What changed in Parker Hannifin's 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of Parker Hannifin's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+353 added−322 removedSource: 10-K (2023-08-24) vs 10-K (2022-08-24)
Top changes in Parker Hannifin's 2023 10-K
353 paragraphs added · 322 removed · 259 edited across 1 sections
- Item 1C. Cybersecurity+353 / −322 · 259 edited
Item 1C. Cybersecurity
Cybersecurity — threats and controls disclosure
259 edited+94 added−63 removed126 unchanged
Item 1C. Cybersecurity
Cybersecurity — threats and controls disclosure
259 edited+94 added−63 removed126 unchanged
2022 filing
2023 filing
Biggest changeWe developed independent expectations of revenue based on data derived from published industry indices, market and customer trends, and the results of our detail revenue testing and compared these expectations to the revenue recorded by management. /s/ DELOITTE & TOUCHE LLP Cleveland, Ohio August 24, 2022 We have served as the Company's auditor since 2008. 35 Table of Contents CONSOLIDATED STATEMENT OF INCOME For the years ended June 30, (Dollars in thousands, except per share amounts) 2022 2021 2020 Net Sales $ 15,861,608 $ 14,347,640 $ 13,695,520 Cost of sales 11,387,267 10,449,680 10,292,291 Selling, general and administrative expenses 1,627,116 1,527,302 1,656,553 Interest expense 255,252 250,036 308,161 Other expense (income), net 984,868 (17,003) (67,112) Gain on disposal of assets (7,121) (109,332) (1,227) Income before income taxes 1,614,226 2,246,957 1,506,854 Income taxes 298,040 500,096 304,522 Net Income 1,316,186 1,746,861 1,202,332 Less: Noncontrolling interest in subsidiaries' earnings 581 761 362 Net Income Attributable to Common Shareholders $ 1,315,605 $ 1,746,100 $ 1,201,970 Earnings per Share Attributable to Common Shareholders Basic earnings per share $ 10.24 $ 13.54 $ 9.36 Diluted earnings per share $ 10.09 $ 13.35 $ 9.26 The accompanying notes are an integral part of the consolidated financial statements. 36 Table of Contents CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the years ended June 30, (Dollars in thousands) 2022 2021 2020 Net Income $ 1,316,186 $ 1,746,861 $ 1,202,332 Less: Noncontrolling interests in subsidiaries' earnings 581 761 362 Net income attributable to common shareholders 1,315,605 1,746,100 1,201,970 Other comprehensive income (loss), net of tax Foreign currency translation adjustment and other (net of tax of $(3,236), $(3,664) and $4,820 in 2022, 2021 and 2020) (284,732) 328,792 (182,957) Retirement benefits plan activity (net of tax of $(95,574), $(205,845) and $97,477 in 2022, 2021 and 2020) 306,735 664,076 (317,546) Other comprehensive income (loss) 22,003 992,868 (500,503) Less: Other comprehensive (loss) income for noncontrolling interests (1,526) 720 (676) Other comprehensive income (loss) attributable to common shareholders 23,529 992,148 (499,827) Total Comprehensive Income Attributable to Common Shareholders $ 1,339,134 $ 2,738,248 $ 702,143 The accompanying notes are an integral part of the consolidated financial statements. 37 Table of Contents CONSOLIDATED BALANCE SHEET (Dollars in thousands) June 30, 2022 2021 Assets Current Assets Cash and cash equivalents $ 535,799 $ 733,117 Marketable securities and other investments 27,862 39,116 Trade accounts receivable, net 2,341,504 2,183,594 Non-trade and notes receivable 543,757 326,315 Inventories 2,214,553 2,090,642 Prepaid expenses and other 6,383,169 243,966 Total Current Assets 12,046,644 5,616,750 Property, plant and equipment 5,897,955 6,040,220 Less: Accumulated depreciation 3,775,197 3,773,744 Property, plant and equipment, net 2,122,758 2,266,476 Deferred income taxes 110,585 104,251 Investments and other assets 788,057 774,239 Intangible assets, net 3,135,817 3,519,797 Goodwill 7,740,082 8,059,687 Total Assets $ 25,943,943 $ 20,341,200 Liabilities and Equity Current Liabilities Notes payable and long-term debt payable within one year $ 1,724,310 $ 2,824 Accounts payable, trade 1,731,925 1,667,878 Accrued payrolls and other compensation 470,132 507,027 Accrued domestic and foreign taxes 250,292 236,384 Other accrued liabilities 1,682,659 682,390 Total Current Liabilities 5,859,318 3,096,503 Long-term debt 9,755,825 6,582,053 Pensions and other postretirement benefits 639,939 1,055,638 Deferred income taxes 307,044 553,981 Other liabilities 521,897 639,355 Total Liabilities 17,084,023 11,927,530 Equity Shareholders' Equity Serial preferred stock, $.50 par value, authorized 3,000,000 shares; none issued — — Common stock, $.50 par value, authorized 600,000,000 shares; issued 181,046,128 shares in 2022 and 2021 90,523 90,523 Additional capital 327,307 329,619 Retained earnings 15,661,808 14,915,497 Accumulated other comprehensive (loss) (1,543,198) (1,566,727) Treasury shares at cost: 52,594,956 in 2022 and 51,900,460 in 2021 (5,688,429) (5,370,605) Total Shareholders' Equity 8,848,011 8,398,307 Noncontrolling interests 11,909 15,363 Total Equity 8,859,920 8,413,670 Total Liabilities and Equity $ 25,943,943 $ 20,341,200 The accompanying notes are an integral part of the consolidated financial statements. 38 Table of Contents CONSOLIDATED STATEMENT OF CASH FLOWS For the years ended June 30, (Dollars in thousands) 2022 2021 2020 Cash Flows From Operating Activities Net income $ 1,316,186 $ 1,746,861 $ 1,202,332 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 257,314 269,943 252,899 Amortization 314,450 325,447 284,632 Stock incentive plan compensation 137,093 121,483 111,375 Deferred income taxes (351,201) (51,500) 12,290 Foreign currency transaction gain (39,987) (10,948) (10,018) Gain on sale of property, plant and equipment (5,727) (109,332) (1,850) Gain on sale of businesses (1,394) — — Gain on investments (3,972) (12,616) (2,084) Loss (gain) on marketable securities 5,131 (11,570) (587) Other 70,443 14,424 17,984 Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable (179,126) (298,511) 578,853 Inventories (212,134) (85,597) 206,937 Prepaid expenses and other 37,630 (25,508) (9,312) Other assets (11,167) (8,779) (23,547) Accounts payable, trade 131,384 526,781 (370,765) Accrued payrolls and other compensation (15,524) 72,412 (62,715) Accrued domestic and foreign taxes 32,514 36,552 30,918 Other accrued liabilities 999,831 11,397 (148,531) Pensions and other postretirement benefits 1,822 17,875 55,522 Other liabilities (41,836) 46,187 (53,384) Net cash provided by operating activities 2,441,730 2,575,001 