.
THIS ILLUSTRATION ASSUMES THAT THE CURRENTLY ILLUSTRATED
NON-GUARANTEED ELEMENTS WILL CONTINUE UNCHANGED FOR ALL YEARS
SHOWN. THIS IS NOT LIKELY TO OCCUR, AND ACTUAL RESULTS MAY BE
MORE OR LESS FAVORABLE.
While not reflected in your Basic Illustration, this policy
allows you to access cash values through policy loans and
partial surrenders. If requested, the effect of these
transactions on your policy benefits and values will be
reflected in your Supplemental Illustration.
John Hancock is proud of its commitment to financial integrity
and quality service. In support of this commitment, we
encourage you to review the assumptions used in this
illustration to help you make an informed purchase decision.
This illustration is not a contract and is not intended to
predict actual performance. Your policy contract will contain
the specific terms of coverage.
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<PAGE> 17
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY & AFFILIATED COMPANIES
BOSTON, MA 02117
- --------------------------------------------------------------------------------
Life 1: Duane Collins Life 2: Joyce Collins A LIFE INSURANCE POLICY
Male Age 63 Female Age 62 ILLUSTRATION
Non Tobacco Use Non Tobacco Use ESTATE PROTECTION III
(Form 91-95)
Initial Billing Mode: Annual
- --------------------------------------------------------------------------------
ESTATE PROTECTION III
A Survivorship Whole Life Insurance Policy
GLOSSARY OF TERMS
AIP Rider The cash value of the paid up insurance portion of the AIP Rider
Cash Value death benefit is available upon policy surrender.
AIP PUA The is the portion of the AIP Rider death benefit which is paid
Death Benefit up insurance coverage.
AIP Rider The AIP Rider supplements the base policy death benefit with
Coverage lower cost insurance coverage. It is a combination of term
insurance and paid up additional insurance, which is permanent
insurance coverage. The AIP Rider is paid for by using
non-guaranteed base policy dividends in addition to AIP Rider
premium payments. Dividends and/or AIP Rider term charges can
increase or decrease. In that event, you may need to pay more to
keep the AIP Rider coverage in force. The lower the AIP payment,
the more you rely on non-guaranteed base policy dividends to
maintain the AIP Rider coverage.
AIP Rider The AIP Rider is paid for by using base policy dividends in
Premium addition to AIP Rider premium payments, including any AIP Rider
lump sum payment amounts.
AIP The AIP Rider term cost is based on one year term insurance rates
Term Cost which are guaranteed for the first 5 policy years. Thereafter,
the term rates are subject to change, but cannot exceed the
guaranteed maximum rate shown in the contract.
AIP Term This is the portion of the AIP Rider death benefit which is one
Death year term insurance coverage.
Benefit
Annual The annual dividend, a non-guaranteed policy value, includes the
Dividend base policy dividend plus any dividends earned on paid up
insurance. Dividends are based on current investment, claim, and
expense experience and are neither guarantees nor estimates.
Dividends actually paid may be higher or lower than those shown.
Variations in dividends paid would affect:
- Death benefit provided by dividends
- Policy cash values provided by dividends
- Total "Net Premium Outlay"
Non-Guaranteed dividends can increase the value of your life
insurance policy in one of two ways:
- By reducing the out-of pocket cost of your policy
- By increasing your policy's cash value and/or death
benefit.
Base The death benefit on the base policy is guaranteed assuming the
Guaranteed base policy contract premium is paid when due and no policy loans
Death are taken against it. This is the value that is payable upon the
Benefit death of the surviving insured. The actual amount payable may be
decreased by loans or increased by additional insurance benefits.
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<PAGE> 18
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY & AFFILIATED COMPANIES
BOSTON, MA 02117
- --------------------------------------------------------------------------------
Life 1: Duane Collins Life 2: Joyce Collins A LIFE INSURANCE POLICY
Male Age 63 Female Age 62 ILLUSTRATION
Non Tobacco Use Non Tobacco Use ESTATE PROTECTION III
(Form 91-95)
Initial Billing Mode: Annual
- --------------------------------------------------------------------------------
ESTATE PROTECTION III
A Survivorship Whole Life Insurance Policy
GLOSSARY OF TERMS
Base The Base Contract Premium column includes the base policy
Contract contract premium and the premium for any riders, with the
Premium exception of term and paid up insurance riders.
Base The cash value on the base policy is guaranteed assuming the base
Guaranteed policy contract premium is paid when due and no policy loans are
Cash Value taken against it. This value is available as cash upon surrender
of the policy.
Contract This illustration reflects annual premiums payable until the
Premiums death of the surviving insured. Payments may be made at more
frequent intervals; however, total payments will be higher. Refer
to the Basic Illustration Summary page for information on modal
payment options. Contract premiums are paid at the beginning of
each modal premium payment period. Actual premiums required for
this insurance coverage will ultimately depend on the outcome of
the underwriting process, and may vary from what is shown on this
illustration. If so, you will receive a REVISED BASIC
ILLUSTRATION prior to or upon delivery of your insurance
contract.
Life The estimated joint life expectancy is 23 years assuming 1980 CSO
Expectancy mortality with Nonsmoker/Nonsmoker and select factors. This
illustration assumes the death of Life 1 in year 17.
Net Premium Net Premium Outlay reflects required premium less any
Outlay non-guaranteed values assumed applied to pay all or a portion of
the premium due.
Risk Classifications represent groups of people with similar risk
Class characteristics and help to determine the cost of insurance. Risk
classes vary by the plan or product illustrated. Final Risk
Classification for a proposed insured is determined upon
completion of the underwriting process.
Surrender The Surrender To Pay Premium column reflects the amount of
To Pay non-guaranteed dividend and/or cash value assumed to be applied
Premium to pay required premium.
Total The Total Cash Value is equal to the Base Guaranteed Cash Value
Cash Value plus any dividends and interest unapplied or unpaid, and the
cash value of any paid up insurance earned by dividends or under
a paid up insurance rider, if any. This value is available as
cash upon surrender of the policy. Cash Values are illustrated as
of the end of the year (EOY) unless otherwise indicated.
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<PAGE> 19
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY & AFFILIATED COMPANIES
BOSTON, MA 02117
- --------------------------------------------------------------------------------
Life 1: Duane Collins Life 2: Joyce Collins A LIFE INSURANCE POLICY
Male Age 63 Female Age 62 ILLUSTRATION
Non Tobacco Use Non Tobacco Use ESTATE PROTECTION III
(Form 91-95)
Initial Billing Mode: Annual
- --------------------------------------------------------------------------------
ESTATE PROTECTION III
A Survivorship Whole Life Insurance Policy
GLOSSARY OF TERMS
Total Total Death Benefit is equal to the Base Guaranteed Death Benefit
Death plus any dividends and interest unapplied or unpaid, plus the
Benefit death benefit of any paid up insurance earned by dividends or
under a paid up insurance rider or AIP rider, if any, plus the
death benefit under any term insurance riders. This is the
benefit payable upon the death of the surviving insured. Death
Benefits are illustrated as of the end of the year (EOY) unless
otherwise indicated.
- --------------------------------------------------------------------------------
<PAGE> 20
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY & AFFILIATED COMPANIES
BOSTON, MA 02117
- --------------------------------------------------------------------------------
Life 1: Duane Collins Life 2: Joyce Collins A LIFE INSURANCE POLICY
Male Age 63 Female Age 62 ILLUSTRATION
Non Tobacco Use Non Tobacco Use ESTATE PROTECTION III
(Form 91-95)
Initial Billing Mode: Annual
- --------------------------------------------------------------------------------
BASIC ILLUSTRATION SUMMARY
Current Dividend Scale
Alternate Premium Payment Option
Dividends Applied Under AIP Rider Dividend Option
RISK CLASS
Life 1: Non Tobacco Use
Life 2: Non Tobacco Use
SUMMARY OF INITIAL COVERAGE
<TABLE>
<CAPTION>
Initial First Year
Coverage Description Amount Annual Premium
<S> <C> <C>
Estate Protection Base Policy $3,990,862 $92,807.63
Premium $139,181.45 starting in yr 11
Additional Insurance Protection Rider $7,411,599
with Premium Cost Recovery Benefit
at 0.00% per year for 12 years $695,204
Level Annual Premium $602,396.00
-----------
TOTAL excluding any rider lump sum payment $695,203.63
Initial MODAL Premium: Annual $695,203.63
Semi-annual $355,945.03
Quarterly $181,449.28
Premiumatic $60,136.11
Initial Annual 7-Pay Premium $695,209.00
Additional Insurance Protection Rider Target Premium $86,122.78
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 21
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY & AFFILIATED COMPANIES
BOSTON, MA 02117
- --------------------------------------------------------------------------------
Life 1: Duane Collins Life 2: Joyce Collins A LIFE INSURANCE POLICY
Male Age 63 Female Age 62 ILLUSTRATION
Non Tobacco Use Non Tobacco Use ESTATE PROTECTION III
(Form 91-95)
Initial Billing Mode: Annual
- --------------------------------------------------------------------------------
GUARANTEED ASSUMPTIONS
These policy benefits and values are guaranteed provided the premium is paid
when due and assume guaranteed term rates.
NON-GUARANTEED ASSUMPTIONS
These policy benefits and values are not guaranteed. Non-guaranteed elements are
subject to change by the company. Actual results may be more or less favorable.
Current Scale:
Policy benefits and values are based on the current dividend scale and current
term rates.
Midpoint Scale:
Policy benefits and values are based on 50% of the current dividend scale and
term rates that are halfway between current and guaranteed.
Premiums are assumed paid at the beginning of each year. Policy values,
including cash values and death benefits, are illustrated as of the end of the
year (EOY) unless otherwise indicated.
These policy benefits and values do not reflect the impact of any loans or cash
surrenders that may be taken.
Representative's Address:
John Hancock
197 Clarendon
Boston MA 02117
License Number:
$11,402,460 Initial Death Benefit: $3,990,862 Base with $7,411,599 AIP Rider
First Year Annual Contract Premium of $695,203.63
Alternate Premium Payment Option
Dividends Applied Under AIP Rider Dividend Option
<TABLE>
<CAPTION>
SUMMARY YEARS GUARANTEED NON-GUARANTEED ASSUMPTIONS
ASSUMPTIONS Midpoint Scale Current Scale
---------------------------------------------------
<S> <C> <C> <C>
Years Premium Paid in Cash 19* 10** 7**
- -------------------------------------------------------------------------------------
Summary Year 5
Total Cash Value 3,496,207 3,670,563 3,852,332
Total Death Benefit 14,878,480 14,939,091 15,003,592
Cumulative Net Premium Outlay 3,476,018 3,476,018 3,476,018
- --------------------------------------------------------------------------------------
Summary Year 10
Total Cash Value 7,764,329 8,628,658 7,323,150
Total Death Benefit 18,354,500 18,510,784 18,616,370
Cumulative Net Premium Outlay 6,952,036 6,952,036 4,866,425
- --------------------------------------------------------------------------------------
Summary Year 20
Total Cash Value 16,695,806 13,528,274 14,499,032
Total Death Benefit 22,996,328 20,068,060 20,419,348
Cumulative Net Premium Outlay 13,208,870 6,952,036 4,866,425
- --------------------------------------------------------------------------------------
Summary Year 30
Total Cash Value 18,577,508 18,777,024 26,103,956
Total Death Benefit 21,299,504 21,469,172 29,625,488
Cumulative Net Premium Outlay 13,208,870 6,952,036 4,866,425
- --------------------------------------------------------------------------------------
</TABLE>
*This illustration assumes policy values are used to pay contract premium.
**This illustration assumes non-guaranteed values are used to pay contract
premium.
I have received a copy of this illustration and understand that any
non-guaranteed elements illustrated are subject to change and could be either
higher or lower. The representative has told me they are not guaranteed.
Applicant 1: _______________________________ Date: _________________
Applicant 2: _______________________________ Date: _________________
I certify that this illustration has been presented to the applicant and that I
have explained that any non-guaranteed elements illustrated are subject to
change. I have made no statements that are inconsistent with the illustration.
Representative: ____________________________ Date: _________________
- --------------------------------------------------------------------------------
<PAGE> 22
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY & AFFILIATED COMPANIES
BOSTON, MA 02117
- --------------------------------------------------------------------------------
Life 1: Duane Collins Life 2: Joyce Collins A LIFE INSURANCE POLICY
Male Age 63 Female Age 62 ILLUSTRATION
Non Tobacco Use Non Tobacco Use ESTATE PROTECTION III
(Form 91-95)
Initial Billing Mode: Annual
- --------------------------------------------------------------------------------
ILLUSTRATION BASED ON GUARANTEED ASSUMPTIONS
$3,990,862 Policy with $7,411,599 Additional Insurance Protection Rider
Initial Annual Contract Premium of $695,203.63
Alternate Premium Payment Option
<TABLE>
<CAPTION>
BASE AIP Total AIP AIP Total
Base AIP Surrender *Net GUAR Rider Cash AIP Term PUA Base Death
Contract Rider To Pay Premium CASH Cash Value Term Death Death Death Benefit
Year Premium Premium Premium Outlay VALUE Value (EOY) Cost Benefit Benefit Benefit (EOY)
- ---- ------- ------- ------- ------ ----- ----- ----- ---- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 92808 602396 0 695204 40 571060 571100 1657 6628151 1478651 3990862 12097663
2 92808 602396 0 695204 90632 1167553 1258185 1595 5908077 2893929 3990862 12792867
3 92808 602396 0 695204 184458 1790136 1974593 1575 5248448 4248762 3990862 13488071
4 92808 602396 0 695204 281116 2439282 2720398 1580 4646334 5546080 3990862 14183276
5 92808 602396 0 695204 380728 3115479 3496207 1681 4098988 6788631 3990862 14878480
------ ------- ------- ------- -----
464038 3011980 0 3476018 8087
6 92808 602396 0 695204 482814 3812348 4295163 8030 3617204 7965618 3990862 15573683
7 92808 602396 0 695204 586816 4534342 5121158 9561 3187003 9091023 3990862 16268888
8 92808 602396 0 695204 692814 5282317 5975130 10714 2804626 10168605 3990862 16964092
9 92808 602396 0 695204 800367 6055847 6856214 11968 2467606 11200829 3990862 17659296
10 92808 602396 0 695204 909278 6855051 7764329 13126 2173178 12190460 3990862 18354500
------ ------- ------- ------- -----
928076 6023960 0 6952036 61486
11 139181 602396 46374 695204* 1057379 7615970 8673349 19655 2003540 13055302 3990862 19049704
12 139181 602396 46374 695204* 1204921 8389263 9594184 23623 1871887 13882159 3990862 19744908
13 139181 602396 46374 695204* 1351106 9183207 10534313 17004 1062752 14691294 3990862 19744908
14 139181 602396 46374 695204* 1495057 10000710 11495766 5236 261661 15492384 3990862 19744908
15 139181 602396 46374 695204* 1636213 10832970 12469183 0 0 16276212 3990862 20267074
------ ------- ------- ------- -----
1623984 9035940 231869 10428054 127004
16 139181 602396 46374 695204* 1774177 11672766 13446943 0 0 17036432 3990862 21027294
17 139181 602396 46374 695204* 1908670 12518363 14427032 0 0 17774912 3990862 21765774
18 139181 602396 46374 695204* 2039450 13367835 15407285 0 0 18493356 3990862 22484218
19 139181 602396 46374 695204* 2166000 14218801 16384801 0 0 19193340 3990862 23184202
20 139181 602396 741577 0* 2287722 14408085 16695806 0 0 19005466 3990862 22996328
------ ------- ------- ------- -----
2319891 12047920 1158942 13208870 127004
</TABLE>
THESE POLICY BENEFITS AND VALUES ARE GUARANTEED PROVIDED THE PREMIUM IS PAID
WHEN DUE.
THESE ILLUSTRATED VALUES DO NOT REFLECT ANY LOANS OR CASH SURRENDERS.
*POLICY VALUES ARE ASSUMED TO PAY A PORTION OF PREMIUM STARTING IN YEAR 11 AND
FULL PREMIUM STARTING IN YEAR 20.
- --------------------------------------------------------------------------------
<PAGE> 23
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY & AFFILIATED COMPANIES
BOSTON, MA 02117
- --------------------------------------------------------------------------------
Life 1: Duane Collins Life 2: Joyce Collins A LIFE INSURANCE POLICY
Male Age 63 Female Age 62 ILLUSTRATION
Non Tobacco Use Non Tobacco Use ESTATE PROTECTION III
(Form 91-95)
Initial Billing Mode: Annual
- --------------------------------------------------------------------------------
ILLUSTRATION BASED ON GUARANTEED ASSUMPTIONS
$3,990,862 Policy with $7,411,599 Additional Insurance Protection Rider
Initial Annual Contract Premium of $695,203.63
Alternate Premium Payment Option
<TABLE>
<CAPTION>
BASE AIP Total AIP AIP Total
Base AIP Surrender *Net GUAR Rider Cash AIP Term PUA Base Death
Contract Rider To Pay Premium CASH Cash Value Term Death Death Death Benefit
Year Premium Premium Premium Outlay VALUE Value (EOY) Cost Benefit Benefit Benefit (EOY)
---- ------- ------- ------- ------ ----- ----- ----- ---- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
21 139181 602396 741577 0* 2403736 14579112 16982848 0 0 18821874 3990862 22812736
22 139181 602396 741577 0* 2513445 14730409 17243854 0 0 18642190 3990862 22633052
23 139181 602396 741577 0* 2616609 14861809 17478418 0 0 18466048 3990862 22456910
24 139181 602396 741577 0* 2713347 14973911 17687258 0 0 18293114 3990862 22283976
25 139181 602396 741577 0* 2804139 15068401 17872540 0 0 18123082 3990862 22113944
------- -------- ------- -------- ------
3015799 15059900 4866829 13208870 127004
26 139181 602396 741577 0* 2889743 15147538 18037280 0 0 17955686 3990862 21946548
27 139181 602396 741577 0* 2971237 15214281 18185518 0 0 17790702 3990862 21781564
28 139181 602396 741577 0* 3049737 15271626 18321362 0 0 17627952 3990862 21618814
29 139181 602396 741577 0* 3126681 15323368 18450048 0 0 17467296 3990862 21458158
30 139181 602396 741577 0* 3203784 15373723 18577508 0 0 17308642 3990862 21299504
------- -------- ------- -------- ------
3711706 18071880 8574716 13208870 127004
31 139181 602396 741577 0* 3283043 15427653 18710696 0 0 17151944 3990862 21142806
32 139181 602396 741577 0* 3366491 15489927 18856418 0 0 16997208 3990862 20988070
33 139181 602396 741577 0* 3455767 15564242 19020008 0 0 16844484 3990862 20835346
34 139181 602396 741577 0* 3551228 15651418 19202646 0 0 16693855 3990862 20684716
35 139181 602396 741577 0* 3650960 15746575 19397536 0 0 16545404 3990862 20536266
------- -------- ------- -------- ------
4407614 21083860 12282601 13208870 127004
36 139181 602396 741577 0* 3749694 15837373 19587066 0 0 16399163 3990862 20390024
37 139181 602396 741577 0* 3838131 15902373 19740504 0 0 16255045 3990862 20245906
38 139181 602396 741577 0* 3990862 16112777 20103638 0 0 16112777 3990862 20103638
------- -------- ------- -------- ------
4825158 22891048 14507332 13208870 127004
</TABLE>
THESE POLICY BENEFITS AND VALUES ARE GUARANTEED PROVIDED THE PREMIUM IS PAID
WHEN DUE.
THESE ILLUSTRATED VALUES DO NOT REFLECT ANY LOANS OR CASH SURRENDERS.
*POLICY VALUES ARE ASSUMED TO PAY A PORTION OF PREMIUM STARTING IN YEAR 11 AND
FULL PREMIUM STARTING IN YEAR 20.
<PAGE> 24
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY & AFFILIATED COMPANIES
BOSTON, MA 02117
- --------------------------------------------------------------------------------
Life 1: Duane Collins Life 2: Joyce Collins A LIFE INSURANCE POLICY
Male Age 63 Female Age 62 ILLUSTRATION
Non Tobacco Use Non Tobacco Use ESTATE PROTECTION III
(Form 91-95)
Initial Billing Mode: Annual
- --------------------------------------------------------------------------------
ILLUSTRATION BASED ON NON-GUARANTEED ASSUMPTIONS
Current Dividend Scale
$3,990,862 Policy with $7,411,599 Additional Insurance Protection Rider
Initial Annual Contract Premium of $695,203.63
Alternate Premium Payment Option
Dividends Applied Under AIP Rider Dividend Option
<TABLE>
<CAPTION>
BASE AIP Total AIP AIP Total
Base AIP Annual Surrender *Net GUAR Rider Cash AIP Term PUA Base Death
Contract Rider Dividend To Pay Premium CASH Cash Value Term Death Death Death Benefit
Year Premium Premium (EOY) Premium Outlay VALUE Value (EOY) Cost Benefit Benefit Benefit (EOY)
- ---- ------- ------- -------- ------- ------- ------ ------- ------- ---- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 92808 602396 18365 0 695204 40 571060 589465 1657 6628151 1478651 3990862 12116028
2 92808 602396 38540 0 695204 90632 1186751 1315923 1582 5860492 2941514 3990862 12831407
3 92808 602396 63582 0 695204 184458 1850478 2098518 1532 5105230 4391980 3990862 13551654
4 92808 602396 91722 0 695204 281116 2568749 2941587 1480 4351971 5840444 3990862 14274998
5 92808 602396 125112 0 695204 380728 3346492 3852332 1474 3595610 7292008 3990862 15003592
------ ------- ------ ------ ------- ----
464038 3011980 337321 0 3476018 7725
6 92808 602396 159849 O 695204 482814 4190641 4833305 1413 2826789 8756033 3990862 15733532
7 92808 602396 199120 0 695204 586816 5103807 5889743 1268 2045268 10232758 3990862 16468007
8 92808 602396 218130 695204 0* 692814 5424338 6335281 1949 2531231 10441999 3990862 17182222
9 92808 602396 239165 695204 0* 800367 5772899 6812432 2991 2990944 10677491 3990862 17898462
10 92808 602396 261870 695204 0* 909278 6152001 7323150 4314 3423423 10940215 3990862 18616370
------ ------- ------- ------- ------- -----
928076 6023960 1415456 2085611 4866425 19660
11 139181 602396 311833 741577 0* 1057379 6502486 7871698 6651 3912274 11146567 3990862 19361538
12 139181 602396 344573 741577 0* 1204921 6904451 8453945 10130 4328884 11425162 3990862 20089480
13 139181 602396 379995 741577 0* 1351106 7340834 9071935 12792 4010180 11743866 3990862 20124904
14 139181 602396 417799 741577 0* 1495057 7813394 9726249 15732 3650095 12103951 3990862 20162706
15 139181 602396 457687 741577 0* 1636213 8324053 10417953 18673 3247407 12506639 3990862 20202594
------- ------- ------- ------- ------- -----
1623984 9035940 3327343 5793498 4866425 83637
16 139181 602396 498871 741577 0* 1774177 8875109 11148157 21258 2800802 12953245 3990862 20243780
17 139181 602396 541067 741577 0* 1908670 9468846 11918583 22838 2309165 13444881 3990862 20285974
18 139181 602396 584302 741577 0* 2039450 10107884 12731636 22575 1770578 13983468 3990862 20329210
19 139181 602396 628345 741577 0* 2166000 10795716 13590061 19221 1181379 14572667 3990862 20373254
20 139181 602396 674440 741577 0* 2287722 11536870 14499032 11019 535952 15218094 3990862 20419348
------- -------- ------- ------- ------- ------
2319891 12047920 6254368 9501385 4866425 180548
</TABLE>
REFER TO "ILLUSTRATION BASED ON GUARANTEED ASSUMPTIONS" PAGE FOR GUARANTEED
VALUES AND BENEFITS AND OTHER IMPORTANT INFORMATION.
THESE ILLUSTRATED VALUES DO NOT REFLECT ANY LOANS OR CASH SURRENDERS.
*NON-GUARANTEED POLICY VALUES ARE ASSUMED TO PAY FULL PREMIUM STARTING IN
YEAR 8.
