Parker 2013 Sustainability Report | Parker Hannifin

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Information about Parker 2013 Sustainability Report | Parker Hannifin

Published on April 21, 2014

Author: ParkerHannifin



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Parker has long recognized the connection between the health of our company and economic, environmental and social factors. Our sustainable efforts broadly focus on our employee welfare, responsible use of resources, and our social responsibility to the communities in which we serve.

We have a strong focus on employee welfare through employee health, safety and wellness programs as well as a commitment to a work environment that is inclusive, engaging and empowering.

We actively engage in the reduction of resource use and have a significant environmental impact through developing and providing technology that reduces resource use in application.

We support and invest in the communities in which we operate as we realize their success is critical to our success and we realize that this is a journey and are committed to continue to improve in these areas and provide transparency in our efforts. The information in this report
addresses how Parker is making a positive impact on the world by
applying its core technologies and creating exciting growth potential.
All data corresponds to Parker’s fiscal year 2013 (July 1, 2012 through June 30, 2013) unless otherwise noted.

The previous report corresponded with Parker’s fiscal year 2012. Parker’s intention is to report on an annual basis. Report Scope The data provided in this document reflects Parker’s global
manufacturing operations in which Parker has a 50% controlling interest or majority ownership. It also includes employees in those
operations and the associated headquarters and distribution centers under Parker ownership. The scope does not include Parker suppliers, customers, distributors, contractors or joint ventures in which a minority ownership is held.
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Sustainability Report


5 Table of Contents Message from the Chairman, CEO and President.....................................2 Sustainability.............................................3 Governance, Ethics and Compliance..........4 Parker People............................................6 The Planet............................................... 11 Product Stewardship............................... 14 About Parker With approximately 58,000 people in 49 countries around the world, Parker can be found on and around everything that moves. Parker is the global leader in motion and control technologies, providing precision- engineered solutions for a wide variety of mobile, industrial and aerospace markets. For fiscal year 2013, Parker had sales of $13 billion. Parker is a company with a deep rooted belief that premier customer service and engineering spirit will sustain its success going forward. Further, Parker realizes that a sustainable company has an ongoing need, and obligation, to manage natural resources efficiently, attract and retain talented employees, engineer products that will help the world thrive and support the communities in which it operates. Parker is Committed to Partnering with World-Class Suppliers With an annual spend exceeding $6 billion, Parker partners with suppliers who share the beliefs of premier customer service, maintaining the highest quality standards, on-time delivery and a culture of continuous improvement. Parker views suppliers as partners who will help the company remain competitive in the marketplace and achieve growth objectives. Key criteria for Parker suppliers include their ability to meet foundational business requirements in technology, quality, lead time, delivery quantity, price and continuous improvement.

About this Report The information in this report addresses how Parker is making a positive impact on the world by applying its core technologies and creating exciting growth potential. All data corresponds to Parker’s fiscal year 2013 (July 1, 2012 through June 30, 2013) unless otherwise noted. The previous report corresponded with Parker’s fiscal year 2012. Parker’s intention is to report on an annual basis. Report Scope The data provided in this document reflects Parker’s global manufacturing operations in which Parker has a 50% controlling interest or majority ownership. It also includes employees in those operations and the associated headquarters and distribution centers under Parker ownership. The scope does not include Parker suppliers, customers, distributors, contractors or joint ventures in which a minority ownership is held. Contact Us Parker welcomes your comments and questions about this document and its sustainability efforts by e-mail:

1 Operating Data 2013 Net sales................................................................................................................................................... $ 13,015,704 Gross profit............................................................................................................................................... 2,929,029 Net income attributable to common shareholders..................................................................................... 948,427 Net cash provided by operating activities.................................................................................................. 1,190,935 Per Share Data Diluted earnings........................................................................................................................................ $ 6.26 Dividends.................................................................................................................................................. 1.70 Book value................................................................................................................................................ 38.44 Parker's Win StrategyParker's Win Strategy Goals Vision S T R A T E G I E S ◆ Quality Products on Time ◆ Value Added Services ◆ Best Systems - ◆ Suppliers: Strategic Procurement ◆ Operations: Lean ◆ Customers: Strategic Pricing ◆ European Initiatives Internal Acquisitions ◆ Innovative Products ◆ Systems Solutions ◆ Strong Distribution Globalization #1 Premier Customer Service Financial Performance Profitable Growth Empowered Employees The #1 Motion & Control Company PHconnect The Win Strategy Focused on long established Parker goals of premier customer service, financial performance and profitable growth, the Win Strategy is a disciplined and consistent business strategy that has transformed the company and improved operations worldwide since it was initiated in 2001. Designed as an instrument of operational change, the Win Strategy is a powerful document adopted by all Parker locations worldwide. Empowered employees represent the foundation of Parker’s strategy, as they have remained steadfast in their dedication to the strategy’s implementation. Empowered employees work to execute the Win Strategy by taking responsibility, accepting accountability for results and supporting a culture of respect for the contribution of every person. Financial Highlights For the year ended June 30, (dollars in thousands, except per share data)