2,070,949 Cash Flows From Investing Activities Acquisitions (net of cash acquired of $82,192 in 2020) — — (5,076,064) Capital expenditures (230,044) (209,957) (232,591) Proceeds from sale of property, plant and equipment 39,353 140,590 26,345 Proceeds from sale of businesses 3,366 — — Purchase of marketable securities and other investments (27,895) (34,809) (194,742) Maturities and sales of marketable securities and other investments 31,809 79,419 275,483 Other (235,426) 24,744 177,576 Net cash used in investing activities (418,837) (13) (5,023,993) Cash Flows From Financing Activities Proceeds from exercise of stock options 2,831 4,684 2,623 Payments for common shares (460,056) (218,818) (216,049) Acquisition of noncontrolling interests — — (1,200) Proceeds from (payments of) notes payable, net 1,422,026 (723,496) 136,744 Proceeds from long-term borrowings 3,598,056 1,213 1,721,211 Payments for long-term borrowings (18,737) (1,211,748) (740,181) Financing fees paid (58,629) — — Dividends paid (569,855) (475,174) (453,838) Net cash provided by (used in) financing activities 3,915,636 (2,623,339) 449,310 Effect of exchange rate changes on cash (23,770) 95,954 (30,519) Net increase (decrease) in cash and cash equivalents and restricted cash 5,914,759 47,603 (2,534,253) Cash, cash equivalents and restricted cash at beginning of year 733,117 685,514 3,219,767 Cash, cash equivalents and restricted cash at end of year $ 6,647,876 $ 733,117 $ 685,514 Supplemental Data: Cash paid during the year for: Interest $ 240,313 $ 236,979 $ 308,199 Income taxes 549,223 485,885 307,959 The accompanying notes are an integral part of the consolidated financial statements. 39 Table of Contents CONSOLIDATED STATEMENT OF EQUITY (Dollars in thousands) Common Stock Additional Capital Retained Earnings Accumulated Other Comprehensive (Loss) Treasury Shares Noncontrolling Interests Total Balance June 30, 2019 $ 90,523 $ 462,086 $ 12,895,150 $ (2,059,048) $ (5,309,130) $ 6,183 $ 6,085,764 Net income 1,201,970 362 1,202,332 Other comprehensive (loss) (499,827) (676) (500,503) Dividends paid ($3.52 per share) (453,213) (625) (453,838) Stock incentive plan activity (46,265) 90,981 44,716 Acquisition activity 764 9,302 10,066 Shares purchased at cost (146,767) (146,767) Balance June 30, 2020 $ 90,523 $ 416,585 $ 13,643,907 $ (2,558,875) $ (5,364,916) $ 14,546 $ 6,241,770 Net income 1,746,100 761 1,746,861 Other comprehensive income 992,148 720 992,868 Dividends paid ($3.67 per share) (474,510) (664) (475,174) Stock incentive plan activity (86,966) 94,311 7,345 Shares purchased at cost (100,000) (100,000) Balance June 30, 2021 $ 90,523 $ 329,619 $ 14,915,497 $ (1,566,727) $ (5,370,605) $ 15,363 $ 8,413,670 Net income 1,315,605 581 1,316,186 Other comprehensive income (loss) 23,529 (1,526) 22,003 Dividends paid ($4.42 per share) (569,294) (561) (569,855) Stock incentive plan activity (2,312) 62,510 60,198 Liquidation activity (1,948) (1,948) Shares purchased at cost (380,334) (380,334) Balance June 30, 2022 $ 90,523 $ 327,307 $ 15,661,808 $ (1,543,198) $ (5,688,429) $ 11,909 $ 8,859,920 The accompanying notes are an integral part of the consolidated financial statements. 40 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts or as otherwise noted) The term "year" and references to specific years refer to the applicable fiscal years. 1.
Biggest changeThe accompanying notes are an integral part of the consolidated financial statements. 40 Table of Contents CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the years ended June 30, (Dollars in thousands) 2023 2022 2021 Net Income $ 2,083,536 $ 1,316,186 $ 1,746,861 Less: Noncontrolling interests in subsidiaries' earnings 600 581 761 Net income attributable to common shareholders 2,082,936 1,315,605 1,746,100 Other comprehensive income (loss), net of tax Foreign currency translation adjustment and other (net of tax of $(38,322), $(3,236) and $(3,664) in 2023, 2022 and 2021, respectively) 186,721 (284,732) 328,792 Retirement benefits plan activity (net of tax of $(26,019), $(95,574) and $(205,845) in 2023, 2022 and 2021, respectively) 63,299 306,735 664,076 Other comprehensive income (loss) 250,020 22,003 992,868 Less: Other comprehensive (loss) income for noncontrolling interests (306) (1,526) 720 Other comprehensive income (loss) attributable to common shareholders 250,326 23,529 992,148 Total Comprehensive Income Attributable to Common Shareholders $ 2,333,262 $ 1,339,134 $ 2,738,248 The accompanying notes are an integral part of the consolidated financial statements. 41 Table of Contents CONSOLIDATED BALANCE SHEET (Dollars in thousands) June 30, 2023 2022 Assets Current Assets Cash and cash equivalents $ 475,182 $ 535,799 Marketable securities and other investments 8,390 27,862 Trade accounts receivable, net 2,827,297 2,341,504 Non-trade and notes receivable 309,167 543,757 Inventories 2,907,879 2,214,553 Prepaid expenses and other 306,314 6,383,169 Total Current Assets 6,834,229 12,046,644 Property, plant and equipment 6,865,545 5,897,955 Less: Accumulated depreciation 4,000,515 3,775,197 Property, plant and equipment, net 2,865,030 2,122,758 Deferred income taxes 81,429 110,585 Investments and other assets 1,104,576 788,057 Intangible assets, net 8,450,614 3,135,817 Goodwill 10,628,594 7,740,082 Total Assets $ 29,964,472 $ 25,943,943 Liabilities and Equity Current Liabilities Notes payable and long-term debt payable within one year $ 3,763,175 $ 1,724,310 Accounts payable, trade 2,050,934 1,731,925 Accrued payrolls and other compensation 651,319 470,132 Accrued domestic and foreign taxes 374,571 250,292 Other accrued liabilities 895,371 1,682,659 Total Current Liabilities 7,735,370 5,859,318 Long-term debt 8,796,284 9,755,825 Pensions and other postretirement benefits 551,510 639,939 Deferred income taxes 1,649,674 307,044 Other liabilities 893,355 521,897 Total Liabilities 19,626,193 17,084,023 Equity Shareholders' Equity Serial preferred stock, $.50 par value, authorized 3,000,000 shares; none issued — — Common stock, $.50 par value, authorized 600,000,000 shares; issued 181,046,128 shares in 2023 and 2022 90,523 90,523 Additional capital 305,522 327,307 Retained earnings 17,041,502 15,661,808 Accumulated other comprehensive (loss) (1,292,872) (1,543,198) Treasury shares at cost: 52,613,046 in 2023 and 52,594,956 in 2022 (5,817,787) (5,688,429) Total Shareholders' Equity 10,326,888 8,848,011 Noncontrolling interests 11,391 11,909 Total Equity 10,338,279 8,859,920 Total Liabilities and Equity $ 29,964,472 $ 25,943,943 The accompanying notes are an integral part of the consolidated financial statements. 