NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share amounts
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 March 31, 2020, the results of operations for the three and nine months ended March 31, 2020 and 2019 and cash flows for the nine months then ended. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s 2019 Annual Report on Form 10-K. Interim period results are not necessarily indicative of the results to be expected for the full fiscal year.
The outbreak of novel coronavirus ("COVID-19") around the world has created significant uncertainty in the global economic environment. While the recent outbreak of COVID-19 did not have a material adverse effect on our reported results for our fiscal third quarter, we are actively monitoring the impact of the COVID-19 outbreak, which we expect will negatively impact our business and results of operations for our fiscal fourth quarter and beyond. The ultimate extent to which our business and results of operations will be impacted by the outbreak will depend largely on future developments, which are highly uncertain and cannot be accurately predicted at this time, including among other things, new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak or mitigate its economic, public health and other impacts.
The Company has evaluated subsequent events that occurred through the date these financial statements were issued. There were no other events that occurred that required adjustment to or disclosure in these financial statements.
2. New accounting pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, "Measurement of Credit Losses on Financial Instruments." ASU 2016-13 requires a financial asset (or a group of financial assets) measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Early adoption is permitted. We have not yet determined the effect that ASU 2016-13 will have on our financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases." ASU 2016-02 requires lessees to put most leases with terms greater than 12 months on their balance sheet by recognizing a liability to make lease payments and an asset representing their right to use the asset during the lease term. We adopted ASU 2016-02 on July 1, 2019 using the optional transition method and have not restated prior periods. We elected to use the package of practical expedients permitted under the transition guidance, which allows the carry forward of historical lease classification of existing leases. Upon adoption, we recorded a right-of-use asset and lease liability of approximately $126 million. The adoption of the standard did not have a material impact on the Consolidated Statement of Income or Cash Flows.
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 Ended
|
|
Nine Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Motion Systems
|
|
$
|
778,840
|
|
|
$
|
899,948
|
|
|
$
|
2,297,961
|
|
|
$
|
2,615,878
|
|
Flow and Process Control
|
|
1,015,430
|
|
|
1,105,176
|
|
|
2,969,033
|
|
|
3,181,440
|
|
Filtration and Engineered Materials
|
|
1,163,581
|
|
|
1,030,296
|
|
|
3,157,248
|
|
|
3,008,650
|
|
Total
|
|
$
|
2,957,851
|
|
|
$
|
3,035,420
|
|
|
$
|
8,424,242
|
|
|
$
|
8,805,968
|
|
Aerospace Systems Segment revenues by product platform:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Flight Control Actuation
|
|
$
|
175,871
|
|
|
$
|
191,664
|
|
|
$
|
529,553
|
|
|
$
|
544,270
|
|
Fuel, Inerting and Engine Motion Control
|
|
159,837
|
|
|
165,642
|
|
|
471,525
|
|
|
466,950
|
|
Hydraulics
|
|
114,763
|
|
|
123,416
|
|
|
333,523
|
|
|
334,806
|
|
Engine Components
|
|
181,173
|
|
|
71,779
|
|
|
454,572
|
|
|
207,812
|
|
Airframe and Engine Fluid Conveyance
|
|
83,555
|
|
|
79,299
|
|
|
247,356
|
|
|
218,371
|
|
Other
|
|
29,382
|
|
|
20,298
|
|
|
74,146
|
|
|
60,680
|
|
Total
|
|
$
|
744,581
|
|
|
$
|
652,098
|
|
|
$
|
2,110,675
|
|
|
$
|
1,832,889
|
|
Total Company revenues by geographic region based on the Company's selling operation's location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
North America
|
|
$
|
2,507,566
|
|
|
$
|
2,398,975
|
|
|
$
|
7,107,655
|
|
|
$
|
6,893,872
|
|
Europe
|
|
726,577
|
|
|
786,123
|
|
|
2,018,301
|
|
|
2,226,983
|
|
Asia Pacific
|
|
430,500
|
|
|
458,122
|
|
|
1,292,054
|
|
|
1,385,736
|
|
Latin America
|
|
37,789
|
|
|
44,298
|
|
|
116,907
|
|
|
132,266
|
|
Total
|
|
$
|
3,702,432
|
|
|
$
|
3,687,518
|
|
|
$
|
10,534,917
|
|
|
$
|
10,638,857
|
|
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.
Total contract assets and contract liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
June 30, 2019
|
Contract assets, current (included within Prepaid expenses and other)
|
|
$
|
27,793
|
|
|
$
|
22,726
|
|
Contract assets, noncurrent (included within Investments and other assets)
|
|
1,476
|
|
|
1,301
|
|
Total contract assets
|
|
29,269
|
|
|
24,027
|
|
Contract liabilities, current (included within Other accrued liabilities)
|
|
(66,374
|
)
|
|
(64,668
|
)
|
Contract liabilities, noncurrent (included within Other liabilities)
|
|
(3,438
|
)
|
|
(421
|
)
|
Total contract liabilities
|
|
(69,812
|
)
|
|
(65,089
|
)
|
Net contract liabilities
|
|
$
|
(40,543
|
)
|
|
$
|
(41,062
|
)
|
At March 31, 2020, the change in net contract liabilities was primarily due to timing differences between when revenue was recognized and the receipt of advance payments. During the nine months ended March 31, 2020, approximately $29 million of revenue was recognized that was included in the contract liabilities at June 30, 2019.
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 March 31, 2020 was $5,543 million, of which approximately 87 percent is expected to be recognized as revenue within the next 12 months and the balance thereafter.
4. Acquisitions
On October 29, 2019, we completed the acquisition of a 100 percent equity interest in LORD Corporation ("Lord") for approximately $3,455 million in cash, including the assumption of debt. On September 16, 2019, we completed the acquisition of a 100 percent equity interest in EMFCO Holdings Incorporated, parent company of Exotic Metals Forming Company LLC ("Exotic") for approximately $1,706 million in cash.
Lord is a diversified technology and manufacturing company developing highly reliable adhesives and coatings, as well as vibration and motion control technologies, that significantly reduce risk and improve product performance. Lord’s products are used in mission-critical applications in the aerospace, automotive and industrial markets. Lord had annual sales of approximately $1,025 million for its fiscal 2018. For segment reporting purposes, approximately 95 percent of Lord's sales are included in the Diversified Industrial Segment, while the remaining five percent are included in the Aerospace Systems Segment. Lord’s unique and proprietary products, solutions and technologies for mission-critical applications are expected to increase the Company's overall engineered materials product and solutions offerings to enable a stronger value proposition for customers.
Exotic designs and manufactures innovative and technically demanding, high temperature, high pressure air and exhaust management solutions for aircraft and engines. Exotic had annual sales of approximately $409 million for its fiscal 2019.
For segment reporting purposes, Exotic is included in the Aerospace Systems Segment. We believe Exotic's products and proprietary manufacturing capabilities are complementary to our portfolio of flight control, fuel and inerting, hydraulics, fluid conveyance and engine components.
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. The following presents the preliminary estimated fair values of Lord and Exotic's assets acquired and liabilities assumed on the respective acquisition dates. These preliminary estimates are based on available information and will be revised during the measurement period, not to exceed 12 months from the acquisition date, as third-party valuations are finalized, additional information becomes available and as additional analysis is performed. Such revisions may have a material impact on our results of operations and financial position within the measurement period. During the current-year quarter and first nine months of fiscal 2020, these revisions, which primarily impacted intangible assets, goodwill, deferred income taxes, other liabilities, and plant and equipment, did not have a material impact on our financial statements.
Purchase price allocation by acquisition:
|
|
|
|
|
|
|
|
|
|
Lord
|
|
Exotic
|
|
October 29, 2019
|
|
September 16, 2019
|
Assets:
|
|
|
|
Cash and cash equivalents
|
$
|
74,013
|
|
|
$
|
8,179
|
|
Accounts receivable
|
156,541
|
|
|
81,336
|
|
Inventories
|
248,600
|
|
|
114,661
|
|
Prepaid expenses and other
|
24,160
|
|
|
1,343
|
|
Plant and equipment
|
406,553
|
|
|
178,393
|
|
Deferred income taxes
|
—
|
|
|
2,057
|
|
Other assets
|
42,220
|
|
|
1,226
|
|
Intangible assets
|
1,449,860
|
|
|
874,470
|
|
Goodwill
|
1,955,618
|
|
|
503,725
|
|
Total assets acquired
|
4,357,565
|
|
|
1,765,390
|
|
Liabilities:
|
|
|
|
Notes payable and long-term debt payable within one year
|
403
|
|
|
—
|
|
Accounts payable, trade
|
56,186
|
|
|
23,176
|
|
Accrued payrolls and other compensation
|
57,433
|
|
|
8,863
|
|
Accrued domestic and foreign taxes
|
4,498
|
|
|
2,123
|
|
Other accrued liabilities
|
87,810
|
|
|
25,662
|
|
Long-term debt
|
221,161
|
|
|
—
|
|
Pensions and other postretirement benefits
|
115,265
|
|
|
—
|
|
Deferred income taxes
|
299,634
|
|
|
—
|
|
Other liabilities
|
53,470
|
|
|
—
|
|
Noncontrolling interests
|
6,262
|
|
|
—
|
|
Total liabilities and noncontrolling interests assumed
|
902,122
|
|
|
59,824
|
|
Net assets acquired
|
$
|
3,455,443
|
|
|
$
|
1,705,566
|
|
Goodwill is calculated as the excess of the purchase price over the net assets acquired. With respect to the Lord and Exotic acquisitions, goodwill represents cost synergies and enhancements to our existing technologies. For tax purposes, Lord's goodwill is not deductible and Exotic's goodwill is deductible. Based upon a preliminary acquisition valuation, intangibles acquired as part of the Exotic acquisition include $502,470 of customer-related intangible assets, $281,400 of patents and technology and $90,600 of trademarks, with weighted average estimated useful lives of 18, 20 and 20 years, respectively. Similarly, the Lord acquisition includes $872,390 of customer-related intangible assets, $458,030 of patents and technology and $119,440 of trademarks, with weighted average estimated useful lives of 13, 21 and 20 years, respectively.
