PH 8-K
Parker-Hannifin Corp (PH)
8-K
2020-08-06
For: 2020-08-06
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April 02, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): August 6, 2020
(Exact Name of Registrant as Specified in Charter)
(State or other jurisdiction of Incorporation or Organization) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||||||
(Address of Principal Executive Offices) | (Zip Code) | |||||||
Registrant's telephone number, including area code: (216 ) 896-3000
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
240.14d-2(b))
240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on which Registered | ||||||||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
Item 2.02 Results of Operations and Financial Condition
On August 6, 2020, Parker-Hannifin Corporation issued a press release and presented a Webcast announcing results of operations for the quarter ended June 30, 2020. A copy of the press release is furnished as Exhibit 99.1 to this report. A copy of the Webcast presentation is furnished as Exhibit 99.2 to this report.
Item 9.01 Financial Statements and Exhibits
(c) Exhibits:
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
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, hereunto duly authorized.
| PARKER-HANNIFIN CORPORATION | |||||||||||
| By: /s/ Catherine A. Suever | |||||||||||
| Catherine A. Suever | |||||||||||
| Executive Vice President - Finance & | |||||||||||
| Administration and Chief Financial Officer | |||||||||||
| Date: | August 6, 2020 | ||||||||||
| For Release: | Immediately | Exhibit 99.1 | ||||||
| Contact: | Media - | |||||||
| Aidan Gormley - Director, Global Communications and Branding | 216-896-3258 | |||||||
| [email protected] | ||||||||
| Financial Analysts - | ||||||||
| Robin J. Davenport, Vice President, Corporate Finance | 216-896-2265 | |||||||
| [email protected] | ||||||||
| Stock Symbol: | PH - NYSE | |||||||
Parker Reports Fiscal 2020 Fourth Quarter and Full Year Results and Issues Guidance for Fiscal 2021
- Fourth quarter EPS were $2.27 as reported, or $2.55 adjusted
- Fourth quarter total segment operating margin was 15.8% as reported, or 17.4% adjusted
- Fourth quarter EBITDA margin was 18.7% as reported, or 20.4% adjusted
- Full year cash flow from operations was an all-time record at $2.1 billion, or 15.1% of sales
- Full year total segment operating margin was 15.6% as reported, or 16.8% adjusted
- Full year EBITDA margin was 17.2% as reported, or 19.3% adjusted
CLEVELAND, August 6, 2020 -- Parker Hannifin Corporation (NYSE: PH), the global leader in motion and control technologies, today reported results for the fiscal 2020 fourth quarter and full year ended June 30, 2020. Fiscal 2020 fourth quarter sales were $3.16 billion, compared with $3.68 billion in the prior year quarter. Net income was $295.7 million, compared with $413.7 million in the fourth quarter of fiscal 2019. Fiscal 2020 fourth quarter earnings per share were $2.27, compared with $3.17 in the prior year quarter. Adjusted earnings per share were $2.55, compared with adjusted earnings per share of $3.31 in the fourth quarter of fiscal 2019. A reconciliation of non-GAAP measures is included in the financial tables of this press release.
For the full year, fiscal 2020 sales were $13.70 billion, compared with $14.32 billion in fiscal 2019. Net income was $1.21 billion, compared with $1.51 billion in fiscal 2019. Fiscal 2020 earnings per share were $9.29, compared with $11.48 per share in the prior year. Adjusted earnings per share were $10.79, compared with $11.85 per share in fiscal 2019. Cash flow from operations for fiscal 2020 was a record at $2.07 billion or 15.1% of sales, compared with $1.73 billion or 12.1% of sales in the prior year period. Excluding a discretionary pension contribution, cash flow from operations for fiscal 2019 was 13.5% of sales.
“In light of the economic crisis resulting from the ongoing COVID-19 pandemic, our global team delivered outstanding performance in the fiscal 2020 fourth quarter,” said Chairman and Chief
Executive Officer, Tom Williams. “The improvement of Parker’s portfolio through transformative acquisitions, continued execution of The Win Strategy™, and near-term actions to reduce costs and preserve cash, have positioned us to achieve exceptional levels of performance during such a steep decline in demand. Despite an organic sales decline of 21%, adjusted total segment operating margin was 17.4% and our adjusted EBITDA margin was impressive at 20.4% in the quarter. Our full year cash flow from operations was a record, surpassing the $2 billion mark for the first time. We continued to aggressively reduce our debt by making repayments totaling $687 million in the fourth quarter and $1.3 billion year to date, which is approximately 25% of the acquisition related debt issued.”
Williams added, “Our global team has not only delivered outstanding financial performance but has also taken actions to manage the impact of the pandemic on our operations. Since the early stages of this global crisis, we have maintained manufacturing capacity across the enterprise, demonstrating the essential nature of Parker's technologies in every major country in the world. We continue to make the safety of our team members, their families and our communities our highest priority and have implemented rigorous safety protocols globally. My thanks to all Parker team members who continue to serve our customers, many of whom are on the front-line in the fight against the pandemic, and keep our operations running safely and efficiently.”
Segment Results
Diversified Industrial Segment: North American fourth quarter sales decreased 18% to $1.4 billion, and operating income was $219.8 million, compared with $318.2 million in the same period a year ago. International fourth quarter sales decreased 13% to $1.1 billion, and operating income was $175.4 million, compared with $201.0 million in the same period a year ago.
Aerospace Systems Segment: Fourth quarter sales decreased 8% to $624.0 million, and operating income was $105.4 million, compared with $121.7 million in the same period a year ago.
Parker reported the following orders for the quarter ending June 30, 2020, compared with the same quarter a year ago:
· Orders decreased 22% for total Parker
· Orders decreased 29% in the Diversified Industrial North America businesses
· Orders decreased 21% in the Diversified Industrial International businesses
· Orders decreased 5% in the Aerospace Systems Segment on a rolling 12-month average basis
Outlook
As previously communicated at our March 2020 Investor Meeting, going forward, Parker will include intangible asset amortization expense related to acquisitions as a line item in its adjustments to
earnings. The company believes this change will lead to a better representation of its core operating earnings, especially since amortization expense has become much more material because of recent acquisitions.
For the fiscal year ending June 30, 2021, the company has issued guidance for earnings per share in the range of $7.41 to $8.41, or $9.80 to $10.80 on an adjusted basis. Fiscal year 2021 guidance is adjusted on a pre-tax basis for expected business realignment expenses of approximately $65 million, costs to achieve of approximately $19 million and acquisition-related intangible asset amortization of approximately $321 million. Guidance assumes an organic sales decline in the range of 13% to 9%. A reconciliation of forecasted earnings per share to adjusted forecasted earnings per share is included in the financial tables of this press release.
Commenting on the outlook, Williams added, “We expect that the global COVID-19 pandemic will continue to have a negative effect on economic activity in fiscal 2021. We will continue to manage our costs and preserve cash for the current environment and position ourselves for economic recovery. The actions we have taken under the Win Strategy to strengthen our portfolio and improve our performance have built a business that is better equipped than ever before to be resilient across macro-economic cycles. Importantly, we remain committed to achieving our long-term targets for sales growth, margins, earnings growth and cash flow that would solidify Parker as a top quartile performer. While significant challenges lie ahead, we are positioned to weather these conditions and emerge stronger than ever before. Guided by our purpose: Enabling Engineering Breakthroughs that lead to a Better Tomorrow, Parker has a very bright future."
NOTICE OF CONFERENCE CALL: Parker Hannifin's conference call and slide presentation to discuss its fiscal 2020 fourth quarter and full year results are available to all interested parties via live webcast today at 11:00 a.m. ET, at www.phstock.com. A replay of the webcast will be available on the site approximately one hour after the completion of the call and will remain available for one year. To register for e-mail notification of future events please visit www.phstock.com.
About Parker Hannifin
Parker Hannifin is a Fortune 250 global leader in motion and control technologies. For more than a century the company has been enabling engineering breakthroughs that lead to a better tomorrow. Parker has increased its annual dividend per share paid to shareholders for 64 consecutive fiscal years, among the top five longest-running dividend-increase records in the S&P 500 index. Learn more at www.parker.com or @parkerhannifin.
Note on Orders
Orders provide near-term perspective on the company's outlook, particularly when viewed in the context of prior and future quarterly order rates. However, orders are not in themselves an indication of future performance. All comparisons are at constant currency exchange rates, with the prior year restated to the current-year rates. All exclude acquisitions until they can be reflected in both the numerator and denominator. Aerospace comparisons are rolling 12-month average computations. The total Parker orders number is derived from a weighted average of the year-over-year quarterly % change in orders for Diversified Industrial North America and Diversified Industrial International, and the year-over-year 12-month rolling average of orders for the Aerospace Systems Segment.
Note on Net Income
Net income referenced in this press release is equal to net income attributable to common shareholders.
Note on Non-GAAP Financial Measures
This press release contains references to non-GAAP financial information including (a) adjusted earnings per share; (b) adjusted cash flow from operations; (c) adjusted total segment operating margin; EBITDA margin; and adjusted EBITDA margin. The adjusted earnings per share, cash flow from operations and total segment operating margin measures are presented to allow investors and the company to meaningfully evaluate changes in earnings per share, cash flows from operations and total segment operating margin on a comparable basis from period to period. This press release also contains references to EBITDA, EBITDA margin and adjusted EBITDA margin. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Although EBITDA, EBITDA margin and adjusted EBITDA margin are not measures of performance calculated in accordance with GAAP, we believe that they are useful to an investor in evaluating the results of this quarter versus the prior period. A reconciliation of non-GAAP measures is included in the financial tables of this press release.
