Parker Hannifin Corporation

11/05/2024 | Press release | Distributed by Public on 11/05/2024 06:13

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

ph-20240930
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File number 1-4982
PARKER-HANNIFIN CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 34-0451060
(State or other jurisdiction of
Incorporation or Organization) 		(I.R.S. Employer
Identification No.)
6035 Parkland Boulevard, Cleveland, Ohio 44124-4141
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (216) 896-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol Name of Each Exchange on which Registered
Common Shares, $.50 par value PH New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Number of Common Shares outstanding at September 30, 2024: 128,720,433
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
September 30,
2024 2023
Net sales $ 4,903,984 $ 4,847,488
Cost of sales 3,097,719 3,097,349
Selling, general and administrative expenses 848,789 873,691
Interest expense 113,091 134,468
Other income, net (30,801) (78,455)
Income before income taxes 875,186 820,435
Income taxes 176,658 169,363
Net income 698,528 651,072
Less: Noncontrolling interest in subsidiaries' earnings 108 245
Net income attributable to common shareholders $ 698,420 $ 650,827
Earnings per share attributable to common shareholders:
Basic $ 5.43 $ 5.07
Diluted $ 5.34 $ 4.99
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
Three Months Ended
September 30,
2024 2023
Net income $ 698,528 $ 651,072
Less: Noncontrolling interests in subsidiaries' earnings 108 245
Net income attributable to common shareholders 698,420 650,827
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment 344,546 (222,532)
Retirement benefits plan activity 3,451 818
Other comprehensive income (loss) 347,997 (221,714)
Less: Other comprehensive income for noncontrolling interests 420 361
Other comprehensive income (loss) attributable to common shareholders 347,577 (222,075)
Total comprehensive income attributable to common shareholders
$ 1,045,997 $ 428,752
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
September 30,
2024 		June 30,
2024
ASSETS
Current assets:
Cash and cash equivalents $ 371,068 $ 422,027
Trade accounts receivable, net 2,712,656 2,865,546
Non-trade and notes receivable 317,381 331,429
Inventories 2,872,250 2,786,800
Prepaid expenses 249,148 252,618
Other current assets 511,198 140,204
Total current assets 7,033,701 6,798,624
Property, plant and equipment 7,111,027 7,074,574
Less: Accumulated depreciation 4,271,485 4,198,906
Property, plant and equipment, net 2,839,542 2,875,668
Deferred income taxes 91,882 92,704
Investments and other assets 1,263,190 1,207,232
Intangible assets, net 7,747,233 7,816,181
Goodwill 10,625,287 10,507,433
Total assets $ 29,600,835 $ 29,297,842
LIABILITIES
Current liabilities:
Notes payable and long-term debt payable within one year $ 3,515,613 $ 3,403,065
Accounts payable, trade 1,953,477 1,991,639
Accrued payrolls and other compensation 407,106 581,251
Accrued domestic and foreign taxes 457,761 354,659
Other accrued liabilities 1,004,073 982,695
Total current liabilities 7,338,030 7,313,309
Long-term debt 6,673,303 7,157,034
Pensions and other postretirement benefits 427,702 437,490
Deferred income taxes 1,544,503 1,583,923
Other liabilities 715,948 725,193
Total liabilities 16,699,486 17,216,949
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 at September 30 and June 30
90,523 90,523
Additional paid-in capital 275,019 264,508
Retained earnings 19,593,082 19,104,599
Accumulated other comprehensive (loss) (1,090,435) (1,438,012)
Treasury shares, at cost; 52,325,695 shares at September 30 and 52,442,162 shares at June 30
(5,976,289) (5,949,646)
Total shareholders' equity 12,891,900 12,071,972
Noncontrolling interests 9,449 8,921
Total equity 12,901,349 12,080,893
Total liabilities and equity $ 29,600,835 $ 29,297,842
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
September 30,
2024 2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 698,528 $ 651,072
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 88,925 84,867
Amortization 140,121 155,520
Stock incentive plan compensation 75,842 77,894
Deferred income taxes (27,255) (56,027)
Foreign currency transaction loss (gain) 36,670 (2,011)
(Gain) loss on property, plant and equipment and intangible assets (8,422) 1,333
Gain on sale of businesses (313) (13,260)
Other, net 3,894 5,542
Changes in assets and liabilities, net of effect of acquisitions and divestitures:
Accounts receivable, net 137,555 63,947
Inventories (135,649) (137,995)
Prepaid expenses 3,975 5,501
Other current assets (12,985) 11,414
Other assets (51,009) (38,589)
Accounts payable, trade (42,336) 4,768
Accrued payrolls and other compensation (172,048) (220,336)
Accrued domestic and foreign taxes 92,558 136,916
Other accrued liabilities (46,384) 51,443
Pensions and other postretirement benefits (8,064) (53,086)
Other liabilities (29,628) (78,954)
Net cash provided by operating activities 743,975 649,959
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (95,302) (97,746)
Proceeds from sale of property, plant and equipment 13,271 710
Proceeds from sale of businesses 884 36,691
Other, net (5,461) 4,351
Net cash used in investing activities (86,608) (55,994)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 1,697 1,182
Payments for common shares (93,786) (79,330)
Acquisition of noncontrolling interests - (2,883)
Payments for notes payable, net (367,434) (169,785)
Payments for long-term borrowings (41,495) (176,626)
Dividends paid (209,937) (190,420)
Net cash used in financing activities (710,955) (617,862)
Effect of exchange rate changes on cash 2,629 (2,359)
Net decrease in cash and cash equivalents (50,959) (26,256)
Cash and cash equivalents at beginning of year 422,027 475,182
Cash and cash equivalents at end of period $ 371,068 $ 448,926
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts or as otherwise noted)
As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms "Company", "Parker", "we" or "us" refer to Parker-Hannifin Corporation and its subsidiaries.