42 Table of Contents CONSOLIDATED STATEMENT OF CASH FLOWS For the years ended June 30, (Dollars in thousands) 2023 2022 2021 Cash Flows From Operating Activities Net income $ 2,083,536 $ 1,316,186 $ 1,746,861 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 317,416 257,314 269,943 Amortization 500,713 314,450 325,447 Stock incentive plan compensation 142,720 137,093 121,483 Deferred income taxes 91,865 (351,201) (51,500) Foreign currency transaction loss (gain) 45,647 (39,987) (10,948) Loss (gain) on disposal of property, plant and equipment 3,819 (5,727) (109,332) Gain on sale of businesses (366,345) (1,394) — Gain on investments (4,690) (3,972) (12,616) (Gain) loss on marketable securities (1,486) 5,131 (11,570) Other 25,524 70,443 14,424 Changes in assets and liabilities, net of effects from acquisitions and divestitures: Accounts receivable, net (16,675) (179,126) (298,511) Inventories 53,124 (212,134) (85,597) Prepaid expenses and other 1,550 37,630 (25,508) Other assets (109,032) (11,167) (8,779) Accounts payable, trade 91,551 131,384 526,781 Accrued payrolls and other compensation 87,375 (15,524) 72,412 Accrued domestic and foreign taxes 102,476 32,514 36,552 Other accrued liabilities 112,822 999,831 11,397 Pensions and other postretirement benefits (109,481) 1,822 17,875 Other liabilities (72,499) (41,836) 46,187 Net cash provided by operating activities 2,979,930 2,441,730 2,575,001 Cash Flows From Investing Activities Acquisitions (net of cash acquired of $89,704 in 2023) (7,146,110) — — Capital expenditures (380,747) (230,044) (209,957) Proceeds from sale of property, plant and equipment 13,244 39,353 140,590 Proceeds from sale of businesses 473,207 3,366 — Purchase of marketable securities and other investments (37,791) (27,895) (34,809) Maturities and sales of marketable securities and other investments 56,786 31,809 79,419 Payments of deal-contingent forward contracts (1,405,418) — — Other 250,017 (235,426) 24,744 Net cash used in investing activities (8,176,812) (418,837) (13) Cash Flows From Financing Activities Proceeds from exercise of stock options 3,476 2,831 4,684 Payments for common shares (297,323) (460,056) (218,818) Proceeds from (payments of) notes payable, net 357,636 1,422,026 (723,496) Proceeds from long-term borrowings 2,023,400 3,598,056 1,213 Payments for long-term borrowings (2,340,566) (18,737) (1,211,748) Financing fees paid (13,605) (58,629) — Dividends paid (704,054) (569,855) (475,174) Net cash (used in) provided by financing activities (971,036) 3,915,636 (2,623,339) Effect of exchange rate changes on cash (4,776) (23,770) 95,954 Net (decrease) increase in cash and cash equivalents and restricted cash (6,172,694) 5,914,759 47,603 Cash, cash equivalents and restricted cash at beginning of year 6,647,876 733,117 685,514 Cash, cash equivalents and restricted cash at end of year $ 475,182 $ 6,647,876 $ 733,117 Supplemental Data: Cash paid during the year for: Interest $ 464,701 $ 240,313 $ 236,979 Income taxes 411,440 549,223 485,885 The accompanying notes are an integral part of the consolidated financial statements. 43 Table of Contents CONSOLIDATED STATEMENT OF EQUITY (Dollars in thousands) Common Stock Additional Capital Retained Earnings Accumulated Other Comprehensive (Loss) Treasury Shares Noncontrolling Interests Total Balance June 30, 2020 $ 90,523 $ 416,585 $ 13,643,907 $ (2,558,875) $ (5,364,916) $ 14,546 $ 6,241,770 Net income 1,746,100 761 1,746,861 Other comprehensive income 992,148 720 992,868 Dividends paid ($3.67 per share) (474,510) (664) (475,174) Stock incentive plan activity (86,966) 94,311 7,345 Shares purchased at cost (100,000) (100,000) Balance June 30, 2021 $ 90,523 $ 329,619 $ 14,915,497 $ (1,566,727) $ (5,370,605) $ 15,363 $ 8,413,670 Net income 1,315,605 581 1,316,186 Other comprehensive income (loss) 23,529 (1,526) 22,003 Dividends paid ($4.42 per share) (569,294) (561) (569,855) Stock incentive plan activity (2,312) 62,510 60,198 Liquidation activity (1,948) (1,948) Shares purchased at cost (380,334) (380,334) Balance June 30, 2022 $ 90,523 $ 327,307 $ 15,661,808 $ (1,543,198) $ (5,688,429) $ 11,909 $ 8,859,920 Net income 2,082,936 600 2,083,536 Other comprehensive income (loss) 250,326 (306) 250,020 Dividends paid ($5.47 per share) (703,242) (812) (704,054) Stock incentive plan activity (21,785) 70,641 48,856 Shares purchased at cost (199,999) (199,999) Balance June 30, 2023 $ 90,523 $ 305,522 $ 17,041,502 $ (1,292,872) $ (5,817,787) $ 11,391 $ 10,338,279 The accompanying notes are an integral part of the consolidated financial statements. 44 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts or as otherwise noted) The term "year" and references to specific years refer to the applicable fiscal years. 1.
Mr. Parel has been Vice President and Chief Digital and Information Officer since October 2020. He was Vice President and Chief Information Officer from October 2018 to October 2020. He was Vice President and Chief Information Officer at Dover Corporation from May 2016 through October 2018.
Mr. Parel has been Vice President – Chief Digital and Information Officer since October 2020. He was Vice President and Chief Information Officer from October 2018 to October 2020. He was Vice President and Chief Information Officer at Dover Corporation from May 2016 through October 2018.
The increase in gross profit margin is primarily due to higher sales volume and benefits from continuous improvement initiatives, as well as price increases, partially offset by increased freight, material and labor costs resulting from the ongoing inflationary environment and disruption within the global supply chain and labor markets.
The increase in gross profit margin is primarily due to higher sales volume and benefits from continuous improvement initiatives, as well as price increases, partially offset by increased freight, material and labor costs resulting from ongoing inflationary environment and disruption within the global supply chain and labor markets.
Diversified Industrial International - Sales in the Diversified Industrial International businesses increased 6.7 percent in 2022. The effect of currency rate changes decreased sales by $256 million, reflecting the strengthening of the U.S. dollar primarily against currencies in the Eurozone countries, Turkey and Japan.
