<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________________
Commission File number 1-4982
PARKER-HANNIFIN CORPORATION
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(Exact name of registrant as specified in its charter)
OHIO 34-0451060
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(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation)
6035 Parkland Blvd., Cleveland, Ohio 44124-4141
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 896-3000
--------------
Indicate by check mark whether Registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X]. No __.
Number of Common Shares outstanding at March 31, 2000: 111,957,240
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------- -------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 1,393,659 $ 1,255,789 $ 3,875,159 $ 3,673,534
Cost of sales 1,074,133 989,137 3,022,052 2,879,611
----------- ----------- ----------- -----------
Gross profit 319,526 266,652 853,107 793,923
Selling, general and
administrative expenses 141,254 136,278 419,559 411,806
Interest expense 14,571 15,634 43,142 49,050
Interest and other (income)
expense, net 796 (2,970) 696 (2,564)
----------- ----------- ----------- -----------
Income before income taxes 162,905 117,710 389,710 335,631
Income taxes 56,202 41,199 134,450 117,471
----------- ----------- ----------- -----------
Net income $ 106,703 $ 76,511 $ 255,260 $ 218,160
=========== =========== =========== ===========
Earnings per share - Basic $ .98 $ .71 $ 2.34 $ 2.01
Earnings per share - Diluted $ .97 $ .70 $ 2.32 $ 1.99
Cash dividends per common share $ .17 $ .17 $ .51 $ .47
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 3
<TABLE>
<CAPTION>
PARKER-HANNIFIN CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(UNAUDITED)
March 31, June 30,
ASSETS 2000 1999
- ----------------- ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 60,715 $ 33,277
Accounts receivable, net 800,241 738,773
Inventories:
Finished products 476,187 442,361
Work in process 309,302 347,376
Raw materials 124,346 125,393
----------- -----------
909,835 915,130
Prepaid expenses 18,029 22,928
Deferred income taxes 65,725 64,576
----------- -----------
Total current assets 1,854,545 1,774,684
Plant and equipment 2,609,943 2,506,812
Less accumulated depreciation 1,372,340 1,305,943
----------- -----------
1,237,603 1,200,869
Other assets 810,173 730,335
----------- -----------
Total assets $ 3,902,321 $ 3,705,888
=========== ===========
LIABILITIES
- --------------------
Current liabilities:
Notes payable $ 83,351 $ 60,609
Accounts payable, trade 301,193 313,173
Accrued liabilities 322,869 328,147
Accrued domestic and foreign taxes 65,721 52,584
----------- -----------
Total current liabilities 773,134 754,513
Long-term debt 706,596 724,757
Pensions and other postretirement benefits 282,642 276,637
Deferred income taxes 30,244 30,800
Other liabilities 73,977 65,319
----------- -----------
Total liabilities 1,866,593 1,852,026
SHAREHOLDERS' EQUITY
- ----------------------------
Serial preferred stock, $.50 par value;
authorized 3,000,000 shares; none issued -- --
Common stock, $.50 par value; authorized
600,000,000 shares; issued 112,268,136 shares at
March 31 and 111,945,179 shares at June 30 56,134 55,973
Additional capital 136,573 132,227
Retained earnings 2,071,955 1,872,356
Unearned compensation related to guarantee of ESOP debt (99,501) (112,000)
Deferred compensation related to stock options 1,304 --
Accumulated other comprehensive income (118,680) (92,858)
----------- -----------
2,047,785 1,855,698
Common stock in treasury at cost;
310,896 shares at March 31 and
43,836 shares at June 30 (12,057) (1,836)
----------- -----------
Total shareholders' equity 2,035,728 1,853,862
----------- -----------
Total liabilities and shareholders' equity $ 3,902,321 $ 3,705,888
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
March 31,
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 2000 1999
- -------------------------------------- --------- ---------
<S> <C> <C>
Net income $ 255,260 $ 218,160
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 128,409 125,599
Amortization 28,597 28,419
Deferred income taxes (4,825) 3,279
Foreign currency transaction loss (gain) 3,182 (2,415)
(Gain) loss on sale of plant and equipment (5,637) 542
Changes in assets and liabilities:
Accounts receivable, net (51,778) (5,581)
Inventories 20,395 12,194
Prepaid expenses 4,854 5,707
Other assets (18,599) (25,346)
Accounts payable, trade (15,911) (79,415)
Accrued payrolls and other compensation (8,224) (32,359)
Accrued domestic and foreign taxes 14,956 15,045
Other accrued liabilities (3,592) (11,274)
Pensions and other postretirement benefits 9,317 15,243
Other liabilities 8,512 11,635
--------- ---------
Net cash provided by operating activities 364,916 279,433
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Acquisitions (less cash acquired of $431 and $2,609 in 2000 and 1999) (121,474) (89,865)
Capital expenditures (168,131) (166,835)
Proceeds from sale of plant and equipment 23,027 4,582
Other (20,590) (1,926)
--------- ---------
Net cash used in investing activities (287,168) (254,044)
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Net (payments for) proceeds from common share activity (4,410) 64,599
Proceeds from (payments for) notes payable, net 23,123 (112,248)
Proceeds from long-term borrowings 3,654 205,960
Payments of long-term borrowings (12,803) (122,584)
Dividends (55,661) (51,144)
--------- ---------
Net cash used in financing activities (46,097) (15,417)
Effect of exchange rate changes on cash (4,213) 617
--------- ---------
Net increase in cash and cash equivalents 27,438 10,589
Cash and cash equivalents at beginning of year 33,277 30,488
--------- ---------
Cash and cash equivalents at end of period $ 60,715 $ 41,077
========= =========
Non-cash activities: In 1999 assumption of ESOP debt guarantee for $112,000
and capital lease obligations of $7,346.