1. Management representation
In the opinion of the management of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company's financial position as of September 30, 2024, the results of operations for the three months ended September 30, 2024 and 2023 and cash flows for the three months then ended. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's 2024 Annual Report on Form 10-K.
Subsequent Events
The Company has evaluated subsequent events that occurred through the date these financial statements were issued. On November 1, 2024, Parker completed two divestitures. The composites and fuel containment ("CFC") business, which was acquired in the acquisition of Meggitt plc ("Meggitt"), was sold for proceeds of $560 million. Refer to Note 4 for further discussion. Additionally, we divested a non-core filtration business within the North America businesses of the Diversified Industrial Segment for proceeds of $66 million.
2. New accounting pronouncements
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. The amendments should be applied retrospectively to all prior periods presented in the financial statements. We plan to adopt the standard beginning with our fiscal 2025 Form 10-K. We expect this ASU to result in expanded disclosure of segment financial information with no impact on our financial position and results of operations.
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 Company adopted the guidance on July 1, 2023, except for the annual rollforward requirement, which was adopted on July 1, 2024, and will be presented in the Company's Annual Report on Form 10-K for fiscal 2025. The adoption did not have a material impact on the Company's condensed consolidated financial statements. Refer to Note 10 for further discussion.
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3. Revenue recognition
Revenue is derived primarily from the sale of products in the aerospace and defense, in-plant and industrial equipment, transportation, off-highway, energy, and HVAC and 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.
Diversified Industrial Segment revenues by technology platform:
Three Months Ended
September 30,
2024 2023
Motion Systems $ 848,549 $ 942,314
Flow and Process Control 1,125,634 1,181,461
Filtration and Engineered Materials 1,481,975 1,494,753
Total $ 3,456,158 $ 3,618,528
Aerospace Systems Segment revenues by market segment:
Three Months Ended
September 30,
2024 2023
Commercial original equipment manufacturer ("OEM") $ 433,235 $ 418,616
Commercial aftermarket 520,829 391,206
Defense OEM 262,291 263,065
Defense aftermarket 231,471 156,073
Total $ 1,447,826 $ 1,228,960
Total Company revenues by geographic region based on the Company's selling operation's location:
Three Months Ended
September 30,
2024 2023
North America $ 3,333,660 $ 3,293,091
Europe 934,580 941,715
Asia Pacific 579,911 554,405
Latin America 55,833 58,277
Total $ 4,903,984 $ 4,847,488
The majority of revenues from the Aerospace Systems Segment are generated from sales within North America.
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.
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Total contract assets and contract liabilities are as follows:
September 30,
2024 		June 30,
2024
Contract assets, current (included within Other current assets) $ 150,052 $ 136,814
Contract assets, noncurrent (included within Investments and other assets) 19,353 21,063
Total contract assets 169,405 157,877
Contract liabilities, current (included within Other accrued liabilities) (179,333) (183,868)
Contract liabilities, noncurrent (included within Other liabilities) (89,633) (77,957)
Total contract liabilities (268,966) (261,825)
Net contract liabilities $ (99,561) $ (103,948)
Net contract liabilities at September 30, 2024 decreased from the June 30, 2024 amount primarily due to timing differences between when revenue was recognized and the receipt of advance payments. During the three months ended September 30, 2024, approximately $81 million of revenue was recognized that was included in the contract liabilities at June 30, 2024.
Remaining performance obligations
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 September 30, 2024 was $11.0 billion, of which approximately 73 percent is expected to be recognized as revenue within the next 12 months and the balance thereafter.
4. Divestitures
On July 28, 2024, the Company signed an agreement to divest its CFC business from within the North America businesses of the Diversified Industrial Segment. This divestiture closed on November 1, 2024. As of September 30, 2024, the aggregate carrying amount of the assets and liabilities held for sale was $356 million and $65 million, respectively.
Assets held for sale are recorded within other current assets in the Consolidated Balance Sheet. These assets primarily consist of $85 million of inventory, $76 million of property, plant and equipment, net, $67 million of goodwill and $65 million of trade accounts receivable, net.
Liabilities held for sale are recorded within other accrued liabilities in the Consolidated Balance Sheet. These liabilities primarily include $21 million of account payable, trade, $12 million of other accrued liabilities, $11 million of deferred income taxes and $11 million of other liabilities.
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 other income, 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.
5. Earnings per share
The following table presents a reconciliation of the numerator and denominator of basic and diluted earnings per share for the three months ended September 30, 2024 and 2023.
Three Months Ended
September 30,
2024 2023
Numerator:
Net income attributable to common shareholders $ 698,420 $ 650,827
Denominator:
Basic - weighted average common shares 128,663,088 128,472,550
Increase in weighted average common shares from dilutive effect of equity-based awards 2,017,154 1,890,891
Diluted - weighted average common shares, assuming exercise of equity-based awards 130,680,242 130,363,441
Basic earnings per share $ 5.43 $ 5.07
Diluted earnings per share $ 5.34 $ 4.99
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For the three months ended September 30, 2024 and 2023, 181,051 and 172,255 common shares subject to equity-based awards, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive.
6. Share repurchase program
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 for 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 fiscal year. There is no expiration date for this program. Repurchases may be funded primarily from operating cash flows and commercial paper borrowings and the shares are initially held as treasury shares. During the three months ended September 30, 2024, we repurchased 88,821 shares at an average price, including commissions, of $562.92 per share.
7. Trade accounts receivable, net
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 $14 million and $21 million at September 30, 2024 and June 30, 2024, respectively.