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. These statements may be identified from the use of forward-looking terminology such as “anticipates,” “believes,” “may,” “should,” “could,” “potential,” “continues,” “plans,” “forecasts,” “estimates,” “projects,” “predicts,” “would,” “intends,” “anticipates,” “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. 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 current expectations, depending on economic conditions within its mobile, industrial and aerospace markets, and the company's ability to maintain and achieve anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins, actions taken to combat the effects of the current economic environment, and growth, innovation and global diversification initiatives. Additionally, the actual impact of changes in tax laws in the United States and foreign jurisdictions and any judicial or regulatory interpretation thereof on future performance and earnings projections may impact the company’s tax calculations. 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: the impact of the global outbreak of COVID-19 and governmental and other actions taken in response; 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; ability to identify acceptable strategic acquisition targets; uncertainties surrounding timing, successful completion or integration of acquisitions and similar transactions, including the integration of CLARCOR, LORD Corporation or Exotic Metals; the ability to successfully divest businesses planned for divestiture and realize the anticipated benefits of such divestitures; the determination to undertake business realignment activities and the expected costs thereof and, if undertaken, the ability to complete such activities and realize the anticipated cost savings from such activities; ability to implement successfully capital allocation initiatives, including timing, price and execution of share repurchases; availability, limitations or cost increases of raw materials, component products and/or commodities that cannot be recovered in product pricing; ability to manage costs related to insurance and employee retirement and health care benefits; compliance costs associated with environmental laws and regulations; potential labor disruptions; threats associated with and efforts to combat terrorism and cyber-security risks; uncertainties surrounding the ultimate resolution of outstanding legal proceedings, including the outcome of any appeals; global competitive market conditions, including global reactions to U.S. trade policies, and resulting effects on sales and pricing; and 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 and credit availability, as well as uncertainties associated with the timing and conditions surrounding the return to service of the Boeing 737 MAX. The company makes these statements as of the date of this disclosure and undertakes no obligation to update them unless otherwise required by law.
###
| PARKER HANNIFIN CORPORATION - JUNE 30, 2020 | Exhibit 99.1 | |||||||||||||||||||||||||
| CONSOLIDATED STATEMENT OF INCOME | ||||||||||||||||||||||||||
| (Unaudited) | Three Months Ended June 30, | Twelve Months Ended June 30, | ||||||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Net sales | $ | 3,160,603 | $ | 3,681,467 | $ | 13,695,520 | $ | 14,320,324 | ||||||||||||||||||
| Cost of sales | 2,357,319 | 2,739,578 | 10,286,518 | 10,703,484 | ||||||||||||||||||||||
| Selling, general and administrative expenses | 352,793 | 391,493 | 1,656,553 | 1,543,939 | ||||||||||||||||||||||
| Interest expense | 74,549 | 50,072 | 308,161 | 190,138 | ||||||||||||||||||||||
| Other expense (income), net | 5,374 | (13,024) | (68,339) | (50,662) | ||||||||||||||||||||||
| Income before income taxes | 370,568 | 513,348 | 1,512,627 | 1,933,425 | ||||||||||||||||||||||
| Income taxes | 74,873 | 99,610 | 305,924 | 420,494 | ||||||||||||||||||||||
| Net income | 295,695 | 413,738 | 1,206,703 | 1,512,931 | ||||||||||||||||||||||
| Less: Noncontrolling interests | (21) | 70 | 362 | 567 | ||||||||||||||||||||||
| Net income attributable to common shareholders | $ | 295,716 | $ | 413,668 | $ | 1,206,341 | $ | 1,512,364 | ||||||||||||||||||
| Earnings per share attributable to common shareholders: | ||||||||||||||||||||||||||
| Basic earnings per share | $ | 2.30 | $ | 3.22 | $ | 9.39 | $ | 11.63 | ||||||||||||||||||
| Diluted earnings per share | $ | 2.27 | $ | 3.17 | $ | 9.29 | $ | 11.48 | ||||||||||||||||||
| Average shares outstanding during period - Basic | 128,523,334 | 128,561,494 | 128,418,495 | 129,997,640 | ||||||||||||||||||||||
| Average shares outstanding during period - Diluted | 129,993,001 | 130,460,247 | 129,805,034 | 131,781,617 | ||||||||||||||||||||||
| CASH DIVIDENDS PER COMMON SHARE | ||||||||||||||||||||||||||
| (Unaudited) | Three Months Ended June 30, | Twelve Months Ended June 30, | ||||||||||||||||||||||||
| (Amounts in dollars) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Cash dividends per common share | $ | 0.88 | $ | 0.88 | $ | 3.52 | $ | 3.16 | ||||||||||||||||||
| RECONCILIATION OF EARNINGS PER DILUTED SHARE TO ADJUSTED EARNINGS PER DILUTED SHARE | ||||||||||||||||||||||||||
| (Unaudited) | Three Months Ended June 30, | Twelve Months Ended June 30, | ||||||||||||||||||||||||
| (Amounts in dollars) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Earnings per diluted share | $ | 2.27 | $ | 3.17 | $ | 9.29 | $ | 11.48 | ||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Business realignment charges | 0.37 | 0.05 | 0.59 | 0.12 | ||||||||||||||||||||||
| Clarcor costs to achieve | — | 0.01 | — | 0.10 | ||||||||||||||||||||||
| Lord costs to achieve | 0.02 | 0.01 | 0.16 | 0.01 | ||||||||||||||||||||||
| Exotic costs to achieve | — | — | 0.01 | — | ||||||||||||||||||||||
| Acquisition-related expenses | 0.03 | 0.12 | 1.45 | 0.12 | ||||||||||||||||||||||
Tax effect of adjustments1 | (0.09) | (0.05) | (0.52) | (0.09) | ||||||||||||||||||||||
| Favorable tax settlement | (0.05) | — | (0.19) | — | ||||||||||||||||||||||
| Tax expense related to U.S. Tax Reform | — | — | — | 0.11 | ||||||||||||||||||||||
| Adjusted earnings per diluted share | $ | 2.55 | $ | 3.31 | $ | 10.79 | $ | 11.85 | ||||||||||||||||||
1This line item reflects the aggregate tax effect of all non-tax adjustments reflected in the preceding line items of the table. We estimate the tax effect of each adjustment item by applying our overall effective tax rate for continuing operations to the pre-tax amount, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment. | ||||||||||||||||||||||||||
| PARKER HANNIFIN CORPORATION - JUNE 30, 2020 | Exhibit 99.1 | |||||||||||||||||||||||||
| RECONCILIATION OF EBITDA TO ADJUSTED EBITDA | ||||||||||||||||||||||||||
| (Unaudited) | Three Months Ended June 30, | Twelve Months Ended June 30, | ||||||||||||||||||||||||
| (Dollars in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Net sales | $ | 3,160,603 | $ | 3,681,467 | $ | 13,695,520 | $ | 14,320,324 | ||||||||||||||||||
| Net income | 295,695 | 413,738 | 1,206,703 | 1,512,931 | ||||||||||||||||||||||
| Income taxes | 74,873 | 99,610 | 305,924 | 420,494 | ||||||||||||||||||||||
| Depreciation and amortization | 146,582 | 105,388 | 537,531 | 436,189 | ||||||||||||||||||||||
| Interest expense | 74,549 | 50,072 | 308,161 | 190,138 | ||||||||||||||||||||||
| EBITDA | 591,699 | 668,808 | 2,358,319 | 2,559,752 | ||||||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Business realignment charges | 47,601 | 6,393 | 75,614 | 15,677 | ||||||||||||||||||||||
| Clarcor costs to achieve | — | 928 | — | 12,458 | ||||||||||||||||||||||
| Lord costs to achieve | 2,166 | 912 | 20,669 | 912 | ||||||||||||||||||||||
| Exotic costs to achieve | 338 | — | 1,908 | — | ||||||||||||||||||||||
| Acquisition-related expenses | 4,437 | 16,234 | 188,518 | 16,234 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 646,241 | $ | 693,275 | $ | 2,645,028 | $ | 2,605,033 | ||||||||||||||||||
| EBITDA margin | 18.7 | % | 18.2 | % | 17.2 | % | 17.9 | % | ||||||||||||||||||
| Adjusted EBITDA margin | 20.4 | % | 18.8 | % | 19.3 | % | 18.2 | % | ||||||||||||||||||
| PARKER HANNIFIN CORPORATION - JUNE 30, 2020 | Exhibit 99.1 | |||||||||||||||||||||||||
| BUSINESS SEGMENT INFORMATION | ||||||||||||||||||||||||||
| (Unaudited) | Three Months Ended June 30, | Twelve Months Ended June 30, | ||||||||||||||||||||||||
| (Dollars in thousands) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||
| Net sales | ||||||||||||||||||||||||||
| Diversified Industrial: | ||||||||||||||||||||||||||
| North America | $ | 1,440,263 | $ | 1,745,291 | $ | 6,456,298 | $ | 6,808,948 | ||||||||||||||||||
| International | 1,096,380 | 1,258,288 | 4,504,587 | 5,000,599 | ||||||||||||||||||||||
| Aerospace Systems | 623,960 | 677,888 | 2,734,635 | 2,510,777 | ||||||||||||||||||||||