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
PARKER-HANNIFIN CORPORATION
BUSINESS SEGMENT INFORMATION BY INDUSTRY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Parker operates in two industry segments: Industrial and Aerospace. The
Industrial Segment is the largest and includes a significant portion of
International operations.
Industrial - This segment produces a broad range of motion control and fluid
systems and components used in all kinds of manufacturing, packaging,
processing, transportation, mobile construction, agricultural and military
machinery and equipment. Sales are made directly to major original equipment
manufacturers (OEMs) and through a broad distribution network to smaller OEMs
and the aftermarket.
Aerospace - This segment designs and manufactures products and provides
aftermarket support for commercial, military and general aviation aircraft,
missile and spacecraft markets. The Aerospace Segment provides a full range of
systems and components for hydraulic, pneumatic and fuel applications.
Results by Business Segment:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------- ------------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales
Industrial:
North America $ 774,353 $ 660,368 $2,100,564 $1,885,837
International 331,104 312,166 933,485 944,298
Aerospace 288,202 283,255 841,110 843,399
---------- ---------- ---------- ----------
Total $1,393,659 $1,255,789 $3,875,159 $3,673,534
========== ========== ========== ==========
Segment operating income
Industrial:
North America $ 115,123 $ 86,225 $ 296,006 $ 235,550
International 29,015 19,760 62,014 67,897
Aerospace 49,126 43,326 121,113 129,102
---------- ---------- ---------- ----------
Total segment operating income 193,264 149,311 479,133 432,549
Corporate general and
administrative expenses 13,935 14,608 42,135 42,240
---------- ---------- ---------- ----------
Income before interest expense
and other 179,329 134,703 436,998 390,309
Interest expense 14,571 15,634 43,142 49,050
Other 1,853 1,359 4,146 5,628
---------- ---------- ---------- ----------
Income before income taxes $ 162,905 $ 117,710 $ 389,710 $ 335,631
========== ========== ========== ==========
</TABLE>
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<PAGE> 6
PARKER-HANNIFIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
-----------------------
1. Management Representation
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only
normal recurring accruals except as discussed in Note 2) necessary to
present fairly the financial position as of March 31, 2000, the
results of operations for the three and nine months ended March 31,
2000 and 1999 and cash flows for the nine months then ended.
2. Charges related to business realignment
During the first quarter of fiscal 2000 the Company recorded a $8,555
charge ($5,560 after-tax or $.05 per share) related to the costs of
appropriately structuring its businesses to operate in their current
economic environment. The charge primarily relates to severance costs
attributable to approximately 260 employees principally associated
with the Industrial International operations. As of March 31, 2000,
the Company had made severance payments of $2,679 to approximately 150
employees. The majority of the remaining severance payments are
expected to be made by the end of fiscal 2000.
A change in the future utilization of long-lived assets at certain
locations triggered an impairment review of these long-lived assets
during the first quarter of fiscal 2000. The Company evaluated the
recoverability of the long-lived assets and determined that the
estimated future undiscounted cash flows were below the carrying value
of these assets. Accordingly, the Company recorded a non-cash
impairment loss of $4,875 ($3,169 after-tax or $.03 per share). Of the
pre-tax amount, $3,499 relates to the Aerospace segment and $1,376
relates to the Industrial segment.
The severance costs and impairment loss are presented in the Income
statement for the nine months ended March 31, 2000 in the following
captions: $2,552 in Cost of sales; $2,476 in Selling, general and
administrative expenses; and $8,402 in Interest and other (income)
expense, net.
Also recorded in the first quarter of fiscal 2000, was a gain of
$6,423 ($4,175 after-tax or $.04 per share) realized primarily on the
sale of real property. The gain is reflected in the Income statement
for the nine months ended March 31, 2000 in the Interest and other
(income) expense, net caption.
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<PAGE> 7
3. Earnings per share
The following table presents a reconciliation of the numerator and
denominator of basic and diluted earnings per share for the three and
nine months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------------- ---------------------------------
Numerator: 2000 1999 2000 1999
---------- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income applicable
to common shares $ 106,703 $ 76,511 $ 255,260 $ 218,160
Denominator:
------------
Basic - weighted average
common shares 109,373,820 108,503,957 109,210,607 108,803,871
Increase in weighted average
from dilutive effect of
exercise of stock options 827,060 832,510 955,170 825,027
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Diluted - weighted average
common shares, assuming
exercise of stock options 110,200,880 109,336,467 110,165,777 109,628,898
===========================================================================
Basic earnings per share $ .98 $ .71 $ 2.34 $ 2.01
Diluted earnings per share $ .97 $ .70 $ 2.32 $ 1.99
</TABLE>
4. Stock repurchase program
The Board of Directors has approved a program to repurchase the
Company's common stock on the open market, at prevailing prices. The
repurchase is primarily funded from operating cash flows and the shares
are initially held as treasury stock. During the three-month and
nine-month periods ended March 31, 2000, the Company has purchased
267,200 shares of its common stock at an average price of $38.012 per
share.
5. Comprehensive income
The Company's only item of other comprehensive income is foreign
currency translation adjustments recorded in shareholders' equity.
Comprehensive income for the three and nine months ended March 31, 2000
and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------- ----------------------------
2000 1999 2000 1999
------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 106,703 $ 76,511 $ 255,260 $ 218,160
Foreign currency
translation adjustments (18,815) (44,637) (25,822) (19,946)
------------------------------------------------------------
Comprehensive income $ 87,888 $ 31,874 $ 229,438 $ 198,214
============================================================
</TABLE>
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<PAGE> 8
6. Acquisitions
On February 3, 2000, the Company acquired the assets of Dana
Corporation's Gresen Hydraulic business for approximately $112 million
in cash. Gresen manufactures a wide range of hydraulic pumps, motors,
cylinders, control valves, filters and electronic controls for on- and
off-highway vehicles and had prior-year annual sales of approximately
$128 million.
On April 11, 2000, the Company completed its merger with Commercial
Intertech Corp. of Youngstown, Ohio with the Company being the
surviving corporation. The merger consideration paid by the Company to
the shareholders of Commercial Intertech was approximately $160 million
in cash and the issuance of approximately 4.3 million shares of Company
common stock valued at $184 million. In addition, the Company assumed
approximately $104 million of Commercial Intertech debt. Commercial
Intertech's hydraulics business manufactures gear pumps and motors,
controls valves and telescopic cylinders for use on heavy duty-mobile
equipment. The Company is currently evaluating strategic alternatives
for Commercial Intertech's building systems and metal forming
businesses.
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<PAGE> 9
PARKER-HANNIFIN CORPORATION
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2000
AND COMPARABLE PERIODS ENDED MARCH 31, 1999
CONSOLIDATED STATEMENT OF INCOME
Net sales increased 11.0 percent for the third quarter of fiscal 2000 and 5.5
percent for the nine-month period ended March 31, 2000. Without acquisitions,
the increases would have been 9.0 percent and 4.4 percent, respectively,
primarily the result of higher volume in the North American Industrial
operations.
Income from operations was $178.3 million for the current third quarter and
$433.5 million for the current nine months, an increase of 36.7 percent and 13.5
percent, respectively. As a percent of sales, Income from operations increased
to 12.8 percent from 10.4 percent for the quarter and increased to 11.2 percent
from 10.4 percent for the nine months. Cost of sales as a percent of sales
declined to 77.1 percent from 78.8 percent for the quarter and decreased to 78.0
percent from 78.4 percent for the nine months. The increased margins in the
third quarter are primarily the result of higher volume experienced in the North
American Industrial operations and a higher mix of aftermarket business in the
Aerospace operations. The increased margins for the nine months reflect higher
volume experienced in the North American Industrial operations, offset by
weakness experienced in the International Industrial and Aerospace operations as
well as the effect of business realignment charges recorded in fiscal 2000 (as
discussed in more detail below). Selling, general and administrative expenses,
as a percent of sales, decreased to 10.1 percent of sales from 10.9 percent for
the quarter and to 10.8 percent from 11.2 percent for the nine months.
Interest expense decreased $1.1 million for the quarter ended March 31, 2000 and
$5.9 million for the nine-month period ended March 31, 2000 due to lower average
debt outstanding in both the current year quarter and nine months.
Interest and other (income) expense, net for the current nine months includes
$6.4 million in gains primarily from the sale of real property and $8.4 million
of asset impairment losses and other plant closure costs, while the prior year
third quarter and nine-month period included $1.7 million in interest income
related to an IRS refund.
