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Article by DailyStocks_admin    (12-26-08 04:32 AM)

The Daily Magic Formula Stock for 12/26/2008 is Parker-Hannifin Corp. According to the Magic Formula Investing Web Site, the ebit yield is 19% and the EBIT ROIC is 25-50 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

Parker-Hannifin Corporation is a leading worldwide full-line diversified manufacturer of motion and control technologies and systems, 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 one or more pumps which generate pressure, one or more valves which control the flow of the fluid, one or more actuators which translate the pressure from the fluid into mechanical energy, one or more filters to ensure 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 and aerospace applications. In addition to motion control products, the Company also is a leading worldwide producer of fluid purification, fluid and fuel control, process instrumentation, air conditioning, refrigeration, electromagnetic shielding and thermal management products and systems.

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 Annual Report on Form 10-K, unless the context otherwise requires, the term “Company” or “Parker” refers to Parker-Hannifin Corporation and its subsidiaries.

The Company’s investor relations internet website address is www.phstock.com . The Company makes available free of charge on or through its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after filing or furnishing such material electronically with the Securities and Exchange Commission. The information contained on or accessible through the Company’s website is not part of this Annual Report on Form 10-K.

The Board of Directors has adopted a written charter for each of the committees of the Board of Directors. These charters, as well as the Company’s Code of Ethics, Guidelines on Corporate Governance Issues and Independence Standards for Directors, are posted and available on the Company’s investor relations internet website at www.phstock.com under the Corporate Governance page. Shareholders may request copies of these corporate governance documents, free of charge, by writing to Parker-Hannifin Corporation, 6035 Parkland Boulevard, Cleveland, Ohio 44124-4141, Attention: Secretary, or by calling (216) 896-3000.

The Company’s manufacturing, service, distribution and administrative facilities are located in 40 states and in 47 foreign countries. The Company’s motion control technology is used in the products of its three principal business segments: Industrial; Aerospace; and Climate & Industrial Controls. The products are sold as original and replacement equipment through product and distribution centers worldwide. The Company markets its products through direct-sales employees, independent distributors, sales representatives and builder/dealers. Parker products are supplied to approximately 449,000 customers in virtually every significant manufacturing, transportation and processing industry. For the fiscal year ended June 30, 2008, total net sales were $12,145,605,482. Industrial Segment products accounted for 76%, Aerospace Segment products for 15%, and Climate & Industrial Controls Segment products for 9% of those net sales.

Markets

Motion control systems are used throughout industries in applications which include moving materials, controlling machines, vehicles and equipment and positioning materials during manufacturing processes. Motion control systems contribute to the efficient use of energy and improve industrial productivity.

The approximately 449,000 customers who purchase the Company’s products are found throughout virtually every significant manufacturing, transportation and processing industry. No single customer accounted for more than 3% of the Company’s total net sales for the fiscal year ended June 30, 2008.

Industrial Segment . Sales of Industrial Segment products are made primarily to original equipment manufacturers and their replacement markets in all major manufacturing and processing industries. Major markets for products of the Fluid Connectors Group are aerial lift, agriculture, bulk chemical handling, construction machinery, food and beverage, fuel and gas delivery, industrial machinery, life science and medical, marine, mining, mobile, oil and gas, and transportation. Major markets for products of the Hydraulics Group are aerial lift, agriculture, alternative energy, construction machinery, forestry, industrial machinery, machine tool, marine, mining, oil and gas, power generation, and truck hydraulics. Major markets for products of the Automation Group are alternative energy, conveyor and material handling, factory automation, life science and medical, machine tool, packaging machinery, paper machinery, plastics machinery and conversion, primary metal, safety and security, semiconductor and electronic, and transportation and automotive. Major markets for products of the Seal Group are aerospace, chemical processing, consumer, energy, oil and gas, fluid power, general industrial, information technology, life science, military, semiconductor, telecommunication, and transportation. Major markets for products of the Instrumentation Group are chemical and refining, food and beverage, medical and dental, microelectronic, oil and gas, and power generation. Major markets for products of the Filtration Group are aerial lift, agriculture, bulk chemical handling, construction machinery, food and beverage, fuel and gas delivery, industrial machinery, life science and medical, marine, mining, mobile equipment, oil and gas, power generation, process, and transportation.