2 Message from the Chairman, CEO and President In the spirit of Parker’s long-standing commitment to environmental stewardship and social responsibility, this year we strengthened our sustainability program by focusing on the primary points through which we interact with the world around us: People, Products and Planet. We empower our employees by providing the resources to excel in the workplace and to take control of their health and wellness, while supporting the communities in which we live and operate. This enables Parker to attract remarkable people who will drive our future growth and maintain our financial strength. Parker’s ability to engineer highly efficient products and systems is reflected throughout all stages of the product lifecycle, reducing the environmental impact of our manufacturing processes and contributing to the sustainability and profitability of our customers’ businesses. Our ongoing efforts to reduce resource consumption and waste generation and optimize the management of hazardous materials throughout our supply chain improves our competitiveness while protecting the environment. This report provides a comprehensive overview of Parker’s efforts throughout our global operations in fiscal year 2013. It reflects on the targets reached throughout the year, which have positioned us to achieve the long-term goals established by the Win Strategy for employee empowerment, operational efficiency and product innovation. Examples of individual campaigns throughout the report illustrate the engagement of Parker employees in improving their health and wellness, supporting the local communities in which they live and work, and minimizing their environmental impact to create a sustainable future. Following the principles of our sustainability program, key accomplishments in the past year include: • A 6% reduction in energy use, on an absolute basis, in our global operations. • An 18% reduction in recordable accident rate and a 26% decrease in accidents with lost time rate. • Establishing 19 model locations on four continents to assist our global facilities to expand employee options under our global wellness program. • Donating millions of dollars to support charitable organizations through the Parker Hannifin Foundation, while employees continued their benevolent tradition of organizing volunteer and giving programs. Parker’s 58,000 employees operate in 49 countries each day, and our innovative products and systems facilitate motion and control in countless markets and applications. The breadth and scope of Parker’s operations obligates us to ensure our business is conducted in alignment with the best interests of our employees, the environment and the communities we call home. We are inspired by our commitment to meet this responsibility and to make a positive impact on the world around us. Don Washkewicz Chairman, Chief Executive Officer and President March 2014 Don Washkewicz, Chairman, Chief Executive Officer and President

3 Parker manufactures products for motion and control applications. To be successful, the company needs: • A secure supply of raw materials. • The ability to attract talented people to design, manufacture and sell products. • Viable communities in which to operate. A shortage or loss of any of these elements would jeopardize the company’s ability to sustain a successful and prosperous organization. Each of these material aspects have clear, sustainable parameters which is why sustainability is a key element of Parker’s business model. These aspects are pertinent to Parker as a global manufacturer of diversified industrial components and systems in several ways, including: energy consumption and emissions for environmental performance, occupational health and safety, child labor and nondiscrimination for human rights performance, community for social performance, and economic results for economic performance. The boundary condition used for all of Parker’s key aspects and performance metrics is from the point of supplier delivery to the point of distribution of a finished product. At this point, the company only takes measured steps into the area of raw material sourcing and finished product application in the sustainable aspects such as energy, emissions, safety, human rights and social performance. This position on material aspects and boundries is not a significant change from the previous report. Key Opportunities and Risks There are a number of key opportunities and risks associated with sustainability: • Parker uses a wide array of metals and organic materials to produce its products. Scarcity of these materials impacts the current composition and design of Parker’s products. • Parker’s products rely on energy to function. A change in energy source can impact product design. • Parker’s technological expertise helps customers respond to their unique business challenges. By focusing on new products and the sustainability of materials and resources, Parker minimizes waste while providing high quality, cost-effective solutions for customers. The ability to differentiate products and rapidly adapt to changing needs is a key advantage. • A passion for innovation enables Parker to solve some of the world’s greatest engineering challenges. • Parker employees are continuously originating new ideas to make their workplaces and communities more sustainable. These ideas are extremely valuable and help create a culture where employees are empowered to look for better, more efficient ways of doing things. Stakeholder Engagement Parker engages a number of stakeholders in the development of its sustainability goals and objectives. Contributing stakeholders include: • Customers through direct feedback from Parker’s marketing and sales teams. • Employees through a biannual global survey. • Suppliers through feedback on their compliance with the sustainability requirements in Parker’s supply chain portal. • The Parker management team through interviews and polls. Additionally, Parker analyzes information from sustainability ratings and shareholder feedback, and benchmarks with its diversified industrial peer group. The current engagement process is informal. The stakeholders that have been identified as most important to Parker are customers, employees, suppliers, the shareholder/investment community and the management team. These stakeholders were identified by evaluating the requirements of the stakeholder against the importance and influence in which they impact the company. Two key areas of focus that have been identified to further Parker’s stakeholder engagement efforts are: • Additional emphasis on product stewardship. • More visibility and opportunity to engage in local communities. Sustainability 3

4 Parker is committed to operating in accordance with the law and the highest standards of ethical conduct. Whether solving the world’s greatest engineering challenges, delivering on world class customer service or supporting local communities, Parker strives to do what is right for the company and its stakeholders. The company has a long history of excellence in corporate governance, ethics and compliance. Corporate Governance Parker’s commitment to responsible corporate citizenship and the sustainable, long-term growth of the company begins with its Board of Directors. Parker is governed by a 12 member Board of Directors. Eleven of the 12 directors are “independent” based on the applicable independence standards of the New York Stock Exchange and Parker’s Independence Standards for Directors. Parker’s Chairman, CEO and President, Don Washkewicz, is the only Parker employee on the Board. Each director must stand for election annually. The Board has responsibility to represent stakeholders in overseeing the business strategy and governance matters of the company. To learn more about Parker’s Board, visit corporategovernance. Integrity and Ethics Parker has earned a reputation as a company that can be trusted by customers, investors and employees. A reputation built on trust increases predictability and economic value in an uncertain world. Parker’s reputation as a trusted company is an important competitive advantage that cannot be taken for granted. In April 2012, Parker’s Board approved a new approach for success through ethical behavior built around character – “Winning with Integrity.” “Winning with Integrity” provides a common language of character defined by virtues that transcend cultural boundries to help safeguard the company’s reputation. The objectives are to raise employee awareness of the virtues, draw attention to how these virtues help Parker win in the marketplace and commit to future actions that empower employees and solidify employee engagement. A focus on virtues is one way in which employees can align their own personal values with Parker’s to increase trust and pride. Virtues have been linked to positive outcomes such as increased productivity, customer satisfaction and profitability, in addition to reduced turnover, absenteeism and code of conduct violations. In developing Parker’s approach, a broad range of business leaders, academics and the U.S. military were consulted to better understand how these organizations rely on virtues to drive performance. Based on best practices, Parker’s approach is designed to cultivate purpose, passion, persistence and relationships. Although it is recognized by a new name, “Winning with Integrity” is about enhancing what Parker employees already do. As a result, Parker employees have been open to finding personal, as well as professional, meaning in the application of a character-based approach to business. Global Code of Business Conduct and Policies Parker’s Global Code of Business Conduct is the foundation of the Integrity and Ethics, and Compliance programs. The Code outlines the company’s basic standards and expectations, highlights important policies and summarizes certain fundamental legal requirements that employees must follow at work. It also provides guidance about resources to which employees can turn to if there are questions or concerns about a potential legal or ethical problem. The Code is available in multiple languages, and every Parker employee receives a personal copy. Parker’s Global Code of Business Conduct is available online at Enterprise Compliance Parker has an established compliance infrastructure. Parker’s Enterprise Compliance Network consists of the Board of Directors, Senior Parker Leadership, the Office of Audit, Compliance and Enterprise Risk Management, the Legal Department, and local Compliance Officers and Administrators. Collectively, this team encourages, stimulates and creates the foundation for a values based culture throughout Parker. The Vice President – Audit, Compliance and Enterprise Risk Management has a solid-line reporting relationship to the Chief Financial Officer and a dotted-line reporting relationship to the Audit Committee of the Board of Directors. The compliance program is continually assessed and adjusted to reflect developments in the company’s operations. Governance, Ethics and Compliance

5 Global policy statements on specific compliance measures are issued by the Parker Management Committee and updated as necessary. Additional policies, procedures and guidelines are issued by the respective functional areas. Parker’s Integrity Line Parker’s Integrity Line is a service through which complaints and concerns can be reported to the company on a confidential and anonymous basis. Access to the Integrity Line is available through a secure website and toll-free by telephone from all countries in which Parker does business. The availability of the Integrity Line and instructions for its use are widely publicized to employees around the world. Parker complies with the special requirements of the European Union. All reports to the Integrity Line are investigated by qualified personnel who have been trained to conduct investigations lawfully, fairly and confidentially. Education and Training Parker provides comprehensive training for every employee on core issues relating to ethics and compliance. The company also provides risk-based training that is tailored to individuals’ roles and the issues associated with their specific job responsibilities. Internal Controls Each year, Internal Audit executes audits across all Parker regions. Audit topics include a review of general control activities in sales, procurement, inventory, information systems, fixed assets and human resources. Additional reviews are also conducted in areas such as treasury, anti-bribery, anti-corruption, anti-trust and financial reporting. Parker management has embraced the Sarbanes-Oxley requirements, which includes quarterly self- assessments and reporting of key financial risks and controls by management, and is augmented by ‘peer’ testing of controls at Parker’s reporting locations (divisions, sales companies and shared service centers), corporate departments and information technology centers. Ongoing Commitment Parker modifies its compliance program, including policies, procedures and related training, in response to new legislative and regulatory requirements, enforcement trends, political and public policy concerns and trends in the broader business and financial environments. For example, Parker has established a labor relations program which is managed by the Vice President – Global Labor and Employee Relations. Parker’s Board of Directors Among Highest Rated for Board Governance Capacity of America’s Largest Companies Parker was ranked in the top ten for overall governance capacity for the third consecutive year in an independent study of America’s largest companies conducted by James Drury Partners. Parker’s Board was awarded top ten rankings in the 2013 edition for Average Director Weight, which evaluates business competence of each director, and in the Composite Weight category that assesses a Board of Directors’ overall governance capacity. Parker was the highest rated company for both of these categories in its industry sector. The 2013 report increased its scope to include evaluations of 6,248 directors sitting on the boards of 647 of America’s largest companies, now including the top 500 companies in market capitalization. “The Weight of America’s Boards” is published annually and measures the business acumen and experience of board members across all industries of the largest public companies in the United States as measured by revenue and market capitalization. The developing trend in the analysis is a clear connection between a board’s governance capacity and overall investor return or stock performance.

6 Parker People 6 * Safety data restated from the 2012 Sustainability Report for acquired and divested business units. 2.50 2.00 1.50 1.00 0.50 0.00 Recordable Accidents Recordable Accident Rate Accidents with Lost Time Rate 2010 2011 2012 2013 Calendar Year Parker employees are the backbone of the organization. At any Parker facility, you will find employees with 10, 20 and 30 years of service, which speaks to Parker’s positive employment climate. However, the company is continually challenged, as a global organization, to maintain a safe, stimulating and empowering work environment. Workplace Safety Parker values the safety of its employees and works to provide safe and secure workplaces. During fiscal year 2013, Parker launched a program which established organization-wide expectations for safety management and performance. These expectations supplement local, regional and national safety laws and regulations. The program is designed to provide Parker operations a consistent means of identifying and controlling safety and environmental risks. Aspects of the program include electrical safety, equipment and machine safety, ergonomics and emergency preparedness. All manufacturing facilities evaluate conformance to the program on a quarterly basis and use the program for continuously improving employee safety. In 2013, Parker also completed the launch of a safety leadership engagement program and formed safety leadership teams in each of the company’s seven business groups. These leadership teams meet periodically to monitor safety performance and to establish standards and best practices within the business groups. Parker’s worldwide safety performance is measured by the number of work-related accidents which require medical attention beyond first aid, normalized to 100 employees per year. Since 2010, Parker has achieved a 29% reduction in its recordable accident rate and a 23% reduction in accidents with lost time rate. During fiscal year 2013, Parker achieved an 18% reduction in its recordable accident rate and a 26% reduction in accidents with lost time rate. Parker deeply regrets the deaths of two employees in workplace accidents which occured during fiscal year 2013. Parker has taken actions to prevent such tragic incidents in the future. Labor Relations Parker has established a labor relations program, which is managed by the Vice President – Global Labor and Employee Relations. Parker has established global policies for human rights and labor standards, and is in the process of deploying them throughout the organization and providing appropriate education. The policies largely align with International Labour Organization (ILO) standards, and are in accordance with local laws and consistent with Parker’s Global Code of Business Conduct. Employee Empowerment and Engagement Parker’s success is based on a simple and powerful equation: empowered employees operating in an environment that is serving customers by generating ideas and solutions. Empowered employees represent the foundation of the Win Strategy, which creates a unique competitive advantage for Parker. The Employee Empowerment Council, formed in 2008, is made up of senior leaders across the company and coordinates a range of initiatives aimed at improving the business by increasing the level of empowerment among leaders and employees. As a global organization operating in a rapidly evolving business

7 CASE STUDY Gym Inspires Healthy Lifestyle Dewsbury, England Since first opening its doors in 2013, the gym at Racor Division Europe in Dewsbury, England has contributed significantly to improving the health and fitness of employees. The idea to build a gym, however, was gener- ated in response to a simple goal: to encourage healthy lifestyle choices by presenting an expanded set of options for wellness and care. After the prospect of constructing an on-site gym was raised at a Wellness Team meeting, the response was overwhelmingly positive and the gym was designed and built based largely on employee input. The existing wash rooms at the facility were redesigned with new showers, changing areas and lockers, and an industrial ventilation system was installed to accommodate the gym itself. The gym is equipped with a range of equipment to serve users of all fitness levels, including treadmills, cross training machines, stationary bicycles and a set of dumbbell weights. When the gym opened, a qualified trainer was provided to instruct employees on the proper use of the equipment and to share advice on ideal fitness and nutritional routines. Employees report the convenience of being able to use the facility in the morning or after work has enabled them to increase their activity level, and the initiative has helped to draw in those who have otherwise avoided visiting a gym due to barriers such as cost or sensitivity to public exercise. The staff at Racor Division plans to expand the availability of healthy food options at the facility, and the gym will continue to support Parker’s belief that even small lifestyle changes can create a significant impact on the health and wellness of employees. CASE STUDY High Performance Team Salt Lake City, UT, U.S.A. A High Performance Team (HPT) at Parker’s Engineered Polymer Systems Division has drastically improved productivity within the S-Line of the 4300 Cell at their plant in Salt Lake City, Utah. The goal was to remodel the area’s workflow process by implementing the 5S organizational methodology, a technique built upon the five basic steps of Sorting, Straightening, Shining, Standardizing and Sustaining. When the HPT performed its initial audit, the area’s production process was assessed a total average score of 0.63 out of 5 on the 5S scale. When the cell reached its target score of 2.5 within the first month, the team was confident the procedures for standardizing the new work practices would enable employees to maintain their new level of performance. What the team did not expect, however, was that the area’s 5S score would continue to rise, ultimately peaking at an exceptional 2.75 just two months after the new operational standards had been fully implemented. As a result of the HTP’s efforts, work in progress (WIP) has dropped from 5 to 3.5 days in queue, on-time delivery has increased from 71% to 95% and dollars per direct labor hour has been increasing steadily, all of which can be attributed to the organized structure of each work area. Employee engagement has also risen drastically as the new processes have become standard. All employees in the area are participating and have been eagerly involved in tracking the improved metrics, which have come as a direct result of their own planning and participation. environment, it is important for Parker to be able to adapt quickly to changes in the market and respond efficiently to changing customer needs. To address these complex challenges, Parker has implemented High Performance Teams (HPT) throughout its global operations. This structured approach to team work and collaborative decision making leverages the power of both leaders and employees, driving improvement in all aspects of the business. Global Wellness Program Parker recognizes that the health of the company is critically connected to the health of its employees and has globalized its wellness program which was launched in 2003. The program focuses on wellness, prevention and education. Current efforts include establishing wellness model sites, providing tools for launching local wellness programs, providing more comprehensive educational opportunities for Parker employees and expanding employee treatment options to include integrative medicine. Wellness model sites have been established at 19 Parker locations: 13 in North America, four in Asia, and one each in Europe and Latin America. These locations have at least 100 employees, represent all of Parker’s business groups and serve as a best practice model for other locations. Each model site has a Parker business leader who is a champion of wellness, a HPT focused on wellness and access to a local integrative medicine service provider for assistance. Parker’s HPT program is used as a tool for launching wellness programs at Parker facilities focused on the areas of nutrition, exercise, prevention and stress management, to positively impact employee health.