- --------------------------------------------------------------------------------
<PAGE> 25
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY & AFFILIATED COMPANIES
BOSTON, MA 02117
- --------------------------------------------------------------------------------
Life 1: Duane Collins Life 2: Joyce Collins A LIFE INSURANCE POLICY
Male Age 63 Female Age 62 ILLUSTRATION
Non Tobacco Use Non Tobacco Use ESTATE PROTECTION III
(Form 91-95)
Initial Billing Mode: Annual
- --------------------------------------------------------------------------------
ILLUSTRATION BASED ON NON-GUARANTEED ASSUMPTIONS
Current Dividend Scale
$3,990,862 Policy with $7,411,599 Additional Insurance Protection Rider
Initial Annual Contract Premium of $695,203.63
Alternate Premium Payment Option
Dividends Applied Under AIP Rider Dividend Option
<TABLE>
<CAPTION>
BASE AIP Total AIP AIP Total
Base AIP Annual Surrender *Net GUAR Rider Cash AIP Term PUA Base Death
Contract Rider Dividend To Pay Premium CASH Cash Value Term Death Death Death Benefit
Year Premium Premium (EOY) Premium Outlay VALUE Value (EOY) Cost Benefit Benefit Benefit (EOY)
- ---- ------- ------- -------- ------- ------- ------ ------- ------- ---- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
21 139181 602396 722140 741577 0* 2403736 12334579 15460455 0 0 15924145 3990862 20637146
22 139181 602396 774405 741577 0* 2513445 13177391 16465241 0 0 16676755 3990862 21442022
23 139181 602396 828132 741577 0* 2616609 14068757 17513498 0 0 17480668 3990862 22299662
24 139181 602396 882481 741577 0* 2713347 15009590 18605418 0 0 18336702 3990862 23210046
25 139181 602396 934811 741577 0* 2804139 16001023 19739974 0 0 19244766 3990862 24170440
------- -------- -------- ------- ------- ------
3015799 15059900 10396337 13209270 4866425 180548
26 139181 602396 985521 741577 0* 2889743 17042280 20917546 0 0 20201686 3990862 25178070
27 139181 602396 1033968 741577 0* 2971237 18134064 22139268 0 0 21204928 3990862 26229758
28 139181 602396 1080243 741577 0* 3049737 19276918 23406896 0 0 22251238 3990862 27322342
29 139181 602396 1124631 741577 0* 3126681 20473064 24724374 0 0 23337498 3990862 28452990
30 139181 602396 1173804 741577 0* 3203784 21726368 26103956 0 0 24460822 3990862 29625488
------- -------- -------- -------- -------- ------
3711706 18071880 15794504 16917156 4866425 180548
31 139181 602396 1222700 741577 0* 3283043 23049504 27555246 0 0 25625662 3990862 30839224
32 139181 602396 1273865 741577 0* 3366491 24451020 29091376 0 0 26830280 3990862 32095006
33 139181 602396 1330411 741577 0* 3455767 25941544 30727720 0 0 28075376 3990862 33396648
34 139181 602396 1398951 741577 0* 3551228 27530936 32481116 0 0 29364588 3990862 34754400
35 139181 602396 1480715 741577 0* 3650960 29225636 34357312 0 0 30708264 3990862 36179840
------- -------- -------- -------- -------- ------
4407614 21083860 22501144 20625046 4866425 180548
36 139181 602396 1572264 741577 0* 3749694 31017584 36339540 0 0 32117854 3990862 37680980
37 139181 602396 1651951 741577 0* 3838131 32872742 38362824 0 0 33601772 3990862 39244584
38 139181 602396 1284542 741577 0* 3990862 35148092 40423492 0 0 35148092 3990862 40423492
------- -------- -------- -------- -------- ------
4825158 22891048 27009900 22849780 4866425 180548
</TABLE>
REFER TO "ILLUSTRATION BASED ON GUARANTEED ASSUMPTIONS" PAGE FOR
GUARANTEED VALUES AND BENEFITS AND OTHER IMPORTANT INFORMATION.
THESE ILLUSTRATED VALUES DO NOT REFLECT ANY LOANS OR CASH
SURRENDERS.
"NON-GUARANTEED POLICY VALUES ARE ASSUMED TO PAY FULL PREMIUM
STARTING IN YEAR 8.
- --------------------------------------------------------------------------------
<PAGE> 26
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY & AFFILIATED COMPANIES
BOSTON, MA 02117
ESTATE PROTECTION III - A SURVIVORSHIP WHOLE LIFE INSURANCE POLICY
SUPPLEMENTAL EXPLANATION
The Supplemental Illustration pages which follow are designed to show additional
concepts not included in your Basic Illustration.
Non- Values and benefits illustrated on Supplemental pages are
Guaranteed based on non-guaranteed elements which are subject
Values to change by the insurer. Actual results may be more or less
favorable than shown.
Guaranteed Please refer to your Basic Illustration for guaranteed
Values elements and benefits, and other important information.
Payments Premiums are assumed paid at the beginning of each year.
and Values Policy values, including cash values and death benefits, are
illustrated as of the end of the year (EOY) unless otherwise
indicated.
Accessing While not reflected in your Basic Illustration, this policy
Policy allows you to access cash values through policy loans and
Values partial surrenders. If requested, the effect of these
transactions on your policy benefits and values will be
reflected in your Supplemental Illustration.
Policy Policy loans may be taken against cash value after the first
Loans policy year. Policy loans, if illustrated, are assumed taken
at the beginning of the year. Loan interest is payable in
arrears. This illustration assumes a policy loan interest rate
of 7.25%. The loan interest rate is variable and subject to
change annually on the policy anniversary. Policy loans do not
affect dividends.
Surrenders Partial surrenders may be made of the cash value of paid-up
insurance. Surrenders may impact your policy's cash value,
death benefit and/or planned premium payment schedule.
Surrender These columns on your Supplemental Illustration pages will
Amount and reflect any illustrated surrenders, policy loans and/or loan
Net Outlay interest due.
Net Cash Net Cash Value is the cash value available upon policy
Value surrender. This value will reflect any illustrated surrenders,
policy loans and/or interest due. Cash values are illustrated
as of the end of the year (EOY) unless otherwise indicated.
Net Death Net Death Benefit is the benefit payable upon the death of the
Benefit surviving insured. This value will reflect any illustrated
surrenders, policy loans and/or interest due. Death Benefits
are illustrated as of the end of the year (EOY) unless
otherwise indicated.
Tax We suggest that you seek professional counsel regarding the
Considerations interpretation of current tax laws and accounting practices as
they relate to your actual situation.
- --------------------------------------------------------------------------------
<PAGE> 27
JOHN HANCOCK MUTUAL LIFE INSURANCE CO & AFFILIATED COMPANIES
BOSTON, MA 02117
ESTATE PROTECTION III - A SURVIVORSHIP WHOLE LIFE INSURANCE POLICY
Life 1: Duane Collins Life 2: Joyce Collins
Male Age 63 Non Tobacco Use Female Age 62 Non Tobacco Use
SUMMARY OF POLICY VALUES
Current Dividend Scale
$3,990,862 Policy with $7,411,599 Additional Insurance Protection Rider
Alternate Premium Payment Option
Dividends Applied Under AIP Rider Dividend Option
<TABLE>
<CAPTION>
Age Age Net Net Cash Net Death
Year #1 #2 Outlay Value Benefit
---- --- --- ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1 64 63 695204 589465 12116029
2 65 64 695204 1315923 12831409
3 66 65 695204 2098518 13551654
4 67 66 695204 2941587 14274998
5 68 67 695204 3852332 15003590
--------
3476018
6 69 68 695204 4833305 15733532
7 70 69 695204 5889743 16468008
8 71 70 0 6335282 17182220
9 72 71 0 6812432 17898460
10 73 72 0 7323150 18616372
--------
4866425
11 74 73 0 7871698 19361536
12 75 74 0 8453945 20089480
13 76 75 0 9071935 20124904
14 77 76 0 9726248 20162708
15 78 77 0 10417953 20202596
--------
4866425
16 79 78 -4845976 5943711 12747037
17 80 79 0 6330139 12769425
18 81 80 0 6730635 12791823
19 82 81 0 7143771 12813667
20 83 82 0 7569047 12835850
--------
20449
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 28
JOHN HANCOCK MUTUAL LIFE INSURANCE CO & AFFILIATED COMPANIES
BOSTON, MA 02117
ESTATE PROTECTION III - A SURVIVORSHIP WHOLE LIFE INSURANCE POLICY
Life 1: Duane Collins Life 2: Joyce Collins
Male Age 63 Non Tobacco Use Female Age 62 Non Tobacco Use
SUMMARY OF POLICY VALUES
Current Dividend Scale
$3,990,862 Policy with $7,411,599 Additional Insurance Protection Rider
Alternate Premium Payment Option
Dividends Applied Under AIP Rider Dividend Option
<TABLE>
<CAPTION>
Age Age Net Net Cash Net Death
Year #1 #2 Outlay Value Benefit
---- --- --- ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
21 84 83 0 8005257 12857649
22 85 84 0 8455673 12881585
23 86 85 0 8923316 12906068
24 87 86 0 9413060 12930758
25 88 87 0 9931388 12954582
-----
20449
26 89 88 0 10489487 12978330
27 90 89 0 11070959 13371308
28 91 90 0 11671933 13857338
29 92 91 0 12294386 14360420
30 93 92 0 12944961 14882542
-----
20449
31 94 93 0 13628695 15423297
32 95 94 0 14352396 15983014
33 96 95 0 15124049 16563754
34 97 96 0 15952207 17170986
35 98 97 0 16839490 17810834
-----
20449
36 99 98 0 17776530 18487410
37 100 99 0 18728770 19193498
38 101 100 0 19694324 19694324
-----
20449
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 29
JOHN HANCOCK MUTUAL LIFE INSURANCE CO & AFFILIATED COMPANIES
BOSTON, MA 02117
ESTATE PROTECTION III - A SURVIVORSHIP WHOLE LIFE INSURANCE POLICY
Life 1: Duane Collins Life 2: Joyce Collins
Male Age 63 Non Tobacco Use Female Age 62 Non Tobacco Use
SUMMARY OF POLICY VALUES
Current Dividend Scale
$3,990,862 Policy with $7,411,599 Additional Insurance Protection Rider
Alternate Premium Payment Option
Dividends Applied Under AIP Rider Dividend Option
<TABLE>
<CAPTION>
AIP AIP AIP
GUAR Rider Net AIP Term PUA Net
Annual Annual Surrender Net CASH Cash Cash Term Death Death Death
Yr Premium Dividend Amount Outlay VALUE Value Value Cost Benefit Benefit Benefit
- -- ------- -------- --------- ------- ------ ------- ------- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 695204 18365 0 695204 40 571060 589465 1657 6628151 1478651 12116029
2 695204 38540 0 695204 90632 1186751 1315923 1582 5860492 2941514 12831409
3 695204 63582 0 695204 184458 1850478 2098518 1532 5105230 4391980 13551654
4 695204 91722 0 695204 281116 2568749 2941587 1480 4351971 5840444 14274998
5 695204 125112 0 695204 380728 3346492 3852332 1474 3595610 7292008 15003590
------- ------ ------- ------- ----
3476018 337321 0 3476018 7725
6 695204 159849 0 695204 482814 4190641 4833305 1413 2826789 8756033 15733532
7 695204 199120 0 695204 586816 5103807 5889743 1268 2045268 10232758 16468008
8 695204 218130 695204 0 692814 5424338 6335282 1949 2531231 10441999 17182220
9 695204 239165 695204 0 800367 5772899 6812432 2991 2990944 10677491 17898460
10 695204 261870 695204 0 909278 6152001 7323150 4314 3423423 10940215 18616372
------- ------- ------- -------- -----
6952036 1415456 2085611 4866425 19660
11 741577 311833 741577 0 1057379 6502486 7871698 6651 3912274 11146567 19361536
12 741577 344573 741577 0 1204921 6904451 8453945 10130 4328884 11425162 20089480
13 741577 379995 741577 0 1351106 7340834 9071935 12792 4010180 11743866 20124904
14 741577 417799 741577 0 1495057 7813394 9726248 15732 3650095 12103951 20162708
15 741577 457687 741577 0 1636213 8324053 10417953 18673 3247407 12506639 20202596
-------- ------- ------- -------- -----
10659921 3327343 5793498 4866425 83637
16 741577 283064 5587554 -4845976 1774177 3886469 5943711 21258 2800802 5672311 12747037
17 741577 305451 741577 0 1908670 4116019 6330139 25998 2628749 5844364 12769425
18 741577 327848 741577 0 2039450 4363337 6730635 31069 2436777 6036336 12791823
19 741577 349693 741577 0 2166000 4628078 7143771 36215 2225873 6247241 12813667
20 741577 371875 741577 0 2287722 4909451 7569047 41061 1997138 6475975 12835850
-------- ------- -------- -------- ------
14367806 4965274 14347360 20449 239239
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 30
JOHN HANCOCK MUTUAL LIFE INSURANCE CO & AFFILIATED COMPANIES
BOSTON, MA 02117
ESTATE PROTECTION III - A SURVIVORSHIP WHOLE LIFE INSURANCE POLICY
Life 1: Duane Collins Life 2: Joyce Collins
Male Age 63 Non Tobacco Use Female Age 62 Non Tobacco Use
SUMMARY OF POLICY VALUES
Current Dividend Scale
$3,990,862 Policy with $7,411,599 Additional Insurance Protection Rider
Alternate Premium Payment Option
Dividends Applied Under AIP Rider Dividend Option
<TABLE>
<CAPTION>
AIP AIP AIP
GUAR Rider Net AIP Term PUA Net
Annual Annual Surrender Net CASH Cash Cash Term Death Death Death
Yr Premium Dividend Amount Outlay VALUE Value Value Cost Benefit Benefit Benefit
- -- ------- -------- --------- ------ ------- ------- ------- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
21 741577 393674 741577 0 2403736 5207848 8005257 45107 1749696 6723417 12857649
22 741577 417609 741577 0 2513445 5524620 8455673 46664 1481386 6991728 12881585
23 741577 442094 741577 0 2616609 5864614 8923316 45207 1186232 7286882 12906068
24 741577 466784 741577 0 2713347 6232930 9413060 39193 858556 7614558 12930758
25 741577 490609 741577 0 2804139 6636641 9931388 26808 491086 7982027 12954582
-------- ------- -------- ----- ------
18075692 7176043 18055246 20449 442218
26 741577 514355 741577 0 2889743 7085389 10489487 4799 74189 8398924 12978330
27 741577 536797 741577 0 2971237 7562926 11070959 0 0 8843649 13371308
28 741577 557878 741577 0 3049737 8064319 11671933 0 0 9308598 13857338
29 741577 577660 741577 0 3126681 8590045 12294386 0 0 9791898 14360420
30 741577 599955 741577 0 3203784 9141221 12944961 0 0 10291724 14882542
-------- ------- -------- ----- ------
21783582 9962687 21763136 20449 447017
31 741577 621945 741577 0 3283043 9723708 13628695 0 0 10810491 15423297
32 741577 644942 741577 0 3366491 10340961 14352396 0 0 11347211 15983014
33 741577 670706 741577 0 3455767 10997576 15124049 0 0 11902186 16563754
34 741577 702693 741577 0 3551228 11698286 15952207 0 0 12477431 17170986
35 741577 741498 741577 0 3650960 12447032 16839490 0 0 13078475 17810834
-------- -------- -------- ----- ------
25491472 13344471 25471026 20449 447017
36 741577 785202 741577 0 3749694 13241634 17776530 0 0 13711347 18487410
37 741577 822351 741577 0 3838131 14068287 18728770 0 0 14380284 19193498
38 741577 624858 741577 0 3990862 15078605 19694324 0 0 15078605 19694324
-------- -------- -------- ----- ------
27716206 15576882 27695760 20449 447017
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 31
JOHN HANCOCK MUTUAL LIFE INSURANCE CO & AFFILIATED COMPANIES BOSTON, MA 02117
ESTATE PROTECTION III - A SURVIVORSHIP WHOLE LIFE INSURANCE POLICY
Parker Hannifin Tax Bracket: ER 36% EE 50%
Life 1: Duane Collins Life 2: Joyce Collins
Male Age 63 Non Tobacco Use Female Age 62 Non Tobacco Use
SPLIT DOLLAR PROPOSAL SUMMARY OF COSTS AND BENEFITS
Current Dividend Scale
$3,990,862 Policy with $7,411,599 Additional Insurance Protection Rider
Alternate Premium Payment Option
Dividends Applied Under AIP Rider Dividend Option
<TABLE>
<CAPTION>
-------------EMPLOYER------------- ------------EMPLOYEE------------
Net Net
Age Age After Tax Net Cash Net Death After Tax Net Cash Net Death
Year #1 #2 Outlay Value Benefit Outlay Value Benefit
---- --- --- --------- -------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 64 63 697344 589465 687561 0 0 11428468
2 65 64 697741 1315923 1373701 0 0 11457707
3 66 65 698216 2058147 2058147 0 40371 11493508
4 67 66 698779 2740580 2740580 0 201007 11534418
5 68 67 699455 3420599 3420599 0 431733 11582992
--------- ---------
3491536 0
6 69 68 700261 4097741 4097741 0 735564 11635792
7 70 69 701222 4771450 4771450 0 1118294 11696558
8 71 70 17283 4771450 4771450 0 1563832 12410770
9 72 71 21641 4771450 4771450 0 2040982 13127010
10 73 72 27018 4771450 4771450 0 2551700 13844922
--------- ---------
4958960 0
11 74 73 33699 4771450 4771450 0 3100249 14590086
12 75 74 41873 4771450 4771450 0 3682496 15318030
13 76 75 49660 4771450 4771450 0 4300486 15353454
14 77 76 58877 4771450 4771450 0 4954799 15391258
15 78 77 69782 4771450 4771450 0 5646504 15431146
--------- ---------
5212851 0
16 79 78 -4845976 0 0 0 5943711 12747038
17 80 79 0 0 0 0 6330139 12769425
18 81 80 0 0 0 0 6730635 12791823
19 82 81 0 0 0 0 7143771 12813667
20 83 82 0 0 0 0 7569047 12835850
--------- ---------
366875 0
</TABLE>
This illustration may not fully reflect your actual tax or accounting
situation. Surrender of any available policy values may be regarded as a
taxable event. We recommend consulting tax counsel.
- --------------------------------------------------------------------------------
<PAGE> 32
JOHN HANCOCK MUTUAL LIFE INSURANCE CO & AFFILIATED COMPANIES BOSTON, MA 02117
ESTATE PROTECTION III - A SURVIVORSHIP WHOLE LIFE INSURANCE POLICY
Parker Hannifin Tax Bracket: ER 36% EE 50%
Life 1: Duane Collins Life 2: Joyce Collins
Male Age 63 Non Tobacco Use Female Age 62 Non Tobacco Use
SPLIT DOLLAR PROPOSAL SUMMARY OF COSTS AND BENEFITS
Current Dividend Scale
$3,990,862 Policy with $7,411,599 Additional Insurance Protection Rider
Alternate Premium Payment Option
Dividends Applied Under AIP Rider Dividend Option
<TABLE>
<CAPTION>
-------------EMPLOYER------------- ------------EMPLOYEE------------
Net Net
Age Age After Tax Net Cash Net Death After Tax Net Cash Net Death
Year #1 #2 Outlay Value Benefit Outlay Value Benefit
---- --- --- --------- -------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
21 84 83 0 0 0 0 8005257 12857648
22 85 84 0 0 0 0 8455673 12881585
23 86 85 0 0 0 0 8923316 12906068
24 87 86 0 0 0 0 9413060 12930758
25 88 87 0 0 0 0 9931388 12954582
-------- ---------
366875 0
26 89 88 0 0 0 0 10489487 12978330
27 90 89 0 0 0 0 11070959 13371307
28 91 90 0 0 0 0 11671934 13857338
29 92 91 0 0 0 0 12294386 14360420
30 93 92 0 0 0 0 12944961 14882542
-------- ---------
366875 0
31 94 93 0 0 0 0 13628695 15423297
32 95 94 0 0 0 0 14352395 15983015
33 96 95 0 0 0 0 15124049 16563754
34 97 96 0 0 0 0 15952207 17170986
35 98 97 0 0 0 0 16839490 17810834
-------- ---------
366875 0
36 99 98 0 0 0 0 17776530 18487410
37 100 99 0 0 0 0 18728770 19193498
38 101 100 0 0 0 0 19694324 19694324
-------- ---------
366875 0
</TABLE>
This illustration may not fully reflect your actual tax or accounting
situation. Surrender of any available policy values may be regarded as a
taxable event. We recommend consulting tax counsel.
- --------------------------------------------------------------------------------
<PAGE> 33
JOHN HANCOCK MUTUAL LIFE INSURANCE CO & AFFILIATED COMPANIES BOSTON, MA 02117
ESTATE PROTECTION III - A SURVIVORSHIP WHOLE LIFE INSURANCE POLICY
Parker Hannifin Tax Bracket: ER 36% EE 50%
Life 1: Duane Collins Life 2: Joyce Collins
Male Age 63 Non Tobacco Use Female Age 62 Non Tobacco Use
SPLIT DOLLAR PROPOSAL
Current Dividend Scale
$3,990,862 Policy with $7,411,599 Additional Insurance Protection Rider
Alternate Premium Payment Option
Dividends Applied Under AIP Rider Dividend Option
<TABLE>
<CAPTION>
------------------------------------EMPLOYER SUMMARY-------------------------------------
Net Payback
Tax After Tax at Net Cash Net Death
Year Outlay Bonus Credit Outlay Rollout Value Benefit
---- ------ ------ ------ --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 687561 15286 5503 697344 0 589465 687561
2 686140 18127 6526 697741 0 1315923 1373701
3 684446 21516 7746 698216 0 2058147 2058147
4 682433 25541 9195 698779 0 2740580 2740580
5 680019 30370 10933 699455 0 3420599 3420599
------- ------ ------ -------- -------
3420599 110839 39902 3491536 0
6 677142 36124 13005 700261 0 4097741 4097741
7 673709 42989 15476 701222 0 4771450 4771450
8 0 27004 9722 17283 0 4771450 4771450
9 0 33814 12173 21641 0 4771450 4771450
10 0 42215 15197 27018 0 4771450 4771450
------- ------ ------ -------- -------
4771450 292985 105475 4958960 0
11 0 52655 18956 33699 0 4771450 4771450
12 0 65427 23554 41873 0 4771450 4771450
13 0 77594 27934 49660 0 4771450 4771450
14 0 91995 33118 58877 0 4771450 4771450
15 0 109035 39253 69782 0 4771450 4771450
------- ------ ------ -------- -------
4771450 689690 248289 5212851 0
16 0 0 0 -4845976 4845976 0 0
17 0 0 0 0 0 0 0
18 0 0 0 0 0 0 0
19 0 0 0 0 0 0 0
20 0 0 0 0 0 0 0
------- ------ ------ -------- -------
4771450 689690 248289 366875 4845976
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 34
JOHN HANCOCK MUTUAL LIFE INSURANCE CO & AFFILIATED COMPANIES BOSTON, MA 02117
ESTATE PROTECTION III - A SURVIVORSHIP WHOLE LIFE INSURANCE POLICY
Parker Hannifin Tax Bracket: ER 36% EE 50%
Life 1: Duane Collins Life 2: Joyce Collins
Male Age 63 Non Tobacco Use Female Age 62 Non Tobacco Use
SPLIT DOLLAR PROPOSAL
Current Dividend Scale
$3,990,862 Policy with $7,411,599 Additional Insurance Protection Rider
Alternate Premium Payment Option
Dividends Applied Under AIP Rider Dividend Option
<TABLE>
<CAPTION>
----------------------------EMPLOYER SUMMARY----------------------------
Net Payback
Tax After Tax at Net Cash Net Death
Year Outlay Bonus Credit Outlay Rollout Value Benefit
---- ------- ------ ------ --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
21 0 0 0 0 0 0 0
22 0 0 0 0 0 0 0
23 0 0 0 0 0 0 0
24 0 0 0 0 0 0 0
25 0 0 0 0 0 0 0
------- ------ ------ --------- -------
4771450 689690 248289 366875 4845976
26 0 0 0 0 0 0 0
27 0 0 0 0 0 0 0
28 0 0 0 0 0 0 0
29 0 0 0 0 0 0 0
30 0 0 0 0 0 0 0
------- ------ ------ --------- -------
4771450 689690 248289 366875 4845976
31 0 0 0 0 0 0 0
32 0 0 0 0 0 0 0
33 0 0 0 0 0 0 0
34 0 0 0 0 0 0 0
35 0 0 0 0 0 0 0
------- ------ ------ --------- -------
4771450 689690 248289 366875 4845976
36 0 0 0 0 0 0 0
37 0 0 0 0 0 0 0
38 0 0 0 0 0 0 0
------- ------ ------ --------- -------
4771450 689690 248289 366875 4845976
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 35
JOHN HANCOCK MUTUAL LIFE INSURANCE CO & AFFILIATED COMPANIES BOSTON, MA 02117
ESTATE PROTECTION III - A SURVIVORSHIP WHOLE LIFE INSURANCE POLICY
Parker Hannifin Tax Bracket: ER 36% EE 50%
Life 1: Duane Collins Life 2: Joyce Collins
Male Age 63 Non Tobacco Use Female Age 62 Non Tobacco Use
SPLIT DOLLAR PROPOSAL
Current Dividend Scale
$3,990,862 Policy with $7,411,599 Additional Insurance Protection Rider
Alternate Premium Payment Option
Dividends Applied Under AIP Rider Dividend Option
<TABLE>
<CAPTION>
--------------------------------------EMPLOYEE SUMMARY-------------------------------------------
Add'l Amt Payback Net
Economic Surren- at Tax On After Tax Net Cash Net Death
Year Outlay Benefit Bonus dered Rollout Benefit Outlay Value Benefit
---- ------ -------- ------ --------- ------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7643 7643 15286 0 0 7643 0 0 11428468
2 9063 9063 18127 0 0 9063 0 0 11457707
3 10758 10758 21516 0 0 10758 0 40371 11493508
4 12771 12771 25541 0 0 12771 0 201007 11534418
5 15185 15185 30370 0 0 15185 0 431733 11582992
------ ------ --------- ------- ------- ---------
55419 110839 0 0 55419 0
6 18062 18062 36124 0 0 18062 0 735564 11635792
7 21495 21495 42989 0 0 21495 0 1118294 11696558
8 0 27004 27004 0 0 27004 0 1563832 12410770
9 0 33814 33814 0 0 33814 0 2040982 13127010
10 0 42215 42215 0 0 42215 0 2551700 13844922
------ ------ --------- ------- ------- ---------
94976 292985 0 0 198009 0
11 0 52655 52655 0 0 52655 0 3100249 14590086
12 0 65427 65427 0 0 65427 0 3682496 15318030
13 0 77594 77594 0 0 77594 0 4300486 15353454
14 0 91995 91995 0 0 91995 0 4954799 15391258
15 0 109035 109035 0 0 109035 0 5646504 15431146
------ ------ --------- ------- ------- ---------
94976 689690 0 0 594715 0
16 0 0 0 4845976 4845976 0 0 5943711 12747038
17 0 0 0 0 0 0 0 6330139 12769425
18 0 0 0 0 0 0 0 6730635 12791823
19 0 0 0 0 0 0 0 7143771 12813667
20 0 0 0 0 0 0 0 7569047 12835850
------ ------ --------- ------- ------- ---------
94976 689690 4845976 4845976 594715 0
</TABLE>
While both insureds are alive, economic benefit has been
calculated using IRS Table 38 rates. After the first death,
economic benefit has been calculated using the lesser each year
of John Hancock's 3-year term rate and the IRS PS 58 rate.