8. Non-trade and notes receivable
The non-trade and notes receivable caption in the Consolidated Balance Sheet is comprised of the following components:
September 30,
2024 		June 30,
2024
Notes receivable $ 89,709 $ 93,114
Accounts receivable, other 227,672 238,315
Total $ 317,381 $ 331,429
9. Inventories
The inventories caption in the Consolidated Balance Sheet is comprised of the following components:
September 30,
2024 		June 30,
2024
Finished products $ 796,446 $ 777,775
Work in process 1,494,512 1,421,104
Raw materials 581,292 587,921
Total $ 2,872,250 $ 2,786,800
10. Supply chain financing
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 $125 million and $116 million payable to suppliers who have elected to participate in the SCF programs as of September 30, 2024 and June 30, 2024, respectively. The amounts settled through the SCF programs and paid to the participating financial intermediaries totaled $107 million and $72 million during the first three months of fiscal 2025 and 2024, respectively.
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11. Business realignment and acquisition integration charges
We incurred business realignment and acquisition integration charges in the first three months of fiscal 2025 and 2024, which 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 both fiscal 2025 and 2024, 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.
Business realignment charges by business segment are as follows:
Three Months Ended
September 30,
2024 2023
Diversified Industrial $ 8,900 $ 12,639
Aerospace Systems 8 453
Other expense, net 598 -
Reductions to our workforce made in connection with such business realignment charges by business segment are as follows:
Three Months Ended
September 30,
2024 2023
Diversified Industrial 327 325
Aerospace Systems - 2
The business realignment charges are presented in the Consolidated Statement of Income as follows:
Three Months Ended
September 30,
2024 2023
Cost of sales $ 5,440 $ 6,984
Selling, general and administrative expenses 3,468 6,108
Other income, net 598 -
During the first three months of fiscal 2025, approximately $9 million in payments were made relating to business realignment charges. Remaining payments related to business realignment actions of approximately $15 million, a majority of which are expected to be paid by March 31, 2025, 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 actions described above, the timing and amount of which are not known at this time.
We also incurred the following acquisition integration charges:
Three Months Ended
September 30,
2024 2023
Diversified Industrial $ 778 $ 1,139
Aerospace Systems 5,633 5,267
Charges incurred in fiscal 2025 and 2024 relate to the acquisition of Meggitt. In both fiscal 2025 and 2024, these charges were primarily included in selling, general and administrative expenses ("SG&A") within the Consolidated Statement of Income.
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12. Equity
Changes in equity for the three months ended September 30, 2024 and 2023 are as follows:
Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Treasury Shares Noncontrolling
Interests 		Total Equity
Balance at June 30, 2024 $ 90,523 $ 264,508 $ 19,104,599 $ (1,438,012) $ (5,949,646) $ 8,921 $ 12,080,893
Net income 698,420 108 698,528
Other comprehensive income 347,577 420 347,997
Dividends paid ($1.63 per share)
(209,937) (209,937)
Stock incentive plan activity 10,511 23,357 33,868
Shares purchased at cost (50,000) (50,000)
Balance at September 30, 2024 $ 90,523 $ 275,019 $ 19,593,082 $ (1,090,435) $ (5,976,289) $ 9,449 $ 12,901,349
Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Treasury Shares Noncontrolling
Interests 		Total Equity
Balance at June 30, 2023 $ 90,523 $ 305,522 $ 17,041,502 $ (1,292,872) $ (5,817,787) $ 11,391 $ 10,338,279
Net income 650,827 245 651,072
Other comprehensive (loss) income (222,075) 361 (221,714)
Dividends paid ($1.48 per share)
(190,420) (190,420)
Stock incentive plan activity 31,225 18,522 49,747
Acquisition activity 415 (2,429) (2,014)
Shares purchased at cost (50,000) (50,000)
Balance at September 30, 2023 $ 90,523 $ 337,162 $ 17,501,909 $ (1,514,947) $ (5,849,265) $ 9,568 $ 10,574,950
Changes in accumulated other comprehensive (loss) in shareholders' equity by component for the three months ended September 30, 2024 and 2023 are as follows:
Foreign Currency Translation Adjustment Retirement Benefit Plans Total
Balance at June 30, 2024 $ (1,129,997) $ (308,015) $ (1,438,012)
Other comprehensive income before reclassifications 344,126 - 344,126
Amounts reclassified from accumulated other comprehensive (loss) - 3,451 3,451
Balance at September 30, 2024 $ (785,871) $ (304,564) $ (1,090,435)
Foreign Currency Translation Adjustment Retirement Benefit Plans Total
Balance at June 30, 2023 $ (962,044) $ (330,828) $ (1,292,872)
Other comprehensive (loss) before reclassifications (222,893) - (222,893)
Amounts reclassified from accumulated other comprehensive (loss) - 818 818
Balance at September 30, 2023 $ (1,184,937) $ (330,010) $ (1,514,947)
Significant reclassifications out of accumulated other comprehensive (loss) in shareholders' equity for the three months ended September 30, 2024 and 2023 are as follows:
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Details about Accumulated Other Comprehensive (Loss) Components Income (Expense) Reclassified from Accumulated Other Comprehensive (Loss) Consolidated Statement of Income Classification
Three Months Ended
September 30, 2024
Retirement benefit plans
Amortization of prior service cost and initial net obligation
$ (827) Other income, net
Recognized actuarial loss (3,804) Other income, net
Total before tax (4,631)
Tax benefit 1,180
Net of tax $ (3,451)
Details about Accumulated Other Comprehensive (Loss) Components Income (Expense) Reclassified from Accumulated Other Comprehensive (Loss) Consolidated Statement of Income Classification
Three Months Ended
September 30, 2023
Retirement benefit plans
Amortization of prior service cost and initial net obligation $ (302) Other income, net
Recognized actuarial loss (792) Other income, net
Total before tax (1,094)
Tax benefit 276
Net of tax $ (818)
13. Goodwill and intangible assets
The changes in the carrying amount of goodwill for the three months ended September 30, 2024 are as follows:
Diversified Industrial
Segment 		Aerospace
Systems
Segment 		Total
Balance at June 30, 2024 $ 7,607,429 $ 2,900,004 $ 10,507,433
Goodwill reclassified to held for sale (66,504) - (66,504)
Foreign currency translation 147,908 36,450 184,358
Balance at September 30, 2024 $ 7,688,833 $ 2,936,454 $ 10,625,287
Goodwill reclassified to held for sale relates to the CFC business. Refer to Note 4 for further discussion.
