Parker Hannifin Corporation Annual Shareholders Meeting October 24, 2012 Presented by: Don Washkewicz Chairman, CEO & President
Forward-Looking Statements Forward-looking statements contained in this and other written and oral reports are made based on known events and circumstances at the time of release, and as such, are subject in the future to unforeseen uncertainties and risks. All statements regarding future performance, earnings projections, events or developments are forward-looking statements. It is possible that the future performance and earnings projections of the company, including its individual segments, may differ materially from current expectations, depending on economic conditions within its mobile, industrial and aerospace markets, and the company's ability to maintain and achieve anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins, actions taken to combat the effects of the current economic environment, and growth, innovation and global diversification initiatives. A change in economic conditions in individual markets may have a particularly volatile effect on segment performance. Among other factors which may affect future performance are: changes in business relationships with and purchases by or from major customers, suppliers or distributors, including delays or cancellations in shipments, disputes regarding contract terms or significant changes in financial condition, changes in contract cost and revenue estimates for new development programs and changes in product mix; uncertainties surrounding timing, successful completion or integration of acquisitions; ability to realize anticipated cost savings from business realignment activities; threats associated with and efforts to combat terrorism; uncertainties surrounding the ultimate resolution of outstanding legal proceedings, including the outcome of any appeals; competitive market conditions and resulting effects on sales and pricing; increases in raw material costs that cannot be recovered in product pricing; the company s ability to manage costs related to insurance and employee retirement and health care benefits; and global economic factors, including manufacturing activity, air travel trends, currency exchange rates, difficulties entering new markets and general economic conditions such as inflation, deflation, interest rates and credit availability. The company makes these statements as of the date of this disclosure, and undertakes no obligation to update them unless otherwise required by law. 2
Non-GAAP Financial Measures This presentation reflects certain non-gaap financial measures, the reconciliations for which can be found at www.phstock.com
Presentation Agenda FY2012 Review Business Update Outlook for FY2013 4
FY2012 Results 5
FY12 Results Another Outstanding Year! 6
FY12 Results Setting New Records! 7
Operating Margin Goal 15% 8
30 Years before Win Strategy R O S 15 11.1% 15% Goal 11.1% 14 14 13 13 12 12 11 11 10 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 15
FY12 Record We Did It! 15.2% 10
The Win Strategy Result 11.1% 15.2% R O S 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 11.1% 15% Goal 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1
New 15% Record Accomplished in a Difficult Global Economy 12
All Time Records Sales $13.1B Net Income $1.2B Net Income 8.8% Operating Margin 15.2% Ind l N/A 17.8% 13 Cash From Operating Activities $1.5B EPS $7.45
FY12 Performance Congratulations Global Team! 14
Global Market Trends 15
Parker FY12 Country Growth Canada +16% Brazil 0% S. Korea +10% France -1% USA +9% U.K. -4% Sweden +9% China -4% Germany +8% Italy -7% 16
FY12 Presentation Key Financials 17
FY12 Results $MM FY11-12 FY11 FY12 Change Net Sales $12,346 $13,146 6.5% Net Income * $1,049 $1,152 9.8% ROS 8.5% 8.8% --- EPS $6.37 $7.45 17.0% 18 * attributable to common shareholders
Sales Trend $Billions 8 Yr CAGR 8.4% 2004-2012 Record 19 $14 $12 $10 $8 $6 $4 $2 $0 13.1 12.1 12.3 10.7 10.3 9.4 10.0 8.1 6.9 2004 2005 2006 2007 2008 2009 2010 2011 2012