- --------------------------------------------------------------------------------
<PAGE> 36
JOHN HANCOCK MUTUAL LIFE INSURANCE CO & AFFILIATED COMPANIES BOSTON, MA 02117
ESTATE PROTECTION III - A SURVIVORSHIP WHOLE LIFE INSURANCE POLICY
Parker Hannifin Tax Bracket: ER 36% EE 50%
Life 1: Duane Collins Life 2: Joyce Collins
Male Age 63 Non Tobacco Use Female Age 62 Non Tobacco Use
SPLIT DOLLAR PROPOSAL
Current Dividend Scale
$3,990,862 Policy with $7,411,599 Additional Insurance Protection Rider
Alternate Premium Payment Option
Dividends Applied Under AIP Rider Dividend Option
<TABLE>
<CAPTION>
-------------------------------------------EMPLOYEE SUMMARY-----------------------------------------
Add'l Amt Payback Net
Economic Surren- at Tax On After Tax Net Cash Net Death
Year Outlay Benefit Bonus dered Rollout Benefit Outlay Value Benefit
---- ------ -------- ------ -------- ------- ------ --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
21 0 0 0 0 0 0 0 8005257 12857648
22 0 0 0 0 0 0 0 8455673 12881585
23 0 0 0 0 0 0 0 8923316 12906068
24 0 0 0 0 0 0 0 9413060 12930758
25 0 0 0 0 0 0 0 9931388 12954582
------ ------ -------- ------- ------ ---------
94976 689690 4845976 4845976 594715 0
26 0 0 0 0 0 0 0 10489487 12978330
27 0 0 0 0 0 0 0 11070959 13371307
28 0 0 0 0 0 0 0 11671934 13857338
29 0 0 0 0 0 0 0 12294386 14360420
30 0 0 0 0 0 0 0 12944961 14882542
------ ------ -------- ------- ------ ---------
94976 689690 4845976 4845976 594715 0
31 0 0 0 0 0 0 0 13628695 15423297
32 0 0 0 0 0 0 0 14352395 15983015
33 0 0 0 0 0 0 0 15124049 16563754
34 0 0 0 0 0 0 0 15952207 17170986
35 0 0 0 0 0 0 0 16839490 17810834
------ ------ -------- ------- ------ ---------
94976 689690 4845976 4845976 594715 0
36 0 0 0 0 0 0 0 17776530 18487410
37 0 0 0 0 0 0 0 18728770 19193498
38 0 0 0 0 0 0 0 19694324 19694324
------ ------ -------- ------- ------ ---------
94976 689690 4845976 4845976 594715 0
</TABLE>
While both insureds are alive, economic benefit has been
calculated using IRS Table 38 rates. After the first death,
economic benefit has been calculated using the lesser each year
of John Hancock's 3-year term rate and the IRS PS 58 rate.
- --------------------------------------------------------------------------------
<PAGE> 37
JOHN HANCOCK MUTUAL LIFE INSURANCE CO & AFFILIATED COMPANIES BOSTON, MA 02117
ESTATE PROTECTION III - A SURVIVORSHIP WHOLE LIFE INSURANCE POLICY
Life 1: Duane Collins Life 2: Joyce Collins
Male Age 63 Non Tobacco Use Female Age 62 Non Tobacco Use
Owner: Parker Hannifin
Tax Bracket: 50%
PLAN SUMMARY
Current Dividend Scale
$11,402,460 Initial Death Benefit: $3,990,862 Base with $7,411,599 AIP Rider
Alternate Premium Payment Option
Dividends Applied Under AIP Rider Dividend Option
<TABLE>
<CAPTION>
In 10 Years In 20 Years In 23 Years
<S> <C> <C> <C>
Cumulative Net A/T Outlay 4,866,425 20,449 20,449
GUARANTEED CASH VALUE 909,278 2,287,722 2,616,609
Net Cash Value 7,323,150 7,569,047 8,923,316
Net Death Benefit 18,616,372 12,835,850 12,906,068
</TABLE>
INTEREST ADJUSTED INDEXES (5%)
Base Policy with AIP Rider
10 Year 20 Year
Interest Adjusted Payment 46.40 35.72
Interest Adjusted Cost -1.96 -7.17
Equivalent Level Dividend 0.00 0.00
NON- Dividends are based on the Company's experience and are not
GUARANTEED guaranteed.
ELEMENTS
INTEREST These indexes provide a means for evaluating the comparative cost
ADJUSTED of the policy under stated assumptions. They can be useful in
INDEXES comparing similar plans of insurance, a lower index being better
than a higher one. These indexes reflect the time value of money.
Indexes are approximate because they involve assumptions,
including the rate of interest used, the dividends being paid in
cash and the continuation of current dividend scales. An
explanation of the intended use of these indexes and the
Equivalent Level Annual Dividend is included in the Life Insurance
Buyer's Guide.
- --------------------------------------------------------------------------------
<PAGE> 1
Exhibit 10e
Exhibit (10)(e)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1999
by Parker-Hannifin Corporation
Form of Executive Life Insurance Agreement
entered into by the Registrant and
executive officers.
*Numbered in accordance with Item 601 of Regulation S-K.
<PAGE> 2
EXECUTIVE LIFE INSURANCE AGREEMENT
This Executive Life Insurance Agreement ("Agreement") is made, as of
February 1, 1999, by and between Parker-Hannifin Corporation, an Ohio
corporation (the "Corporation"), and __________________________________ (the
"Executive").
RECITALS
--------
A. The Executive desires to insure his or her life for the benefit and
protection of his or her family or designated beneficiary under the Policy (as
defined below); and
B. The Corporation desires to help the Executive provide certain
insurance for the benefit and protection of his or her family or designated
beneficiary by providing funds to pay the premiums due on the Policy in
accordance with this Agreement; and
C. The Executive, as owner of the Policy, desires to assign certain
rights and interests in the Policy to the Corporation, to the extent provided
herein, as security for repayment of certain funds provided by the Corporation
for the acquisition and/or maintenance of the Policy.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing, and the
mutual agreements and covenants set forth below, the parties to this Agreement
agree as follows:
1. DEFINITIONS. For purposes of this Agreement, unless otherwise
clearly apparent from the context, the following phrases or terms shall have the
following indicated meanings:
(a) "AGGREGATE PREMIUMS PAID" shall mean, at any time, an
amount equal to (i) the cumulative premiums paid by the Corporation on
the Policy, less (ii) any policy loans to the Corporation and accrued
and unpaid interest thereon. Notwithstanding the foregoing, Aggregate
Premiums Paid shall not include extra benefit riders or agreements,
other than those providing additional life insurance coverage on the
Executive, and shall not include premiums waived pursuant to the terms
of any disability waiver of a premium rider.
(b) "BASE ANNUAL SALARY" shall mean the base annual
compensation, excluding profit-sharing, RONA, bonuses, commissions,
overtime, relocation expenses, incentive payments, non-monetary awards,
expatriate premiums and differentials, or perquisites paid or provided
to the Executive for employment services rendered to the Corporation,
before reduction for compensation deferred pursuant to all qualified,
non-qualified and Code Section
1
<PAGE> 3
125 plans of the Corporation. For purposes of determining the
Executive's Base Annual Salary hereunder, beginning January 1 of each
year, the Executive's Base Annual Salary as of the most recent
preceding December 1 will be used (which means that the Executive's
Base Annual Salary may be adjusted for the purposes of this Agreement
only once a year).
(c) "CASH SURRENDER VALUE" shall mean an amount that equals,
at any specified time, the cash surrender value as determined under the
terms of the Policy.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(e) "COLLATERAL ASSIGNMENT" shall mean an assignment made by
the Executive in favor of the Corporation in a form mutually agreed to
by the Corporation and the Executive and accepted by the Insurer.
(f) "COLLATERAL INTEREST" shall mean the Corporation's rights
and interests in the Policy, as set forth in Section 6 below.
(g) "DISABILITY" or "DISABLED" shall mean a period of
disability during which the Executive qualifies for benefits under the
Corporation's long-term disability plan.
(h) "EXECUTIVE'S DEATH BENEFIT" shall mean an amount that is
equal to the Executive's Base Annual Salary multiplied by:
(i) three, prior to Retirement or Termination of
Employment; or
(ii) the Post-Retirement Multiple, after Retirement.
(i) "INSURER" shall mean Sun Life Assurance Company of Canada
Ltd., its successors and assigns, or any other life insurance company
issuing a Policy hereunder.
(j) "MINIMUM RETIREMENT CASH VALUE" shall mean, on the Split
Dollar Maturity Date, the minimum amount of cash value that is needed
in the Policy to maintain the Executive Death Benefit after Retirement,
determined on the date of Retirement, assuming that the Policy will be
held without surrender, withdrawal or loan until the Executive reaches
age 95 and that the fixed interest rate to be used to project earnings
on the Policy up to age 95 is the Insurer's announced interest rate
under the Policy on the Split Dollar Maturity Date.
(k) "PLAN" shall mean the plan described in Section 8(a)
below.
2
<PAGE> 4
(l) "POLICY" shall mean the following policy or policies on
the life of the Executive that are issued by the Insurer:
POLICY NUMBER TYPE OF POLICY
----------------------------- -------------------------
----------------------------- -------------------------
----------------------------- -------------------------
----------------------------- -------------------------
(m) "POST-RETIREMENT MULTIPLE" shall mean the death benefit
multiple determined at the time of the Executive's Retirement based
upon the Executive's age, as follows:
AGE AT RETIREMENT POST-RETIREMENT MULTIPLE
----------------- ------------------------
Under 55 0
55 1
56 1.1
57 1.2
58 1.3
59 1.4
60 1.5
61 1.6
62 1.7
63 1.8
64 1.9
65 2
(n) "PRIME RATE" shall mean the prime rate of interest as
published in the Wall Street Journal on the date of Termination of
Employment.
(o) "RETIREMENT" or "RETIRE" shall mean severance from
full-time employment from the Corporation on or after the attainment of
age fifty-five (55) for any reason other than an authorized leave of
absence, death or Termination for Cause. In addition, a person who
continues to be Disabled at least until age 55 (regardless of his or
her employment status with the Corporation) shall be treated as having
reached Retirement under this Agreement at the earlier of age 65 with
continued Disability or the time the Executive ceases to be Disabled.
3
<PAGE> 5
(p) "SPLIT DOLLAR MATURITY DATE" shall mean the date on which
the first of any of the following events occurs:
(i) The Executive's Termination of Employment;
(ii) Termination of this Agreement in accordance with
Section 9 below;
(iii) The later of the Executive's Retirement or the
fifteenth anniversary of the Executive's participation in the
Plan (the "Fifteenth Anniversary"); or (iv) The Executive's
death.
The Disability of the Executive shall not cause the Split
Dollar Maturity Date to occur and the Disabled Executive will continue
participation in the Plan until Retirement or Termination of
Employment.
(q) "TERMINATION FOR CAUSE" shall mean termination of the
Executive's employment by the Corporation as a result of activity by
the Executive detrimental to the interests of the Corporation,
including without limitation:
(i) the rendering of services for an organization, or
engaging in a business, that is in competition with the
Corporation;
(ii) the disclosure to anyone outside of the
Corporation, or the use for any purpose other than the
Corporation's business, of confidential information or
material related to the Corporation;
(iii) fraud, embezzlement, theft-in-office or other
illegal activity; or
(iv) violation of the Corporation's Code of Ethics.
(r) "TERMINATION OF EMPLOYMENT" shall mean the ceasing of
full-time employment with the Corporation for any reason other than
Retirement, death, Disability (except as provided below) or an
authorized leave of absence. If the Executive becomes Disabled and
subsequently ceases to be Disabled before age 55 and does not return to
employment with the Corporation, such failure to return to employment
shall be deemed to be a Termination of Employment.
2. ACQUISITION OF POLICY; OWNERSHIP OF INSURANCE. The parties to this
Agreement shall cooperate in applying for and obtaining the Policy. The Policy
shall be designed to provide sufficient death proceeds and Cash Surrender Value
to enable payment or funding of the Executive's Death Benefit after payment of
the Corporation's Collateral Interest; provided, however, that the Corporation
and the Executive acknowledge that the actual death benefit paid to the Policy
beneficiary and the Cash Surrender Value at any point in time are subject to
Policy experience. The Policy shall be issued to the Executive, as the sole and
exclusive owner of the
4
<PAGE> 6
Policy, subject to the rights and interests granted to the Corporation, as
provided in this Agreement and the Collateral Assignment, and further subject to
the Executive's right of assignment under Section 15 hereof.
3. PREMIUM PAYMENTS ON POLICY.
(a) PAYMENTS AND REIMBURSEMENTS. Prior to the occurrence of
the Split Dollar Maturity Date, the Corporation shall pay to the
Insurer, on or before each applicable premium due date, all applicable
premiums for the Policy. All such premium payments made by the
Corporation under this Agreement shall constitute advances by the
Corporation to the Executive for which the Executive shall be
responsible for repayment in accordance with the terms of this
Agreement, but only up to an amount equal to the Corporation's
Collateral Interest.
(b) TAXABLE COMPENSATION. Each calendar year, the Executive
shall be considered to have taxable compensation income that is equal
to the value of the "economic benefit" derived by the Executive from
the Policy's life insurance protection, as determined for Federal
income tax purposes under the Code. To the extent required by the Code,
the Corporation shall withhold from the Executive's Base Annual Salary,
or other compensation paid to the Executive, in a manner determined by
the Corporation, the Executive's share of FICA and other employment and
income taxes relating to that taxable amount.
4. CORPORATION'S RIGHTS. The Corporation's rights and
interests in and to the Policy shall be specifically limited to (i) the
right to increase or decrease Policy death benefits annually in
accordance with maintaining the "Executive's Death Benefit" as defined
in Section 1(h); (ii) the right to be paid its Collateral Interest in
accordance with Section 6 below; (iii) the rights specified in the
Collateral Assignment, and; (iv) the right to obtain one or more loans
or advances on the Policy, provided, however, that any such loans shall
not, in the aggregate, exceed the Aggregate Premiums Paid by the
Corporation at any specified date without the written consent of the
Executive.
5. EXECUTIVE'S RIGHTS. Subject to the terms of this Agreement
and the Collateral Assignment, the Executive shall be the owner of the
Policy, and shall be entitled to exercise all rights in the Policy;
provided, however, that while the Collateral Assignment is in effect,
the following rights may be exercised only in accordance with Section
6:
(a) To borrow against or pledge the Policy;
(b) To surrender, cancel or assign the Policy;
(c) To take a distribution or withdrawal from the Policy; or
(d) To increase or decrease the amount of the death benefit
payable under the Policy.
5
<PAGE> 7
6. COLLATERAL INTEREST.
(a) On the Split Dollar Maturity Date, the Corporation's interest in
the Policy (the "Collateral Interest") shall be determined in the following
manner:
(i) If the Split Dollar Maturity Date occurs due to the
Executive's Retirement or the Fifteenth Anniversary, the Corporation
shall be entitled to receive from the Policy an amount equal to that
portion of the Policy's Cash Surrender Value that exceeds the Minimum
Retirement Cash Value, but in no event less than the Aggregate Premiums
Paid.
(ii) If the Split Dollar Maturity Date occurs due to the
Executive's Termination of Employment (other than Termination for
Cause), the Corporation shall be entitled to receive from the Policy an
amount equal to that portion of the Policy's Cash Surrender Value that
does not exceed the Aggregate Premiums Paid plus accrued interest
thereon (from the date such premiums were actually paid by the
Corporation) at a rate of annual interest equal to the Prime Rate.
(iii) If the Split Dollar Maturity Date occurs due to the
death of the Executive (except as provided in Section 6(a)(vi) below),
the Corporation shall be entitled to that portion of the Policy's death
proceeds that does not exceed the Aggregate Premiums Paid.
(iv) If the Split Dollar Maturity Date occurs due to the
termination of this Agreement by the Corporation in accordance with
Section 9 below, the Corporation shall be entitled to receive from the
Policy an amount equal to that portion of the Policy's Cash Surrender
Value that does not exceed the Aggregate Premiums Paid.
(v) If the Split Dollar Maturity Date occurs due to the
termination of this Agreement by the Executive in accordance with
Section 9 below or as a result of a Termination for Cause, the
Corporation shall be entitled to receive from the Policy an amount
equal to the entire Cash Surrender Value of the Policy.
(vi) If the Split Dollar Maturity Date occurs due to the
suicide of the Executive or other contestable Policy event, and the
proceeds from the Policy are limited by either a suicide or
contestability provision under the Policy, the Corporation shall be
entitled to that portion of the Policy's Cash Surrender Value and/or
death proceeds that does not exceed the Aggregate Premiums Paid.
(b) If the Split Dollar Maturity Date is other than the date of the
Executive's death, the Corporation's Collateral Interest in the Policy, as
determined in Section 6(a)(i), (ii), (iv) or (v) above, shall be paid to the
Corporation in one of the following ways, as elected by the Executive in writing
within 30 days after the date the Corporation first notifies the Executive in
writing of the occurrence of the Split Dollar Maturity Date:
6
<PAGE> 8
(i) By the Executive authorizing the Insurer to pay to the
Corporation from the Cash Surrender Value of the Policy an amount equal
to the Corporation's Collateral Interest;
(ii) By the Executive taking a loan out on the Policy in an
amount equal to the Corporation's Collateral Interest, with payment of
the loan proceeds to the Corporation, provided that the Corporation
shall not be responsible for any interest that may accrue on any such
loan; or
(iii) By the Executive's payment to the Corporation, from the
Executive's separate funds, of an amount equal to the Corporation's
Collateral Interest.
The Corporation's Collateral Interest in the Policy shall be paid as soon as is
reasonably practicable after the Split Dollar Maturity Date.
(c) If the Split Dollar Maturity Date is the date of the Executive's
death, the Corporation's Collateral Interest in the Policy, as determined in
Section 6(a)(iii) or (vi) above, shall be paid to the Corporation from the
Policy's death proceeds as soon as is reasonably practicable after the
Executive's death.
(d) If the Executive fails to timely exercise any of the options under
Section 6(b) above, the Corporation shall be entitled to instruct the Insurer to
pay to the Corporation from the Cash Surrender Value of the Policy an amount
equal to the Corporation's Collateral Interest.
(e) The Corporation agrees to keep records of its premium payments and
to furnish the Insurer with a statement of its Collateral Interest whenever the
Insurer requires such statement.
(f) Concurrent with the signing of this Agreement, the Executive will
collaterally assign the Policy to the Corporation, in the form of the Collateral
Assignment, as security for the payment of the Collateral Interest, which
assignment shall not be altered or changed without the consent of the
Corporation and the Executive.
(g) Promptly following the Executive's death, the Corporation and the
Executive's designated beneficiary under the Policy shall take all steps
necessary to collect the death proceeds of the Policy by submitting the proper
claims forms to the Insurer. The Corporation shall notify the Insurer of the
amount of the Corporation's Collateral Interest in the Policy at the time of
such death. Such amount shall be paid by the Insurer to the Corporation and the
remainder of the Policy's death benefit will be paid by the Insurer to the
Executive's designated beneficiary.
(h) Upon payment in full to the Corporation of its Collateral Interest
as provided above, the Corporation shall (i) assign its Collateral Interest in
the Policy to the Executive, (ii) execute and file with the Insurer an
appropriate release of the
7
<PAGE> 9
Corporation's Collateral Interest in the Policy and (iii) have no further
interest in the Policy. The Executive hereby acknowledges, understands and
agrees that, upon the release of the Corporation's Collateral Interest, the
Corporation shall not have any responsibility for the future performance of the
Policy and shall have no obligation to make any additional premium payments.
(i) Upon payment to the Corporation of its Collateral Interest in
accordance with this Section 6, this Agreement and the Executive's participation
in the Plan shall terminate and neither party shall have any further rights or
obligations under the Agreement or the Plan with respect to the Executive.
7. INSURER.
(a) The Insurer is not a party to this Agreement, shall in no way be
bound by or charged with notice of its terms, and is expressly authorized to act
only in accordance with the terms and conditions of the Policy. The Insurer
shall be fully discharged from any and all liability under the Policy upon
payment or other performance of its obligations in accordance with the terms and
conditions of the Policy.
(b) The authority required for the Insurer to recognize the exercise of
a right under the Policy shall be specified in the Collateral Assignment.
8. PLAN; NAMED FIDUCIARY; CLAIMS PROCEDURE.
(a) This Agreement is part of the Parker Hannifin Corporation Executive
Life Insurance Plan, which consists of all Parker Hannifin Corporation Executive
Life Insurance Agreements and the related Collateral Assignments that so
reference their association with the Plan.
(b) The Corporation is the named fiduciary of the Plan for purposes of
this Agreement.
(c) The following claims procedure shall be followed in handling any
benefit claim under this Agreement and the Plan:
(i) The Executive, or his or her beneficiary, if the Executive
has died (the "Claimant"), shall file a claim for benefits by notifying
the Corporation in writing. If the claim is wholly or partially denied,
the Corporation shall provide a written notice within 90 days (unless
special circumstances require an extension of time for processing the
claim, in which case an extension not to exceed 90 days shall be
allowed) specifying the reasons for the denial, the provisions of this
Agreement on which the denial is based, and additional material or
information, if any, that is necessary for the Claimant to receive
benefits. Such written notice shall also indicate the steps to be taken
by the Claimant if a review of the denial is desired.
8
<PAGE> 10
(ii) If a claim is denied, and a review is desired, the
Claimant shall notify the Corporation in writing within 60 days after
receipt of written notice of a denial of a claim. In requesting a
review, the Claimant may review plan documents and submit any written
issues and comments the Claimant feels are appropriate. The Corporation
shall then review the claim and provide a written decision within 60
days of receipt of a request for a review (unless special circumstances
require an extension of time for processing the claim, in which case an
extension not to exceed 60 days shall be allowed). This decision shall
state the specific reasons for the decision and shall include
references to specific provisions of this Agreement, if any, upon which
the decision is based.
(iii) In no event shall the Corporation's liability under this
Agreement exceed the amount of proceeds from the Policy.
9. AMENDMENT OF AGREEMENT; TERMINATION. This Agreement shall not be
modified or amended except by a writing signed by the Corporation and the
Executive. Either party may terminate this Agreement, and Executive's
participation in the Plan, at any time provided that the obligations of the
party terminating the Agreement and the Plan with respect to the Executive are
performed in full under the Agreement as of the time of the termination.
10. BINDING AGREEMENT. This Agreement shall be binding upon the heirs,
administrators, executors, successors and assigns of each party to this
Agreement.
11. STATE LAW. This Agreement shall be subject to and be construed
under the internal laws of the State of Ohio, without regard to its conflicts of
laws principles.
12. VALIDITY. In case any provision of this Agreement shall be illegal
or invalid for any reason, said illegality or invalidity shall not affect the
remaining parts of this Agreement, but this Agreement shall be construed and
enforced as if such illegal or invalid provision had never been inserted in this
Agreement.
13. NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this
Agreement shall not be deemed to constitute a contract of employment between the
Corporation and the Executive. Such employment is hereby acknowledged to be an
"at will" employment relationship that can be terminated at any time for any
reason, with or without cause, unless expressly provided in a separate written
employment agreement. Nothing in this Agreement shall be deemed to give the
Executive the right to be retained in the service of the Corporation or to
interfere with the right of the Corporation to discipline or discharge the
Executive at any time.
14. NOTICE. Any notice or filing required or permitted to be given
under this Agreement to the Executive or the Corporation shall be sufficient if
in writing and hand-delivered, or sent by registered or certified mail, to the
address below:
9
<PAGE> 11
To the Executive:
---------------------------
---------------------------
---------------------------
To the Corporation: Parker Hannifin Corporation
6035 Parkland Boulevard
Cleveland, OH 44124
Attention: Director of Employee Benefits
or to such other address as may be furnished by the Executive or the Corporation
in writing to the other party in accordance with this notice provision. 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 on the receipt for registration or
certification. Any notice or filing required or permitted to be given to the
Executive or the Executive's beneficiary under this Agreement shall be
sufficient if in writing and hand-delivered, or sent by mail, to the last known
address of the Executive.
15. ASSIGNMENT. During the term hereof, the Executive may assign the
Executive's right and obligations under this Agreement and ownership of the
Policy without the consent of the Corporation; provided, however, that the cost
of preparation and legal adequacy of the documentation to effect such assignment
to the satisfaction of the Corporation and the Insurer is solely the
responsibility of the Executive.
16. ACKNOWLEDGEMENT; RELEASE. The Executive assumes all risk of the
creditworthiness of the Insurer and acknowledges that the Corporation makes no
representation or guarantee of the creditworthiness of any Insurer. The
Executive acknowledges and agrees that in consideration of the Executive's
participation in the Plan, the Executive is waiving the right to continue
participation in the Corporation's group life insurance plan (which provided a
death benefit of $50,000) and related accidental death and disability benefit.
The Executive acknowledges responsibility for all federal, state and local tax
consequences imposed on the Executive's participation in the Plan and further
acknowledges that the Corporation has not made any representations or guarantees
of the present or future tax consequences of the Executive's participation in
the Plan.
17. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with regard to the subject matter of this Agreement
and supersedes all previous negotiations, agreements and commitments in respect
thereto. No oral explanation or oral information by either of the parties to
this Agreement shall alter the meaning or interpretation of this Agreement.
10
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the date first written above.
PARKER-HANNIFIN CORPORATION
By: ____________________________________
Daniel T. Garey
Vice President, Human Resources
----------------------------------------
Signature of Executive
11
<PAGE> 13
COLLATERAL ASSIGNMENT
---------------------
This Collateral Assignment (this "Assignment") is made and entered into
as of February 1, 1999, by and between _________________________ (the
"Executive"), as both the owner of and insured under a life insurance policy,
No. _________________ (the "Policy"), issued by Sun Life Assurance Company of
Canada Ltd. (the "Insurer"), and Parker-Hannifin Corporation, an Ohio
corporation (the "Corporation").
RECITALS
--------
A. The Executive desires to insure his or her life for the benefit and
protection of his or her family or designated beneficiary under the Policy;
B. The Corporation desires to help the Executive provide certain
insurance for the benefit and protection of his or her family or designated
beneficiary by providing funds from time to time to pay the premiums due on the
Policy, as more specifically provided for in that certain Executive Life
Insurance Agreement entered into between the Executive and the Corporation as of
the date hereof (the "Agreement"); and
C. In consideration of the Corporation agreeing to provide such funds
in accordance with the terms and conditions of the Agreement, the Executive
agrees to grant to the Corporation, as a security interest in the Policy, a
collateral security interest for the payment of the Corporation's Collateral
Interest (as defined in the Agreement).
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing, and the mutual
agreements and covenants set forth below, the parties to this Assignment agree
as follows:
1. ASSIGNMENT. The Executive hereby assigns, transfers and sets over to
the Corporation, and its permitted successors, those certain rights and
interests described in the Agreement that are to be assigned to the Corporation
in accordance with the Agreement. Furthermore, this Assignment is made, and the
Policy is to be held as collateral security for, any and all liabilities of the
Executive to the Corporation, either now existing, or that may hereafter arise,
pursuant to the terms of the Agreement.
2. SIGNATURES. To facilitate the operation of this Assignment, the
parties agree that the Insurer is hereby notified that the following rights
under the Policy may be exercised while the Assignment is in effect without the
signature or consent of the other party:
(a) The Corporation may sign a request to take a loan or
partial withdrawal without the Executive's signature or consent;
1
<PAGE> 14
(b) The Corporation may sign an instruction to the Insurer to
pay an amount equal to the Corporation's Collateral Interest from the
Policy's Cash Surrender Value to the Corporation, provided that the
Corporation simultaneously delivers to the Insurer a notarized
statement that the Corporation is exercising its rights in accordance
with Section 6(d) of the Agreement;
(c) The Executive may sign a request to change the beneficiary
or owner of the Policy without the signature or consent of the
Corporation; and
(d) The exercise of any other right under the Policy not
specifically set forth above shall be exercised with the signature of
both the Corporation and the Executive.
3. POLICY PROCEEDS. Any amount payable from the Policy during the
Executive's life or at death shall first be paid to the Corporation to the
extent of its Collateral Interest. Any balance will be paid to the Executive
during the Executive's lifetime, or at the Executive's death, to the beneficiary
designated by the Executive. A settlement option may be elected by the recipient
of the proceeds. For purposes of this Section, the amount of the Collateral
Interest shall be determined for purposes of the Insurer by a written statement
delivered to the Insurer and signed by the Corporation.
4. ENDORSEMENT. The Corporation shall hold the Policy while this
Assignment is operative and, upon request, forward the Policy to the Insurer,
without unreasonable delay, for endorsement of any designation or change of
beneficiary or ownership, any election of optional mode of settlement, or the
exercise of any other right reserved by the Executive in this Assignment.
5. INSURER. The Insurer is hereby authorized to recognize the
Corporation's claims to rights hereunder without investigating the reason for
any action taken by the Corporation, the validity or amount of any of the
liabilities of the Executive to the Corporation under the Agreement, the
existence of any default therein, the giving of any notice required herein, or
the application to be made by the Corporation of any amounts to be paid to the
Corporation. The Insurer shall not be responsible for the sufficiency or
validity of this Assignment and is not a party to the Agreement (or any other
similar executive life insurance agreement) between the Corporation and the
Executive.
6. REASSIGNMENT. Upon the full payment of the Corporation's Collateral
Interest in accordance with the terms and conditions of this Assignment and the
Agreement, the Corporation shall reassign to the Executive the Policy and all
specific rights included in this Assignment.
7. AMENDMENT OF ASSIGNMENT; TERMINATION. This Assignment shall not be
modified, amended or terminated, except by a writing signed by the Corporation
and the Executive; provided, however, that this Assignment may be terminated by
either party if that party terminates the Agreement in accordance with Section 9
of the Agreement and the obligations of the party terminating the Agreement are
performed in full under the Agreement.
2
<PAGE> 15
8. BINDING AGREEMENT; ASSIGNS. This Assignment shall be binding upon
the heirs, administrators, executors and permitted successors and assigns of
each party to this Assignment. The Executive shall not assign his or her rights
under this Assignment without the prior written consent of the Corporation.
9. STATE LAW. This Assignment shall be subject to and be construed
under the internal laws of the State of Ohio, without regard to its conflicts of
law principles.
10. VALIDITY. In case any provision of this Assignment shall be illegal
or invalid for any reason, said illegality or invalidity shall not affect the
remaining parts of this Assignment, but this Assignment shall be construed and
enforced as if such illegal or invalid provision had never been inserted in
this Assignment.
IN WITNESS WHEREOF, the Executive and the Corporation have signed this
Assignment as of the date first written above.
---------------------------------------
Signature of Executive
PARKER-HANNIFIN CORPORATION
By:
-----------------------------------
Daniel T. Garey
Vice President, Human Resources
Filed with the Insurer:
- -----------------------
Date:
- ---------------------------------- ------------------
Insurer
<PAGE> 1
Exhibit 10K
Exhibit (10)(k)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1999
by Parker-Hannifin Corporation
Parker-Hannifin Corporation 2000 Target Incentive
Bonus Plan Description
*Numbered in accordance with Item 601 of Regulation S-K.
<PAGE> 2
PARKER-HANNIFIN CORPORATION 2000 TARGET INCENTIVE BONUS PLAN
A. Payments earned under the Bonus Plan depend upon the Company's
performance against a pre-tax return on average assets (ROAA) schedule
which is based upon the Fiscal Year 2000 operating plan.
B. The payout under the Plan ranges from 15% to 150% of each participant's
target award, with 100% payout set at achievement of fiscal year 2000
planned ROAA.
C. Any payout pursuant to the Plan that will result in the exceedance of
the $1 million cap on the tax deductibility of executive compensation
will be deferred until such time in the earliest subsequent fiscal year
that such cap will not be exceeded.
D. Participants: All of the executive officers of the Company, plus Group
Presidents who are not executive officers.
E. Fiscal year 2000 Planned ROAA: 13.7%
ROAA Payout Schedule
--------------------
FY00 Percentage of Target
ROAA Award Paid*
---- --------------------
less than 3.4% 0%
3.4% 30%
5.0% 40%
6.5% 50%
8.0% 60%
9.5% 70%
10.1% 74%
10.9% 80%
12.3% 90%
13.7% 100%
14.4% 113%
15.2% 125%
15.9% 138%
16.7% 150%
* Fiscal year 2000 ROAA less than 10.1% will reduce the amount paid by
50%.
F. ROAA will not include the impact of:
1. Environmental costs in excess of planned amounts
2. Acquisitions/divestitures
3. Currency gains or losses
<PAGE> 1
Exhibit 10o
Exhibit (10)(o)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1999
by Parker-Hannifin Corporation
Parker-Hannifin Corporation 2000-01-02 Long Term
Incentive Plan Description
*Numbered in accordance with Item 601 of Regulation S-K.
<PAGE> 2
PARKER-HANNIFIN CORPORATION
2000-01-02
LONG TERM INCENTIVE PLAN
The purpose of the Plan is to provide a long-term incentive portion of bonus
compensation. The Plan's focus is on return on equity. It balances a competitive
base salary pay structure, an annual cash bonus compensation based on a return
on average assets, and a stock option plan with ten-year exercise rights. The
return on equity objective is a key financial goal and comprehends return on
sales at the net income level and asset utilization.
The participants in this Plan are limited to Corporate Officers and Group
Presidents. They clearly can affect broadly the overall financial performance of
the company.
The key elements of Parker-Hannifin's Plan are as follows:
Participation
Those key executives having a critical impact on the long term performance of
the Company selected by the Chief Executive Officer and approved by the
Compensation and Management Development Committee of the Board.
Performance Period
Three-year average Return on Equity with the grant to cover FY 00, 01 and 02.
Size of Awards
Commensurate with bonus compensation and stock option level of participants as
determined by the CEO with approval of the Compensation and Management
Development Committee.
Form of Awards
Awards will be expressed as a certain number of shares of Parker stock
calculated by dividing the dollar equivalent of the award by the June 30, 1999
Parker stock price.
Performance Objective
The Return on Equity objective is 14%.
Value Range
Actual value of the payments under the Plan will be within a range of 25% to
200% of target value based on performance against the objective.
Performance Range
For performance below a threshold of 8% ROE objective, no payment will be made.
For performance between 8% and 20% ROE, payments will be earned between 25% and
200% of the target value on a proportional basis above and below the target
value. The Plan is capped at 200%.
<PAGE> 3
Payment
Payments earned under the Plan will be paid at the end of the three-year
performance period. Payment will be made in restricted stock of the Corporation
unless the participant is retired at the time of payment or has previously
elected a cash payment to be deferred under the Corporation's Executive Deferral
Plan. The value of the cash payment in lieu of restricted shares is determined
based upon the share price of Parker-Hannifin's Common Shares on June 30, 2002.
The restricted shares would be subject to a vesting schedule and such other
terms and conditions determined by the Compensation Committee at the time of
issuance. Any payout pursuant to this plan that will result in the exceedance of
the $1 million cap on the tax deductibility of executive compensation will be
deferred until such time in the earliest subsequent fiscal year that such cap
will not be exceeded.
Termination of Employment
If a participant dies, retires (with consent of the Compensation and Management
Development Committee if earlier than age 65) or is disabled during the
performance period, he/she will receive a pro rata portion of the award payable
upon completion of the performance period. A participant who resigns or is
otherwise terminated during the performance period forfeits the award.
Performance Schedule
The Plan performance schedule, based on the three-year simple average of annual
report return on average equity, is as follows:
Return on Equity
------------------------------------------------------------
less than 8.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%
----- ---- ----- ----- ----- ----- ----- -----
Payout % 0 25 50 75 100 133 167 200
Change in Control
In the event of a "Change in Control" of the Corporation (as defined below), the
payout under the Plan will be accelerated to fifteen (15) days after the Change
in Control. The amount of the payout will be in cash and will be the greater of
the target award or the amount the payout would have been had ROE during the
Performance Period to the end of the fiscal quarter immediately preceding the
date of the Change in Control continued throughout the Performance Period. The
cash amount of such payout will be based upon the closing New York Stock
Exchange stock price of the Corporation's Common Shares on the first day of the
Performance Period or the date of the Change in Control, whichever is greater.
If the Participant will reach age 65 prior to the end of the Performance Period,
the payout in the event of a Change in Control will be reduced on a pro rata
basis.
"Change in Control" means the occurrence of one of the following events:
-2-
<PAGE> 4
(i) any "person" (as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act") and as used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of Parker-Hannifin Corporation (the "Company") representing 20% or
more of the combined voting power of the Company's then outstanding securities
eligible to vote for the election of the Board of Directors of the Company (the
"Board") (the "Company's Voting Securities"); provided, however, that the event
described in this paragraph shall not be deemed to be a Change in Control by
virtue of any of the following situations: (A) an acquisition by the Company or
any corporation or entity in which the Company has a direct or indirect
ownership interest of 50% or more of the total combined voting power of the then
outstanding securities of such corporation or other entity (a "Subsidiary"); (B)
an acquisition by any employee benefit plan sponsored or maintained by the
Company or any Subsidiary; (C) an acquisition by any underwriter temporarily
holding securities pursuant to an offering of such securities; (D) a Non-Control
Transaction (as defined in paragraph (iii)); (E) as pertains to a Plan
participant (the "Executive"), any acquisition by the Executive or any group of
persons (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange
Act) including the Executive (or any entity in which the Executive or a group of
persons including the Executive, directly or indirectly, holds a majority of the
voting power of such entity's outstanding voting interests); or (F) the
acquisition of Company Voting Securities from the Company, if a majority of the
Board approves a resolution providing expressly that the acquisition pursuant to
this clause (F) does not constitute a Change in Control under this paragraph
(i);
(ii) individuals who, at the beginning of any period of twenty-four
(24) consecutive months, constitute the Board (the "Incumbent Board") cease for
any reason to constitute at least a majority thereof; provided, that (A) any
person becoming a director subsequent to the beginning of such twenty-four (24)
month period, whose election, or nomination for election, by the Company's
shareholders was approved by a vote of at least two-thirds of the directors
comprising the Incumbent Board who are then on the Board (either by a specific
vote or by approval of the proxy statement of the Company in which such person
is named as a nominee for director, without objection to such nomination) shall
be, for purposes of this paragraph (ii), considered as though such person were a
member of the Incumbent Board; provided, however, that no individual initially
elected or nominated as a director of the Company as a result of an actual or
threatened election contest with respect to directors or any other actual or
threatened solicitation of proxies or consents by or on behalf of any person
other than the Board shall be deemed to be a member of the Incumbent Board;
(iii) the consummation of a merger, consolidation, share exchange or
similar form of corporate reorganization of the Company or any Subsidiary that
requires the approval of the Company's shareholders, whether for such
transaction or the issuance of securities in connection with the transaction or
otherwise (a "Business
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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 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 shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or the sale or other disposition of
all or substantially all of the assets of the Company and its Subsidiaries.
Notwithstanding the foregoing, a Change in Control shall not be deemed
to occur solely because any person acquires beneficial ownership of more than
20% of the Company Voting Securities as a result of the acquisition of Company
Voting Securities by the Company which, by reducing the number of Company Voting
Securities outstanding, increases the percentage of shares beneficially owned by
such person; provided, that if a Change in Control would occur as a result of
such an acquisition by the Company (if not for the operation of this sentence),
and after the Company's acquisition such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
Change in Control shall then occur.
Notwithstanding anything in this Plan to the contrary, if the
Executive's employment is terminated prior to a Change in Control, and the
Executive reasonably demonstrates that such termination was at the request of a
third party who has indicated an intention or taken steps reasonably calculated
to effect a Change in Control, (a "Third Party"),
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then for all purposes of this Plan, the date immediately prior to the date of
such termination of employment shall be deemed to be the date of a Change in
Control for such Executive.
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Exhibit 10p
Exhibit (10)(p)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1999
by Parker-Hannifin Corporation
Parker-Hannifin Corporation Savings Restoration Plan, as amended
*Numbered in accordance with Item 601 of Regulation S-K.
<PAGE> 2
PARKER-HANNIFIN CORPORATION
SAVINGS RESTORATION PLAN
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PARKER-HANNIFIN CORPORATION
SAVINGS RESTORATION PLAN
Parker-Hannifin Corporation, an Ohio corporation, (the "Company"),
established this Savings Restoration Plan (the "Plan"), effective October 1,
1994, 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 some of the deferral opportunities and
employer-provided benefits that are lost under The Parker Retirement Savings
Plan due to legislative limits. 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. The Plan is hereby amended
and restated as of January 1, 1998, except as otherwise specifically set forth
hereinafter.
ARTICLE 1
Definitions
1.1 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 13 of the Plan.
1.2 ANNUAL DEFERRAL shall mean the amount of Compensation which the
Participant elects to defer for a Plan Year pursuant to Articles 2 and 3 of the
Plan.
1.3 BENEFICIARY shall mean the person or persons or entity designated as
such in accordance with Article 14 of the 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
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or maintained by the Company or any Subsidiary; (C) an acquisition by any
underwriter temporarily holding securities pursuant to an offering of such
securities; (D) a Non-Control Transaction (as defined in paragraph (iii)); (E)
as pertains to a 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 COMPENSATION shall mean the sum of the Participant's base salary and
regular bonuses (including profit-sharing, RONA, and executive compensation, but
excluding payments under any long term incentive plan, volume incentive plan, or
other extraordinary bonus or incentive plan) for a Plan Year before reductions
for deferrals under the Plan, or the Executive Deferral Plan, or the Savings
Plan, or the Parker Select program.
1.6 CREDITING RATE shall mean: (i) the amount described in Section 1.6.1 to
the extent the Restoration Account Balance represents either Annual Deferrals
under Article 3 or earnings previously credited on such deferrals under Section
5.2; or (ii) the amount described in Section 1.6.2 to the extent the Restoration
Account balance represents either Matching Credits under Article 4 or interest
previously credited on such Matching Credits under Section 5.2:
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1.6.1 CREDITING RATE FOR ANNUAL DEFERRALS shall mean any notional
gains or losses equal to those generated as if the Restoration Account
balance attributable to Annual Deferrals under Article 3 had been invested
in one or more of the investment portfolios designated as available by the
Administrator, less separate account fees and less applicable
administrative charges determined annually by the Administrator.
A Participant may elect to allocate his Restoration Account among the
available portfolios. The gains or losses shall be credited based upon the
daily unit values for the portfolio(s) selected by the Participant. The
rules and procedures for allocating the Restoration Account balance among
the portfolios shall be determined by the Administrator. The Participant's
allocation is solely for the purpose of calculating the Crediting Rate.
Notwithstanding the method of calculating the Crediting Rate, the Company
shall be under no obligation to purchase any investments designated by the
Participant.
1.6.2 CREDITING RATE FOR MATCHING CREDITS shall mean any notional
gains or losses equal to those generated as if the Restoration Account
balance attributable to Matching Credits under Article 4 had been invested
in the Common Stock of the Company, including reinvestment of dividends.
The rules and procedures for determining the value of the Common Stock of
the Company shall be determined by the Administrator. The rules and
procedures for re-allocating the Restoration Account balance attributable
to the Matching Credits among the other portfolios offered under the Plan
shall be determined by the Administrator.
1.7 DISABILITY shall mean any long term disability as defined under the
Company's long term disability plan. The Administrator, in its complete and sole
discretion, shall determine a Participant's Disability. The Administrator may
require that the Participant submit to an examination on an annual basis, at the
expense of the Company, by a competent physician or medical clinic selected by
the Administrator to confirm Disability. On the basis of such medical evidence,
the determination of the Administrator as to whether or not a condition of
Disability exists or continues shall be conclusive.
1.8 EARLY RETIREMENT DATE shall mean age 55 with ten or more years of
employment with the Company.
1.9 ELIGIBLE EXECUTIVE shall mean a key employee of the Company or any of
its subsidiaries who: (i) is designated by the Administrator as eligible to
participate in the Plan (subject to the restriction in Sections 10.2, 11.2 and
12.2 of the Plan); and (ii) qualifies as a member of the "select group of
management or highly compensated employees" under ERISA.
1.10 ERISA shall mean the Employee Retirement Income Security Act of 1974,
as amended.
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1.11 EXECUTIVE DEFERRAL PLAN shall mean the Parker-Hannifin Corporation
Executive Deferral Plan as it currently exists and as it may subsequently be
amended.
1.12 FINANCIAL HARDSHIP shall mean an unexpected need for cash arising from
an illness, casualty loss, sudden financial reversal, or other such
unforeseeable occurrence as determined by the Administrator. Cash needs arising
from foreseeable events such as the purchase of a residence or education
expenses for children shall not, alone, be considered a Financial Hardship.
1.13 FIXED CREDITING RATE shall mean an effective annual yield equal to
ninety percent (90%) of the sixty (60) month rolling average of the Ten-Year
United States Treasury Note as determined by the Administrator on September 30
of the preceding year. The Fixed Crediting Rate in effect as of the
Participant's Termination of Employment or death shall be held constant for the
remainder of the period for which benefits are paid.
1.14 MATCHING CREDIT shall mean the Company's credit to the Participant's
Restoration Account under Article 4.
1.15 NORMAL RETIREMENT DATE shall mean the date on which a Participant
attains age 65.
1.16 PARTICIPANT shall mean an Eligible Executive who has elected to
participate and has completed a Participation Agreement pursuant to Article 2 of
the Plan.
1.17 PARTICIPATION AGREEMENT shall mean the Participant's written election
to participate in the Plan.
1.18 PLAN YEAR shall mean the calendar year.
1.19 RESTORATION ACCOUNT shall mean the notional account established for
record keeping purposes for a Participant pursuant to Article 5 of the Plan.
1.20 RETIREMENT shall mean a termination of employment following Normal or
Early Retirement Date.
1.21 SAVINGS PLAN shall mean the Parker Retirement Savings Plan, formerly
known as The Parker-Hannifin Employees' Savings Plus Stock Ownership Plan, as it
currently exists and as it may subsequently be amended.
1.22 STATUTORY LIMIT shall mean any statutory or regulatory limit on salary
reduction contributions to savings plans, or on compensation taken into account
in calculating employer or employee contributions to savings plans. The impact
of such limits on the Participants shall be determined by the Company prior to
the beginning of each Plan Year based upon its best estimates and according to
procedures determined by the Administrator. Once the Company has determined the
impact of the Statutory Limits, no
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<PAGE> 8
adjustment shall be made to increase deferrals or matching credits under this
Plan notwithstanding any adjustments ultimately required under the Savings Plan
due to actual employee contributions or other factors.
1.23 TERMINATION OF EMPLOYMENT shall mean the Participant's employment with
the Company ceases for any reason whatsoever, whether voluntary or involuntary,
other than Retirement or death.
1.24 UNSCHEDULED WITHDRAWAL shall mean a distribution of all or a portion
of the entire amount credited to the Participant's Restoration Account requested
by the Participant pursuant to the provisions of Article 11 of the Plan.
1.25 VALUATION DATE shall mean the end of the month in which Retirement,
Termination of Employment, or death occurs, except in the event of an election
to delay retirement benefits under Article 6, in which case the Valuation Date
shall mean the November 30 of the year preceding commencement of benefit
payments.
ARTICLE 2
PARTICIPATION
2.1 PARTICIPATION AGREEMENT/ANNUAL DEFERRAL. An Eligible Executive shall
become a Participant in the Plan on the first day of the Plan Year coincident
with or next following the date the individual becomes an Eligible Executive,
provided such Eligible Executive has submitted to the Administrator a
Participation Agreement. To be effective, the Eligible Executive must submit the
Participation Agreement to the Administrator during the enrollment period
designated by the Administrator. In the Participation Agreement, and subject to
the restrictions in Article 3, the Eligible Executive shall designate the Annual
Deferral for the covered Plan Year.
2.2 CONTINUATION OF PARTICIPATION. An Eligible Executive who has elected to
participate in the Plan by making an Annual Deferral shall continue as a
Participant in the Plan for purposes of such Annual Deferral even though such
executive ceases to be an Eligible Executive. However, a Participant shall not
be eligible to elect a new Annual Deferral unless the Participant is an Eligible
Executive for the Plan Year for which the election is made.
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ARTICLE 3
EXECUTIVE DEFERRALS
3.1 DEFERRAL ELECTION. A Participant may elect an Annual Deferral under
this Plan to defer all or a portion of the Compensation that he or she cannot
defer under the Savings Plan due to the Statutory Limit. Such election shall
designate a specified percentage of Compensation to be deferred. Annual
Deferrals under this Plan shall be irrevocable.
3.2 MAXIMUM ANNUAL DEFERRAL. The Annual Deferral for a Plan Year shall be
determined as:
(i) For a Participant who is not eligible to participate in the
Executive Deferral Plan, any whole percentage between 1 and 9% of Compensation
up to $15,000.
(ii) For a Participant who is eligible to participate in the Executive
Deferral Plan, any whole percentage between 1 and 5% of Compensation up to
$7,600.
3.3 VESTING. The Participant's right to receive Compensation deferred (and
gains or losses thereon) under this Article 3 shall be 100% vested at all times.
ARTICLE 4
COMPANY MATCHING CREDITS
4.1 AMOUNT. The Company's Matching Credit in each Plan Year shall equal one
hundred percent (100%) of the first three percent (3%) of Compensation deferred
and twenty-five percent (25%) of the next two (2%) of Compensation deferred,
reduced by the maximum matching contributions that would have been credited to
the Participant's account under the Savings Plan if he had elected to make the
maximum permitted deferral to the Savings Plan, whether or not he actually does
so. Notwithstanding the foregoing, the maximum Matching Credit allocated to any
Participant's Restoration Account in a Plan Year shall be $15,000, less the
maximum matching contributions that would have been credited to the
Participant's account under the Savings Plan if he had elected to make the
maximum permitted deferral to the Savings Plan.
4.2 VESTING. Subject to Section 12.4, the Participant's right to receive
Matching Credits (and gains or losses thereon) credited to the Participant's
Restoration Account shall be one hundred percent (100%) vested.
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ARTICLE 5
RESTORATION ACCOUNTS
5.1 RESTORATION ACCOUNTS. Solely for record keeping purposes, the Company
shall maintain a Restoration Account for each Participant.
5.2 THE TIMING OF CREDITS.
(i) Annual Deferrals made under Article 3 shall be credited to the
Restoration Account at the time the deferrals would otherwise have been paid to
the Participant but for the deferral election;
(ii) Matching Credits under Article 4 shall be credited to the
Restoration Account quarterly as of the first day of the following quarter; and
(iii) gains or losses shall be credited to the Restoration Account each
calendar quarter, as of the Valuation Date, using the Crediting Rate in effect
under Section 1.6.