| Total net sales | $ | 3,160,603 | $ | 3,681,467 | $ | 13,695,520 | $ | 14,320,324 | ||||||||||||||||||
| Segment operating income | ||||||||||||||||||||||||||
| Diversified Industrial: | ||||||||||||||||||||||||||
| North America | $ | 219,785 | $ | 318,175 | $ | 985,944 | $ | 1,138,586 | ||||||||||||||||||
| International | 175,420 | 201,004 | 674,763 | 804,890 | ||||||||||||||||||||||
| Aerospace Systems | 105,441 | 121,650 | 476,900 | 487,757 | ||||||||||||||||||||||
| Total segment operating income | 500,646 | 640,829 | 2,137,607 | 2,431,233 | ||||||||||||||||||||||
| Corporate general and administrative expenses | 37,999 | 47,977 | 170,903 | 194,994 | ||||||||||||||||||||||
| Income before interest expense and other expense | 462,647 | 592,852 | 1,966,704 | 2,236,239 | ||||||||||||||||||||||
| Interest expense | 74,549 | 50,072 | 308,161 | 190,138 | ||||||||||||||||||||||
| Other expense | 17,530 | 29,432 | 145,916 | 112,676 | ||||||||||||||||||||||
| Income before income taxes | $ | 370,568 | $ | 513,348 | $ | 1,512,627 | $ | 1,933,425 | ||||||||||||||||||
| PARKER HANNIFIN CORPORATION - JUNE 30, 2020 | Exhibit 99.1 | |||||||||||||||||||||||||
| RECONCILIATION OF TOTAL SEGMENT OPERATING MARGIN TO ADJUSTED TOTAL SEGMENT OPERATING MARGIN | ||||||||||||||||||||||||||
| (Unaudited) | Three Months Ended | Three Months Ended | ||||||||||||||||||||||||
| (Dollars in thousands) | June 30, 2020 | June 30, 2019 | ||||||||||||||||||||||||
| Operating income | Operating margin | Operating income | Operating margin | |||||||||||||||||||||||
| Total segment operating income | $ | 500,646 | 15.8 | % | $ | 640,829 | 17.4 | % | ||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Business realignment charges | 46,619 | 6,219 | ||||||||||||||||||||||||
| Clarcor costs to achieve | — | 1,072 | ||||||||||||||||||||||||
| Lord costs to achieve | 2,166 | 912 | ||||||||||||||||||||||||
| Exotic costs to achieve | 338 | — | ||||||||||||||||||||||||
| Adjusted total segment operating income | $ | 549,769 | 17.4 | % | $ | 649,032 | 17.6 | % | ||||||||||||||||||
| Twelve Months Ended | Twelve Months Ended | |||||||||||||||||||||||||
| June 30, 2020 | June 30, 2019 | |||||||||||||||||||||||||
| Operating income | Operating margin | Operating income | Operating margin | |||||||||||||||||||||||
| Total segment operating income | $ | 2,137,607 | 15.6 | % | $ | 2,431,233 | 17.0 | % | ||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Business realignment charges | 74,389 | 15,503 | ||||||||||||||||||||||||
| Clarcor costs to achieve | — | 12,327 | ||||||||||||||||||||||||
| Lord costs to achieve | 20,669 | 912 | ||||||||||||||||||||||||
| Exotic costs to achieve | 1,908 | — | ||||||||||||||||||||||||
| Acquisition-related expenses | 69,304 | — | ||||||||||||||||||||||||
| Adjusted total segment operating income | $ | 2,303,877 | 16.8 | % | $ | 2,459,975 | 17.2 | % | ||||||||||||||||||
| PARKER HANNIFIN CORPORATION - JUNE 30, 2020 | Exhibit 99.1 | |||||||||||||
| CONSOLIDATED BALANCE SHEET | ||||||||||||||
| (Unaudited) | June 30 | June 30 | ||||||||||||
| (Dollars in thousands) | 2020 | 2019 | ||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 685,514 | $ | 3,219,767 | ||||||||||
| Marketable securities and other investments | 70,805 | 150,931 | ||||||||||||
| Trade accounts receivable, net | 1,854,398 | 2,131,054 | ||||||||||||
| Non-trade and notes receivable | 244,870 | 310,708 | ||||||||||||
| Inventories | 1,814,631 | 1,678,132 | ||||||||||||
| Prepaid expenses and other | 214,986 | 182,494 | ||||||||||||
| Total current assets | 4,885,204 | 7,673,086 | ||||||||||||
| Plant and equipment, net | 2,292,735 | 1,768,287 | ||||||||||||
| Deferred income taxes | 126,839 | 150,462 | ||||||||||||
| Investments and other assets | 764,563 | 747,773 | ||||||||||||
| Intangible assets, net | 3,798,913 | 1,783,277 | ||||||||||||
| Goodwill | 7,869,935 | 5,453,805 | ||||||||||||
| Total assets | $ | 19,738,189 | $ | 17,576,690 | ||||||||||
| Liabilities and equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Notes payable and long-term debt payable within one year | $ | 809,529 | $ | 587,014 | ||||||||||
| Accounts payable, trade | 1,111,759 | 1,413,155 | ||||||||||||
| Accrued payrolls and other compensation | 424,231 | 426,285 | ||||||||||||
| Accrued domestic and foreign taxes | 195,314 | 167,312 | ||||||||||||
| Other accrued liabilities | 607,540 | 558,007 | ||||||||||||
| Total current liabilities | 3,148,373 | 3,151,773 | ||||||||||||
| Long-term debt | 7,652,256 | 6,520,831 | ||||||||||||
| Pensions and other postretirement benefits | 1,887,414 | 1,304,379 | ||||||||||||
| Deferred income taxes | 382,528 | 193,066 | ||||||||||||
| Other liabilities | 539,089 | 438,489 | ||||||||||||
| Shareholders' equity | 6,113,983 | 5,961,969 | ||||||||||||
| Noncontrolling interests | 14,546 | 6,183 | ||||||||||||
| Total liabilities and equity | $ | 19,738,189 | $ | 17,576,690 | ||||||||||
| PARKER HANNIFIN CORPORATION - JUNE 30, 2020 | Exhibit 99.1 | |||||||||||||
| CONSOLIDATED STATEMENT OF CASH FLOWS | ||||||||||||||
| (Unaudited) | Twelve Months Ended June 30, | |||||||||||||
| (Dollars in thousands) | 2020 | 2019 | ||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net income | $ | 1,206,703 | $ | 1,512,931 | ||||||||||
| Depreciation and amortization | 537,531 | 436,189 | ||||||||||||
| Stock incentive plan compensation | 111,375 | 104,078 | ||||||||||||
| Loss on sale of businesses | — | 5,854 | ||||||||||||
| (Gain) loss on plant and equipment and intangible assets | (1,850) | 5,091 | ||||||||||||
| (Gain) loss on marketable securities | (587) | 7,563 | ||||||||||||
| Gain on investments | (2,084) | (16,749) | ||||||||||||
| Net change in receivables, inventories and trade payables | 409,252 | (61,762) | ||||||||||||
| Net change in other assets and liabilities | (211,049) | (301,480) | ||||||||||||
| Other, net | 21,658 | 38,425 | ||||||||||||
| Net cash provided by operating activities | 2,070,949 | 1,730,140 | ||||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Acquisitions (less acquired cash of $82,192 in 2020 and $690 in 2019) | (5,076,064) | (2,042) | ||||||||||||
| Capital expenditures | (232,591) | (195,089) | ||||||||||||
| Proceeds from sale of plant and equipment | 26,345 | 46,592 | ||||||||||||
| Proceeds from sale of businesses | — | 19,678 | ||||||||||||
| Purchases of marketable securities and other investments | (194,742) | (181,780) | ||||||||||||
| Maturities and sales of marketable securities and other investments | 275,483 | 74,908 | ||||||||||||
| Other | 177,576 | 19,223 | ||||||||||||
| Net cash used in investing activities | (5,023,993) | (218,510) | ||||||||||||
| Cash flows from financing activities: | ||||||||||||||
| Net payments for common stock activity | (213,426) | (857,577) | ||||||||||||
| Acquisition of noncontrolling interests | (1,200) | — | ||||||||||||
| Net proceeds from debt | 1,117,774 | 2,172,351 | ||||||||||||
| Dividends paid | (453,838) | (412,468) | ||||||||||||
| Net cash provided by financing activities | 449,310 | 902,306 | ||||||||||||
| Effect of exchange rate changes on cash | (30,519) | (16,306) | ||||||||||||
| Net (decrease) increase in cash and cash equivalents | (2,534,253) | 2,397,630 | ||||||||||||
| Cash and cash equivalents at beginning of period | 3,219,767 | 822,137 | ||||||||||||
| Cash and cash equivalents at end of period | $ | 685,514 | $ | 3,219,767 | ||||||||||
| RECONCILIATION OF CASH FLOW FROM OPERATIONS TO ADJUSTED CASH FLOW FROM OPERATIONS | ||||||||||||||||||||||||||
| (Unaudited) | Twelve Months Ended | Twelve Months Ended | ||||||||||||||||||||||||
| (Dollars in thousands) | June 30, 2020 | Percent of sales | June 30, 2019 | Percent of sales | ||||||||||||||||||||||
| As reported cash flow from operations | $ | 2,070,949 | 15.1 | % | $ | 1,730,140 | 12.1 | % | ||||||||||||||||||
| Discretionary pension contribution | — | 200,000 | ||||||||||||||||||||||||
| Adjusted cash flow from operations | $ | 2,070,949 | 15.1 | % | $ | 1,930,140 | 13.5 | % | ||||||||||||||||||
| PARKER HANNIFIN CORPORATION - JUNE 30, 2020 | Exhibit 99.1 | |||||||
| RECONCILIATION OF FORECASTED EARNINGS PER DILUTED SHARE TO ADJUSTED FORECASTED EARNINGS PER DILUTED SHARE | ||||||||
| (Unaudited) | ||||||||
| (Amounts in dollars) | Fiscal Year 2021 | |||||||
| Forecasted earnings per diluted share | $7.41 to $8.41 | |||||||
| Adjustments: | ||||||||
| Business realignment charges | 0.50 | |||||||
| Costs to achieve | 0.14 | |||||||
| Acquisition-related intangible asset amortization expense | 2.46 | |||||||
Tax effect of adjustments1 | (0.71) | |||||||
| Adjusted forecasted earnings per diluted share | $9.80 to $10.80 | |||||||