Our consolidated financial statements include the results of operations of Lord and Exotic from their respective acquisition dates through March 31, 2020. Net sales attributable to these acquisitions during this period and included in our consolidated financial statements for the three and nine months ended March 31, 2020 total $343,400 and $650,588, respectively. Segment operating income (loss) attributable to these acquisitions during this period and included in our consolidated financial statements for the three and nine months ended March 31, 2020 total $15,550 and $(4,270), respectively.
Acquisition-related transaction costs totaled $114,777 for fiscal 2020. These costs are included in selling, general and administrative expenses in the Consolidated Statement of Income.
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 nine months ended March 31, 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Numerator:
|
|
|
|
|
|
|
|
Net income attributable to common shareholders
|
$
|
367,253
|
|
|
$
|
411,248
|
|
|
$
|
910,625
|
|
|
$
|
1,098,696
|
|
Denominator:
|
|
|
|
|
|
|
|
Basic - weighted average common shares
|
128,289,720
|
|
|
128,706,137
|
|
|
128,383,549
|
|
|
130,476,355
|
|
Increase in weighted average common shares from dilutive effect of equity-based awards
|
1,456,827
|
|
|
2,178,831
|
|
|
1,479,266
|
|
|
2,022,021
|
|
Diluted - weighted average common shares, assuming exercise of equity-based awards
|
129,746,547
|
|
|
130,884,968
|
|
|
129,862,815
|
|
|
132,498,376
|
|
Basic earnings per share
|
$
|
2.86
|
|
|
$
|
3.20
|
|
|
$
|
7.09
|
|
|
$
|
8.42
|
|
Diluted earnings per share
|
$
|
2.83
|
|
|
$
|
3.14
|
|
|
$
|
7.01
|
|
|
$
|
8.29
|
|
For the three months ended March 31, 2020 and 2019, 753,028 and 833,239 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 nine months ended March 31, 2020 and 2019, 516,067 and 925,721 common shares subject to equity-based awards, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive.
6. Share repurchase program
The Company has a program to repurchase its common shares. On October 22, 2014, the Board of Directors of the Company approved an increase in the overall number of shares authorized for repurchase under the program so that, beginning on such date, the aggregate number of shares authorized for repurchase was 35 million. There is no limitation on the number of shares that can be repurchased in a fiscal year. There is no expiration date for this program. Repurchases may be funded primarily from operating cash flows and commercial paper borrowings and the shares are initially held as treasury shares. During the three months ended March 31, 2020, we repurchased 263,200 shares at an average price, including commissions, of $177.69 per share. During the nine months ended March 31, 2020, we repurchased 818,581 shares at an average price, including commissions, of $179.29 per share. In March 2020, the Company suspended the share repurchase program in response to business uncertainty resulting from the COVID-19 pandemic.
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. Receivables are written off to bad debt primarily when, in the judgment of the Company, the receivable is deemed to be uncollectible due to the insolvency of the debtor. Allowance for doubtful accounts was $11,190 and $8,874 at March 31, 2020 and June 30, 2019, 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:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
June 30,
2019
|
Notes receivable
|
|
$
|
116,722
|
|
|
$
|
147,719
|
|
Accounts receivable, other
|
|
205,465
|
|
|
162,989
|
|
Total
|
|
$
|
322,187
|
|
|
$
|
310,708
|
|
9. Inventories
The inventories caption in the Consolidated Balance Sheet is comprised of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
June 30,
2019
|
Finished products
|
|
$
|
761,834
|
|
|
$
|
663,068
|
|
Work in process
|
|
968,206
|
|
|
850,778
|
|
Raw materials
|
|
281,327
|
|
|
164,286
|
|
Total
|
|
$
|
2,011,367
|
|
|
$
|
1,678,132
|
|
10. Leases
We primarily enter into lease agreements for office space, distribution centers, certain manufacturing facilities and equipment. The majority of our leases are operating leases. Finance leases are immaterial to our financial statements. In addition, leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheet. Certain leases contain options that provide us with the ability to extend the lease term. Such options are included in the lease term when it is reasonably certain that the option will be exercised. When accounting for leases, we combine payments for leased assets, related services and other components of a lease. Payments within certain lease agreements are adjusted periodically for changes in an index or rate.
The discount rate implicit within our leases is generally not determinable and therefore we determine the discount rate based on our incremental borrowing rate. The incremental borrowing rate for our leases is determined based on lease term and the currency in which lease payments are made.