Net income increased 39.5 percent for the quarter, and 17.0 percent for the nine
months, as compared to the prior year. As a percent of sales, Net income
increased to 7.7 percent from 6.1 percent for the quarter and to 6.6 percent
from 5.9 percent for the nine months.
Backlog was $1.74 billion at March 31, 2000 compared to $1.69 billion in the
prior year and $1.63 billion at June 30, 1999. The increase in the level of
backlog reflects strong order-entry rates in the North American Industrial
operations and an improvement in order rates in the International Industrial
operations.
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<PAGE> 10
RESULTS BY BUSINESS SEGMENT
INDUSTRIAL - The Industrial Segment operations had the following changes in Net
sales in the current year when compared to the equivalent prior-year period:
Period ending March 31,
-----------------------
Three Months Nine Months
------------ -----------
Industrial North America 17.3 % 11.4 %
Industrial International 6.1 % (1.1) %
Total Industrial 13.7 % 7.2 %
Without the effect of currency-rate changes, International sales would have
increased 15.5 percent for the quarter and 7.4 percent for the nine months.
Without the effect of acquisitions completed within the past 12 months, the
changes in Net sales would have been:
Period ending March 31,
-----------------------
Three Months Nine Months
------------ -----------
Industrial North America 14.3 % 9.8 %
Industrial International 4.2 % (2.3) %
Total Industrial 11.1 % 5.7 %
The increase in Industrial North American sales for the current quarter and nine
months is attributed to higher volume across all businesses, particularly in the
semiconductor manufacturing and telecommunications markets. The increase in
International Industrial sales for the quarter reflects higher sales across all
businesses in the Asia Pacific region as well as higher total volume in Europe
and Latin America. For the nine-month period, sales were affected by the
struggling economy in Europe and Latin America, offset by higher Asia Pacific
sales.
Operating income for the Industrial segment increased 36.0 percent for the
quarter and 18.0 percent for the nine months. Industrial North American
operating income increased 33.5 percent for the quarter and 25.7 percent for the
nine months. Industrial North American operating income, as a percent of sales,
increased to 14.9 percent from 13.1 percent for the quarter and to 14.1 percent
from 12.5 percent for the nine months as margins benefited from the higher sales
volume.
Industrial International operating income increased 46.8 percent for the quarter
and decreased 8.7 percent for the nine months. Included in the International
Industrial operating income for the current year nine-month period was $9.0
million in business realignment charges. These charges were made as a result of
actions the Company took to appropriately structure the European operations to
operate in their current environment. Without the business realignment charges,
International Industrial operating income increased 4.5 percent for the current
year first nine months compared to the prior year nine months. Industrial
International operating income, as a percent of sales, increased to 8.8 percent
from 6.3 percent for the quarter and to 7.6 percent from 7.2 percent for the
nine months, excluding the business realignment charges. The increased margins
reflect better capacity utilization as market demand improved.
Total Industrial Segment backlog increased 13.5 percent compared to March 31,
1999 and 20.7 percent since June 30, 1999 driven primarily from an increase in
order rates in the North American Industrial operations and an improvement
experienced in the third quarter in order rates in the International Industrial
operations. Strong-order entry indicates a continuation of this trend through
the rest of the fiscal year.
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<PAGE> 11
AEROSPACE - Aerospace Net sales increased 1.7 percent for the quarter and
declined slightly for the nine months. Operating income for the Aerospace
Segment increased 13.4 percent for the quarter and decreased 6.2 percent for the
nine-month period. Included in the Aerospace operating income for current year
nine-month period was $4.4 million in business realignment charges. These
charges were a result of the actions the Company took to resize the business in
response to a decline in OEM orders. Operating income, as a percent of sales,
increased to 17.0 percent from 15.3 percent for the quarter and decreased to
14.9 percent from 15.3 percent for the nine-month period, excluding the business
realignment charges. The increase in margins for the current year fiscal quarter
is due to lower contract costs and a higher mix of aftermarket business. The
decrease in margins for the nine-month period is due to lower volume, the mix of
original-equipment programs, as well as lower capacity utilization.
Backlog for the Aerospace Segment decreased 3.0 percent compared to March 31,
1999 and declined slightly since June 30, 1999. The decline in backlog reflects
the expected slowdown in OEM order rates which should continue through the rest
of the fiscal year.
Corporate general and administrative expenses decreased to $13.9 million from
$14.6 million for the quarter and decreased slightly for the nine months. The
lower expense in the quarter is a result of reduced expenses associated with
non-qualified benefit plans.
BALANCE SHEET
Working capital increased to $1,081.4 million at March 31, 2000 from $1,020.2
million at June 30, 1999 while the ratio of current assets to current
liabilities remained at 2.4 to 1. The increase in working capital was primarily
due to an increase in Cash and Accounts receivable, partially offset by an
increase in Notes payable.
