FinanceLooker

Excrept from filing document 2024-06-30

Parker Hannifin Corporation was incorporated in Ohio in 1938 As used in this Annual Report on Form 10 K unless the context otherwise requires the terms Company Parker we or us refer to Parker Hannifin Corporation and its subsidiaries and the term year and references to specific years refer to the applicable fiscal year
Parker is a global leader in motion and control technologies Leveraging a unique combination of interconnected technologies we design manufacture and provide aftermarket support for highly engineered solutions that create value for customers primarily in aerospace defense in plant industrial equipment transportation off highway energy and HVAC refrigeration markets around the world
Parker values having a decentralized operating structure that fosters deeper connections with our customers and greater engagement among our team members To align our operations and achieve our goal of top quartile performance we deploy our business system The Win Strategy
which establishes goals and strategies for engaged people customer experience profitable growth and financial performance Underpinning this business system is our culture of safety collaboration continuous improvement and team based problem solving Together our goals strategies and culture help us to fulfill our purpose Enabling Engineering Breakthroughs that Lead to a Better Tomorrow We credit the Win Strategy with leading Parker through a period of sustained operational excellence and transformation and believe it is the foundation for achieving our future goals
We make available free of charge on or through our website our annual report on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K and any amendments to those reports filed or furnished pursuant to Section 13 a or 15 d of the Securities Exchange Act of 1934 as soon as reasonably practicable after filing or furnishing those reports electronically with the Securities and Exchange Commission The information contained on or accessible through our website is not part of this Annual Report on Form 10 K
Our Board of Directors has adopted a written charter for each of its committees These charters as well as our Global Code of Business Conduct Corporate Governance Guidelines and Independence Standards for Directors are posted and available on our investor relations website under the Governance page Shareholders may request copies of these corporate governance documents free of charge by writing to our principal executive offices located at Parker Hannifin Corporation 6035 Parkland Boulevard Cleveland Ohio 44124 4141 Attention Secretary or by calling 216 896 3000
Our interconnected technologies and solutions provide value for customers across our market verticals including aerospace defense in plant industrial equipment transportation off highway energy and HVAC and refrigeration We serve several hundred thousand OEM and distribution customer locations No single customer accounted for more than four percent of our total net sales for the year ended June 30 2024
We have two reportable segments Diversified Industrial and Aerospace Systems Of the Company s 19 9 billion in net sales for fiscal year 2024 Diversified Industrial Segment products accounted for 73 percent and Aerospace Systems Segment products accounted for 27 percent
Our Diversified Industrial Segment which is an aggregation of several business units sells highly engineered differentiated products to both original equipment manufacturers OEMs and distributors who serve the aftermarket replacement markets The major market verticals served by our Diversified Industrial Segment are listed below
Our Aerospace Systems Segment sells highly engineered differentiated airframe and engine components and systems to OEMs and aftermarket parts and maintenance directly to end users primarily in the commercial aerospace and defense market verticals The major market platforms served by our Aerospace Systems Segment are listed below
We offer hundreds of thousands of individual part numbers and no single product contributed more than one percent to our total net sales for the year ended June 30 2024 Listed below are some of our principal products
Diversified Industrial Segment products include standard products as well as custom products which are engineered and produced to OEM specifications for application to particular end products Standard and custom products are also used in the replacement of original products We market our Diversified Industrial Segment products primarily through field sales employees and independent distributors located throughout the world
Parker operates in highly competitive markets and industries We offer our products over numerous varied markets through our divisions operating in 43 countries Our global scope means that we have hundreds of competitors across our various markets and product offerings Our competitors include U S and non U S companies These competitors and the degree of competition vary widely by product lines end markets geographic scope and or geographic locations Although each of our segments has numerous competitors given our market and product breadth no single competitor competes with the Company with respect to all the products we manufacture and sell
In the Diversified Industrial Segment Parker competes based on product quality and innovation customer experience manufacturing and distribution capability aftermarket support and price competitiveness We believe that we are one of the market leaders in most of the major markets for our most significant Diversified Industrial Segment products We have comprehensive motion and control technologies allowing us to provide the broadest systems capabilities While our primary global competitors include Bosch Rexroth AG Danaher Corporation Danfoss A S Donaldson Company Inc Emerson Climate Technologies Inc Emerson ASCO Festo AG Co Freudenberg NOK Gates Corporation IMI Norgren SMC Corporation Swagelok Company and Trelleborg AB none of these businesses compete with every group or product in our Diversified Industrial Segment
In the Aerospace Systems Segment we have developed relationships with key customers based on our advanced technological and engineering capabilities performance in quality delivery service and price competitiveness This has enabled us to obtain significant original equipment business on new aircraft programs for our systems and components as well as the follow on repair and replacement business for these programs Further the Aerospace Systems Segment utilizes design and manufacturing techniques as well as best cost region and supply chain management strategies to reduce cost Although we believe that we are one of the market leaders in most of the major markets for our most significant Aerospace Systems Segment products primary global competitors for these products include Crane Co Eaton Corporation plc Honeywell International Inc Moog Inc RTX Corporation Safran S A Senior plc Triumph Group Inc and Woodward Inc
Across our two segments we believe that our broad based portfolio of core technologies which consist of hydraulics pneumatics electromechanical filtration fluid gas handling process control engineered materials and climate control is a positive factor in our ability to compete effectively with both large and small competitors We believe that the following factors also contribute to our ability to compete effectively
We own a number of patents trademarks trade names copyrights trade secrets and licenses related to our products We also have exclusive and non exclusive rights to use patents trademarks trade names copyrights and trade secrets owned by others In addition patent and trademark applications are pending although there can be no assurance that further patents and trademarks will be issued We do not depend on any single patent trademark copyright trade secret or license or group of patents trademarks copyrights trade secrets or licenses to any material extent
Backlog consists of written firm orders from a customer to deliver products and in the case of blanket purchase orders only includes the portion of the order for which a schedule or release date has been agreed to with the customer The dollar value of backlog is equal to the amount that is expected to be billed to the customer and reported as a sale Our backlog by business segment for the past two years is included in Part II Item 7 of this Annual Report on Form 10 K and is incorporated herein by reference Our backlog was 10 9 billion at June 30 2024 and 11 0 billion at June 30 2023 Approximately 73 percent of our backlog at June 30 2024 is scheduled for delivery in the succeeding twelve months Because of the breadth and global scope of our business our overall business is generally not seasonal in nature
Certain of our operations require the use and handling of hazardous materials and as a result the Company is subject to United States federal state and local laws and regulations as well as non U S laws and regulations designed to protect the
environment and regulate the discharge of materials into the environment These laws impose penalties fines and other sanctions for non compliance and liability for response costs property damage and personal injury resulting from past and current spills disposals or other releases of or exposures to hazardous materials Among other environmental laws we are subject to the United States federal Superfund law under which we have been designated as a potentially responsible party and may be liable for cleanup costs associated with various waste sites some of which are on the United States Environmental Protection Agency s Superfund priority list
As of June 30 2024 Parker was involved in environmental remediation and litigation at various U S and non U S manufacturing facilities presently or formerly operated by us and as a potentially responsible party along with other companies at off site waste disposal facilities and regional sites
We believe that our policies practices and procedures are properly designed to prevent unreasonable risk of environmental damage and the consequent financial liability to the Company Compliance with environmental laws and regulations requires continuing management efforts and expenditures by the Company Compliance with environmental laws and regulations has not had in the past and we believe will not have in the future a material adverse effect on our capital expenditures earnings or competitive position
Our reserve for environmental matters is discussed in Note 18 to the Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10 K which is incorporated herein by reference
In addition to the environmental regulations discussed above we are subject to various federal state local and foreign government regulations relating to the development manufacture marketing sale and distribution of our products and services in the countries where we conduct business Compliance with these laws and regulations often requires the dedication of time and effort of our team members as well as financial resources Additional information about the impact of government regulations on our business is included in Item 1A Risk Factors
Our primary energy source for both of our business segments is electric power While we cannot predict future costs of electric power we manage this cost through aggregation in deregulated markets and leveraging contracts with established pricing on portions of our energy load We are subject to governmental regulations in regard to energy supplies in the United States and elsewhere To date we have not experienced any significant disruptions of our operations due to energy curtailments
We primarily use steel brass copper aluminum nickel rubber and thermoplastic materials and chemicals as the principal raw materials in our products We expect these materials to be available from numerous sources in quantities sufficient to meet our requirements
On September 12 2022 the Company completed the acquisition the Acquisition of Meggitt plc Meggitt The Acquisition is discussed in Note 3 to the Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10 K and is incorporated herein by reference
At Parker we align employment levels with the global needs of our business and our customers As of June 30 2024 we employed approximately 61 120 persons that we refer to as team members of whom approximately 30 300 were employed by foreign subsidiaries
Our talented and passionate team members are the foundation of Parker s enduring growth bringing new ideas and perspectives to enhance our safety performance improve productivity and inspire a diverse and inclusive culture We see a clear path to a brighter future and it begins with providing our people the resources that enable them to find personal and professional satisfaction in their work responsibly move our company forward and strengthen our communities fulfilling our purpose of
The Win Strategy 3 0 is Parker s business system that defines the goals and initiatives that drive growth transformation and success It works with our purpose which is a foundational element of The Win Strategy to engage team members and create responsible and sustainable growth
The Win Strategy has four overarching goals Engaged People Customer Experience Profitable Growth and Financial Performance supported by our shared values of a Winning Culture Passionate People Valued Customers and Engaged Leadership Our shared values shape our culture and our interactions with stakeholders and the communities in which we operate and live
The safety and well being of Parker team members is our highest priority Our safety goal is simple to achieve an incident free workplace Over the past five years we have reduced our recordable incident rate by 45
In fiscal year 2024 the recordable incident rate per 100 team members was 0 31 compared to a recordable incident rate of 0 36 in fiscal year 2023 The previously reported fiscal year 2023 recordable incident rate was revised in fiscal year 2024 from 0 31 which excluded Meggitt to 0 36 following the incorporation of Meggitt into our recordable incident data Fiscal year 2024 s recordable incident rate represents a 14 reduction since fiscal year 2023
Building on the great progress we have made in 2021 we established long term safety goals We strive to reach our goal of zero recordable incidents by 2030 through our continued focus on team member engagement and accountability coupled with a strong framework of systems and procedures
Our safety program is anchored on a safety management system that has globally deployed procedures and work instructions including management of incidents and near miss events We create a culture of safety through a variety of initiatives leadership focus and our commitment to safety as the first stated goal of The Win Strategy
We engage team members in improving safety performance through High Performance Teams HPTs All Parker manufacturing locations have an active chartered Safety HPT and every value stream has a representative who is responsible for safety within their area of the business This ownership culture at the manufacturing level is an integral component of our safety program
Engagement directly influences business performance We strongly believe in empowering our team members to think like owners and take action to improve their areas of the business Engagement is deeply ingrained in our culture and as an overarching goal of The Win Strategy it is key to achieving top quartile financial performance
Parker activates engagement through our HPTs which apply the expertise and perspective of team members who are closest to the product and customer to drive improvement throughout the company Approximately 89 of our people participate in one or more of these teams and more than 6 000 HPTs have already been established worldwide We closely track our progress in support of a high performing work environment through our Global Engagement Survey Our last completed survey in fiscal year 2024 achieved a 91 response rate with an overall engagement score of 73
We have a well defined talent development program managed through our Talent Central system which connects all business units globally on a common platform and provides team members with visibility to skill development career planning and learning opportunities This shared platform is the catalyst for talent management at Parker
Our review process enables us to assess talent globally from early in career roles through senior leaders This review facilitates the identification of key talent and allows us to build meaningful development plans and align career growth opportunities The talent process is also supported by our Integrated Career System program which illustrates career paths for various roles and the steps to advance through the organization
Supplementing the talent development process are Parker s learning offerings which help team members expand their professional skills and take ownership of their learning and development Examples of center led programs are our annual ethics and compliance training and cyber security training that all team members are required to complete in addition to programs for developing supervisory and leadership skills Functional specific programs include HPT training lean bootcamps and kaizen event orientations Local and regional training includes site safety equipment safety and site quality requirements
In addition to formal training programs there are a host of development tools available which include mentoring relationships coaching and feedback job shadowing project bubble assignments and other stretch projects
An inclusive environment is a core tenet of our values and one of our key measures of success within The Win Strategy We have an ongoing commitment to an inclusive and welcoming workplace where everyone feels valued and adds value
One important component of Parker s inclusive workplace is the development and deployment of Business Resource Groups BRGs each of which is open to all team members In addition to our BRGs we have processes in place to attract and retain team members with diverse backgrounds and experiences helping to support them with career plans and experienced mentors Our goal is to promote a strong inclusive work environment that will provide us the best talent to further strengthen our organization for success
As a global employer we are committed to offering competitive compensation and benefits tailored to geography industry experience and performance Our programs are designed to attract team members motivate and reward performance drive growth and support retention We provide benefit programs with the goal of improving physical mental and financial wellness of our team members throughout their lifetime Some examples include base and variable pay health and insurance benefits paid time off and retirement saving plans
Ms Parmentier has been Chairman of the Board since January 2024 and Chief Executive Officer since January 2023 Before becoming Chief Executive Officer in 2023 she was Chief Operating Officer since August 2021 She was Vice President and President of the Motion Systems Group from February 2019 to August 2021 She was Vice President and President of the Engineered Materials Group from September 2015 to February 2019 She was General Manager of the Hose Products Division from May 2014 to September 2015 and General Manager of the Sporlan Division from May 2012 to May 2014 She is also a Director of Nordson Corporation
Mr Leombruno has been Executive Vice President and Chief Financial Officer since January 2021 He was Vice President and Controller from July 2017 to January 2021 He was Vice President and Controller Engineered Materials Group from January 2015 to June 2017 and Director of Investor Relations from June 2012 to December 2014 He is also a Director of The Timken Company
Mr Ross has been President since January 2024 and Chief Operating Officer since January 2023 He was Vice President and President of the Fluid Connectors Group from September 2015 to December 2022 He was Vice President and President of the Engineered Materials Group from July 2012 to September 2015
Mr Bendali has been Vice President and President of the Engineered Materials Group since August 2022 He was Vice President of Operations for the Engineered Materials Group from October 2021 to July 2022 and was General Manager of the Noise Vibration and Harshness Division from October 2019 to September 2021 Prior to joining the Company as part of the acquisition of LORD Corporation Lord in October 2019 Mr Bendali was Vice President at LORD with responsibility for Aerospace and Defense sales marketing and programs
Mr Bracht has been Vice President and President of the Motion Systems Group since August 2021 He was Vice President of Operations for the Engineered Materials Group from July 2018 to August 2021 He was President and Chief Executive Officer of Bendix Commercial Vehicle Systems LLC from 2015 to 2018 Bendix designs develops and supplies products under the Bendix brand name for medium and heavy duty trucks tractors trailers buses and other commercial vehicles throughout North America Prior to Bendix he held several executive leadership positions during his 24 year career at Bosch Rexroth including President and Chief Executive Officer of Bosch Rexroth Americas
Mr Czaja has been Vice President Chief Technology and Innovation Officer since January 2021 He was Vice President of Technology and Innovation for the Motion Systems Group from August 2019 to December 2020 Vice President of Technology and Innovation for the Aerospace Group from August 2004 to July 2019 and Division Engineering Director from October 2000 to July 2004
Mr Gentile has been Vice President Global Supply Chain since July 2017 He was General Manager of the Company s Process Filtration Division from December 2013 to July 2017 and was Vice President of Supply Chain for the Filtration Group from July 2008 to November 2013
Ms Ives has been Vice President and Controller since January 2021 She was Vice President Assistant Controller from September 2020 to December 2020 Group VP Controller for the Instrumentation Group from November 2019 to August 2020 and Division Controller for the Electromechanical and Drives Division from August 2010 to October 2019
Mr Malone has been Vice President and President of the Filtration Group since December 2014 He was Vice President of Operations for the Filtration Group from January 2013 to December 2014 He is also a Director of The Manitowoc Company Inc
Mr Parel has been Vice President Chief Digital and Information Officer since January 2021 He was Vice President and Chief Information Officer from October 2018 to January 2021 He was Vice President and Chief Information Officer at Dover Corporation from May 2016 through October 2018 Dover is a diversified global manufacturer that delivers equipment and components consumable supplies aftermarket parts software and digital solutions and support services
Mr Reidy has been Vice President and President of the Aerospace Group since January 2024 He was Vice President of Operations for the Aerospace Group from December 2022 to December 2023 He held General Manager roles with the Precision Fluidics Division the Advanced Atomization Technologies joint venture and the Gas Turbine Fuel Systems Division from May 2017 to December 2022
Mr Scott has been Vice President and President of the Fluid Connectors Group since January 2024 He was Vice President of Operations for the Aerospace Group from May 2021 to December 2023 and also served as Integration Leader for Parker s acquisition of Meggitt plc He held General Manager roles with the Gas Turbine Fuel Systems Division and the Fluid Systems Connectors Divisions from December 2015 to May 2021 Prior to joining Parker Scott was President TE Wire Cable for Berkshire Hathaway and previously held leadership roles at Danaher Corporation and Deloitte Consulting
The following risk factors identify what we believe to be the risks that could materially adversely affect our financial and or operational performance These risk factors should be considered and evaluated together with information incorporated by reference or otherwise included elsewhere in this Annual Report on Form 10 K Additional risks not currently
Our business is sensitive to global macro economic conditions Macroeconomic downturns may have an adverse effect on our business results of operations and financial condition as well as our distributors customers and suppliers and on activity in many of the industries and markets we serve Among the economic factors which may have such an effect are manufacturing and other end market activity currency exchange rates air travel trends difficulties entering new markets tariffs and governmental trade and monetary policies global pandemics and general economic conditions such as inflation deflation interest rates and credit availability These factors may among other things negatively impact our level of purchases capital expenditures and creditworthiness as well as our distributors customers and suppliers and therefore the Company s revenues operating profits margins and order rates
We cannot predict changes in worldwide or regional economic conditions and government policies as such conditions are highly volatile and beyond our control If these conditions deteriorate or remain at depressed levels for extended periods however our business results of operations and financial condition could be materially adversely affected
As a global business we are exposed to economic political and other risks in different countries in which we operate which could materially reduce our sales profitability or cash flows or materially increase our liabilities
Our net sales attributable to selling locations outside of the United States were approximately 36 percent in 2024 37 percent in 2023 and 39 percent in 2022 In addition many of our customers manufacturing operations and suppliers are located outside the United States The Company expects net sales from non U S markets to continue to represent a significant portion of its total net sales Our non U S operations are subject to risks in addition to those facing our domestic operations including
For example the global nature of our business and our operations exposes us to political economic and other conditions in foreign countries and regions including geopolitical risks such as the current conflict between Russia and Ukraine The broader consequences of this conflict which may include further sanctions embargoes regional instability and geopolitical shifts potential retaliatory action by the Russian government against companies including possible nationalization of foreign businesses in Russia increased tensions between the United States and countries in which we operate and the extent of the conflict s effect on our business and results of operations as well as the global economy cannot be predicted To the extent the current conflict between Russia and Ukraine adversely affects our business it may also have the effect of heightening many other risks any of which could materially and adversely affect our business and results of operations Such risks include but are not limited to adverse effects on macroeconomic conditions including inflation particularly with regard to raw material transportation and labor price fluctuations disruptions to our information technology environment including through cyberattack ransom attack or cyber intrusion adverse changes in international trade policies and relations disruptions in global supply chains and our exposure to foreign currency exchange rate changes In addition there continues to be uncertainty about the future relationship between the U S and China including with respect to trade policies treaties government regulations and tariffs Any increased trade barriers or restrictions on global trade including trade with China could adversely impact our business results of operations or financial condition
If we are unable to successfully manage the risks associated with expanding our global business or adequately manage operational fluctuations internationally the risks could have a material adverse effect on our business results of operations or financial condition
Increased cybersecurity threats and more sophisticated and targeted computer crime have posed and could continue to pose a risk to our information technology systems and a disruption to or breach in the security of such systems if material could have adverse effects on our result of operations and financial condition
We rely extensively on information technology systems to manage and operate our business some of which are managed or accessible by third parties The security and functionality of these information technology systems and the processing of data by these systems are critical to our business operations If these systems or any part of the systems are damaged intruded upon attacked shutdown or cease to function properly whether by planned upgrades force majeure telecommunications failures criminal acts including hardware or software break ins or extortion attempts or viruses or other cybersecurity incidents and we suffer any resulting interruption in our ability to manage and operate our business or if our products are affected our results of operations and financial condition could be materially adversely affected There can be no guarantee that the actions and controls we have implemented and are implementing or which we cause or have caused third parties with access to our systems to implement will be sufficient to protect and mitigate risks associated with our information technology systems Additionally certain of our employees working remotely at times and the increased adoption of generative artificial intelligence may increase our vulnerability to cyber and data protection risks In addition to existing risks any adoption or deployment of or exposure to new technologies via acquisitions or internal initiatives or changes to our information technology systems as a result of divestitures may increase our exposure to risks breaches or failures which could materially adversely affect our results of operations or financial condition Furthermore the Company has access to sensitive confidential or personal data or information that is subject to privacy and security laws regulations or other contractually imposed controls Despite our use of reasonable and appropriate controls security breaches theft misplaced lost or corrupted data programming or employee errors and or malfeasance have led and could in the future lead to the compromise or improper use of such sensitive confidential or personal data or information Such events may result in possible negative consequences such as fines ransom demands penalties failure to comply with laws governing sensitive data loss of reputation intellectual property competitiveness or customers increased security and compliance costs or other negative consequences Further the amount of insurance coverage that we maintain may be inadequate to cover claims or liabilities relating to a cybersecurity incident Depending on the nature and magnitude of these events they may have an adverse impact on our results of operations or financial condition
Our supply of raw materials could be interrupted for a variety of reasons including availability and pricing Furthermore changes to United States and other countries tariff and import export regulations have in the past and may in the future have a negative impact on the availability and pricing of raw materials Prices for raw materials necessary for production have fluctuated significantly in the past and significant increases could adversely affect our results of operations and profit margins Our efforts to manage these fluctuations by among other things passing along price increases to our customers may be subject to a time delay between the increased raw material prices and our ability to increase the price of our products or we may be unable to increase the prices of our products due to pricing pressure contract terms or other factors Any such inability to manage fluctuations could adversely impact our results of operations and cash flows
Our suppliers of component parts may significantly and quickly increase their prices in response to increases in costs of raw materials that they use to manufacture the component parts As a result we may not be able to increase our prices
Our operations are subject to natural and man made unexpected events that may increase our costs interrupt production or our supply chain or otherwise adversely affect our business results of operations or financial condition
The occurrence of one or more unexpected events including war acts of terrorism or violence civil unrest fires tornadoes hurricanes earthquakes floods and other forms of severe weather in the United States or in other countries in which we operate or in which our suppliers are located could adversely affect our operations and financial performance Natural disasters pandemics equipment failures power outages or other unexpected events could result in physical damage to and complete or partial closure of one or more of our manufacturing facilities or distribution centers temporary or long term disruption in the supply of component products from some local and international suppliers and disruption and delay in the transport of our products to dealers end users and distribution centers Existing insurance coverage may not provide protection for all of the costs that may arise from such events The impacts of these unexpected events are difficult to predict but could have a material adverse effect on our business results of operations or financial condition
changes in business relationships with and purchases by or from major customers suppliers or distributors including delays or cancellations in shipments disputes regarding contract terms or significant changes in financial condition and changes in contract cost and revenue estimates for new development programs
The development of new products and technologies requires substantial investment and is required to remain competitive in the markets we serve If we are unable to successfully introduce new commercial products our profitability could be adversely affected
The markets we serve are characterized by rapidly changing technologies and frequent introductions of new products and services Our ability to develop new products based on technological innovation can affect our competitive position and often requires the investment of significant resources If we cannot develop or have difficulties or delays developing new and enhanced products and services or if we fail to gain market or regulatory acceptance of new products and technologies our revenues may be materially reduced and our competitive position could be materially adversely affected In addition we may invest in research and development of products and services or in acquisitions or other investments that do not lead to significant revenue which could adversely affect our profitability
Our operations are subject to competition from a wide variety of global regional and local competitors which could adversely affect our results of operations by creating downward pricing pressure and or a decline in our margins or market shares To compete successfully we must excel in terms of product quality and innovation technological and engineering capability manufacturing and distribution capability delivery price competitiveness and customer experience
We may be required to make material expenditures in order to comply with environmental laws and regulations to address the effects of climate change and to respond to customer needs and investor expectations regarding climate related goals each of which may negatively impact our business
Our operations necessitate the use and handling of hazardous materials and as a result subject us to various U S federal state and local laws and regulations as well as non U S laws designed to protect the environment and to regulate the discharge of materials into the environment These laws impose penalties fines and other sanctions for non compliance and liability for response costs property damages and personal injury resulting from past and current spills disposals or other releases of or the exposure to hazardous materials Among other laws we are subject to the U S federal Superfund law under which we have been designated as a potentially responsible party and may be liable for clean up costs associated with various waste sites some of which are on the United States Environmental Protection Agency s Superfund priority list We could incur substantial costs as a result of non compliance with or liability for cleanup or other costs or damages under environmental laws including the Superfund law
In addition increased worldwide focus on climate change issues has led to legislative and regulatory efforts to limit greenhouse gas emissions Increased regulation of greenhouse gas emissions and other climate change concerns could subject us to additional costs and restrictions including increased energy and raw material costs We are not able to predict how such regulations would affect our business operations or financial results but increased regulation could have a material adverse effect on our business operations and financial condition
Further climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere could present risks to our operations Extreme weather events linked to climate change including hurricanes flooding wildfires high heat and water scarcity among others create physical risks to our operating locations and supply chains
Although we are working towards and intend to meet our goal of making our own operations carbon neutral by 2040 we may be required to expend significant resources to do so which could increase our operational costs Further there can be no assurance of the extent to which any of our climate related goals will be achieved if at all including on the timeline expected by customers or investors or that any future investments we make in furtherance of achieving our goals will meet customer expectations and needs investor expectations or market standards regarding sustainability including reducing greenhouse gas emissions Any failure or perceived failure by us to achieve our climate related goals further our initiatives adhere to our public statements comply with federal state or international climate related laws and regulations or meet evolving and varied customer and investor expectations and standards could result in legal and regulatory proceedings against us or could cause our customers to find other suppliers each of which could adversely affect our reputation the market price of our common shares our results of operations our financial condition or our cash flows
We depend on the skills institutional knowledge working relationships and continued services and contributions of key personnel including our leadership team and others at all levels of the company as a critical part of our human capital resources In addition our ability to achieve our operating and strategic goals depends on our ability to identify hire train and retain qualified individuals We compete with other companies both within and outside of our industry for talented personnel in a highly competitive labor market and we may lose key personnel or fail to attract other talented personnel or otherwise identify and retain suitable replacements Any such loss or failure could have material adverse effects on our results of operations financial condition and cash flows
We expect to continue our strategy of identifying and acquiring businesses with complementary products and services and entering into joint ventures which we believe will enhance our operations and profitability However there can be no assurance that we will be able to continue to find suitable businesses to purchase or joint venture opportunities or that we will be able to acquire such businesses or enter into such joint ventures on acceptable terms In addition we may be unable to obtain necessary regulatory approvals or support for otherwise suitable business targets or joint venture opportunities and we may be unable to obtain such regulatory approvals or support on the timeline or terms that we anticipate if at all Furthermore there are no assurances that we will be able to avoid acquiring or assuming unexpected liabilities If we are unable to avoid these risks our results of operations and financial condition could be materially adversely affected
In addition we may not be able to integrate successfully any businesses that we purchase into our existing business and it is possible that any acquired businesses or joint ventures may not be profitable We may encounter or have encountered the following difficulties during the integration process
the consequences of a change in tax treatment including the cost of integration and compliance and the possibility that the full benefits anticipated to result from the acquisitions may not be realized
challenges of integrating complex systems technologies networks and other assets of the acquired companies in a manner that minimizes any adverse impact or disruptions to customers suppliers employees and other constituencies and
The successful integration of new businesses and the success of joint ventures also depend on our ability to manage these new businesses and cut excess costs If we are unable to avoid these risks our results of operations and financial condition could be materially adversely affected
Our recent acquisitions have greatly expanded the size and complexity of our business Our future success depends in part on the ability to manage this expanded business which may pose or has posed substantial challenges for management including challenges related to the management and monitoring of the expanded global operations and new manufacturing processes and products and the associated costs and complexity There can be no assurance of successful management of these matters or that we will realize the expected benefits of the acquisitions
We regularly execute organizational changes such as acquisitions divestitures and realignments to support our growth and cost management strategies We also engage in initiatives aimed to increase productivity efficiencies and cash flow and to reduce costs The Company commits significant resources to identify develop and retain key employees to ensure uninterrupted leadership and direction If we are unable to successfully manage these and other organizational changes the ability to complete such activities and realize anticipated synergies or cost savings as well as our results of operations and financial condition could be materially adversely affected We cannot offer assurances that any of these initiatives will be beneficial to the extent anticipated or that the estimated efficiency improvements incremental cost savings or cash flow improvements will be realized as anticipated or at all
The funding requirements and the amount of expenses recorded for our defined benefit pension plans are dependent on changes in market interest rates and the value of plan assets which are dependent on actual plan asset returns Significant changes in market interest rates and decreases in the fair value of plan assets and investment losses on plan assets would increase funding requirements and expenses and may adversely impact our results of operations
The Company absorbs a portion of healthcare costs for its employees If healthcare costs rise significantly and we continue to absorb the majority of these costs these increasing costs may adversely impact our future results of operations
We are subject to income taxes in the U S and various non U S jurisdictions Our domestic and international tax liabilities are dependent upon the location of earnings among these different jurisdictions Our future financial condition and cash flow could be adversely affected by changes in effective tax rate as a result of changes in tax laws and judicial or regulatory interpretation thereof the mix of earnings in countries with differing statutory tax rates changes in overall profitability changes in U S generally accepted accounting principles GAAP or changes in the valuation of deferred tax assets In addition the amount of income taxes paid by the Company is subject to ongoing audits by non U S and U S federal state and local tax authorities If these audits result in assessments different from estimated amounts future financial results may include unfavorable adjustments to the Company s tax liabilities which could have a material adverse effect on the Company s financial condition and cash flow
We have incurred significant indebtedness and may incur additional debt for acquisitions operations research and development and capital expenditures or for other reasons related to our overall capital deployment strategy Our ability to make interest and scheduled principal payments and meet restrictive covenants could be adversely impacted by changes in the availability terms and cost of capital changes in interest rates or changes in our credit ratings or our outlook These changes could increase our cost of financing and limit our debt capacity thereby limiting our ability to pursue acquisition opportunities react to market conditions and meet operational and capital needs which may place us at a competitive disadvantage