Sales in the Diversified Industrial International businesses increased 6.7 percent in 2022. The effect of currency rate changes decreased sales by $256 million, reflecting the strengthening of the U.S. dollar primarily against currencies in the Eurozone countries, Turkey and Japan.
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.
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.
The dollar value of backlog is equal to the amount that is expected to be billed to the customer and reported as a sale.
We believe we can meet our strategic objectives by: • Serving the customer and continuously enhancing its experience with the Company; • Successfully executing The Win Strategy initiatives relating to engaged people, premier customer experience, profitable growth and financial performance; • Maintaining a decentralized division and sales company structure; • Fostering a safety-first and entrepreneurial culture; • Engineering innovative systems and products to provide superior customer value through improved service, efficiency and productivity; • Delivering products, systems and services that have demonstrable savings to customers and are priced by the value they deliver; • Enabling a sustainable future by providing innovative technology solutions that offer a positive, global environmental impact and operating responsibly by reducing our energy use and emissions; • Acquiring strategic businesses; • Organizing around targeted regions, technologies and markets; • Driving efficiency by implementing lean enterprise principles; and • Creating a culture of empowerment through our values, inclusion and diversity, accountability and teamwork.
We believe we can meet our strategic objectives by: • serving the customer and continuously enhancing its experience with the Company; • successfully executing The Win Strategy initiatives relating to engaged people, premier customer experience, profitable growth and financial performance; • maintaining a decentralized division and sales company structure; • fostering a safety-first and entrepreneurial culture; • engineering innovative systems and products to provide superior customer value through improved service, efficiency and productivity; • delivering products, systems and services that have demonstrable savings to customers and are priced by the value they deliver; • enabling a sustainable future by providing innovative clean technology solutions that offer a positive, global environmental impact and operating responsibly by reducing our energy use and emissions; • acquiring strategic businesses; • organizing around targeted regions, technologies and markets; • driving efficiency by implementing lean enterprise principles; and • creating a culture of empowerment through our values, inclusion and diversity, accountability and teamwork.
Prior to joining Parker, in 2015 he became leader of LORD's global Aerospace and Defense commercial function based in Cary, North Carolina and was later named Vice President with responsibility for Aerospace and Defense sales, marketing and programs. Lord is a diversified technology and manufacturing company developing highly reliable adhesives and coatings as well as vibration and motion control technologies.
Prior to joining Parker, in 2015 he became leader of Lord's global Aerospace and Defense commercial function based in Cary, North Carolina and was later named Vice President with responsibility for Aerospace and Defense sales, marketing and programs. Lord was a diversified technology and manufacturing company developing highly reliable adhesives and coatings as well as vibration and motion control technologies.
Derivatives that are designated as hedges are adjusted to fair value by recording gains and losses through accumulated other comprehensive income (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.
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 income (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 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.
He joined the Company as part of the LORD acquisition in October 2019, when he was named General Manager of the Noise, Vibration and Harshness Division. In September 2021, he was named Vice President of Operations for the Engineered Materials Group with responsibility for multiple divisions.
He joined the Company as part of the LORD Corporation ("Lord") acquisition in October 2019, when he was named General Manager of the Noise, Vibration and Harshness Division. In September 2021, he was named Vice President of Operations for the Engineered Materials Group with responsibility for multiple divisions.
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 two 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.
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.
We review these loss accruals periodically and make adjustments to reflect the most recent facts and circumstances. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Recently issued accounting pronouncements are described in Note 1 to the Consolidated Financial Statements, included in Part II, Item 8 of this Annual Report on Form 10-K. 31 Table of Contents ITEM 7A .
We review these loss accruals periodically and make adjustments to reflect the most recent facts and circumstances. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Recently issued accounting pronouncements are described in Note 1 to the Consolidated Financial Statements, included in Part II, Item 8 of this Annual Report on Form 10-K. 34 Table of Contents ITEM 7A .
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 assesses variable consideration that may affect the total transaction 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.
(b) 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. 68 Table of Contents ITEM 9 .
(b) 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. 74 Table of Contents ITEM 9 .
The Company makes these statements as of the date of the filing of its Annual Report on Form 10-K for the year ended June 30, 2022, and undertakes no obligation to update them unless otherwise required by law. Overview The Company is a global leader in motion and control technologies.
The Company makes these statements as of the date of the filing of its Annual Report on Form 10-K for the year ended June 30, 2023, and undertakes no obligation to update them unless otherwise required by law. Overview The Company is a global leader in motion and control technologies.
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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2022, in conformity with accounting principles generally accepted in the United States of America.
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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.
In addition, a valuation allowance of $26 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.
In addition, a valuation allowance of $20 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.
Impairment of Goodwill and Long-Lived Assets - 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 six reporting units are equivalent to our operating segments.
Impairment of Goodwill and Long-Lived Assets - 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.
It is reasonably possible that, within the next 12 months, the amount of gross unrecognized tax benefits could be reduced by up to approximately $30 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.
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.
Sherrard Vice President and President – Aerospace Group 2003 56 (1) Executive officers are elected by the Board of Directors to serve for a term of one year or until their respective successors are elected, except in the case of death, resignation or removal. Messrs.
Sherrard Vice President and President – Aerospace Group 2003 57 (1) Executive officers are elected by the Board of Directors to serve for a term of one year or until their respective successors are elected, except in the case of death, resignation or removal. Messrs.
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. ITEM 6 . [Reserved] 19 Table of Contents ITEM 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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. ITEM 6 . [Reserved] 20 Table of Contents ITEM 7 . Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Assets held in the U.S. defined benefit plan account for approximately 77 percent 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.
Assets held in the U.S. defined benefit plan account for approximately 65 percent 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.
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 and the amount of our liability in proportion to other responsible parties.
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.
Excluding the effect of currency rate changes, sales in 2022 for the Diversified Industrial North American businesses increased 15.3 percent from prior-year levels reflecting higher demand from distributors and end users in virtually all markets, including, the farm and agriculture, life sciences, heavy-duty truck, construction equipment, engines, refrigeration, material handling, metal fabrication, and semiconductor markets.
Excluding the effect of currency rate changes, sales in 2022 for the Diversified Industrial North American businesses increased 15.3 percent from prior-year levels reflecting higher 25 Table of Contents demand from distributors and end users in virtually all markets, including, the farm and agriculture, life sciences, heavy-duty truck, construction equipment, engines, refrigeration, material handling, metal fabrication, and semiconductor markets.
We have analyzed existing factors and determined we will no longer permanently reinvest certain foreign earnings. On these undistributed foreign earnings of approximately $678 million that are no longer permanently reinvested outside of the United States, we have recorded a deferred tax liability of $13 million.
We have analyzed existing factors and determined we will no longer permanently reinvest certain foreign earnings. On these undistributed foreign earnings of approximately $754 million that are no longer permanently reinvested outside of the United States, we have recorded a deferred tax liability of $13 million.