The components of lease expense are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31, 2020
|
|
March 31, 2020
|
Operating lease expense
|
$
|
13,218
|
|
|
$
|
38,048
|
|
Short-term lease cost
|
1,814
|
|
|
6,248
|
|
Variable lease cost
|
999
|
|
|
3,958
|
|
Total lease cost
|
$
|
16,031
|
|
|
$
|
48,254
|
|
Supplemental cash flow information related to operating leases are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31, 2020
|
|
March 31, 2020
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
$
|
12,522
|
|
|
$
|
37,104
|
|
Right-of-use assets obtained in exchange for operating lease obligations
|
3,262
|
|
|
29,209
|
|
Supplemental balance sheet information related to operating leases is as follows:
|
|
|
|
|
|
March 31, 2020
|
Operating lease right-of-use assets (included within Investments and other assets)
|
$
|
137,665
|
|
|
|
Current operating lease liabilities (included within Other accrued liabilities)
|
$
|
40,866
|
|
Long-term operating lease liabilities (included within Other liabilities)
|
97,317
|
|
Total operating lease liabilities
|
$
|
138,183
|
|
|
|
Weighted average remaining lease term
|
5.3 years
|
|
Weighted average discount rate
|
2.1
|
%
|
Maturities of lease liabilities at March 31, 2020 are as follows:
|
|
|
|
|
|
Operating Leases
|
2020
|
$
|
11,818
|
|
2021
|
40,886
|
|
2022
|
29,494
|
|
2023
|
19,666
|
|
2024
|
12,377
|
|
Thereafter
|
32,548
|
|
Total operating lease payments
|
$
|
146,789
|
|
Less imputed interest
|
8,606
|
|
Total operating lease liabilities
|
$
|
138,183
|
|
Future minimum rental commitments as of June 30, 2019, under non-cancelable operating leases, which expire at various dates, are as follows: 2020-$45,920; 2021-$31,115; 2022-$21,625; 2023-$13,228; 2024-$7,591 and after 2024-$22,723.
11. Business realignment and acquisition integration charges
We incurred business realignment and acquisition integration charges in fiscal 2020 and 2019. 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. The prior-year acquisition integration charges relate to the fiscal 2017 acquisition of CLARCOR, Inc. ("Clarcor") and primarily consist of severance costs and expenses related to plant closures and relocations. A majority of the business realignment charges were incurred in North America and 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 and Clarcor acquisition integration charges presented in the Business Segment Information are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Diversified Industrial
|
$
|
12,720
|
|
|
$
|
4,599
|
|
|
$
|
27,112
|
|
|
$
|
20,539
|
|
Aerospace Systems
|
613
|
|
|
—
|
|
|
658
|
|
|
—
|
|
Corporate general and administrative expenses
|
71
|
|
|
—
|
|
|
193
|
|
|
—
|
|
Other expense
|
50
|
|
|
—
|
|
|
50
|
|
|
275
|
|
Workforce reductions in connection with business realignment and Clarcor acquisition integration charges in the Business Segment Information are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Diversified Industrial
|
336
|
|
|
144
|
|
|
1,154
|
|
|
509
|
|
Aerospace Systems
|
34
|
|
|
—
|
|
|
50
|
|
|
—
|
|
Corporate general and administrative expenses
|
3
|
|
|
—
|
|
|
8
|
|
|
—
|
|
The business realignment and Clarcor acquisition integration charges are presented in the Consolidated Statement of Income as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Cost of sales
|
$
|
10,201
|
|
|
$
|
2,804
|
|
|
$
|
21,225
|
|
|
$
|
10,872
|
|
Selling, general and administrative expenses
|
3,203
|
|
|
1,795
|
|
|
6,738
|
|
|
9,667
|
|
Other (income), net
|
50
|
|
|
—
|
|
|
50
|
|
|
275
|
|
During the first nine months of fiscal 2020, approximately $25 million in payments were made relating to business realignment and Clarcor acquisition integration charges. Remaining payments related to current-year and prior-year business realignment and acquisition integration actions of approximately $14 million, a majority of which are expected to be paid by March 31, 2021, 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 described above, the timing and amount of which are not known at this time.
We also incurred the following acquisition integration charges related to the Lord and Exotic acquisitions:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2020
|
|
2020
|
Diversified Industrial
|
$
|
8,364
|
|
|
$
|
18,503
|
|
Aerospace Systems
|
486
|
|
|
1,570
|
|
These charges are primarily included in selling, general and administrative expenses within the Consolidated Statement of Income.