Accounts receivable were higher by $61.5 million on March 31, 2000 compared to
June 30, 1999. Days sales outstanding declined to 46 days at March 31, 2000 from
47 days at June 30, 1999. Inventories remained relatively flat since June 30,
1999 while months supply declined slightly.
Other assets increased $79.8 million since June 30, 1999 primarily due to
goodwill recognized as a result of acquisitions.
The debt to debt-equity ratio decreased to 28.0 percent at March 31, 2000 from
29.8 percent at June 30, 1999 .
Due to the strength of the dollar, foreign currency translation adjustments
resulted in a decrease in net assets of $25.8 million during the first nine
months of fiscal 2000. The translation adjustments primarily affected Accounts
receivable, Inventories and Plant and equipment.
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<PAGE> 12
STATEMENT OF CASH FLOWS
Net cash provided by operating activities was $364.9 million for the nine months
ended March 31, 2000, as compared to $279.4 million for the same nine months of
1999. The increase in net cash provided was due to an increase in Net income of
$37.1 million as well as the result of activity within the working capital items
- - Accounts receivable, Accounts payable, trade and Accrued payrolls and other
compensation - which used cash of $75.9 million in fiscal 2000 compared to using
cash of $117.4 million in fiscal 1999.
Net cash used in investing activities increased to $287.2 million for fiscal
2000 compared to $254.0 million for fiscal 1999 primarily due to an increase in
the amount spent on acquisitions partially offset by an increase in the proceeds
received from the sale of real property. Included in Other is an increase in
cash used for equity investments in fiscal 2000.
Financing activities used cash of $46.1 million for the nine months ended March
31, 2000 compared to using cash of $15.4 million for the same period in 1999.
The change resulted primarily from common stock activity using cash of $4.4
million in fiscal 2000 compared to providing cash of $64.6 million in the prior
year, partially offset by net debt borrowings providing cash of $14.0 million in
fiscal 2000 compared to using cash of $28.9 million in the prior year. The
fluctuation between fiscal 2000 and fiscal 1999 cash flow from common stock
activity is the result of the Company selling treasury shares to the ESOP trust
in fiscal 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company enters into forward exchange contracts and cross-currency swap
agreements to reduce its exposure to fluctuations in related foreign currencies.
These contracts are with major financial institutions and the risk of loss is
considered remote. The Company does not hold or issue derivative financial
instruments for trading purposes. In addition, the Company's foreign locations,
in the ordinary course of business, enter into financial guarantees through
financial institutions which enable customers to be reimbursed in the event of
nonperformance by the Company. The total value of open contracts and any risk to
the Company as a result of these arrangements is not material to the Company's
financial position, liquidity or results of operations.
YEAR 2000 CONSIDERATONS
The Company took action to assure that its computerized products and systems and
all external interfaces were Year 2000 compliant. These actions were part of a
formal information technology initiative which the Company began several years
ago. The Company has not experienced any business interruptions as a result of
the Year 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 indicated that substantially all key third parties would be
year 2000 compliant on a timely basis. The Company is unaware of any key
suppliers, customers, distributors or financial service providers who have
experienced problems regarding their Year 2000 compliance.
While there have been no known adverse consequences of any unsuccessful
modifications significantly affecting the financial position, liquidity, or
results of operations of the Company, there can be no assurance that any unknown
unsuccessful modifications would not have an adverse impact on the Company.
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<PAGE> 13
FORWARD-LOOKING STATEMENTS
This Report on Form 10-Q and other written reports and oral statements made from
time to time by the Company may contain "forward-looking statements", all of
which are subject to risks and uncertainties. All statements which address
operating performance, events or developments that the Company expects or
anticipates will occur in the future, including statements relating to growth,
operating margin performance or earnings per share or statements expressing
general opinions about future operating results, are forward-looking statements.
These forward-looking statements rely on a number of assumptions concerning
future events, and are subject to a number of uncertainties and other factors,
many of which are outside the Company's control, that could cause actual results
to differ materially from such statements. Such factors include:
- - continuity of business relationships with and purchases by major customers,
including among others, orders and delivery schedules for aircraft
components,
- - ability of suppliers to provide materials as needed,
- - uncertainties surrounding timing, successful completion or integration of
acquisitions,
- - competitive pressure on sales and pricing,
- - increases in material and other production costs which cannot be recovered
in product pricing,
- - uncertainties surrounding the year 2000 issues,
- - difficulties in introducing new products and entering new markets, and
- - uncertainties surrounding the global economy and global market conditions,
including among others, the potential devaluation of currencies.
Any forward-looking statements are based on known events and circumstances at
the time. The Company undertakes no obligation to update or publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date of this Report.
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<PAGE> 14
PARKER-HANNIFIN CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
------ --------------------------------
(a) The following documents are furnished as exhibits and are numbered
pursuant to Item 601 of Regulation S-K:
Exhibit 2 - Agreement and Plan of Merger, dated as of
January 14, 2000, between Parker-Hannifin
Corporation and Commercial Intertech Corp.