Intangible assets are amortized using the straight-line method over their legal or estimated useful lives. The following summarizes the gross carrying value and accumulated amortization for each major category of intangible assets:
September 30, 2024 June 30, 2024
Gross Carrying
Amount 		Accumulated
Amortization 		Gross Carrying
Amount 		Accumulated
Amortization
Patents and technology $ 2,119,691 $ 479,655 $ 2,116,999 $ 451,908
Trade names 1,036,737 459,978 1,041,633 441,382
Customer relationships and other 8,162,707 2,632,269 8,044,208 2,493,369
Total $ 11,319,135 $ 3,571,902 $ 11,202,840 $ 3,386,659
Total intangible asset amortization expense for the three months ended September 30, 2024 and 2023 was $140 million and $156 million, respectively. The estimated amortization expense for the five years ending June 30, 2025 through 2029 is $550 million, $550 million, $547 million, $540 million and $511 million, respectively.
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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 during the three months ended September 30, 2024 and 2023.
14. Retirement benefits
Net pension (benefit) expense recognized included the following components:
U.S. Pension Benefits Non-U.S. Pension Benefits
Three Months Ended Three Months Ended
September 30, September 30,
2024 2023 2024 2023
Service cost $ 6,973 $ 7,904 $ 5,641 $ 5,623
Interest cost 46,013 47,026 19,202 19,855
Expected return on plan assets (61,243) (64,382) (21,929) (23,866)
Amortization of prior service cost 763 211 64 91
Amortization of net actuarial loss (gain) 2,577 (404) 1,672 1,586
Net pension (benefit) expense $ (4,917) $ (9,645) $ 4,650 $ 3,289
We recognized $0.5 million and $0.6 million in expense related to other postretirement benefits during the three months ended September 30, 2024 and 2023, respectively. Components of retirement benefits expense, other than service cost, are included in other income, net in the Consolidated Statement of Income.
15. Debt
Our debt portfolio includes a term loan facility (the "Term Loan Facility"). Interest rates reset every one, threeor six months at the discretion of the Company. At September 30, 2024, the Term Loan Facility had an interest rate of Secured Overnight Financing Rateplus 122.5 bps. Additionally, the provisions of the Term Loan Facility allow for prepayments at the Company's discretion. During the three months ended September 30, 2024, we made principal payments totaling $40 million related to the Term Loan Facility. Refer to the Company's 2024 Annual Report on Form 10-K for further discussion.
Commercial paper notes outstanding at September 30, 2024 and June 30, 2024 were $1.8 billion and $2.1 billion, respectively.
Based on the Company's rating level at September 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 September 30, 2024, our debt to debt-shareholders' equity ratio was 0.44 to 1.0. We are in compliance, and expect to remain in compliance, with all covenants set forth in the credit agreement and indentures governing certain debt securities.
16. Income taxes
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. Pillar Two does not currently have a significant impact on our consolidated financial statements. Future legislation and guidance may result in a change to our assessment.
Unrecognized tax benefits reflect the difference between positions taken or expected to be taken on income tax returns and the amounts reflected in the financial statements. As of September 30, 2024, we had gross unrecognized tax benefits of $99 million, all of which, if recognized, would impact the effective tax rate. The accrued interest and accrued penalties related to the gross unrecognized tax benefits, excluded from the amount above, is $26 million and $2 million, respectively. 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 gross 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 on our U.S. federal income tax returns by the Internal Revenue Service for fiscal years after 2013, and our state and local returns for fiscal years after 2016. We are also open to assessment for significant foreign jurisdictions for fiscal years after 2011.
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17. Financial instruments
Our financial instruments consist primarily of cash and cash equivalents, 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.
The carrying value of long-term debt, which excludes the impact of net unamortized debt issuance costs, and estimated fair value of long-term debt are as follows:
September 30,
2024 		June 30,
2024
Carrying value of long-term debt $ 8,463,238 $ 8,469,739
Estimated fair value of long-term debt 8,205,622 7,884,556
The fair value of long-term debt is classified within level 2 of the fair value hierarchy.
We utilize derivative and non-derivative financial instruments, including forward exchange contracts, cross-currency swap contracts and certain foreign currency denominated debt designated as net investment hedges, to manage foreign currency transaction and translation risk. 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.
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.
Derivative financial instruments are recognized on the Consolidated Balance Sheet as either assets or liabilities and are measured at fair value.
The location and fair value of derivative financial instruments reported in the Consolidated Balance Sheet are as follows:
Balance Sheet Caption September 30,
2024 		June 30,
2024
Net investment hedges
Cross-currency swap contracts Investments and other assets $ 7,049 $ 16,325
Cross-currency swap contracts Other liabilities 2,089 208
Other derivative contracts
Forward exchange contracts Non-trade and notes receivable 66 7,625
Forward exchange contracts Other accrued liabilities 6,065 72
The cross-currency swap and forward exchange contracts are reflected on a gross basis in the Consolidated Balance Sheet. We have not entered into any master netting arrangements.
The €69 million, €290 million and ¥2.1 billion of cross-currency swap contracts have been designated as hedging instruments. The forward exchange contracts have not been designated as hedging instruments and are considered to be economic hedges of forecasted transactions.
The forward exchange contracts are adjusted to fair value by recording gains and losses in other income, net 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 of cross-currency swap contracts designated as hedging instruments using the spot method. Under this method, the periodic interest settlements are recognized directly in earnings through interest expense.
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Gains (losses) on derivative financial instruments that were recorded in the Consolidated Statement of Income are as follows:
Three Months Ended
September 30,
2024 2023
Forward exchange contracts $ (12,890) $ 436
Gains (losses) on derivative and non-derivative financial instruments that were recorded in accumulated other comprehensive (loss) on the Consolidated Balance Sheet are as follows:
Three Months Ended
September 30,
2024 2023
Cross-currency swap contracts $ (9,761) $ 2,583
Foreign currency denominated debt (22,303) 17,879
During the three months ended September 30, 2024 and 2023, the periodic interest settlements related to the cross-currency swap contracts were not material.