Aerospace Segment . Sales of Aerospace Segment products are made primarily to original equipment manufacturers in the commercial, military and general aviation markets and to end users for maintenance, repair and overhaul. Major markets for products of the Aerospace Segment are business jet, defense, aircraft engine, general aviation, commercial transport, helicopter, missile and munition, launch vehicle, power generation, regional transport, unmanned aerial vehicle and aftermarket service.

Climate & Industrial Controls Segment . Sales of Climate & Industrial Controls Segment products are made primarily to original equipment manufacturers and their replacement markets. Major markets for products of the Climate & Industrial Controls Segment are agriculture, air conditioning, appliance, food and beverage, industrial and commercial refrigeration, industrial machinery, oil and gas, life science and medical, precision cooling, process, supermarket, and transportation.

Principal Products and Methods of Distribution

Industrial Segment . The product lines of the Company’s Industrial Segment consist of a broad range of motion control and fluid systems and components. The Fluid Connectors Group manufactures a broad range of connectors which control, transmit and contain fluid, including the following: brass fittings and valves; deep sea umbilicals; diagnostic equipment; hose couplings; industrial hose; mooring systems and power cables; PTFE hose and tubing; quick couplings; check valves; rubber and thermoplastic hose; tube fittings and adapters; and tubing and plastic fittings. The Hydraulics Group produces a broad range of hydraulic components and systems for builders and users of industrial and mobile machinery and equipment, such as the following: accumulators; human machine interfaces; hydraulic cylinders; hydraulic motors and pumps; hydraulic systems; hydraulic valves and controls; hydrostatic steering units; integrated hydraulic circuits; power take-off equipment; power units; rotary actuators; and sensors. The Automation Group produces a broad range of pneumatic and electromechanical components and systems. Pneumatic products include the following: air preparation units; pneumatic accessories; pneumatic actuators and grippers; pneumatic valves and controls; structural extrusions; and vacuum generators, cups and sensors. Electromechanical products include the following: AC/DC drives and systems; electric actuators, gantry robots and slides; human-machine interfaces; manifolds; rotary actuators; and stepper motors, servo motors, drives and controls. The Seal Group manufactures static and dynamic sealing devices, including the following: dynamic seals; elastomeric o-rings; electro-medical instruments; electromagnetic interference shielding; extruded and precision-cut fabricated elastomeric seals; high-temperature metal seals; homogeneous and inserted elastomeric shapes; medical devices; metal and plastic retained composite seals; and thermal management products. The Seal Group also assembles static and dynamic sealing devices, including electro-medical instruments and medical devices. The Filtration Group manufactures filters, systems and instruments to monitor and remove contaminants from fuel, air, oil, water and other fluids and gases, including the following: analytical gas generators; compressed air and gas filters and dryers; condition monitoring devices; engine air, fuel and oil filtration and systems; hydraulic, lubrication and coolant filters; nitrogen, hydrogen and zero air generators; and process, chemical, water and microfiltration filters. The Instrumentation Group manufactures high quality critical flow components for process instrumentation, healthcare and ultra-high-purity applications, including the following: analytical sample conditioning products and systems; chemical injection fittings and valves; fluoropolymer chemical delivery fittings, valves and pumps; high-purity gas delivery fittings, valves, regulators and digital flow controllers; process control fittings, valves, regulators and manifold valves; process control double block and bleeds; permanent no-weld tube fittings; precision industrial regulators and flow controllers; and industrial mass flow meters/controllers.

Industrial Segment products include custom units which are engineered and produced to original equipment manufacturers’ specifications for application to a particular end product and standard items. Both custom and standard products are also used in the replacement of original motion control system components. Industrial Segment products are marketed primarily through field sales employees and approximately 9,850 independent distributors.

Aerospace Segment . Principal products of the Company’s Aerospace Segment are cooling, hydraulic, fuel, and pneumatic systems and components used on commercial and military airframe and engine programs. The Aerospace Segment also manufactures a broad range of fluid conveyance systems and components, fluid metering, delivery and atomization devices, inert gas generating systems, as well as connectors, hoses, fittings, tube fittings and quick disconnects which control, transmit and contain fluid for aircraft applications.