(previously filed as Exhibit 2.1 to the
Registrant's Report on Form 8-K filed with the
Securities and Exchange Commission on January
19, 2000).
Exhibit 10(a) - Exchange Agreement entered into as of
February 22, 2000 between the Registrant and
Daniel T. Garey including the Executive
Estate Protection Agreement among the
Registrant, Daniel T. Garey, and the Daniel
T. Garey and Diane-Worthington Garey
Irrevocable Trust dated December 22, 1999
(the "Trust") and the Collateral Assignment
between the Trust and the Registrant.
Exhibit 27 - Financial Data Schedule
(b) During the quarter ended March 31, 2000, the Registrant filed the
following reports on Form 8-K:
1. On January 19, 2000 to file the press release issued jointly by
the Registrant and Commercial Intertech Corp. announcing that the Registrant
entered into an Agreement and Plan of Merger with Commercial Intertech Corp.
whereby Commercial Intertech Corp. will be merged with and into the Registrant,
with the Registrant as the surviving corporation and to file the Agreement and
Plan of Merger.
2. On February 7, 2000 to file the press release issued jointly by
the Registrant and Dana Corporation announcing the Registrant's purchase of
substantially all of the assets of the Gresen Hydraulics Division from Dana
Corporation.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARKER-HANNIFIN CORPORATION
(Registrant)
/s/ Michael J. Hiemstra
Michael J. Hiemstra
Vice President - Finance and Administration
and Chief Financial Officer
Date: May 11, 2000
- 14 -
<PAGE> 15
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
2 Agreement and Plan of Merger, dated as of
January 14, 2000, between Parker-Hannifin
Corporation and Commercial Intertech Corp.
(previously filed as Exhibit 2.1 to the
Registrant's Report on Form 8-K filed with
the Securities and Exchange Commission on
January 19, 2000).
10(a) Exchange Agreement entered into as of
February 22, 2000 between the Registrant and
Daniel T. Garey including the Executive
Estate Protection Agreement among the
Registrant, Daniel T. Garey, and the Daniel
T. Garey and Diane-Worthington Garey
Irrevocable Trust dated December 22, 1999
(the "Trust") and the Collateral Assignment
between the Trust and the Registrant.
27 Financial Data Schedule
- 15 -
<PAGE> 1
EXHIBIT 10(a)
-------------
EXCHANGE AGREEMENT
------------------
THIS AGREEMENT (this "Agreement") is entered into as of February 22, 2000
between Parker-Hannifin Corporation (the "Employer") and Daniel T. Garey (the
"Participant").
RECITALS
--------
A. The Employer has offered the Participant certain benefits under an
Executive Estate Protection Plan in exchange for a portion of the
Participant's future compensation.
B. The Participant desires to surrender a portion of his future
compensation in order to participate in the Executive Estate Protection
Plan.
AGREEMENT
---------
NOW THEREFORE, it is mutually agreed that:
1. REDUCTION IN FUTURE COMPENSATION.
a. SURRENDER. In consideration of the Employer's agreement to be
bound by the terms of the Executive Estate Protection Plan
Document (defined below), the Participant agrees to the
irrevocable surrender of future incentive pay as described in
Exhibit A attached hereto and incorporated herein by reference
(the "Surrendered Compensation") beginning on March 1, 2000 and
ending on January 31, 2005 (the "Surrender Term"). The
Participant acknowledges that he shall have no further rights or
claims of any sort whatsoever to the Surrendered Compensation.
b. SHORTFALL. In the event the Participant's incentive pay on any
Surrender Date (as defined in Exhibit A), net of any amount which
cannot be deferred under the Employer's Executive Deferral Plan,
is less than the Surrendered Compensation scheduled for such
Surrender Date, the Corporation shall be entitled to reduce any
cash compensation (including base pay and incentive compensation)
or non-qualified plan benefits payable to the Participant or his
representatives, heirs or beneficiaries (including without
limitation benefits payable under the Employer's Supplemental
Executive Retirement Program, Savings Restoration Plan or
Executive Deferral Plan) by an amount equal to any such shortfall
plus interest on such shortfall between the scheduled Surrender
Date and the actual date of surrender in the amount of 4.52% per
annum.
c. TERMINATION OF EMPLOYMENT. In the event the employment of the
Participant is terminated prior to the end of the Surrender Term
for any reason other than Termination for Cause or the death of
the Participant (but only if the Participant is the Decedent),
the Corporation shall be entitled to reduce any cash compensation
or other non-qualified benefits payable to the Participant, or
his representatives, heirs or beneficiaries (including without
limitation benefits payable under the Employer's Supplemental
Executive Retirement Program, Savings Restoration Plan or
Executive Deferral Plan) by an amount equal to the sum of the
Surrendered Compensation remaining in the Surrender Term (the
"Mandatory Benefit Reduction"); provided,
1
<PAGE> 2
however, to the extent any Mandatory Benefit Reduction is
imposed by the Employer on any payment earlier than the
corresponding Surrendered Compensation would have been
surrendered by the Participant, the amount of the Mandatory
Benefit Reduction shall be reduced to the present value of
such Surrendered Compensation calculated by using a 4.52%
discount rate.