A summary of financial assets and liabilities that were measured at fair value on a recurring basis at September 30, 2024 and June 30, 2024 are as follows:
Quoted Prices Significant Other Significant
Fair In Active Observable Unobservable
Value at Markets Inputs Inputs
September 30, 2024 (Level 1) (Level 2) (Level 3)
Assets:
Derivatives $ 7,115 $ - $ 7,115 $ -
Liabilities:
Derivatives 8,154 - 8,154 -
Quoted Prices Significant Other Significant
Fair In Active Observable Unobservable
Value at Markets Inputs Inputs
June 30, 2024 (Level 1) (Level 2) (Level 3)
Assets:
Derivatives $ 23,950 $ - $ 23,950 $ -
Liabilities:
Derivatives 280 - 280 -
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 the fair value of the cross-currency swap contracts also utilizes a present value cash flow model.
The primary investment objective for all derivatives is to manage foreign currency transaction and translation risk.
There are no other financial assets or financial liabilities that are marked to market on a recurring basis.
18. Business segment information
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 and gas handling, process control, engineered materials and climate control, to drive superior customer problem solving and value creation.
Diversified Industrial - This 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.
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Aerospace Systems - This 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.
Three Months Ended
September 30,
2024 2023
Net sales
Diversified Industrial $ 3,456,158 $ 3,618,528
Aerospace Systems 1,447,826 1,228,960
Total net sales $ 4,903,984 $ 4,847,488
Segment operating income
Diversified Industrial $ 783,546 $ 806,754
Aerospace Systems 322,986 226,260
Total segment operating income 1,106,532 1,033,014
Corporate general and administrative expenses 48,794 55,656
Income before interest expense and other expense, net 1,057,738 977,358
Interest expense 113,091 134,468
Other expense, net 69,461 22,455
Income before income taxes $ 875,186 $ 820,435
19. Other income, net
The table below includes the components of other income, net in the Consolidated Statement of Income:
Three Months Ended
September 30,
Expense (income) 2024 2023
Foreign currency transaction (gain) loss $ 36,670 $ (2,011)
Income related to equity method investments (38,117) (38,111)
Non-service components of retirement benefit cost (12,212) (18,486)
Gain on disposal of assets and divestitures (8,735) (11,926)
Interest income (2,817) (3,660)
Other items, net (5,590) (4,261)
$ (30,801) $ (78,455)
Equity method investments consist of investments in joint-venture companies in which ownership is 50 percent or less and in which the Company does not have operating control. During the three months ended September 30, 2024 and 2023, we received cash dividends from equity method investments of $32 million and $40 million, respectively. Sales to and services performed for equity method investments totaled $20 million and $16 million during the three months ended September 30, 2024 and 2023, respectively.
For further discussion of gain on disposal of assets and divestitures and non-service components of retirement benefit cost refer to Notes 4 and 14, respectively.
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PARKER-HANNIFIN CORPORATION
FORM 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024
AND COMPARABLE PERIOD ENDED SEPTEMBER 30, 2023
OVERVIEW
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.
By aligning around our purpose, Enabling Engineering Breakthroughs that Lead to a Better Tomorrow, Parker is better positioned for the challenges and opportunities of tomorrow.
The Win Strategy 3.0 is Parker's business system that 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 and defense, in-plant and industrial equipment, transportation, off-highway, energy, and HVAC and refrigeration. 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.
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.
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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. As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms "Company", "Parker", "we" or "us" refer to Parker-Hannifin Corporation and its subsidiaries. Dollars are presented in millions (except per share amounts or as otherwise noted) and computed based on the amounts in thousands; therefore, totals may not sum due to rounding.
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended
September 30,
(dollars in millions) 2024 2023
Net sales $ 4,904 $ 4,847
Gross profit margin 36.8 % 36.1 %
Selling, general and administrative expenses $ 849 $ 874
Selling, general and administrative expenses, as a percent of sales
17.3 % 18.0 %
Interest expense $ 113 $ 134
Other income, net $ (31) $ (78)
Effective tax rate 20.2 % 20.6 %
Net income $ 699 $ 651
Net income, as a percent of sales 14.2 % 13.4 %
Net salesincreased in the current-year quarter due to higher sales in the Aerospace Systems Segment, partially offset by lower sales in the Diversified Industrial Segment. The effect of currency exchange rate changes decreased net sales during the current-year quarter by approximately $3 million. The change was driven by a decrease of approximately $9 million in the Diversified Industrial Segment, partially offset by an increase of approximately $7 million within the Aerospace Systems Segment. The impact of divestiture activity decreased net sales by approximately $7 million during the current-year quarter.
Gross profit margin(calculated as net sales minus cost of sales, divided by net sales) increased in the current-year quarter due to higher margins in both segments primarily resulting from price increases and favorable product mix, partially offset by decreased volume.
Cost of sales also included business realignment and acquisition integration charges of $6 million and $8 million for the current and prior-year quarter, respectively.
Selling, general and administrative expenses ("SG&A") decreased in the current-year quarter primarily due to lower intangible asset amortization, stock-based compensation expense and research and development expense.
SG&A also included business realignment and acquisition integration charges of $10 million and $11 million for the current and prior-year quarter, respectively.
Interest expensedecreased during the current-year quarter primarily due to lower average debt outstanding.
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Other income, net included the following:
Three Months Ended
September 30,
(dollars in millions) 2024 2023
Expense (income)
Foreign currency transaction (gain) loss $ 37 $ (2)
Income related to equity method investments (38) (38)
Non-service components of retirement benefit cost (12) (18)
Gain on disposal of assets and divestitures (9) (12)
Interest income (3) (4)
Other items, net (6) (4)
$ (31) $ (78)
Foreign currency transaction (gain) loss primarily relates to the impact of exchange rates on cash, forward contracts and intercompany transactions.
