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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 December 31, 2023
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)
Ohio34-0451060
(State or other jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
6035 Parkland Boulevard,Cleveland,Ohio44124-4141
(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 ClassTrading SymbolName of Each Exchange on which Registered
Common Shares, $.50 par valuePHNew 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 December 31, 2023: 128,410,854



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 EndedSix Months Ended
December 31,December 31,
 2023202220232022
Net sales$4,820,947 $4,674,811 $9,668,435 $8,907,586 
Cost of sales3,101,962 3,236,812 6,199,311 6,032,268 
Selling, general and administrative expenses806,802 814,966 1,680,493 1,650,770 
Interest expense129,029 146,931 263,497 264,725 
Other income, net(85,011)(40,641)(163,466)(60,265)
Income before income taxes868,165 516,743 1,688,600 1,020,088 
Income taxes186,108 121,282 355,471 236,590 
Net income682,057 395,461 1,333,129 783,498 
Less: Noncontrolling interest in subsidiaries' earnings206 224 451 407 
Net income attributable to common shareholders$681,851 $395,237 $1,332,678 $783,091 
Earnings per share attributable to common shareholders:
Basic$5.31 $3.08 $10.38 $6.10 
Diluted$5.23 $3.04 $10.23 $6.03 
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 EndedSix Months Ended
December 31,December 31,
 2023202220232022
Net income$682,057 $395,461 $1,333,129 $783,498 
Less: Noncontrolling interests in subsidiaries' earnings206 224 451 407 
Net income attributable to common shareholders681,851 395,237 1,332,678 783,091 
Other comprehensive income, net of tax
  Foreign currency translation adjustment272,235 360,374 49,703 53,891 
  Retirement benefits plan activity 1,911 4,990 2,729 9,761 
    Other comprehensive income274,146 365,364 52,432 63,652 
Less: Other comprehensive income for noncontrolling interests415 1,253 776 123 
Other comprehensive attributable to common shareholders273,731 364,111 51,656 63,529 
Total comprehensive income attributable to common shareholders
$955,582 $759,348 $1,384,334 $846,620 
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
December 31,
2023
June 30,
2023
ASSETS
Current assets:
Cash and cash equivalents$382,815 $475,182 
Marketable securities and other investments11,053 8,390 
Trade accounts receivable, net2,611,404 2,827,297 
Non-trade and notes receivable321,680 309,167 
Inventories3,092,923 2,907,879 
Prepaid expenses and other309,985 306,314 
Total current assets6,729,860 6,834,229 
Property, plant and equipment7,060,718 6,865,545 
Less: Accumulated depreciation4,154,974 4,000,515 
Property, plant and equipment, net2,905,744 2,865,030 
Deferred income taxes77,256 81,429 
Investments and other assets1,156,710 1,104,576 
Intangible assets, net8,153,468 8,450,614 
Goodwill10,671,897 10,628,594 
Total assets$29,694,935 $29,964,472 
LIABILITIES
Current liabilities:
Notes payable and long-term debt payable within one year$3,681,167 $3,763,175 
Accounts payable, trade1,971,943 2,050,934 
Accrued payrolls and other compensation472,243 651,319 
Accrued domestic and foreign taxes302,113 374,571 
Other accrued liabilities1,069,607 895,371 
Total current liabilities7,497,073 7,735,370 
Long-term debt8,108,696 8,796,284 
Pensions and other postretirement benefits482,752 551,510 
Deferred income taxes1,579,197 1,649,674 
Other liabilities714,838 893,355 
Total liabilities18,382,556 19,626,193 
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 December 31 and June 30
90,523 90,523 
Additional capital352,817 305,522 
Retained earnings17,993,453 17,041,502 
Accumulated other comprehensive (loss)(1,241,216)(1,292,872)
Treasury shares, at cost; 52,635,274 shares at December 31 and 52,613,046 shares at June 30
(5,892,999)(5,817,787)
Total shareholders’ equity11,302,578 10,326,888 
Noncontrolling interests9,801 11,391 
Total equity11,312,379 10,338,279 
Total liabilities and equity$29,694,935 $29,964,472 
See accompanying notes to consolidated financial statements.
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PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Six Months Ended
 December 31,
 20232022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income$1,333,129 $783,498 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation170,618 154,455 
Amortization297,547 229,270 
Stock incentive plan compensation108,061 89,709 
Deferred income taxes(81,592)131,479 
Foreign currency transaction (gain) loss(15,932)59,083 
Loss (gain) on disposal of property, plant and equipment5,097 (2,551)
Gain on sale of businesses(25,964)(377,251)
Gain on marketable securities(96)(1,354)
Gain on investments(1,384)(2,929)
Other12,673 12,575 
Changes in assets and liabilities, net of effect of acquisitions and divestitures:
Accounts receivable, net213,436 159,576 
Inventories(170,032)(56,464)
Prepaid expenses and other17,644 (150,547)
Other assets(65,395)(166,192)
Accounts payable, trade(86,208)9,104 
Accrued payrolls and other compensation(180,888)(112,899)
Accrued domestic and foreign taxes(76,294)3,214 
Other accrued liabilities3,132 247,574 
Pensions and other postretirement benefits(64,493)74,654 
Other liabilities(41,072)(7,870)
Net cash provided by operating activities1,351,987 1,076,134 
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (net of cash of $89,704 in 2022)
 (7,146,110)
Capital expenditures(204,117)(185,704)
Proceeds from sale of property, plant and equipment1,360 11,632 
Proceeds from sale of businesses74,595 447,300 
Purchases of marketable securities and other investments(9,396)(25,198)
Maturities and sales of marketable securities and other investments6,880 30,594 
Payments of deal-contingent forward contracts (1,405,418)
Other(438)251,174 
Net cash used in investing activities(131,116)(8,021,730)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options1,928 1,124 
Payments for common shares(138,322)(121,068)
Acquisition of noncontrolling interests(2,883) 
(Payments for) proceeds from notes payable, net(584,207)235,052 
Proceeds from long-term borrowings11,839 2,011,948 
Payments for long-term borrowings(212,479)(710,789)
Financing fees paid (8,911)
Dividends paid(381,115)(342,360)
Net cash (used in) provided by financing activities(1,305,239)1,064,996 
Effect of exchange rate changes on cash(7,999)(11,221)
Net decrease in cash, cash equivalents and restricted cash(92,367)(5,891,821)
Cash, cash equivalents and restricted cash at beginning of year475,182 6,647,876 
Cash and cash equivalents at end of period$382,815 $756,055 
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 December 31, 2023, the results of operations for the three and six months ended December 31, 2023 and 2022 and cash flows for the six months then ended. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s 2023 Annual Report on Form 10-K.
Subsequent Events
The Company has evaluated subsequent events that occurred through the date these financial statements were issued. No subsequent events have occurred that required adjustment to or disclosure in these financial statements.
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. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact this guidance will have on the Company's disclosures.
In September 2022, the FASB issued ASU 2022-04, "Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations," which requires a buyer in a supplier finance program to disclose information about the program’s nature, activity during the period, changes from period to period, and potential magnitude. To achieve that objective, the buyer should disclose qualitative and quantitative information about its supplier finance programs, including the outstanding amount under the program, the balance sheet presentation of the outstanding amount, and a rollforward of the obligations in the program. This ASU should be adopted retrospectively for each balance sheet period presented; however, the rollforward information should be provided prospectively. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company adopted the guidance on July 1, 2023, except for the rollforward requirement, which becomes effective July 1, 2024. The adoption did not have a material impact on the Company's consolidated financial statements.
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3. Revenue recognition
Revenue is derived primarily from the sale of products in a variety of mobile, industrial and aerospace 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 EndedSix Months Ended
December 31,December 31,
2023202220232022
Motion Systems$917,966 $913,415 $1,860,280 $1,819,429 
Flow and Process Control1,122,400 1,173,260 2,303,861 2,377,724 
Filtration and Engineered Materials1,474,107 1,451,709 2,968,860 2,828,004 
Total$3,514,473 $3,538,384 $7,133,001 $7,025,157 
Aerospace Systems Segment revenues by primary market:
Three Months EndedSix Months Ended
December 31,December 31,
2023202220232022
Commercial original equipment manufacturer ("OEM")$424,768 $383,038 $843,384 $647,348 
Commercial aftermarket437,762 351,606 828,968 556,246 
Military OEM263,313 234,057 526,378 404,728 
Military aftermarket180,631 167,726 336,704 274,107 
Total$1,306,474 $1,136,427 $2,535,434 $1,882,429 

