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Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 30, 2019
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 1-4982
PARKER-HANNIFIN CORPORATION
(Exact name of registrant as specified in its charter)
| Ohio | 34-0451060 | ||
| (State or other jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | ||
| 6035 Parkland Boulevard, | Cleveland, | Ohio | 44124-4141 |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code (216) 896-3000
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on which Registered | ||
| Common Shares, $.50 par value | PH | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☒ | Accelerated Filer | ☐ |
| Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐ |
| (Do not check if a smaller reporting company) | |||
| Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the outstanding common stock held by non-affiliates of the Registrant as of December 31, 2018: $19,209,620,506.
The number of Common Shares outstanding on July 31, 2019 was 128,441,799.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the Company’s 2019 Annual Meeting of Shareholders, to be held on October 23, 2019, are incorporated by reference into Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
PARKER-HANNIFIN CORPORATION
FORM 10-K
Fiscal Year Ended June 30, 2019
PART I
ITEM 1**.** Business**.** Parker-Hannifin Corporation is a leading worldwide diversified manufacturer of motion and control technologies and systems, providing precision engineered solutions for a wide variety of mobile, industrial and aerospace markets. The Company was incorporated in Ohio in 1938. Our principal executive offices are located at 6035 Parkland Boulevard, Cleveland, Ohio 44124-4141, telephone (216) 896-3000. As used in this Annual Report on Form 10-K, unless the context otherwise requires, the terms "Company", "Parker", "we" or "us" refer to Parker-Hannifin Corporation and its subsidiaries, and the term "year" and references to specific years refer to the applicable fiscal year.
Our investor relations website address is www.phstock.com. We make available free of charge on or through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after filing or furnishing those reports electronically with the Securities and Exchange Commission. The information contained on or accessible through our website is not part of this Annual Report on Form 10-K.
The Board of Directors has adopted a written charter for each of its committees. These charters, as well as our Global Code of Business Conduct, Corporate Governance Guidelines and Independence Standards for Directors, are posted and available on our investor relations website under the Corporate Governance page. Shareholders may request copies of these corporate governance documents, free of charge, by writing to Parker-Hannifin Corporation, 6035 Parkland Boulevard, Cleveland, Ohio 44124-4141, Attention: Secretary, or by calling (216) 896-3000.
Our manufacturing, service, sales, distribution and administrative facilities are located in 37 states within the United States and in 49 other countries. We sell our products as original and replacement equipment through sales and distribution centers worldwide. We market our products through direct-sales employees, independent distributors and sales representatives. We supply products to approximately 459,000 customers in virtually every significant manufacturing, transportation and processing industry.
We have two reporting segments: Diversified Industrial and Aerospace Systems. During 2019, our technologies and systems were used in the products of these two reporting segments. For 2019, the Company's net sales were $14.3 billion. Diversified Industrial Segment products accounted for 82% and Aerospace Systems Segment products accounted for 18% of those net sales.
Markets
Our technologies and systems are used throughout various industries and in various applications. The approximately 459,000 customers who purchase Parker products are found in almost every significant manufacturing, transportation and processing industry. No single customer accounted for more than 3% of our total net sales for the year ended June 30, 2019.
Diversified Industrial Segment**.** Our Diversified Industrial Segment sells products to both original equipment manufacturers ("OEMs") and distributors who serve the replacement markets in manufacturing, packaging, processing, transportation, mobile construction, refrigeration and air conditioning, agricultural and military machinery and equipment industries. The major markets served by our Diversified Industrial Segment are listed below by group:
| Engineered Materials Group: | • Aerospace • Agriculture • Chemical processing • Construction • Information technology • Life sciences • Microelectronics | • Military • Oil & gas • Power generation • Renewable energy • Telecommunications • Transportation • Truck & bus |
| Filtration Group: | • Agriculture • Aerospace & defense • Construction • Food & beverage • Heating, ventilation & air conditioning (HVAC) • Industrial machinery • Life sciences | • Marine • Mining • Oil & gas • Power generation • Renewable energy • Transportation • Water purification |
| Fluid Connectors Group: | • Aerial lift • Agriculture • Bulk chemical handling • Construction • Food & beverage • Fuel & gas delivery • Industrial machinery | • Life sciences • Marine • Mining • Mobile • Oil & gas • Renewable energy • Transportation |
| Instrumentation Group: | • Air conditioning • Alternative fuels • Analytical • Chemical • Diesel engine • Food & beverage • Industrial machinery | • Life sciences • Microelectronics • Oil & gas • Refining • Refrigeration • Transportation |
| