Financial Review Consolidated Statements of Income and Comprehensive Income ..................................................................................... 19 Consolidated Balance Sheet ............................................................................................................................................................................... 21 Consolidated Statement of Cash Flows .................................................................................................................................................... 23 Business Segment Information ......................................................................................................................................................................... 25 Notes to Consolidated Financial Statements ....................................................................................................................................... 26 Eleven-Year Financial Summary ....................................................................................................................................................................... 36 Report of Management The Company's management is responsible for the integrity and accuracy of the financial information contained in this annual report. Management believes that the financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America appropriate in the circumstances and that the other information in this annual report is consistent with those statements. In preparing the financial statements, management makes informed judgments and estimates where necessary to reflect the expected effects of events and transactions that have not been completed. Management is also responsible for maintaining an internal control system designed to provide reasonable assurance at reasonable cost that assets are safeguarded against loss or unauthorized use and that financial records are adequate and can be relied upon to produce financial statements in accordance with accounting principles generally accepted in the United States of America. The system is supported by written policies and guidelines, by careful selection and training of financial management personnel and by an internal audit staff which coordinates its activities with the Company's independent accountants. To foster a strong ethical climate, the Parker Hannifin Code of Ethics, which is publicized throughout the Company, addresses, among other things, compliance with all laws and accuracy and integrity of books and records. The Company maintains a systematic program to assess compliance. PricewaterhouseCoopers LLP, independent accountants, is retained to conduct an audit of Parker Hannifin's consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and to provide an independent assessment that helps ensure fair presentation of the Company's consolidated financial position, results of operations and cash flows. The Audit Committee of the Board of Directors is composed entirely of independent outside directors. The Committee meets periodically with management, internal auditors and the independent accountants to discuss internal accounting controls and the quality of financial reporting. Financial management, as well as the internal auditors and the independent accountants, have full and free access to the Audit Committee. Michael J. Hiemstra, Executive Vice President – Finance and Administration and Chief Financial Officer Donald E. Washkewicz,  President and  Chief Executive Officer LE Wildl, 5.0% 10.0% 15.0% 97 98 99 00 01 Five-Year Compound  Sales Growth Goal: 10% 3.0% 6.0% 9.0% 97 98 99 00 01 Return  on Sales Goal: 6.0%  4.0% 8.0% 12.0% 97 98 99 00 01 Return on Average Assets Goal: 7.2% 8.0% 16.0% 24.0% 97 98 99 00 01 Return on  Average Equity Goal: 14.0%  10.0% 20.0% 30.0% 97 98 99 00 01 Dividend  Payout Ratio Goal: 25%