1This line item reflects the aggregate tax effect of all non-tax adjustments reflected in the preceding line items of the table. We estimate the tax effect of each adjustment item by applying our overall effective tax rate for continuing operations to the pre-tax amount, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment. | ||||||||
Exhibit 99.2 Parker Hannifin Corporation 4th Quarter & Fiscal Year 2020 Earnings Release August 6, 2020
Forward-Looking Statements and Non-GAAP Financial Measures 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. These statements may be identified from the use of forward-looking terminology such as “anticipates,” “believes,” “may,” “should,” “could,” “potential,” “continues,” “plans,” “forecasts,” “estimates,” “projects,” “predicts,” “would,” “intends,” “anticipates,” “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. 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 current expectations, depending on economic conditions within its mobile, industrial and aerospace markets, and the company's ability to maintain and achieve anticipated benefits associated with announced realignment activities, strategic initiatives to improve operating margins, actions taken to combat the effects of the current economic environment, and growth, innovation and global diversification initiatives. Additionally, the actual impact of changes in tax laws in the United States and foreign jurisdictions and any judicial or regulatory interpretation thereof on future performance and earnings projections may impact the company’s tax calculations. 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: the impact of the global outbreak of COVID-19 and governmental and other actions taken in response; 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; ability to identify acceptable strategic acquisition targets; uncertainties surrounding timing, successful completion or integration of acquisitions and similar transactions, including the integration of CLARCOR, LORD Corporation or Exotic Metals; the ability to successfully divest businesses planned for divestiture and realize the anticipated benefits of such divestitures; the determination to undertake business realignment activities and the expected costs thereof and, if undertaken, the ability to complete such activities and realize the anticipated cost savings from such activities; ability to implement successfully capital allocation initiatives, including timing, price and execution of share repurchases; availability, limitations or cost increases of raw materials, component products and/or commodities that cannot be recovered in product pricing; ability to manage costs related to insurance and employee retirement and health care benefits; compliance costs associated with environmental laws and regulations; potential labor disruptions; threats associated with and efforts to combat terrorism and cyber-security risks; uncertainties surrounding the ultimate resolution of outstanding legal proceedings, including the outcome of any appeals; global competitive market conditions, including global reactions to U.S. trade policies, and resulting effects on sales and pricing; and 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 and credit availability, as well as uncertainties associated with the timing and conditions surrounding the return to service of the Boeing 737 MAX. The company makes these statements as of the date of this disclosure and undertakes no obligation to update them unless otherwise required by law. This presentation contains references to non-GAAP financial information including adjusted operating margin, adjusted EBITDA margin, adjusted cash flow from operating activities, free cash flow, and adjusted earnings per share. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before business realignment, integration costs to achieve, and acquisition related expenses. Free cash flow is defined as cash flow from operations less capital expenditures plus discretionary pension contribution. Although adjusted operating margin, adjusted EBITDA margin, adjusted cash flow from operating activities, free cash flow, and adjusted earnings per share are not measures of performance calculated in accordance with GAAP, we believe that they are useful to an investor in evaluating the company performance for the periods presented. Detailed reconciliations of these non-GAAP financial measures to the comparable GAAP financial measures have been included in the appendix to this presentation. Please visit www.PHstock.com for more information 2
Agenda • CEO Update on Parker’s Response to COVID-19 • CEO Highlights of Quarter and Full Year Results • CFO Summary of Quarter Results • Questions & Answers 3
Responding to COVID-19 Pandemic . Safety of our team members and their families • Rigorous prevention, screening, and hygiene protocols . Helping society through the crisis • Our Technologies are Essential • Our Purpose in Action . Manufacturing capacity near normal levels throughout pandemic Two safest places…Work and Home 4
Performance During a Health & Economic Crisis Our strength comes from: . The Win Strategy™ . A Portfolio of Essential Products & Technologies . Our Culture & Values . Our Purpose . Engaged People 5
Unmatched Breadth of Technologies 7
Transforming Portfolio Through Strategic Acquisitions . $3 billion in acquired sales1 . Increased resilience from new technologies and aftermarket content . Accretive to growth, margins & cash2 1) As announced at time of acquisition 8 2) Excludes one-time costs and deal related amortization
9
Our Purpose in Action Food Supply Helping Patients Essential Manufacturing Transportation Healthcare Applications Power Generation 10
Outstanding Performance in FY20 Fourth Quarter . Sales – (14.1%) YoY; (21.1%) Organic YoY . Paid down $687 million of debt . Improved performance and portfolio drive margin excellence: Without Acquisitions FY20 Q4 FY19 Q4 Change Total Segment Operating Margin, As Reported 16.6% 17.4% Total Segment Operating Margin, Adjusted1 18.1% 17.6% +50 bps Decremental Margin vs. Prior Year (16.0%) With Acquisitions FY20 Q4 FY19 Q4 Change EBITDA Margin, As Reported 18.7% 18.2% EBITDA Margin, Adjusted2 20.4% 18.8% +160 bps 1. Adjusted for Business Realignment Charges, Integration Costs to Achieve 12 2. Adjusted for Business Realignment Charges, Integration Costs to Achieve, Acquisition Related Expenses
A Year of Continued Progress - FY20 Full Year Highlights . Safety: 35% reduction in recordable incidents; Top quartile performance . Cash flow from operations an all-time record at $2.1 billion . Cash flow from operations margin of 15.1% . Free cash flow conversion rate of 152% . Gross debt to EBITDA reduced to 3.6x from 3.8x at March 31, 2020 . Net debt reduced to 3.3x from 3.5x at March 31, 2020 . Cumulative debt reduction of $1.3B, ~25% of transaction debt 13
Great Margin Performance in FY20 . Sales – (4.4%) YoY; (9.8%) Organic YoY . Increased adjusted EBITDA margin by 110 bps Without Acquisitions FY20 FY19 Change Total Segment Operating Margin, As Reported 16.6% 17.0% Total Segment Operating Margin, Adjusted1 17.2% 17.2% Flat Decremental Margin vs. Prior Year (17.2%) With Acquisitions FY20 FY19 Change EBITDA Margin, As Reported 17.2% 17.9% EBITDA Margin, Adjusted2 19.3% 18.2% +110 bps 1. Adjusted for Business Realignment Charges (FY19 and FY20), Integration Costs to Achieve (FY19 and FY20), Acquisition Related Expenses (FY20) 14 2. Adjusted for Business Realignment Charges, Integration Costs to Achieve, Acquisition Related Expenses
16
Parker’s Transformation – What’s Different? . Strategic restructuring FY14-FY16 has reduced cost structure . Simplification has streamlined organization structure: . 126 to 84 divisions inclusive of acquisitions . Two major updates to the Parker Business System: . 2015 – The Win Strategy™ 2.0 . 2019 – The Win Strategy™ 3.0 . Acquired companies with higher growth rates, resiliency and margins • CLARCOR, LORD, Exotic . Enhanced performance resilience over business cycle Purpose Statement provides alignment & inspiration 17
Raising the Floor on Operating Margins Last five manufacturing recessions 16.8% 15.6% 14.8% 13.9% 13.9% Up 890 bps 13.8% 10.2% 9.7% 7.9% Original Win Strategy Launched 7.3% FY02 FY09 FY13 FY16 FY20 As Reported Operating Margin Adjusted Operating Margin¹ 18 1. Adjusted for business realignment charges, integration costs to achieve, and acquisition related expenses. See Appendix for additional details and reconciliations.
Top Line Resilience - Great Recession vs. COVID-19 Time Period Organic Sales Structural Improvements FY09 Q4 (32%) . CLARCOR acquisition – 80% aftermarket . % Revenue from innovative products has doubled . Increased International Distribution mix by 500 bps FY20 Q4 (21%) . Improved customer experience Top line more resilient…Will improve further with LORD & Exotic 19