The Aerospace Segment offers complete hydraulic and primary flight control systems and components that include hydraulic, electrohydraulic and electromechanical components 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 servo valves, thrust-reverser actuators, engine-driven pumps, motor pumps, nose wheel steering systems, electromechanical actuators, engine controls and electronic controllers. The Aerospace Segment also designs and manufactures aircraft wheels and brakes for general aviation and military markets.

The Aerospace Segment fuel product line includes complete fuel systems and components such as the following: fuel tank inerting systems; fuel transfer and pressurization controls; in-flight refueling systems; fuel pumps and valves; fuel measurement and management systems; center of gravity controls; engine fuel injection atomization nozzles, manifolds and augmentor controls; and electronic monitoring computers.

The Aerospace Segment produces various pneumatic systems and components including the following: bleed air control systems; pressure regulators; low-pressure pneumatic controls; engine starter 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.

Climate & Industrial Controls Segment . The principal products of the Company’s Climate & Industrial Controls Segment are systems and components for use primarily in the mobile and stationary refrigeration and air conditioning industry, and systems and components for use in fluid control applications in a wide variety of industries including processing, fuel dispensing, beverage dispensing and mobile emissions. The products include accumulators, CO 2 controls, electronic controllers, filter driers, hand shut-off valves, heat exchangers, hose and fittings, pressure regulating valves, refrigerant distributors, safety relief valves, solenoid valves, and thermostatic expansion valves.

Climate & Industrial Controls Segment products are marketed primarily through field sales employees and independent distributors and wholesalers.

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, manufacturing and distribution capability, and price competitiveness. The Company believes that, in most of the major markets for its Industrial Segment products, it is one of the primary suppliers of motion control systems and components.

In the Aerospace Segment, the Company has developed alliances with key customers based on the Company’s advanced technological and engineering capabilities, superior performance in quality, delivery, and service, and price competitiveness, which has enabled the Company to obtain significant original equipment business on new aircraft programs for its systems and components and, thereby, to 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 market.

In the Climate & Industrial Controls Segment, the Company competes on the basis of product quality and innovation, customer service, manufacturing and distribution capability, and price competitiveness. The Company believes that it is one of the primary suppliers in the climate and industrial controls market.

Research and Product Development

The Company continually researches the feasibility of new products and services 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 and services and the improvement of existing products and services amounted to $303,097,752 in fiscal year 2008, $253,091,228 in fiscal year 2007, and $203,702,371 in fiscal year 2006. These amounts include costs incurred by the Company related to independent research and development initiatives as well as costs incurred in connection with research and development contracts. Costs incurred in connection with research and development contracts for each of the respective fiscal years 2008, 2007 and 2006 were $47,757,134, $40,893,768 and $37,531,597. These costs are included in the total research and development cost for each of the respective years.

Patents, Trademarks, Licenses

The Company owns a number of patents, trademarks and licenses related to its products and has exclusive and non-exclusive rights to use a number of 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

The Company’s backlog by business segment for the past two fiscal years, as set forth on pages 13-5 to 13-7 of Exhibit 13 to this Annual Report on Form 10-K, is incorporated into this section by reference. The Company’s backlog at June 30, 2008 was approximately $3,651,285,185 and at June 30, 2007 was approximately $2,935,232,549. Approximately 83% of the Company’s backlog at June 30, 2008 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 U.S. federal, state, local and foreign 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 U.S. 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’s Superfund priority list.

As of June 30, 2008, the Company is involved in environmental remediation at 33 manufacturing facilities presently or formerly operated by the Company and has been named as a “potentially responsible party,” along with other companies, at one off-site waste disposal facility and three regional sites.

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.

As of June 30, 2008, the Company has a reserve of $16,022,463 for environmental matters which are probable and reasonably estimable. This reserve is recorded based upon the best estimate of 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 and the amount of the Company’s liability in proportion to other responsible parties.

The Company’s estimated total liability for the above mentioned sites ranges from a minimum of $16,022,463 to a maximum of $79,633,043. The largest estimate for any one site is approximately $8,209,933. 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 of the other responsible parties to pay, and any insurance or third-party recoveries.

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, elastomeric and thermoplastic materials and chemicals 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

The Company employed 61,722 persons as of June 30, 2008, of whom approximately 31,920 were employed by foreign subsidiaries.

Business Segment Information

The Company’s 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 pages 13-14 to 13-15 of Exhibit 13 to this Annual Report on Form 10-K, are incorporated into this section by reference.

Acquisitions and Divestitures

During fiscal year 2008, the Company completed a number of acquisitions. The description of these transactions, as set forth on pages 13-21 to 13-22 of Exhibit 13 to this Annual Report on Form 10-K, is incorporated into this section by reference.

CEO BACKGROUND

WILLIAM E. KASSLING , 64, has served as a Director since 2001. He is Chairman of the Corporate Governance and Nominating Committee and a member of the Audit Committee. Mr. Kassling has been Chairman of the Board of Wabtec Corporation (technology-based equipment for the rail industry) since 1990. He was previously Chief Executive Officer of Wabtec from May 2004 to February 2006 and President of Wabtec from May 2004 to February 2006.


JOSEPH M. SCAMINACE , 55, has served as a Director since 2004. He is a member of the Corporate Governance and Nominating Committee and the Human Resources and Compensation Committee. Mr. Scaminace has been a Director and Chief Executive Officer of OM Group, Inc. (metal-based specialty chemicals) since June 2005 and Chairman of the Board of OM Group since August 2005. He was previously the President and Chief Operating Officer of The Sherwin Williams Company (paints and coatings) from October 1999 to May 2005. Mr. Scaminace is also a Director of The Boler Company.

WOLFGANG R. SCHMITT , 64, has served as a Director since 1992. He is Chairman of the Human Resources and Compensation Committee and a member of the Audit Committee. Mr. Schmitt has been the Chief Executive Officer of Trends 2 Innovation (strategic growth consultants) since May 2000.


MANAGEMENT DISCUSSION FOR LATEST QUARTER

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:


•

Institute of Supply Management (ISM) index of manufacturing activity with respect to North American mobile and industrial markets;


•

Purchasing Managers Index (PMI) on manufacturing activity with respect to most International mobile and industrial markets;


•

Aircraft miles flown and 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.

ISM and PMI indexes above 50 indicate that the manufacturing economy is expanding, resulting in the expectation that the Company’s order rates in the mobile and industrial markets in the respective geographic areas should be positive year-over-year. ISM and PMI indexes below 50 would indicate the opposite effect. The ISM index at the end of September 2008 was 43.5 and the PMI for the Eurozone countries at the end of September 2008 was 45.0. With respect to the aerospace market, aircraft miles flown and revenue passenger miles continue to show improvement over comparable fiscal 2008 levels. The Company anticipates that Department of Defense spending in fiscal 2009 will be about 4 percent higher than the 2008 level. Housing starts in September 2008 were approximately 31 percent lower than housing starts in September 2007. The Company does not anticipate housing starts to improve in fiscal 2009.

The Company also believes that there is a high correlation between changes in interest rates throughout the world and worldwide industrial manufacturing activity. Increases in interest rates typically have a negative impact on industrial production thereby lowering future order rates while decreases in interest rates typically have the opposite effect. In October 2008, the world’s leading central banks, including the U.S. Federal Reserve, the European Federal Reserve and the Bank of England, reduced their official interest rates. Given the current worldwide financial crisis, it is unknown whether these interest rate cuts will have the same impact on worldwide industrial manufacturing activity as past interest rate cuts.

The Company’s major opportunities for growth are as follows:


•

Leveraging the Company’s broad product line with customers desiring to consolidate their vendor base and outsource system engineering;


•

Marketing systems solutions for customer applications;


•

Expanding the Company’s business presence outside of North America;


•

Introducing new products, including those resulting from the Company’s innovation initiatives;


•

Completing strategic acquisitions in a consolidating motion and control industry; and


•

Expanding the Company’s vast distribution network.

The financial condition of the Company remains strong as evidenced by the continued generation of substantial cash flows from operations, a debt to debt-equity ratio of 35.0 percent (29.1 percent calculated on a net-debt to net-debt-equity basis) and a demonstrated ability to borrow needed funds at affordable interest rates despite the current tight credit environment.

Many acquisition opportunities remain available to the Company within its target markets. During the first quarter of fiscal 2009, the Company completed one acquisition whose aggregate incremental annual revenues were approximately $11 million. Subsequent to the end of the quarter, the Company completed seven acquisitions whose aggregate incremental annual revenues were approximately $503 million. Acquisitions will continue to 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. The Company will also continue to assess the strategic fit of its existing businesses and initiate efforts to divest businesses that are not considered to be a good long-term fit for the Company. Future business divestitures could have a negative effect on the Company’s results of operations.