Total Company revenues by geographic region based on the Company's selling operation's location:
Three Months EndedSix Months Ended
December 31,December 31,
2023202220232022
North America$3,234,158 $3,079,738 $6,527,249 $5,914,658 
Europe947,584 942,070 1,889,299 1,696,002 
Asia Pacific583,920 599,135 1,138,325 1,187,533 
Latin America55,285 53,868 113,562 109,393 
Total$4,820,947 $4,674,811 $9,668,435 $8,907,586 
The majority of revenues from the Aerospace Systems Segment are generated from sales to customers 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.
- 7 -


Total contract assets and contract liabilities are as follows:
December 31,
2023
June 30,
2023
Contract assets, current (included within Prepaid expenses and other)$120,750 $123,705 
Contract assets, noncurrent (included within Investments and other assets)23,750 23,708 
Total contract assets144,500 147,413 
Contract liabilities, current (included within Other accrued liabilities)(226,388)(244,799)
Contract liabilities, noncurrent (included within Other liabilities)(78,549)(78,239)
Total contract liabilities(304,937)(323,038)
Net contract liabilities$(160,437)$(175,625)
Net contract liabilities at December 31, 2023 decreased from the June 30, 2023 amount primarily due to timing differences between when revenue was recognized and the receipt of advance payments. During the six months ended December 31, 2023, approximately $113 million of revenue was recognized that was included in the contract liabilities at June 30, 2023.
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 December 31, 2023 was $10.8 billion, of which approximately 74 percent is expected to be recognized as revenue within the next 12 months and the balance thereafter.
4. Acquisitions and divestitures
Acquisitions
On September 12, 2022, we completed the acquisition (the "Acquisition") of all the outstanding ordinary shares of Meggitt plc ("Meggitt") for 800 pence per share, resulting in an aggregate cash purchase price of $7.2 billion, including the assumption of debt.
Meggitt is a leader in design, manufacturing and aftermarket support of technologically differentiated systems and equipment in aerospace, defense and selected energy markets with annual sales of approximately $2.1 billion for the year ended December 31, 2021. For segment reporting purposes, approximately 82 percent of Meggitt's sales are included in the Aerospace Systems Segment, while the remaining 18 percent are included in the Diversified Industrial Segment.
- 8 -


Assets acquired and liabilities assumed are recognized at their respective fair values as of the Acquisition date. The process of estimating the fair values of certain tangible assets, identifiable intangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. During the measurement period which ended in September 2023, adjustments did not have a material impact on the Consolidated Statement of Income. The following table presents the final estimated fair values of Meggitt's assets acquired and liabilities assumed on the Acquisition date.