The Diversified Industrial North American operations have manufacturing plants and distribution networks throughout the United States, Canada and Mexico and primarily service North America. The Diversified Industrial International operations provide Parker products and services to 42 countries throughout Europe, Asia Pacific, Latin America, the Middle East and Africa.
The Diversified Industrial North American operations have manufacturing plants and distribution networks throughout the United States, Canada and Mexico and primarily service North America. The Diversified Industrial International operations provide Parker products and services to 41 countries throughout Europe, Asia Pacific, Latin America, the Middle East and Africa.
We anticipate that cost savings realized from the workforce reduction measures taken during 2022 will increase operating income in 2023 by approximately one percent in the Diversified Industrial International businesses and will not materially impact operating income in the Diversified Industrial North American businesses.
We anticipate that cost savings realized from the workforce reduction measures taken during 2023 will increase operating income in 2024 by approximately one percent in the Diversified Industrial International businesses and will not materially impact operating income in the Diversified Industrial North American businesses.
The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program. We do not reimburse suppliers for any costs they incur for participation in the program and their participation is completely voluntary.
The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the programs. We do not reimburse suppliers for any costs they incur for participation in the programs and their participation is completely voluntary.
We also have audited the Company’s internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited the Company’s internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
Revenue — Refer to Notes 1 and 2 to the financial statements Critical Audit Matter Description The Company is a highly diversified business with revenue derived from the sales of products in a variety of industrial and aerospace markets.
Revenue — Refer to Notes 1 and 2 to the financial statements Critical Audit Matter Description The Company is a highly diversified manufacturer with revenue derived from the sales of products in a variety of industrial and aerospace markets.
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. Revenue Recognition - Revenues are recognized when control of performance obligations, which are distinct goods or services within the contract, is transferred to the customer.
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. 32 Table of Contents Revenue Recognition - Revenues are recognized when control of performance obligations, which are distinct goods or services within the contract, is transferred to the customer.
At June 30, 2022, 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: Fitch Ratings BBB+ Moody's Investor Services, Inc.
At June 30, 2023, 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: Fitch Ratings BBB+ Moody's Investor Services, Inc.
Operating Margin Operating margins in 2022 increased in both the North American and International businesses primarily due to higher sales volume and benefits from continuous improvement initiatives, as well as price increases.
Operating margins in 2022 increased from 2021 in both the North American and International businesses primarily due to higher sales volume and benefits from continuous improvement initiatives, as well as price increases.
Among other factors which may affect future performance are: • 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, changes in contract cost and revenue estimates for new development programs and changes in product mix; • the impact of the global outbreak of COVID-19 and governmental and other actions taken in response; • ability to identify acceptable strategic acquisition targets; uncertainties surrounding timing, successful completion or integration of acquisitions and similar transactions, including the integration of Lord and Exotic and the proposed acquisition of Meggitt; and our ability to effectively manage expanded operations from the acquisitions of Lord and Exotic and the proposed acquisition of Meggitt; • the ability to successfully divest businesses planned for divestiture and realize the anticipated benefits of such divestitures; • the determination to undertake business realignment activities and the expected costs thereof and, if undertaken, the ability to complete such activities and realize the anticipated cost savings from such activities; • ability to implement successfully capital allocation initiatives, including timing, price and execution of share repurchases; • availability, limitations or cost increases of raw materials, component products and/or commodities that cannot be recovered in product pricing; • ability to manage costs related to insurance and employee retirement and health care benefits; • legal and regulatory developments and changes; • additional liabilities relating to changes in tax rates or exposure to additional income tax liabilities; • ability to enter into, own, renew, protect and maintain intellectual property and know-how; • leverage and future debt service obligations; • potential impairment of goodwill; • compliance costs associated with environmental laws and regulations; • potential labor disruptions or shortages; • uncertainties surrounding the ultimate resolution of outstanding legal proceedings, including the outcome of any appeals; • global competitive market conditions, including U.S. trade policies and resulting effects on sales and pricing; • global economic factors, including manufacturing activity, air travel trends, currency exchange rates, difficulties entering new markets and general economic conditions such as inflation, deflation, interest rates, credit availability and changes in consumer habits and preferences; • local and global political and economic conditions, including the Russia-Ukraine war and its residual effects; 20 Table of Contents • inability to obtain, or meet conditions imposed for, required governmental and regulatory approvals; • government actions and natural phenomena such as pandemics, floods, earthquakes, hurricanes or other natural phenomena that may be related to climate change; • increased cyber security threats and sophisticated computer crime; and • success of business and operating initiatives.
Among other factors which may affect future performance are: • 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, changes in contract cost and revenue estimates for new development programs and changes in product mix; • the impact of political, social and economic instability and disruptions, including public health crises such as the COVID-19 pandemic; • ability to identify acceptable strategic acquisition targets; uncertainties surrounding timing, successful completion or integration of acquisitions and similar transactions, including the integration of Meggitt; and our ability to effectively manage expanded operations from acquisitions; • the ability to successfully divest businesses planned for divestiture and realize the anticipated benefits of such divestitures; • the determination to undertake business realignment activities and the expected costs thereof and, if undertaken, the ability to complete such activities and realize the anticipated cost savings from such activities; • ability to implement successfully capital allocation initiatives, including timing, price and execution of share repurchases; • availability, limitations or cost increases of raw materials, component products and/or commodities that cannot be recovered in product pricing; • global economic factors, including manufacturing activity, air travel trends, currency exchange rates, difficulties entering new markets and general economic conditions such as inflation, deflation, interest rates, credit availability and changes in consumer habits and preferences; • ability to manage costs related to insurance and employee retirement and health care benefits; • legal and regulatory developments and changes; • additional liabilities relating to changes in tax rates or exposure to additional income tax liabilities; • ability to enter into, own, renew, protect and maintain intellectual property and know-how; • leverage and future debt service obligations; • potential impairment of goodwill; • compliance costs associated with environmental laws and regulations; • potential labor disruptions or shortages and the ability to attract and retain key personnel; • uncertainties surrounding the ultimate resolution of outstanding legal proceedings, including the outcome of any appeals; • global competitive market conditions, including U.S. trade policies and resulting effects on sales and pricing; • local and global political and economic conditions, including the Russia-Ukraine war and its residual effects; 21 Table of Contents • inability to obtain, or meet conditions imposed for, required governmental and regulatory approvals; • government actions and natural phenomena such as pandemics, floods, earthquakes, hurricanes or other natural phenomena that may be related to climate change; • increased cyber security threats and sophisticated computer crime; and • success of business and operating initiatives.
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 2022, the Company did not record any material impairment related to long-lived assets.
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 2023, the Company did not record any material impairments related to long-lived assets.
Net Sales Diversified Industrial North America - Sales in 2022 for the Diversified Industrial North American businesses increased 15.4 percent from 2021. The effect of currency exchange rates increased sales by approximately $7 million.