The Company routinely strives to improve customer service levels and manage changes in raw material prices and expenses related to employee health and welfare benefits. The current recessionary-like business conditions in the U.S. economy and the slowdown in some of the global economies make it difficult for the Company to anticipate the business conditions that are likely to be experienced by the Company’s operations for the remainder of fiscal year 2009. The Company is currently focused on maintaining its financial strength through the current worldwide economic situation and has in place a number of strategic financial performance initiatives relating to growth and margin improvement in order to meet this challenge, including strategic procurement, strategic pricing, lean enterprise, product innovation, global diversification and business realignments.

CONF CALL

Pam Huggins

Thank you, Sandy. Good morning, everyone. This is Pam Huggins speaking, as Sandy just mentioned. I would like to welcome you to Parker Hannifin's first quarter fiscal year 2009 earnings release teleconference. Joining me today is Chairman, President and Chief Executive Officer Don Washkewicz; and Executive Vice President and Chief Financial Officer, Tim Pistell.

Before getting into the earnings release, let me address a couple of administrative matters. First for those of you that are online, you can you follow today's presentation with PowerPoint slides that have been presented and for those of you not online, the slides will be posted on the Investor Relations' portion of Parker's website at PhStock.com.

Second, as is customary, I would like to call your attention to slide number two which is the Safe Harbor disclosure on forward-looking statements and ask that you read this statement in its entirety.

Third, moving to slide number three, this slide is required indicates that in cases where non-GAAP numbers have been used they've been reconciled to the appropriate GAAP numbers.

And now moving to slide four, the call will be in four parts today. First Don Washkewicz, Chairman, President, and Chief Executive Officer will provide highlights for the quarter. Second I'll provide a review including key performance measures of the quarter and of course concluding with a revised outlook for fiscal year 2009.

The third part of the call will consist of our standard Q&A and as a reminder please ask one question at a time. My goal is to keep this call to one hour, so please be courteous and get back into the queue if need be. And for the fourth part of the call today, Don will close with some final comments.

At this time I'll turn it over to Don and ask that you refer to slide five titled first quarter highlights.

Don Washkewicz

Thanks, Pam and good morning to everyone on the call this morning. Just wanted to make a few comments and then we'll turn it back over to Pam for a little bit more detail of the quarter results.

First of all, I'd just like to say that we're extremely pleased today with the results that we delivered in the quarter. We posted record sales of $3.1 billion, which is an increase of 10% over last year's quarter. Particularly impressed and pleased with the organic growth which was strong at 4% in the quarter.

Earnings and earnings per share for the first quarter were records for the company. So we've had a stream of records here for the last with earnings per diluted share increasing 13% to $1.50 a share and cash flow from operations was about 10% of sales or about $307 million.

Little bit about Aerospace, we delivered another strong quarter there with sales increasing at double-digit levels for the second consecutive quarter in Aerospace, and you're certainly all aware of the Boeing strike and that continues to impact our Aerospace business. That strike, our shipments basically stopped in late September, about September 20th and of course as that strike continues on, that's going to continue to affect subsequent quarters going forward.

You'll note that early in the first quarter, we announced another major long-term contract and that was with Bombardier. That's $3.5billion contract for development of fly by wire systems for them. If you look over the last two years now, we have brought in about $10 billion in new business in Aerospace contracts over that last two-year period of time. So we're very excited about the long-term prospects of our Aerospace business.

This here, a little bit about acquisitions, we acquired four strategic acquisitions this year which will contribute sales of $460 million and they're expected to be accretive to earnings.

So we're pretty much on target to hit that 5% of sales number we said that those are basically our internal target here, 5% of sales coming from acquisitions. That would imply that we'd have to do about $600 million a year at the current run rate of $12 billion for the company.

So we're doing pretty well on that metric as well. Also during the quarter, we invested $414 million to repurchase Parker common shares during the first quarter and we announced a dividend increase for the 52nd consecutive year.

Just a couple of comments on markets, I am sure there will be more comments that we'll make later on, and this was in the press release. The total orders are up 1% for the quarter versus a year ago. North America grew a modest 2%, while trends in Aerospace and CIC were stronger with increases 9% and 5% respectively.

