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PH > SEC Filings for PH > Form 10-Q on 6-May-2014All Recent SEC Filings

Show all filings for PARKER HANNIFIN CORP

Form 10-Q for PARKER HANNIFIN CORP


6-May-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2014
AND COMPARABLE PERIODS ENDED MARCH 31, 2013
OVERVIEW
The Company is a leading worldwide diversified manufacturer of motion and control technologies and systems, providing precision engineered solutions for a wide variety of mobile, industrial and aerospace markets.
The Company's order rates provide a near-term perspective of the Company's outlook particularly when viewed in the context of prior and future order rates. The Company publishes its order rates on a quarterly basis. The lead time between the time an order is received and revenue is realized generally ranges from one day to 12 weeks for mobile and industrial orders and from one day to 18 months for aerospace orders. The Company believes the leading economic indicators of these markets that have a strong correlation to the Company's future order rates are as follows:

Purchasing Managers Index (PMI) on manufacturing activity specific to regions around the world with respect to most mobile and industrial markets;

Global aircraft miles flown and global revenue passenger miles for commercial aerospace markets and Department of Defense spending for military aerospace markets; and

Housing starts with respect to the North American residential air conditioning market and certain mobile construction markets.

A PMI above 50 indicates that the manufacturing activity specific to a region of the world in the mobile and industrial markets is expanding. A PMI below 50 indicates the opposite. Recent PMI levels for some regions around the world were as follows:

                   March 31, 2014    December 31, 2013    June 30, 2013
United States                53.7                 57.0             50.9
Eurozone countries           53.0                 52.7             48.8
China                        48.0                 50.5             48.2

Global aircraft miles flown have increased approximately six percent from the comparable fiscal 2013 level and global revenue passenger miles have increased approximately seven percent from the comparable fiscal 2013 level. The Company anticipates that U.S. Department of Defense spending with regard to appropriations and operations and maintenance for the U.S. Government's fiscal year 2014 will be approximately one percent higher than the comparable fiscal 2013 level.
Housing starts in March 2014 were approximately six percent lower than housing starts in March 2013 and were approximately 13 percent higher than housing starts in June 2013.
The Company remains focused on maintaining its financial strength by adjusting its cost structure to reflect changing demand levels, maintaining a strong balance sheet and managing its cash. The Company has been able to borrow funds at affordable interest rates and had a debt to debt-shareholders' equity ratio of 28.6 percent at March 31, 2014 compared to 30.2 percent at December 31, 2013 and 33.0 percent at June 30, 2013. Net of cash and cash equivalents, the debt to debt-shareholders' equity ratio was 7.1 percent at March 31, 2014 compared to 8.5 percent at December 31, 2013 and 15.4 percent at June 30, 2013.
The Company believes many opportunities for profitable growth are available. The Company intends to focus primarily on business opportunities in the areas of energy, water, food, environment, defense, life sciences, infrastructure and transportation.

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The Company believes it can meet its strategic objectives by:

Serving the customer and continuously enhancing its experience with the Company;

Successfully executing its Win Strategy initiatives relating to premier customer service, financial performance and profitable growth;

Maintaining its decentralized division and sales company structure;

Fostering an entrepreneurial culture;

Engineering innovative systems and products to provide superior customer value through improved service, efficiency and productivity;

Delivering products, systems and services that have demonstrable savings to customers and are priced by the value they deliver;

Acquiring strategic businesses;

Organizing around targeted regions, technologies and markets;

Driving efficiency by implementing lean enterprise principles; and

Creating a culture of empowerment through its values, inclusion and diversity, accountability and teamwork.

Acquisitions will be considered from time to time to the extent there is a strong strategic fit while at the same time, maintaining the Company's strong financial position. In addition, the Company will continue to assess its existing businesses and initiate efforts to divest businesses that are not considered to be a good long-term strategic fit for the Company. Future business divestitures could have a negative effect on the Company's results of operations.
The discussion below is structured to separately discuss the Consolidated Statement of Income, Results by Business Segment, Consolidated Balance Sheet and Consolidated Statement of Cash Flows.

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