Great Generators of Cash - Record CFOA in FY20 Consecutive Consecutive FY20 years with 10%+ years with 100%+ CFOA 19 CFOA margins* $2.1B 19 FCF conversion $2.5 16% 14% $2.0 12% $1.5 10% 8% $1.0 6% 4% $0.5 2% $0.0 0% CFOA CFOA Margin 20 *Cash Flow provided by operating activities adjusted for discretionary pension contributions; Free Cash Flow = Cash Provided by Operating Activities - Capital Expenditures + Discretionary Pension Contribution
Continued Cost Actions Expected in FY21 Shifting to more permanent actions FY20 Q4 FY21 Full Year ~12% Permanent ~45% ~55% Discretionary ~88% Savings FY20 Q4 FY21 Discretionary Actions ~175 ~200 Permanent Actions ~25 ~250 Total ~$200 ~$450* Targeting a ~30% decremental margin for FY21 22 *Estimated savings from cost actions will vary based on demand conditions
Diluted Earnings per Share 4th Quarter FY2020 vs. FY2019 As Reported Adjusted $3.31 $3.17 $2.55 $2.27 FY20 Q4 FY19 Q4 FY20 Q4¹ FY19 Q4² 1. Adjusted for Business Realignment Charges, LORD and Exotic Costs to Achieve, Acquisition Related Expenses, the tax effect of such adjustments, and a net benefit from a favorable tax audit resolution 24 2. Adjusted for Business Realignment Charges, CLARCOR and LORD Costs to Achieve, Acquisition Related Expenses, and the tax effect of such adjustments
Influences on Adjusted Earnings per Share 4th Quarter FY2019 vs. 4th Quarter FY2020 ($0.61) $0.07 ($0.15) ($0.08) $0.01 $3.31 $2.55 FY19 Q4 Segment Corporate G&A, Interest Income Average FY20 Q4 Adjusted Operating Other Expense Expense Tax Rate Shares Adjusted EPS¹ Income EPS² 1. Adjusted for Business Realignment Charges, CLARCOR and LORD Costs to Achieve, Acquisition Related Expenses, and the tax effect of such adjustments 2. Adjusted for Business Realignment Charges, LORD and Exotic Costs to Achieve, Acquisition Related Expenses, the tax effect of such adjustments, and a net benefit from a 25 favorable tax audit resolution
Sales & Segment Operating Margin Total Parker $ in millions 4th Quarter % FY2020 Change FY2019 Sales As Reported $ 3,161 (14.1)% $ 3,681 Acquisitions1 298 8.1 % Currency (43) (1.1)% Organic Sales $ 2,906 (21.1)% % of % of FY2020 Sales FY2019 Sales Segment Operating Margin As Reported $ 501 15.8 % $ 641 17.4 % Business Realignment 47 6 Integration Costs to Achieve2 2 2 Adjusted $ 550 17.4 % $ 649 17.6 % 1. Acquisitions reflect Exotic (closed 9/16/19) and LORD (closed 10/29/19) 26 2. Integration Costs to Achieve for LORD and Exotic (FY20), CLARCOR and LORD (FY19)
FY2020 Acquisitions Impact on Q4 Segment Margins As Reported FY20 Q4 FY19 Q4 Total LORD + Legacy Total $M Parker Exotic Parker Parker Sales $3,161 $298 $2,863 $3,681 Operating Income $501 $27 $474 $641 Operating Margin 15.8% 9.1% 16.6% 17.4% Adjusted* FY20 Q4 FY19 Q4 Total LORD + Legacy Total $M Parker Exotic Parker Parker Sales $3,161 $298 $2,863 $3,681 Operating Income $550 $32 $518 $649 Operating Margin 17.4% 10.8% 18.1% 17.6% Decremental Margin vs. Prior Year (16.0%) 27 *Adjusted for Business Realignment Charges, and Integration Costs to Achieve
Sales & Segment Operating Margin Diversified Industrial North America $ in millions 4th Quarter % FY2020 Change FY2019 Sales As Reported $ 1,440 (17.5)% $ 1,745 Acquisitions1 133 7.6 % Currency (7) (0.4)% Organic Sales $ 1,314 (24.7)% % of % of FY2020 Sales FY2019 Sales Segment Operating Margin As Reported $ 220 15.3 % $ 318 18.2 % Business Realignment 18 2 Integration Costs to Achieve2 0 2 Adjusted $ 238 16.5 % $ 322 18.4 % 1. Acquisitions reflect LORD (closed 10/29/19) 28 2. Integration Costs to Achieve for LORD (FY20), CLARCOR and LORD (FY19)
Sales & Segment Operating Margin Diversified Industrial International $ in millions 4th Quarter % FY2020 Change FY2019 Sales As Reported $ 1,096 (12.9)% $ 1,258 Acquisitions1 68 5.4 % Currency (37) (2.9)% Organic Sales $ 1,065 (15.4)% % of % of FY2020 Sales FY2019 Sales Segment Operating Margin As Reported $ 175 16.0 % $ 201 16.0 % Business Realignment 7 5 Integration Costs to Achieve2 2 0 Adjusted $ 184 16.8 % $ 206 16.4 % 1. Acquisitions reflect LORD (closed 10/29/19) 29 2. Integration Costs to Achieve for LORD (FY20), CLARCOR (FY19)
Sales & Segment Operating Margin Aerospace Systems $ in millions 4th Quarter % FY2020 Change FY2019 Sales As Reported $ 624 (8.0)% $ 678 Acquisitions1 97 14.3 % Currency (0) (0.0)% Organic Sales $ 527 (22.3)% % of % of FY2020 Sales FY2019 Sales Segment Operating Margin As Reported $ 105 16.9 % $ 122 17.9 % Business Realignment 21 - Integration Costs to Achieve2 1 - Adjusted $ 127 20.4 % $ 122 17.9 % 1. Acquisitions reflect Exotic (closed 9/16/19) and LORD (closed 10/29/19) 30 2. Integration Costs to Achieve for Exotic (FY20)
FY20 Impact of Acquisitions As Reported FY20 FY19 Total LORD + Legacy Total $M Parker Exotic Parker Parker Sales $13,696 $949 $12,747 $14,320 Operating Income $2,138 $22 $2,116 $2,431 Operating Margin 15.6% 2.3% 16.6% 17.0% EBITDA Margin 17.2% 4.3% 18.2% 17.9% Adjusted* FY20 FY19 Total LORD + Legacy Total $M Parker Exotic Parker Parker Sales $13,696 $949 $12,747 $14,320 Operating Income $2,304 $114 $2,190 $2,460 Operating Margin 16.8% 12.0% 17.2% 17.2% EBITDA Margin 19.3% 26.3% 18.8% 18.2% *Adjusted for Business Realignment Charges, Integration Costs to Achieve, Acquisition Related Expenses Note: Segment Operating Income includes FY20 Amortization expense $37M for Exotic and $63M for LORD. LORD Sales split approximately 64% Diversified Industrial North America, 32% 31 Diversified Industrial International, and 4% Aerospace Systems. Exotic Sales 100% in Aerospace Systems.
Cash Flow from Operating Activities FY2020 vs. FY2019 As Reported Adjusted $2,071 $2,071 $1,930 $1,730 $ Millions FY20 FY19 FY20 FY19¹ FY20 Full Year FY 2020 % of Sales FY 2019 % of Sales As Reported Cash Flow From Operating Activities $ 2,071 15.1% $ 1,730 12.1% Discretionary Pension Plan Contribution - 200 Adjusted Cash Flow From Operating Activities $ 2,071 15.1% $ 1,930 13.5% 32 1. Adjusted for Discretionary Pension Plan Contributions
Leverage and Liquidity Highlights . $687M reduction in debt during Q4 FY20 . $1.3M cumulative debt reduction in FY20 . Gross debt to EBITDA reduced to 3.6x from 3.8x at March 31, 2020 . Net debt reduced to 3.3x from 3.5x at March 31, 2020 . Continue suspension of 10b5-1 share repurchase program . Remain committed to dividend and annual record of increasing dividends paid Remain Confident in CFOA > 10% Performance 33
Order Rates Impacted by COVID-19 Pandemic Jun 2020 Mar 2020 Jun 2019 Mar 2019 Total Parker (22)% (2)% (3)% (4)% Diversified Industrial North America (29)% (7)% (4)% (6)% Diversified Industrial International (21)% (2)% (8)% (4)% Aerospace Systems (5)% 12 % 10 % 2 % Excludes Acquisitions, Divestitures & Currency 3-month year-over-year comparisons of total dollars, except Aerospace Systems Aerospace Systems is calculated using a 12-month rolling average 34
FY2021 Guidance EPS Midpoint: $7.91 As Reported, $10.30 Adjusted Sales Growth vs. Prior Year Diversified Industrial North America (10.2)% - (6.2)% Diversified Industrial International (6.3)% - (2.3)% Aerospace Systems (19.2)% - (15.2)% Total Parker (10.7)% - (6.7)% Segment Operating Margins As Reported Adjusted¹ Diversified Industrial North America 14.7% - 15.4% 18.6% - 19.2% Diversified Industrial International 14.2% - 14.8% 16.8% - 17.4% Aerospace Systems 14.6% - 15.5% 17.4% - 18.4% Total Parker 14.5% - 15.2% 17.8% - 18.4% Below the Line Items As Reported Corporate General & Administrative Expense, Interest and Other $ 517 M Tax Rate As Reported Full Year 23.0% Shares Diluted Shares Outstanding 130.5 M Earnings Per Share As Reported Adjusted¹ Range $7.41 - $8.41 $9.80 - $10.80 1. Detail of Pre-Tax Adjustments Business Realignment Charges $ 65 M Integration Costs to Achieve $ 19 M Acquisition-Related Intangible Asset Amortization $ 321 M 35
FY2021 Guidance FY20 Actual vs. FY21 Guidance $1.68 ($1.95) ($0.36) $0.29 ($0.10) ($0.05) $12.47 $10.79 $10.30 FY20 Acquisition FY20 Segment Corporate Interest Income Tax Average FY21 Adjusted Related Adjusted Operating G&A, Other Expense Rate Shares Adjusted EPS¹ Amortization EPS¹2¹ Income Expense EPS² 1. Adjusted for Business Realignment Charges, LORD and Exotic Costs to Achieve, Acquisition Related Expenses, the tax effect of such adjustments, and a net benefit from a favorable tax audit resolution 2. Adjusted for Business Realignment Charges, LORD and Exotic Costs to Achieve, Acquisition Related Expenses, Acquisition-Related Intangible Asset Amortization, the tax effect of such adjustments, and a net benefit from a favorable tax audit resolution. 3. Adjusted for Business Realignment Charges, LORD Costs to Achieve, Acquisition-Related Intangible Asset Amortization, and the tax effect of such adjustments 36 Note: FY20 acquisition-related intangible asset amortization was $2.19 before tax and $1.68 after tax. We expect the FY21 amount to be $2.46 before tax and $1.89 after tax.