12. Equity
Changes in equity for the three months ended March 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive (Loss)
|
|
Treasury Shares
|
|
Noncontrolling
Interests
|
|
Total Equity
|
Balance at December 31, 2019
|
$
|
90,523
|
|
|
$
|
455,862
|
|
|
$
|
13,094,252
|
|
|
$
|
(1,945,732
|
)
|
|
$
|
(5,364,730
|
)
|
|
$
|
12,326
|
|
|
$
|
6,342,501
|
|
Net income
|
|
|
|
|
|
|
367,253
|
|
|
|
|
|
|
|
|
116
|
|
|
367,369
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
(249,730
|
)
|
|
|
|
|
(960
|
)
|
|
(250,690
|
)
|
Dividends paid ($0.88 per share)
|
|
|
|
|
|
|
(113,214
|
)
|
|
|
|
|
|
|
|
(52
|
)
|
|
(113,266
|
)
|
Stock incentive plan activity
|
|
|
|
(3,705
|
)
|
|
|
|
|
|
|
|
11,978
|
|
|
|
|
|
8,273
|
|
Acquisition activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
7
|
|
Shares purchased at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
(46,767
|
)
|
|
|
|
|
(46,767
|
)
|
Balance at March 31, 2020
|
$
|
90,523
|
|
|
$
|
452,157
|
|
|
$
|
13,348,291
|
|
|
$
|
(2,195,462
|
)
|
|
$
|
(5,399,519
|
)
|
|
$
|
11,437
|
|
|
$
|
6,307,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive (Loss)
|
|
Treasury Shares
|
|
Noncontrolling
Interests
|
|
Total Equity
|
Balance at December 31, 2018
|
$
|
90,523
|
|
|
$
|
521,854
|
|
|
$
|
12,114,448
|
|
|
$
|
(1,795,497
|
)
|
|
$
|
(5,116,119
|
)
|
|
$
|
5,957
|
|
|
$
|
5,821,166
|
|
Net income
|
|
|
|
|
|
|
411,248
|
|
|
|
|
|
|
|
|
133
|
|
|
411,381
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
66,582
|
|
|
|
|
|
44
|
|
|
66,626
|
|
Dividends paid ($0.76 per share)
|
|
|
|
|
|
|
(98,484
|
)
|
|
|
|
|
|
|
|
(64
|
)
|
|
(98,548
|
)
|
Stock incentive plan activity
|
|
|
|
7,289
|
|
|
|
|
|
|
|
|
8,134
|
|
|
|
|
15,423
|
|
Shares purchased at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
(200,000
|
)
|
|
|
|
(200,000
|
)
|
Balance at March 31, 2019
|
$
|
90,523
|
|
|
$
|
529,143
|
|
|
$
|
12,427,212
|
|
|
$
|
(1,728,915
|
)
|
|
$
|
(5,307,985
|
)
|
|
$
|
6,070
|
|
|
$
|
6,016,048
|
|
Changes in equity for the nine months ended March 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive (Loss)
|
|
Treasury Shares
|
|
Noncontrolling
Interests
|
|
Total Equity
|
Balance at June 30, 2019
|
$
|
90,523
|
|
|
$
|
462,086
|
|
|
$
|
12,777,538
|
|
|
$
|
(2,059,048
|
)
|
|
$
|
(5,309,130
|
)
|
|
$
|
6,183
|
|
|
$
|
5,968,152
|
|
Net income
|
|
|
|
|
|
|
910,625
|
|
|
|
|
|
|
|
|
383
|
|
|
911,008
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
(136,414
|
)
|
|
|
|
|
(972
|
)
|
|
(137,386
|
)
|
Dividends paid ($2.64 per share)
|
|
|
|
|
|
|
(339,872
|
)
|
|
|
|
|
|
|
|
(419
|
)
|
|
(340,291
|
)
|
Stock incentive plan activity
|
|
|
|
(9,929
|
)
|
|
|
|
|
|
|
|
56,378
|
|
|
|
|
|
46,449
|
|
Acquisition activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,262
|
|
|
6,262
|
|
Shares purchased at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
(146,767
|
)
|
|
|
|
|
(146,767
|
)
|
Balance at March 31, 2020
|
$
|
90,523
|
|
|
$
|
452,157
|
|
|
$
|
13,348,291
|
|
|
$
|
(2,195,462
|
)
|
|
$
|
(5,399,519
|
)
|
|
$
|
11,437
|
|
|
$
|
6,307,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive (Loss)
|
|
Treasury Shares
|
|
Noncontrolling
Interests
|
|
Total Equity
|
Balance at June 30, 2018
|
$
|
90,523
|
|
|
$
|
496,592
|
|
|
$
|
11,625,975
|
|
|
$
|
(1,763,086
|
)
|
|
$
|
(4,590,138
|
)
|
|
$
|
5,627
|
|
|
$
|
5,865,493
|
|
Impact of adoption of accounting standards
|
|
|
|
|
1,483
|
|
|
(1,734
|
)
|
|
|
|
|
|
(251
|
)
|
Net income
|
|
|
|
|
|
|
1,098,696
|
|
|
|
|
|
|
|
|
497
|
|
|
1,099,193
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
35,905
|
|
|
|
|
|
10
|
|
|
35,915
|
|
Dividends paid ($2.28 per share)
|
|
|
|
|
|
|
(298,942
|
)
|
|
|
|
|
|
|
|
(64
|
)
|
|
(299,006
|
)
|
Stock incentive plan activity