5.3 TERMINATIONS. Following a Participant's Termination of Employment,
gains or losses shall be credited to the Restoration Account through the
Valuation Date.
5.4 STATEMENT OF ACCOUNTS. The Administrator shall provide periodically to
each Participant a statement setting forth the balance of the Restoration
Account maintained for such Participant.
ARTICLE 6
RETIREMENT BENEFITS
6.1 AMOUNT. Upon Retirement, the Company shall pay to the Participant a
retirement benefit in the form provided in Section 6.2 of the Plan, based on the
balance of the Restoration Account as of the Valuation Date. If paid as a lump
sum, the retirement benefit shall be equal to such balance. If paid in
installments, the installments shall be paid in amounts that will annually
amortize such balance with earnings and losses credited at the Crediting Rate
over the period of time benefits are to be paid.
6.2 FORM OF RETIREMENT BENEFITS. The retirement benefit shall be paid
monthly over a period of fifteen (15) years or the number of whole years
required to result in a monthly benefit of at least one thousand dollars
($1,000.00), if less; provided, however, that the Participant may elect in
writing at least 13 months before Retirement to have payment made in one of the
following options:
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(i) a single lump sum payment in cash; or
(ii) monthly installments over 5, 10 or 15 years; provided, that if a
monthly benefit is less than $1,000, the Administrator shall shorten the payout
period in whole year increments to assure that each monthly payment is at least
$1,000.
Payments shall be made or shall begin as of the first day of the calendar
quarter next following the date sixty (60) days after the Participant's
Retirement unless the Participant elects for payments to begin as of January l
of a later year. However, in no event shall payments commence later than the
January 1 occurring five (5) years after Retirement or, if earlier, the date the
Participant attains age seventy (70). Except as provided in Section 10.2, if the
Participant files an election of an alternative form of payment less than
thirteen (13) months prior to Retirement, the election shall be ineffective
unless the Participant agrees to take a ten percent (10%) reduction in the value
of his Restoration Account.
6.3 SMALL BENEFIT EXCEPTION. Notwithstanding any of the foregoing, if the
sum of all benefits payable to the Participant is less than or equal to ten
thousand dollars ($10,000.00), the Company shall pay such benefits in a single
lump sum.
ARTICLE 7
TERMINATION BENEFITS
7.1 AMOUNT. As of the first day of the calendar quarter beginning at least
sixty (60) days after Termination of Employment, the Company shall pay to the
Participant a termination benefit equal to the balance of the Restoration
Account as of the Valuation Date.
7.2 FORM OF TERMINATION BENEFITS. The Company shall pay the termination
benefits in a single lump sum; provided, however, that except following a Change
in Control the Company may, in its sole discretion, elect to pay the termination
benefits over a period of three (3) years in monthly installments, in which
event the Restoration Account shall continue to be credited with gains or losses
at the Fixed Crediting Rate in effect at the time of Termination of Employment.
ARTICLE 8
SURVIVOR BENEFITS
8.1 PRE-COMMENCEMENT SURVIVOR BENEFIT. If the Participant dies prior to the
time installment payments have commenced, the Company shall pay to the
Participant's Beneficiary within ninety (90) days after the Participant's death
a benefit equal to the balance of the Participant's Restoration Account as of
the Valuation Date.
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8.2 POST-COMMENCEMENT SURVIVOR BENEFIT. If the Participant dies after the
time installment payments have commenced, the Company shall pay to the
Participant's Beneficiary an amount equal to the remaining benefits payable to
the Participant under the Plan over the same period such benefits would have
been paid to the Participant, in which event the unpaid balance of the
Restoration Account shall be credited with interest at the Fixed Crediting Rate
in effect on the date of the Participant's death.
8.3 SMALL BENEFIT PAYMENT. Notwithstanding any of the foregoing, in the
event the sum of all benefits payable to the Beneficiary is less than or equal
to ten thousand dollars ($10,000.00), the Company shall pay such benefits in a
single lump sum.
ARTICLE 9
DISABILITY
If a Participant suffers a Disability, the Company shall pay the benefit
described in Article 6 to the Participant as if the date of the Participant's
Termination of Employment for Disability were the Participant's Normal
Retirement Date.
ARTICLE 10
CHANGE IN CONTROL
10.1 ELECTION. At the time the Participant is completing his initial
Participation Agreement, the Participant may elect that, if a Change in Control
occurs, the Participant (or after the Participant's death the Participant's
Beneficiary) shall receive a lump sum payment of the balance of the Restoration
Account within thirty (30) days after the Change of Control. Such balance shall
be determined as of the end of the month sixty (60) days prior to the month in
which the Change in Control occurs.
10.2 BENEFIT REDUCTION ON WITHDRAWAL. If a Participant has not made the
election described in Section 10.1 above and, within thirty (30) days after a
Change of Control, the Participant (or Beneficiary) elects to receive a
distribution of the balance of the Restoration Account (determined as described
in Section 10.1), the lump sum payment shall be reduced by an amount equal to
five percent (5%) of the total balance of the Restoration Account (instead of
the ten percent (10%) reduction otherwise provided for in Section 11.2). If a
Participant elects such a withdrawal, any on-going Annual Deferral shall cease,
and the Participant may not again be designated as an Eligible Executive until
one entire Plan Year following the Plan Year in which such withdrawal was made
has elapsed.
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ARTICLE 11
UNSCHEDULED WITHDRAWALS
11.1 ELECTION. A Participant (or Beneficiary if the Participant is
deceased) may request an Unscheduled Withdrawal of all or a portion of the
entire amount credited to the Participant's Restoration Account, which shall be
paid in a single lump sum; provided, however, that (i) the minimum withdrawal
shall be twenty-five percent (25%) of the Restoration Account balance, and (ii)
an election to withdraw seventy-five percent (75%) or more of the balance shall
be deemed to be an election to withdraw the entire balance.
11.2 WITHDRAWAL PENALTY. There shall be a penalty deducted from the
Restoration Account prior to an Unscheduled Withdrawal equal to ten percent
(10%) of the Unscheduled Withdrawal. If a Participant elects such a withdrawal,
any on-going Annual Deferral shall cease, and the Participant may not again be
designated as an Eligible Executive until one entire Plan Year following the
Plan Year in which such withdrawal was made has elapsed.
11.3 SMALL BENEFIT EXCEPTION. Notwithstanding any of the foregoing, if the
sum of all benefits payable to the Participant or Beneficiary who has requested
the Unscheduled Withdrawal is less than or equal to ten thousand dollars
($10,000.00), the Company shall pay out the entire Restoration Account balance
(reduced by the ten percent (10%) penalty) in a single lump sum.
ARTICLE 12
CONDITIONS RELATED TO BENEFITS
12.1 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.
12.2 FINANCIAL HARDSHIP DISTRIBUTION. Upon a finding that the Participant
or the Beneficiary has suffered a Financial Hardship, the Administrator may in
its sole discretion, permit the Participant to cease any on-going deferrals and
accelerate distributions of benefits under the Plan in the amount reasonably
necessary to alleviate such Financial Hardship. If a distribution is to be made
to a Participant on account of Financial Hardship, the Participant may not make
deferrals under the Plan until one entire Plan Year following the Plan Year in
which a distribution based on Financial Hardship was made has elapsed.
12.3 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
-12-
<PAGE> 14
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.
12.4 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 beyond the sum of the Participant's Annual Deferrals.
12.5 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 13
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 shall have discretionary
authority to 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 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.
-13-
<PAGE> 15
ARTICLE 14
BENEFICIARY DESIGNATION
The Participant shall have the right, at any time, to designate any person
or persons as Beneficiary (both primary and contingent) to whom payment under
the Plan shall be made in the event of the Participant's death. The Beneficiary
designation shall be effective when it is submitted in writing to the
Administrator during the Participant's lifetime on a form prescribed by the
Administrator.
The submission of a new Beneficiary designation shall cancel all prior
Beneficiary designations. Any finalized divorce or marriage of a Participant
subsequent to the date of a Beneficiary designation shall revoke such
designation, unless in the case of divorce the previous spouse was not
designated as Beneficiary and unless in the case of marriage the Participant's
new spouse has previously been designated as Beneficiary. The spouse of a
married Participant shall consent to any designation of a Beneficiary other than
the spouse, and the spouse's consent shall be witnessed by a notary public.
If a Participant fails to designate a Beneficiary as provided above, or if
the Beneficiary designation is revoked by marriage, divorce, or otherwise
without execution of a new designation, or if every person designated as
Beneficiary predeceases the Participant or dies prior to complete distribution
of the Participant's benefits, then the Administrator shall direct the
distribution of such benefits to the Participant's estate.
ARTICLE 15
AMENDMENT AND TERMINATION OF PLAN
15.1 AMENDMENT OF PLAN. Except as provided in Section 15.3, the Company may
at any time amend the Plan in whole or in part, provided, however, that such
amendment: (i) shall not decrease the balance of the Participant's Restoration
Account at the time of such amendment; and (ii) shall not retroactively decrease
the applicable Crediting Rate of the Plan prior to the time of such amendment.
The Company may amend the Crediting Rate or Fixed Crediting Rate of the Plan
prospectively, in which case the Company shall notify the Participant of such
amendment in writing within thirty (30) days after such amendment.
15.2 TERMINATION OF PLAN. Except as provided in Section 15.3, 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 Retirement or Termination of
Employment for the purpose of calculating Plan benefits, and 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. Interest
at the Fixed Crediting Rate will be credited to the
-14-
<PAGE> 16
Participant's Restoration Account commencing as of the date of the Plan's
termination and continuing until distribution under this Section is completed.
15.3 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.
15.4 COMPANY ACTION. Except as provided in Section 15.3 or 15.5, 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.
15.5 CONSTRUCTIVE RECEIPT TERMINATION. In the event the Administrator
determines that amounts deferred 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 Section 15.2 or as may be
determined by the Administrator. The determination of the Administrator under
this Section 15.5 shall be binding and conclusive.
ARTICLE 16
MISCELLANEOUS
16.1 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.
16.2 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.
16.3 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 purpose 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.
-15-
<PAGE> 17
16.4 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.
16.5 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.
16.6 CAPTIONS. The captions of the articles and sections of the Plan are
for convenience only and shall not control or affect the meaning or construction
of any of its provisions.
16.7 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.
16.8 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.
16.9 APPLICABLE LAW. The Plan shall be governed and construed in accordance
with the laws of Ohio except where the laws of Ohio are preempted by ERISA.
16.10 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, facsimile, or electronic 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 17
CLAIMS AND REVIEW PROCEDURES
17.1 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: (i) the specific reasons for such denial;
(ii) a specific reference to the provisions of the Plan on which the denial is
based; (iii) 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 (iv) 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
-16-
<PAGE> 18
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.
17.2 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 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.
-17-
<PAGE> 1
Exhibit 12
EXHIBIT (12)* TO REPORT
ON FORM 10-K FOR FISCAL
YEAR ENDED JUNE 30, 1999
BY PARKER-HANNIFIN CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED
CHARGES
AS OF JUNE 30, 1999
EXHIBIT 12
PARKER-HANNIFIN CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
1999 1998 1997 1996 1995
-----------------------------------------------
EARNINGS
--------
<S> <C> <C> <C> <C> <C>
Income from continuing operations before $477,694 $503,988 $424,867 $374,479 $348,407
income taxes
Add:
Interest on indebtedness, exclusive of 63,132 52,463 46,373 35,665 28,884
interest capitalized in accordance
with FASB #34 and interest on ESOP
loan guarantee
Amortization of deferred loan costs 565 324 286 146 128
Portion of rents representative of 14,093 12,355 11,102 9,966 8,791
interest factor
Equity share of losses of companies 583 1,327 513 392
for which debt obligations are not
guaranteed
Amortization of previously capitalized 313 296 220 219 216
interest
------------------------------------------------
Income as adjusted $555,797 $570,009 $484,175 $420,988 $386,818
================================================
FIXED CHARGES
- -------------
Interest on indebtedness, exclusive of $ 63,132 $ 52,463 $ 46,373 $ 35,665 $ 28,884
interest capitalized in accordance
with FASB #34 and interest on ESOP
loan guarantee
Capitalized interest 2 1,372 272 538 283
Amortization of deferred loan costs 565 324 286 146 128
Portion of rents representative of 14,093 12,355 11,102 9,966 8,791
interest factor
------------------------------------------------
Fixed charges $ 77,792 $ 66,514 $ 58,033 $ 46,315 $ 38,086
================================================
RATIO OF EARNINGS TO FIXED CHARGES 7.14x 8.57x 8.34x 9.09x 10.16x
- ----------------------------------
</TABLE>
* NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K.
<PAGE> 1
Exhibit 13
Exhibit (13) * to Report
On Form 10-K for Fiscal
Year Ended June 30, 1999
By Parker-Hannifin Corporation
Excerpts from Annual Report to Shareholders for the fiscal
year ended June 30, 1999.
*Numbered in accordance with Item 601 of Regulation S-K.
<PAGE> 2
FORWARD-LOOKING STATEMENTS
This Annual Report 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, 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 and the potential devaluation of currencies.
Any forward-looking statements are made 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.
Page 13-1
DISCUSSION OF STATEMENT OF INCOME
THE CONSOLIDATED STATEMENT OF INCOME summarizes the Company's operating
performance over the last three fiscal years.
NET SALES of $4.96 billion for 1999 were 7.0 percent higher than the $4.63
billion for 1998. Acquisitions accounted for approximately one-half of this
increase. The Aerospace operations experienced continued strong demand in
commercial aircraft build rates while the Industrial operations experienced
reduced order demand within most of its markets. Within the Industrial
operations, the European markets weakened in the latter part of 1999 while the
Latin American markets operated in a weak economy throughout most of 1999. The
Company continued to penetrate markets in the Asia Pacific region. Volume
increases within International operations were partially offset by currency rate
changes.
Net sales of $4.63 billion for 1998 were 13.2 percent higher than the $4.09
billion for 1997. Acquisitions accounted for approximately one-fifth of this
increase. The Industrial operations experienced continued strong order demand
within the heavy-duty truck, construction equipment, factory automation,
telecommunications and refrigeration markets. The European operations continued
to grow and the Company continued to penetrate markets in Asia Pacific and Latin
American regions. Volume increases within International operations were
partially offset by currency rate changes. The Aerospace operations experienced
strong demand within the commercial transport, business jet and general aviation
markets.
The Company is anticipating the North American industrial economy for the next
year will stay relatively flat. European and Latin American markets are expected
to be weak in the first half of fiscal 2000 while the Company expects to
continue to penetrate markets in the Asia Pacific region. The Aerospace
operations expect the commercial aviation OEM business to decline while the
defense business is expected to remain relatively constant.
GROSS PROFIT MARGIN was 22.0 percent in 1999 compared to 23.4 percent in 1998
and 22.9 percent in 1997. Cost of sales for 1998 included a non-cash,
non-recurring charge of $15.8 million for in-process R&D purchased as part of
two acquisitions. The margin decline in 1999 is primarily the result of the
underabsorption of overhead costs and pricing pressure. In addition, gross
margins continue to be affected by recently acquired operations contributing
lower margins.
<PAGE> 3
The improvement in 1998 is primarily the result of better absorption of fixed
costs due to higher volume and the benefits of continued integration of
prior-year acquisitions. The improvement was partially offset by recently
acquired operations contributing lower margins, as their integration continues.
In addition, gross margins were affected by the Asian financial crisis and the
depressed worldwide semiconductor market.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES as a percent of sales decreased to
11.1 percent, from 11.5 percent in 1998, and 11.6 percent in 1997. As volume
increased these expenses remained relatively unchanged, except for decreased
costs from incentive programs.
INTEREST EXPENSE increased by $10.9 million in 1999 and $6.1 million in 1998 due
to increased borrowings to complete acquisitions.
Page 13-2
INTEREST AND OTHER INCOME, NET was $5.1 million in 1999 compared to $6.8 million
in 1998 and $5.6 million in 1997. Fiscal 1999 includes $1.7 million in interest
income related to an IRS refund and fiscal 1998 included $3.8 million of
interest income from a settlement with the IRS.
(LOSS) GAIN ON DISPOSAL OF ASSETS was a $2.4 million loss in 1999, a $.1 million
gain in 1998 and a $3.0 million gain in 1997. The 1997 gain includes $17.1
million income from the sale of real estate in California. This income was
substantially offset by $13.3 million accrued for exit costs and charges for
impaired assets related to the relocation of the corporate headquarters.
INCOME TAXES decreased to an effective rate of 35.0 percent in 1999, compared to
35.9 percent in 1998 and 35.5 percent in 1997. The decrease in the rate from
1998 to 1999 was the result of increased tax benefits based on the export of
products manufactured in the U.S. The increase in the rate from 1997 to 1998 was
the result of receiving no tax benefit for one of the R&D charges.
EXTRAORDINARY ITEM - EXTINGUISHMENT OF DEBT - On June 30, 1998 the Company
called for redemption all of its outstanding $100 million, 10.375 percent
debentures due 1999-2018.
NET INCOME of $310.5 million for 1999 was 2.8 percent lower than 1998. Net
income of $319.6 million for 1998 was 16.6 percent higher than 1997. Net income
as a percentage of sales was 6.3 percent in 1999, compared to 6.9 percent in
1998 and 6.7 percent in 1997.
YEAR 2000 CONSIDERATIONS - 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
that the Company began several years ago. The cost for these actions is not
material to the Company's results of operations. As of July 31, 1999, virtually
all internal standard application systems, including all information systems
plus any equipment or embedded systems, are year 2000 compliant. The few systems
that are currently not compliant consist of noncritical data processing systems,
which are expected to be compliant by the end of the first quarter of fiscal
2000.
In addition, the Company contacted its key suppliers, customers, distributors
and financial service providers regarding their year 2000 status. Follow-up
inquiries and audits with such key third parties were conducted as warranted.
The results of the 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 parties 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 failure to
be fully compliant by 2000 would not have an impact on the Company.
EURO PREPARATIONS - The Company upgraded its systems to accommodate the Euro
currency in 1999. The cost of this upgrade was immaterial to the Company's
financial results.
Page 13-3
<PAGE> 4
DISCUSSION OF BALANCE SHEET
THE CONSOLIDATED BALANCE SHEET shows the Company's financial position at year
end, compared with the previous year end. This statement provides information to
assist in assessing factors such as the Company's liquidity and financial
resources.
The effect of currency rate changes during the year caused a $32.8 million
decrease in Shareholders' equity. These rate changes also caused significant
decreases in accounts receivable, inventories, goodwill and plant and equipment,
as well as significant decreases in accounts payable and the various accrual
accounts.
Working capital and the current ratio were as follows:
Working Capital (millions) 1999 1998
- --------------------------- --------- --------
Current Assets $1,775 $ 1,780
Current Liabilities 755 989
Working Capital 1,020 791
Current Ratio 2.4 1.8
- --------------------------- --------- --------
ACCOUNTS RECEIVABLE are primarily due from customers for sales of product
($684.2 million at June 30, 1999, compared to $642.3 million at June 30, 1998).
The current year increase in accounts receivable is primarily due to
acquisitions and increased volume. Days sales outstanding for the Company
increased slightly to 47 days in 1999 from 46 days in 1998. An increase in the
allowance for doubtful accounts in 1999 is primarily due to receivables obtained
through acquisitions.
INVENTORIES decreased to $915.1 million at June 30, 1999, compared to $944.3
million a year ago, with the decline occurring primarily in the Industrial
operations where management focused on reducing inventory levels to align with
current customer demand. The decline in inventory was partially offset by an
increase in inventory due to acquisitions. Months supply of inventory on hand at
June 30, 1999 decreased to 3.5 months from 3.7 months at June 30, 1998.
PLANT AND EQUIPMENT, net of accumulated depreciation, increased $65.6 million in
1999 as a result of acquisitions and capital expenditures which exceeded annual
depreciation.
INVESTMENTS AND OTHER ASSETS increased $65.9 million in 1999 primarily as a
result of increases in pension assets and the cash surrender value of
corporate-owned life insurance contracts.
EXCESS COST OF INVESTMENTS OVER NET ASSETS ACQUIRED increased $41.8 million in
1999 as a result of acquisitions, partially offset by current year amortization.
The additional excess cost of investments in 1999 is being amortized over 15
years.
NOTES PAYABLE AND LONG-TERM DEBT PAYABLE WITHIN ONE YEAR decreased $204.9
million due to a decrease in commercial paper borrowings and the redemption of
the Company's $100 million 10.375% debentures in July 1998.
ACCOUNTS PAYABLE, TRADE decreased $25.1 million in 1999 due primarily to the
timing of payments made at the Corporate level as well as lower balances in the
International Industrial operations due to lower production levels.
Page 13-4
ACCRUED PAYROLLS AND OTHER COMPENSATION decreased $18.1 million in 1999
primarily as a result of decreased headcount and incentive plans which are based
on sales and earnings.
ACCRUED DOMESTIC AND FOREIGN TAXES increased to $52.6 million in 1999 from $34.4
million in 1998 primarily due to lower estimated tax payments in 1999.
LONG-TERM DEBT increased $211.8 million in 1999 primarily due to increased
borrowings to fund acquisitions and the issuance of the ESOP debt guarantee. See
the Cash Flows From Financing Activities section on page 13-7 for further
discussion.
<PAGE> 5
The Company's goal is to maintain no less than an "A" rating on senior debt to
ensure availability and reasonable cost of external funds. To meet this
objective, the Company has established a financial goal of maintaining a ratio
of debt to debt-equity of 30 to 33 percent.
Debt to Debt-Equity Ratio 1999 1998
(millions)
- ------------------------------------ -------- -------------
Debt $ 785 $ 778
Debt & Equity 2,639 2,462
Ratio 29.8% 31.6%
- ------------------------------------ -------- -------------
In fiscal 2000 additional borrowings are not anticipated for the stock
repurchase program, capital investments, or for working capital purposes, but
may be utilized for acquisitions.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS increased 4.1 percent in 1999. These
costs are explained further in Note 8 to the Consolidated Financial Statements.
OTHER LIABILITIES increased to $65.3 million in 1999 from $44.2 million in 1998
primarily due to increases in deferred compensation plans.
COMMON STOCK IN TREASURY decreased to $1.8 million in 1999 from $83.5 million in
1998 due to the sale of treasury shares to the Company's ESOP in 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 non-performance 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.
Page 13-5
DISCUSSION OF CASH FLOWS
THE CONSOLIDATED STATEMENT OF CASH FLOWS reflects cash inflows and outflows from
the Company's operating, investing and financing activities.
Cash and cash equivalents increased $2.8 million in 1999 after decreasing $38.5
million in 1998.
CASH FLOWS FROM OPERATING ACTIVITIES -- The Company's largest source of cash
continues to be net cash provided by operating activities. Net cash provided by
operating activities in 1999 was a record $459.1 million compared to $320.6
million in 1998. Inventories provided cash of $30.6 million in 1999 compared to
using cash of $185.6 million in 1998. Accrued domestic and foreign taxes
provided cash of $22.1 million in 1999 after using cash of $15.3 million in
1998. Accounts receivable used cash of $31.4 million in 1999 after using cash of
$71.0 million in 1998 and Other liabilities provided cash of $20.7 million
compared to providing cash of $8.6 million in 1998. These providers of cash in
1999 were partially offset with cash used by Other assets of $57.0 million in
1999 after using cash of $31.6 million in 1998. Accounts payable used cash of
$33.1 million in 1999 after providing cash of $52.9 million in 1998. Accrued
payrolls and other compensation used cash of $21.9 million in 1999 after
providing cash of $27.5 million in 1998.
The net cash provided by operating activities in 1998 decreased $71.7 million
compared to 1997. This decrease was principally due to inventories using cash of
$185.6 million in 1998 compared to $27.0 million in 1997. Other accrued
liabilities used cash of $9.1 million in 1998 compared to providing cash of
$16.0 million in 1997. Accrued domestic and foreign taxes also used cash in 1998
of $15.3 million after providing cash of $4.3 million in 1997. These uses of
cash in 1998 were partially offset with cash provided by an increase of $45.5
million in Net income in 1998 and a $52.9 million increase in Accounts payable
in 1998 compared to an increase of $31.7 million in 1997. In addition, the 1998
write-off of purchased in-process R&D of $15.8 million was a non-cash charge
added back to Net income to reconcile to the net cash provided by operating
activities.
CASH FLOWS FROM INVESTING ACTIVITIES - Net cash used in investing activities was
$146.1 million lower in 1999 than 1998, primarily due to Acquisitions using
$143.1 million less cash in 1999. Also, Capital expenditures decreased by $6.8
million in 1999.
<PAGE> 6
Net cash used in investing activities was $264.4 million greater in 1998 than
1997, primarily due to Acquisitions using $201.5 million more cash in 1998.
Also, Capital expenditures increased $47.8 million in 1998.
To complete Acquisitions the Company utilized cash of $89.9 million in 1999;
cash of $233.0 million and treasury shares valued at $11.9 million in 1998; and
cash of $31.5 million in 1997. The net assets of the acquired companies at their
respective acquisition dates consisted of the following:
Page 13-6
(In thousands) 1999 1998 1997
- --------------------------- ------------ ------------- -------------
Assets acquired:
Accounts receivable $16,529 $ 39,286 $ 4,549
Inventories 16,173 43,847 13,410
Prepaid expenses 2,509 1,393 247
Deferred income taxes 1,643 1,576
Plant & equipment 17,686 54,718 15,283
Other assets 3,783 3,762 (1,121)
Excess cost of
investments over net
assets acquired 84,589 162,680 11,596
- --------------------------- ------------ ------------- -------------
141,269 307,329 45,540
- --------------------------- ------------ ------------- -------------
Liabilities assumed:
Notes payable 10,433 8,690 2,050
Accounts payable 10,105 21,841 2,418
Accrued payrolls 6,828 4,418 471
Accrued taxes (646) 2,840 941
Other accrued liabilities 3,535 11,421 4,582
Long-term debt 20,090 9,706 2,454
Pensions and other
postretirement benefits 471 477 1,163
Other liabilities 588 3,033
- --------------------------- ------------ ------------- -------------
51,404 62,426 14,079
- --------------------------- ------------ ------------- -------------
Net assets acquired $89,865 $ 244,903 $ 31,461
- --------------------------- ------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES - In 1999 the Company decreased its
outstanding borrowings by a net total of $148.4 million. This amount does not
include the Company's issuance of the ESOP debt guarantee of $112.0 million
which is reflected as a non-cash financing activity. The Company issued $225.0
million in medium-term notes during 1999. As of June 30, 1999, the Company paid
down the majority of its commercial paper borrowings and selected notes payable
attributable to the International operations with the major source of funding
for the repayment coming from the proceeds received from the sale of treasury
shares to the ESOP.