FY23 Corporate Targets FY23 Target Metrics Growth 150 bps > GIPI Adj. Seg Op Margin 21% Adj. EBITDA Margin 21% FCF Conversion > 100% Adj. EPS CAGR 10%+ 37
Appendix . Supplementary Reconciliation of Segment Operating Margin including acquisition-related intangible asset amortization . Supplementary Reconciliation of EPS including acquisition-related intangible asset amortization . Consolidated Statement of Income . Adjusted Amounts Reconciliation . Reconciliation of EPS . Business Segment Information . Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin . Reconciliation of EBITDA to Adjusted EBITDA . Consolidated Balance Sheet . Consolidated Statement of Cash Flows . Reconciliation of Cash Flow from Operations to Adjusted Cash Flow from Operations . Reconciliation of Free Cash Flow Conversion . Supplemental Sales Information – Global Technology Platforms
Supplementary Reconciliation of Segment Operating Income including adjustment for acquisition-related amortization Diversified Industrial North America (unaudited) 3 months 3 months 3 months 3 months 12 months 3 months 3 months 3 months 3 months 12 months (Dollars in thousands) ended ended ended ended ended ended ended ended ended ended Diversified Industrial North America 9/30/2018 12/31/2018 3/31/2019 6/30/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 6/30/2020 Sales $ 1,681,044 $ 1,632,059 $ 1,750,554 $ 1,745,291 $ 6,808,948 $ 1,624,605 $ 1,615,852 $ 1,775,578 $ 1,440,263 $ 6,456,298 Total segment operating income $ 275,111 $ 257,774 $ 287,526 $ 318,175 $ 1,138,586 $ 275,192 $ 211,339 $ 279,628 $ 219,785 $ 985,944 Adjustments: Business realignment charges 822 526 1,789 1,579 4,716 2,278 3,285 3,303 18,110 26,976 Clarcor costs to achieve 3,915 3,293 (39) 906 8,075 - - - - - Lord costs to achieve - - - 912 912 3,038 4,685 6,249 275 14,247 Acquisition-related expenses - - - - - - 29,126 14,564 - 43,690 Acquisition related intangible amortization expense 36,919 36,432 35,751 34,136 143,238 34,090 45,339 51,032 43,077 173,538 Adjusted total segment operating income $ 316,767 $ 298,025 $ 325,027 $ 355,708 $ 1,295,527 $ 314,598 $ 293,774 $ 354,776 $ 281,247 $ 1,244,395 As reported % 16.4% 15.8% 16.4% 18.2% 16.7% 16.9% 13.1% 15.7% 15.3% 15.3% As adjusted % 18.8% 18.3% 18.6% 20.4% 19.0% 19.4% 18.2% 20.0% 19.5% 19.3% 40
Supplementary Reconciliation of Segment Operating Income including adjustment for acquisition-related amortization Diversified Industrial International (unaudited) 3 months 3 months 3 months 3 months 12 months 3 months 3 months 3 months 3 months 12 months (Dollars in thousands) ended ended ended ended ended ended ended ended ended ended Diversified Industrial International 9/30/2018 12/31/2018 3/31/2019 6/30/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 6/30/2020 Sales $ 1,233,766 $ 1,223,679 $ 1,284,866 $ 1,258,288 $ 5,000,599 $ 1,078,850 $ 1,147,084 $ 1,182,273 $ 1,096,380 $ 4,504,587 Total segment operating income $ 206,094 $ 189,085 $ 208,707 $ 201,004 $ 804,890 $ 168,573 $ 153,816 $ 176,954 $ 175,420 $ 674,763 Adjustments: Business realignment charges 1,581 1,989 2,577 4,640 10,787 2,447 6,382 9,417 7,066 25,312 Clarcor costs to achieve 2,240 1,574 272 166 4,252 - - - - - Lord costs to achieve - - - - - 376 2,040 2,115 1,891 6,422 Acquisition-related expenses - - - - - - 5,375 2,684 - 8,059 Acquisition related intangible amortization expense 14,466 13,081 13,213 12,682 53,442 12,444 16,118 16,707 24,907 70,176 Adjusted total segment operating income $ 224,381 $ 205,729 $ 224,769 $ 218,492 $ 873,371 $ 183,840 $ 183,731 $ 207,877 $ 209,284 $ 784,732 As reported % 16.7% 15.5% 16.2% 16.0% 16.1% 15.6% 13.4% 15.0% 16.0% 15.0% As adjusted % 18.2% 16.8% 17.5% 17.4% 17.5% 17.0% 16.0% 17.6% 19.1% 17.4% 41
Supplementary Reconciliation of Segment Operating Income including adjustment for acquisition-related amortization Aerospace Systems (unaudited) 3 months 3 months 3 months 3 months 12 months 3 months 3 months 3 months 3 months 12 months (Dollars in thousands) ended ended ended ended ended ended ended ended ended ended Aerospace 9/30/2018 12/31/2018 3/31/2019 6/30/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 6/30/2020 Sales $ 564,484 $ 616,307 $ 652,098 $ 677,888 $ 2,510,777 $ 631,056 $ 735,038 $ 744,581 $ 623,960 $ 2,734,635 Total segment operating income $ 109,855 $ 121,463 $ 134,789 $ 121,650 $ 487,757 $ 122,980 $ 121,039 $ 127,440 $ 105,441 $ 476,900 Adjustments: Business realignment charges - - - - - (7) 52 613 21,443 22,101 Exotic costs to achieve - - - - - 595 489 486 338 1,908 Acquisition-related expenses - - - - - 2,519 14,224 812 - 17,555 Acquisition related intangible amortization expense 768 768 768 768 3,072 2,899 12,499 12,767 12,753 40,918 Adjusted total segment operating income $ 110,623 $ 122,231 $ 135,557 $ 122,418 $ 490,829 $ 128,986 $ 148,303 $ 142,118 $ 139,975 $ 559,382 As reported % 19.5% 19.7% 20.7% 17.9% 19.4% 19.5% 16.5% 17.1% 16.9% 17.4% As adjusted % 19.6% 19.8% 20.8% 18.1% 19.5% 20.4% 20.2% 19.1% 22.4% 20.5% 42
Supplementary Reconciliation of Segment Operating Income including adjustment for acquisition-related amortization Total Parker (unaudited) 3 months 3 months 3 months 3 months 12 months 3 months 3 months 3 months 3 months 12 months (Dollars in thousands) ended ended ended ended ended ended ended ended ended ended Total Parker 9/30/2018 12/31/2018 3/31/2019 6/30/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 6/30/2020 Sales $ 3,479,294 $ 3,472,045 $ 3,687,518 $ 3,681,467 $ 14,320,324 $ 3,334,511 $ 3,497,974 $ 3,702,432 $ 3,160,603 $ 13,695,520 Total segment operating income $ 591,060 $ 568,322 $ 631,022 $ 640,829 $ 2,431,233 $ 566,745 $ 486,194 $ 584,022 $ 500,646 $ 2,137,607 Adjustments: Business realignment charges 2,403 2,515 4,366 6,219 15,503 4,718 9,719 13,333 46,619 74,389 Clarcor costs to achieve 6,155 4,867 233 1,072 12,327 - - - - - Lord costs to achieve - - - 912 912 3,414 6,725 8,364 2,166 20,669 Exotic costs to achieve - - - - - 595 489 486 338 1,908 Acquisition-related expenses - - - - - 2,519 48,725 18,060 - 69,304 Acquisition related intangible amortization expense 52,153 50,281 49,732 47,586 199,752 49,433 73,956 80,506 80,737 284,632 Adjusted total segment operating income $ 651,771 $ 625,985 $ 685,353 $ 696,618 $ 2,659,727 $ 627,424 $ 625,808 $ 704,771 $ 630,506 $ 2,588,509 As reported % 17.0% 16.4% 17.1% 17.4% 17.0% 17.0% 13.9% 15.8% 15.8% 15.6% As adjusted % 18.7% 18.0% 18.6% 18.9% 18.6% 18.8% 17.9% 19.0% 19.9% 18.9% 43
Supplementary Reconciliation of EPS including adjustment for acquisition-related amortization 3 months 3 months 3 months 3 months 12 months 3 months 3 months 3 months 3 months 12 months ended ended ended ended ended ended ended ended ended ended (Unaudited) 9/30/2018 12/31/2018 3/31/2019 6/30/2019 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 6/30/2020 Earnings per diluted share $ 2.79 $ 2.36 $ 3.14 $ 3.17 $ 11.48 $ 2.60 $ 1.57 $ 2.83 $ 2.27 $ 9.29 Adjustments: Business realignment charges 0.02 0.02 0.03 0.05 0.12 0.04 0.08 0.10 0.37 0.59 Clarcor costs to achieve 0.05 0.04 - 0.01 0.10 - - - - - LORD costs to achieve - - - 0.01 0.01 0.03 0.05 0.06 0.02 0.16 Exotic costs to achieve - - - - - 0.01 - - - 0.01 Acquisition-related expenses - - - 0.12 0.12 0.14 1.14 0.14 0.03 1.45 Acquisition-related intangible amortization expense1 0.39 0.38 0.38 0.36 1.51 0.38 0.57 0.62 0.62 2.19 Tax effect of adjustments (0.11) (0.11) (0.09) (0.13) (0.44) (0.15) (0.43) (0.22) (0.23) (1.03) Favorable tax settlement - - - - - - - (0.14) (0.05) (0.19) Tax expense related to U.S. Tax Reform - 0.11 - - 0.11 - - - - - Adjusted earnings per diluted share $ 3.14 $ 2.80 $ 3.46 $ 3.59 $ 13.01 $ 3.05 $ 2.98 $ 3.39 $ 3.03 $ 12.47 1This line item reflects the aggregate tax effect of all non-tax adjustments reflected in the preceding line items of the table. We estimate the tax effect of each adjustment item by applying our overall effective tax rate for continuing operations to the pre-tax amount, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment. 44
Consolidated Statement of Income (Unaudited) Three Months Ended June 30, Twelve Months Ended June 30, (Dollars in thousands, except per share amounts) 2020 2019 2020 2019 Net sales $ 3,160,603 $ 3,681,467 $ 13,695,520 $ 14,320,324 Cost of sales 2,357,319 2,739,578 10,286,518 10,703,484 Selling, general and administrative expenses 352,793 391,493 1,656,553 1,543,939 Interest expense 74,549 50,072 308,161 190,138 Other expense (income), net 5,374 (13,024) (68,339) (50,662) Income before income taxes 370,568 513,348 1,512,627 1,933,425 Income taxes 74,873 99,610 305,924 420,494 Net income 295,695 413,738 1,206,703 1,512,931 Less: Noncontrolling interests (21) 70 362 567 Net income attributable to common shareholders $ 295,716 $ 413,668 $ 1,206,341 $ 1,512,364 Earnings per share attributable to common shareholders: Basic earnings per share $ 2.30 $ 3.22 $ 9.39 $ 11.63 Diluted earnings per share $ 2.27 $ 3.17 $ 9.29 $ 11.48 Average shares outstanding during period - Basic 128,523,334 128,561,494 128,418,495 129,997,640 Average shares outstanding during period - Diluted 129,993,001 130,460,247 129,805,034 131,781,617 CASH DIVIDENDS PER COMMON SHARE (Unaudited) Three Months Ended June 30, Twelve Months Ended June 30, (Amounts in dollars) 2020 2019 2020 2019 Cash dividends per common share $ 0.88 $ 0.88 $ 3.52 $ 3.16 45