June 30, 2023 (previously reported)Measurement Period AdjustmentsSeptember 12, 2022 (Final)
Assets:
Cash and cash equivalents$89,704 $ $89,704 
Accounts receivable409,642 1,181 410,823 
Inventories739,304 13,580 752,884 
Prepaid expenses and other102,032 20,673 122,705 
Property, plant and equipment658,997 (1,428)657,569 
Deferred income taxes34,198 (18,730)15,468 
Other assets180,991 (647)180,344 
Intangible assets5,679,200 (28,000)5,651,200 
Goodwill2,789,080 10,891 2,799,971 
Total assets acquired$10,683,148 $(2,480)$10,680,668 
Liabilities:
Notes payable and long-term debt payable within one year$308,176 $ $308,176 
Accounts payable, trade219,842 (705)219,137 
Accrued payrolls and other compensation87,074 (1)87,073 
Accrued domestic and foreign taxes21,068 (818)20,250 
Other accrued liabilities322,040 158,137 480,177 
Long-term debt711,703  711,703 
Pensions and other postretirement benefits99,553 (2,028)97,525 
Deferred income taxes1,259,417 (19,700)1,239,717 
Other liabilities418,461 (137,365)281,096 
Total liabilities assumed3,447,334 (2,480)3,444,854 
Net assets acquired$7,235,814 $ $7,235,814 
Goodwill is calculated as the excess of the purchase price over the net assets acquired and represents cost synergies and enhancements to our existing technologies. For tax purposes, Meggitt's goodwill is not deductible. Based upon a final acquisition valuation, we acquired $4.2 billion of customer-related intangible assets, $1.1 billion of technology and $303 million of trade names, each with weighted average estimated useful lives of 21, 22, and 18 years, respectively. These intangible assets were valued using the income approach, which includes significant assumptions around future revenue growth, earnings before interest, taxes, depreciation and amortization, royalty rates and discount rates. Such assumptions are classified as level 3 inputs within the fair value hierarchy.
The following table presents unaudited pro forma information for the three and six months ended December 31, 2022 as if the Acquisition had occurred on July 1, 2021.
(Unaudited)Three Months EndedSix Months Ended
December 31, 2022December 31, 2022
Net sales$4,674,811 $9,288,916 
Net income attributable to common shareholders487,530 677,568 
The historical consolidated financial information of Parker and Meggitt has been adjusted in the pro forma information in the table above to give effect to events that are directly attributable to the Acquisition and factually supportable. To reflect the occurrence of the Acquisition on July 1, 2021, the unaudited pro forma information includes adjustments for the amortization of the step-up of inventory to fair value and incremental depreciation and amortization expense resulting from the fair value
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adjustments to property, plant and equipment and intangible assets. These adjustments were based upon a preliminary purchase price allocation. Additionally, adjustments to financing costs and income tax expense were also made to reflect the capital structure and anticipated effective tax rate of the combined entity. Additionally, the pro forma information includes adjustments for nonrecurring transactions directly related to the Acquisition, including the gain on the divestiture of the aircraft wheel and brake business, loss on deal-contingent forward contracts, and transaction costs. These non-recurring adjustments totaled $2 million and $197 million during the three and six months ended December 31, 2022, respectively. The resulting pro forma amounts are not necessarily indicative of the results that would have been obtained if the Acquisition had occurred as of the beginning of the period presented or that may occur in the future, and do not reflect future synergies, integration costs or other such costs or savings.
Divestitures
During December 2023, we divested our Filter Resources business, which was part of the Diversified Industrial Segment, for proceeds of $37 million. The resulting pre-tax gain of $12 million is included in other income, net in the Consolidated Statement of Income. The operating results and net assets of the Filter Resources business were immaterial to the Company's consolidated results of operations and financial position.
During September 2023, we divested the MicroStrain sensing systems business, which was part of the Diversified Industrial Segment, for proceeds of $37 million. The resulting pre-tax gain of $13 million is included in 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.
During September 2022, we divested our aircraft wheel and brake business, which was part of the Aerospace Systems Segment, for proceeds of $441 million. The resulting pre-tax gain of $373 million is included in other income, net in the Consolidated Statement of Income. The operating results and net assets of the aircraft wheel and brake business were immaterial to the Company's consolidated results of operations and financial position.
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 and six months ended December 31, 2023 and 2022.
Three Months EndedSix Months Ended
December 31,December 31,
 2023202220232022
Numerator:
Net income attributable to common shareholders$681,851 $395,237 $1,332,678 $783,091 
Denominator:
Basic - weighted average common shares128,426,247 128,313,322 128,449,398 128,369,162 
Increase in weighted average common shares from dilutive effect of equity-based awards1,941,104 1,731,691 1,864,928 1,592,534 
Diluted - weighted average common shares, assuming exercise of equity-based awards130,367,351 130,045,013 130,314,326 129,961,696 
Basic earnings per share$5.31 $3.08 $10.38 $6.10 
Diluted earnings per share$5.23 $3.04 $10.23 $6.03 
For the three months ended December 31, 2023 and 2022, 458,864 and 1,075,737 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.
For the six months ended December 31, 2023 and 2022, 344,226 and 983,648 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.
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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 December 31, 2023, we repurchased 121,143 shares at an average price, including commissions, of $412.74 per share. During the six months ended December 31, 2023, we repurchased 245,639 shares at an average price, including commissions, of $407.10 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 $26 million and $32 million at December 31, 2023 and June 30, 2023, 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:
December 31,
2023
June 30,
2023
Notes receivable$110,291 $102,288 
Accounts receivable, other211,389 206,879 
Total$321,680 $309,167 

9. Inventories
The inventories caption in the Consolidated Balance Sheet is comprised of the following components:
December 31,
2023
June 30,
2023
Finished products$842,125 $794,128 
Work in process1,580,288 1,488,665 
Raw materials670,510 625,086 
Total$3,092,923 $2,907,879 

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 programs. We do not reimburse suppliers for any costs they incur for participation in the 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 programs are included within operating activities on the Consolidated Statement of Cash Flows. Accounts payable, trade included approximately $99 million and $85 million payable to suppliers who have elected to participate in the SCF programs as of December 31, 2023 and June 30, 2023, respectively. The amounts settled through the SCF programs and paid to the participating financial intermediaries totaled $140 million and $109 million during the first six months of fiscal 2024 and 2023, respectively.
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11. Business realignment and acquisition integration charges
We incurred business realignment and acquisition integration charges in the first six months of fiscal 2024 and 2023, 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 fiscal 2024 and 2023, 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 EndedSix Months Ended
 December 31,December 31,
 2023202220232022
Diversified Industrial$13,285 $4,377 $25,924 $6,389 
Aerospace Systems(123)1,001 330 2,850 
Other (income) expense, net1,192  1,192  
Reductions to our workforce made in connection with such business realignment charges by business segment are as follows:
Three Months EndedSix Months Ended
 December 31,December 31,
 2023202220232022
Diversified Industrial190 166 515 217 
Aerospace Systems 4 2 16 
The business realignment charges are presented in the Consolidated Statement of Income as follows:
Three Months EndedSix Months Ended
 December 31,December 31,
 2023202220232022
Cost of sales$8,467 $3,214 $15,451 $5,713 
Selling, general and administrative expenses4,695 2,164 10,803 3,526 
Other income, net1,192  1,192  
During the first six months of fiscal 2024, approximately $18 million in payments were made relating to business realignment charges. Remaining payments related to business realignment actions of approximately $22 million, a majority of which are expected to be paid by June 30, 2024, are primarily reflected within the other accrued liabilities caption 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 EndedSix Months Ended
 December 31,December 31,
 2023202220232022
Diversified Industrial$871 $1,695 $2,010 $1,881 
Aerospace Systems9,143 31,723 14,410 43,528 
Charges incurred in fiscal 2024 and 2023 relate to the Acquisition. In both fiscal 2024 and 2023, 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 December 31, 2023 and 2022 are as follows:
Common StockAdditional CapitalRetained EarningsAccumulated Other Comprehensive (Loss)Treasury SharesNoncontrolling
Interests
Total Equity
Balance at September 30, 2023$90,523 $337,162 $17,501,909 $(1,514,947)$(5,849,265)$9,568 $10,574,950 
Net income681,851 206 682,057 
Other comprehensive income273,731 415 274,146 
Dividends paid ($1.48 per share)
(190,307)(388)(190,695)
Stock incentive plan activity15,655 6,265 21,920 
Shares purchased at cost(49,999)(49,999)
Balance at December 31, 2023$90,523 $352,817 $17,993,453 $(1,241,216)$(5,892,999)$9,801 $11,312,379 

Common StockAdditional CapitalRetained EarningsAccumulated Other Comprehensive (Loss)Treasury SharesNoncontrolling
Interests
Total Equity
Balance at September 30, 2022$90,523 $360,443 $15,878,565 $(1,843,780)$(5,723,230)$10,883 $8,773,404 
Net income395,237 224 395,461 
Other comprehensive income364,111 1,253 365,364 
Dividends paid ($1.33 per share)
(170,919)(264)(171,183)
Stock incentive plan activity17,428 4,002 21,430 
Shares purchased at cost(50,000)(50,000)
Balance at December 31, 2022$90,523 $377,871 $16,102,883 $(1,479,669)$(5,769,228)$12,096 $9,334,476 

Changes in equity for the six months ended December 31, 2023 and 2022 are as follows:

Common StockAdditional CapitalRetained EarningsAccumulated Other Comprehensive (Loss)Treasury SharesNoncontrolling
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 income1,332,678 451 1,333,129 
Other comprehensive income51,656 776 52,432 
Dividends paid ($2.96 per share)
(380,727)(388)(381,115)
Stock incentive plan activity46,880 24,787 71,667 
Acquisition activity415 (2,429)(2,014)
Shares purchased at cost(99,999)(99,999)
Balance at December 31, 2023$90,523 $352,817 $17,993,453 $(1,241,216)$(5,892,999)$9,801 $11,312,379 

Common StockAdditional CapitalRetained EarningsAccumulated Other Comprehensive (Loss)Treasury SharesNoncontrolling
Interests
Total Equity
Balance at June 30, 2022$90,523 $327,307 $15,661,808 $(1,543,198)$(5,688,429)$11,909 $8,859,920 
Net income783,091 407 783,498 
Other comprehensive income63,529 123 63,652 
Dividends paid ($2.66 per share)
(342,016)(343)(342,359)
Stock incentive plan activity50,564 19,201 69,765 
Shares purchased at cost(100,000)(100,000)
Balance at December 31, 2022$90,523 $377,871 $16,102,883 $(1,479,669)$(5,769,228)$12,096 $9,334,476 

- 13 -


Changes in accumulated other comprehensive (loss) in shareholders' equity by component for the six months ended December 31, 2023 and 2022 are as follows:
 Foreign Currency Translation AdjustmentRetirement Benefit PlansTotal
Balance at June 30, 2023$(962,044)$(330,828)$(1,292,872)
Other comprehensive income before reclassifications48,927  48,927 
Amounts reclassified from accumulated other comprehensive (loss) 2,729 2,729 
Balance at December 31, 2023$(913,117)$(328,099)$(1,241,216)


 Foreign Currency Translation AdjustmentRetirement Benefit PlansTotal
Balance at June 30, 2022$(1,149,071)$(394,127)$(1,543,198)
Other comprehensive income before reclassifications53,768  53,768 
Amounts reclassified from accumulated other comprehensive (loss) 9,761 9,761 
Balance at December 31, 2022$(1,095,303)$(384,366)$(1,479,669)


Significant reclassifications out of accumulated other comprehensive (loss) in shareholders' equity for the three and six months ended December 31, 2023 and 2022 are as follows:
Details about Accumulated Other Comprehensive (Loss) ComponentsIncome (Expense) Reclassified from Accumulated Other Comprehensive (Loss)Consolidated Statement of Income Classification
Three Months EndedSix Months Ended
December 31, 2023December 31, 2023
Retirement benefit plans
Amortization of prior service cost and initial net obligation
$(334)$(636)Other income, net
Recognized actuarial loss(2,309)(3,101)Other income, net
Total before tax(2,643)(3,737)
Tax benefit732 1,008 
Net of tax$(1,911)$(2,729)

Details about Accumulated Other Comprehensive (Loss) ComponentsIncome (Expense) Reclassified from Accumulated Other Comprehensive (Loss)Consolidated Statement of Income Classification
Three Months EndedSix Months Ended
December 31, 2022December 31, 2022
Retirement benefit plans
Amortization of prior service cost and initial net obligation$(242)$(452)Other income, net
Recognized actuarial loss(6,369)(12,479)Other income, net
Total before tax(6,611)(12,931)
Tax benefit1,621 3,170 
Net of tax$(4,990)$(9,761)

- 14 -


13. Goodwill and intangible assets
The changes in the carrying amount of goodwill for the six months ended December 31, 2023 are as follows:
Diversified Industrial
Segment
Aerospace
Systems
Segment
Total
Balance at June 30, 2023$7,682,755 $2,945,839 $10,628,594 
Acquisition1,113 9,778 10,891 
Divestitures(25,387) (25,387)
Foreign currency translation41,165 16,634 57,799 
Balance at December 31, 2023$7,699,646 $2,972,251 $10,671,897 
Acquisition represents goodwill resulting from the purchase price allocation for the Acquisition during the measurement period. Divestitures represents goodwill associated with the sale of the businesses. 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:
 December 31, 2023June 30, 2023
 Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Patents and technology$2,125,244 $403,218 $2,128,847 $352,040 
Trade names1,050,077 418,972 1,047,678 390,737 
Customer relationships and other8,114,269 2,313,932 8,109,063 2,092,197 
Total$11,289,590 $3,136,122 $11,285,588 $2,834,974 
Total intangible asset amortization expense for the six months ended December 31, 2023 and 2022 was $298 million and $229 million, respectively. The estimated amortization expense for the five years ending June 30, 2024 through 2028 is $580 million, $543 million, $538 million, $533 million and $524 million, respectively.
Intangible assets are evaluated for impairment whenever events or circumstances indicate that the undiscounted net cash flows to be generated by their use over their expected useful lives and eventual disposition may be less than their net carrying value. No material intangible asset impairments occurred during the six months ended December 31, 2023 and 2022.
14. Retirement benefits
Net pension (benefit) expense recognized included the following components:
Three Months EndedSix Months Ended
 December 31,December 31,
 2023202220232022
Service cost$12,420 $13,682 $25,947 $27,935 
Interest cost67,552 61,084 134,433 107,435 
Expected return on plan assets(88,233)(82,213)(176,481)(148,558)
Amortization of prior service cost334 242 636 452 
Amortization of net actuarial loss2,793 6,839 3,975 13,282 
Net pension (benefit) expense$(5,134)$(366)$(11,490)$546 
We recognized $0.4 million and $0.5 million in expense related to other postretirement benefits during the three months ended December 31, 2023 and 2022, respectively. During the six months ended December 31, 2023 and 2022, we recognized $1.1 million and $0.7 million, respectively, in expense related to other postretirement benefits. Components of retirement benefits expense, other than service cost, are included in other income, net in the Consolidated Statement of Income.
- 15 -


