All questions refer to the 2015 annual report of Parker Hannifin (ParkerNote that Parker has a fiscal year

ending June 30. All references to years are to the relevant fiscal year; for example, 2015 means the fiscal year ending June 30, 2015.

1. (9) Which firm audited the financial statements? What type of opinion was issued?

2. (8) Does Parker have any joint ventures accounted for on the equity method? What do we know about the profitability of these ventures?

3. (7) Are all of Parker’s subsidiaries 100% owned? How do you know?

4. (9) What event caused the deconsolidation of a subsidiary in 2014?

5. (6) Does Parker have any commercial paper outstanding at the end of 2015? Do they have the potential to issue such paper? If so, how much?

6. (18) Compute current ratio and quick ratio for 2015 and 2014. What do these ratios tell us about Parker’s liquidity?

7. (11) Does Parker appear to have any significant problem with collectability of trade accounts receivable? Explain.

8. (5) What amount of cash was paid for interest in 2015?

9. (6) What type of asset is the most material component of Plant and Equipment?

10. (10) Does Parker have a significant amount of lease commitments not included on the balance sheet? Explain.

11. (18) With regard to pension plans:

a. What amount of expense was recognized in the income statement in 2015?

b. What was the amount of benefits paid in 2015?

c. What is the funded status at the end of 2015? Comment on the change in funded status from 2014.

d. What amounts, if any, related to pension liabilities appears on the 2015 balance sheet?

12. (9) With regard to other post-retirement benefits:

a. What amount of expense was recognized in 2015?

b. What is the funded status of these benefits in 2015?

c. What amounts, if any, related to these benefits appears on the 2015 balance sheet?

13. (7) What are the amounts of research and development expense for 2015, 2014, and 2013? Comment on any apparent pattern.

14. (30) With regard to long-term solvency:

a. Compute debt ratio for 2015 and 2014.

b. Is the change from 2014 to 2015 favorable or unfavorable? Explain briefly.

c. What appears to be the chief reason for the change?

d. Compute debt/tangible net worth ratio for both years.

e. Comment briefly on what these ratios tell us about Parker’s long-term risk.

15. (6) Briefly describe the asset impairment occurring in 2014.

16. (14) With regard to dividends:

a. What was the amount of dividends paid in 2015 and 2014?

b. Compute the dividend payout ratio for both years, and comment.

17. (6) Does Parker use off-balance-sheet financing arrangements, such as the variable interest entities (VIEs) used by Disney to finance theme parks? How do you know?

18. (8) In the computation of operating cash flow, there is a negative adjustment for prepaid expenses of about $116 million. Explain the underlying reason for this adjustment. [Note: explain conceptually; do not try to derive the actual number].

19. (16) With regard to restructuring costs:

a. What term does Parker use for these costs, instead of “restructuring”?

b. What amount of such costs did Parker incur in 2015?

c. What did these costs primarily consist of?

d. Where do these costs appear on the income statement?

20. (6) How much preferred stock, if any, has Parker issued?

21. (11) With regard to trademarks:

a. What is the net amount of trademarks on the 2015 balance sheet?

b. How much did Parker spend in 2015 to acquire trademarks?

22. (10) Net income declined from 2014 to 2015, but earnings per share went up. What action did Parker take to create this anomalous result?

23. (26) With regard to stock-based compensation:

a. Identify and briefly describe each of the three types of plan used by Parker.

b. What amount of 2015 expense was recognized for each type? Is the aggregate amount of expense material?

c. What method is used to value stock options?

24. (8) Does Parker have potential liability for environmental clean-up costs? How much, if any, such liability appears on the 2015 balance sheet?

25. (14) With regard to inventories:

a. What proportion of inventories is valued under the LIFO method in 2015?

b. What would be the dollar amount of inventory on the 2015 balance sheet if FIFO were used for all inventories? Explain.

c. What amount, if any, of LIFO liquidation occurred in 2015?

26. (22) Compute return on assets for 2015, 2014, and 2013 (total assets amounted to $12,540,898,000 in 2013 and $11,170,282,000 in 2012). Comment on any apparent pattern.

 

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