Adjusted Amounts Reconciliation Consolidated Statement of Income (Dollars in thousands, except per share data) (Unaudited) Quarter-to-Date FY 2020 Business Lord Exotic Acquisition Favorable As Reported Realignment Costs to Costs to Related Tax Adjusted June 30, 2020 % of Sales Charges Achieve Achieve Expenses Settlement June 30, 2020 % of Sales Net sales $ 3,160,603 100.0 % $ - $ - $ - $ - $ - $ 3,160,603 100.0 % Cost of sales 2,357,319 74.6 % 37,566 324 - - - 2,319,429 73.4 % Selling, general and admin. expenses 352,793 11.2 % 10,035 1,842 338 4,437 - 336,141 10.6 % Interest expense 74,549 2.4 % - - - - - 74,549 2.4 % Other (income) expense, net 5,374 0.2 % - - - - - 5,374 0.2 % Income before income taxes 370,568 11.7 % (47,601) (2,166) (338) (4,437) - 425,110 13.5 % Income taxes 74,873 2.4 % 11,091 505 79 1,034 6,039 93,621 3.0 % Net income 295,695 9.4 % (36,510) (1,661) (259) (3,403) 6,039 331,489 10.5 % Less: Noncontrolling interests (21) (0.0)% - - - - - (21) (0.0)% Net income - common shareholders $ 295,716 9.4 % $ (36,510) $ (1,661) $ (259) $ (3,403) $ 6,039 $ 331,510 10.5 % Diluted earnings per share $ 2.27 $ (0.28) $ (0.02) $ - $ (0.03) $ 0.05 $ 2.55 (Dollars in thousands, except per share data) (Unaudited) Year-to-Date FY 2020 Business Lord Exotic Acquisition Favorable As Reported Realignment Costs to Costs to Related Tax Adjusted June 30, 2020 % of Sales Charges Achieve Achieve Expenses Settlement June 30, 2020 % of Sales Net sales $ 13,695,520 100.0 % $ - $ - $ - $ - $ - $ 13,695,520 100.0 % Cost of sales 10,286,518 75.1 % 58,791 1,516 - 69,304 - 10,156,907 74.2 % Selling, general and admin. expenses 1,656,553 12.1 % 16,773 19,153 1,908 119,214 - 1,499,505 10.9 % Interest expense 308,161 2.3 % - - - - - 308,161 2.3 % Other (income) expense, net (68,339) (0.5)% 50 - - - - (68,389) (0.5)% Income before income taxes 1,512,627 11.0 % (75,614) (20,669) (1,908) (188,518) - 1,799,336 13.1 % Income taxes 305,924 2.2 % 17,675 4,851 447 43,868 24,763 397,528 2.9 % Net income 1,206,703 8.8 % (57,939) (15,818) (1,461) (144,650) 24,763 1,401,808 10.2 % Less: Noncontrolling interests 362 0.0 % - - - - - 362 0.0 % Net income - common shareholders $ 1,206,341 8.8 % $ (57,939) $ (15,818) $ (1,461) $ (144,650) $ 24,763 $ 1,401,446 10.2 % 46 Diluted earnings per share $ 9.29 $ (0.45) $ (0.13) $ (0.01) $ (1.10) $ 0.19 $ 10.79
Adjusted Amounts Reconciliation Business Segment Information (Dollars in thousands) (Unaudited) Quarter-to-Date FY 2020 Business Lord Exotic Acquisition As Reported Realignment Costs to Costs to Related Adjusted 3 June 30, 2020 % of Sales Charges Achieve Achieve Expenses June 30, 2020 % of Sales2 Diversified Industrial: North America1 $ 219,785 15.3% $ 18,110 $ 275 $ - $ - $ 238,170 16.5% International1 175,420 16.0% 7,066 1,891 - - 184,377 16.8% Aerospace Systems1 105,441 16.9% 21,443 - 338 - 127,222 20.4% Total segment operating income 500,646 15.8% (46,619) (2,166) (338) - 549,769 17.4% Corporate administration 37,999 1.2% 982 - - - 37,017 1.2% Income before interest and other 462,647 14.6% (47,601) (2,166) (338) - 512,752 16.2% Interest expense 74,549 2.4% - - - - 74,549 2.4% Other (income) expense 17,530 0.6% - - - 4,437 13,093 0.4% Income before income taxes $ 370,568 11.7% $ (47,601) $ (2,166) $ (338) $ (4,437) $ 425,110 13.5% (Dollars in thousands) (Unaudited) Year-to-Date FY 2020 Business Lord Exotic Acquisition As Reported Realignment Costs to Costs to Related Adjusted 3 June 30, 2020 % of Sales Charges Achieve Achieve Expenses June 30, 2020 % of Sales2 Diversified Industrial: North America1 $ 985,944 15.3% $ 26,976 $ 14,247 $ - $ 43,690 $ 1,070,857 16.6% International1 674,763 15.0% 25,312 6,422 - 8,059 714,556 15.9% Aerospace Systems1 476,900 17.4% 22,101 - 1,908 17,555 518,464 19.0% Total segment operating income 2,137,607 15.6% (74,389) (20,669) (1,908) (69,304) 2,303,877 16.8% Corporate administration 170,903 1.2% 1,175 - - - 169,728 1.2% Income before interest and other 1,966,704 14.4% (75,564) (20,669) (1,908) (69,304) 2,134,149 15.6% Interest expense 308,161 2.3% - - - - 308,161 2.3% Other (income) expense 145,916 1.1% 50 - - 119,214 26,652 0.2% Income before income taxes $ 1,512,627 11.0% $ (75,614) $ (20,669) $ (1,908) $ (188,518) $ 1,799,336 13.1% 1Segment operating income as a percent of sales is calculated on segment sales. 2Adjusted amounts as a percent of sales are calculated on as reported sales. 3 47 Aerospace Systems includes $3,056 of Exotic business realignment charges; No Lord business realignment charges were incurred.
Reconciliation of Earnings per Diluted Share to Adjusted Earnings per Diluted Share (Unaudited) Three Months Ended June 30, Twelve Months Ended June 30, (Amounts in dollars) 2020 2019 2020 2019 Earnings per diluted share $ 2.27 $ 3.17 $ 9.29 $ 11.48 Adjustments: Business realignment charges 0.37 0.05 0.59 0.12 Clarcor costs to achieve - 0.01 - 0.10 Lord costs to achieve 0.02 0.01 0.16 0.01 Exotic costs to achieve - - 0.01 - Acquisition-related expenses 0.03 0.12 1.45 0.12 1 Tax effect of adjustments (0.09) (0.05) (0.52) (0.09) Favorable tax settlement (0.05) - (0.19) - Tax expense related to U.S. Tax Reform - - - 0.11 Adjusted earnings per diluted share $ 2.55 $ 3.31 $ 10.79 $ 11.85 1This line item reflects the aggregate tax effect of all non-tax adjustments reflected in the preceding line items of the table. We estimate the tax effect of each adjustment item by applying our overall effective tax rate for continuing operations to the pre-tax amount, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment. 48
Business Segment Information (Unaudited) Three Months Ended June 30, Twelve Months Ended June 30, (Dollars in thousands) 2020 2019 2020 2019 Net sales Diversified Industrial: North America $ 1,440,263 $ 1,745,291 $ 6,456,298 $ 6,808,948 International 1,096,380 1,258,288 4,504,587 5,000,599 Aerospace Systems 623,960 677,888 2,734,635 2,510,777 Total net sales $ 3,160,603 $ 3,681,467 $ 13,695,520 $ 14,320,324 Segment operating income Diversified Industrial: North America $ 219,785 $ 318,175 $ 985,944 $ 1,138,586 International 175,420 201,004 674,763 804,890 Aerospace Systems 105,441 121,650 476,900 487,757 Total segment operating income 500,646 640,829 2,137,607 2,431,233 Corporate general and administrative expenses 37,999 47,977 170,903 194,994 Income before interest expense and other expense 462,647 592,852 1,966,704 2,236,239 Interest expense 74,549 50,072 308,161 190,138 Other expense 17,530 29,432 145,916 112,676 Income before income taxes $ 370,568 $ 513,348 $ 1,512,627 $ 1,933,425 49
Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin (Unaudited) (Dollars in millions) 12 Months 12 Months 12 Months 12 Months 12 Months ended ended ended ended ended 6/30/02 6/30/09 6/30/13 6/30/16 6/30/20 Net Sales $ 6,149 $ 10,309 $ 13,016 $ 11,361 $ 13,696 Total segment operating income $ 446 $ 1,004 $ 1,791 $ 1,576 $ 2,138 Adjustments: Business realignment charges 37 45 12 107 74 Acquisition-related expenses & Costs to Achieve 92 Adjusted total segment operating income* $ 483 $ 1,049 $ 1,804 $ 1,682 $ 2,304 Total segment operating margin 7.3% 9.7% 13.8% 13.9% 15.6% Adjusted total segment operating margin 7.9% 10.2% 13.9% 14.8% 16.8% *Totals may not foot due to rounding 50
Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin (Unaudited) Three Months Ended Three Months Ended (Dollars in thousands) June 30, 2020 June 30, 2019 Operating income Operating margin Operating income Operating margin Total segment operating income $ 500,646 15.8 % $ 640,829 17.4 % Adjustments: Business realignment charges 46,619 6,219 Clarcor costs to achieve - 1,072 Lord costs to achieve 2,166 912 Exotic costs to achieve 338 - Adjusted total segment operating income $ 549,769 17.4 % $ 649,032 17.6 % Twelve Months Ended Twelve Months Ended June 30, 2020 June 30, 2019 Operating income Operating margin Operating income Operating margin Total segment operating income $ 2,137,607 15.6 % $ 2,431,233 17.0 % Adjustments: Business realignment charges 74,389 15,503 Clarcor costs to achieve - 12,327 Lord costs to achieve 20,669 912 Exotic costs to achieve 1,908 - Acquisition-related expenses 69,304 - Adjusted total segment operating income $ 2,303,877 16.8 % $ 2,459,975 17.2 % 51