15. Debt
Our debt portfolio includes a term loan facility (the “Term Loan Facility”). Interest rates reset every one, three or six months at the discretion of the Company. At December 31, 2023, the Term Loan Facility had an interest rate of Secured Overnight Financing Rate plus 122.5 bps. Additionally, the provisions of the Term Loan Facility allow for prepayments at the Company's discretion. During the six months ended December 31, 2023, we made principal payments totaling $200 million related to the Term Loan Facility. Refer to the Company’s 2023 Annual Report on Form 10-K for further discussion.
Commercial paper notes outstanding at December 31, 2023 and June 30, 2023 were $1.2 billion and $1.8 billion, respectively.
Based on the Company’s rating level at December 31, 2023, the most restrictive financial covenant provides that the ratio of debt to debt-shareholders' equity cannot exceed 0.65 to 1.0. At December 31, 2023, our debt to debt-shareholders' equity ratio was 0.51 to 1.0. We are in compliance, and expect to remain in compliance, with all covenants set forth in the credit agreement and indentures.
16. Income taxes
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. 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 December 31, 2023, we had gross unrecognized tax benefits of $101 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 $24 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.
17. Financial instruments
Our financial instruments consist primarily of cash and cash equivalents, marketable securities and other investments, accounts receivable and long-term investments, as well as obligations under accounts payable, trade, notes payable and long-term debt. Due to their short-term nature, the carrying values for cash and cash equivalents, accounts receivable, accounts payable, trade and notes payable approximate fair value.
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:
December 31,
2023
June 30,
2023
Carrying value of long-term debt $10,651,354 $10,845,359 
Estimated fair value of long-term debt 10,312,875 10,221,563 
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 translation of 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.
- 16 -


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 CaptionDecember 31,
2023
June 30,
2023
Net investment hedges
Cross-currency swap contractsInvestments and other assets$2,050 $21,578 
Cross-currency swap contractsOther liabilities691  
Other derivative contracts
Forward exchange contractsNon-trade and notes receivable225  
Forward exchange contractsOther accrued liabilities2,096  
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, costless collar contracts, and deal-contingent forward contracts, as well as cross-currency swap contracts acquired as part of the Acquisition, 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.

Gains (losses) on derivative financial instruments were recorded in the Consolidated Statement of Income as follows:
Three Months EndedSix Months Ended
December 31,December 31,
2023202220232022
Deal-contingent forward contracts$ $ $ $(389,992)
Forward exchange contracts(2,249)(13,439)(1,813)(14,803)
Costless collar contracts (65) 5,324 
Cross-currency swap contracts (20,422) (15,763)

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 EndedSix Months Ended
December 31,December 31,
2023202220232022
Cross-currency swap contracts$(17,900)$(25,708)$(15,317)$1,111 
Foreign currency denominated debt(24,580)(47,628)(6,701)(11,489)

During the six months ended December 31, 2023 and 2022, the periodic interest settlements related to the cross-currency swap contracts were not material.

- 17 -


A summary of financial assets and liabilities that were measured at fair value on a recurring basis at December 31, 2023 and June 30, 2023 are as follows:
Quoted PricesSignificant OtherSignificant
FairIn ActiveObservableUnobservable
Value atMarketsInputsInputs
December 31, 2023(Level 1)(Level 2)(Level 3)
Assets:
Derivatives$2,275 $ $2,275 $ 
Liabilities:
Derivatives2,787  2,787  

Quoted PricesSignificant OtherSignificant
FairIn ActiveObservableUnobservable
Value atMarketsInputsInputs
June 30, 2023(Level 1)(Level 2)(Level 3)
Assets:
Derivatives$21,578 $ $21,578 $ 
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 investments is the preservation of principal and liquidity while earning income.
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 produces a broad range of motion-control and fluid systems and components used in all kinds of manufacturing, packaging, processing, transportation, mobile construction, refrigeration and air conditioning, agricultural, and military machinery and equipment and has significant international operations. Sales are made directly to major OEMs and through a broad distribution network to smaller OEMs and the aftermarket.
Aerospace Systems - This segment designs and manufactures products and provides aftermarket support for commercial and regional transport, business jet, military, and helicopter markets. The Aerospace Systems Segment provides a full range of systems and components for hydraulic, pneumatic, fuel, oil, actuation, sensing, braking, thermal management, and electric power applications.
- 18 -


Three Months EndedSix Months Ended
 December 31,December 31,
 2023202220232022
Net sales
Diversified Industrial:
North America$2,110,203 $2,140,685 $4,340,109 $4,272,445 
International1,404,270 1,397,699 2,792,892 2,752,712 
Aerospace Systems1,306,474 1,136,427 2,535,434 1,882,429 
Total net sales$4,820,947 $4,674,811 $9,668,435 $8,907,586 
Segment operating income
Diversified Industrial:
North America$461,850 $419,921 $967,903 $872,907 
International290,484 285,520 591,185 579,460 
Aerospace Systems263,112 8,793 489,372 100,944 
Total segment operating income1,015,446 714,234 2,048,460 1,553,311 
Corporate general and administrative expenses49,902 48,901 105,558 100,561 
Income before interest expense and other expense965,544 665,333 1,942,902 1,452,750 
Interest expense129,029 146,931 263,497 264,725 
Other (income) expense, net(31,650)1,659 (9,195)167,937 
Income before income taxes$868,165 $516,743 $1,688,600 $1,020,088 
    



- 19 -


        

PARKER-HANNIFIN CORPORATION
FORM 10-Q
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2023
AND COMPARABLE PERIODS ENDED DECEMBER 31, 2022

OVERVIEW
The Company is a global leader in motion and control technologies. For more than a century, the Company has engineered the success of its customers in a wide range of diversified industrial and aerospace markets.

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 energy, water, food, environment, defense, life sciences, infrastructure and transportation. 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 make our world safer, smarter and cleaner and operating responsibly by minimizing our environmental impact and conserving natural resources;
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.

The ongoing disruption within the global supply chain and labor markets has impacted our business. We continue to manage the challenging supply chain environment through our "local for local" manufacturing strategy, ongoing supplier management process, and broadened supply base. While the inflationary cost environment showed signs of moderating, we continue to 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.