Sales in 2022 for the Diversified Industrial North American businesses increased 15.4 percent from 2021. The effect of currency exchange rates increased sales by approximately $7 million.
Effective tax rate in 2022 was lower than 2021 primarily due to an overall increase in discrete tax benefits. BUSINESS SEGMENT INFORMATION 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.
Effective tax rate in 2022 was lower than 2021 primarily due to an overall increase in discrete tax benefits. 24 Table of Contents BUSINESS SEGMENT INFORMATION 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.
In addition, we maintain a defined contribution nonqualified supplemental executive pension plan in which the Company is the only contributor. During 2022, 2021 and 2020, we recorded (income) expense relating to these programs of $(21) million, $45 million and $6 million, respectively. The Company has invested in corporate-owned life insurance policies to assist in meeting the obligations under these programs.
In addition, we maintain a defined contribution nonqualified supplemental executive pension plan in which the Company is the only contributor. During 2023, 2022 and 2021, we recorded expense (income) relating to these programs of $20 million, $(21) million and $45 million, respectively. The Company has invested in corporate-owned life insurance policies to assist in meeting the obligations under these programs.
Refer to Note 3 for further discussion. Divestitures represent goodwill associated with the sale of a business during 2022. Goodwill reclassified to held for sale, which was allocated using the relative fair value method, relates to the aircraft wheel and brake business. Refer to Note 3 for further discussion.
Refer to Note 3 for further discussion. Divestitures represent goodwill associated with the sale of businesses during 2023 and 2022. Goodwill reclassified to held for sale, which was allocated using the relative fair value method, relates to the aircraft wheel and brake business. Refer to Note 3 for further discussion.
U.S. based companies include Parker stock with a fair value of $327 million and $408 million as of June 30, 2022 and 2021, 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.
U.S. based companies include Parker stock with a fair value of $519 million and $327 million as of June 30, 2023 and 2022, 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.
During 2021, the U.S. defined benefit plan implemented a new liability-hedging initiative that requires the plan to maintain a certain cash balance. At June 30, 2022, this required cash balance totaled approximately $33 million. Equity securities are valued at the closing price reported on the active market on which the individual securities are traded.
During 2021, the U.S. defined benefit plan implemented a new liability-hedging initiative that requires the plan to maintain a certain cash balance. At June 30, 2023, this required cash balance totaled approximately $49 million. Equity securities are valued at the closing price reported on the active market on which the individual securities are traded.
The Company’s common stock is listed for trading on the New York Stock Exchange ("NYSE") under the symbol "PH". As of July 31, 2022, the number of shareholders of record of the Company was 3,236. (b) Use of Proceeds . Not Applicable. (c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers .
The Company’s common stock is listed for trading on the New York Stock Exchange ("NYSE") under the symbol "PH". As of July 31, 2023, the number of shareholders of record of the Company was 3,114. (b) Use of Proceeds . Not Applicable. (c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers .
We assess the effectiveness of the €69 million, €290 million and ¥2,149 million cross-currency swap hedging instruments using the spot method. Under this method, the periodic interest settlements are recognized directly in earnings through interest expense.
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.
We also reconcile the estimated aggregate fair value of our reporting units resulting from these procedures to our overall market capitalization. At December 31, 2021, the Company performed its annual goodwill impairment test for each of its six reporting units. The results of this test indicated the fair value substantially exceeded carrying value for all reporting units.
We also reconcile the estimated aggregate fair value of our reporting units resulting from these procedures to our overall market capitalization. At December 31, 2022, 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.
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 $3,000 million of short-term commercial paper notes.
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.
As of June 30, 2022, $472 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.
As of June 30, 2023, $342 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.
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, and any insurance or other third-party recoveries. 18.
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. 72 Table of Contents 18.
The remaining undistributed foreign earnings of approximately $1,630 million remain permanently reinvested outside the United States at June 30, 2022. Of these undistributed earnings, we have recorded a deferred tax liability of $8 million where certain foreign holding companies are not permanently reinvested in their subsidiaries.
The remaining undistributed foreign earnings of approximately $1,130 million remain permanently reinvested outside the United States at June 30, 2023. Of these undistributed earnings, we have recorded a deferred tax liability of $8 million where certain foreign holding companies are not permanently reinvested in their subsidiaries.
Based on our rating level at June 30, 2022, 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, 2022, our debt to debt-shareholders' equity ratio was 0.57 to 1.0. We are in compliance with all covenants. 10.
Based on our rating level at June 30, 2023, 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, 2023, our debt to debt-shareholders' equity ratio was 0.55 to 1.0. We are in compliance with all covenants. 10.
On October 23, 2019, the number of shares of common stock authorized for issuance under the 2016 SIP increased to 23.8 million shares. At June 30, 2022, 8.4 million common stock shares were available for future issuance.
On October 23, 2019, the number of shares of common stock authorized for issuance under the 2016 SIP increased to 23.8 million shares. At June 30, 2023, 6.4 million common stock shares were available for future issuance.
The assumptions used to measure net periodic benefit cost for the Company's significant defined benefit plans are: 2022 2021 2020 U.S. defined benefit plan Discount rate 2.55 % 2.36 % 3.28 % Average increase in compensation 3.05 % 2.98 % 3.60 % Expected return on plan assets 6.50 % 6.75 % 7.00 % Non-U.S. defined benefit plans Discount rate 0.25 to 2.95% 0.2 to 3.03% 0.2 to 2.96% Average increase in compensation 1.75 to 4.50% 1.75 to 4.50% 1.75 to 3.90% Expected return on plan assets 1.0 to 4.50% 1.0 to 5.40% 1.0 to 5.75% The assumptions used to measure the benefit obligation for the Company's significant defined benefit plans are: 2022 2021 U.S. defined benefit plan Discount rate 4.36 % 2.55 % Average increase in compensation 3.81 % 3.05 % Non-U.S. defined benefit plans Discount rate 0.60 to 5.06% 0.25 to 2.95% Average increase in compensation 1.75 to 4.00% 1.75 to 4.50% 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 assumptions used to measure net periodic benefit cost for the Company's significant defined benefit plans are: 2023 2022 2021 U.S. defined benefit plan Discount rate 4.36 % 2.55 % 2.36 % Average increase in compensation 3.35 % 3.05 % 2.98 % Expected return on plan assets 6.50 % 6.50 % 6.75 % Non-U.S. defined benefit plans Discount rate 0.60 to 5.06% 0.25 to 2.95% 0.20 to 3.03% Average increase in compensation 1.75 to 4.00% 1.75 to 4.50% 1.75 to 4.50% Expected return on plan assets 1.00 to 5.10% 1.00 to 4.50% 1.00 to 5.40% The assumptions used to measure the benefit obligation for the Company's significant defined benefit plans are: 2023 2022 U.S. defined benefit plan Discount rate 4.88 % 4.36 % Average increase in compensation 3.81 % 3.81 % Non-U.S. defined benefit plans Discount rate 0.90 to 5.20% 0.60 to 5.06% Average increase in compensation 2.00 to 4.40% 1.75 to 4.00% 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.