|
|
|
|
32,551
|
|
|
|
|
|
|
|
|
32,153
|
|
|
|
|
64,704
|
|
Shares purchased at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
(750,000
|
)
|
|
|
|
(750,000
|
)
|
Balance at March 31, 2019
|
$
|
90,523
|
|
|
$
|
529,143
|
|
|
$
|
12,427,212
|
|
|
$
|
(1,728,915
|
)
|
|
$
|
(5,307,985
|
)
|
|
$
|
6,070
|
|
|
$
|
6,016,048
|
|
Changes in accumulated other comprehensive (loss) in shareholders' equity by component for the nine months ended March 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment and Other
|
|
Retirement Benefit Plans
|
|
Total
|
Balance at June 30, 2019
|
$
|
(1,011,656
|
)
|
|
$
|
(1,047,392
|
)
|
|
$
|
(2,059,048
|
)
|
Other comprehensive income (loss) before reclassifications
|
(232,981
|
)
|
|
—
|
|
|
(232,981
|
)
|
Amounts reclassified from accumulated other comprehensive (loss)
|
—
|
|
|
96,567
|
|
|
96,567
|
|
Balance at March 31, 2020
|
$
|
(1,244,637
|
)
|
|
$
|
(950,825
|
)
|
|
$
|
(2,195,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment and Other
|
|
Retirement Benefit Plans
|
|
Total
|
Balance at June 30, 2018
|
$
|
(943,477
|
)
|
|
$
|
(819,609
|
)
|
|
$
|
(1,763,086
|
)
|
Impact of adoption of ASU 2016-01
|
(1,734
|
)
|
|
—
|
|
|
(1,734
|
)
|
Other comprehensive income (loss) before reclassifications
|
(39,887
|
)
|
|
—
|
|
|
(39,887
|
)
|
Amounts reclassified from accumulated other comprehensive (loss)
|
3,578
|
|
|
72,214
|
|
|
75,792
|
|
Balance at March 31, 2019
|
$
|
(981,520
|
)
|
|
$
|
(747,395
|
)
|
|
$
|
(1,728,915
|
)
|
Significant reclassifications out of accumulated other comprehensive (loss) in shareholders' equity for the three and nine months ended March 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive (Loss) Components
|
|
Income (Expense) Reclassified from Accumulated Other Comprehensive (Loss)
|
|
Consolidated Statement of Income Classification
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
|
March 31, 2020
|
|
March 31, 2020
|
|
|
Retirement benefit plans
|
|
|
|
|
|
|
Amortization of prior service cost and initial net obligation
|
|
$
|
(1,385
|
)
|
|
$
|
(4,152
|
)
|
|
Other (income), net
|
Recognized actuarial loss
|
|
(41,154
|
)
|
|
(123,342
|
)
|
|
Other (income), net
|
Total before tax
|
|
(42,539
|
)
|
|
(127,494
|
)
|
|
|
Tax benefit
|
|
10,414
|
|
|
30,927
|
|
|
|
Net of tax
|
|
$
|
(32,125
|
)
|
|
$
|
(96,567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive (Loss) Components
|
|
Income (Expense) Reclassified from Accumulated Other Comprehensive (Loss)
|
|
Consolidated Statement of Income Classification
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
|
March 31, 2019
|
|
March 31, 2019
|
|
|
Retirement benefit plans
|
|
|
|
|
|
|
Amortization of prior service cost and initial net obligation
|
|
$
|
(1,639
|
)
|
|
$
|
(4,932
|
)
|
|
Other (income), net
|
Recognized actuarial loss
|
|
(29,763
|
)
|
|
(89,756
|
)
|
|
Other (income), net
|
Total before tax
|
|
(31,402
|
)
|
|
(94,688
|
)
|
|
|
Tax benefit
|
|
7,588
|
|
|
22,474
|
|
|
|
Net of tax
|
|
$
|
(23,814
|
)
|
|
$
|
(72,214
|
)
|
|
|
13. Goodwill and intangible assets
The changes in the carrying amount of goodwill for the nine months ended March 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversified Industrial
Segment
|
|
Aerospace
Systems
Segment
|
|
Total
|
Balance at June 30, 2019
|
$
|
5,355,165
|
|
|
$
|
98,640
|
|
|
$
|
5,453,805
|
|
Acquisitions
|
1,955,561
|
|
|
503,782
|
|
|
2,459,343
|
|
Foreign currency translation and other
|
(83,361
|
)
|
|
(8
|
)
|
|
(83,369
|
)
|
Balance at March 31, 2020
|
$
|
7,227,365
|
|
|
$
|
602,414
|
|
|
$
|
7,829,779
|
|
The acquisitions line represents the goodwill allocation during the measurement period subsequent to the applicable acquisition date. Refer to Note 4 for further discussion.