8 These teams are developing tailored programs that address specific areas of health risk identified among employees at their facility. As these programs prove successful, Parker will be able to create standard implementation plans and identify service providers for use across the organization. Aligned with Parker’s support of expanding employee options in treatment and preventive medicine, Parker has established a network of integrative medicine practitioners whose services are covered under the company’s Wellness and Preventive Medicine Plan, including a network of practitioners who administer specialized cancer treatments. Going forward, Parker’s Corporate Wellness Team will develop a guidance and assessment tool for implementing wellness programs and continue to develop educational materials around some of the key program initiatives such as diet, nutrition, stress management and exercise. Diversity and Inclusion Diversity at Parker means embracing the differences that exist in all stakeholders, including employees, customers, suppliers and communities worldwide. It means more than just gender, race, ethnicity or nationality differences. It also includes characteristics such as culture, religion, experience, educational background, functional expertise, age, thinking style, sexual orientation and disability. Parker is committed to building a diverse, inclusive workforce that not only respects the unique perspectives and contributions of each individual, but truly values their differences as an asset to the organization. Parker’s ability to leverage diversity and build an inclusive culture is key to remaining a premier global organization. Parker sees diversity and inclusion as more than just policies or practices. They are important elements of the company’s identity and strategy. Seeking to develop and sustain a diverse and inclusive workforce is a commitment undertaken in order to best serve all of Parker’s customers by attracting, developing and retaining the best and brightest talent worldwide. Parker’s diversity and inclusion strategy is led by the Employee Empowerment Council. The strategy to support a culture of inclusion and diversity is built on three pillars: Leadership and Ownership, Awareness and Cross-cultural Competence, and Structure and Inclusive Processes. Parker is expanding awareness of this topic through communication to the entire employee population and implementing training globally. Additionally, the company’s globally administered Employee Empowerment Survey consists of questions that allow Parker to continue to gauge its progress in this area, and to develop continuous improvement strategies as the company learns from employees through focus groups and surveys. Social Responsibility Parker employees around the world give back to the communities in which they work and to organizations that make the world a better place. In fiscal year 2013, Parker and its employees gave millions of dollars to hundreds of organizations, and more than 20% of employees donated time and effort to their local communities. Many of Parker’s manufacturing facilities are located in rural areas and there is often a close link between the facility and the community. Parker values this relationship as it is vital to the company’s success as well as the community’s. In the U.S., Parker employees provide tremendous support to the United Way with $900,000 pledged in calendar year 2012. Parker also has established close ties with more than 100 colleges globally through scholarships, labs and endowments. Further, in fiscal year 2013, the Parker Hannifin Foundation donated millions of dollars to charitable efforts around the U.S.