We have goodwill recorded on our balance sheet Goodwill is not amortized but is tested for impairment annually as of December 31 in the third quarter or more often if events or changes in circumstances indicate a potential impairment may exist Factors that could indicate that our goodwill is impaired include a decline in our stock price and market capitalization lower than projected operating results and cash flows and slower growth rates in our industry Declines in our stock price lower operating results and any decline in industry conditions in the future could increase the risk of impairment Impairment testing incorporates our estimates of future operating results and cash flows estimates of allocations of certain assets and cash flows among reporting units estimates of future growth rates and our judgment regarding the applicable discount rates used on estimated operating results and cash flows If we determine at a future time that impairment exists it may result in a significant non cash charge to earnings and lower stockholders equity
In addition to the risks identified herein doing business with the U S government subjects us to unusual risks including dependence on the level of government spending and compliance with and changes in governmental acquisition regulations Agreements relating to the sale of products to government entities may be subject to termination reduction or modification either at the convenience of the government or for our failure to perform or other unsatisfactory performance under the applicable contract We are subject to government investigations of our business practices and compliance with government acquisition regulations If the Company were charged with wrongdoing as a result of any such investigation it could be suspended from bidding on or receiving awards of new government contracts and we could be subject to fines or penalties associated with contract non compliance or resulting from such investigations which could have a material adverse effect on our results of operations
From time to time we are subject to litigation or other commercial disputes and other legal and regulatory proceedings relating to our business Due to the inherent uncertainties of any litigation commercial disputes or other legal or regulatory proceedings we cannot accurately predict their ultimate outcome including the outcome of any related appeals An unfavorable outcome could materially adversely impact our business financial condition and results of operations Furthermore as required by U S GAAP we establish reserves based on our assessment of contingencies including contingencies related to legal claims asserted against us Subsequent developments in legal proceedings may affect our assessment and estimates of the loss contingency recorded as a reserve and require us to make payments in excess of our reserves which could have an adverse effect on our results of operations
We are subject to national and international laws and regulations such as the anti corruption laws of the U S Foreign Corrupt Practices Act and the U K Bribery Act relating to our business and our employees Despite our policies procedures and compliance programs our internal controls and compliance systems may not be able to protect the Company from prohibited acts willfully committed by our employees agents or business partners that would violate such applicable laws and regulations Any such improper acts could damage the Company s reputation subject us to civil or criminal judgments fines or penalties and could otherwise disrupt the Company s business and as a result could materially adversely impact our business financial condition and results of operations
Further our operations are subject to certain antitrust and competition laws in the jurisdictions in which we conduct our business in particular the United States and Europe These laws prohibit among other things anticompetitive agreements and practices If any of our commercial agreements or practices are found to violate or infringe such laws we may be subject to civil and other penalties We may also be subject to third party claims for damages Further agreements that infringe antitrust and competition laws may be void and unenforceable in whole or in part or require modification in order to be lawful and enforceable Accordingly any violation of these laws could harm our reputation and could have a material adverse effect on our earnings cash flows and financial condition
Our businesses expose us to potential product liability risks that are inherent in the design manufacture and sale of our products and the products of third party vendors that we use or resell Significant product liability claims could have a material adverse effect on the Company s financial condition liquidity and results of operations Although we currently maintain what we believe to be suitable and adequate product liability insurance there can be no assurance that we will be able to maintain our insurance on acceptable terms or that our insurance will provide adequate protection against all potential significant liabilities
Failure to protect our intellectual property and know how could reduce or eliminate any competitive advantage and reduce our sales and profitability and the cost of protecting our intellectual property may be significant
Protecting our intellectual property is critical to our innovation efforts We own a number of patents trade secrets copyrights trademarks trade names and other forms of intellectual property related to our products and services throughout the world and in the operation of our business We also have exclusive and non exclusive rights to intellectual property owned by others Our intellectual property may be challenged stolen or otherwise infringed upon by third parties or we may be unable to maintain renew or enter into new license agreements with third party owners of intellectual property on reasonable terms In addition the global nature of our business increases the risk that our intellectual property may be subject to infringement theft or other unauthorized use or disclosure by others In some cases our ability to protect our intellectual property rights by legal recourse or otherwise may be limited particularly in countries where laws or enforcement practices are inadequate or undeveloped And the cost of enforcing our rights may be significant Unauthorized use or disclosure of our intellectual property rights or our inability to protect our intellectual property rights could lead to reputational harm and or adversely impact our competitive position and results of operations
Parker is committed to the protection of the Company s data data systems and digital assets while in storage use or transit Our cybersecurity program is integrated into our overall Enterprise Risk Management program and exists to secure our information systems and data assets including those data assets entrusted to us by our stakeholders and to promote our compliance with applicable laws and regulations
We proactively work to address cybersecurity risk through our Digital IT Risk Management Program which focuses on identifying assessing responding to monitoring and remediating cybersecurity related risks Parker s dedicated Cyber Security team utilizes the National Institute of Standards and Technology NIST Cyber Security Framework as its primary resource for identifying areas of risk and benchmarking and implementing continuous improvements Our technical security configuration employs a centrally managed layered approach including hardened PCs endpoint security detection software email security firewall appliances and various network security protections We employ enhanced security measures for operational technologies and secure account management including recently adding a secondary anti malware solution to our existing software to bolster our company wide defenses Additionally we utilize third party security monitoring services to further improve our 24 7 monitoring capabilities We also maintain a third party risk management program designed to oversee identify and reduce the potential impact to Parker and our customers of a security incident at a third party vendor supplier or other provider
We have adopted comprehensive Information Security Policies and Standards that clearly articulate Parker s expectations and requirements with respect to acceptable use risk management data privacy education and awareness security incident management and reporting identity and access management third party management security with respect to physical assets products networks and systems security monitoring and vulnerability identification These policies and standards set forth a detailed security incident management and reporting protocol with clear escalation timelines and responsibilities We also maintain a global incident response plan and regularly conduct exercises to help with our overall preparedness
We believe cybersecurity is the responsibility of every team member and provide ongoing mandatory cybersecurity awareness training globally to help team members recognize avoid and report malicious activity This includes interactive training to engage team members in identifying phishing risks and their appropriate response We also provide regular training on data protection so that our team members understand the types of data they have and how to safeguard it
Continuous improvement is a critical aspect of Parker s cybersecurity program which is why we integrate security intelligence from internal and external sources to help identify areas for improvement and gap remediation As a supplement to our internal cybersecurity capabilities and controls we partner with third party consultants and advisors to conduct penetration testing and to assess our incident response plan We periodically undergo a third party risk assessment and third party incident response adversarial engagement exercises to strengthen our security profile We also conduct internal tabletop exercises to prepare for responding to potential cybersecurity events Parker also maintains cyber security insurance designed to mitigate the impact of any attacks or threats to our business
As of the date of this report we do not believe that any risks from cybersecurity threats including as a result of any previous cybersecurity incidents have materially affected or are reasonably likely to materially affect the Company including its business strategy results of operations or financial condition However as discussed more fully under Item 1A Risk Factors Business and Operational Risks of this Form 10 K cybersecurity threats remain a risk to our business operations
Management is responsible for assessing and managing material risks from cybersecurity threats with leadership from the Company s Vice President Chief Digital and Information Officer CDIO who is responsible for the Company s global Digital Information Technology and Cyber Security organization Our CDIO has served in various roles in information technology and information security for over 18 years with Fortune 500 companies Our CDIO holds Bachelor of Science and Master of Science degrees in Computer Engineering He has also completed other advanced leadership training and coursework regarding cybersecurity risk management Our CDIO reports directly to the Chief Executive Officer
Parker s cybersecurity program is led by our Digital IT VP Infrastructure and Security who functions as our chief information security officer CISO and has over 23 years of experience in cybersecurity operations cybersecurity governance and compliance risk management operational technology OT and connected products IoT with global Fortune 200 and Fortune 500 companies across diverse industries such as retail consumer goods entertainment and manufacturing The CISO reports to our CDIO and is supported by and receives regular updates from our dedicated Cyber Security team within our IT function as well as our IT Risk Council a cross functional group that meets regularly to optimize our Digital IT Risk Management Program and promote alignment with our Enterprise Risk Management program
Recognizing the importance of maintaining a secure environment for our products data and systems that effectively supports our business objectives and customer needs Parker s full Board of Directors maintains oversight of cybersecurity Our Board receives an in depth report from our CDIO at least annually on the overall cybersecurity program and updates throughout the year from our CDIO and CISO regarding such topics as cyber risk management and the status of projects to strengthen cybersecurity effectiveness
Our corporate headquarters is located in Cleveland Ohio and at June 30 2024 the Company maintained approximately 335 manufacturing plants We also maintain various sales and administrative offices and distribution centers throughout the world None of these manufacturing plants administrative offices or distribution centers are individually material to our operations The facilities are situated in 36 states within the United States and in 42 other countries We own the majority of our manufacturing plants Our leased properties consist of sales and administrative offices and distribution centers as well as manufacturing plants
We believe that our properties have been adequately maintained are in good condition generally and are suitable and adequate for our business as presently conducted The extent to which we utilize our properties varies by property and from time to time We believe that our restructuring efforts have brought capacity levels closer to present and anticipated needs Most of our manufacturing facilities remain capable of handling volume increases
From time to time we are involved in matters that involve governmental authorities as a party under federal state and local laws that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment We will report such matters that exceed or that we reasonably believe may exceed 1 0 million or more in monetary sanctions
On October 22 2014 the Company publicly announced that the Board of Directors increased the overall maximum number of shares authorized for repurchase under the Company s share repurchase program first announced on August 16 1990 so that beginning on October 22 2014 the maximum aggregate number of shares authorized for repurchase was 35 million shares There is no limitation on the amount of shares that can be repurchased in a fiscal year There is no expiration date for this program
Forward looking statements contained in this and other written and oral reports are made based on known events and circumstances at the time of release and as such are subject in the future to unforeseen uncertainties and risks Often but not always these statements may be identified from the use of forward looking terminology such as anticipates believes may should could expects targets is likely will or the negative of these terms and similar expressions and may also include statements regarding future performance orders earnings projections events or developments Parker cautions readers not to place undue reliance on these statements It is possible that the future performance may differ materially from expectations including those based on past performance
legal and regulatory developments and other government actions including related to environmental protection and associated compliance costs supply chain and labor disruptions including as a result of labor shortages
manufacturing activity air travel trends currency exchange rates difficulties entering new markets and economic conditions such as inflation deflation interest rates and credit availability inability to obtain or meet conditions imposed for required governmental and regulatory approvals
The Company makes these statements as of the date of the filing of this Annual Report on Form 10 K for the year ended June 30 2024 and undertakes no obligation to update them unless otherwise required by law
The Company is a global leader in motion and control technologies Leveraging a unique combination of interconnected technologies we design manufacture and provide aftermarket support for highly engineered solutions that create value for customers primarily in aerospace and defense in plant and industrial equipment transportation off highway energy and HVAC and refrigeration markets around the world
The Win Strategy 3 0 is Parker s business system which defines the goals and initiatives that create responsible sustainable growth and enable Parker s long term success It works with our purpose which is a foundational element of The Win Strategy to engage team members and create responsible and sustainable growth Our shared values shape our culture and our interactions with stakeholders and the communities in which we operate and live
We believe many opportunities for profitable growth are available The Company intends to focus primarily on business opportunities in the areas of aerospace defense in plant industrial equipment transportation off highway energy and HVAC and refrigeration We believe we can meet our strategic objectives by
Our order rates provide a near term perspective of the Company s outlook particularly when viewed in the context of prior and future order rates The Company publishes its order rates on a quarterly basis The lead time between the time an order is received and revenue is realized generally ranges from one day to 12 weeks for mobile and industrial orders and from one day to 18 months for aerospace orders
We manage our supply chain through our local for local manufacturing strategy ongoing supplier management process and broadened supply base We are monitoring inflation and manage its impact through a variety of cost and pricing measures including continuous improvement and lean initiatives Additionally we strategically manage our workforce and discretionary spending At the same time we are appropriately addressing the ongoing needs of our business so that we continue to serve our customers
Over the long term the extent to which our business and results of operations will be impacted by economic and political uncertainty geopolitical risks and public health crises depends on future developments that remain uncertain We will continue to monitor the global environment and manage our business with the goal to minimize unfavorable impacts on operations and financial results
The discussion below is structured to separately discuss the Consolidated Statement of Income Business Segments and Liquidity and Capital Resources The term year and references to specific years refer to the applicable fiscal year Dollars are presented in millions except per share amounts or as otherwise noted and totals may not sum due to rounding Discussion of the 2022 financial statements is included in Part II Item 7 of the Company s 2023 Annual Report on Form 10 K
in 2024 increased from the 2023 amount due to higher sales in the Aerospace Systems Segment resulting from strength across commercial and defense markets partially offset by lower sales in the Diversified Industrial Segment The acquisition the Acquisition of Meggitt plc Meggitt increased sales by approximately 501 million during the current year The effect of currency exchange rates decreased net sales in 2024 by approximately 10 million which is attributable to the Diversified Industrial Segment partially offset by an increase in net sales due to the effect of currency exchange rates in the Aerospace Systems Segment The impact of divestiture activity decreased sales by approximately 62 million in 2024
calculated as net sales less cost of sales divided by net sales increased in 2024 primarily due to higher margins in both segments resulting from price increases favorable product mix moderating material and freight costs and operational efficiencies In addition cost of sales in 2023 included 110 million of amortization expense related to the step up in inventory to fair value resulting from the Acquisition
SG A decreased in 2024 compared to 2023 primarily due to the absence of acquisition related transaction costs in 2023 totaling 115 million and benefits from prior year acquisition integration and business realignment activities The decrease was partially offset by an increase in intangible asset amortization and share based compensation expense as well as an increase in general and administrative expenses resulting from the Acquisition
Foreign currency transaction gain loss primarily relates to the impact of exchange rates on cash forward contracts certain cross currency swap contracts and intercompany transactions During 2023 it also includes foreign currency transaction loss associated with completing the Acquisition
includes a loss on the deal contingent forward contracts related to the Acquisition Refer to Note 17 to the Consolidated Financial Statements in Part II Item 8 of this Annual Report on Form 10 K for further discussion
in 2023 includes a gain on the sale of the aircraft wheel and brake business within the Aerospace Systems Segment of 374 million Refer to Note 3 to the Consolidated Financial Statements in Part II Item 8 of this Annual Report on Form 10 K for further discussion
in 2024 was lower than 2023 due to an overall increase in discrete tax benefits along with a change in U S state and local income taxes and non recurring acquisition expenses Refer to Note 5 to the Consolidated Financial Statements in Part II Item 8 of this Annual Report on Form 10 K for a reconciliation of the U S federal statutory tax rate to our effective tax rate
The Business Segment information presents sales and operating income on a basis that is consistent with the manner in which the Company s various businesses are managed for internal review and decision making
This table reconciles the percentage changes in net sales of the Diversified Industrial Segment reported in accordance with accounting principles generally accepted in the United States of America GAAP to percentage changes in net sales adjusted to remove the effects of acquisitions and divestitures for 12 months after their completion as well as changes in currency exchange rates a non GAAP measure The effects of acquisitions divestitures and changes in currency exchange rates are removed to allow investors and the Company to meaningfully evaluate the percentage changes in net sales on a comparable basis from period to period
Diversified Industrial Segment sales in 2024 decreased 249 million from 2023 The Acquisition increased sales by approximately 115 million The effect of currency exchange rates decreased sales by approximately 30 million The impact of divestiture activity decreased sales by approximately 23 million Excluding the effects of the Acquisition changes in currency exchange rates and divestiture activity sales in 2024 decreased 312 million from prior year levels
Sales within the North America businesses of the Diversified Industrial Segment decreased 116 million in 2024 The effect of the Acquisition increased sales by approximately 77 million The effect of currency exchange rates increased sales by approximately 25 million during the year The impact of divestiture activity decreased sales by approximately 23 million Excluding the effects of the Acquisition changes in the currency exchange rates and divestiture activity sales in 2024 decreased 196 million from prior year levels reflecting lower demand within the HVAC and refrigeration transportation off highway and in plant and industrial equipment markets The decrease in sales was partially offset by an increase in demand within the aerospace and defense and energy markets
Sales within the International businesses of the Diversified Industrial Segment decreased 132 million in 2024 The effect of the Acquisition increased sales by approximately 38 million The effect of currency exchange rates decreased sales by approximately 54 million reflecting the strengthening of the U S dollar primarily against currencies in Turkey China and Japan partially offset by the weakening of the U S dollar primarily against currencies in the Eurozone countries and United Kingdom Excluding the effects of the Acquisition and changes in the currency exchange rates sales in 2024 decreased 116 million from prior year levels primarily due to lower sales in the Asia Pacific region and Europe partially offset by an increase in sales in Latin America
Within Europe the decrease in sales was primarily due to lower demand within the HVAC and refrigeration off highway energy and in plant and industrial equipment markets partially offset by higher demand within the aerospace and defense and transportation markets
Within the Asia Pacific region the decrease in sales was primarily due to lower demand within the in plant and industrial equipment energy off highway and HVAC and refrigeration markets partially offset by higher demand within the aerospace and defense and transportation markets
Within Latin America the increase in sales was primarily due to higher demand within the aerospace and defense in plant and industrial equipment energy HVAC and refrigeration off highway and transportation markets
Diversified Industrial Segment operating margin increased in 2024 in both the North America and International businesses primarily due to benefits from price increases favorable product mix moderating material and freight costs and operational efficiencies These benefits were partially offset by higher business realignment charges in the current year
Business realignment charges include severance costs related to actions taken under the Company s simplification initiative aimed at reducing organizational and process complexity as well as plant closures In both 2024 and 2023 acquisition integration charges relate to the acquisition of Meggitt Business realignment and acquisition integration charges within the International businesses were primarily incurred in Europe
We anticipate that cost savings realized from the workforce reduction measures taken during 2024 will increase operating income in 2025 by approximately two percent for both the International and North America businesses We expect to continue to take actions necessary to integrate acquisitions and appropriately structure the operations of the Diversified Industrial Segment These actions are expected to result in approximately 53 million in business realignment and acquisition integration charges in 2025 However continually changing business conditions could impact the ultimate costs we incur
Diversified Industrial Segment backlog decreased in 2024 primarily due to shipments exceeding orders in both the North America and International businesses The decrease in backlog was split evenly between both businesses Within the International businesses Europe the Asia Pacific region and Latin America accounted for approximately 70 percent 25 percent and five percent of the decrease respectively
Backlog consists of written firm orders from a customer to deliver products and in the case of blanket purchase orders only includes the portion of the order for which a schedule or release date has been agreed to with the customer The dollar value of backlog is equal to the amount that is expected to be billed to the customer and reported as a sale
Aerospace Systems Segment sales increased 1 1 billion in 2024 The Acquisition increased sales by 386 million The effect of currency exchange rates increased sales by approximately 19 million The impact of divestiture activity decreased sales by approximately 40 million Excluding the effects of the Acquisition changes in currency exchange rates and divestiture activity sales in 2024 increased 748 million from prior year levels The increase in sales is primarily driven by higher volume across all market segments especially the commercial aftermarket
Aerospace Systems Segment operating margin increased in 2024 primarily due to higher sales volume favorable aftermarket mix and lower acquisition integration charges as well as benefits of cost containment initiatives and prior year business realignment and acquisition integration activities These benefits were partially offset by a 79 million increase in intangible asset amortization expense in 2024 In addition operating income in the prior year included 110 million of amortization expense related to the step up in inventory to fair value resulting from the Acquisition
Within the Aerospace Systems Segment we incurred acquisition integration and business realignment charges of 35 million and 90 million in 2024 and 2023 respectively We expect to incur approximately 12 million in acquisition integration charges in 2025 However continually changing business conditions could impact the ultimate costs we incur
Backlog consists of written firm orders from a customer to deliver products and in the case of blanket purchase orders only includes the portion of the order for which a schedule or release date has been agreed to with the customer The dollar value of backlog is equal to the amount that is expected to be billed to the customer and reported as a sale
Corporate general and administrative expenses decreased in 2024 primarily due to lower expenses related to the Company s incentive compensation programs and professional service fees partially offset by an increase in salaries and benefits charitable contributions and information technology expenses
Foreign currency transaction gain loss primarily relates to the impact of exchange rates on cash forward contracts certain cross currency swap contracts and intercompany transactions During 2023 it also includes foreign currency transaction loss associated with completing the Acquisition
Acquisition related expenses include transaction costs related to the acquisition of Meggitt Refer to Note 3 to the Consolidated Financial Statements in Part II Item 8 of this Annual Report on Form 10 K for further discussion
Loss on deal contingent forward contracts includes losses on the deal contingent forward contracts related to the Acquisition Refer to Note 17 to the Consolidated Financial Statements in Part II Item 8 of this Annual Report on Form 10 K for further discussion
We believe that we are great generators and deployers of cash We assess our liquidity in terms of our ability to generate cash to fund our operations and meet our strategic capital deployment objectives which include the following
were 3 384 million in 2024 compared to 2 980 million in 2023 The increase of 404 million in 2024 was primarily related to an increase in earnings combined with strong management of working capital items We continue to focus on managing inventory and other working capital requirements Cash flows from operating activities for 2023 were negatively impacted by acquisition related transaction expenses
Payments to retire 900 million aggregate principal amount of private placement notes assumed in the Acquisition in 2023 Refer to Note 3 to the Consolidated Financial Statements in Part II Item 8 of this Annual Report on Form 10 K for further discussion
Principal payments totaling 385 million related to the Term Loan Facility in 2024 compared to principal payments totaling 1 1 billion related to the Term Loan Facility in 2023 Refer to Note 11 to the Consolidated Financial Statements in Part II Item 8 of this Annual Report on Form 10 K for further discussion
We are actively monitoring our liquidity position and remain focused on managing our inventory and other working capital requirements We are continuing to target two percent of sales for capital expenditures and are prioritizing those related to safety strategic investments and sustainability initiatives We believe that cash generated from operations and our commercial paper program will satisfy our operating needs for the foreseeable future
We have committed cash outflow related to long term debt operating and financing lease agreements and postretirement benefit obligations Refer to Notes 11 12 and 13 respectively of Part II Item 8 of this Annual Report on Form 10 K for further discussion
The Company has a program to repurchase its common shares On October 22 2014 the Board of Directors of the Company approved an increase in the overall number of shares authorized to repurchase under the program so that beginning on such date the aggregate number of shares authorized for repurchase was 35 million There is no limitation on the number of shares that can be repurchased in a year Repurchases may be funded primarily from operating cash flows and commercial paper borrowings and the shares are initially held as treasury shares
Cash comprised of cash and cash equivalents and marketable securities and other investments includes 311 million and 422 million held by the Company s foreign subsidiaries at June 30 2024 and 2023 respectively The Company does not permanently reinvest certain foreign earnings The distribution of these earnings could result in non federal U S or foreign taxes All other undistributed foreign earnings remain permanently reinvested
We are currently authorized to sell up to 3 0 billion of short term commercial paper notes There were 2 1 billion outstanding commercial paper notes as of June 30 2024 and the largest amount of commercial paper notes outstanding during the fourth quarter of 2024 was 2 3 billion
The Company has a line of credit totaling 3 0 billion through a multi currency revolving credit agreement with a group of banks As of June 30 2024 0 9 billion was available for borrowing under the credit agreement Advances from the credit agreement can be used for general corporate purposes including acquisitions and for the refinancing of existing indebtedness The credit agreement supports our commercial paper program and issuances of commercial paper reduce the amount of credit available under the agreement The credit agreement expires in June 2028 however the Company has the right to request a one year extension of the expiration date on an annual basis which request may result in changes to the current terms and conditions of the credit agreement The credit agreement requires the payment of an annual facility fee the amount of which is dependent upon the Company s credit ratings Although a lowering of the Company s credit ratings would increase the cost of future debt it would not limit the Company s ability to use the credit agreement nor would it accelerate the repayment of any outstanding borrowings Refer to Note 10 to the Consolidated Financial Statements in Part II Item 8 of this Annual Report on Form 10 K for further discussion
We primarily utilize unsecured medium term notes and senior notes to meet our financing needs and we expect to continue to borrow funds at reasonable rates over the long term Refer to the Cash flows from financing activities section above and Note 11 of the Consolidated Financial Statements in Part II Item 8 of this Annual Report on Form 10 K for further discussion
The Company s credit agreements and indentures governing certain debt securities contain various covenants the violation of which would limit or preclude the use of the credit agreements for future borrowings or might accelerate the maturity of the related outstanding borrowings covered by the indentures Based on the Company s rating level at June 30 2024 the most restrictive financial covenant provides that the ratio of debt to debt shareholders equity cannot exceed 0 65 to 1 0 At June 30 2024 the Company s debt to debt shareholders equity ratio was 0 47 to 1 0 We are in compliance and expect to remain in compliance with all covenants set forth in the credit agreement and indentures
Our goal is to maintain an investment grade credit profile The rating agencies periodically update our credit ratings as events occur At June 30 2024 the long term credit ratings assigned to the Company s senior debt securities by the credit rating agencies engaged by the Company were as follows
We continue to identify opportunities to improve our liquidity and working capital efficiency which includes the extension of payment terms with our suppliers We currently have supply chain financing SCF programs with financial intermediaries which provide certain suppliers the option to be paid by the financial intermediaries earlier than the due date on the applicable invoice We do not believe that changes in the availability of supply chain financing will have a significant impact on our liquidity Refer to Note 8 to the Consolidated Financial Statements in Part II Item 8 of this Annual Report on Form 10 K for further discussion
Acquisitions will be considered from time to time to the extent there is a strong strategic fit while at the same time maintaining the Company s strong financial position In addition we will continue to assess our existing businesses and initiate efforts to divest businesses that are not considered to be a good long term strategic fit for the Company During 2024 we divested two businesses and in 2023 we completed one acquisition and divested two businesses On July 28 2024 the Company signed an agreement to divest its Meggitt composites and fuel containment business within the North America businesses of the Diversified Industrial Segment Refer to Notes 1 and 3 to the Consolidated Financial Statements in Part II Item 8 of this Annual Report on Form 10 K for further discussion
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes The policies discussed below are considered by management to be more critical than other policies because their application places the most significant demands on management s judgment
Revenues are recognized when control of performance obligations which are distinct goods or services within the contract is transferred to the customer Control is transferred when the customer has the ability to direct the use of and obtain the benefits from the goods or services A majority of our revenues are recognized at a point in time when control is transferred to the customer which is generally at the time of shipment However a portion of our revenues are recognized over time if the customer simultaneously receives control as we perform work under a contract if the customer controls the asset as it is being produced or if the product has no alternative use and we have a contractual right to payment
For contracts where revenue is recognized over time we use the cost to cost efforts expended or units of delivery method depending on the nature of the contract including length of production time The estimation of costs and efforts expended requires management s judgment due to the duration of the contractual agreements as well as the technical nature of the products involved Adjustments to these estimates are made on a consistent basis and a contract reserve is established when the estimated costs to complete a contract exceed the expected contract revenues
When there are multiple performance obligations within a contract the transaction price is allocated to each performance obligation based on its standalone selling price The primary method used to estimate a standalone selling price is the price observed in standalone sales to customers for the same product or service Revenue is recognized when control of the individual performance obligations is transferred to the customer
We consider the contractual consideration payable by the customer and assess variable consideration that may affect the total transaction price Variable consideration is included in the estimated transaction price when there is a basis to reasonably estimate the amount including whether the estimate should be constrained in order to avoid a significant reversal of revenue in a future period These estimates are based on historical experience anticipated performance under the terms of the contract and our best judgment at the time
We test goodwill for impairment at the reporting unit level on an annual basis and between annual tests whenever events or circumstances indicate the carrying value of a reporting unit may exceed its fair value Our five reporting units are equivalent to our operating segments As quoted market prices are not available for our reporting units determining whether an impairment occurred requires the valuation of the respective reporting unit which is estimated using both income based and market based valuation methods The income based valuation method utilizes a discounted cash flow model which requires several assumptions including future sales growth and operating margin levels as well as assumptions regarding future industry specific market conditions Each reporting unit regularly prepares discrete operating forecasts and uses these forecasts as the basis for the assumptions in the discounted cash flow analysis Within the discounted cash flow models the Company uses a discount rate commensurate with its cost of capital but adjusted for inherent business risks and an appropriate terminal growth factor The market based valuation performed for each reporting unit includes an analysis consisting of market adjusted multiples based on key data points for guideline public companies We also reconcile the estimated aggregate fair value of our reporting units resulting from these procedures to our overall market capitalization
At December 31 2023 the Company performed its annual goodwill impairment test for each of its five reporting units The results of this test indicated the fair value substantially exceeded carrying value for all reporting units We continually monitor our reporting units for impairment indicators and update assumptions used in the most recent calculation of a reporting unit s fair value as appropriate
Long lived assets held for use which primarily includes finite lived intangible assets and property plant and equipment are evaluated for impairment whenever events or circumstances indicate that the undiscounted net cash flows to be generated by their use over their expected useful lives and eventual disposition are less than their carrying value The long term nature of these assets requires the estimation of their cash inflows and outflows several years into the future and only takes into consideration technological advances known at the time of the impairment test During 2024 the Company did not record any material impairments related to long lived assets
The annual net periodic expense and benefit obligations related to the Company s defined benefit plans are determined on an actuarial basis This determination requires critical assumptions regarding the discount rate long term rate of
return on plan assets increases in compensation levels and amortization periods for actuarial gains and losses Assumptions are determined based on Company data and appropriate market indicators and are evaluated each year as of the plans measurement date Changes in the assumptions to reflect actual experience as well as the amortization of actuarial gains and losses could result in a material change in the annual net periodic expense and benefit obligations reported in the financial statements
For the Company s domestic qualified defined benefit plan our largest plan a 50 basis point change in the assumed long term rate of return on plan assets is estimated to have an 18 million effect on annual pension expense and a 50 basis point decrease in the discount rate is estimated to decrease annual pension expense by 6 million As of June 30 2024 331 million of past years net actuarial losses related to the Company s domestic qualified defined benefit plan are subject to amortization in the future These losses will generally be amortized over approximately seven years and will negatively affect earnings in the future Any actuarial gains experienced in future years will help offset the effect of the net actuarial loss amortization Further information on pensions is provided in Note 13 to the Consolidated Financial Statements in Part II Item 8 of this Annual Report on Form 10 K
From time to time we may enter into business combinations Business acquisitions are accounted for using the acquisition method of accounting which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values In the fair value evaluation of intangible assets acquired there are significant estimates and assumptions including forecasts of future cash flows revenues and earnings before interest taxes depreciation and amortization as well as the selection of the royalty rates and discount rates The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill The acquisition method of accounting also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that if known would have affected the measurement of the amounts recognized as of that date If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions these adjustments could have a material impact on our financial condition and results of operations