Goodwill is tested for impairment at the reporting unit level annually and between annual tests whenever events or circumstances indicate that the carrying value of a reporting unit may exceed its fair value. At December 31, 2019, the Company performed its fiscal 2020 annual goodwill impairment test, which indicated no impairment existed. We did not identify any events or circumstances during the third quarter of fiscal 2020 that required performance of an interim impairment test. However, the effects of COVID-19 on the global economy, including further market disruption, lack of economic recovery or lower than anticipated customer demand, may require the performance of an interim impairment test in future periods.
Intangible assets are amortized on 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
June 30, 2019
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
Patents and technology
|
$
|
990,716
|
|
|
$
|
149,247
|
|
|
$
|
265,644
|
|
|
$
|
130,233
|
|
Trademarks
|
747,536
|
|
|
274,704
|
|
|
542,573
|
|
|
252,388
|
|
Customer lists and other
|
3,785,333
|
|
|
1,217,807
|
|
|
2,435,461
|
|
|
1,077,780
|
|
Total
|
$
|
5,523,585
|
|
|
$
|
1,641,758
|
|
|
$
|
3,243,678
|
|
|
$
|
1,460,401
|
|
Total intangible amortization expense for the nine months ended March 31, 2020 was $203,895. The estimated amortization expense for the five years ending June 30, 2020 through 2024 is $276,591, $313,434, $307,402, $296,337 and $290,718, 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 nine months ended March 31, 2020.
14. Retirement benefits
Net pension benefit expense recognized included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Service cost
|
$
|
20,967
|
|
|
$
|
19,126
|
|
|
$
|
61,965
|
|
|
$
|
57,618
|
|
Interest cost
|
36,389
|
|
|
40,124
|
|
|
106,233
|
|
|
120,541
|
|
Expected return on plan assets
|
(68,058
|
)
|
|
(62,844
|
)
|
|
(198,836
|
)
|
|
(188,422
|
)
|
Amortization of prior service cost
|
1,411
|
|
|
1,665
|
|
|
4,229
|
|
|
4,990
|
|
Amortization of net actuarial loss
|
41,200
|
|
|
29,988
|
|
|
123,540
|
|
|
89,973
|
|
Amortization of initial net obligation
|
4
|
|
|
4
|
|
|
13
|
|
|
13
|
|
Net pension benefit expense
|
$
|
31,913
|
|
|
$
|
28,063
|
|
|
$
|
97,144
|
|
|
$
|
84,713
|
|
During the three months ended March 31, 2020 and 2019, we recognized $169 and $114, respectively, in expense related to other postretirement benefits. During the nine months ended March 31, 2020 and 2019, we recognized $1,136 and $1,395, 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. Debt
In September 2019, the Company entered into and fully drew against a term loan with an aggregate principal amount of $925 million, which will mature in its entirety in September 2023. We used the proceeds to finance a portion of the purchase of the Exotic acquisition. In October 2019, we fully drew against the $800 million term loan, which will mature in its entirety in October 2022. We used the proceeds to finance a portion of the purchase of the Lord acquisition. At March 31, 2020, both term loans had an interest rate of LIBOR plus 112.5 bps. Interest payments are due quarterly.
In September 2019, we also amended and extended our existing multi-currency credit agreement, increasing its capacity to $2,500 million. The amended and extended credit agreement expires in September 2024. Commercial paper notes outstanding at March 31, 2020 and June 30, 2019 were $949 million and $586 million, respectively. Based on the Company’s rating level at March 31, 2020, the most restrictive financial covenant provides that the ratio of debt to debt-shareholders' equity cannot exceed .65 to 1.0. At March 31, 2020, our debt to debt-shareholders' equity ratio was .59 to 1.0. We are in compliance with all covenants set forth in the credit agreement and indentures.
16. Income taxes
On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), a significant tax-and-spending package intended to provide economic stimulus to address the impact of the COVID-19 pandemic. While the Company continues to examine the impacts the CARES Act may have on its business, it does not expect it will have a material impact to its Consolidated Financial Statements.
The Company and its subsidiaries file income tax returns in the United States and in various foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The Company is open to assessment of its federal income tax returns by the U.S. Internal Revenue Service for fiscal years after 2013, and its state and local returns for fiscal years after 2013. The Company is also open to assessment for foreign jurisdictions for fiscal years after 2009. 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 March 31, 2020, the Company had gross unrecognized tax benefits of $81,717, all of which, if recognized, would impact the effective tax rate. The accrued interest related to the gross unrecognized tax benefits, excluded from the amount above, is $14,425. During the current-year quarter, the Company recorded the settlement of an examination with a foreign jurisdiction that resulted in a $74,057 decrease to the unrecognized tax benefit recorded on the Consolidated Balance Sheet. It is reasonably possible that within the next 12 months the amount of gross unrecognized tax benefits could be reduced by up to approximately $40,000 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.