Our Industrial International segment has continued to weaken and has been weakening now over the last several quarters. We've been watching that and reporting on that to you as that occurs and right now the international segment had declined 4% in the recent quarter over the same quarter last year.

Distribution being one of the strongest parts of our business remains stable, which is about half of our Industrial business and this continues to be a strength for us going forward. Some North American OEM markets continue to be weak. We've talked about these in the past. They're automotive, heavy-duty truck, refrigeration, residential air conditioning, light construction equipment and semiconductor and so forth.

Some of these major OEM segments have been really soft for quite some time now and eventually they will turn but we're doing I'd say extremely well in light of the fact that many of these segments are down and have been down for quite a while.

Given this economic backdrop, especially in the latter part of our fiscal year, we have decided to revise our fiscal 2009 earnings guidance downward by roughly 5% to a range of 535 to 575. As we have said in the past and will continue to do this in the future, we will try to give you an annual guidance, and we'll try to give you an update on that annual guidance on a quarterly basis and that's what we're doing today.

I think with everything that's happening in the environment out there today, it's really, really tough to predict what's going to be happening next calendar year, certainly. So we're doing our best here to give you the best guidance we have and of course this may ultimately prove to be conservative, but with the swiftly changing economy, I want to stress that like everyone else there's a higher level of uncertainty in the second half of our fiscal year. So we'll keep you updated as each quarter goes by.

The other thing I’d like to say is just a little bit about the win strategy. Much of the work that we've completed under the win strategy over the past seven years was really designed to help the company perform better specifically in a downturn that we're experiencing right now.

So for instance, today we have exposure to a greater number of end markets than we had in the past which mitigates our downside risk and increases our presence in many or less cyclical markets like energy, life sciences, biopharm and many others that we've entered into over the last several years.

We also have a much better geographic balance. I think many of those on the call will remember the days when we used to have 70% of our industrial business in Industrial North America located in North America and now 50% of our Industrial segment revenues are being generated from international markets, so that's a much better balance than we ever had in the past.

Our cost structure also is much more flexible than in the past and we continue to focus on the lean enterprise activities that we launched seven years ago which will continue to help us through this period, and other strategic initiatives that we've talked about in the past. Keep in mind that the activities that are going on to prepare us for this period of time have really started seven years ago, and with a lot of hard work and effort to get us to where we are now and that's the reason why we are reporting today record quarters.

As a result, Parker expects to perform at a much higher level throughout the downturn that what we had done in the prior period.

Right now, I'm going to turn it back over to Pam and we'll talk more about these in a few minutes.

Pam Huggins

Thanks, Don. If you all reference slide six at this time, I'll address the earnings per share for the first quarter. You can see that it's $1.50 and this represents a 13% increase over the $1.33 in the fourth quarter last year – the first quarter last year.

Now, if you move to slide seven, I’m going to outline what happened in the first quarter. Earnings per share and this is on a consolidated basis versus the same quarter a year ago. You can see that a 10% increase in revenues, with double-digit increases in all segments, except CIC.

Improved selling, general and administrative expenses as a percent of sales declining to 10.9% from 11.7% as a result of lower compensation incentives and lower outstanding shares as a result of $414 million in purchases this quarter in the open market. Offsetting some of these positive items were lower gross margins of 20 basis points, and this was due to a slight lag in pricing as we discussed on the last quarterly call.

Higher interest expense, as a result of higher debt due to acquisitions and of course the repurchase of the shares that I just mentioned. Higher other expense and this is mainly due to an investment for tax purposes that was offset by a tax credit. And then of course higher taxes due to increased income and then a higher tax rate in the quarter as a result of discrete benefits. However, you will see that the tax rate for the year has gone down from 30% to 29%.

So just to summarize these puts and takes for you in the first quarter; higher operating income contributed $0.14, lower corporate G&A expenses contributed $0.02, lower other expense contributed $0.02, and of course less outstanding shares contributed $0.05. And these positive items were offset by additional interest expense of $0.02 and of course higher taxes of $0.04 that I just mentioned.

Now, of course if you net all of these items, you can see that the $0.17 in higher earnings were of course quality earnings for the quarter are mostly coming from segment operating income and clearly a good performance in the quarter.

Moving to slide eight at this time and addressing sales, you can see that sales for the quarter increased 10% to $3.1 billion, and this is up from $2.8 billion last year. And of this 10% sales growth, 4% is organic, 4% is the result of acquisitions, and 2% is the result of currency which is mainly the Euro.