9 CASE STUDY Weight Loss Program Dublin, GA, U.S.A. Parker’s Control Systems Division in Dublin, Georgia has launched a weight loss program to provide the resources, motivation and support needed to help employees lose weight and maintain a healthy lifestyle. The program is structured around a simple points system, and participants are provided training to learn about the values assigned to various foods and beverages, in addition to the points earned for exercise and physical activity. Each individual is assigned a final point target based on a comprehensive health assessment before starting the program, with specific milestones designed to help employees stay on track as they work toward their weight loss goal. Throughout the 13-week program, which has been offered by the division three times during the past year, progress is measured through a series of weekly weigh-ins. This structure rewards employees by regularly demonstrating the results of their hard work and provides motivation to continue to improve their health. This year participants lost a combined 400 lbs (181 kg) by maintaining their commitment to the program, greatly improving their physical well-being and reducing the risk of health complications. Employees have expressed their appreciation for the accountability and support provided by their peers, and are grateful for the lasting impact the weight loss program has made on their lives. CASE STUDY Volunteerism Program Hollis, NH, U.S.A. While Parker has a spirited history of donating time, money, food, clothing and other resources to support local charities, the Precision Fluidics Division in Hollis, New Hampshire; Mooresville, North Carolina; and Pinebrook, New Jersey are leading the way in ensuring the opportunity to volunteer is accessible to all employees. Through their Volunteerism Program, the division enables employees to become involved with a non-profit organization by compensating them for up to eight hours of volunteer time each year. The list of eligible organizations is tailored to address pressing needs in the community, but suggestions are encouraged to help identify, and include, organizations relevant to employees’ specific interests. Participants may choose from programs supporting a diverse set of humanitarian initiatives, including education, food banks, veteran support, homeless shelters and youth art programs. As participation continues to increase, the division may expand the number of hours available for employees to volunteer, and will explore other opportunities to increase the impact of their actions in the community. Precision Fluidics Division employees are proud of the difference their hard work has made through the Volunteerism Program, and grateful to be able to contribute directly to the well-being of their local community. CASE STUDY Girls Youth Basketball Club Sadská, Czech Republic For over a decade, Parker has sponsored the girls youth basketball club at the Sadská Primary School in Sadská, Czech Republic, helping to teach the children the importance of teamwork and perseverance at an early age. The club has grown from humble beginnings since it was founded in 2001, when the only place the team could practice was the court at a local gym. When that facility closed the club found another to use, refusing to let any setbacks halt the progress they had made. After several years a gym was constructed at the school, providing the club with not only a home court on which to practice and compete, but a new sense of purpose and determination. The club has continued to expand each year and there are currently over 100 girls who participate, ranging in age from six to 16, as many join in elementary school and continue to play through their teenage years. Through their hard work and determination, the club has reached a number of significant milestones in recent years. Individual teams within the club were honored by a third party organization with a Best Regional Sports Team award in 2009 and 2011. The club won several international tournaments, in addition to a silver medal at the Czech Youth Basketball Championship in 2011, and is now recognized as an official sports center alongside the leading professional programs in major cities throughout the country. Parker is proud to support the Sadská Primary School girls youth basketball club, and is grateful for the impact the team has made on the children and the community.

CASE STUDY All Charities Campaign Winnipeg, Canada The official motto of the city of Winnipeg, Canada is a Latin phrase that translates to “One with the strength of many.” The expression evokes a sense of commonality and togetherness, and is clearly reflected in the actions of employees at Parker’s Electronic Controls Division. For each of the last 14 years, the division has held weeklong campaigns to raise money for local charities. The fundraising events include luncheons, prize raffles and other contests. Parker matches employee donations, dollar for dollar, and this year employees demonstrated their tremendous generosity by contributing $50,000. With the company’s match, a total of $100,000 was distributed among local charitable organizations. Employees are encouraged to direct their donation to any registered charity they wish to support, so each year the campaign helps to provide members of the community with a range of vital services. The staff at each receiving organization has continually expressed sincere gratitude, as their work would not be possible without the support of local individuals and businesses. Electronic Controls Division employees are grateful for the opportunity to give back to the local community, and proud to work for a company that shares their commitment to charitable giving. Arts 10% Health 15% Civic/Community 25% Education 50% The Parker Hannifin Foundation Focus Areas 10

11 The Planet Environmental Stewardship At Parker, environmental stewardship focuses on conserving and recycling resources within the company’s footprint. Parker initiated efforts in this area in the 1990s when the U.S. Government defined hazardous waste reduction and the elimination of target chemicals under the U.S. Environmental Protection Agency’s (EPA) “33/50” program. Through these efforts, Parker reduced the use of chlorinated solvents by greater than 90% and eliminated over 80% of its U.S. EPA-listed hazardous waste. In calendar year 2004, Parker expanded its focus to include electricity and natural gas use and, to date, has reduced this footprint by more than 52% as indexed to sales. Another aspect of environmental stewardship is the appropriate remediation of properties from past pollution or chemical management practices. Today, many of the sites the company is remediating were acquired, and the pollution occurred prior to Parker’s ownership. However, Parker strives to clean these sites up to applicable local standards. In the future, Parker will look for additional opportunities to reduce the use of resources such as packaging materials, and to decrease raw material waste and non-hazardous waste. Further, Parker believes there is additional opportunity related to substances of concern. Environmental Management Resource conservation is practiced daily at all Parker manufacturing facilities, with the objectives of sound waste management and source reduction practices and recycling. In meeting that commitment, Parker has a public policy for environmental management which includes provisions to minimize resource use as well as impact on the environment to the extent reasonable. This translates into internal procedures for sound waste management, waste minimization efforts and environmental management systems. • Over 50% of Parker’s global operations are ISO 14001 certified. • Parker recycles over 80% of the waste generated from its manufacturing operations. • Parker aims to minimize water use in its operations. • Parker has been able to largely eliminate highly hazardous substances, such as chlorinated solvents, cadmium and hexavalent chromium, from its products and processes. Future efforts will be to further evaluate water, packaging and electronic waste and to identify other opportunities in waste minimization and recycling. Energy Management Parker encourages its employees to suggest ideas for improving processes, such as optimizing energy efficiency and reducing carbon emissions. Employees are empowered to make decisions and drive change within the company’s energy management program. The program involves business unit targets and action plans and is managed and supported by a corporate energy leader. Each Parker division keeps an up-to-date energy action plan which is used to meet Parker’s yearly energy reduction targets. Each division also has an energy leader who guides engagement across their division. Since the program’s inception, Parker has provided training to help these leaders identify energy resource reduction opportunities. Since calendar year 2004, Parker’s energy use, as measured by its energy index (MWh/USD Sales), has decreased by 52% while sales have increased from $7.4 billion to $13.1 billion over this same period. Indexed to sales, Parker’s energy use has decreased by 10% in calendar year 2012 compared to calendar year 2011. On an absolute basis, Parker decreased its energy use by 93,000 MWh, or 6%, compared to the prior calendar year. Since calendar year 2004, Parker has reduced the total amount of greenhouse gas (GHG) emissions generated by its operations by 4% from 697,171 metric tons to 670,814 metric tons, while revenue has increased over 80% during the same time frame. Indexed to sales, Parker lowered its GHG emissions by 43% over the same period and by 7% from calendar year 2011. Parker also participates in the U.K. Carbon Reduction Commitment (CRC), which taxes its operations directly on the use of energy using emission factors to calculate GHG emissions. Parker is not regulated directly on any other carbon or climate regulation or standard. Parker recieved a ranking of 139 out of 2,097 participants in the 2011/2012 CRC league table in the U.K. Environmental Liabilities Parker is currently responsible for environmental remediation at various manufacturing facilities, presently or formerly, operated by the company and has been named as a “potentially responsible party,” along with other companies, at off-site waste disposal facilities and regional sites. As of June 30, 2013, Parker had a reserve of $12.5 million for environmental matters, which are probable and reasonably estimable.