2. EXECUTIVE ESTATE PROTECTION. The Employer has provided the Participant
with an Executive Estate Protection Plan, comprised of that certain
Executive Estate Protection Plan Agreement attached hereto on Exhibit B
by and between the Employer, the Participant and the Daniel T. Garey
and Diane-Worthington Garey Irrevocable Trust dated December 22, 1999,
and the "as sold" illustration of an Executive Estate Protection Plan
Insurance Policy as issued by John Hancock Life Insurance Company,
dated February 21, 2000 (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. The parties to this Agreement agree to 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 Plan Agreement. This Agreement and the Executive Estate
Protection Plan Document, collectively, shall be considered one
complete contract between the parties.
3. EFFECT ON EXECUTIVE DEFERRAL PLAN. The Participant hereby agrees that
the amount of any Surrendered Compensation hereunder shall reduce the
maximum amount which the Participant is entitled to elect to defer
under the Employer's Executive Deferral Plan.
4. EFFECT ON BONUS AND OTHER BENEFITS. The Employer hereby agrees that the
amount of any Surrendered Compensation hereunder shall be included in
Participant's incentive pay for the purpose of determining the
Participant's benefits under the Employer's Supplemental Executive
Retirement Program. The Participant hereby agrees that the amount of
any Surrendered Compensation hereunder shall not be included in
incentive pay for the purpose of determining allowable deferrals under
the Employer's Retirement Savings Plan, Savings Restoration Plan and
Executive Deferral Plan nor for the purpose of determining benefits
payable under the Employer's Retirement Plan.
5. CHANGE IN CONTROL. Employer intends to seek the approval of its Board
of Directors to fund all payments required by the Employer under the
Executive Estate Protection Plan in an irrevocable grantor trust in the
event of a Change in Control of the Employer (as such term is defined
in the Change in Control Severance Agreement between the Employer and
the Participant dated August 16, 1996).
6. ACKNOWLEDGMENT. The Participant hereby acknowledges that he has read
and understands this Agreement and the Executive Estate Protection Plan
Document.
7. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of,
and be binding upon, the Employer and its successors and assigns, and
the Participant and his assignees, devisees and heirs.
8. 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.
2
<PAGE> 3
9. DEFINED TERMS. Initially capitalized terms used but not defined herein
shall have the meaning ascribed to them in the Executive Estate
Protection Plan Document.
IN WITNESS WHEREOF, the Participant has signed and the Employer has
accepted this Agreement as of the date first written above.
/s/Daniel T. Garey
Daniel T. Garey
PARKER-HANNIFIN CORPORATION
By: /s/Duane E. Collins
Duane E. Collins
Chairman and Chief Executive Officer
3
<PAGE> 4
<TABLE>
<CAPTION>
EXHIBIT A
---------
Surrender Dates Executive Compensation RONA
--------------- ---------------------- ----
<S> <C> <C>
Each of March 2000-01-02-03-04 $5,495
Each of April 2000-01-02-03-04 $5,345
Each of June 2000-01-02-03-04 $5,495
Each of August 2000-01-02-03-04 $5,495 $12,480
Each of October 2000-01-02-03-04 $5,345
Each of January 2001-02-03-04-05 $5,345
--------- ---------
Sub-Totals: $16,485 $28,515
</TABLE>
TOTAL SURRENDERED COMPENSATION/YR. = $45,000
4
<PAGE> 5
EXECUTIVE ESTATE PROTECTION AGREEMENT
This Executive Estate Protection Agreement ("Agreement") is made as of
February 22, 2000, among Parker-Hannifin Corporation, an Ohio corporation, (the
"Corporation"), Daniel T. Garey (the "Participant") and the Daniel T. Garey and
Diane-Worthington Garey Irrevocable Trust dated December 22, 1999 ( 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 equal to Aggregate Premiums Paid plus
an amount equal to the cumulative premiums paid by the Owner
on the policy pursuant to Section 3(b) hereof.
1
<PAGE> 6
(g) "Decedent" shall mean the second to die of the Participant and
his wife.
(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) "Investment Elections" shall mean any elections which the
Owner has under the Policy to invest the Cash Surrender Value.
(l) "Owner" shall mean the Daniel T. Garey and Diane-Worthington
Garey Irrevocable Trust dated December 22, 1999.