Page Number in Form 10-K Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 34 Financial Statements Consolidated Statement of Income 36 Consolidated Statement of Comprehensive Income 37 Consolidated Balance Sheet 38 Consolidated Statement of Cash Flows 39 Consolidated Statement of Equity 40 Notes to Consolidated Financial Statements 41 33 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Parker-Hannifin Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Parker-Hannifin and subsidiaries (the "Company") as of June 30, 2022 and 2021, the related consolidated statements of income, comprehensive income, equity and cash flows, for each of the three years in the period ended June 30, 2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").
Page Number in Form 10-K Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 37 Financial Statements Consolidated Statement of Income 40 Consolidated Statement of Comprehensive Income 41 Consolidated Balance Sheet 42 Consolidated Statement of Cash Flows 43 Consolidated Statement of Equity 44 Notes to Consolidated Financial Statements 45 36 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Parker-Hannifin Corporation Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Parker-Hannifin Corporation and subsidiaries (the "Company") as of June 30, 2023 and 2022, the related consolidated statements of income, comprehensive income, cash flows, and equity, for each of the three years in the period ended June 30, 2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").
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.
We are in compliance, and expect to remain in compliance, with all covenants set forth in the credit agreement and indentures. 31 Table of Contents Our goal is to maintain an investment-grade credit profile. The rating agencies periodically update our credit ratings as events occur.
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 2022, 2021 and 2020 was based on the fair market value of our common stock on the date of grant.
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. 68 Table of Contents The fair value of each RSU award granted in 2023, 2022 and 2021 was based on the fair market value of our common stock on the date of grant.
A valuation allowance of $876 million related to the loss carryforwards has been established due to the uncertainty of their realization. Of this valuation allowance, $853 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 to 20 years.
A valuation allowance of $1,059 million related to the loss carryforwards has been established due to the uncertainty of their realization. Of this valuation allowance, $1,030 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 to 20 years.
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 $76 million, $41 million and $75 million in 2022, 2021 and 2020, 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 $124 million, $76 million and $41 million in 2023, 2022 and 2021, respectively.
In addition, within the International businesses, operating margin in 2022 benefited from savings related to prior-year restructuring actions. 24 Table of Contents Business Realignment The following business realignment and acquisition integration charges are included in Diversified Industrial North America and Diversified Industrial International operating income: (dollars in millions) 2022 2021 Diversified Industrial North America $ 4 $ 14 Diversified Industrial International 14 36 In both fiscal 2022 and 2021, 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 addition, within the International businesses, operating margin in 2022 benefited from savings related to prior-year restructuring actions. 26 Table of Contents Business Realignment The following business realignment and acquisition integration charges are included in Diversified Industrial North America and Diversified Industrial International operating income: (dollars in millions) 2023 2022 2021 Diversified Industrial North America $ 9 $ 4 $ 14 Diversified Industrial International 23 14 36 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 July 2022, after consideration of the escrow balance and funds available under the delayed-draw Term Loan Facility, we reduced the aggregate committed principal amount of the bridge credit agreement (the "Bridge Credit Agreement") to zero.
In July 2022, after consideration of the escrow balance and funds available under the delayed-draw term loan facility (the “Term Loan Facility”), we reduced the aggregate committed principal amount of the Bridge Credit Agreement to zero, and the Bridge Credit Agreement was terminated.
During 2022, we also incurred $6 million of expense within the Diversified Industrial International businesses 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.
Business realignment and acquisition integration charges within the Diversified Industrial International businesses were primarily incurred in Europe. During 2022, we also incurred $6 million of expense within the Diversified Industrial International businesses 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.
We currently have a supply chain financing program ("SCF") with a financial intermediary, which provides certain suppliers the option to be paid by the financial intermediary earlier than the due date on the applicable invoice. We are not a party to the agreements between the participating financial intermediary and the suppliers in connection with the programs.
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 are not a party to the agreements between the participating financial intermediaries and the suppliers in connection with the programs.
Backlog The increase in Aerospace Systems Segment backlog in 2022 was primarily due to orders exceeding shipments in the commercial OEM and aftermarket businesses, partially offset by shipments exceeding orders in the military OEM and aftermarket businesses.
The increase in backlog in 2022 was primarily due to orders exceeding shipments in the commercial OEM and aftermarket businesses, partially offset by shipments exceeding orders in the military OEM and aftermarket businesses.
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: • Continuing our record annual dividend increases • Investing in organic growth and productivity • Strategic acquisitions that strengthen our portfolio • Offset share dilution through 10b5-1 share repurchase program Cash Flows A summary of cash flows follows: (dollars in millions) 2022 2021 Cash provided by (used in): Operating activities $ 2,442 $ 2,575 Investing activities (419) — Financing activities 3,916 (2,623) Effect of exchange rates (24) 96 Net increase in cash and cash equivalents and restricted cash $ 5,915 $ 48 Cash flows from operating activities were $2,442 million in 2022 compared to $2,575 million in 2021.
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: • Continuing our record annual dividend increases • Investing in organic growth and productivity • Strategic acquisitions that strengthen our portfolio • Offset share dilution through 10b5-1 share repurchase program Cash Flows A summary of cash flows follows: (dollars in millions) 2023 2022 2021 Cash provided by (used in): Operating activities $ 2,980 $ 2,442 $ 2,575 Investing activities (8,177) (419) — Financing activities (971) 3,916 (2,623) Effect of exchange rates (5) (24) 96 Net (decrease) increase in cash and cash equivalents and restricted cash $ (6,173) $ 5,915 $ 48 29 Table of Contents Cash flows from operating activities were $2,980 million in 2023, $2,442 million in 2022 and $2,575 million in 2021.
We recognized an income tax benefit of $4 million, $1 million and $1 million relating to the issuance of common stock for RSU awards that vested during 2022, 2021 and 2020, respectively. 63 Table of Contents Additionally, we granted RSUs with a one-year vesting period to non-employee members of the Board of Directors.
We recognized an income tax benefit of $2 million, $4 million and $1 million relating to the issuance of common stock for RSU awards that vested during 2023, 2022 and 2021, respectively. Additionally, we granted RSUs with a one-year vesting period to non-employee members of the Board of Directors.
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 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.
At June 30, 2022, $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 22 months. The total fair value of RSU awards vested during 2022, 2021 and 2020 was $26 million, $21 million and $23 million, respectively.
At June 30, 2023, $18 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 21 months. The total fair value of RSU awards vested during 2023, 2022 and 2021 was $30 million, $26 million and $21 million, respectively.