12 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 Parker’s liability in proportion to other responsible parties. 700 600 500 400 300 200 100 0 Scope I and II Greenhouse Gas Emissions Measured in Thousand Metric Tons 2004 Baseline 2009 2010 2011 2012 100 80 60 40 20 0 Carbon Disclosure Project Scores 2009 2010 2011 2012 2013 250 200 150 100 50 0 MWh/USD Sales Parker’s Energy Index = Total Energy Used (MWh Equivalent)/ Total Net Sales (Millions of Dollars) 2004 Baseline 2009 2010 2011 2012 Calendar Year Calendar Year Calendar Year

13 CASE STUDY Cardboard Reduction Lincolnshire, IL, U.S.A. While Parker has made significant progress in efforts to improve the sustainability of its manufacturing operations and reduce resource consumption at facilities around the globe, packaging represents a new and exciting opportunity to minimize environmental impact. This potential was recognized by employees at Parker’s Hydraulic Cartridge Systems Division in Lincolnshire, Illinois, who set out to eliminate the use of cardboard throughout their tube assembly department. The division was using hundreds of boxes each month to send tubes for plating or brazing. The packages were often soaked with oil by the time the tubes were shipped back and reached the production lines for final assembly, with occasional leaks creating potential safety hazards. With the aid of valuable employee input, a solution was devised to transition from the cardboard boxes to reusable plastic containers, which were custom designed to fit the standard quantities and sizes of the tubes. In addition to the benefits of improved safety and increased operational efficiency, each year the reusable plastic containers save the division approximately $40,000 and eliminate more than 2,000 cardboard boxes from the waste stream. The solution has created a positive impact on the environment and sets an example for manufacturing facilities around the world, reinforcing Parker’s focus on natural resource conservation. CASE STUDY Battery Recycling Cleveland, OH, U.S.A. In the global campaign to recycle precious resources and minimize the amount of waste sent to landfills, it is often the smallest changes in behavior that offer the largest potential impact. Such was the philosophy behind an employee- driven battery recycling program recently initiated at Parker’s global headquarters, in Cleveland, Ohio. It’s a simple, typically thoughtless act, pulling the spent batteries out of an electronic device and tossing them into the trash. Most people do not stop to consider where these batteries will end up, and the effect of their harmful chemicals on the environment. Rather than discarding them, Parker urges employees to deposit their batteries into collection bins located in each department and common area throughout the corporate office. Every three months the contents are picked up by a local company that specializes in handling electronic waste. All scrap is sorted and dismantled at a state-of-the-art facility, and reusable materials are distributed for manufacture into a wide variety of new products. Parker employees collected roughly 300 lbs (136 kg) of batteries for the first pickup and more than 700 lbs (317 kg) for the second, preventing over 1,000 lbs (453 kg) of hazardous materials from reaching the landfill in just a few months. Future plans will aim to widen the scope of the program to include other forms of electronic waste and introduce collection campaigns at Parker facilities around the world. CASE STUDY Energy Conservation & Recycling Cachoeirinha, Brazil Many Brazilians take pride in the natural beauty of their country and the substantial measures utilized to preserve it. Employees at Parker’s facility in Cachoeirinha are no exception. The team has recently initiated a new strategy to reduce energy use, minimize waste generation and increase recycling at their facility. Employees have taken action by establishing procedures to turn off all lights at the end of each shift, installing capacitors for various equipment and machines to reduce their energy consumption, and replacing aging light fixtures with highly efficient LED lamps. These practices have drastically reduced electricity consumption at the facility, and resulted in savings of approximately $16,000 per month. Employees also have created a comprehensive system for waste disposal, with signs and separate containers placed throughout the building to promote recycling and eliminate excessive waste. The actions of Parker’s employees in Cachoeirinha not only increased the efficiency of their operations, but have also demonstrated their commitment to environmental sustainability.

