Parker Hannifin S.p.A.

Via Privata Archimede, 1

20094 CORSICO (MI) ITALY

Tel: 02 45192.1

March 31, 2004 To:

Our Valued Customers and Distributors

Dear Sirs,

just as the economy begins to demonstrate tangible signs of a sustainable recovery, all manufacturers are being faced with strained availability and dramatically escalating prices for certain raw materials. Increasing global demand for raw materials has placed us in a situation where our suppliers are imposing substantial surcharges on many key materials on which we are dependent for the production of our products.

Since January, the order books of our suppliers have seen a dramatic upturn, resulting in supply shortages and substantial price increases due to:

Increased world demand for steel

Unprecedented speed and magnitude of steel cost increases

Shortage of iron ore, steel scrap, coke, nickel, copper and brass

Increased energy costs

Increased freight costs due to shortage of ocean vessels

Consolidation of US steelmakers reducing North America capacity

Through Parker’s commitment to strategic procurement and Lean enterprise, we have been successful in forestalling and absorbing many of these escalating material cost increases through improved efficiencies and productivity. The situation, however, has reached a point where we are now forced to pass along to you a portion of these cost increases, in order to assure a continuous supply of required materials and remain viable as a manufacturer. We will add a material surcharge to all the orders booked in our system after April 15, 2004. The surcharge increase, per product type, is identified on the attached sheet.

As a world class manufacturer, we will continue in our efforts to contain costs in every way possible, and we are hopeful that stability will return to commodity markets in the near future, and that the necessity for this surcharge will pass. In the interim, however, our focus is on a secured supply base in order that we deliver the service you expect.

Thank you for your understanding of this difficult situation. We are grateful for your business and your partnership, and are hopeful of a speedy return to pricing stability.

Sincerely,

Parker Hannifin Spa

General Manager

Giulio Moro

Product Type Surcharge

FLUIDCONNECTOR GROUP

  • Steel Fittings & Quick Couplings5,8%
  • Brass Fittings4,5%
  • Hoses 3,5%
  • Hose Assemblies 4,5%
  • Industrial Hoses2,0%
  • Machines/Tools5,8%

HYDRAULIC GROUP

  • All 3,5%

AUTOMATION GROUP

  • Pneumatics2,0%

FILTRATION GROUP

  • Hydraulic Filters3,5%
  • Other Filters2,0%

INSTRUMENTATION GROUP

  • All 4,0%

SEDE: 20094 Corsico (MI) – Italy - Via Privata Archimede, 1 - Tel: 02 45192.1 – Fax 02 4479340 – internet: - E-mail:

Iscr.: R.I. Mi N. 125728, R.E.A. Mi N. 682188 – Cap. Soc. Euro 1.230.000 – P.I./C.F./VAT (IT) 00817430150 – Banca Regionale Europea S.p.A. Ag. 14

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