Moving to slide nine, the 10% growth in the quarter, again is the result of double-digit growth in all segments except CIC and Aerospace led the way with a 9% organic growth in the quarter. Acquisitions added $125 million in the quarter.

Moving to slide 10 and focusing on segments starting with North America, most notable on this slide is that in spite of several soft markets that Don mentioned, North American first quarter sales are up 10%. Of course, 8% of that is from acquisitions and 2% is core growth. So in spite of a challenging North American environment, operating income for this segment is ahead of last year at $160 million versus $155 million a year ago.

Moving to slide 11, now I'll address the industrial segment. Moving to international, here you can see that currency is becoming less of a contributor to sales of course with the strengthening of the dollar; 4% for the quarter, this is versus 15% last quarter. Organic growth was 4%, up against tough comparisons a year ago, however. Acquisitions added 3% and margins as a percent of sales remained at a high level at 16.6% versus 16.7% a year ago.

Moving to slide 12, addressing the Aerospace market segment, you can see that sales increased 12%. Margins increased 80 basis points and this is mainly due to lower research and development costs than anticipated in connection with the new program wins in that first quarter.

Slide 13, Climate and Industrial Control segments, as mentioned previously, softness in North American automotive, heavy-duty truck and residential air conditioning, that's what affecting the segment. That's what we have been talking about for several quarters. So, as a result sales are flat organically for the quarter and margins are flat year-over-year at 6.1%.

So, at this time moving quickly to orders, orders for the quarter, slide 14. These numbers just as a reminder, these numbers represent a trailing three month average and are reported as a percentage increase of absolute dollars year-over-year, excluding acquisitions and currency except for Aerospace and Aerospace is reported using a 12-month rolling average.

As you can see from the slide, orders are up 1% for the September quarter just ended and this compares to 8% last quarter and 7% a year ago. North American orders for the quarter up 2% year-over-year, and last year at this time orders were flat and this 2% compares to 4% sequentially from the June quarter.

Industrial International orders declined 4% and this is up against a positive 19% last year. The negative 4% for this quarter compares to 8% last quarter and is partially due to a tougher comparison from June to September last year. Aerospace orders up 9% for the quarter, which compares to 23% last quarter and 12% a year ago.

And then in the Climate and Industrial Controls segment, orders are up 5% and this is up from a negative 7% last quarter and a negative 13% a year ago. This is partially due to easier comparisons and increased business in air conditioning.

Moving to the balance sheet quickly, you can see that Parker's balance sheet remains solid. Cash on the balance sheet at quarter end was $608 million. $569 million in commercial paper was outstanding. Day's sales and inventory increased to 67 days from 61 last quarter, and accounts receivable in terms of DSOs 49, a four day improvement over last year. With respect to accounts payable it was a use of cash, but we do see some opportunity here.

Moving to slide 16, operating cash flow for the quarter was $307 million and of this $307 million, $98 million or 3.2% of sales was used in connection with capital expenditures. Acquisitions consumed another $12 million and just as a reminder, the three acquisitions that closed October 1st are obviously not included in these numbers. They will be included in next quarter numbers.

Dividends were paid in the amount of $41 million and the remaining cash in combination with the issuance of commercial paper in the amount of $414 million was utilized to purchase shares in the open market.

Moving to slide 17, you can see that the debt to total cap ratio is 35%, however on a net basis it's 29%. And I will just give you the updated guidance, which is shown on slide 18 through 20. On slide 18, the guidance for sales and operating margin by segment have been provided. On slide 19, guidance has been provided for the items below segment operating income and then of course on slide 20 the guidance is summarized on an earnings per share basis.

As you can see from the slide the guidance for fiscal year 2009, it’s projected to be 535 to 575, as Don mentioned. This assumes a 46%, 54% split first half versus second half respectively. And please remember that the forecast includes acquisitions that have closed and excludes any acquisitions that may be made in the remainder of fiscal year 2009.

The revised guidance assumes the following; sales growth approximating 0.8% to 1.2%; segment operating margins as a percent of sales in the range of 13.3% to 13.7%; corporate administration costs of approximately 1.5% of sales and interest and other expense in the range of $175 million to $192 million and then of course a tax rate coming down from 30% to 29%.

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