14 Beyond improving functionality to more effectively meet the needs of the customer, a central aspect of product innovation at Parker is adhering to sustainable engineering practices which aim to minimize environmental impact throughout all stages of the product lifecycle. Parker realizes that its goals of creating customer value and optimizing environmental sustainability are not mutually exclusive, and has strived to maintain its position at the forefront of ecological product design for decades. Instances of sustainable leadership are scattered throughout the company’s history, as Parker was one of the first companies to eliminate the use of hexavalent chromium and cadmium, and has largely removed chlorinated solvents from its manufacturing processes. Product Stewardship CASE STUDY Global Vehicle Motor Regardless of size, type or application, all disciplines of vehicle design follow a simple principle: reducing energy demanded from the engine will decrease fuel consumption and emissions. With this fundamental concept in mind, Parker has leveraged decades of motor engineering and manufacturing expertise to launch a new line of high performance motors for use in hybrid and electric vehicles. The primary function of the Global Vehicle Motor (GVM) is to use electrical energy, typically stored in battery packs, to perform functions that would otherwise be mechanically driven by the engine. In this configuration, power from the motor can be used to operate such functions as braking, power steering and air conditioning. In a hybrid vehicle, the additional power from the GVM enables manufacturers to downsize the conventional engine, significantly reducing fuel consumption and emissions. With the ability to provide full torque immediately upon engagement and operate with high efficiency at all rotational speeds, the motor can even be used to provide additional power and acceleration in performance hybrid vehicles. The GVM can also replace a standard gasoline or diesel engine altogether, converting energy to motion in all-electric vehicles ranging from motorcycles and small cars to heavy-duty trucks and buses. By providing a scalable solution to reduce fuel consumption and emissions across a limitless range of applications, the Global Vehicle Motor is leading the charge into the future of sustainable transportation. As Parker continues to build upon this legacy, the company will continue to introduce new products and systems which will expand the bounds of performance and sustainability. The work of Parker’s engineers is never complete, as they relentlessly explore and uncover new ways to improve efficiency, decrease weight, save space and reduce energy consumption, all in the name of improving performance for customers and preserving the environment for future generations.

15 101 Smart Products View additional examples of Parker innovations that are creating a more sustainable future and making our world a better place to live. “Sustainable Business: 101 smart products from the global leader in motion and control technologies.” is available by scanning this tag or visiting: CASE STUDY Frequency Controlled Hydraulics By applying variable speed drive technology via integrated frequency inverters, Parker is partnering with its customers to improve efficiency and reduce the energy consumption of hydraulic systems across a range of industrial processes. An unregulated electric motor, such as one supplying power to a hydraulic pump, operates at a fixed level to produce a consistent power output, despite the fact that demand is cyclical and any excess energy generated is simply wasted. By seamlessly adapting a pump’s speed to changes in energy demand and reducing output during periods of low demand, Parker frequency inverters significantly diminish the average power need of an industrial system. The use of a frequency inverter improves the efficiency of industrial systems regardless of power source – be it oil, gas or electricity – and reduces wasteful energy consumption, operating costs and emissions produced in the process of generating the source energy. With a simple, compact design easily integrated into diverse industrial systems, Parker’s frequency inverters also help to reduce hydraulic oil consumption and noise levels and extend the life of the electric motor and hydraulic components. The frequency inverters are compatible with standard pumps and motors, creating significant value for Parker’s customers, with the potential to reduce the environmental impact of industrial operations around the world. CASE STUDY Bath Sensing Module Parker’s bath sensing module is a monitoring system which improves productivity and reduces the emission of harmful pollutants in large-scale aluminum smelting operations. Smelting plants typically contain hundreds of pots, inside of which an electric current initiates the process by which aluminum is extracted and refined. Pneumatic cylinders are used to break up the hardened material which forms atop the molten ore. This conventional system provides no feedback as to whether the cylinder successfully penetrated the top layer and cannot indicate when residual material builds up around the tip of the cylinder, preventing it from functioning properly. Beyond requiring maintenance and causing unacceptable levels of machine downtime, these issues contribute to the increased production of toxic greenhouse gases. Parker’s bath sensing module retracts the cylinder at the precise moment it makes contact with the molten aluminum. This significantly reduces energy consumption and decreases the temperature of the chisel tip, making it difficult for hardened ore to build up over time. The bath sensing module also extends the life of the pneumatic cylinder chisel and the pot itself by reducing the temperature inside, and has proven adept at operating in the harsh conditions characteristic of aluminum smelting systems. Applying advanced sensor technology and reliable monitoring capabilities, Parker’s bath sensing module contributes to the future of sustainable aluminum production.

PS-2036 March, 2014© 2014 Parker Hannifin Corporation Parker Hannifin Corporation Rick Taylor, Corporate Vice President EHS 6035 Parkland Boulevard Cleveland, OH 44124 phone 216 896 3000 10% The data and information presented is a compilation of information reported into the corporate office from more than 100 business units worldwide. Data is not independently validated but is internally checked for significant deviation from expected results.

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