Reconciliation of Total Segment Operating Margin to Adjusted Total Segment Operating Margin Three Months Ended Three Months Ended Three Months Ended (Unaudited) June 30, 2020 June 30, 2020 June 30, 2020 (Dollars in millions) Total Parker LORD & Exotic Legacy Parker Operating income Operating margin Operating income Operating margin Operating income Operating margin Total segment operating income $ 501 15.8 % $ 27 9.1 % $ 474 16.6 % Adjustments: Business realignment charges 47 3 44 Costs to achieve 3 3 - Adjusted total segment operating income $ 550 17.4 % $ 32 10.8 % $ 518 18.1 % 52 Note: Data has been intentionally rounded to the nearest million and therefore may not sum
Reconciliation of EBITDA to Adjusted EBITDA (Unaudited) Three Months Ended June 30, Twelve Months Ended June 30, (Dollars in thousands) 2020 2019 2020 2019 Net sales $ 3,160,603 $ 3,681,467 $ 13,695,520 $ 14,320,324 Net income $ 295,695 $ 413,738 $ 1,206,703 $ 1,512,931 Income taxes 74,873 99,610 305,924 420,494 Depreciation and amortization 146,582 105,388 537,531 436,189 Interest expense 74,549 50,072 308,161 190,138 EBITDA 591,699 668,808 2,358,319 2,559,752 Adjustments: Business realignment charges 47,601 6,393 75,614 15,677 Clarcor costs to achieve - 928 - 12,458 Lord costs to achieve 2,166 912 20,669 912 Exotic costs to achieve 338 - 1,908 - Acquisition-related expenses 4,437 16,234 188,518 16,234 Adjusted EBITDA $ 646,241 $ 693,275 $ 2,645,028 $ 2,605,033 EBITDA margin 18.7 % 18.2 % 17.2 % 17.9 % Adjusted EBITDA margin 20.4 % 18.8 % 19.3 % 18.2 % 53
Reconciliation of FY2020 Total Segment Operating Margin to Adjusted Total Segment Operating Margin and EBITDA to Adjusted EBITDA RECONCILIATION OF FISCAL 2020 TOTAL SEGMENT OPERATING MARGIN TO FISCAL 2020 ADJUSTED TOTAL SEGMENT OPERATING MARGIN (Unaudited) (Dollars in millions) Total Parker LORD & Exotic Legacy Parker Operating income Operating margin Operating income Operating margin Operating income Operating margin Total segment operating income $ 2,138 15.6 % $ 22 2.3 % $ 2,116 16.6 % Adjustments: Business realignment charges 74 3 71 Costs to achieve 23 20 3 One-time acquisition expenses 69 69 income $ 2,304 16.8 % $ 114 12.0 % $ 2,190 17.2 % RECONCILIATION OF FISCAL 2020 EBITDA TO FISCAL 2020 ADJUSTED EBITDA (Unaudited) (Dollars in millions) Total Parker LORD & Exotic Legacy Parker Net sales $ 13,696 $ 949 $ 12,747 Net income 1,207 (158) 1,365 Income taxes 306 (48) 354 Depreciation and amortization 538 138 399 Interest expense 308 109 199 EBITDA 2,358 41 2,317 Adjustments: Business realignment charges 76 - 76 Costs to achieve 23 20 3 One-time acquisition expenses 189 189 - Adjusted EBITDA $ 2,645 $ 249 $ 2,396 EBITDA margin 17.2 % 4.3 % 18.2 % Adjusted EBITDA margin 19.3 % 26.3 % 18.8 % 54 Note: Data has been intentionally rounded to the nearest million and therefore may not sum
Consolidated Balance Sheet (Unaudited) June 30, June 30, (Dollars in thousands) 2020 2019 Assets Current assets: Cash and cash equivalents $ 685,514 $ 3,219,767 Marketable securities and other investments 70,805 150,931 Trade accounts receivable, net 1,854,398 2,131,054 Non-trade and notes receivable 244,870 310,708 Inventories 1,814,631 1,678,132 Prepaid expenses and other 214,986 182,494 Total current assets 4,885,204 7,673,086 Plant and equipment, net 2,292,735 1,768,287 Deferred income taxes 126,839 150,462 Investments and other assets 764,563 747,773 Intangible assets, net 3,798,913 1,783,277 Goodwill 7,869,935 5,453,805 Total assets $ 19,738,189 $ 17,576,690 Liabilities and equity Current liabilities: Notes payable and long-term debt payable within one year $ 809,529 $ 587,014 Accounts payable, trade 1,111,759 1,413,155 Accrued payrolls and other compensation 424,231 426,285 Accrued domestic and foreign taxes 195,314 167,312 Other accrued liabilities 607,540 558,007 Total current liabilities 3,148,373 3,151,773 Long-term debt 7,652,256 6,520,831 Pensions and other postretirement benefits 1,887,414 1,304,379 Deferred income taxes 382,528 193,066 Other liabilities 539,089 438,489 Shareholders' equity 6,113,983 5,961,969 Noncontrolling interests 14,546 6,183 Total liabilities and equity $ 19,738,189 $ 17,576,690 55
Consolidated Statement of Cash Flows (Unaudited) Twelve Months Ended June 30, (Dollars in thousands) 2020 2019 Cash flows from operating activities: Net income $ 1,206,703 $ 1,512,931 Depreciation and amortization 537,531 436,189 Stock incentive plan compensation 111,375 104,078 Loss on sale of businesses - 5,854 (Gain) loss on plant and equipment and intangible assets (1,850) 5,091 (Gain) loss on marketable securities (587) 7,563 Gain on investments (2,084) (16,749) Net change in receivables, inventories and trade payables 409,252 (61,762) Net change in other assets and liabilities (211,049) (301,480) Other, net 21,658 38,425 Net cash provided by operating activities 2,070,949 1,730,140 Cash flows from investing activities: Acquisitions (less acquired cash of $82,192 in 2020 and $690 in 2019) (5,076,064) (2,042) Capital expenditures (232,591) (195,089) Proceeds from sale of plant and equipment 26,345 46,592 Proceeds from sale of businesses - 19,678 Purchases of marketable securities and other investments (194,742) (181,780) Maturities and sales of marketable securities and other investments 275,483 74,908 Other 177,576 19,223 Net cash used in investing activities (5,023,993) (218,510) Cash flows from financing activities: Net payments for common stock activity (213,426) (857,577) Acquisition of noncontrolling interests (1,200) - Net proceeds from debt 1,117,774 2,172,351 Dividends paid (453,838) (412,468) Net cash provided by financing activities 449,310 902,306 Effect of exchange rate changes on cash (30,519) (16,306) Net (decrease) increase in cash and cash equivalents (2,534,253) 2,397,630 Cash and cash equivalents at beginning of period 3,219,767 822,137 Cash and cash equivalents at end of period $ 685,514 $ 3,219,767 56
Reconciliation of Cash Flow from Operations to Adjusted Cash Flow from Operations and Free Cash Flow Cash Provided by Operating Activities Reconciliation to GAAP ($MM) YTD FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Cash Provided by Operating Activities - As Reported 631 558 662 854 951 957 1,317 1,129 1,219 1,167 1,530 1,191 1,388 1,363 1,211 1,302 1,597 1,730 2,071 Discretionary Pension Contribution - 106 75 83 101 161 12 - 100 400 - 226 75 - 200 220 - 200 - Cash Provided by Operating Activities - Adjusted 631 663 737 936 1,051 1,118 1,329 1,129 1,319 1,567 1,530 1,417 1,463 1,363 1,411 1,522 1,597 1,930 2,071 Free Cash Flow Reconciliation to GAAP ($MM) YTD FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Cash Provided by Operating Activities - As Reported 631 558 662 854 951 957 1,317 1,129 1,219 1,167 1,530 1,191 1,388 1,363 1,211 1,302 1,597 1,730 2,071 Capital Expenditures 207 156 138 155 198 238 280 271 129 207 219 266 216 216 149 204 248 195 233 Free Cash Flow 424 401 524 699 753 719 1,036 858 1,090 960 1,312 925 1,172 1,148 1,061 1,099 1,349 1,535 1,838 Discretionary Pension Contribution - 106 75 83 101 161 12 - 100 400 - 226 75 - 200 220 - 200 - Free Cash Flow - Adjusted for Discretionary Pension 424 507 599 782 853 880 1,049 858 1,190 1,360 1,312 1,151 1,247 1,148 1,261 1,319 1,349 1,735 1,838 57
Reconciliation of Free Cash Flow Conversion (Unaudited) Twelve Months Ended (Dollars in thousands) June 30, 2020 Net income $ 1,206,703 Cash flow from operations $ 2,070,949 Capital Expenditures (232,591) Free cash flow $ 1,838,358 Free cash flow conversion (free cash flow / net income) 152 % 58
Reconciliation of EPS Fiscal Year 2021 Guidance (Unaudited) (Amounts in dollars) Fiscal Year 2021 Forecasted earnings per diluted share $7.41 to $8.41 Adjustments: Business realignment charges 0.50 Costs to achieve 0.14 Acquisition-related intangible asset amortization expense 2.46 1 Tax effect of adjustments (0.71) Adjusted forecasted earnings per diluted share $9.80 to $10.80 1This line item reflects the aggregate tax effect of all non-tax adjustments reflected in the preceding line items of the table. We estimate the tax effect of each adjustment item by applying our overall effective tax rate for continuing operations to the pre-tax amount, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment, in which case the tax effect of such item is estimated by applying such specific tax rate or tax treatment. 59
Supplemental Sales Information Global Technology Platforms Three Months Ended (Unaudited) June 30, (Dollars in thousands) 2020 2019 Net sales Diversified Industrial: Motion Systems $ 698,684 $ 869,190 Flow and Process Control 826,919 1,111,953 Filtration and Engineered Material 1,011,040 1,022,436 Aerospace Systems 623,960 677,888 Total $ 3,160,603 $ 3,681,467 60