Significant judgment is required in determining the Company s income tax expense and in evaluating tax positions Deferred income tax assets and liabilities have been recorded for the differences between the financial accounting and income tax basis of assets and liabilities Factors considered by the Company in determining the probability of realizing deferred income tax assets include forecasted operating earnings available tax planning strategies and the time period over which the temporary differences will reverse The Company reviews its tax positions on a regular basis and adjusts the balances as new information becomes available For those tax positions where it is more likely than not that a tax benefit will be sustained the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon examination by a taxing authority that has full knowledge of all relevant information will be recorded For those income tax positions where it is not more likely than not that a tax benefit will be sustained no tax benefit has been recognized in the Consolidated Financial Statements Further information on income taxes is provided in Note 5 to the Consolidated Financial Statements in Part II Item 8 of this Annual Report on Form 10 K
The Company has a number of loss exposures incurred in the ordinary course of business such as environmental claims product liability and litigation reserves Establishing loss accruals for these matters requires management s estimate and judgment with regards to risk exposure and ultimate liability or realization We review these loss accruals periodically and make adjustments to reflect the most recent facts and circumstances
A substantial portion of our operations are conducted by our subsidiaries outside of the U S in currencies other than the U S dollar Most of our non U S subsidiaries conduct their business primarily in their local currencies which are also their functional currencies Foreign currency exposures arise from translation of foreign denominated assets and liabilities into U S dollars and from transactions denominated in a currency other than the subsidiary s functional currency We continue to manage the associated foreign currency transaction and translation risk
The Company manages foreign currency transaction and translation risk by utilizing derivative and non derivative financial instruments including forward exchange contracts deal contingent forward contracts costless collar contracts cross currency swap contracts and certain foreign currency denominated debt designated as net investment hedges The derivative financial instrument contracts are with major investment grade financial institutions and we do not anticipate any material non performance by any of the counterparties We do not hold or issue derivative financial instruments for trading purposes
Derivative financial instruments are recognized on the Consolidated Balance Sheet as either assets or liabilities and are measured at fair value Further information on the fair value of these contracts is provided in Note 17 to the Consolidated Financial Statements in Part II Item 8 of this Annual Report on Form 10 K Derivatives that are not designated as hedges are adjusted to fair value by recording gains and losses through the Consolidated Statement of Income Derivatives that are designated as hedges are adjusted to fair value by recording gains and losses through accumulated other comprehensive loss in the Consolidated Balance Sheet until the hedged item is recognized in earnings For cross currency swaps measured using the spot method the periodic interest settlements are recognized directly in earnings through interest expense The translation of the foreign currency denominated debt that has been designated as a net investment hedge is recorded in accumulated other comprehensive loss and remains there until the underlying net investment is sold or substantially liquidated
The Company s debt portfolio contains variable rate debt inherently exposing the Company to interest rate risk The Company s objective is to maintain a 60 40 mix between fixed rate and variable rate debt thereby limiting its exposure to changes in near term interest rates At June 30 2024 our debt portfolio included 490 million of variable rate debt exclusive of commercial paper borrowings A 100 basis point increase in near term interest rates would increase annual interest expense on variable rate debt including weighted average commercial paper borrowings during 2024 by approximately 18 million
We have audited the accompanying consolidated balance sheets of Parker Hannifin Corporation and subsidiaries the Company as of June 30 2024 and 2023 the related consolidated statements of income comprehensive income cash flows and equity for each of the three years in the period ended June 30 2024 and the related notes and the schedule listed in the Index at Item 15 collectively referred to as the financial statements We also have audited the Company s internal control over financial reporting as of June 30 2024 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO
In our opinion the financial statements referred to above present fairly in all material respects the financial position of the Company as of June 30 2024 and 2023 and the results of its operations and its cash flows for each of the three years in the period ended June 30 2024 in conformity with accounting principles generally accepted in the United States of America Also in our opinion the Company maintained in all material respects effective internal control over financial reporting as of June 30 2024 based on criteria established in Internal Control Integrated Framework 2013 issued by COSO
The Company s management is responsible for these financial statements for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control Over Financial Reporting Our responsibility is to express an opinion on these financial statements and an opinion on the Company s internal control over financial reporting based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures to respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk Our audits also included performing such other procedures as we considered necessary in the circumstances We believe that our audits provide a reasonable basis for our opinions
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the financial statements and 2 involved especially challenging subjective or complex judgments The communication of critical audit matters does not alter in any way our opinion on the financial statements taken as a whole
The Company recognizes revenue from the sale of products to customers primarily in aerospace defense in plant industrial equipment transportation off highway energy and HVAC refrigeration markets around the world The Company s business activities are carried out by a large number of individual business units collectively offering hundreds of thousands of individual products in over forty countries globally
We identified revenue from product shipments as a critical audit matter due to the geographic dispersion of the Company s operations and business units generating revenue Extensive audit effort is required due to the volume of the underlying transactions and number of individual business units High levels of auditor judgment were necessary to determine the nature timing and extent of audit procedures performed to audit revenue from product shipments
We tested the operating effectiveness of internal controls over the recognition of revenue from product shipments including controls over the quantity and price of products shipped and timing of revenue recognition
We performed detail transaction testing for revenue from product shipments by making a sample of transactions and comparing the transactions selected to source documents such as purchase orders and shipping records
We tested the completeness of revenue from product shipments by making a sample from a listing of sales orders and comparing the sample transactions to source documentation such as shipping records to determine whether the transactions selected were appropriately included in revenue from product shipments
We tested the timing of revenue recognition by making a sample from a list of products shipped prior to and subsequent to year end and used source documentation such as shipping records to determine whether the transactions selected were appropriately recorded in the correct period
We performed substantive analytical procedures for certain revenue transactions by developing independent expectations of revenue based on data derived from the results of our detail revenue testing and comparing these expectations to the revenue recorded by management
The Company is a global leader in motion and control technologies Leveraging a unique combination of interconnected technologies we design manufacture and provide aftermarket support for highly engineered solutions that create value for customers primarily in aerospace defense in plant industrial equipment transportation off highway energy and HVAC refrigeration markets around the world We evaluate performance based on segment operating income before corporate administrative expenses interest expense and income taxes
There are no individual customers to whom sales are more than four percent of the Company s consolidated sales Due to our diverse group of customers throughout the world we do not consider ourself exposed to any concentration of credit risks
The Company manufactures and markets its products throughout the world Although certain risks and uncertainties exist the diversity and breadth of our products and geographic operations mitigate the risk that adverse changes with respect to any particular product and geographic operation would materially affect our operating results
The preparation of consolidated financial statements in conformity with U S GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes Actual results could differ from those estimates
The consolidated financial statements include the accounts of all majority owned domestic and foreign subsidiaries All intercompany transactions and profits have been eliminated in the consolidated financial statements The Company does not have off balance sheet arrangements Within the business segment information inter segment and inter area sales have been eliminated
Revenues are recognized when control of performance obligations which are distinct goods or services within the contract is transferred to the customer Control is transferred when the customer has the ability to direct the use of and obtain the benefits from the goods or services When revenue is recognized at a point in time control generally transfers at time of shipment Revenues are recognized over time if the customer simultaneously receives control as the Company performs work under a contract if the customer controls the asset as it is being produced or if the product produced for the customer has no alternative use and the Company has a contractual right to payment
For contracts where revenue is recognized over time we use the cost to cost efforts expended or units of delivery method depending on the nature of the contract including length of production time The estimation of these costs and efforts expended requires judgment on the part of management due to the duration of the contractual agreements as well as the technical nature of the products involved We make adjustments to these estimates on a consistent basis and establish a contract reserve when the estimated costs to complete a contract exceed the expected contract revenues
A contract s transaction price is allocated to each distinct performance obligation When there are multiple performance obligations within a contract the transaction price is allocated to each performance obligation based on its standalone selling price The primary method used to estimate a standalone selling price is the price observed in standalone sales to customers of the same product or service Revenue is recognized when control of the individual performance obligations is transferred to the customer
We consider the contractual consideration payable by the customer and assess variable consideration that may affect the total transaction price Variable consideration primarily includes prompt pay discounts rebates and volume discounts and is included in the estimated transaction price when there is a basis to reasonably estimate the amount including whether the estimate should be constrained in order to avoid a significant reversal of revenue in a future period These estimates are based on historical experience anticipated performance under the terms of the contract and our best judgment at the time
Payment terms vary by customer and the geographic location of the customer The time between when revenue is recognized and payment is due is not significant Our contracts with customers generally do not include significant financing components or noncash consideration
Taxes collected from customers and remitted to governmental authorities are excluded from revenue Shipping and handling costs are treated as fulfillment costs and are included in cost of sales The costs to obtain a contract where the amortization period for the related asset is one year or less are expensed as incurred
There is generally no unilateral right to return products The Company primarily offers an assurance type standard warranty that the product will conform to certain specifications for a defined period of time or usage after delivery This type of warranty does not represent a separate performance obligation
Cash equivalents consist of short term highly liquid investments with a maturity of three months or less These investments are carried at cost plus accrued interest and are readily convertible into cash
Trade accounts receivable are initially recorded at their net collectible amount and are generally recorded at the time the revenue from the sales transaction is recorded We evaluate the collectibility of our receivables based on historical experience and current and forecasted economic conditions based on management s judgment Additionally receivables are written off to bad debt when management makes a final determination of uncollectibility Allowance for credit losses was 21 million and 32 million at June 30 2024 and 2023 respectively
Property plant and equipment are recorded at cost and are depreciated principally using the straight line method for financial reporting purposes Depreciation rates are based on estimated useful lives of the assets generally 40 years for buildings 15 years for land improvements and building equipment seven to 10 years for machinery and equipment and three to eight years for vehicles and office equipment Improvements which extend the useful life of property are capitalized Maintenance and repairs are expensed We review property plant and equipment for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable When property plant and equipment are retired or otherwise disposed of the cost and accumulated depreciation are removed from the appropriate accounts and any gain or loss is included in current income
Investments in joint venture companies in which ownership is 50 percent or less and in which the Company does not have operating control are stated at cost plus the Company s equity in undistributed earnings and amounted to 294 million and 297 million at June 30 2024 and 2023 respectively A significant portion of the underlying net assets of the joint ventures are related to goodwill The Company s share of earnings from investments in joint venture companies were 152 million 124 million and 76 million in 2024 2023 and 2022 respectively and are included within other income expense net in the Consolidated Statement of Income Sales to and services performed for joint venture companies totaled 74 million 64 million and 47 million in 2024 2023 and 2022 respectively We received cash dividends from joint venture companies of 148 million 114 million and 82 million in 2024 2023 and 2022 respectively
Intangible assets primarily include patents and technology trade names and customer relationships and contracts and are recorded at cost and amortized on a straight line method Patents and technology are amortized over the shorter of their remaining useful or legal life Trade names are amortized over the estimated time period over which an economic benefit is expected to be received Customer relationships are amortized over a period based on anticipated customer attrition rates or contractual lives The Company reviews intangible assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable
The Company conducts a formal impairment test of goodwill on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value
Income taxes are provided based upon income for financial reporting purposes Taxes related to Global Intangible Low Taxed Income GILTI are treated as a current period expense when incurred Tax credits and similar tax incentives are applied to reduce the provision for income taxes in the year in which the credits arise We recognize accrued interest related to unrecognized tax benefits in income tax expense Penalties if incurred are recognized in income tax expense Deferred income taxes arise from temporary differences in the recognition of income and expense for tax purposes Income tax effects resulting from adjusting temporary differences recorded in accumulated other comprehensive loss are released when the circumstances on which they are based cease to exist
Assets and liabilities of foreign subsidiaries are translated at current exchange rates and income and expenses are translated using weighted average exchange rates The effects of these translation adjustments as well as gains and losses from certain hedging and intercompany transactions are reported in accumulated other comprehensive loss Such adjustments will affect net income only upon sale or liquidation of the underlying foreign investments Exchange gains losses from transactions in a currency other than the local currency of the entity involved are included within other income expense net in the Consolidated Statement of Income and were 38 million 46 million and 40 million in 2024 2023 and 2022 respectively
From time to time we may enter into business combinations Business acquisitions are accounted for using the acquisition method of accounting which allocates the fair value of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values The excess of the purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill The acquisition method of accounting also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that if known would have affected the measurement of the amounts recognized as of that date Transaction costs associated with these acquisitions are expensed as incurred
We evaluated subsequent events that have occurred through the date of filing of this Annual Report on Form 10 K for the year ended June 30 2024 On July 28 2024 the Company signed an agreement to divest its Meggitt composites and fuel containment CFC business within the North America businesses of the Diversified Industrial Segment for an enterprise value of 560 million on a cash free debt free basis and subject to a working capital adjustment The CFC business has annual sales of approximately 350 million Closing of this divestiture is subject to customary closing conditions including regulatory clearance and is anticipated to occur prior to December 31 2024
In December 2023 the Financial Accounting Standards Board FASB issued Accounting Standards Update ASU 2023 09 Income Taxes Topic 740 Improvements to Income Tax Disclosures which enhances the disclosure requirements for income taxes primarily related to the rate reconciliation and income taxes paid information The amendments are effective for fiscal years beginning after December 15 2024 Early adoption is permitted The amendment should be applied on a prospective basis Retrospective application is permitted The Company is currently evaluating the impact this guidance will have on the Company s disclosures
In November 2023 the FASB issued ASU 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses The amendments in this ASU are effective for fiscal years beginning after December 15 2023 and for interim periods within fiscal years beginning after December 15 2024 Early adoption is permitted The amendments should be applied retrospectively to all prior periods presented in the financial statements The Company is currently evaluating the impact this guidance will have on the Company s disclosures
In September 2022 the FASB issued ASU 2022 04 Liabilities Supplier Finance Programs Subtopic 405 50 Disclosure of Supplier Finance Program Obligations which requires a buyer in a supplier finance program to disclose information about the program s nature activity during the period changes from period to period and potential magnitude To achieve that objective the buyer should disclose qualitative and quantitative information about its supplier finance programs including the outstanding amount under the program the balance sheet presentation of the outstanding amount and a rollforward of the obligations in the program This ASU should be adopted retrospectively for each balance sheet period presented however the rollforward information should be provided prospectively The amendments in this ASU are effective for fiscal years beginning after December 15 2022 including interim periods within those fiscal years except for the amendment on rollforward information which is effective for fiscal years beginning after December 15 2023 Early adoption is permitted The Company adopted the guidance on July 1 2023 except for the rollforward requirement which becomes effective July 1 2024 The adoption did not have a material impact on the Company s consolidated financial statements
Revenue is derived primarily from the sale of products in the aerospace defense in plant industrial equipment transportation off highway energy and HVAC refrigeration markets A majority of the Company s revenues are recognized at a point in time However a portion of the Company s revenues are recognized over time
Revenue from contracts with customers is disaggregated by technology platform for the Diversified Industrial Segment by market segment for the Aerospace Systems Segment and by geographic location for the total Company
The Diversified Industrial Segment is an aggregation of several business units which manufacture a broad range of motion control systems and components for builders and users of various types of manufacturing packaging processing transportation agricultural construction and military vehicles and equipment Contracts consist of individual purchase orders for standard product blanket purchase orders and production contracts Blanket purchase orders are often associated with individual purchase orders and have terms and conditions which are subject to a master supply or distributor agreement Individual production contracts some of which may include multiple performance obligations are typically for products manufactured to the customer s specifications Revenue in the Diversified Industrial Segment is typically recognized at the time of product shipment but a portion of revenue may be recognized over time for installation services or in situations where the product has no alternative use and we have an enforceable right to payment
