2010-09-07 16:34:11 -

Fitch Ratings expects to assign a rating of 'A' to Parker Hannifin Corporation's (NYSE:PH) planned $300 million of senior unsecured notes.

The Rating Outlook is Stable. Proceeds from the notes offering will be used to reduce borrowings and for general corporate purposes. A full rating list is shown below.

The key rating drivers are PH's liquidity position, healthy free cash flows, and broad portfolio that serves a highly diversified customer base. PH's conservative financial management and increased end market demand have contributed to improved credit metrics. As of June 30, 2010, PH's debt to latest 12 months (LTM) operating EBITDA ratio was 1.4 times (x) compared to a recent high of 2.3x as of Sept. 30, 2009. In fiscal 2010, PH

focused on the repayment of debt, while limiting discretionary spending to principally planned share repurchases, during the recession and reduced debt balances by approximately $500 million. Fitch anticipates that leverage will further improve as debt balances remain stable and operating results continue to slowly rebound.

Excluding the impact from seasonality, Fitch expects PH's sales to increase slightly and order rates to remain stable in fiscal 2011 as margins continue to improve due to prior years restructuring actions.

The company experienced sequential improvement in order rates in all of its segments but Climate and Industrial Controls, which still reported orders up 35% compared to the prior year. PH's late cycle Aerospace segment 12-month rolling order trend remained negative as of June 30, 2010, but passenger revenue miles have stabilized and activity in both the commercial and military original equipment manufacturer (OEM) markets has been positive.

PH's cash flow from operations could decline in the current year, but still be more than enough to increase cash balances and support increased spending on growth initiatives. Cash flow from operations is likely to be impacted by increased working capital and capital expenditures. Capital expenditures are projected to increase near fiscal 2008 levels of $270 million after declining to approximately $129 million in fiscal 2009. The negative movement should offset the expected improvement in funds from operations.

Fitch expects PH to increase discretionary spending in fiscal 2011 after significantly reducing acquisitions and share repurchases in 2010. While actively looking at different acquisition opportunities, Fitch believes that PH will remain prudent as long as economic concerns remain. The expectation is that spending will again grow over time as PH depends on acquisitions to meet sales growth goals.

Fitch views PH's cash requirements after capital expenditures and dividends, which includes an estimated $250 million pension contribution, as manageable in the current fiscal year. A rating concern is further increases in required pension contributions. However, the company will most likely remain conservative in its contributions as asset returns and discount rates remain volatile and try not to have an overfunded plan in the long term. The company's liquidity at June 30, 2010 included $576 million of cash plus availability under a $1.5 billion bank revolver that matures in 2012, offset by $363 million of short-term debt and current maturities.

Fitch's ratings for PH are as follows.

--Long-term Issuer Default Rating (IDR) at 'A';

--Senior unsecured credit facilities at 'A';

--Senior unsecured notes at 'A';

--Short-term IDR at 'F1';

--Commercial paper at 'F1'.

The ratings affect approximately $1.8 billion of debt outstanding at June 30, 2010.

Additional information is available at ' www.fitchratings.com : '

Applicable criteria available at ' www.fitchratings.com : ' include.

--'Corporate Rating Methodology' (Aug. 16, 2010).

Related Research.

-- U.S. Industrials Stats Quarterly - First-Quarter 2010, July 8, 2010;

-- U.S. Diversified Manufacturing: 2010 Outlook, Jan. 4, 2010.

Related Research.

U.S. Diversified Manufacturing: 2010 Outlook

www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id= .. :

Corporate Rating Methodology

www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id= .. :

U.S. Industrials Stats Quarterly

www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id= .. :

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Fitch Ratings, New YorkSandro Scenga, +1-212-908-0278 sandro.scenga@fitchratings.com : mailto:sandro.scenga@fitchratings.com orPrimary
Analyst:Cheryl Peterson, +1-312-606-2309DirectorFitch,
Inc.70 West MadisonChicago, IL 60602orSecondary

Analyst:Eric Ause, +1-312-606-2302Senior Director