Effective tax ratefor the current-year quarter was lower than the U.S. Federal statutory rate of 21 percent due to tax benefits from share-based compensation and foreign-derived intangible income, which were partially offset by U.S. state and local taxes and taxes on international activities.
The effective tax rate for the comparable prior-year period was lower than the U.S. Federal statutory rate of 21 percent due to tax benefits from share-based compensation and foreign-derived intangible income, which were partially offset by taxes on international activities.
The fiscal 2025 effective tax rate is expected to be approximately 22.5 percent.
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.
Diversified Industrial Segment
Three Months Ended
September 30,
(dollars in millions) 2024 2023
Net sales
North America businesses $ 2,100 $ 2,230
International businesses 1,356 1,389
Diversified Industrial Segment 3,456 3,619
Operating income
North America businesses 485 506
International businesses 299 301
Diversified Industrial Segment $ 784 $ 807
Operating margin
North America businesses 23.1 % 22.7 %
International businesses 22.1 % 21.7 %
Diversified Industrial Segment 22.7 % 22.3 %
Backlog $ 4,197 $ 4,538
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The Diversified Industrial Segment operations experienced the following percentage changes in net sales in the current-year period versus the comparable prior-year period:
Period Ending September 30, 2024
Three Months
North America businesses - as reported (5.8) %
Divestitures (0.3) %
Currency (0.5) %
North America businesses - without divestitures and currency1
(5.0) %
International businesses- as reported (2.4) %
Currency - %
International businesses - without currency1
(2.4) %
Diversified Industrial Segment - as reported (4.5) %
Divestitures (0.2) %
Currency (0.3) %
Diversified Industrial Segment - without divestitures and currency1
(4.0) %
1This 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 divestitures for 12 months after their completion as well as changes in currency exchange rates (a non-GAAP measure). The effects of 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.
Net Sales
Diversified Industrial Segment sales in the current-year quarter decreased $162 million from the prior-year quarter. The effect of changes in currency exchange rates decreased sales by approximately $9 million. The impact of divestiture activity decreased sales by approximately $7 million. Excluding the effects of the changes in currency exchange rates and divestiture activity, sales decreased $146 million from prior-year levels.
North America businesses- Sales decreased $130 million during the current-year quarter. The effect of changes in currency exchange rates decreased sales by approximately $10 million in the current-year quarter. The effects of divestiture activity decreased sales by approximately $7 million in the current-year quarter. Excluding the effects of changes in currency exchange rates and divestiture activity, sales in the North America businesses decreased $112 million in the current-year quarter primarily due to lower demand from end users in the energy, in-plant and industrial equipment, off-highway and transportation markets, partially offset by an increase in end-user demand in the aerospace and defense and HVAC and refrigeration markets.
International businesses- Sales decreased $33 million from the prior-year quarter. The effect of changes in currency exchange rates increased sales by approximately $1 million in the current-year quarter. Excluding the effects of changes in currency exchange rates, sales in the International businesses decreased $34 million in the current-year quarter. In the current-year quarter, the decrease in sales was due to lower sales in Europe, partially offset by an increase in sales in the Asia Pacific region and Latin America.
Within Europe, sales in the current-year quarter decreased primarily due to lower demand from end users across the in-plant and industrial equipment, off-highway, and transportation markets.
Within the Asia Pacific region, sales in the current-year quarter increased primarily due to higher end-user demand in the electronics and semiconductor, in-plant and industrial equipment and transportation markets.
Within Latin America, sales in the current-year quarter increased primarily due to higher end-user demand in the in-plant and industrial equipment, off-highway and transportation markets, partially offset by lower demand from end users in the energy market.
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Operating Margin
Diversified Industrial Segment operating margin increased in both the North America and International businesses due to price increases, favorable product mix and benefits from prior-year business realignment activities as well as cost containment initiatives, partially offset by a decrease in volume.
Business Realignment
The following business realignment and acquisition integration charges are included in the Diversified Industrial Segment operating income:
Three Months Ended
September 30,
(dollars in millions) 2024 2023
North America businesses $ 4 $ 4
International businesses 6 10
Diversified Industrial Segment $ 10 $ 14
The business realignment charges primarily consist of severance costs related to actions taken under the Company's simplification initiative aimed at reducing organizational and process complexity, as well as plant closures. Acquisition integration charges relate to the acquisition of Meggitt plc ("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 in the first three months of fiscal 2025 will not materially impact operating income in fiscal 2025 and 2026. We expect to continue to take actions necessary to integrate acquisitions and appropriately structure the operations of the Diversified Industrial Segment. We currently anticipate incurring approximately $41 million of additional business realignment and acquisition integration charges in the remainder of fiscal 2025. However, continually changing business conditions could impact the ultimate costs we incur.
Backlog
Diversified Industrial Segment backlog, as of September 30, 2024, decreased from the prior-year quarter due to shipments exceeding orders in both the North America and International businesses. The decrease in backlog was split evenly between the North America and International businesses. Within the International businesses, Europe and the Asia Pacific region accounted for approximately 90 percent and 10 percent, respectively, of the decrease from the prior-year quarter.
Diversified Industrial Segment backlog increased from the June 30, 2024 amount of $4.2 billion due to orders exceeding shipments in the International businesses, partially offset by shipments exceeding orders in the North America businesses. Within the International businesses, the increase in backlog from the June 30, 2024 amount was primarily attributable to both the Asia Pacific region and Latin America, partially offset by a decrease in backlog in Europe.