The Aerospace Systems Segment produces engine and airframe components and systems which are utilized on virtually every major commercial and military aircraft Contracts generally consist of blanket purchase orders and individual long term production contracts Blanket purchase orders which have terms and conditions subject to long term supply agreements are typically associated with individual purchase orders Revenue in the Aerospace Systems Segment is typically recognized at the time of product shipment but a portion of revenue may be recognized over time in situations where the customer controls the asset as it is produced or the product has no alternative use and we have an enforceable right to payment
Contract assets and contract liabilities are reported on a contract by contract basis Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract Payments from customers are received based on the terms established in the contract with the customer
Net contract liabilities at June 30 2024 decreased from the prior year amount due to timing differences between when revenue was recognized and the receipt of advance payments During 2024 approximately 178 million of revenue was recognized that was included in the contract liabilities at June 30 2023
Our backlog represents written firm orders from a customer to deliver products and in the case of blanket purchase orders only includes the portion of the order for which a schedule or release has been agreed to with the customer We believe our backlog represents our unsatisfied or partially unsatisfied performance obligations Backlog at June 30 2024 was 10 9 billion of which approximately 73 percent is expected to be recognized as revenue within the next 12 months and the balance thereafter
On September 12 2022 we completed the Acquisition of all the outstanding ordinary shares of Meggitt for 800 pence per share resulting in an aggregate cash purchase price of 7 2 billion including the assumption of debt
Meggitt is a leader in design manufacturing and aftermarket support of technologically differentiated systems and equipment in aerospace defense and selected energy markets with annual sales of approximately 2 1 billion for the year ended December 31 2021 For segment reporting purposes approximately 82 percent of Meggitt s sales are included in the Aerospace Systems Segment while the remaining 18 percent are included in the Diversified Industrial Segment
Assets acquired and liabilities assumed are recognized at their respective fair values as of the Acquisition date The process of estimating the fair values of certain tangible assets identifiable intangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates During the measurement period which ended in September 2023 adjustments did not have a material impact on the Consolidated Statement of Income The following table presents the final estimated fair values of Meggitt s assets acquired and liabilities assumed on the Acquisition date
Goodwill is calculated as the excess of the purchase price over the net assets acquired and represents cost synergies and enhancements to our existing technologies For tax purposes Meggitt s goodwill is not deductible Based upon a final acquisition valuation we acquired 4 2 billion of customer related intangible assets 1 1 billion of technology and 303 million of trade names each with weighted average estimated useful lives of 21 22 and 18 years respectively These intangible assets were valued using the income approach which includes significant assumptions around future revenue growth earnings before interest taxes depreciation and amortization royalty rates and discount rates Such assumptions are classified as level 3 inputs within the fair value hierarchy
Based upon a final acquisition valuation the fair value of the assets acquired includes 115 million and 91 million of operating and finance lease right of use assets respectively The fair value of liabilities assumed includes 116 million and 90 million of operating and finance lease liabilities respectively of which 18 million and 1 million of operating and finance lease liabilities respectively are current liabilities
Debt assumed included 900 million aggregate principal amount of private placement notes with fixed interest rates ranging from 2 78 percent to 3 60 percent and maturity dates ranging from July 2023 to July 2026 The private placement notes were recorded at fair value at acquisition In October 2022 we paid off 300 million aggregate principal amount of private placement notes in two tranches pursuant to an offer to noteholders according to change in control provisions In June 2023 the Company paid the remaining 600 million aggregate principal amount of private placement notes assumed in the Acquisition which resulted in a 10 million charge recorded in interest expense in the Consolidated Statement of Income associated with the fair value discount
Based upon a final acquisition valuation we also assumed 142 million of liabilities associated with environmental matters Approximately 102 million of environmental matters are included within other accrued liabilities and the remainder is included within other liabilities in the Consolidated Balance Sheet The environmental matters primarily relate to known exposures arising from environmental litigation investigations and remediation of certain sites for which Meggitt has been identified as a potentially responsible party The liabilities are based on outcomes of litigation and estimates of the level and timing of remediation costs including the period of operating and monitoring activities required
Our consolidated financial statements for 2023 include the results of operations of Meggitt from the date of acquisition through June 30 2023 Net sales and segment operating income attributable to Meggitt during 2023 were 2 1 billion and 23 million respectively Segment operating income attributable to Meggitt includes estimated amortization and depreciation expense associated with the preliminary fair value estimates of intangible assets plant and equipment inventory as well as acquisition integration charges Refer to Note 4 for further discussion of acquisition integration charges
The historical consolidated financial information of Parker and Meggitt has been adjusted in the pro forma information in the table above to give effect to events that are directly attributable to the Acquisition and factually supportable To reflect the occurrence of the Acquisition on July 1 2021 the unaudited pro forma information includes adjustments for the amortization of the step up of inventory to fair value and incremental depreciation and amortization expense resulting from the fair value adjustments to property plant and equipment and intangible assets These adjustments were based upon a preliminary purchase price allocation Additionally adjustments to financing costs and income tax expense were also made to reflect the capital structure and anticipated effective tax rate of the combined entity Additionally the pro forma information includes adjustments for non recurring transactions directly related to the Acquisition including the gain on the divestiture of the aircraft wheel and brake business loss on deal contingent forward contracts and transaction costs These non recurring adjustments totaled 199 million and 654 million in 2023 and 2022 respectively The resulting pro forma amounts are not necessarily indicative of the results that would have been obtained if the Acquisition had occurred as of the beginning of the period presented or that may occur in the future and do not reflect future synergies integration costs or other such costs or savings
During December 2023 we divested our Filter Resources business which was part of the Diversified Industrial Segment for proceeds of 37 million The resulting pre tax gain of 12 million is included in gain on sale of businesses and assets net in the Consolidated Statement of Income The operating results and net assets of the Filter Resources business were immaterial to the Company s consolidated results of operations and financial position
During September 2023 we divested the MicroStrain sensing systems business which was part of the Diversified Industrial Segment for proceeds of 37 million The resulting pre tax gain of 13 million is included in gain on sale of businesses and assets net in the Consolidated Statement of Income The operating results and net assets of the MicroStrain sensing systems business were immaterial to the Company s consolidated results of operations and financial position
During March 2023 we divested a French aerospace business which was part of the Aerospace Systems Segment for proceeds of 27 million The resulting pre tax loss of 12 million is included in gain on sale of businesses and assets net in the Consolidated Statement of Income The operating results and net assets of the French aerospace business were immaterial to the Company s consolidated results of operations and financial position
During September 2022 we divested our aircraft wheel and brake business which was part of the Aerospace Systems Segment for proceeds of 443 million The resulting pre tax gain of 374 million is included in gain on sale of businesses and assets net in the Consolidated Statement of Income The operating results and net assets of the aircraft wheel and brake business were immaterial to the Company s consolidated results of operations and financial position
The Company incurred business realignment and acquisition integration charges in 2024 2023 and 2022 Business realignment charges included severance costs related to actions taken under the Company s simplification initiative aimed at reducing organizational and process complexity as well as plant closures In 2024 2023 and 2022 a majority of the business realignment charges were incurred in Europe We believe the realignment actions will positively impact future results of operations but will not have a material effect on liquidity and sources and uses of capital
During 2024 approximately 49 million in payments were made relating to business realignment charges Remaining payments related to current year and prior year business realignment actions of approximately 14 million a majority of which are expected to be paid by December 31 2024 are primarily reflected within the accrued payrolls and other compensation and other accrued liabilities captions in the Consolidated Balance Sheet Additional charges may be recognized in future periods related to the business realignment and acquisition integration actions described above the timing and amount of which are not known at this time
In addition to the business realignment charges discussed above in 2022 we incurred 20 million of expense as a result of our exit of business operations in Russia These charges primarily consist of write downs of inventory and other working capital items and 8 million of foreign currency translation expense reclassified from accumulated other comprehensive income Within the business segment information in Note 19 7 million of expense was recorded in other income expense net while the remainder of the charge was split evenly between the Aerospace Systems Segment and the international businesses within the Diversified Industrial Segment
In both 2024 and 2023 acquisition integration charges relate to the acquisition of Meggitt In 2022 charges within the Diversified Industrial and Aerospace Systems Segment relate to the acquisitions of Lord and Meggitt respectively These charges were primarily included in selling general and administrative expenses within the Consolidated Statement of Income
In December 2021 the Organization for Economic Cooperation and Development OECD published a framework known as Pillar Two defining a global minimum tax of 15 percent on large corporations The OECD has since issued administrative guidance providing transition and safe harbor rules around the implementation of the Pillar Two global minimum tax Several countries have proposed or enacted legislation to implement core elements of the Pillar Two proposal effective for years beginning after December 31 2023 which for us is fiscal year 2025 While we are monitoring developments and evaluating the potential impact on future periods we do not expect Pillar Two to have a significant impact on our 2025 consolidated financial statements Future legislation and guidance may result in a change to our current assessment
Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities The differences comprising the net deferred taxes shown on the Consolidated Balance Sheet at June 30 were as follows
As of June 30 2024 we recorded deferred tax assets of 1 064 million resulting from 4 443 million in loss carryforwards A valuation allowance of 1 039 million related to the loss carryforwards has been established due to the uncertainty of their realization Of this valuation allowance 1 021 million relates to non operating entities whose loss carryforward utilization is considered to be remote Some of the loss carryforwards can be carried forward indefinitely others can be carried forward from three years to 20 years In addition a valuation allowance of 30 million related to other future deductible items has been established due to the uncertainty of their realization
Although future distributions of foreign earnings to the United States should not be subject to U S federal income taxes other U S or foreign taxes may be imposed on such earnings We have analyzed existing factors and determined we will no longer permanently reinvest certain foreign earnings On these undistributed foreign earnings of approximately 1 006 million that are no longer permanently reinvested outside of the United States we have recorded a deferred tax liability of 14 million The remaining undistributed foreign earnings of approximately 1 133 million remain permanently reinvested outside the United States at June 30 2024 Of these undistributed earnings we have recorded a deferred tax liability of 16 million where certain foreign holding companies are not permanently reinvested in their subsidiaries It is not practicable to estimate the additional taxes including applicable foreign withholding taxes that might be payable on the potential distribution of such permanently reinvested foreign earnings
The total amount of unrecognized tax benefits that if recognized would affect the effective tax rate was 102 million 114 million and 91 million as of June 30 2024 2023 and 2022 respectively The accrued interest related to the gross unrecognized tax benefits excluded from the amounts above was 27 million 21 million and 18 million as of June 30 2024 2023 and 2022 respectively The accrued penalties related to the gross unrecognized tax benefits excluded from the amounts above was 2 million as of both June 30 2024 and 2023 There were no accrued penalties related to the gross unrecognized tax benefits as of June 30 2022
It is reasonably possible that within the next 12 months the amount of gross unrecognized tax benefits could be reduced by up to approximately 40 million as a result of the revaluation of existing uncertain tax positions arising from developments in the examination process or the closure of tax statutes Any increase in the amount of unrecognized tax benefits within the next 12 months is expected to be insignificant
We file income tax returns in the United States and in various foreign jurisdictions In the normal course of business we are subject to examination by taxing authorities throughout the world We are open to assessment of our U S federal income tax returns by the Internal Revenue Service for years after 2013 and our state and local income tax returns for years after 2016 We are open to assessment for significant foreign jurisdictions for years after 2011
Basic earnings per share are computed using the weighted average number of common shares outstanding during the year Diluted earnings per share are computed using the weighted average number of common shares and common share equivalents outstanding during the year Common share equivalents represent the dilutive effect of outstanding equity based awards The reconciliation of the numerator and denominator of basic and diluted earnings per share was as follows
For 2024 2023 and 2022 0 4 million 1 0 million and 0 4 million common shares respectively subject to equity based awards were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti dilutive
We have supply chain financing SCF programs with financial intermediaries which provide certain suppliers the option to be paid by the financial intermediaries earlier than the due date on the applicable invoice We are not a party to the agreements between the participating financial intermediaries and the suppliers in connection with the programs The range of payment terms we negotiate with our suppliers is consistent irrespective of whether a supplier participates in the SCF programs We do not reimburse suppliers for any costs they incur for participation in the SCF programs and their participation is voluntary
Amounts due to our suppliers that elected to participate in the SCF programs are included in accounts payable trade on the Consolidated Balance Sheet and payments made under the SCF programs are included within operating activities on the Consolidated Statement of Cash Flows Accounts payable trade included approximately 116 million and 85 million payable to suppliers who have elected to participate in the SCF programs as of June 30 2024 and June 30 2023 respectively The amounts settled through the SCF programs and paid to the participating financial intermediaries totaled 331 million and 284 million during 2024 and 2023 respectively
Goodwill is tested for impairment at the reporting unit level annually and between annual tests whenever events or circumstances indicate that the carrying value of a reporting unit may exceed its fair value Our annual impairment tests performed in 2024 2023 and 2022 resulted in no impairment loss being recognized
Intangible assets are amortized on a straight line method over their legal or estimated useful lives The gross carrying value and accumulated amortization for each major category of intangible asset at June 30 are as follows
Total intangible asset amortization expense in 2024 2023 and 2022 was 578 million 501 million and 314 million respectively The estimated intangible asset amortization expense for the five years ending June 30 2025 through 2029 is 550 million 550 million 542 million 534 million and 506 million respectively
Intangible assets are evaluated for impairment whenever events or circumstances indicate that the undiscounted net cash flows to be generated by their use over their expected useful lives and eventual disposition may be less than their net carrying value No material intangible asset impairments occurred in 2024 2023 or 2022
The Company has a line of credit totaling 3 0 billion through a multi currency revolving credit agreement with a group of banks of which 0 9 billion was available for borrowing as of June 30 2024 The credit agreement expires June 2028 however the Company has the right to request a one year extension of the expiration date on an annual basis which may result in changes to the current terms and conditions of the credit agreement Advances from the credit agreement can be used for general corporate purposes including acquisitions and for the refinancing of existing indebtedness The credit agreement supports our commercial paper program and issuances of commercial paper reduce the amount of credit available under the agreement The credit agreement requires the payment of an annual facility fee the amount of which may increase in the event our credit ratings are lowered Although a lowering of our credit ratings would likely increase the cost of future debt it would not limit our ability to use the credit agreement nor would it accelerate the repayment of any outstanding borrowings
The Company is currently authorized to sell up to 3 0 billion of short term commercial paper notes Commercial paper notes outstanding as of June 30 2024 and 2023 were 2 1 billion and 1 8 billion respectively The Company had no outstanding borrowings from foreign banks at June 30 2024 and 2023 The weighted average interest rate on notes payable outstanding at June 30 2024 and 2023 was 5 5 percent and 5 6 percent respectively
In the ordinary course of business some of our locations may enter into financial guarantees through financial institutions which enable customers to be reimbursed in the event of nonperformance by the Company
The Company s credit agreements and indentures governing certain debt agreements contain various covenants the violation of which would limit or preclude the use of the applicable agreements for future borrowings or might accelerate the maturity of the related outstanding borrowings covered by the applicable agreements Based on our rating level at June 30 2024 the most restrictive financial covenant provides that the ratio of debt to debt shareholders equity cannot exceed 0 65 to 1 0 As of June 30 2024 our debt to debt shareholders equity ratio was 0 47 to 1 0 We are in compliance with all covenants
In September 2022 the Company fully drew against the 2 0 billion delayed draw Term Loan Facility the Term Loan Facility which will mature in its entirety in September 2025 We used the proceeds of the Term Loan Facility to finance a portion of the Acquisition At June 30 2024 the Term Loan Facility had an interest rate of Secured Overnight Financing Rate plus 122 5 bps Interest payments are made at the interest reset dates which are either one three or six months at the discretion of the Company Additionally the provisions of the Term Loan Facility allow for prepayments at the Company s discretion During 2024 we made principal payments totaling 385 million related to the Term Loan Facility We also repaid in full 575 million and 1 4 billion aggregate principal amount of Senior Notes with interest rates of 2 70 percent and 3 65 percent respectively which matured in 2024
Principal amounts of long term debt payable in the five years ending June 30 2025 through 2029 are 1 261 million 500 million 710 million 1 209 million and 1 009 million respectively The principal amounts of long term debt payable exclude the amortization of debt issuance costs