The fair value of each SAR award granted in 2022, 2021 and 2020 was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: 2022 2021 2020 Risk-free interest rate 0.8 % 0.4 % 1.5 % Expected life of award 5.6 years 5.4 years 5.1 years Expected dividend yield of stock 1.9 % 2.0 % 2.0 % Expected volatility of stock 35.7 % 35.2 % 25.9 % Weighted-average fair value $ 81.71 $ 53.92 $ 31.68 The risk-free interest rate was based on U.S.
The fair value of each SAR award granted in 2023, 2022 and 2021 was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: 2023 2022 2021 Risk-free interest rate 3.0 % 0.8 % 0.4 % Expected life of award 5.6 years 5.6 years 5.4 years Expected dividend yield of stock 1.8 % 1.9 % 2.0 % Expected volatility of stock 37.1 % 35.7 % 35.2 % Weighted-average fair value $ 97.70 $ 81.71 $ 53.92 The risk-free interest rate was based on U.S.
Refer to Note 16 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion. Gain on disposal of assets in 2021 primarily consists of a gain of $101 million on the sale of land.
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 2021 it primarily consists of a gain of $101 million on the sale of land.
Loss on deal-contingent forward contracts in 2022 includes an unrealized loss on the deal-contingent forward contracts related to the proposed Acquisition. Refer to Note 16 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 16 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.
The location and fair value of derivative financial instruments reported on the Consolidated Balance Sheet are as follows: Balance Sheet Caption 2022 2021 Net investment hedges Cross-currency swap contracts Investments and other assets $ 21,444 $ — Cross-currency swap contracts Other liabilities — 71,798 Other derivative contracts Forward exchange contracts Non-trade and notes receivable 20,976 5,376 Forward exchange contracts Other accrued liabilities 5,651 9,435 Deal-contingent forward contracts Other accrued liabilities 1,015,426 — Costless collar contracts Non-trade and notes receivable 351 110 Costless collar contracts Other accrued liabilities 1,578 901 The cross-currency swap, forward exchange, deal-contingent forward and costless collar contracts are reflected on a gross basis in the Consolidated Balance Sheet.
The location and fair value of derivative financial instruments reported on the Consolidated Balance Sheet are as follows: Balance Sheet Caption 2023 2022 Net investment hedges Cross-currency swap contracts Investments and other assets $ 21,578 $ 21,444 Other derivative contracts Forward exchange contracts Non-trade and notes receivable — 20,976 Forward exchange contracts Other accrued liabilities — 5,651 Deal-contingent forward contracts Other accrued liabilities — 1,015,426 Costless collar contracts Non-trade and notes receivable — 351 Costless collar contracts Other accrued liabilities — 1,578 The cross-currency swap, forward exchange, deal-contingent forward and costless collar contracts are reflected on a gross basis in the Consolidated Balance Sheet.
Diversified Industrial Segment revenues by technology platform: 2022 2021 Motion Systems $ 3,489,431 $ 3,081,366 Flow and Process Control 4,616,270 4,108,080 Filtration and Engineered Materials 5,236,345 4,770,713 Total $ 13,342,046 $ 11,960,159 The Aerospace Systems Segment produces hydraulic, fuel, pneumatic and electro-mechanical systems and components, which are utilized on virtually every domestic commercial, military and general aviation aircraft.
Diversified Industrial Segment revenues by technology platform: 2023 2022 2021 Motion Systems $ 3,830,062 $ 3,489,431 $ 3,081,366 Flow and Process Control 4,939,356 4,616,270 4,108,080 Filtration and Engineered Materials 5,936,275 5,236,345 4,770,713 Total $ 14,705,693 $ 13,342,046 $ 11,960,159 The Aerospace Systems Segment produces hydraulic, fuel, pneumatic and electro-mechanical systems and components, which are utilized on virtually every domestic commercial, military and general aviation aircraft.
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.
Contract balances 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.
Intangible Assets - Intangible assets primarily include patents and technology, trademarks and customer lists 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.
Intangible Assets - 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.
Repurchases may be funded primarily from operating cash flows and commercial paper borrowings and the shares are initially held as treasury shares. The number of common shares repurchased at the average purchase price follows: 2022 2021 2020 Shares repurchased 1,281,818 331,259 818,581 Average price per share, including commissions $ 296.71 $ 301.88 $ 179.29 14.
Repurchases may be funded primarily from operating cash flows and commercial paper borrowings and the shares are initially held as treasury shares. The number of common shares repurchased at the average purchase price follows: 2023 2022 2021 Shares repurchased 663,599 1,281,818 331,259 Average price per share, including commissions $ 301.39 $ 296.71 $ 301.88 14.
In 2022, 2021 and 2020, we recognized stock-based compensation expense of $1.8 million, $1.5 million, and $1.4 million, respectively, relating to these awards. During 2022, 2021 and 2020, we recognized an income tax benefit of $0.2 million, $2.1 million and $0.1 million, respectively, related to the vesting of Board of Directors RSU awards.
In 2023, 2022 and 2021, we recognized stock-based compensation expense of $1.9 million, $1.8 million and $1.5 million, respectively, relating to these awards. During 2023, 2022 and 2021, we recognized an income tax (cost) benefit of $(0.02) million, $0.2 million and $2.1 million, respectively, related to the vesting of Board of Directors RSU awards.
How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s revenue transactions included the following, among others: • We tested the design and effectiveness of internal controls within the revenue business processes, including controls over revenue recognition and controls over the review of operating results. • We performed transaction testing for revenue populations subject to detail testing by agreeing the amounts recorded as revenue to source documents and determined that revenue was recognized appropriately. • We tested the completeness of revenue for revenue populations subject to detail testing, by making selections from a reciprocal population (e.g. sales order listing) and determined whether the sales order was appropriately recorded as a sale in the general ledger. • We performed substantive analytical procedures for revenue transactions not subject to detail transaction testing.
How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the Company’s revenue transactions generated from product shipments included the following, among others: • We tested the design and effectiveness of internal controls within the revenue business processes, including controls over revenue recognition and controls over the review of operating results. • We performed transaction testing for revenue populations subject to detail testing by agreeing the amounts recorded as revenue to source documents and determined that revenue was recognized appropriately. • We tested the completeness of revenue for revenue populations subject to detail testing, by making selections from a reciprocal population such as a sales order listing and determined whether the product included in the sales order was appropriately recorded as a sale in the general ledger. • We performed substantive analytical procedures to extend our testing from an interim date to the end of the fiscal year for revenue transactions not subject to detail transaction testing.
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 assesses variable consideration that may affect the total transaction price.
Revenue is recognized when control of the individual performance obligations is transferred to the customer. 45 Table of Contents We consider the contractual consideration payable by the customer and assess variable consideration that may affect the total transaction price.
At June 30, 2022, $0.6 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 four months.
At June 30, 2023, $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.
Retirement Benefits Pensions - The Company has noncontributory defined benefit pension plans covering eligible employees, including certain employees in foreign countries. 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.
Retirement Benefits Pensions - 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.
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