Operating Income Record in millions $2,500 $2,000 $1,500 $1,000 $500 $681 $1009 $1255 $1484 $1707 $1004 $1143 $1823 $2003 20 $ 2004 2005 2006 2007 2008 2009 2010 2011 2012 Fiscal Year 5-Year CAGR 6.2%
EPS $/Share Record 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 $7.45 $6.37 $5.53 $4.68 $2.95 $3.52 $3.13 $3.40 $1.86 $0.75 $1.08 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Fiscal Year 21 From continuing operations
FY12 Cash Flow 22
Cash Flow $ s $ Millions 23 $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 631 663 737 936 1051 1118 1329 1129 1319 1567 1530 02 03 04 05 06 07 08 09 10 11 12 Fiscal Year From operating activities, before discretionary pension contributions
-20.0% Danaher Goodrich Emerson Parker Dover 75th Percentile Pall Illinois Tool Rockwell Cooper Cummins 50th Percentile Caterpillar Ingersoll Rand Deere 35th Percentile Textron Honeywell Eaton SPX Flowserve -0.6% JCI ITT JCI ITT 2.4% 3.2% 4.2% 5.7% 5.6% 6.1% 5.9% 6.7% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% * Data for Parker is fiscal year 2012 vs. peers 2011 calendar year end. Free Cash Flow = Cash from Operating Activities less Capital Expenditures Free Cash Flow PH Fiscal 2012 vs Peer Calendar 2011* 7.8% 7.5% 8.1% 8.0% 9.0% 8.7% Free Cash Flow % of Sales 10.0% 9.9% 9.8% 9.8% 10.7% 10.5% 14.2% Parker 24
FY12 Other Accomplishments 25
#1 on Director Experience Parker Board ranked #1 in highest average director weight average business experience of each director by James Drury survey ADW Rank Company ADW # of Directors Industry Revenue Rank Revenue ($B) 1 Parker Hannifin 9.2 11 Industrial Manufacturing 248 $10.0 2 Marathon Oil 8.9 12 Mining, Oil & Gas 29 68.4 3 PPG Industries 8.9 10 Industrial Manufacturing 181 13.4 4 Sherwin-Williams 8.8 10 Industrial Manufacturing 308 7.8 5 R.R. Donnelly & Sons 8.8 8 Business Services 247 10.0 6 Apple 8.7 7 Technology 35 65.2 7 Micron Technology 8.7 7 Technology 287 8.5 8 Radio Shack 8.7 6 Consumer Services 492 4.5 9 Ecolab 8.5 10 Industrial Manufacturing 378 6.1 10 General Cable 8.5 6 Technology 465 4.9 26
Parker Delivers Strong Returns Total Shareholder Returns (Annual Equivalent) S&P 500 Index S&P 500 Industrials Parker 25.0% 23.6% 20.0% 15.0% 10.0% 10.9% 5.0% 5.1% 0.0% (5.0%) 3 Year 5 Year 10 Year 27
FY12 Dividends Increased 23% 28
FY12 Share Repurchase 6.4 Million Shares $ 455 Million 29
Strengthened Balance Sheet 2012 Debt to Total Cap Q1 Q2 Q3 Q4 25.8% 25.2% 24.3% 26.1% Target 40% Max. 30
FY12 Accomplishments Winovation Progress 31
The Challenges of Mankind Energy Defense Food Life Sciences Water Infrastructure Environment Transportation 32
Active projects in the funnel 3% of Sales 33
34 Energy Recovery
A New Division is born.. HDS - Hybrid Drive Systems HDS Division Columbus, Ohio Production Refuse Vehicle 35 Ohio Governor Kasich Visits
Innovation Video follows presentation 36
FY2012 Win Strategy 37
Win Strategy 10 Year Report Card 38
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$6.0 billion Sales Doubled $12.3 billion $24.27 Total Shareholder Return of 270% $89.74 40
Parker s Win Strategy Vision The #1 Motion & Control Company Goals #1 Premier Customer Service Financial Performance Profitable Growth S T R A T E G I E S Delivery of Quality Products on Time Value Added Services Best Systems-PHconnect Suppliers STRATEGIC PROCUREMENT Operation LEAN Customers STRATEGIC PRICING European Initiatives Internal Acquisitions Globalization Innovative Products Systems Solutions Strong Distribution Empowered Employees 41
Parker s Culture The Customer is #1 42
Goal #2 Vision The #1 Motion & Control Company Goals #1 Premier Customer Service Financial Performance Profitable Growth Financial Performance S Internal Delivery of Quality Parts Suppliers STRATEGIC T on Time PROCUREMENT Acquisitions Globalization R A Innovative Products Value Added Services Operation LEAN T E G Best Systems-PHconnect Customers STRATEGIC Systems Solutions PRICING I E S European Initiatives Strong Distribution Empowered Employees 43
The Win Strategy Objective Maximize ROIC 44