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
Three Months Ended
September 30,
(dollars in millions) 2024 2023
Net sales $ 1,448 $ 1,229
Operating income $ 323 $ 226
Operating margin 22.3 % 18.4 %
Backlog $ 6,852 $ 6,270
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Net Sales
Aerospace Systems Segment sales increased $219 million in the current-year quarter. The effect of currency exchange rates increased sales by approximately $7 million. Excluding the effects of changes in currency exchange rates, sales during the current-year quarter increased $212 million from prior-year levels. The increase in sales is primarily due to higher volume in the commercial and defense aftermarket, as well as the commercial original equipment manufacturer ("OEM") market segment.
Operating Margin
Aerospace Systems Segment operating margin increased during the current-year quarter due to higher sales volume and favorable aftermarket mix, as well as benefits of cost containment initiatives and prior-year business realignment and acquisition integration activities, partially offset by higher material costs.
Business Realignment
Within the Aerospace Systems Segment, we incurred acquisition integration and business realignment charges of $6 million in both the current and prior-year quarter, respectively. We do not expect to incur material business realignment and acquisition integration charges in the remainder of fiscal 2025. However, continually changing business conditions could impact the ultimate costs we incur.
Backlog
Aerospace Systems Segment backlog, as of September 30, 2024, increased from the prior-year quarter due to orders exceeding shipments in all market segments, especially the commercial and defense OEM market segments.
The increase in backlog from the June 30, 2024 amount of $6.7 billion was due to orders exceeding shipments in the commercial and defense OEM market segments, partially offset by shipments exceeding orders within the commercial and defense aftermarket market segments.
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 & administrative expenses
Three Months Ended
September 30,
(dollars in millions) 2024 2023
Expense
Corporate general and administrative expense $ 49 $ 56
Corporate general and administrative expense, as a percent of sales 1.0 % 1.1 %
Corporate general and administrative expenses decreased in the current-year quarter primarily due to lower net expense associated with the Company's deferred compensation plan and related investments, partially offset by an increase in professional service fees and salaries and benefits.
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Other expense, net
Three Months Ended
September 30,
(dollars in millions) 2024 2023
Expense (income)
Foreign currency transaction (gain) loss $ 37 $ (2)
Stock-based compensation 58 62
Non-service components of retirement benefit cost (12) (18)
Gain on disposal of assets and divestitures (9) (12)
Interest income (3) (4)
Other items, net (2) (4)
$ 69 $ 22
Foreign currency transaction (gain) loss primarily relates to the impact of exchange rates on cash, forward contracts and intercompany transactions.
LIQUIDITY AND CAPITAL RESOURCES
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:
•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:
Three Months Ended
September 30,
(dollars in millions) 2024 2023
Cash provided by (used in):
Operating activities $ 744 $ 650
Investing activities (87) (56)
Financing activities (711) (618)
Effect of exchange rates 3 (2)
Net decrease in cash and cash equivalents $ (51) $ (26)
Cash flows from operating activitiesfor the first three months of fiscal 2025 were $744 million compared to $650 million for the first three months of fiscal 2024. This increase of $94 million 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.
•Days sales outstanding relating to trade accounts receivable was 52 days at September 30, 2024, 51 days at June 30, 2024 and 52 days at September 30, 2023.
•Days supply of inventory on hand was 91 days at September 30, 2024, 80 days at June 30, 2024 and 96 days at September 30, 2023.
Cash flows from investing activities for the first three months of fiscal 2025 and 2024 were impacted by the following factors:
•Capital expenditures of $95 million in fiscal 2025 compared to $98 million in fiscal 2024.
•Net proceeds from the sale of the MicroStrain sensing systems business of approximately $37 million in fiscal 2024.
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Cash flows from financing activitiesfor the first three months of fiscal 2025 and 2024 were impacted by the following factors:
•Net commercial paper repayments of $377 million in fiscal 2025 compared to net commercial paper repayments of $170 million in fiscal 2024.
•Principal payments totaling $40 million related to borrowings under the term loan facility ("Term Loan Facility") in fiscal 2025 compared to principal payments totaling $175 million related to the Term Loan Facility in fiscal 2024.
Cash Requirements
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.
Dividends
We declared a quarterly cash dividend of $1.63 per share on August 15, 2024, which was paid on September 13, 2024. Dividends have been paid for 297 consecutive quarters, including a yearly increase in dividends for the last 68 years. Additionally, we declared a quarterly cash dividend of $1.63 per share on October 23, 2024, payable on December 6, 2024.
Share Repurchases
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. Refer to Note 6 to the Consolidated Financial Statements for further discussion of share repurchases.
Liquidity
Cash, comprised of cash and cash equivalents and marketable securities and other investments, includes $327 million and $311 million held by the Company's foreign subsidiaries at September 30, 2024 and June 30, 2024, 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. As of September 30, 2024, $1.8 billion of commercial paper notes were outstanding, and the largest amount of commercial paper notes outstanding during the current-year quarter was $2.1 billion.
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 $1.2 billion was available as of September 30, 2024. 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 credit 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 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.
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 15 to the Consolidated Financial Statements for further discussion.
Our debt portfolio includes the Term Loan Facility. During the three months ended September 30, 2024, we made principal payments totaling $40 million related to the Term Loan Facility. Refer to Note 15 to the Consolidated Financial Statements for further discussion.
The Company's credit agreement 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 September 30, 2024, the
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most restrictive financial covenant provides that the ratio of debt to debt-shareholders' equity cannot exceed 0.65 to 1.0. At September 30, 2024, the Company's debt to debt-shareholders' equity ratio was 0.44 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. At September 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:
Fitch Ratings BBB+
Moody's Investors Services, Inc. Baa1
Standard & Poor's BBB+
The rating agencies periodically update the Company's credit ratings as events occur. On October 21, 2024, Fitch Ratings upgraded the Company's credit rating to A- from BBB+.
Supply Chain Financing
We continue to identify opportunities to improve our liquidity and working capital efficiency, which includes the extension of payment terms with our suppliers. We have supply chain financing 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 10 to the Consolidated Financial Statements for further discussion.
