01—Abstract
Summary
Summary of the 10-K/A filed September 7, 2007. Cited figures are marked; the original filing is the authoritative source.
Parker-Hannifin's fiscal 2007 (year ended June 30, 2007) results show a company operating at a high level of growth and profitability.
Net sales rose 14.2% to $10.72 billiona, driven by higher volume across all segments, with acquisitions contributing roughly 45% of the increase and favorable currency effects adding about $241 million. Net income climbed 23% to $830 million, and diluted EPS rose to $7.01 from $5.57 in fiscal 2006 (which included discontinued operations). Gross margin expanded to 22.8% from 21.5%, though SG&A grew faster than sales at 18.3%, and the effective tax rate fell to 28.4%.
Operating cash flow was roughly flat at $955 millionb, and the company returned substantial capital through $364 million of net common share activity, including repurchases of 5.4 million shares. The outlook is mixed by segment. Aerospace and Industrial International are expected to remain strong, while Industrial North America and Climate & Industrial Controls face soft end-markets, notably automotive, heavy-duty truck and construction.
Management guides fiscal 2008 Industrial North America sales about 1% higher and Industrial International about 9.5% higher, with a 3-for-2 stock split payable October 1, 2007 and an accelerated $500 millionc share repurchase announced in August 2007. The balance sheet remains sound, with a debt-to-debt-equity ratio of 21.4% against a 37% policy ceiling, a current ratio of 1.76, and an A-rated senior debt objective. Investors should note the pending legal exposure from the marine oil and gas hose investigations (DOJ grand jury subpoena, JFTC, and European Commission inquiries plus class actions), for which the company cannot estimate potential loss, and the significant reduction in pension liabilities following adoption of FAS 158.
This filing is Amendment No. 1 to the original 10-K filed August 29, 2007. It corrects a typographical error in a Note 10 table and fixes exhibit cross-references, and it does not restate the financial results.
02—Key points
Key Highlights
- Net sales increased 14.2% to $10.72 billion in fiscal 2007, with acquisitions contributing about 45% of the increase and currency effects adding roughly $241 million.
- Net income rose 23% to $830 million; diluted EPS was $7.01 versus $5.57 in fiscal 2006, and gross margin improved to 22.8% from 21.5%.
- Aerospace segment was the standout performer, with sales up 12.0% to $1.69 billion and operating margin expanding to 16.0% from 14.7%.
- Industrial International sales grew 34.4% to $3.9 billion, while Industrial North America grew only 1.8% as automotive, heavy-duty truck and construction demand weakened.
- Operating cash flow was flat at $955 million, and the company repurchased 5.4 million shares at an average price of $79.47 while paying $1.04 in annual dividends per share.
- Balance sheet remains strong, with a 21.4% debt-to-debt-equity ratio, a 1.76 current ratio, and $1.0 billion of committed credit facilities; pension liabilities dropped sharply after FAS 158 adoption.
- Material legal risk: a grand jury subpoena, Japanese and European antitrust inquiries, and class actions relate to marine oil and gas hose; the company cannot estimate potential loss.
03—Questions
Frequently Asked Questions
How did Parker-Hannifin perform financially in fiscal 2007?
Parker-Hannifin grew net sales 14.2% to $10.72 billion and net income 23% to $830 million. Diluted EPS reached $7.01, up from $5.57 in fiscal 2006. Growth came from higher volume across all segments, acquisitions, and favorable currency movements, and gross margin widened to 22.8%.
What is the outlook for fiscal 2008?
Management expects strong conditions to persist in Industrial International and Aerospace, with Industrial International sales guided about 9.5% higher and Aerospace sales flat to slightly higher with margins of 15.7% to 16.1%. Industrial North America sales are guided about 1% higher, with soft markets in automotive, heavy-duty truck and construction, and Climate & Industrial Controls is expected to remain soft. Restructuring charges may recur.
What are the main risks investors should watch?
Key risks include the marine oil and gas hose antitrust matters (a U.S. grand jury subpoena, Japan Fair Trade Commission and European Commission inquiries, and class actions) for which no loss estimate is possible. Other risks are weakness in North American industrial end markets, raw material cost increases, acquisition integration, and a dependence on commercial aerospace recovery.
What is the capital return and share structure picture?
The company repurchased 5.4 million shares in fiscal 2007 and announced a $500 million accelerated share repurchase in August 2007. It also declared a 3-for-2 stock split payable October 1, 2007, and has increased dividends for 51 consecutive fiscal years, with an expected annual dividend of $1.26 per share before the split.
Why is this filing an amendment, and does it change the results?
This Form 10-K/A corrects a typographical error in a Note 10 pension table and updates exhibit references in Exhibits 10(o), 10(r), 10(v) and 10(x). It does not restate the financial statements or the results reported in the original 10-K filed August 29, 2007.
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