Return on Net Assets Performance 25.0% 20.0% Record 24.9% Return on Sales 15.0% 10.0% 5.0% 0.0% 0.50 0.60 0.70 0.80 0.90 1.00 Goal Net Assets/Sales FY 2006 FY 2007 FY 2008 FY2009 FY2010 FY2011 FY2012 45
46 Lean Records
Inventory to Sales 20.0% 18.7% 18.0% 16.0% 17.9% 17.0% 17.5% 16.4% 17.1% 16.8% 15.4% 15.7% 15.6% 14.6% 14.5% Record 10.7% 14.0% 12.0% 14.0% 14.0% 13.4% 12.9% 12.6% 13.5% 12.7% 12.9% 12.6% 12.7% 13.1% 13.4% 13.5% 12.8% 12.2% 12.4% 12.7% 11.8% 12.4% 12.3%12.1% 11.7% 12.2% 11.7% 12.3% 11.9% 11.4% 11.4% 10.9% 11.2% 10.7% 10.0% FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 Goal = 10 47
Productivity 220 200 180 160 140 120 125 130 132 135 Sales/Employee $000 s 154 174 168 189 204 179 191 Record 218 226 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 48 With annualized acquisition volume
Global Growth 49
A Clear Roadmap Win Strategy Vision The #1 Motion & Control Company Goals #1 Premier Customer Service Financial Performance Profitable Growth S T R A T E G I E S Quality Products on Time Value Added Services Best Systems-PHconnect Suppliers STRATEGIC PROCUREMENT Operation LEAN Customers STRATEGIC PRICING European Initiatives Internal Acquisitions Globalization Innovative Products Systems Solutions Strong Distribution Empowered Employees 50
FY12 Acquisitions $141M Asia Pacific Filtration Instrumentation & Fluid Connectors $22 million $16 million $100 million Automation Fluid Connectors Hydraulics India $3 million $35 million * $200 million * 51 * Revenues previously consolidated
Global Growth Europe Middle East Africa 52
European Headquarters Etoy, Switzerland 113 Employees 53
Growth in new sales companies Middle East +52% Turkey +90% Russia +23% Ireland +26% Hungary +61% +$62 Million 54
507 ParkerStores - EMEA + 54 Stores in FY12
New Parker Store Hungary - Distribution Hidro Land Győr 20 years with Parker 56
Global Growth Asia 57
Asia Sales Growth 2.0 2.0B Taiyo 273 59 1.6 Korea 5 418 1.2 Year CAGR 5.4%.8.4 0.5B.6B.8B 1.4B 1.6B 1.3B 1.4B 1.8B 1.8B 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 PLAN All shown at FY13 Rates Fiscal Year Rest 603 China 903 Japan + KPL 168
GDP Growth Major Countries CHINA INDIA 8.6% 6% 16 14 12 % 10 % 8 6 4 2 0 2009 2010 2011 2012 2013 16 14 12 10 8 6 4 2 0 2009 2010 2011 2012 2013 60 Source: IMA Asia Qtr 2 2012
952 ParkerStores - Asia + 134 Stores in FY12
Profitable Growth Growth through Strong Distribution 62
ParkerStores - Global 2500 + 201 Stores in FY12 2000 1891 2092 1685 1500 1351 1531 1000 821 1053 500 386 417 450 489 628 0 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
Global Growth Aerospace Growth 64
Recent Platform Wins $20B Airbus A350XWB Hydraulic System Fuel Systems Fuel Tank Inerting System COMAC C919 Flight Control System Hydraulic System Fuel System Bombardier C-Series Flight Control System Hydraulic System Fuel System $20 Billion Embraer Legacy 450/500 Flight Control System Hydraulic System Fuel System Gulfstream AAP Flight Control System Hydraulic System Components Bombardier Global 7000/8000 Flight Control System Hydraulic System 65
66 FY13 Plan
67 Forecast
FY13 Assumptions 68
FY13 Assumptions 69
FY13 Assumptions U.S.A. Election Year Economy 70
Fiscal Year 2013 FY2013 1 st Quarter Results 71
First Quarter Results $MM FY12 FY13 Change Net Sales $3,234 $3,215 (.6%) Net Income * $297 $240 (19.3%) Net ROS 9.2% 7.5% --- Diluted EPS * $1.91 $1.57 (17.8%) * Attributable to common shareholders 72
First Quarter Results $MM FY12 FY13 Change Net Sales $3,234 $3,215 (.6%) Int l Acquisition Integration Expense Net Income * $297 $240 (19.3%) Net ROS 9.2% 7.5% --- Aerospace R&D Diluted EPS * $1.91 $1.57 (17.8%) * Attributable to common shareholders 73
FY13 Acquisitions Year to Date Hydraulics Filtration $200 million Fluid Connectors $4 million Filtration $237M $13 million $20 million 134
The Future -- What does good look like? 10% CAGR 20% Market Share The Premier Diversified Industrial Top quartile ROIC ROS NxNW A/S 75 Top quartile P/E Multiple
Video: Runwise Advanced Series Hydraulic Hybrid Chassis for Refuse Vehicles 76
77 Thank You