In 1998 the Company increased its outstanding borrowings by a net total of
$264.9 million primarily to fund acquisitions. The majority of the funding was
through the issuance of commercial paper. Additional funds were obtained through
the issuance of $50.0 million of medium-term notes.
Common share activity in 1999 includes the repurchase of stock, the exercise of
stock options and the sale of treasury shares to the ESOP. During 1999 the
Company purchased 1,500,000 shares for treasury and sold 3,055,413 shares to the
ESOP.
Dividends have been paid for 196 consecutive quarters, including a yearly
increase in dividends for the last 43 fiscal years. The current annual dividend
rate is $.68 per share.
In summary, based upon the Company's past performance and current expectations,
management believes the cash flows generated from future operating activities,
combined with the Company's worldwide financial capabilities, will provide
adequate funds to support planned growth and continued improvements in the
Company's manufacturing facilities and equipment.
<PAGE> 7
Page 13-7
DISCUSSION OF BUSINESS SEGMENT INFORMATION
THE BUSINESS SEGMENT INFORMATION presents sales, operating income and assets on
a basis that is consistent with the manner in which the Company's various
businesses are managed for internal review and decision-making.
INDUSTRIAL SEGMENT
- -----------------------------------------------------------
1999 1998 1997
- -------------------------- ---------- ---------- ----------
Operating income as a
percent of sales 11.0% 12.6% 12.9%
Return on average assets 16.0% 19.1% 18.6%
- -------------------------- ---------- ---------- ----------
Sales for the Industrial North American operations increased to $2.57 billion in
1999, 4.5 percent over 1998, following 1998's increase of 15.2 percent over
1997. Acquisitions accounted for four-fifths of the increase in 1999 and nearly
one-fifth of the increase in 1998. Sales in 1999 reflects lower demand within
most of the Industrial North American markets, particularly in the semiconductor
fabrication, agricultural, petrochemical, factory automation and machine tool
markets. However, growth was experienced in the telecommunications and
refrigeration markets. The growth in 1998 was spread among numerous markets, but
primarily was the result of growth in the light and heavy-duty truck,
construction equipment, telecommunications, factory automation, machine tool and
refrigeration markets.
International Industrial sales increased to a record $1.24 billion, 4.7 percent
over 1998. Without the impact of changes in currency rates, volume for 1999
increased 5.8 percent. Acquisitions accounted for all of the 1999 increase.
International Industrial sales in 1998 increased to $1.19 billion, 8.0 percent
over 1997. Without the impact of changes in currency rates, volume for 1998
increased over 17 percent. Acquisitions contributed over half of the 1998
increase. European markets experienced steady growth during 1998. The Company
also continued to penetrate markets in Asia Pacific and Latin American regions.
Industrial North American operating income decreased 8.4 percent in 1999 after
an increase of 11.4 percent in 1998 over 1997. Operating income in 1998 includes
a $5.2 million R&D charge. Income from operations as a percent of sales was 13.1
percent in 1999 compared to 14.9 percent in 1998 and 15.4 percent in 1997.
Margins in 1999 were adversely affected by the underabsorption of overhead costs
and pricing pressure experienced throughout most of the Industrial markets.
Recently purchased acquisitions, not yet fully integrated, continued to
contribute lower margins. Raw material prices decreased during the year.
International operating income decreased 11.4 percent in 1999 after a 1998
increase of 6.4 percent over 1997. Operating income in 1998 includes a $10.6
million R&D charge. Income as a percent of sales in 1999 was 6.6 percent
compared to 7.8 percent in 1998 and 7.9 percent in 1997. Demand in Europe began
to weaken in the second half of 1999 resulting in lower capacity utilization.
Latin American operations suffered through a weak economy throughout most of
1999, particularly in the Brazilian markets. Results in the Asia Pacific region
continue to improve as the Company continued to expand its infrastructure in
this market. Operating income for 1998 benefited from growth in the European
Industrial markets with increased volume improving capacity utilization.
A slight improvement in the trend of order rates was seen toward the end of
1999; however, it is unclear whether an upward trend will continue or be
sustainable into fiscal 2000 as the Company continues to see mixed business
conditions across its North American markets. The Industrial European and Latin
American operations are expected to experience a continued weak economy in the
first half of fiscal 2000. The Company expects to take the necessary actions to
manage these operations to ensure they are appropriately structured to operate
in their current economic environment.
Page 13-8
Backlog for the Industrial Segment was $546.9 million at June 30, 1999, compared
to $585.2 million at the end of 1998 and $510.8 million at the end of 1997. The
lower backlog reflects the weakened demand experienced during the year by the
Industrial markets. The 1998 increase over backlog in 1997 was due to volume
growth within the North American operations, as well as acquisitions.
<PAGE> 8
Assets for the Industrial Segment increased 3.4 percent in 1999 after an
increase of 15.0 percent in 1998. The increase in 1999 is primarily due to
acquisitions, partially offset by decreases in inventories and net goodwill as
well as the effect of currency fluctuations. In 1998 currency fluctuations
partially offset increases from acquisitions and increases in inventories. In
both years net plant and equipment increased due to capital expenditures
exceeding depreciation.
AEROSPACE SEGMENT
- -----------------------------------------------------------
1999 1998 1997
- -------------------------- ---------- ---------- ----------
Operating income as a
percent of sales 15.4% 16.1% 12.9%
Return on average assets 23.1% 22.8% 17.3%
- -------------------------- ---------- ---------- ----------
Sales increased 16.1 percent in 1999 and 15.1 percent in 1998. The continuing
high level of activity in 1999 reflects the increase in commercial aircraft
build rates. Increased commercial aircraft deliveries and continued penetration
of the commercial repair and overhaul businesses contributed to the higher
volume in 1998.
Operating income increased 11.0 percent in 1999 and 43.1 percent in 1998. As a
percent of sales 1999 income was 15.4 percent compared to 16.1 percent in 1998
and 12.9 percent in 1997. Current year margins reflect a change in mix of sales
from aftermarket to OEM . The 1998 increase in margins was primarily the result
of improved capacity utilization due to higher volume and a favorable product
mix.
Backlog at June 30, 1999 was $1.08 billion compared to $1.06 billion in 1998 and
$976.2 million in 1997, reflecting the strong growth of the commercial aircraft
market. A decline in OEM business is expected in fiscal 2000 and the Company
expects to take the necessary steps to resize the business.
Assets increased 6.0 percent in 1999 after a 13.6 percent increase in 1998. For
both periods the increases were primarily in customer receivables and property,
plant and equipment, partially offset by a decrease in net goodwill. The 1998
increase was also due to an increase in inventories.
CORPORATE assets increased 23.5 percent in 1999 primarily due to increases in
qualified and non-qualified benefit plan assets. The increase of 94.9 percent in
1998 is primarily due to a change in the balance sheet classification of
qualified pension assets.
Page 13-9
<PAGE> 9
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share amounts) For the year ended June 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 4,958,800 $ 4,633,023 $ 4,091,081
Cost of sales 3,869,370 3,550,992 3,152,988
- ----------------------------------------------------------------------------------------------------------------------------
Gross profit 1,089,430 1,082,031 938,093
Selling, general and administrative expenses 550,681 532,134 475,180
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 538,749 549,897 462,913
Other income (deductions):
Interest expense (63,697) (52,787) (46,659)
Interest and other income, net 5,056 6,783 5,623
(Loss) gain on disposal of assets (2,414) 95 2,990
- ----------------------------------------------------------------------------------------------------------------------------
(61,055) (45,909) (38,046)
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 477,694 503,988 424,867
Income taxes (Note 3) 167,193 180,762 150,828
- ----------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 310,501 323,226 274,039
Extraordinary item - extinguishment of debt (Note 7) (3,675)
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 310,501 $ 319,551 $ 274,039
============================================================================================================================
EARNINGS PER SHARE (Note 4)
Basic earnings per share before extraordinary item $ 2.85 $ 2.91 $ 2.46
Extraordinary item - extinguishment of debt (.03)
- ----------------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ 2.85 $ 2.88 $ 2.46
============================================================================================================================
Diluted earnings per share before extraordinary item $ 2.83 $ 2.88 $ 2.44
Extraordinary item - extinguishment of debt (.03)
- ----------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 2.83 $ 2.85 $ 2.44
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 13-10
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Dollars in thousands) For the year ended June 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME $ 310,501 $ 319,551 $ 274,039
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustment (32,832) (32,681) (48,070)
- ----------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 277,669 $ 286,870 $ 225,969
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 13-11
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(Dollars in thousands) June 30, 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C>
Cash and cash equivalents $ 33,277 $ 30,488
Accounts receivable, less allowance for doubtful accounts
(1999 - $9,397; 1998 - $9,004) 738,773 699,179
Inventories (Notes 1 and 5):
Finished products 442,361 416,034
Work in process 347,376 392,880
Raw materials 125,393 135,357
- ---------------------------------------------------------------------------------------------------------------
915,130 944,271
Prepaid expenses 22,928 22,035
Deferred income taxes (Notes 1 and 3) 64,576 84,102
- ---------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,774,684 1,780,075
Plant and equipment (Note 1):
Land and land improvements 125,990 113,774
Buildings and building equipment 592,086 552,177
Machinery and equipment 1,678,956 1,560,016
Construction in progress 109,780 119,142
- ---------------------------------------------------------------------------------------------------------------
2,506,812 2,345,109
Less accumulated depreciation 1,305,943 1,209,884
- ---------------------------------------------------------------------------------------------------------------
1,200,869 1,135,225
Investments and other assets (Note 1) 260,495 194,632
Excess cost of investments over net assets acquired (Note 1) 441,489 399,681
Deferred income taxes (Notes 1 and 3) 28,351 15,208
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $3,705,888 $3,524,821
===============================================================================================================
</TABLE>
Page 13-12
<TABLE>
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and long-term debt payable within one year (Notes 6 and 7) $ 60,609 $ 265,485
Accounts payable, trade 313,173 338,249
Accrued payrolls and other compensation 145,745 163,879
Accrued domestic and foreign taxes 52,584 34,374
Other accrued liabilities 182,402 186,783
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 754,513 988,770
Long-term debt (Note 7) 724,757 512,943
Pensions and other postretirement benefits (Notes 1 and 8) 276,637 265,675
Deferred income taxes (Notes 1 and 3) 30,800 29,739
Other liabilities 65,319 44,244
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,852,026 1,841,371
- ----------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (Note 9)
Serial preferred stock, $.50 par value, authorized 3,000,000 shares; none issued
Common stock, $.50 par value, authorized 600,000,000 shares;
issued 111,945,179 shares in 1999 and 111,812,025 shares in 1998 at par value 55,973 55,906
Additional capital 132,227 139,726
Retained earnings 1,872,356 1,631,316
Unearned compensation related to guarantee of ESOP debt (Note 7) (112,000) -
Accumulated other comprehensive income (loss) (92,858) (60,026)
- ----------------------------------------------------------------------------------------------------------------
1,855,698 1,766,922
Common stock in treasury at cost; 43,836 shares in 1999 and 1,938,762 shares
in 1998 (1,836) (83,472)
- ----------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 1,853,862 1,683,450
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,705,888 $ 3,524,821
================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 11
Page 13-13
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands) For the year ended June 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 310,501 $ 319,551 $ 274,039
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 164,577 153,633 146,253
Amortization 37,469 29,046 23,580
Deferred income taxes 5,718 7,680 (1,269)
Foreign currency transaction (gain) loss (2,495) 3,697 1,947
Loss (gain) on sale of plant and equipment 1,886 291 (9,811)
Write-off of purchased in-process research and development - 15,800 -
Net effect of extraordinary loss - 3,675 -
Changes in assets and liabilities, net of effects from acquisitions and
dispositions:
Accounts receivable (31,396) (71,034) (76,081)
Inventories 30,606 (185,569) (27,007)
Prepaid expenses 2,069 (3,473) (1,234)
Other assets (56,957) (31,620) (26,130)
Accounts payable, trade (33,075) 52,947 31,672
Accrued payrolls and other compensation (21,892) 27,531 23,929
Accrued domestic and foreign taxes 22,091 (15,282) 4,282
Other accrued liabilities (3,935) (9,129) 16,026
Pensions and other postretirement benefits 13,258 14,276 6,823
Other liabilities 20,672 8,579 5,291
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 459,097 320,599 392,310
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (less cash acquired of $2,609 in 1999, $4,260 in 1998
and $1,394 in 1997) (89,865) (232,953) (31,461)
Capital expenditures (230,122) (236,945) (189,201)
Proceeds from sale of plant and equipment 6,382 7,151 11,307
Other 548 3,630 14,624
- ----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (313,057) (459,117) (194,731)
</TABLE>
Page 13-14
<TABLE>
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (payments for) common share activity 74,076 (96,887) (10,184)
(Payments of) proceeds from notes payable, net (228,896) 190,865 (100,655)
Proceeds from long-term borrowings 232,886 87,085 9,390
(Payments of) long-term borrowings (152,397) (13,054) (30,059)
Dividends paid, net of tax benefit of ESOP shares (69,461) (66,501) (56,570)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (143,792) 101,508 (188,078)
Effect of exchange rate changes on cash 541 (1,499) (4,457)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,789 (38,509) 5,044
Cash and cash equivalents at beginning of year 30,488 68,997 63,953
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 33,277 $ 30,488 $ 68,997
============================================================================================================================
Supplemental Data:
Cash paid during the year for:
</TABLE>
<PAGE> 12
<TABLE>
<S> <C> <C> <C>
Interest, net of capitalized interest $ 62,997 $ 48,105 $ 46,812
Income taxes 129,893 175,546 145,663
Non-cash investing activities:
Treasury stock issued for acquisitions 11,950
Non-cash financing activities:
Capital lease obligations 7,346
ESOP debt guarantee 112,000
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 13-15
<TABLE>
<CAPTION>
BUSINESS SEGMENT INFORMATION
BY INDUSTRY
(Dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES:
Industrial:
North America $ 2,565,154 $ 2,454,558 $ 2,130,817
International 1,241,256 1,185,584 1,097,615
Aerospace 1,152,390 992,881 862,649
- ----------------------------------------------------------------------------------------------------------------------------
$ 4,958,800 $ 4,633,023 $ 4,091,081
============================================================================================================================
SEGMENT OPERATING INCOME:
Industrial:
North America $ 335,259 $ 365,880 $ 328,307
International 82,245 92,783 87,216
Aerospace 177,213 159,580 111,533
- ----------------------------------------------------------------------------------------------------------------------------
Total segment operating income 594,717 618,243 527,056
Corporate administration 54,176 61,829 50,582
- ----------------------------------------------------------------------------------------------------------------------------
Income before interest expense and other 540,541 556,414 476,474
Interest expense 63,697 52,787 46,659
Other (850) (361) 4,948
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 477,694 $ 503,988 $ 424,867
============================================================================================================================
IDENTIFIABLE ASSETS:
Industrial $ 2,657,146 $ 2,570,273 $ 2,235,631
Aerospace 789,174 744,335 655,433
- ----------------------------------------------------------------------------------------------------------------------------
3,446,320 3,314,608 2,891,064
Corporate (a) 259,568 210,213 107,882
- ----------------------------------------------------------------------------------------------------------------------------
$ 3,705,888 $ 3,524,821 $ 2,998,946
============================================================================================================================
PROPERTY ADDITIONS: (b)
Industrial $ 209,230 $ 245,995 $ 173,635
Aerospace 36,993 33,733 20,608
Corporate (c) 1,585 11,935 32,078
- ----------------------------------------------------------------------------------------------------------------------------
$ 247,808 $ 291,663 $ 226,321
============================================================================================================================
DEPRECIATION:
Industrial $ 140,914 $ 130,888 $ 121,694
Aerospace 19,523 19,011 21,536
Corporate 4,140 3,734 3,023
- ----------------------------------------------------------------------------------------------------------------------------
$ 164,577 $ 153,633 $ 146,253
============================================================================================================================
</TABLE>
The accounting policies of the business segments are the same as those described
<PAGE> 13
in the Significant Accounting Policies footnote except that the business segment
results are prepared on a management basis that is consistent with the manner
in which the Company disaggregates financial information for internal review and
decision-making.
(a) Corporate assets are principally cash and cash equivalents, domestic
deferred income taxes, investments, benefit plan assets, headquarters
facilities, idle facilities held for sale and the major portion of the
Company's domestic data processing equipment.
(b) Includes value of net plant and equipment at the date of acquisition of
acquired companies accounted for by the purchase method
(1999 - $17,686; 1998 - $54,718; 1997 - $15,283).
(c) Fiscal 1997 includes $21,837 for real estate acquired in a tax-free
exchange of property.
Page 13-16
<TABLE>
<CAPTION>
BY GEOGRAPHIC AREA (d)
(Dollars in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
NET SALES:
<S> <C> <C> <C>
North America $ 3,684,786 $ 3,425,704 $ 2,969,883
International 1,274,014 1,207,319 1,121,198
- ----------------------------------------------------------------------------------------------------------------------------
$ 4,958,800 $ 4,633,023 $ 4,091,081
============================================================================================================================
LONG-LIVED ASSETS:
North America $ 873,222 $ 790,162 $ 710,049
International 327,647 345,063 310,694
- ----------------------------------------------------------------------------------------------------------------------------
$ 1,200,869 $ 1,135,225 $ 1,020,743
============================================================================================================================
</TABLE>
(d) Net sales are attributed to countries based on the location of the selling
unit. North America includes the United States, Canada and Mexico. No
country other than the United States represents greater than 10% of
consolidated sales. Long-lived assets are comprised of property, plant
and equipment based on physical location.
Page 13-17
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of the
accompanying consolidated financial statements are summarized below.
NATURE OF OPERATIONS - The Company is a leading worldwide producer of motion
control products, including fluid power systems, electromechanical controls and
related components.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information," during
fiscal 1999. SFAS No. 131 requires segment information to be disclosed based
upon how management internally evaluates the operating performance of its
business units. The Company evaluates performance based on segment operating
income before Corporate general and administrative expenses, Interest expense
and Income taxes. Business segment information for fiscal years 1998 and 1997
have been restated to conform to the new standard.
The Company operates in two principal business segments: Industrial and
Aerospace. The Industrial Segment is an aggregation of several business units
which produce motion-control and fluid power system components for builders and
users of various types of manufacturing, packaging, processing, transportation,
agricultural, construction, and military machinery, vehicles and equipment.
Industrial Segment products are marketed primarily through field sales employees
and independent distributors. The North American Industrial business represents
the largest portion of the Company's manufacturing plants and distribution
networks and primarily services North America. The International Industrial
operations bring Parker products and services to countries throughout Europe,
Asia Pacific and Latin America.
The Aerospace Segment produces hydraulic, pneumatic and fuel systems and
components which are utilized on virtually every domestic commercial, military
and general aviation aircraft. Its components also perform a vital role in naval
vessels, land-based weapons systems, satellites and space vehicles. This Segment
serves original equipment and maintenance, repair and overhaul customers
worldwide. Its products are marketed by field sales employees and are sold
directly to the manufacturer and to the end user.
There are no individual customers to whom sales are 6 percent or more of the
Company's consolidated sales. Due to the diverse group of customers throughout
the world the Company does not consider itself exposed to any concentration of
credit risks.
The Company manufactures and markets its products throughout the world. Although
certain risks and uncertainties exist, the diversity and breadth of the
Company's products and geographic operations mitigate significantly the risk
that adverse changes in any event would materially affect the Company's
operating results.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of all domestic and foreign subsidiaries. All material intercompany
transactions and profits have been eliminated in the consolidated financial
statements. Within the Business Segment Information, intersegment and interarea
sales are recorded at fair market value and are immaterial in amount.
Page 13-18
CASH - Cash equivalents consist of short-term highly liquid investments, with a
three-month or less maturity, carried at cost plus accrued interest, which are
readily convertible into cash.
INVENTORIES - Inventories are stated at the lower of cost or market. The
majority of domestic inventories are valued by the last-in, first-out method and
the balance of the Company's inventories are valued by the first-in, first-out
method.
<PAGE> 15
LONG-TERM CONTRACTS - The Company enters into long-term contracts for the
production of aerospace products. For financial statement purposes, sales are
recorded as deliveries are made (units of delivery method of
percentage-of-completion). Unbilled costs on these contracts are included in
inventory. Progress payments are netted against the inventory balances.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined.
PLANT, EQUIPMENT AND DEPRECIATION - Plant and equipment are recorded at cost and
are depreciated principally using the straight-line method for financial
reporting purposes. Depreciation rates are based on estimated useful lives of
the assets. Improvements which extend the useful life of property are
capitalized, and maintenance and repairs are expensed. When property is retired
or otherwise disposed of, the cost and accumulated depreciation are removed from
the appropriate accounts and any gain or loss is included in current income.
INVESTMENTS AND OTHER ASSETS - Investments in joint-venture companies in which
ownership is 50% or less are stated at cost plus the Company's equity in
undistributed earnings. These investments and the related earnings are not
material to the consolidated financial statements.
EXCESS COST OF INVESTMENTS - The excess cost of investments over net assets
acquired is being amortized, on a straight-line basis, primarily over 15 years
and not exceeding 40 years. Unamortized cost in excess of associated expected
operating cash flows is considered to be impaired and is written down to fair
value.
INCOME TAXES - Income taxes are provided based upon income for financial
reporting purposes. Deferred income taxes arise from temporary differences in
the recognition of income and expense for tax purposes. Tax credits and similar
tax incentives are applied to reduce the provision for income taxes in the year
in which the credits arise.
FOREIGN CURRENCY TRANSLATION - Assets and liabilities of most foreign
subsidiaries are translated at current exchange rates, and income and expenses
are translated using weighted average exchange rates. The effects of these
translation adjustments, as well as gains and losses from certain intercompany
transactions, are reported in the Accumulated other comprehensive income
component of Shareholders' equity. Such adjustments will affect Net income only
upon sale or liquidation of the underlying foreign investments, which is not
contemplated at this time. Exchange gains and losses from transactions in a
currency other than the local currency of the entity involved, and translation
adjustments in countries with highly inflationary economies, are included in
income.
FINANCIAL INSTRUMENTS - The Company's financial instruments consist primarily of
investments in cash, cash equivalents and long-term investments as well as
obligations under notes payable and long-term debt. The carrying values for Cash
and cash equivalents, Investments and other assets and Notes payable approximate
fair value.
The Company enters into forward exchange contracts (forward contracts) and
cross-currency swap agreements to reduce its exposure to fluctuations in related
foreign currencies. These contracts are with major financial institutions and
the risk of loss is considered remote. The Company does not hold or issue
derivative financial instruments for trading purposes.
Gains or losses on forward contracts which hedge net investments in consolidated
subsidiaries are accrued in Shareholders' equity. Gains or losses on forward
contracts which hedge specific transactions are recognized in Net income,
offsetting the underlying foreign currency gains or losses.
Page 13-19
Cross-currency swap agreements are recorded in Long-term debt as
dollar-denominated receivables with offsetting foreign-currency payables. If the
receivables more than offset the payables, the net difference is reclassified to
an asset. Gains or losses are accrued monthly as an adjustment to Net income,
offsetting the underlying foreign currency gains or losses. The differential
between interest to be received and interest to be paid is accrued monthly as an
adjustment to Interest expense.
In addition, the Company's foreign locations, in the ordinary course of
business, enter into financial guarantees, through financial institutions, which
enable customers to be reimbursed in the event of nonperformance by the Company.
The total value of open contracts and any risk to the Company as a result of the
above mentioned arrangements is not material.
<PAGE> 16
STOCK OPTIONS - The Company applies the intrinsic-value based method to account
for stock options granted to employees or outside Directors to purchase common
shares. The option price equals the market price of the underlying common shares
on the date of grant, therefore no compensation expense is recognized.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - The Financial Accounting Standards
Board (FASB) has issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This standard establishes a new model for accounting for
derivatives and hedging activities. Due to the immaterial amount of derivative
and hedging activity within the Company, application of this standard, required
in the first quarter of 2001 as a result of the issuance of SFAS No. 137, is not
expected to have a material impact on the results and financial position of the
Company.
In March 1998 the Accounting Standards Executive Committee issued Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SOP 98-1 requires expenses incurred during the
application development stage of a software implementation project to be
capitalized and amortized over the useful life of the project. Application of
this standard, required beginning with the first quarter of 2000, is not
expected to have a material impact on the results and financial position of the
Company.
NOTE 2
ACQUISITIONS
On July 14, 1998 the Company acquired the equity of B.A.G. Acquisition Ltd., the
parent company of Veriflo Corporation, a manufacturer of high-purity regulators
and valves based in Richmond, California. On August 27, 1998 the Company
acquired the equity of Fluid Power Systems, a manufacturer of hydraulic valves
and electrohydraulic systems and controls located in Lincolnshire, Illinois.