- 20 -


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 Segment Information, 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.
CONSOLIDATED STATEMENT OF INCOME
Three Months EndedSix Months Ended
 December 31,December 31,
(dollars in millions)2023202220232022
Net sales$4,821 $4,675 $9,668 $8,908 
Gross profit margin35.7 %30.8 %35.9 %32.3 %
Selling, general and administrative expenses$807 $815 $1,680 $1,651 
Selling, general and administrative expenses, as a percent of sales
16.7 %17.4 %17.4 %18.5 %
Interest expense$129 $147 $263 $265 
Other income, net$(85)$(41)$(163)$(60)
Effective tax rate21.4 %23.5 %21.1 %23.2 %
Net income$682 $395 $1,333 $783 
Net income, as a percent of sales14.1 %8.5 %13.8 %8.8 %
Net sales increased for the current-year quarter due to higher sales in the Aerospace Systems Segment, partially offset by lower sales in the Diversified Industrial Segment. Currency exchange rate changes increased net sales during the current-year quarter by approximately $25 million, of which approximately $16 million and $9 million were attributable to the Diversified Industrial and Aerospace Systems Segments, respectively. The impact of divestiture activity decreased sales by approximately $13 million during the current-year quarter.
Net sales increased for the first six months of fiscal 2024 due to higher sales in both the Aerospace Systems and Diversified Industrial Segments. The acquisition of Meggitt (the "Acquisition") increased sales by approximately $501 million during the first six months of fiscal 2024. The effect of currency rate changes increased net sales during the first six months of fiscal 2024 by approximately $65 million, of which $52 million and $13 million were attributable to the Diversified Industrial and Aerospace Systems Segments, respectively. The impact of divestiture activity decreased sales by approximately $38 million during the first six months of fiscal 2024.
Gross profit margin (calculated as net sales minus cost of sales, divided by net sales) increased in the current-year quarter and first six months of fiscal 2024 due to higher margins in both segments resulting from price increases, favorable product mix and moderating material costs. In addition, cost of sales in the prior-year quarter and first six months of fiscal 2023 included $112 million and $130 million, respectively, of amortization expense related to the step-up in inventory to fair value resulting from the Acquisition.
Cost of sales also included business realignment and acquisition integration charges of $9 million and $6 million for the current and prior-year quarter, respectively, and $18 million and $9 million for the first six months of fiscal 2024 and 2023, respectively.
Selling, general and administrative expenses ("SG&A") decreased during the current-year quarter primarily due to lower research and development expenses, partially offset by an increase in intangible asset amortization expense and wages, salaries and incentive compensation. SG&A increased during the first six months of fiscal 2024 primarily due to higher intangible asset amortization and stock compensation expense, as well as increased wages, salaries and incentive compensation, partially offset by a decrease in acquisition-related transaction costs of $111 million. In both the current-year quarter and first six months of fiscal 2024, SG&A benefited from savings related to prior-year restructuring and acquisition-integration activities.
SG&A included business realignment and acquisition integration charges of $14 million and $32 million for the current and prior-year quarter, respectively, and $25 million and $45 million for the first six months of fiscal 2024 and 2023, respectively.
Interest expense decreased during the current-year quarter and the first six months of fiscal 2024 primarily due to lower average debt outstanding, partially offset by higher average interest rates.
- 21 -


Other income, net included the following:
Three Months EndedSix Months Ended
December 31,December 31,
(dollars in millions)2023202220232022
Expense (income)
Foreign currency transaction (gain) loss$(14)$23 $(16)$59 
Income related to equity method investments(37)(26)(75)(53)
Non-service components of retirement benefit cost(17)(14)(35)(27)
Gain on disposal of assets and divestitures(9)(3)(21)(380)
Interest income(2)(6)(6)(32)
Loss on deal-contingent forward contracts— — — 390 
Other items, net(6)(15)(10)(17)
$(85)$(41)$(163)$(60)
Foreign currency transaction (gain) loss primarily relates to the impact of exchange rates on cash, forward contracts, certain cross-currency swap contracts and intercompany transactions. The first six months of fiscal 2023 also includes foreign currency transaction loss associated with completing the Acquisition.
Gain on disposal of assets and divestitures for the first six months of fiscal 2023 includes a gain on the sale of the aircraft wheel and brake business within the Aerospace Systems Segment of $373 million. Refer to Note 4 to the Consolidated Financial Statements for further discussion.
Loss on deal-contingent forward contracts includes a loss on the deal-contingent forward contracts related to the Acquisition. Refer to the Company’s 2023 Annual Report on Form 10-K for further discussion.

Effective tax rate for the current-year quarter and first six months of fiscal 2024 was lower than the comparable prior-year periods due to a net decrease in tax costs from permanent taxable adjustments and an increase in discrete tax benefits. The fiscal 2024 effective tax rate is expected to be approximately 22.5 percent.
BUSINESS SEGMENT INFORMATION
Diversified Industrial Segment
Three Months EndedSix Months Ended
 December 31,December 31,
(dollars in millions)2023202220232022
Net sales
North America$2,110 $2,141 $4,340 $4,272 
International1,404 1,398 2,793 2,753 
Operating income
North America462 420 968 873 
International$290 $286 $591 $579 
Operating margin
North America21.9 %19.6 %22.3 %20.4 %
International20.7 %20.4 %21.2 %21.1 %
Backlog$4,429 $4,966 $4,429 $4,966 

- 22 -


The Diversified Industrial Segment operations experienced the following percentage changes in net sales in the current-year periods versus the comparable prior-year periods:
Period Ending December 31, 2023
Three MonthsSix Months
Diversified Industrial North America – as reported(1.4)%1.6 %
Acquisitions— %1.8 %
Divestitures(0.2)%(0.1)%
Currency0.3 %0.4 %
Diversified Industrial North America – without acquisitions, divestitures and currency1
(1.5)%(0.5)%
Diversified Industrial International – as reported0.5 %1.5 %
Acquisitions— %1.4 %
Currency0.7 %1.3 %
Diversified Industrial International – without acquisitions and currency1
(0.2)%(1.2)%
Total Diversified Industrial Segment – as reported(0.7)%1.5 %
Acquisitions— %1.6 %
Divestitures(0.1)%(0.1)%
Currency0.4 %0.8 %
Total Diversified Industrial Segment – without acquisitions, divestitures and currency1
(1.0)%(0.8)%
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 acquisitions and divestitures for 12 months after their completion as well as changes in currency exchange rates (a non-GAAP measure). The effects of acquisitions, divestitures and changes in currency exchange rates are removed to allow investors and the Company to meaningfully evaluate the percentage changes in net sales on a comparable basis from period to period.
Net Sales
Diversified Industrial North America - Sales decreased 1.4 percent and increased 1.6 percent during the current-year quarter and first six months of fiscal 2024, respectively. Changes in currency exchange rates increased sales by approximately $7 million and $18 million in the current-year quarter and first six months of fiscal 2024, respectively. The effects of divestiture activity decreased sales by approximately $4 million and $5 million in the current-year quarter and first six months of fiscal 2024, respectively. The Acquisition increased sales by approximately $77 million during the first six months of fiscal 2024.
Excluding the effects of the Acquisition, divestitures and changes in the currency exchange rates, sales in the Diversified Industrial North American businesses decreased 1.5 percent and 0.5 percent in the current-year quarter and first six months of fiscal 2024, respectively. In the current-year quarter, the decrease is primarily due to lower demand from distributors and end users across the engine, refrigeration, cars and light truck and turf markets, partially offset by higher end-user demand in the aerospace, oil and gas, farm and agriculture and marine markets. In the first six months of fiscal 2024, sales decreased primarily due to lower end-user demand in the refrigeration, engine, turf, construction equipment and machine tool markets, partially offset by higher end-user demand in the aerospace, oil and gas, farm and agriculture markets as well as higher demand from distributors.
Diversified Industrial International - Sales increased 0.5 percent and 1.5 percent from the prior-year quarter and first six months of fiscal 2023, respectively. The effect of changes in currency exchange rates increased sales by approximately $9 million and $34 million in the current-year quarter and first six months of fiscal 2024, respectively. The effect of the Acquisition increased sales by approximately $38 million during the first six months of fiscal 2024. Excluding the effects of the Acquisition and changes in the currency exchange rates, Diversified Industrial International sales decreased 0.2 percent and 1.2 percent in the current-year quarter and first six months of fiscal 2024, respectively. In the current-year quarter and first six months of fiscal 2024, the decrease in sales was attributed to the Asia Pacific region, partially offset by an increase in sales in Europe and Latin America.
Within Europe, sales in the current-year quarter increased primarily due to higher demand from end users across the semiconductor, engine and forestry markets, partially offset by lower end-user demand in the construction equipment, industrial machinery and farm and agriculture markets as well as lower demand from distributors. In the first six months of fiscal 2024, sales increased primarily due to higher end-user demand in the engines, semiconductor and heavy-duty truck markets as well as higher demand from distributors, partially offset by lower end-user demand in the industrial machinery, life sciences and construction equipment markets.
- 23 -