(m) "Owner's Death Benefit" shall mean the portion of the Policy's
death benefit, if any, that exceeds the Corporation's Death
Benefit. The ultimate amount of death benefit payable under
the Policy is dependent upon the financial performance of the
Policy.
(n) "Participant" shall mean Daniel T. Garey.
(o) "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 Estate Protection Life
Company Insurance
----------------------------- ---------------------- -------------------------
</TABLE>
(p) "Split Dollar Maturity Date" shall mean the date on which the
first of any of the following events occurs:
(i) the fifteenth (15th) anniversary of the issuance of
the Policy;
(ii) the death of the Decedent; or
(iii) Termination for Cause.
(q) "Termination for Cause" shall mean termination of the
Participant's employment by the Corporation as a result of
activity by the Participant detrimental to the interest 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;
2
<PAGE> 7
(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.
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.
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(d) shall be the
3
<PAGE> 8
appropriate federal, state and local income tax rates in
effect for the Participant at the time of payment, as
determined by the Corporation.
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, and (ii) the rights specified in the
Collateral Assignment.
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;
(b) To surrender or cancel the Policy;
(c) To take a distribution or withdrawal from the Policy; or
(d) To make Investment Elections.
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 (or, 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 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 Death
Benefit. 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.
4
<PAGE> 9
(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;
(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 or
the Corporation's Death Benefit 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.
5
<PAGE> 10
(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:
(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.
6
<PAGE> 11
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.
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 : Daniel T. Garey and Diane-Worthington Garey
Irrevocable Trust dated December 22, 1999
c/o William Kobyljanec, Trustee
enTrust Incorporated
24400 Highpoint Road, Suite 2
Beachwood, OH 44122-6027
To the Participant: Daniel T. Garey
5260 Parkside Trail
Solon, OH 44139
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 income,
estate or gift 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.
7
<PAGE> 12
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.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the date first written above.
PARKER-HANNIFIN CORPORATION
By:/s/Duane E. Collins
Duane E. Collins
Chairman and Chief Executive Officer
/s/Daniel T. Garey
Daniel T. Garey
DANIEL T. GAREY AND
DIANE-WORTHINGTON GAREY
IRREVOCABLE TRUST DATED
DECEMBER 22, 1999
By: /s/William Kobyljanec
William Kobyljanec, Trustee
8
<PAGE> 13
EXHIBIT 1
COLLATERAL ASSIGNMENT
---------------------
This Collateral Assignment (this "Assignment") is made and entered into
as of February 22, 2000, by and between the Daniel T. Garey and
Diane-Worthington Garey Irrevocable Trust dated December 22, 1999 (the "Owner"),
as the owner of a life insurance policy, No. 20046108 (the "Policy"), issued by
John Hancock Life Insurance Company (the "Insurer"), on the lives of Daniel T.
Garey (the "Participant") and Diane-Worthington Garey, 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.
1
<PAGE> 14
(ii) 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 or the Corporation's Death Benefit
(as defined in the Agreement), respectively. Any balance will be paid
to the Owner during the Participant's or the Wife'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 or Corporation's Death Benefit 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.
2
<PAGE> 15
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.
DANIEL T. GAREY AND PARKER-HANNIFIN CORPORATION
DIANE-WORTHINGTON GAREY
IRREVOCABLE TRUST DATED
DECEMBER 22, 1999
By: /s/William Kobyljanec By: /s/Duane E. Collins
William Kobyljanec, Trustee Duane E. Collins
Chairman and Chief Executive
Officer
Filed with the Insurer:
- -----------------------
/s/ M. A. Bessette Date: 3/3/2000
Insurer
The John Hancock Variable 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 3/3/2000
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
By /s/ Bruce Skrine Secretary
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
PARKER-HANNIFIN CORPORATION'S REPORT ON FORM 10-Q FOR ITS QUARTERLY PERIOD
ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 60,715
<SECURITIES> 0
<RECEIVABLES> 743,103
<ALLOWANCES> 10,431
<INVENTORY> 909,835
<CURRENT-ASSETS> 1,854,545
<PP&E> 2,609,943
<DEPRECIATION> 1,372,340
<TOTAL-ASSETS> 3,902,321
<CURRENT-LIABILITIES> 773,134
<BONDS> 727,249
0
0
<COMMON> 56,134
<OTHER-SE> 1,979,594
<TOTAL-LIABILITY-AND-EQUITY> 3,902,321
<SALES> 3,875,159
<TOTAL-REVENUES> 3,875,159
<CGS> 3,022,052
<TOTAL-COSTS> 3,022,052
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,750
<INTEREST-EXPENSE> 43,142
<INCOME-PRETAX> 389,710
<INCOME-TAX> 134,450
<INCOME-CONTINUING> 255,260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 255,260
<EPS-BASIC> 2.34
<EPS-DILUTED> 2.32
</TABLE>