Combined annual sales for these operations, for their most recent fiscal year
prior to acquisition, were approximately $107 million. Total purchase price for
these businesses was approximately $85.2 million cash.
On May 1, 1998 the Company acquired the equity of Extrudit Ltd., a tubing
manufacturer located in Buxton, England. On April 30, 1998 the Company purchased
the equity of UCC Securities Limited of Thetford, Norfolk, England, a
manufacturer of technology-based hydraulic filtration products. On April 1, 1998
the Company acquired the equity of Sempress Pneumatics, a manufacturer of
pneumatic cylinders and valves located near Rotterdam, the Netherlands. On March
31, 1998 the Company acquired the assets of Temeto AB located in Flen, Sweden, a
distributor of hydraulic components. On March 26, 1998 the Company purchased the
remaining 51% of two Korean joint ventures - HS Parker Company Ltd., in Yangsan,
and the HS Parker Air Conditioning Components Company Ltd., in Chonan,
manufacturers of hydraulic hose, fittings, hose assemblies and accumulators. On
February 27, 1998 Computer Technology Corporation of Milford, Ohio, a
manufacturer of man-machine interface solutions, was merged into the Company. On
September 26, 1997 the Company acquired the assets of the Skinner solenoid valve
division of Honeywell Inc. and the equity of Honeywell Lucifer, S.A. Skinner is
headquartered in New Britain,
Page 13-20
Connecticut, and Lucifer is headquartered in Geneva, Switzerland. On August 4,
1997 the Company acquired the assets of EWAL Manufacturing of Belleville, New
Jersey, a leading producer of precision fittings and valves. Combined annual
sales for operations acquired in fiscal 1998, for their most recent fiscal year
prior to acquisition, were approximately $243 million. Total purchase price for
these businesses was approximately $236.5 million cash and 263,279 shares of
common stock valued at $11.9 million.
The purchase price allocations of Computer Technology Corporation and UCC
Securities Limited, as determined by independent appraisal, included a $15.8
million asset for purchased in-process research and development. Generally
accepted accounting principles do no allow the capitalization of R&D of this
nature, therefore, a write-off of $15.8 million ($12.0 million after tax or $.11
per share) is included in Cost of sales in 1998.
On June 4, 1997 the Company acquired the remaining 50 percent of SAES-Parker UHP
Components Corp., a manufacturer of valves for ultra-pure gas used in
semiconductor manufacturing. On February 3, 1997 the Company purchased Hydroflex
S.A. de C.V., a leading Mexican manufacturer of hydraulic hose, fittings and
adapters located in Toluca, Mexico. On September 5, 1996 the Company purchased
the assets of the industrial hydraulic product line of Hydraulik-Ring AG, of
Nurtingen, Germany. Total purchase price for these businesses was approximately
$29.3 million cash. Combined annual sales for these operations, for their most
recent fiscal year prior to acquisition, were approximately $52 million.
<PAGE> 17
These acquisitions were accounted for by the purchase method, and results are
included as of the respective dates of acquisition.
NOTE 3
INCOME TAXES
Income taxes include the following:
1999 1998 1997
- ------------------------------------------------------------------
Federal $113,011 $129,462 $113,819
Foreign 34,309 27,847 27,411
State and local 11,236 16,928 13,587
Deferred 8,637 6,525 (3,989)
- ------------------------------------------------------------------
$167,193 $180,762 $150,828
==================================================================
A reconciliation of the Company's effective income tax rate to the statutory
Federal rate follows:
1999 1998 1997
- ------------------------------------------------------------------
Statutory Federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes 1.8 2.1 2.0
FSC income not taxed (2.3) (1.7) (1.8)
Foreign tax rate difference 1.4 .2 (.3)
Other (.9) .3 .6
- -------------------------------------------------------------------
Effective income tax rate 35.0% 35.9% 35.5%
===================================================================
Page 13-21
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of assets and liabilities. The
differences comprising the net deferred taxes shown on the Consolidated Balance
Sheet at June 30 were as follows:
1999 1998
- ----------------------------------------------------------------
Postretirement benefits $ 74,238 $ 63,277
Other liabilities and reserves 38,530 52,430
Long-term contracts 16,344 14,816
Operating loss carryforwards 4,719 9,440
Foreign tax credit carryforwards 2,264 3,773
Valuation allowance (4,700) (1,591)
Depreciation (77,871) (80,508)
Inventory 10,567 11,088
- ----------------------------------------------------------------
Net deferred tax asset $ 64,091 $ 72,725
================================================================
Change in net deferred tax asset (liability):
Provision for deferred tax $ (8,637) $ (6,525)
Translation adjustment 1,710 175
Acquisitions (1,707) 784
- ----------------------------------------------------------------
Total change in net deferred tax $ (8,634) $ (5,566)
================================================================
At June 30, 1999, foreign subsidiaries had benefits for operating loss
carryforwards of $4,719 for tax purposes, some of which can be carried forward
indefinitely and others which can be carried forward from three to 10 years.
Provision has not been made for additional U.S. or foreign taxes on
undistributed earnings of certain international operations as those earnings
will continue to be reinvested. It is not practicable to estimate the additional
taxes, including applicable foreign withholding taxes, that might be payable on
the eventual remittance of such earnings.
<PAGE> 18
Accumulated undistributed earnings of foreign operations reinvested in their
operations amounted to $205,756, $153,831 and $121,871, at June 30, 1999, 1998
and 1997, respectively.
NOTE 4
EARNINGS PER SHARE
Earnings per share have been computed according to SFAS No. 128, "Earnings per
Share." Basic earnings per share is computed using the weighted average number
of shares of common stock outstanding during the year.
Diluted earnings per share is computed using the weighted average number of
common shares and common share equivalents outstanding during the year. Common
share equivalents represent the dilutive effect of outstanding stock options.
Page 13-22
The computation of net income per share was as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Numerator:
---------
Net income applicable
to common shares $ 310,501 $ 319,551 $ 274,039
================================================================================
Denominator:
-----------
Basic - weighted average
common shares 108,799,974 110,868,834 111,601,484
Increase in weighted average
from dilutive effect of
exercise of stock options 878,985 1,090,437 916,569
- --------------------------------------------------------------------------------
Diluted - weighted average
common shares, assuming
exercise of stock options 109,678,959 111,959,271 112,518,053
================================================================================
Basic earnings per share $ 2.85 $ 2.88 $ 2.46
Diluted earnings per share $ 2.83 $ 2.85 $ 2.44
================================================================================
NOTE 5
INVENTORIES
Inventories valued on the last-in, first-out cost method are approximately 34%
in 1999 and 36% in 1998 of total inventories. The current cost of these
inventories exceeds their valuation determined on the LIFO basis by $138,197 in
1999 and $139,011 in 1998. Progress payments of $22,593 in 1999 and $23,454 in
1998 are netted against inventories.
NOTE 6
FINANCING ARRANGEMENTS
The Company has committed lines of credit totaling $653,865 through several
multi-currency unsecured revolving credit agreements with a group of banks, of
which $630,570 was available at June 30, 1999. The majority of these agreements
expire October 2003. The interest on borrowings is based upon the terms of each
specific borrowing and is subject to market conditions. The agreements also
require facility fees of up to 8/100ths of one percent of the commitment per
annum. Covenants in some of the agreements include a limitation on the Company's
ratio of debt to tangible net worth.
<PAGE> 19
The Company has other lines of credit, primarily short-term, aggregating $84,971
from various foreign banks, of which $62,307 was available at June 30, 1999.
Most of these agreements are renewed annually.
During fiscal 1999 the Company issued $225,000 of medium-term notes leaving
$530,000 available for issuance at June 30, 1999.
The Company is authorized to sell up to $600,000 of short-term commercial paper
notes, rated A-1 by Standard & Poor's, P-1 by Moody's and D-1 by Duff & Phelps.
At June 30, 1999 there were $5,900 of commercial paper notes outstanding which
were supported by the available domestic lines of credit.
Commercial paper, along with short-term borrowings from foreign banks, primarily
make up the balance of Notes payable. The balance and weighted average interest
rate of the Notes payable at June 30, 1999 and 1998 were $37,305 and 6.4% and
$155,259 and 6.1%, respectively.
Page 13-23
NOTE 7
DEBT
June 30, 1999 1998
- --------------------------------------------------------------------------------
Domestic:
Debentures
9.75%, due 2002-2021 $ 100,000 $ 100,000
7.3%, due 2011 100,000 100,000
10.375%, due 1999-2018 100,000
Medium-term notes
5.65% to 7.39%, due 2004-2019 370,000 145,000
ESOP loan guarantee
6.34%, due 2009 112,000
Commercial paper 100,000
Variable rate demand bonds
3.65% to 3.75%, due 2010-2025 20,035 20,035
Foreign:
Bank loans, including revolving credit
1.0% to 11.50%, due 1999-2018 37,206 54,653
Other long-term debt, including capitalized leases 8,820 3,481
- --------------------------------------------------------------------------------
Total long-term debt 748,061 623,169
Less long-term debt payable within one year 23,304 110,226
- --------------------------------------------------------------------------------
Long-term debt, net $ 724,757 $ 512,943
- --------------------------------------------------------------------------------
On June 30, 1998, the Company called for redemption its outstanding $100,000,
10.375 percent debentures due 1999-2018. The after-tax extraordinary loss for
this transaction, including an early-redemption premium and the write-off of
deferred issuance costs, was $3,675 or $.03 per share. The retirement of the
debt was financed on July 15, 1998, through the issuance of $100,000 of
medium-term notes, due 2019, at an annual interest rate of 6.55 percent.
Principal amounts of long-term debt payable in the five years ending June 30,
2000 through 2004 are $23,304, $22,603, $24,646, $23,533, and $199,004,
respectively. The carrying value of the Company's long-term debt (excluding
leases and cross-currency swaps) was $739,241 and $519,688 at June 30, 1999 and
1998, respectively, and was estimated to have a fair value of $708,224 and
$545,140, at June 30, 1999 and 1998, respectively. The estimated fair value of
the Long-term debt was estimated using discounted cash flow analyses based on
the Company's current incremental borrowing rate for similar types of borrowing
arrangements.
ESOP LOAN GUARANTEE - In March 1999 the Company's Employee Stock Ownership Plan
(ESOP) was leveraged when the ESOP Trust borrowed $112,000 and used the proceeds
to purchase 3,055,413 shares of the Company's common stock from the Company's
treasury. The Company used the proceeds to pay down commercial paper borrowings.
The loan is unconditionally guaranteed by the Company and therefore the unpaid
balance of the
<PAGE> 20
borrowing is reflected in the Consolidated Balance sheet as Long-term debt. An
equivalent amount representing Unearned compensation is recorded as a deduction
from Shareholders' equity.
LEASE COMMITMENTS -- Future minimum rental commitments as of June 30, 1999,
under noncancelable operating leases, which expire at various dates, are as
follows: 2000-$36,497; 2001-$25,122; 2002-$14,935; 2003-$8,716; 2004-$6,166 and
after 2004-$20,468.
Rental expense in 1999, 1998 and 1997 was $42,280, $37,065, and $33,305,
respectively.
Page 13-24
NOTE 8
RETIREMENT BENEFITS
PENSIONS - Effective July 1, 1998, the company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132
revises employers' disclosures for pensions and other postretirement benefit
plans without affecting measurement or recognition criteria. Prior year
information has been restated to conform to the new disclosure requirements.
The Company has noncontributory defined benefit pension plans covering eligible
employees, including certain employees in foreign countries. Plans for most
salaried employees provide pay-related benefits based on years of service. Plans
for hourly employees generally provide benefits based on flat-dollar amounts and
years of service. The Company also has contractual arrangements with certain key
employees which provide for supplemental retirement benefits. In general, the
Company's policy is to fund these plans based on legal requirements, tax
considerations, local practices and investment opportunities. The Company also
sponsors defined contribution plans and participates in government-sponsored
programs in certain foreign countries.
Pension costs for all plans were $23,644, $19,989 and $22,773 for 1999, 1998 and
1997, respectively. Pension costs for all defined benefit plans accounted for
using SFAS No. 87, "Employers' Accounting for Pensions," are as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Service cost $34,890 $ 28,190 $ 23,715
Interest cost 63,257 57,892 52,726
Expected return on plan assets (83,798) (68,463) (57,021)
Net amortization and deferral and other 4,081 445 1,110
- --------------------------------------------------------------------------------
Net periodic benefit cost $18,430 $ 18,064 $ 20,530
================================================================================
CHANGE IN BENEFIT OBLIGATION 1999 1998
- --------------------------------------------------------------------------------
Benefit obligation at beginning of year $ 877,752 $ 714,699
Service cost 34,890 28,190
Interest cost 63,257 57,892
Actuarial loss 30,288 70,067
Benefits paid (40,028) (33,537)
Acquisitions 37,324
Other (3,496) 3,117
- --------------------------------------------------------------------------------
Benefit obligation at end of year $ 962,663 $ 877,752
================================================================================
CHANGE IN PLAN ASSETS
- --------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $ 997,913 $ 767,687
Actual return on plan assets 131,872 205,685
Employer contributions 12,255 16,907
Benefits paid (36,253) (31,551)
Acquisitions 39,151
Other (5,798) 34
- --------------------------------------------------------------------------------
Fair value of plan assets at end of year $1,099,989 $ 997,913
================================================================================
<PAGE> 21
FUNDED STATUS
- --------------------------------------------------------------------------------
Plan assets in excess of benefit obligation $ 137,326 $ 120,161
Unrecognized net actuarial (gain) (144,706) (125,609)
Unrecognized prior service cost 23,259 22,626
Unrecognized initial net (asset) (9,587) (12,731)
- --------------------------------------------------------------------------------
Net amount recognized $ 6,292 $ 4,447
================================================================================
Page 13-25
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEET
- --------------------------------------------------------------------------------
Prepaid benefit cost $ 104,135 $ 98,104
Accrued benefit liability (97,843) (93,657)
- --------------------------------------------------------------------------------
Net amount recognized $ 6,292 $ 4,447
================================================================================
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets were $143,177, $122,411, and $28,331, respectively, at June 30,
1999, and $132,716, $112,916, and $23,782, respectively, at June 30, 1998.
The plans' assets consist primarily of listed common stocks, corporate and
government bonds, and real estate investments. At June 30, 1999 and 1998, the
plans' assets included Company stock with market values of $24,314 and $20,262,
respectively.
The assumptions used to measure the benefit obligations and to compute the
expected long-term return on assets for the Company's significant defined
benefit plans are:
1999 1998 1997
- --------------------------------------------------------------------------------
U.S. defined benefit plans
Discount rate 7.5% 7.5% 8%
Average increase in
compensation 4.9% 4.9% 5%
Expected long-term return on assets 10% 9.5% 9%
Non-U.S. defined benefit plans
Discount rate 4.5 to 6.5% 4.5 to 7% 7 to 8%
Average increase in compensation 1.5 to 4% 3 to 4.5% 3.5 to 6%
Expected long-term return on assets 6 to 9% 5.5 to 9% 7 to 9%
================================================================================
EMPLOYEE SAVINGS PLAN -- The Company sponsors an employee stock ownership plan
(ESOP) as part of its existing savings and investment 401(k) plan, which is
available to eligible domestic employees. Parker-Hannifin Common Stock is used
to match contributions made by employees to the savings plan up to a maximum of
3.5 percent of an employee's annual compensation. A breakdown of shares held by
the ESOP is as follows:
1999 1998 1997
- --------------------------------------------------------------------------------
Allocated shares 7,866,152 7,631,677 7,460,378
Suspense shares 3,055,413
- --------------------------------------------------------------------------------
Total shares held by the ESOP 10,921,565 7,631,677 7,460,378
================================================================================
Fair value of suspense shares $ 139,785
================================================================================
In 1999 the ESOP was leveraged and the loan was unconditionally guaranteed by
the Company. The Company shares acquired by the ESOP are held in a suspense
account. The Company's matching contribution and dividends on the shares held by
the ESOP are used to repay the loan, and shares are released from the suspense
account as the principal and interest are paid. The shares in the suspense
account are not considered outstanding for purposes of earnings per share
computations until they are released. Company contributions to the ESOP,
recorded as compensation and interest expense, were $24,319 in 1999, $23,093 in
1998 and $21,235 in 1997. Dividends earned by the suspense shares and interest
income within the ESOP totaled $519 in 1999.
<PAGE> 22
In addition to shares within the ESOP, as of June 30, 1999 employees have
elected to invest in 2,653,297 shares of Common Stock within the Company Stock
Fund of the Parker Retirement Savings Plan.
Page 13-26
OTHER POSTRETIREMENT BENEFITS --The Company provides postretirement medical and
life insurance benefits to certain retirees and eligible dependents. Most plans
are contributory, with retiree contributions adjusted annually. The plans are
unfunded and pay stated percentages of covered medically necessary expenses
incurred by retirees, after subtracting payments by Medicare or other providers
and after stated deductibles have been met. For most plans, the Company has
established cost maximums to more effectively control future medical costs. The
Company has reserved the right to change or eliminate these benefit plans.
Postretirement benefit costs included the following components:
1999 1998 1997
- --------------------------------------------------------------------------------
Service cost $ 4,301 $ 4,021 $ 3,296
Interest cost 11,158 11,077 11,316
Net amortization and deferral (1,683) (1,815) (830)
- --------------------------------------------------------------------------------
Net periodic benefit cost $ 13,776 $ 13,283 $ 13,782
================================================================================
CHANGE IN BENEFIT OBLIGATION 1999 1998
- --------------------------------------------------------------------------------
Benefit obligation at beginning of year $ 155,933 $ 149,874
Service cost 4,301 4,021
Interest cost 11,158 11,077
Amendments (16,544)
Actuarial (gain) loss (8,093) 13,219
Benefits paid (8,017) (6,146)
Acquisitions 432
- --------------------------------------------------------------------------------
Benefit obligation at end of year $ 155,282 $ 155,933
================================================================================
FUNDED STATUS
- --------------------------------------------------------------------------------
Benefit obligation in excess of plan assets $(155,282) $(155,933)
Unrecognized net actuarial (gain) (10,029) (2,251)
Unrecognized prior service cost (13,679) (15,046)
- --------------------------------------------------------------------------------
Net amount recognized $(178,990) $(173,230)
================================================================================
AMOUNTS RECOGNIZED IN THE CONSOLIDATED
BALANCE SHEET:
- --------------------------------------------------------------------------------
Accrued benefit liability $(178,990) $(173,230)
================================================================================
The assumptions used to measure the postretirement benefit obligations are:
1999 1998 1997
- --------------------------------------------------------------------------------
Discount rate 7.5% 7.5% 8%
Current medical cost trend rate 9.5% 10.25% 10.5%
Ultimate medical cost trend rate 5.5% 6% 6%
Medical cost trend rate decreases to
ultimate in year 2007 2007 2007
================================================================================
A one percentage point change in assumed health care cost trend rates would have
the following effects:
1% Increase 1% Decrease
- --------------------------------------------------------------------------------
Effect on total of service and interest
cost components $ 1,680 $ (1,372)
Effect on postretirement benefit
obligation $ 14,026 $ (11,637)
================================================================================
<PAGE> 23
Page 13-27
OTHER -- The Company has established nonqualified deferred compensation programs
which permit officers, directors and certain management employees to annually
elect to defer a portion of their compensation, on a pre-tax basis, until their
retirement. The retirement benefit to be provided is based on the amount of
compensation deferred, Company match, and earnings on the deferrals. Deferred
compensation expense was $29,471, $20,426 and $4,862 in 1999, 1998 and 1997,
respectively.
The Company has invested in corporate-owned life insurance policies to assist in
funding these programs. The cash surrender values of these policies are in a
rabbi trust and are recorded as assets of the Company.
NOTE 9
SHAREHOLDERS' EQUITY
COMMON SHARES 1999 1998 1997
- --------------------------------------------------------------------------------
Balance July 1 $ 55,906 $ 55,905 $ 55,719
Shares issued under stock option plans
(1999 - 133,514; 1998 - 3,650;
1997 - 432,096) 67 1 139
Restricted stock issued 47
- --------------------------------------------------------------------------------
Balance June 30 $ 55,973 $ 55,906 $ 55,905
================================================================================
ADDITIONAL CAPITAL
- --------------------------------------------------------------------------------
Balance July 1 $ 139,726 $ 150,702 $ 146,686
Net (decrease) increase for Treasury
or common shares issued
under stock option plans (2,194) (11,481) 1,684
Shares issued for purchase acquisition 35 478
Restricted stock (surrendered) issued (24) 27 2,332
Shares sold to ESOP (5,316)
- --------------------------------------------------------------------------------
Balance June 30 $ 132,227 $ 139,726 $ 150,702
================================================================================
RETAINED EARNINGS
- --------------------------------------------------------------------------------
Balance July 1 $ 1,631,316 $ 1,378,297 $ 1,160,828
Net income 310,501 319,551 274,039
Cash dividends paid on common shares,
net of tax benefit of ESOP shares (69,461) (66,501) (56,570)
Cash payments for stock split
fractional shares (31)
- --------------------------------------------------------------------------------
Balance June 30 $ 1,872,356 $ 1,631,316 $ 1,378,297
================================================================================
UNEARNED COMPENSATION RELATED TO ESOP DEBT
- --------------------------------------------------------------------------------
Balance July 1 $ -- $ -- $ --
Unearned compensation
related to ESOP debt (112,000) -- --
- --------------------------------------------------------------------------------
Balance June 30 $ (112,000) $ -- $ --
================================================================================
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
- --------------------------------------------------------------------------------
Balance July 1 $ (60,026) $ (27,345) $ 20,725
Foreign currency translation (32,832) (32,681) (48,070)
- --------------------------------------------------------------------------------
Balance June 30 $ (92,858) $ (60,026) $ (27,345)
================================================================================
Page 13-28
<PAGE> 24
COMMON STOCK IN TREASURY
- --------------------------------------------------------------------------------
Balance July 1 $ (83,472) $ (10,258) $ --
Shares purchased at cost
(1999 - 1,538,633; 1998 - 2,522,971;
1997 - 576,021) (48,734) (109,645) (18,690)
Shares issued under stock option plans
(1999 - 369,847; 1998 - 559,668;
1997 - 223,184) 14,420 23,187 6,676
Shares issued for purchase acquisition 166 11,471
Restricted stock (surrendered) issued (1,532) 1,773 1,756
Shares sold to ESOP 117,316 -- --
- --------------------------------------------------------------------------------
Balance June 30 $ (1,836) $ (83,472) $ (10,258)
================================================================================
Shares surrendered upon exercise of stock options; 1999 - 221,342; 1998 -
159,869; 1997 - 153,770.
SHARE REPURCHASES - The Board of Directors has authorized the repurchase of a
total of 5.05 million of its common shares. At June 30, 1999, the remaining
authorization to repurchase was 3.55 million shares. Repurchases are made on the
open market, at prevailing prices, and are funded from operating cash flows. The
shares are initially held as treasury stock.
NOTE 10
STOCK INCENTIVE PLANS
EMPLOYEES' STOCK OPTIONS -- The Company's stock option and stock incentive plans
provide for the granting of nonqualified options to officers and key employees
to purchase shares of common stock at a price not less than 100 percent of the
fair market value of the stock on the dates options are granted. Outstanding
options generally are exercisable between one and two years after the date of
grant and expire no more than ten years after grant.
The Company derives a tax deduction measured by the excess of the market value
over the option price at the date nonqualified options are exercised. The
related tax benefit is credited to additional capital.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company continues to account for its stock option and stock incentive plans in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and makes no charges against capital with respect to
options granted. SFAS No. 123 does, however, require the disclosure of pro forma
information regarding Net Income and Earnings per share determined as if the
Company had accounted for its stock options under the fair value method. For
purposes of this pro forma disclosure the estimated fair value of the options is
amortized to expense over the options' vesting period.
1999 1998 1997
- --------------------------------------------------------------------------------
Net income: As reported $ 310,501 $ 319,551 $ 274,039
Pro forma $ 308,028 $ 315,567 $ 270,758
Earnings per share:
Basic As reported $ 2.85 $ 2.88 $ 2.46
Pro forma $ 2.83 $ 2.85 $ 2.43
Diluted As reported $ 2.83 $ 2.85 $ 2.44
Pro forma $ 2.81 $ 2.82 $ 2.41
- --------------------------------------------------------------------------------
Page 13-29
The fair value for the significant options granted in 1999, 1998 and 1997 were
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions:
Jan/99 Aug/98 Aug/97 Jan/97 Aug/96
- --------------------------------------------------------------------------------
Risk-free interest rate 4.7% 5.3% 5.6% 6.3% 6.4%
Expected life of option 4.3 YRS 4.3 YRS 5 yrs 5 yrs 5 yrs
<PAGE> 25
Expected dividend yield of stock 1.9% 1.9% 2.3% 2.6% 2.6%
Expected volatility of stock 30.7% 28.4% 26.9% 26.5% 26.2%
================================================================================
Options exercisable and shares available for future grant on June 30:
1999 1998 1997
- --------------------------------------------------------------------------------
Options exercisable 3,065,577 3,476,016 2,905,887
Weighted-average option price
per share of options exercisable $ 22.48 $ 20.57 $ 16.41
Weighted-average fair value of
options granted during the year $ 8.35 $ 11.43 $ 7.30
Shares available for grant 3,230,548 3,256,232 3,304,627
================================================================================
A summary of the status and changes of shares subject to options and the related
average price per share follows:
Shares Subject Average Option
To Options Price Per Share
- --------------------------------------------------------------------------------
Outstanding June 30, 1997 4,224,087 $ 19.82
- --------------------------------------------------------------------------------
Granted 190,815 43.04
Exercised (721,687) 19.83
Canceled (31,409)
- --------------------------------------------------------------------------------
Outstanding June 30, 1998 3,661,806 $ 21.71
- --------------------------------------------------------------------------------
Granted 1,196,384 31.06
Exercised (591,189) 17.92
Canceled (14,155)
- --------------------------------------------------------------------------------
Outstanding June 30, 1999 4,252,846 $ 24.77
================================================================================
The range of exercise prices and the remaining contractual life of options as of
June 30, 1999 were:
- --------------------------------------------------------------------------------
Range of exercise prices $12-$20 $25-$37 $43-$49
- --------------------------------------------------------------------------------
Options outstanding:
Outstanding as of June 30, 1999 1,509,665 2,543,092 200,089
Weighted-average remaining
contractual life 3.3 yrs 8.2 yrs 8.1 yrs
Weighted-average exercise price $ 15.81 $ 28.86 $ 43.30
Options exercisable:
Outstanding as of June 30, 1999 1,509,665 1,365,097 190,815
Weighted-average remaining
contractual life 3.3 yrs 3.8 yrs 7.7 yrs
Weighted-average exercise price $ 15.81 $ 26.98 $ 43.05
================================================================================
Page 13-30
RESTRICTED STOCK -- Restricted stock was issued, under the Company's 1993 Stock
Incentive Program, to certain key employees under the Company's 1996-97-98,
1995-96-97 and 1994-95-96 Long Term Incentive Plans (LTIP). Value of the
payments was set at the market value of the Company's common stock on the date
of issuance. Shares were earned and awarded, and an estimated value was accrued,
based upon attainment of criteria specified in the LTIP over the cumulative
years of the 3-year Plans. Plan participants are entitled to cash dividends and
to vote their respective shares, but the shares are restricted as to
transferability for three years following issuance.