Within the Asia Pacific region, sales in the current-year quarter and first six months of fiscal 2024 decreased primarily due to lower end-user demand in the semiconductor, construction equipment, industrial machinery, refrigeration and metal fabrication markets, partially offset by higher end-user demand in the marine and engine markets. In the current-year quarter, we also experienced higher demand from distributors.
Within Latin America, sales in the current-year quarter and first six months of fiscal 2024 increased primarily due to higher demand from distributors and end users in the marine, oil and gas, engines and power generation markets, partially offset by lower end-user demand in the farm and agriculture, heavy-duty truck, industrial machinery and metal fabrication markets.
Operating Margin
Operating margin increased in the North American businesses and remained flat in the International businesses during both the current-year quarter and first six months of fiscal 2024, primarily due to price increases, favorable product mix, cost containment and moderating material costs, partially offset by higher wages, salaries and incentive compensation. International businesses also experienced higher business realignment charges in both the current-year quarter and first six months of fiscal 2024.
Business Realignment
The following business realignment and acquisition integration charges are included in Diversified Industrial North American and Diversified Industrial International operating income:
Three Months EndedSix Months Ended
 December 31,December 31,
(dollars in millions)2023202220232022
Diversified Industrial North America$$$$
Diversified Industrial International10 21 

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. Business realignment and acquisition integration charges within the Diversified Industrial International businesses were primarily incurred in Europe.
We anticipate that cost savings realized from the workforce reduction measures taken in the first six months of fiscal 2024 will not materially impact operating income in fiscal 2024 and will increase operating income by approximately one percent in fiscal 2025 for both the Diversified Industrial North American and International businesses. 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 $59 million of additional business realignment and acquisition integration charges in the remainder of fiscal 2024. However, continually changing business conditions could impact the ultimate costs we incur.
Backlog
Diversified Industrial Segment backlog, as of December 31, 2023, decreased from the prior-year quarter and June 30, 2023 amount of $4.8 billion due to shipments exceeding orders in both the North American and International businesses. Backlog in the North American and International businesses accounted for approximately 70 percent and 30 percent, respectively, of the decrease from both the prior-year quarter and June 30, 2023.
Within the International businesses, the Asia Pacific region accounted for approximately 90 percent of the decrease from the prior-year quarter, while the remaining decrease was evenly split between Latin America and Europe. Europe, the Asia Pacific region and Latin America accounted for approximately 65 percent, 30 percent and five percent, respectively, of the decrease from June 30, 2023.
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.
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Aerospace Systems Segment
Three Months EndedSix Months Ended
 December 31,December 31,
(dollars in millions)2023202220232022
Net sales$1,306 $1,136 $2,535 $1,882 
Operating income$263 $$489 $101 
Operating margin20.1 %0.8 %19.3 %5.4 %
Backlog$6,399 $5,586 $6,399 $5,586 
Net Sales
Aerospace Systems Segment sales for the current-year quarter and first six months of fiscal 2024 increased compared to the same prior-year periods primarily due to higher volume across all businesses, especially the commercial aftermarket business. Sales also increased by $386 million during the first six months of fiscal 2024 due to the Acquisition.
Operating Margin
Aerospace Systems Segment operating margin increased during the current-year quarter and first six months of fiscal 2024 due to higher volume across all businesses, favorable aftermarket mix and lower acquisition-integration charges, as well as benefits of cost containment initiatives and prior-year business realignment and acquisition integration activities. In addition, operating income in the prior-year quarter and first six months of fiscal 2023 included $112 million and $130 million, respectively, of amortization expense related to the step-up in inventory to fair value resulting from the Acquisition. Favorable contract settlements also contributed to the increase in operating margin during the first six months of fiscal 2024.
Business Realignment
Within the Aerospace Systems Segment, we incurred acquisition integration and business realignment charges of $9 million and $33 million in the current and prior-year quarter, respectively, and $15 million and $46 million in the first six months of fiscal 2024 and 2023, respectively. We do not expect to incur material business realignment and acquisition integration charges in the remainder of fiscal 2024. However, continually changing business conditions could impact the ultimate costs we incur.
Backlog
Aerospace Systems Segment backlog, as of December 31, 2023, increased from the prior-year quarter primarily due to orders exceeding shipments in the commercial and military aftermarket and commercial original equipment manufacturer ("OEM") businesses, partially offset by shipments exceeding orders in the military OEM business.
The increase in backlog from the June 30, 2023 amount of $6.2 billion is primarily due to orders exceeding shipments in all businesses, especially the commercial aftermarket business.
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 EndedSix Months Ended
December 31,December 31,
(dollars in millions)2023202220232022
Expense
Corporate general and administrative expense$50 $49 $106 $101 
Corporate general and administrative expense, as a percent of sales1.0 %1.0 %1.1 %1.1 %
Corporate general and administrative expenses remained relatively flat in the current-year quarter and first six months of fiscal 2024 primarily due to an increase in salaries, benefits and incentive compensation expense, as well as information technology expense offset by a decrease in professional service fees and other discretionary spending.
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Other (income) expense, net (in Business Segments) included the following:
Three Months EndedSix Months Ended
December 31,December 31,
(dollars in millions)2023202220232022
Expense (income)
Foreign currency transaction (gain) loss$(14)$23 $(16)$59 
Stock-based compensation12 10 74 60 
Pensions(17)(14)(35)(27)
Acquisition-related expenses— — 110 
Loss on deal-contingent forward contracts— — — 390 
Gain on disposal of assets and divestitures(9)(3)(21)(380)
Interest income(2)(6)(6)(32)
Other items, net(2)(10)(5)(12)
$(32)$$(9)$168 
Foreign currency transaction (gain) loss primarily relates to the impact of exchange rates on cash, forward contracts, certain cross-currency swap contracts and intercompany transactions. Foreign currency transaction (gain) loss during the first six months of 2023 also included foreign currency transaction loss associated with completing the Acquisition.
Loss on deal-contingent forward contracts includes a loss on the deal-contingent forward contracts related to the Acquisition. Refer to the Company’s 2023 Annual Report on Form 10-K for further discussion.
Gain on disposal of assets and divestitures for the first six months of fiscal 2023 includes a gain on the sale of the aircraft wheel and brake business within the Aerospace Systems Segment of approximately $373 million. Refer to Note 4 to the Consolidated Financial Statements for further discussion.
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:
Six Months Ended
 December 31,
(dollars in millions)20232022
Cash provided by (used in):
Operating activities$1,352 $1,076 
Investing activities(131)(8,022)
Financing activities(1,305)1,065 
Effect of exchange rates(8)(11)
Net decrease in cash, cash equivalents and restricted cash$(92)$(5,892)