Marketable securities and other investments include deposits and equity investments. Deposits are recorded at cost, and equity investments are recorded at fair value. Changes in fair value related to equity investments are recorded in net income.
Gross unrealized gains and losses related to equity investments were not material as of March 31, 2020 and June 30, 2019. There were no facts or circumstances that indicated the unrealized losses were other than temporary.
The carrying value of long-term debt and estimated fair value of long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
June 30,
2019
|
Carrying value of long-term debt
|
|
$
|
8,257,273
|
|
|
$
|
6,596,380
|
|
Estimated fair value of long-term debt
|
|
8,417,616
|
|
|
7,012,641
|
|
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, costless collar contracts, cross-currency swap contracts and certain foreign 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.
Derivative financial instruments are recognized on the Consolidated Balance Sheet as either assets or liabilities and are measured at fair value.
The location and fair value of derivative financial instruments reported in the Consolidated Balance Sheet are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Caption
|
|
March 31,
2020
|
|
June 30,
2019
|
Net investment hedges
|
|
|
|
|
|
|
Cross-currency swap contracts
|
|
Non-trade and notes receivable
|
|
$
|
39,497
|
|
|
$
|
—
|
|
Cross-currency swap contracts
|
|
Investments and other assets
|
|
—
|
|
|
24,545
|
|
Cash flow hedges
|
|
|
|
|
|
|
Forward exchange contracts
|
|
Non-trade and notes receivable
|
|
13,160
|
|
|
13,242
|
|
Forward exchange contracts
|
|
Other accrued liabilities
|
|
50,271
|
|
|
2,578
|
|
Costless collar contracts
|
|
Non-trade and notes receivable
|
|
6,559
|
|
|
457
|
|
Costless collar contracts
|
|
Other accrued liabilities
|
|
1,839
|
|
|
1,934
|
|
The cross-currency swap, forward exchange contracts and costless collar contracts are reflected on a gross basis in the Consolidated Balance Sheet. We have not entered into any master netting arrangements.
Gains or losses on derivatives that are not hedges are adjusted to fair value through the cost of sales caption in the Consolidated Statement of Income. Gains or losses on derivatives that are hedges are adjusted to fair value through accumulated other comprehensive (loss) in the Consolidated Balance Sheet until the hedged item is recognized in earnings.
The cross-currency swap contracts have been designated as hedging instruments. The forward exchange and costless collar contracts have not been designated as hedging instruments and are considered to be economic hedges of forecasted transactions.
Net (losses) of $(48) million and net unrealized gains of $14 million relating to forward exchange contracts were recorded in the Consolidated Statement of Income for the three months ended March 31, 2020 and 2019, respectively. All other gains or losses on derivative financial instruments that were recorded in the Consolidated Statement of Income for the three and nine months ended March 31, 2020 and 2019 were not material.
Gains on derivative and non-derivative financial instruments that were recorded in accumulated other comprehensive (loss) in the Consolidated Balance Sheet are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
March 31,
|
|
March 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Cross-currency swap contracts
|
$
|
5,821
|
|
|
$
|
6,748
|
|
|
$
|
12,372
|
|
|
$
|
14,367
|
|
Foreign denominated debt
|
9,574
|
|
|
13,287
|
|
|
17,898
|
|
|
24,558
|
|
No portion of these financial instruments were excluded from the effectiveness testing during the nine months ended March 31, 2020 and 2019.
A summary of financial assets and liabilities that were measured at fair value on a recurring basis at March 31, 2020 and June 30, 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Fair
|
|
|
In Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Value at
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
March 31, 2020
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
7,771
|
|
|
$
|
7,771
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivatives
|
|
59,216
|
|
|
—
|
|
|
59,216
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivatives
|
|
52,110
|
|
|
—
|
|
|
52,110
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Fair
|
|
|
In Active
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Value at
|
|
|
Markets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
June 30, 2019
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
7,533
|
|
|
$
|
7,533
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivatives
|
|
38,244
|
|
|
—
|
|
|
38,244
|
|
|
—
|
|
Investments measured at net asset value
|
|
9,728
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivatives
|
|
4,512
|
|
|
—
|
|
|
4,512
|
|
|
—
|
|
The fair values of the equity securities are determined using the closing market price reported in the active market in which the fund is traded.
Derivatives consist of forward exchange, costless collar 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 that has been adjusted to reflect the credit risk of either the Company or the counterparty.
Investments measured at net asset value primarily consist of investments in fixed income mutual funds, which are measured at fair value using the net asset value per share practical expedient. These investments have not been categorized in the fair value hierarchy. We have the ability to liquidate these investments after giving appropriate notice to the issuer.
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.
PARKER-HANNIFIN CORPORATION
FORM 10-Q