We primarily enter into lease agreements for office space distribution centers certain manufacturing facilities and equipment Certain leases contain options that provide us with the ability to extend the lease term Such options are included in the lease term when it is reasonably certain that the option will be exercised When accounting for leases we combine payments for leased assets related services and other components of a lease Payments within certain lease agreements are adjusted periodically for changes in an index or rate In addition leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheet
The discount rate implicit within our leases is generally not determinable and therefore we determine the discount rate based on our incremental borrowing rate The incremental borrowing rate for our leases is determined based on lease term and the currency in which lease payments are made
The Company has noncontributory defined benefit pension plans covering eligible employees including certain employees in foreign countries Our largest plans are generally closed to new participants Plans for most salaried employees provide pay related benefits based on years of service Plans for hourly employees generally provide benefits based on flat dollar amounts and years of service We also have arrangements for certain key employees which provide for supplemental retirement benefits In general the Company s policy is to fund these plans based on legal requirements tax considerations local practices and investment opportunities We also sponsor defined contribution plans and participate in government sponsored programs in certain foreign countries During 2023 we acquired several U S and Non U S defined benefit pension plans in connection with the Acquisition
At June 30 2024 the U S benefit obligation decreased primarily due to higher discount rates The Non U S benefit obligation decreased slightly at June 30 2024 primarily due to benefit payments and foreign currency translation partially offset by service cost and interest cost related increases At June 30 2023 both the U S and Non U S benefit obligations increased primarily due to plans acquired with the Acquisition partially offset by increased discount rates
In 2024 the predominant drivers of the decrease in U S plan assets are lump sum benefit payments and lower than expected actual return on assets Contributions are the largest factor explaining the increase in Non U S plan assets during 2024 The plans acquired with the Acquisition are the primary contributing factor for the increase in U S and Non U S plan assets fair value during 2023
The discount rate assumption is based on current rates of high quality long term corporate bonds over the same estimated time period that benefit payments will be required to be made The expected return on plan assets assumption is based on the weighted average expected return of the various asset classes in the plans portfolio The asset class return is developed using historical asset return performance as well as current market conditions such as inflation interest rates and equity market performance
The weighted average target asset allocation as of June 30 2024 is 36 percent equity securities 48 percent debt securities and 16 percent other investments The investment strategy for the Company s worldwide defined benefit pension plan assets focuses on achieving prudent actuarial funding ratios while maintaining acceptable levels of risk in order to provide adequate liquidity to meet immediate and future benefit requirements This strategy requires investment portfolios that are broadly diversified across various asset classes and external investment managers Assets held in the U S and U K defined benefit plans account for 63 percent and 24 percent respectively of our total defined benefit plan assets The overall investment strategy with respect to our U S defined benefit plan is to use a funding strategy more heavily weighted toward liability hedging assets as the funded status improves Over time we will continue to add long duration fixed income investments to the portfolio These securities are highly correlated with our pension liabilities and will be managed in a liability framework For the U K defined benefit plans the overall investment strategy is primarily to utilize growth assets to achieve a return in excess of the risk free rate and to utilize fixed income investments to achieve a rate of return that is at least commensurate with the changes in the cost of providing fixed and index linked annuities
Cash and cash equivalents are valued at cost which approximates fair value The U S defined benefit plan uses a liability hedging initiative that requires the plan to maintain a certain cash balance At June 30 2024 this required cash balance totaled approximately 51 million
Equity securities are valued at the closing price reported on the active market on which the individual securities are traded U S based companies include Parker stock with a fair value of 672 million and 519 million as of June 30 2024 and 2023 respectively
Fixed income securities are valued using both market observable inputs for similar assets that are traded on an active market and the closing price on the active market on which the individual securities are traded
Mutual funds are valued using the closing market price reported on the active market on which the fund is traded or at net asset value per share and primarily consist of equity and fixed income funds The equity funds primarily provide exposure to U S and international equities real estate and commodities The fixed income funds primarily provide exposure to high yield securities and emerging market fixed income instruments Mutual funds measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy and are presented in the tables above to permit reconciliation of the fair value hierarchy to total pension plan assets Redemption of a certain mutual fund is subject to a lock up period lasting throughout its duration scheduled to terminate July 2026 However this mutual fund may extend its duration up to an additional two years under certain conditions
Common Collective trusts primarily consist of equity fixed income and real estate funds and are valued using the closing market price reported on the active market on which the fund is traded or at net asset value per share Common Collective trust investments can be redeemed without restriction after giving appropriate notice to the issuer Generally redemption of the entire investment balance of all common collective trusts requires no more than a 90 day notice period The equity funds provide exposure to large mid and small cap U S equities international large and small cap equities and emerging market equities The fixed income funds provide exposure to U S international and emerging market debt securities Common Collective trusts measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy and are presented in the tables above to permit reconciliation of the fair value hierarchy to total pension plan assets
Limited Partnerships interest in venture capital investments are measured at fair value based on net asset value as determined by the respective fund investment A certain limited partnership investment is restricted to a maximum redemption of 20 percent of its account balance every six months upon a 90 day notification period Limited Partnerships measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy and are presented in the tables above to permit reconciliation of the fair value hierarchy to total pension plan assets
Other financial instruments primarily include insurance contracts within the Non U S pension plans asset portfolio as well as derivative instruments associated with our liability hedging strategies Insurance contracts are valued at the present value of future cash flows promised under the terms of the insurance contracts Derivative instruments are valued based on the closing prices of contracts or market observable inputs Other financial instruments also include net payables for securities purchased but not settled associated with the U S pension plan asset portfolio
The primary investment objective of equity securities and equity funds within both the mutual fund and common collective trust asset class is to obtain capital appreciation in an amount that at least equals various market based benchmarks The primary investment objective of fixed income securities and fixed income funds within both the mutual fund and common collective trust asset class is to provide for a constant stream of income while preserving capital The primary investment objective of limited partnerships is to achieve capital appreciation through an investment program focused on specialized investment strategies The primary investment objective of the investments in the other financial instruments category is to provide a stable rate of return over a specified period of time and execute the liability hedging strategies
We sponsor an employee stock ownership plan ESOP as part of our legacy savings and investment 401 k plan The ESOP is available to eligible domestic employees Effective January 1 2022 the Company matching contributions were increased up to a maximum of five percent of eligible compensation from the previous maximum of four percent of eligible compensation These contributions are recorded as compensation expense Participants may direct company matching contributions to any investment option within the savings and investment 401 k plan
The Company has a retirement income account RIA within our legacy savings and investment 401 k plan We make a cash contribution to the participant s RIA each year Most participants receive a flat three percent annual contribution of eligible compensation with some grandfathered participants receiving annual contributions calculated at a higher percent of eligible compensation No participant receives less than the flat three percent contribution Participants do not contribute to the RIA The Company recognized 77 million 63 million and 57 million in expense related to the RIA in 2024 2023 and 2022 respectively
In September 2022 we acquired several defined contribution plans relating to the Meggitt acquisition which were comprised of similar company matching contributions and RIA features as our legacy plan During 2023 we recorded additional company matching expense of 9 million and additional RIA type expense of 11 million for the acquired plans These plans were merged into our legacy savings and investment 401 k plan during 2024
The Company provides postretirement medical and life insurance benefits to certain retirees and eligible dependents Most plans are contributory with retiree contributions adjusted annually The plans are unfunded and pay stated percentages of covered medically necessary expenses incurred by retirees after subtracting payments by Medicare or other providers and after stated deductibles have been met For most plans the Company has established cost maximums to more effectively control future medical costs We have reserved the right to change these benefit plans During 2023 we acquired postretirement medical and life insurance plans in connection with the Acquisition
The Company recognized 2 million 2 million and 1 million in expense related to other postretirement benefits in 2024 2023 and 2022 respectively Components of net other postretirement benefit cost other than service cost are included in other income expense net in the Consolidated Statement of Income
The decrease in the benefit obligation in 2024 is due to higher discount rates partially offset by a loss from updated medical rate trends The increase in the benefit obligation in 2023 is due to the Acquisition
The Company has established nonqualified deferred compensation programs which permit officers directors and certain management employees to annually elect to defer a portion of their compensation on a pre tax basis until their retirement The retirement benefit to be provided is based on the amount of compensation deferred company matching contributions and earnings on the deferrals In addition we maintain a defined contribution nonqualified supplemental executive pension plan in which the Company is the only contributor During 2024 2023 and 2022 we recorded expense income relating to these programs of 23 million 20 million and 21 million respectively
The Company has invested in corporate owned life insurance policies to assist in meeting the obligations under these programs The policies are held in a rabbi trust and are recorded as assets of the Company
The Company has a program to repurchase its common shares On October 22 2014 the Board of Directors of the Company approved an increase in the overall number of shares authorized to repurchase under the program so that beginning on such date the aggregate number of shares authorized for repurchase was 35 million There is no limitation on the number of shares that can be repurchased in a year Repurchases may be funded primarily from operating cash flows and commercial paper borrowings and the shares are initially held as treasury shares
The Company s 2023 Omnibus Stock Incentive Plan 2023 SIP provides for the granting of share based incentive awards in the form of nonqualified stock options stock appreciation rights SARs restricted stock units RSUs and restricted and unrestricted stock to officers and key employees of the Company The aggregate number of shares of common stock authorized for issuance under the 2023 SIP is 11 3 million At June 30 2024 8 5 million common stock shares were available for future issuance Effective as of October 25 2023 no further awards may be granted under the Amended and Restated 2016 Omnibus Stock Incentive Plan
We satisfy share based incentive award obligations by issuing shares of common stock out of treasury which have been repurchased pursuant to our share repurchase program described in Note 14 or through the issuance of previously unissued common stock
Upon exercise SARs entitle the participant to receive shares of common stock equal to the increase in value of the award between the grant date and the exercise date SARs are exercisable from one to three years after the date of grant and expire no more than 10 years after grant
During 2024 2023 and 2022 we recognized stock based compensation expense of 65 million 51 million and 37 million respectively relating to SAR awards The Company derives a tax deduction measured by the excess of the market value over the grant price at the date stock based awards are exercised The related income tax benefit was credited to income tax expense
At June 30 2024 26 million of expense with respect to nonvested SAR awards has yet to be recognized and will be amortized into expense over a weighted average period of approximately 23 months The total fair value of shares vested during 2024 2023 and 2022 was 45 million 34 million and 29 million respectively
RSUs constitute an agreement to deliver shares of common stock to the participant at the end of a vesting period Generally the RSUs granted to employees vest and the underlying stock is issued ratably over a three year graded vesting period Nonvested RSUs may not be transferred and do not have dividend or voting rights For each nonvested RSU recipients are entitled to receive a dividend equivalent payable in cash or common shares equal to the cash dividend per share paid to common shareholders
The fair value of each RSU award granted in 2024 2023 and 2022 was based on the fair market value of our common stock on the date of grant A summary of the status and changes of shares subject to RSU awards for employees and the related average price per share follows
During 2024 2023 and 2022 we recognized stock based compensation expense of 30 million 27 million and 26 million respectively relating to RSU awards for employees At June 30 2024 19 million of expense with respect to nonvested RSU awards has yet to be recognized and will be amortized into expense over a weighted average period of approximately 23 months The total fair value of RSU awards vested during 2024 2023 and 2022 was 28 million 30 million and 26 million respectively We recognized an income tax benefit of 3 million 2 million and 4 million relating to the issuance of common stock for RSU awards that vested during 2024 2023 and 2022 respectively
Additionally we granted RSUs with a one year vesting period to non employee members of the Board of Directors Recipients receive a dividend equivalent payable in common shares equal to the cash dividend per share paid to common shareholders A summary of the status and changes of shares subject to Board of Directors RSU awards and the related average price per share follows
The fair value of each RSU award granted to the Board of Directors in 2024 2023 and 2022 was based on the fair market value of our common stock on the date of grant In 2024 2023 and 2022 we recognized stock based compensation expense of 1 7 million 1 9 million and 1 8 million respectively relating to these awards During 2024 2023 and 2022 we recognized an income tax benefit cost of 0 1 million 0 02 million and 0 2 million respectively related to the vesting of Board of Directors RSU awards At June 30 2024 0 4 million of expense with respect to nonvested RSU awards granted to the Board of Directors has yet to be recognized and will be amortized into expense over a weighted average period of approximately three months
The Company s Long Term Incentive Plans LTIP provide for the issuance of unrestricted stock to certain officers and key employees based on the attainment of certain goals relating to our revenue growth earnings per share growth and return on invested capital during the three year performance period
The fair value of each LTIP award granted in 2024 2023 and 2022 was based on the fair market value of our common stock on the date of grant These nonvested LTIP awards entitle participants to earn a dividend equivalent unit payable in common shares equal to the cash dividend per share paid to common shareholders These dividend equivalent units do not have dividend or voting rights and are subject to the same performance goals as the initial award granted A summary of shares relating to the LTIP and the related average price per share follows
During 2024 2023 and 2022 we recorded stock based compensation expense of 59 million 63 million and 72 million respectively relating to the LTIP During 2024 2023 and 2022 we recognized an income tax benefit of 5 million 4 million and 5 million respectively relating to the LTIP
Independent research and development costs amounted to 253 million in 2024 258 million in 2023 and 191 million in 2022 Pre production expense incurred in connection with development contracts amounted to 45 million in 2024 73 million in 2023 and 74 million in 2022
The Company s financial instruments consist primarily of cash and cash equivalents marketable securities and other investments accounts receivable and long term investments as well as obligations under accounts payable trade notes payable and long term debt Due to their short term nature the carrying values for cash and cash equivalents accounts receivable accounts payable trade and notes payable approximate fair value Marketable securities and other investments include deposits which are recorded at cost
The Company utilizes derivative and non derivative financial instruments including forward exchange contracts costless collar contracts cross currency swap contracts and certain foreign currency denominated debt designated as net investment hedges to manage foreign currency transaction and translation risk Additionally we acquired forward exchange contracts and cross currency swap contracts in connection with the Acquisition The derivative financial instrument contracts are with major investment grade financial institutions and the Company does not anticipate any material non performance by any of the counterparties The Company does not hold or issue derivative financial instruments for trading purposes
The Company s 700 million aggregate principal amount of Senior Notes due 2025 have been designated as a hedge of the Company s net investment in certain foreign subsidiaries The effect of translating the Senior Notes due 2025 into U S dollars is recorded in accumulated other comprehensive loss and remains there until the underlying net investment is sold or substantially liquidated
In connection with the Acquisition the Company entered into deal contingent forward contracts during October 2021 to mitigate the risk of appreciation in the GBP denominated purchase price The deal contingent forward contracts had an aggregate notional amount of 6 4 billion and were settled in September 2022 in connection with the Acquisition In June 2022 we amended the agreement to include a credit support annex CSA obligating Parker to post 250 million of cash collateral In July 2022 the Company received the 250 million cash collateral previously posted Cash flows associated with the cash collateral are recorded in cash flow from investing activities on the Consolidated Statement of Cash Flows
The 69 million 290 million and 2 1 billion cross currency swap contracts have been designated as hedging instruments The forward exchange deal contingent forward and costless collar contracts as well as cross currency swap contracts acquired as part of the Acquisition have not been designated as hedging instruments and are considered to be economic hedges of forecasted transactions
The forward exchange costless collar and deal contingent forward contracts as well as the cross currency swap contracts acquired as part of the Acquisition are adjusted to fair value by recording gains and losses through the other income expense net caption in the Consolidated Statement of Income
Derivatives designated as hedges are adjusted to fair value by recording gains and losses through accumulated other comprehensive loss on the Consolidated Balance Sheet until the hedged item is recognized in earnings We assess the effectiveness of the 69 million 290 million and 2 1 billion cross currency swap hedging instruments using the spot method Under this method the periodic interest settlements are recognized directly in earnings through interest expense
Derivatives consist of forward exchange and cross currency swap contracts the fair values of which are calculated using market observable inputs including both spot and forward prices for the same underlying currencies The calculation of fair value of the cross currency swap contracts also utilizes a present value cash flow model