Restricted Shares for LTIP Plan 1999 1998 1997
- --------------------------------------------------------------------------------
Number of shares issued 15,774 39,619 152,916
Per share value on date of issuance $ 40.53 $ 40.00 $ 25.36
Total value $ 639 $ 1,585 $ 3,878
================================================================================
<PAGE> 26
Under the Company's 1997-98-99 LTIP, a payout of 8,023 shares of restricted
stock, from the Company's 1993 Stock Incentive Program, will be issued to
certain key employees in 2000. The balance of the 1997-98-99 LTIP payout will be
made as deferred cash compensation, as individually elected by the participants.
The total payout, valued at $7,539, has been accrued over the three years of the
plan.
In addition, non-employee members of the Board of Directors have been given the
opportunity to receive all or a portion of their fees in the form of restricted
stock. These shares vest ratably, on an annual basis, over the term of office of
the director. In 1999, 1998 and 1997, 5,867, 4,558 and 9,923 shares were issued,
respectively, in lieu of directors' fees.
NON-EMPLOYEE DIRECTORS' STOCK OPTIONS -- In August 1996, the Company adopted a
stock option plan for non-employee directors to purchase shares of common stock
at a price not less than 100 percent of the fair market value of the stock on
the date the options are granted. All outstanding options are exercisable one
year after the date of grant and expire no more than ten years after grant. A
summary of the status and changes of shares subject to options and the related
average price per share follows:
Shares Subject Average Option
To Options Price Per Share
- --------------------------------------------------------------------------------
Outstanding June 30, 1997 14,250 $ 24.85
- --------------------------------------------------------------------------------
Granted 8,250 42.96
Exercised (1,500) 24.67
- --------------------------------------------------------------------------------
Outstanding June 30, 1998 21,000 $ 31.97
- --------------------------------------------------------------------------------
Exercised 8,000 31.38
- --------------------------------------------------------------------------------
Outstanding June 30, 1999 29,000 $ 31.81
================================================================================
As of June 30, 1999, 21,000 options were exercisable and 344,500 shares were
available for grant.
At June 30, 1999, the Company had 7,874,817 common shares reserved for issuance
in connection with its stock incentive plans.
Page 13-31
NOTE 11
SHAREHOLDERS' PROTECTION RIGHTS AGREEMENT
The Board of Directors of the Company declared a dividend of one Right for each
share of Common Stock outstanding on February 17, 1997 in relation to the
Company's Shareholder Protection Rights Agreement. As of June 30, 1999,
108,845,930 shares of Common Stock were reserved for issuance under this
Agreement. Under certain conditions involving acquisition of or an offer for 15
percent or more of the Company's Common Stock, all holders of Rights, except an
acquiring entity, would be entitled to purchase, at an exercise price of $100, a
value of $200 of Common Stock of the Company or an acquiring entity, or at the
option of the Board, to exchange each Right for one share of Common Stock. The
Rights remain in existence until February 17, 2007, unless earlier redeemed (at
one cent per Right), exercised or exchanged under the terms of the agreement. In
the event of an unfriendly business combination attempt, the Rights will cause
substantial dilution to the person attempting the merger. The Rights should not
interfere with any merger or other business combination that is in the best
interest of the Company and its shareholders since the Rights may be redeemed.
NOTE 12
RESEARCH AND DEVELOPMENT
Research and development costs amounted to $86,953 in 1999, $83,117 in 1998, and
$103,155 in 1997. Customer reimbursements included in the total cost for each of
the respective years were $15,239, $15,753 and $35,986. Costs include those
costs related to independent research and development as well as customer
reimbursed and unreimbursed development programs.
NOTE 13
<PAGE> 27
CONTINGENCIES
The Company is involved in various litigation arising in the normal course of
business, including proceedings based on product liability claims, workers'
compensation claims and alleged violations of various environmental laws. The
Company is self-insured in the U.S. for health care, workers' compensation,
general liability and product liability up to predetermined amounts, above which
third party insurance applies. The Company purchases third party product
liability insurance for products manufactured by its international operations
and for products that are used in aerospace applications. Management regularly
reviews the probable outcome of these proceedings, the expenses expected to be
incurred, the availability and limits of the insurance coverage, and the
established accruals for uninsured liabilities. While the outcome of pending
proceedings cannot be predicted with certainty, management believes that any
liabilities that may result from these proceedings are not reasonably likely to
have a material effect on the Company's liquidity, financial condition or
results of operations.
ENVIRONMENTAL - The Company is currently involved in environmental remediation
at 18 manufacturing facilities presently or formerly operated by the Company and
has been named as a "potentially responsible party," along with other companies,
at nine off-site waste disposal facilities and one regional Superfund site.
As of June 30, 1999, the Company has a reserve of $7,007 for environmental
matters which are probable and reasonably estimable. This reserve is recorded
based upon the best estimate of net costs to be incurred in light of the
progress made in determining the magnitude of remediation costs, the timing and
extent of remedial actions required by governmental authorities, the amount of
the Company's liability in proportion to other responsible parties and any
recoveries receivable. This reserve is net of $415 for discounting, at a 7.5%
annual rate, a portion of the costs at six locations for established treatment
procedures required over periods ranging from three to 10 years. The Company
also has an account receivable of $490 for anticipated insurance recoveries.
Page 13-32
The Company's estimated total liability for the above mentioned sites ranges
from a minimum of $6,704 to a maximum of $23,559. The actual costs to be
incurred by the Company will be dependent on final delineation of contamination,
final determination of remedial action required, negotiations with federal and
state agencies with respect to cleanup levels, changes in regulatory
requirements, innovations in investigatory and remedial technology,
effectiveness of remedial technologies employed, the ultimate ability to pay of
the other responsible parties, and any insurance recoveries.
Page 13-33
<TABLE>
<CAPTION>
NOTE 14
QUARTERLY INFORMATION (Unaudited)
<S> <C> <C> <C> <C> <C>
1999 1st 2nd 3rd 4th Total
- ----------------------------------------------------------------------------------------------------------
Net sales $1,218,724 $1,199,021 $1,255,789 $1,285,266 $4,958,800
Gross profit 271,417 255,854 266,652 295,507 1,089,430
Net income 78,117 63,532 76,511 92,341 310,501
Diluted earnings
per share .71 .58 .70 .84 2.83
==========================================================================================================
1998 (a) 1st 2nd 3rd 4th Total
- ----------------------------------------------------------------------------------------------------------
Net sales $1,083,169 $1,114,948 $1,196,548 $1,238,358 $4,633,023
Gross Profit 256,030 252,739 284,226 289,036 1,082,031
Income before
extraordinary item 78,261 71,314 83,225 90,426 323,226
Net income 78,261 71,314 83,225 86,751 319,551
Diluted earnings per share
before extraordinary item .70 .63 .75 .80 2.88
Diluted earnings per share .70 .63 .75 .77 2.85
==========================================================================================================
</TABLE>
<PAGE> 28
(a) Results for the third and fourth quarters include a non-cash, non-recurring
pretax charge of $5.2 million and $10.6 million, respectively, for
in-process R&D purchased as part of two acquisitions. The after-tax impact
was $5.2 million ($.05 per share) and $6.8 million ($.06 per share),
respectively.
Page 13-34
NOTE 15
STOCK PRICES AND DIVIDENDS (Unaudited)
<TABLE>
<CAPTION>
(In dollars) 1st 2nd 3rd 4th Full Year
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 High $ 38-3/4 $ 38-5/16 $ 39-3/4 $ 50-1/2 $ 50-1/2
Low 26-9/16 27 29-1/2 34 26-9/16
Dividends .150 .150 .170 .170 .640
- ---------------------------------------------------------------------------------------------
1998 High $ 48-7/8 $ 51-1/4 $ 52-5/8 $ 52-3/8 $ 52-5/8
Low 39-1/4 39-13/16 41-1/2 36-15/16 36-15/16
Dividends .150 .150 .150 .150 .600
- ---------------------------------------------------------------------------------------------
1997 High $ 29-3/8 $ 28-1/4 $ 30-7/8 $ 41 $ 41
Low 22-1/4 24-1/8 24-7/8 27 22-1/4
Dividends .120 .120 .133 .133 .506
- ---------------------------------------------------------------------------------------------
</TABLE>
Common Stock Listing: New York Stock Exchange, Stock Symbol PH
Page 13-35
REPORT OF MANAGEMENT
The Company's management is responsible for the integrity and accuracy of the
financial information contained in this annual report. Management believes that
the financial statements have been prepared in conformity with generally
accepted accounting principles appropriate in the circumstances and that the
other information in this annual report is consistent with those statements. In
preparing the financial statements, management makes informed judgments and
estimates where necessary to reflect the expected effects of events and
transactions that have not been completed.
Management is also responsible for maintaining an internal control system
designed to provide reasonable assurance at reasonable cost that assets are
safeguarded against loss or unauthorized use and that financial records are
adequate and can be relied upon to produce financial statements in accordance
with generally accepted accounting principles. The system is supported by
written policies and guidelines, by careful selection and training of financial
management personnel and by an internal audit staff which coordinates its
activities with the Company's independent accountants. To foster a strong
ethical climate, the Parker Hannifin Code of Ethics is publicized throughout the
Company. This addresses, among other things, compliance with all laws and
accuracy and integrity of books and records. The Company maintains a systematic
program to assess compliance.
PricewaterhouseCoopers LLP, independent accountants, are retained to conduct an
audit of Parker Hannifin's consolidated financial statements in accordance with
generally accepted auditing standards and to provide an independent assessment
that helps ensure fair presentation of the Company's consolidated financial
position, results of operations and cash flows.
The Audit Committee of the Board of Directors is composed entirely of
independent outside directors. The Committee meets periodically with management,
internal auditors and the independent accountants to discuss internal accounting
controls and the quality of financial reporting. Financial management, as well
as the internal auditors and the independent accountants, have full and free
access to the Audit Committee.
Duane E. Collins Michael J. Hiemstra
Duane E. Collins Michael J. Hiemstra
President and Vice President -
Chief Executive Officer Finance and Administration
and Chief Financial Officer
<PAGE> 29
Page 13-36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Parker Hannifin Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income and cash flows present
fairly, in all material respects, the financial position of Parker Hannifin
Corporation and its subsidiaries at June 30, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1999, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Cleveland, Ohio
July 29, 1999
Page 13-37
<PAGE> 30
FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
(Amounts in thousands, except per share information) 1999 1998 (a) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 4,958,800 $ 4,633,023 $ 4,091,081 $ 3,586,448 $ 3,214,370
Cost of sales 3,869,370 3,550,992 3,152,988 2,756,343 2,448,264
Selling, general and administrative expenses 550,681 532,134 475,180 425,449 384,581
Non-recurring charges - Restructuring & Asset
impairment
Interest expense 63,697 52,787 46,659 36,667 30,922
Income taxes 167,193 180,762 150,828 134,812 130,169
Income - continuing operations 310,501 323,226 274,039 239,667 218,238
Net income 310,501 319,551 274,039 239,667 218,238
Basic earnings per share - continuing operations 2.85 2.91 2.46 2.15 1.97
Diluted earnings per share - continuing operations 2.83 2.88 2.44 2.14 1.96
Basic earnings per share 2.85 2.88 2.46 2.15 1.97
Diluted earnings per share $ 2.83 $ 2.85 $ 2.44 $ 2.14 $ 1.96
Average number of shares outstanding - Basic 108,800 110,869 111,602 111,261 110,576
Average number of shares outstanding - Diluted 109,679 111,959 112,518 112,189 111,149
Cash dividends per share $ .640 $ .600 $ .506 $ .480 $ .453
Net income as a percent of net sales 6.3% 6.9% 6.7% 6.7% 6.8%
Return on average assets 8.6% 9.8% 9.3% 9.2% 10.3%
Return on average equity 17.6% 19.8% 18.7% 18.6% 20.2%
- --------------------------------------------------------------------------------------------------------------------------
Book value per share $ 17.03 $ 15.32 $ 13.87 $ 12.42 $ 10.73
Working capital $ 1,020,171 $ 791,305 $ 783,550 $ 635,242 $ 593,761
Ratio of current assets to current liabilities 2.4 1.8 2.1 1.8 1.9
Plant and equipment, net $ 1,200,869 $ 1,135,225 $ 1,020,743 $ 991,777 $ 815,771
Total assets 3,705,888 3,524,821 2,998,946 2,887,124 2,302,209
Long-term debt 724,757 512,943 432,885 439,797 237,157
Shareholders' equity $ 1,853,862 $ 1,683,450 $ 1,547,301 $ 1,383,958 $ 1,191,514
Debt to debt-equity percent 29.8% 31.6% 24.5% 30.7% 21.9%
- --------------------------------------------------------------------------------------------------------------------------
Depreciation $ 164,577 $ 153,633 $ 146,253 $ 126,544 $ 110,527
Capital expenditures $ 230,122 $ 236,945 $ 189,201 $ 201,693 $ 151,963
Number of employees 38,928 39,873 34,927 33,289 30,590
Number of shareholders 39,380 44,250 43,014 35,403 35,629
Number of shares outstanding at year-end 108,846 109,873 111,527 111,438 111,003
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes an extraordinary item for the early retirement of debt.
Page 13-38
<PAGE> 1
Exhibit 21
Exhibit (21)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1999
by Parker-Hannifin Corporation
The Company has the following subsidiaries:
Domestic Subsidiaries
---------------------
<TABLE>
<CAPTION>
Percentage
Name Incorporated Owned(1)
- ---- ------------ --------
<S> <C> <C>
iPower Distribution Group Inc. Ohio 100
Parker AIP Corp. Delaware 100
Parker de Puerto Rico, Inc. Delaware 100
Parker Finance Corp. Delaware 100(2)
Parker-Hannifin Asia Pacific Co., Ltd. Delaware 100(3)
Parker Hannifin Customer Support Inc. California 100
Parker-Hannifin International Corp. Delaware 100
Parker Properties Inc. Delaware 100
Parker Services Inc. Delaware 100
Travel 17325 Inc. Delaware 100
</TABLE>
Foreign Subsidiaries
--------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Acadia International Insurance Limited Ireland 100
Alenco (Holdings) Ltd. United Kingdom 100(3)
Beheermaatschappij Sempress B.V. Netherlands 100(4)
Brownsville Rubber Co., S.A. de C.V. Mexico 100
Fluid Power Industries Ltd. United Kingdom 100
Parker Automotive de Mexico S.A. de C.V. Mexico 100
Parker Enzed (Australia) Pty. Ltd. Australia 100(6)
Parker Enzed (N.Z.) Limited New Zealand 100(3)
Parker Enzed Equipment (Australia) Pty. Ltd. Australia 100(6)
Parker Enzed Technologies Pty. Ltd. Australia 100(6)
Parker Ermeto GesmbH Austria 100(7)
Parker Fluid Connectors S.A. de C.V. Mexico 100(8)
Parker Hannifin (1997) Co., Ltd. Thailand 100(9)
Parker Hannifin (Australia) Pty. Ltd. Australia 100(3)
Parker Hannifin (Canada) Inc. Canada 100(3)
Parker Hannifin (Espana) SA Spain 100(3)
Parker Hannifin (Malaysia) Sdn Bhd Malaysia 100(10)
Parker Hannifin (N.Z.) Limited New Zealand 100
Parker Hannifin (Thailand) Co., Ltd. Thailand 100
Parker Hannifin (UK) Ltd. United Kingdom 100(3)
Parker Hannifin A/S Norway 100(11)
Parker Hannifin AB Sweden 100
Parker Hannifin Argentina SAIC Argentina 100
Parker Hannifin B.V. Netherlands 100(12)
Parker Hannifin Climate & Industrial Controls, Ltd. Korea 100
Parker Hannifin Connectors Ltd. Korea 100
Parker Hannifin de Venezuela, S.A. Venezuela 100(3)
Parker Hannifin Denmark A/S Denmark 100
Parker Hannifin Finance B.V. Netherlands 100(4)
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C> <C>
Parker Hannifin Foreign Sales Corp. Guam 100(3)
Parker Hannifin GmbH Germany 100(7)
Parker Hannifin Holding GmbH Germany 100(3)
Parker Hannifin Hong Kong Limited Hong Kong 100(13)
Parker Hannifin Industria e Comercio Ltda. Brazil 100(14)
Parker Hannifin Japan Ltd. Japan 100
Parker Hannifin Motion & Control (Shanghai) Co. Ltd. China 100
Parker Hannifin Oy Finland 100
Parker Hannifin Pension Trustees Ltd. United Kingdom 100(15)
Parker Hannifin plc United Kingdom 100(11)
Parker Hannifin S.A. France 100
Parker Hannifin S.p.A. Italy 100
Parker Hannifin Sp. z.o.o. Poland 100
Parker Hannifin Taiwan Ltd. Taiwan 100
Parker Hannifin Verwaltungs GmbH Germany 100(7)
Parker Korea Ltd. Korea 100(3)
Parker Lucifer S.A. Switzerland 100
Parker Seal de Baja S.A. de C.V. Mexico 100
Parker Seals S.p.A. Italy 100(16)
Parker Sempress B.V. Netherlands 100(17)
Parker Sistemas de Automatizacion S.A. de C.V. Mexico 100
Parker Hannifin de Mexico S.A. de C.V. Mexico 100(8)
Parker-Hannifin (Africa) Proprietary Limited South Africa 100
Parker-Hannifin India Private Ltd. India 100
Parker-Hannifin N.V. S.A. Belgium 100(4)
Parker-Hannifin s.r.o. Czech Republic 100(3)
Parker-Hannifin Singapore Pte. Ltd. Singapore 100
P-H do Brasil Comercial Ltda. Brazil 100(3)
PH Finance Ltd. United Kingdom 100
Schrader Bellows Parker,S.A. de C.V. Mexico 100(8)
UCC Australia Pty. Ltd. Australia 100(6)
UCC Corporation Switzerland 100(18)
Veriflo Europe NASV Belgium 100
</TABLE>
- --------------
(1) Excludes directors' qualifying shares
(2) Owned 100% by Parker de Puerto Rico, Inc.
(3) Owned 100% by Parker-Hannifin International Corp.
(4) Owned 100% by Parker Hannifin B.V.
(5) Owned 100% by Parker Hannifin (UK) Limited
(6) Owned 100% by Parker-Hannifin (Australia) Pty. Ltd.
(7) Owned 100% by Parker Hannifin Holding GmbH
(8) Owned 100% by Parker Sistemas de Automatizacion S.A. de C.V.
(9) Owned 51% by Parker Hannifin (Thailand) Co., Ltd. and 49% by
Parker-Hannifin Corporation
(10) Owned 50% by Parker-Hannifin Corporation and 50% by
Parker-Hannifin International Corp
(11) Owned 100% by Alenco (Holdings) Ltd.
(12) Owned 77.5% by Parker Hannifin International Corp. and 22.5%
by Parker AIP Corp.
(13) Owned 99.99% by Parker-Hannifin Corporation and .01% by
Parker-Hannifin International Corp.
<PAGE> 3
(14) Owned 37.5% by P-H do Brasil Comercial Ltda. and 62.5% by
Parker- Hannifin International Corp.
(15) Owned 100% by Parker Hannifin plc
(16) Owned 100% by Parker-Hannifin S.p.A.
(17) Owned 100% by Beheermaatschappij Sempress B.V.
(18) Owned 100% by UCC International Group Ltd.
All of the foregoing subsidiaries are included in the Company's
consolidated financial statements. In addition to the foregoing, the Company
owns three inactive or name holding companies.
*Numbered in accordance with Item 601 of Regulation S-K.
<PAGE> 1
Exhibit 23
Exhibit (23) * to Report
On Form 10-K for Fiscal
Year Ended June 30, 1999
By Parker-Hannifin Corporation
Consent of Independent Accountants
*Numbered in accordance with Item 601 of Regulation S-K
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Parker-Hannifin Corporation on Forms S-3 (File Nos. 333-47955 and 333-02761) and
Forms S-8 (File Nos. 33-53193, 33-43938 and 2-66732) of our reports dated July
29, 1999, on our audits of the consolidated financial statements and financial
statement schedule of Parker-Hannifin Corporation as of June 30, 1999 and 1998,
and for the years ended June 30, 1999, 1998, and 1997, which reports are
incorporated by reference or, in the case of the supplemental schedule report,
included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Cleveland, Ohio
September 24, 1999
<PAGE> 1
Exhibit 24
Exhibit (24)* to Report
on Form 10-K for Fiscal
Year Ended June 30, 1999
by Parker-Hannifin Corporation
Power of Attorney
*Numbered in accordance with Item 601 of Regulation S-K.
<PAGE> 2
Securities and Exchange Commission
Washington, D.C. 20549
Re: Parker-Hannifin Corporation
Commission File No. 1-4982
Annual Report on Form 10-K
Authorized Representatives
Gentlemen:
Parker-Hannifin Corporation (the "Company") is the issuer of Securities
registered under section 12(b) of the Securities Exchange Act of 1934 (the
"Act"). Each of the persons signing his name below confirms, as of the date
appearing opposite his signature, that each of the following "Authorized
Representatives" is authorized on his behalf to sign and to submit to the
Securities and Exchange Commission Annual Reports on Form 10-K and amendments
thereto as required by the Act:
Authorized Representatives
--------------------------
Duane E. Collins
Michael J. Hiemstra
Dennis W. Sullivan
Thomas A. Piraino, Jr.
Each person so signing also confirms the authority of each of the Authorized
Representatives named above to do and perform, on his behalf, any and all acts
and things requisite or necessary to assure compliance by the signing person
with the Form 10-K filing requirements. The authority confirmed herein shall
remain in effect as to each person signing his name below until such time as the
Commission shall receive from such person a written communication terminating or
modifying the authority.
<TABLE>
<CAPTION>
Date Date
---- ----
<S> <C> <C> <C>
/s/ P. S. Parker 9/17/99 /s/ G. Mazzalupi 9/20/99
P. S. Parker, Chairman of G. Mazzalupi Director
the Board of Directors
/s/ D. E. Collins 9/17/99 /s/ K. P. Muller 9/15/99
D. E. Collins, Principal K. P. Muller, Director
Executive Officer and Director
/s/ M. J. Hiemstra 9/17/99 /s/ Hector R. Ortino 9/15/99
M. J. Hiemstra, Principal H. R. Ortino, Director
Financial Officer
/s/ Dana A. Dennis 9/17/99 /s/ Allan L. Rayfield 9/17/99
D. A. Dennis A. L. Rayfield, Director
Principal Accounting Officer
/s/ John G. Breen 9/20/99 /s/ Wolfgang R. Schmitt 9/17/99
J. G. Breen, Director W. R. Schmitt, Director
/s/ Paul C. Ely, Jr. 9/21/99 /s/ D. L. Starnes 9/17/99
P. C. Ely, Jr., Director D. L. Starnes, Director
/s/ P. W. Likins 9/20/99 /s/ D. W. Sullivan 9/17/99
P. W. Likins, Director D. W. Sullivan, Director
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
PARKER-HANNIFIN CORPORATION'S REPORT ON FORM 10-K FOR ITS FISCAL YEAR ENDED JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 33,277
<SECURITIES> 0
<RECEIVABLES> 684,220
<ALLOWANCES> 9,397
<INVENTORY> 915,130
<CURRENT-ASSETS> 1,774,684
<PP&E> 2,506,812
<DEPRECIATION> 1,305,943
<TOTAL-ASSETS> 3,705,888
<CURRENT-LIABILITIES> 754,513
<BONDS> 748,061
0
0
<COMMON> 55,973
<OTHER-SE> 1,797,889
<TOTAL-LIABILITY-AND-EQUITY> 3,705,888
<SALES> 4,958,800
<TOTAL-REVENUES> 4,958,800
<CGS> 3,869,370
<TOTAL-COSTS> 3,869,370
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,318
<INTEREST-EXPENSE> 63,697
<INCOME-PRETAX> 477,694
<INCOME-TAX> 167,193
<INCOME-CONTINUING> 310,501
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 310,501
<EPS-BASIC> 2.85
<EPS-DILUTED> 2.83
</TABLE>