Cash flows from operating activities for the first six months of fiscal 2024 were $1,352 million compared to $1,076 million for the first six months of fiscal 2023. This increase of $276 million was primarily related to net changes in cash provided by working capital items. We continue to focus on managing inventory and other working capital requirements. Cash flows from operating activities for the first six months of fiscal 2023 were negatively impacted by acquisition-related transaction expenses.
Days sales outstanding relating to trade accounts receivable was 50 days at December 31, 2023, 51 days at June 30, 2023 and 51 days at December 31, 2022.
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Days supply of inventory on hand was 96 days at December 31, 2023, 85 days at June 30, 2023 and 98 days at December 31, 2022.
Cash flows from investing activities for the first six months of fiscal 2024 and 2023 were impacted by the following factors:
Payment for the Acquisition, net of cash acquired, of $7.1 billion in fiscal 2023.
Payments to settle the deal-contingent forward contracts of $1.4 billion in fiscal 2023.
Net proceeds from the sale of the aircraft wheel and brake business of approximately $441 million in fiscal 2023.
Cash collateral received of $250 million in fiscal 2023 per the credit support annex attached to the deal-contingent forward contracts.
Capital expenditures of $204 million in fiscal 2024 compared to $186 million in fiscal 2023.
Net purchases of marketable securities of $2.5 million in fiscal 2024 compared to maturities of $5 million in fiscal 2023.
Cash flows from financing activities for the first six months of fiscal 2024 and 2023 were impacted by the following factors:
Proceeds of $2 billion from borrowings under the term loan facility (the "Term Loan Facility") in fiscal 2023.
Payments to retire $300 million aggregate principal amount of private placement notes assumed in the Acquisition in fiscal 2023.
Payments related to the maturity of $300 million aggregate principal amount of medium term notes in fiscal 2023.
Repurchases of 0.2 million common shares for $100 million during fiscal 2024 compared to repurchases of 0.4 million common shares for $100 million during fiscal 2023.
Net commercial paper repayments of $584 million in fiscal 2024 compared to net commercial paper borrowings of $235 million in fiscal 2023.
Principal payments totaling $200 million related to the Term Loan Facility in fiscal 2024 compared to principal payments totaling $100 million related to the Term Loan Facility in fiscal 2023.
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 and strategic investments. 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 dividend of $1.48 per share on October 25, 2023, which was paid on December 1, 2023. Dividends have been paid for 294 consecutive quarters, including a yearly increase in dividends for the last 67 years. Additionally, we declared a quarterly dividend of $1.48 per share on January 25, 2024, payable on March 1, 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.
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Liquidity
Cash, comprised of cash and cash equivalents and marketable securities and other investments, includes $327 million and $422 million held by the Company's foreign subsidiaries at December 31, 2023 and June 30, 2023, respectively. The Company does not permanently reinvest certain foreign earnings. The distribution of these earnings could result in non-federal U.S. or foreign taxes. All other undistributed foreign earnings remain permanently reinvested.
We are currently authorized to sell up to $3.0 billion of short-term commercial paper notes. As of December 31, 2023, $1.2 billion of commercial paper notes were outstanding, and the largest amount of commercial paper notes outstanding during the current-year quarter was $1.7 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 $1.8 billion was available as of December 31, 2023. Advances from the credit agreement can be used for general corporate purposes, including acquisitions, and for the refinancing of existing indebtedness. The credit agreement supports our commercial paper program, and issuances of commercial paper reduce the amount of credit available under the agreement. The credit agreement expires in June 2028; however, the Company has the right to request a one-year extension of the expiration date on an annual basis, which 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 six months ended December 31, 2023, we made principal payments totaling $200 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 December 31, 2023, the most restrictive financial covenant provides that the ratio of debt to debt-shareholders' equity cannot exceed 0.65 to 1.0. At December 31, 2023, the Company's debt to debt-shareholders' equity ratio was 0.51 to 1.0. We are in compliance and expect to remain in compliance with all covenants set forth in the credit agreement and indentures.
Our goal is to maintain an investment-grade credit profile. The rating agencies periodically update our credit ratings as events occur. At December 31, 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 RatingsBBB+
Moody's Investors Services, Inc.Baa1
Standard & Poor'sBBB+
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 ("SCF") programs with financial intermediaries, which provide certain suppliers the option to be paid by the financial intermediaries earlier than the due date on the applicable invoice. We do not believe that changes in the availability of supply chain financing will have a significant impact on our liquidity. Refer to Note 10 to the Consolidated Financial Statements for further discussion.


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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 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 other armed conflicts and their residual effects;
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.

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The Company makes these statements as of the date of the filing of its Quarterly Report on Form 10-Q for the quarter ended December 31, 2023, 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.
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 December 31, 2023, our debt portfolio included $675 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 six months ended December 31, 2023, 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 December 31, 2023. Based on this evaluation, the Company's principal executive officer and principal financial officer concluded that, as of December 31, 2023, the Company’s disclosure controls and procedures were effective.
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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, Use of Proceeds, and Issuer Purchases of Equity Securities.
(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)
October 1, 2023 through October 31, 202345,300 $386.13 45,300 7,581,767 
November 1, 2023 through November 30, 202340,300 $413.86 40,300 7,541,467 
December 1, 2023 through December 31, 202335,543 $445.30 35,543 7,505,924 
Total:121,143 121,143 
 
(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 December 31, 2023.
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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)
10(b)
31(a)
31(b)
32
101.INSInline XBRL Instance Document.*
101.SCHInline XBRL Taxonomy Extension Schema Document.*
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document. *
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.*
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.*
104Cover 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 and six months ended December 31, 2023 and 2022, (ii) Consolidated Statement of Comprehensive Income for the three and six months ended December 31, 2023 and 2022, (iii) Consolidated Balance Sheet at December 31, 2023 and June 30, 2023, (iv) Consolidated Statement of Cash Flows for the six months ended December 31, 2023 and 2022, and (v) Notes to Consolidated Financial Statements for the six months ended December 31, 2023.


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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: February 6, 2024



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