The Company is involved in various litigation matters arising in the normal course of business including proceedings based on product liability claims workers compensation claims employee claims class action lawsuits and alleged violations of various environmental laws We are self insured in the United States for health care workers compensation general liability and product liability up to predetermined amounts above which third party insurance applies Management regularly reviews the probable outcome of these proceedings the expenses expected to be incurred the availability and limits of the insurance coverage and the established accruals for liabilities While the outcome of pending proceedings cannot be predicted with certainty management believes that any liabilities that may result from these proceedings will not have a material adverse effect on our liquidity financial condition or results of operations
We are currently responsible for environmental matters primarily relating to known exposures arising from environmental litigation investigations and remediation at various manufacturing facilities presently or formerly operated by Parker and for which we have been named as a potentially responsible party along with other companies at off site waste disposal facilities and
As of June 30 2024 we had an accrual of 85 9 million for environmental matters which are probable and reasonably estimable The accrual 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 the amount of our liability in proportion to other responsible parties and outcomes of litigation
Our estimated total liability for environmental matters ranges from a minimum of 85 9 million to a maximum of 259 5 million The largest range for any one site is approximately 66 5 million The actual costs we will incur are dependent on final determination of contamination and required remedial action negotiations with governmental authorities with respect to cleanup levels changes in regulatory requirements innovations in investigatory and remedial technologies effectiveness of remedial technologies employed the ability of other responsible parties to pay outcomes of litigation and any insurance or other third party recoveries
The Company operates in two reportable business segments Diversified Industrial and Aerospace Systems Both segments utilize eight core technologies including hydraulics pneumatics electromechanical filtration fluid gas handling process control engineered materials and climate control to drive superior customer problem solving and value creation
The Diversified Industrial Segment is an aggregation of several business units that design manufacture and provide aftermarket support for highly engineered solutions that create value for customers primarily in aerospace and defense in plant and industrial equipment transportation off highway energy and HVAC and refrigeration markets around the world Diversified Industrial Segment products are marketed direct to OEMs and independent distributors through field sales employees The Diversified Industrial North America businesses have manufacturing plants and distribution networks throughout the United States Canada and Mexico and primarily service North America The Diversified Industrial International businesses provide Parker products and services to 40 countries throughout Europe Asia Pacific Latin America the Middle East and Africa
The Aerospace Systems Segment designs manufactures and provides aftermarket support for highly engineered airframe and engine solutions for both OEMs and end users Our components and systems are utilized across commercial transport defense fixed wing business jets regional transport helicopter and energy applications Aerospace Systems Segment products are marketed by field sales employees and are sold directly to manufacturers and end users
The accounting policies of the business segments are the same as those described in the Significant Accounting Policies footnote The business segment results are prepared on a basis that is consistent with the manner in which the Company s management disaggregates financial information for internal review and decision making
Includes an investment in a joint venture in which ownership is 50 percent or less and in which the Company does not have operating control 2024 218 million 2023 216 million 2022 211 million and assets held for sale 2022 66 million
Net sales are attributed to countries based on the location of the selling unit North America includes the United States Canada and Mexico No country other than the United States represents greater than 10 percent of consolidated sales Long lived assets are comprised of property plant and equipment based on physical location
The Company carried out an evaluation under the supervision and with the participation of the Company s management including the Company s principal executive officer and principal financial officer of the effectiveness of the Company s disclosure controls and procedures as of June 30 2024 Based on this evaluation the Company s principal executive officer and principal financial officer concluded that as of June 30 2024 the Company s disclosure controls and procedures were effective
There was no change to our internal control over financial reporting during the fourth quarter of 2024 that materially affected or is reasonably likely to materially affect our internal control over financial reporting
Our management including the principal executive officer and the principal financial officer is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a 15 f and 15d 15 f We assessed the effectiveness of our internal control over financial reporting as of June 30 2024 In making this assessment we used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Integrated Framework 2013 We concluded that based on our assessment the Company s internal control over financial reporting was effective as of June 30 2024
Deloitte Touche LLP the independent registered public accounting firm that audited the Company s consolidated financial statements has issued an attestation report on the Company s internal control over financial reporting as of June 30 2024 which is included in Part II Item 8 of this Annual Report on Form 10 K
None of the Company s directors or officers adopted modified or terminated a Rule 10b5 1 trading arrangement or a non Rule 10b5 1 trading arrangement during the Company s fiscal quarter ended June 30 2024
Information required with respect to the Directors of the Company is set forth under the caption Item I Election of Directors in the definitive Proxy Statement for the Company s 2024 Annual Meeting of Shareholders to be held October 23 2024 the 2024 Proxy Statement and is incorporated herein by reference Information with respect to the executive officers of the Company is included in Part I Item 1 of this Annual Report on Form 10 K under the caption Information about our Executive Officers
The Company has adopted a Global Code of Business Conduct that applies to its Chief Executive Officer Chief Financial Officer and Controller The Global Code of Business Conduct is posted on the Company s investor relations internet website at
under the Governance page Any amendment to or waiver from a provision of the Company s Global Code of Business Conduct that applies to its Chief Executive Officer Chief Financial Officer or Controller will also be posted at
The information set forth under the captions Board Committees Committee Charters Audit Committee and Board and Committee Structure Board Committees Committee Charters in the 2024 Proxy Statement is incorporated herein by reference
The information set forth under the captions Compensation Discussion and Analysis Compensation Committee Report Pay Versus Performance Disclosure and Compensation Tables in the 2024 Proxy Statement is incorporated herein by reference
Includes the maximum future payouts of common stock that may be issued under the calendar year 2022 23 24 2023 24 25 and 2024 25 26 long term incentive performance awards LTIP awards For these LTIP awards payouts will be determined based on achieving an average return on average equity of four percent or an average free cash flow margin of four percent If these performance measures are achieved the participants will be eligible to receive the maximum payout of 200 percent The Human Resources and Compensation Committee will then compare our performance to that of a group of our peers and if appropriate apply its discretion to reduce the final payouts based on any performance measures that the Committee determines to be appropriate
The maximum number of shares of our common stock that may be issued under the 2023 Omnibus Stock Incentive Plan is 11 3 million shares of which approximately 8 5 million shares are available for future issuance Effective as of October 25 2023 no further awards may be granted under the Amended and Restated 2016 Omnibus Stock Incentive Plan The maximum number of shares that may be issued under the Global Employee Stock Purchase Plan is 10 million shares of which approximately 9 9 million shares are still available for future issuance
The information set forth under the captions Other Governance Matters Review and Approval of Transactions with Related Persons and Item 1 Election of Directors Director Independence in the 2024 Proxy Statement is incorporated herein by reference
Rule 2 7 Announcement in connection with Parker Hannifin Corporation s acquisition of Meggitt plc dated August 2 2021 incorporated by reference to Exhibit 2 1 of Registrant s Report on Form 8 K filed with the SEC on August 3 2021
Form of Parker Hannifin Corporation Amended and Restated Change in Control Severance Agreement entered into by Registrant and its executive officers incorporated by reference to Exhibit 10 a to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2008
Form of Parker Hannifin Corporation Change in Control Severance Agreement for Executive Officers elected after September 1 2015 at or above Grade 29 incorporated by reference to Exhibit 10 c to Registrant s Report on Form 10 K for the fiscal year ended June 30 2016
Form of Parker Hannifin Corporation Change in Control Severance Agreement for Executive Officers dated after September 1 2015 below Grade 29 incorporated by reference to Exhibit 10 d to Registrant s Report on Form 10 K for the fiscal year ended June 30 2016
Parker Hannifin Corporation Amended and Restated Change in Control Severance Plan incorporated by reference to Exhibit 10 b to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2008
Form of Indemnification Agreement entered into by the Registrant and its directors and executive officers incorporated by reference to Exhibit 10 c to Registrant s Report on Form 10 K for the fiscal year ended June 30 2003
Parker Hannifin Corporation Amended and Restated Supplemental Executive Retirement Benefits Program effective July 1 2014 incorporated by reference to Exhibit 10 a to Registrant s Report on Form 10 Q for the quarterly period ended March 31 2016
Parker Hannifin Corporation Amended and Restated Defined Contribution Supplemental Executive Retirement Program effective January 22 2015 incorporated by reference to Exhibit 10 c to Registrant s Report on Form 10 Q for the quarterly period ended December 31 2015
Parker Hannifin Corporation Amended and Restated 2003 Stock Incentive Plan incorporated by reference to Exhibit 10 b to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2010
Parker Hannifin Corporation Amended and Restated 2009 Omnibus Stock Incentive Plan incorporated by reference to Appendix A to Registrant s Definitive Proxy Statement filed with the Commission on September 24 2012
Parker Hannifin Corporation First Amendment to 2016 Omnibus Stock Incentive Plan effective April 1 2017 incorporated by reference to Exhibit 10 a to Registrant s Report on Form 10 Q for the quarterly period ended March 31 2017
Parker Hannifin Corporation Amended and Restated 2016 Omnibus Stock Incentive Plan effective as of October 23 2019 incorporated by reference to Exhibit 10 1 to Registrant s Report on Form 8 K filed with the SEC on October 28 2019
Form of 2010 Notice of Stock Options with Tandem Stock Appreciation Rights for Executive Officers incorporated by reference to Exhibit 10 d to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2009
Form of 2011 Parker Hannifin Corporation Stock Appreciation Rights Award Agreement for executive officers incorporated by reference to Exhibit 10 2 to Registrant s Report on Form 8 K filed with the SEC on August 17 2010
2011 Parker Hannifin Corporation Stock Appreciation Rights Terms and Conditions for executive officers incorporated by reference to Exhibit 10 1 to Registrant s Report on Form 8 K filed with the SEC on August 17 2010
Form of Parker Hannifin Corporation Stock Appreciation Rights Award Agreement for executive officers incorporated by reference to Exhibit 10 a to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2011
Parker Hannifin Corporation Stock Appreciation Rights Terms and Conditions for executive officers incorporated by reference to Exhibit 10 b to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2011
Form of 2018 Parker Hannifin Corporation Stock Appreciation Rights Award Agreement incorporated by reference to Exhibit 10 d to Registrant s Report on Form 10 Q for the quarterly period ended December 31 2018
2018 Parker Hannifin Corporation Stock Appreciation Rights Terms and Conditions incorporated by reference to Exhibit 10 e to Registrant s Report on Form 10 Q for the quarterly period ended December 31 2018
Parker Hannifin Corporation Target Incentive Plan Subject to Performance Bonus Plan incorporated by reference to Exhibit 10 e to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2010
Parker Hannifin Corporation Long Term Incentive Performance Plan Under the Performance Bonus Plan as amended and restated effective January 20 2016 incorporated by reference to Exhibit 10 aa to Registrant s Annual Report on Form 10 K for the fiscal year ended June 30 2016
Form of Notice of Award under the Parker Hannifin Corporation Long Term Incentive Performance Plan Under the Performance Bonus Plan as Amended and Restated incorporated by reference to Exhibit 10 bb to the Registrant s Annual Report on Form 10 K for the fiscal year ended June 30 2016
Form of Notice of Award under the Parker Hannifin Corporation Long Term Incentive Plan Under the Performance Bonus Plan as Amended and Restated effective as of January 23 2019 incorporated by reference to Exhibit 10 f to the Registrant s Annual Report on Form 10 Q for the quarterly period ended December 31 2018
Parker Hannifin Corporation Long Term Incentive Performance Plan Under the Performance Bonus Plan as Amended and Restated effective as of January 23 2019 incorporated by reference to Exhibit 10 g to the Registrant s Report on Form 10 Q for the quarterly period ended December 31 2018
Form of Award Under the Parker Hannifin Corporation Long Term Incentive Plan Under the Performance Bonus Plan as Amended and Restated effective as of January 27 2021 incorporated by reference to Exhibit 10 a to the Registrant s Report on Form 10 Q for the quarterly period ended March 31 2021
Parker Hannifin Corporation Long Term Incentive Performance Plan Under the Performance Bonus Plan as Amended and Restated effective as of January 27 2022 incorporated by reference to Exhibit 10 a to the Registrant s Report on Form 10 Q for the quarterly period ended March 31 2022
Form of Notice of Award under the Parker Hannifin Corporation Long Term Incentive Plan Under the Performance Bonus Plan as Amended and Restated effective as of January 27 2022 incorporated by reference to Exhibit 10 a to the Registrant s Report on Form 10 Q for the quarterly period ended March 31 2022
Parker Hannifin Corporation 2022 Performance Bonus Plan effective as of July 1 2021 incorporated by reference to Exhibit 10 a to the Registrant s Report on Form 10 Q for the quarterly period ended September 30 2021
Form of Parker Hannifin Corporation Restricted Stock Unit Terms and Conditions for Awards Granted incorporated by reference to Exhibit 10 c to Registrant s Report on Form 10 Q for the quarterly period ended December 31 2018
Form of 2018 Parker Hannifin Corporation Restricted Stock Unit Award Agreement to Certain Executive Officers incorporated by reference to Exhibit 10 b to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2018
Parker Hannifin Corporation 2018 Restricted Stock Unit Terms and Conditions for Certain Executive Officers incorporated by reference to Exhibit 10 c to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2018
Form of Notice of RONA Bonus Award Under the Parker Hannifin Corporation Performance Bonus Plan incorporated by reference to Exhibit 10 h to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2009
Parker Hannifin Corporation Summary of RONA Bonus Awards in Lieu of Certain Executive Perquisites incorporated by reference to Exhibit 10 h to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2008
Parker Hannifin Corporation Savings Restoration Plan restated as of September 1 2004 incorporated by reference to Exhibit 10 t to Registrant s Report on Form 10 K for the fiscal year ended June 30 2004
Parker Hannifin Corporation Amended and Restated Savings Restoration Plan effective January 1 2016 incorporated by reference to Exhibit 10 b to Registrant s Report on Form 10 Q for the quarterly period ended December 31 2016
Parker Hannifin Corporation Amended and Restated Pension Restoration Plan effective July 1 2016 incorporated by reference to Exhibit 10 mm to Registrant s Report on Form 10 K for the fiscal year ended June 30 2016
Parker Hannifin Corporation Amended and Restated Executive Deferral Plan effective September 2 2015 incorporated by reference to Exhibit 10 pp to Registrant s Report on Form 10 K for the fiscal year ended June 30 2016
Amendment Two to the Parker Hannifin Corporation Amended and Restated Executive Deferral Plan effective September 2 2015 dated and effective October 14 2019 incorporated by reference to Exhibit 10 1 to Registrant s Report on Form 10 Q filed with the SEC on February 5 2020
Parker Hannifin Corporation Global Employee Stock Purchase Plan As Amended and Restated August 7 2023 incorporated by reference to Exhibit B to Registrant s Definitive Proxy Statement on Schedule 14A filed with the SEC on September 22 2023
Amended and Restated Deferred Compensation Plan for Directors of Parker Hannifin Corporation effective January 22 2015 incorporated by reference to Exhibit 10 i to Registrant s Report on Form 10 Q for the quarterly period ended December 31 2015
Summary of the Compensation of the Non Employee Members of the Board of Directors effective October 24 2018 incorporated by reference to Exhibit 10 a to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2018
Term Loan Agreement dated August 27 2021 by and among Parker Hannifin Corporation Key Bank National Association as administrative agent and the lenders party thereto incorporated by reference to Exhibit 10 1 to Registrants Report on Form 8 K filed with the SEC on August 27 2021
Amendment One to the Parker Hannifin Corporation Amended and Restated Defined Contribution Supplemental Executive Retirement Program effective August 1 2022 incorporated by reference to Exhibit 10 a to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2022
Amendment Three to the Parker Hannifin Corporation Amended and Restated Executive Deferral Plan effective August 1 2022 incorporated by reference to Exhibit 10 b to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2022
Amendment One to the Parker Hannifin Corporation Amended and Restated Savings Restoration Plan effective August 1 2022 incorporated by reference to Exhibit 10 c to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2022
Amendment One to the Amended and Restated Deferred Compensation Plan for Directors of Parker Hannifin Corporation effective August 1 2022 incorporated by reference to Exhibit 10 d to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2022
Parker Hannifin Corporation Annual Cash Incentive Plan effective July 1 2022 incorporated by reference to Exhibit 10 e to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2022
Parker Hannifin Corporation Deferred Compensation Plan effective January 1 2023 incorporated by reference to Exhibit 10 f to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2022
Parker Hannifin Corporation Deferred Compensation Plan Adoption Agreement effective January 1 2023 incorporated by reference to Exhibit 10 g to Registrant s Report on Form 10 Q for the quarterly period ended September 30 2022
Form of Notice of Award under the Parker Hannifin Corporation Long Term Incentive Plan Under the Performance Bonus Plan as Amended and Restated effective as of January 25 2023 incorporated by reference to Exhibit 10 a to Registrant s Report on Form 10 Q for the quarterly period ended March 31 2023
Form of Notice Award under the Parker Hannifin Corporation Long Term Incentive Plan Under the Performance Bonus Plan as Amended and Restated effective as of January 24 2024 incorporated by reference to Exhibit 10 a to Registrant s Report on Form 10 Q for the quarterly period ended March 31 2024
Attached as Exhibit 101 to this Annual Report are the following formatted in Inline XBRL Extensible Business Reporting Language i Consolidated Statement of Income for the years ended June 30 2024 2023 and 2022 ii Consolidated Statement of Comprehensive Income for the years ended June 30 2024 2023 and 2022 iii Consolidated
Balance Sheet at June 30 2024 and 2023 iv Consolidated Statement of Cash Flows for the years ended June 30 2024 2023 and 2022 v Consolidated Statement of Equity for the years ended June 30 2024 2023 and 2022 and vi Notes to Consolidated Financial Statements
Individual financial statements and related applicable schedules for the Registrant separately have been omitted because the Registrant is primarily an operating company and its subsidiaries are considered to be wholly owned
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated
JENNIFER A PARMENTIER Chairman and Chief Executive Officer ANGELA R IVES Principal Accounting Officer JILLIAN C EVANKO Director DENISE RUSSELL FLEMING Director LANCE M FRITZ Director LINDA A HARTY Director KEVIN A LOBO Director E JEAN SAVAGE Director JOSEPH SCAMINACE Director ÅKE SVENSSON Director LAURA K THOMPSON Director JAMES R VERRIER Director and JAMES L WAINSCOTT Director
For allowance for credit losses net balance is comprised of deductions due to divestitures or uncollectible accounts charged off additions due to acquisitions or recoveries and currency translation adjustments For deferred tax asset valuation allowance the balance primarily represents adjustments due to acquisitions

Company Name	PARKER HANNIFIN CORP Vist SEC web-site
Category	MISCELLANEOUS FABRICATED METAL PRODUCTS
Trading Symbol	PH