Strategic Acquisitions and Divestitures
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. On July 28, 2024, the Company signed an agreement to divest its composites and fuel containment ("CFC") business within the North America businesses of the Diversified Industrial Segment. CFC was acquired as part of the Meggitt acquisition. This divestiture closed on November 1, 2024 for proceeds of $560 million. Refer to Note 4 to the Consolidated Financial Statements for further discussion. Additionally, we divested a non-core filtration business within the North America businesses of the Diversified Industrial Segment for proceeds of $66 million on November 1, 2024.
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Forward-Looking Statements
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 include all statements regarding future performance, earnings projections, events or developments. Neither Parker nor any of its respective associates or directors, officers or advisers, provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements will actually occur. Parker cautions readers not to place undue reliance on these statements. It is possible that the future performance and earnings projections of the company, including its individual segments, may differ materially from past performance or current expectations. A change in the economic conditions in individual markets may have a particularly volatile effect on segment performance.
Among other factors which may affect future performance are:
•changes in business relationships with and orders by or from major customers, suppliers or distributors, including delays or cancellations in shipments;
•disputes regarding contract terms, changes in contract costs and revenue estimates for new development programs;
•changes in product mix;
•ability to identify acceptable strategic acquisition targets;
•uncertainties surrounding timing, successful completion or integration of acquisitions and similar transactions;
•ability to successfully divest businesses planned for divestiture and realize the anticipated benefits of such divestitures;
•the determination and ability to successfully undertake business realignment activities and the expected costs, including cost savings, thereof;
•ability to implement successfully business and operating initiatives, including the timing, price and execution of share repurchases and other capital initiatives;
•availability, cost increases of or other limitations on our access to raw materials, component products and/or commodities if associated costs 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 other government actions, including related to environmental protection, and associated compliance costs; supply chain and labor disruptions, including as a result of labor shortages;
•threats associated with international conflicts and cybersecurity risks and risks associated with protecting our intellectual property;
•uncertainties surrounding the ultimate resolution of outstanding legal proceedings, including the outcome of any appeals;
•effects on market conditions, including sales and pricing, resulting from global reactions to U.S. trade policies;
•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;
•changes in the tax laws in the United States and foreign jurisdictions and judicial or regulatory interpretations thereof; and
•large scale disasters, such as floods, earthquakes, hurricanes, industrial accidents and pandemics.
Readers should consider these forward-looking statements in light of risk factors discussed in Parker's Annual Report on Form 10-K for the fiscal year ended June 30, 2024 and other periodic filings made with the Securities and Exchange Commission.
The Company makes these statements as of the date of the filing of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, and undertakes no obligation to update them unless otherwise required by law.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 using existing processes.
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The Company manages foreign currency transaction and translation risk by utilizing derivative and non-derivative financial instruments, including forward exchange 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. 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 income (loss) in the Consolidated Balance Sheet until the hedged item is recognized in earnings. For cross-currency swap contracts 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. Our objective is to maintain a 60/40 mix between fixed rate and variable rate debt thereby limiting our exposure to changes in near-term interest rates. At September 30, 2024, our debt portfolio included $450 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 for the three months ended September 30, 2024, by approximately $23 million.
ITEM 4. CONTROLS AND PROCEDURES
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 September 30, 2024. Based on this evaluation, the Company's principal executive officer and principal financial officer concluded that, as of September 30, 2024, the Company's disclosure controls and procedures were effective.
There was no change to our internal control over financial reporting during the first quarter of fiscal 2025 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PARKER-HANNIFIN CORPORATION
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
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.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a)Unregistered Sales of Equity Securities.Not applicable.
(b)Use of Proceeds.Not applicable.
(c)Issuer Purchases of Equity Securities.
Period (a) Total
Number of
Shares
Purchased 		(b) Average
Price Paid
Per Share 		(c) Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1) 		(d) Maximum Number
(or Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs (1)
July 1, 2024 through July 31, 2024 32,900 $ 533.31 32,900 7,280,434
August 1, 2024 through August 31, 2024 31,600 $ 565.86 31,600 7,248,834
September 1, 2024 through September 30, 2024 24,321 $ 599.10 24,321 7,224,513
Total: 88,821 88,821
(1)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.
ITEM 5. Other Information
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 September 30, 2024.
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ITEM 6. Exhibits.
The following documents are furnished as exhibits and are numbered pursuant to Item 601 of Regulation S-K:
Exhibit
No. 		Description of Exhibit
10(a)
Form of 2024 Parker-Hannifin Corporation Stock Appreciation Rights Award Agreement.*
10(b)
2024 Parker-Hannifin Corporation Stock Appreciation Rights Terms and Conditions.*
31(a)
Certification of the Principal Executive Officer Pursuant to 17 CFR 240.13a-14(a), as Adopted Pursuant to §302 of the Sarbanes-Oxley Act of 2002.*
31(b)
Certification of the Principal Financial Officer Pursuant to 17 CFR 240.13a-14(a), as Adopted Pursuant to §302 of the Sarbanes-Oxley Act of 2002.*
32
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to §906 of the Sarbanes-Oxley Act of 2002.*
101.INS Inline XBRL Instance Document.*
101.SCH Inline XBRL Taxonomy Extension Schema Document.*
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. *
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.*
104 Cover page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).
* Submitted electronically herewith.
Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Statement of Income for the three months ended September 30, 2024 and 2023, (ii) Consolidated Statement of Comprehensive Income for the three months ended September 30, 2024 and 2023, (iii) Consolidated Balance Sheet at September 30, 2024 and June 30, 2024, (iv) Consolidated Statement of Cash Flows for the three months ended September 30, 2024 and 2023, and (v) Notes to Consolidated Financial Statements for the three months ended September 30, 2024.
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SIGNATURE
Pursuant to the requirements 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.
PARKER-HANNIFIN CORPORATION
(Registrant)
/s/ Todd M. Leombruno
Todd M. Leombruno
Executive Vice President and Chief Financial Officer
Date: November 5, 2024
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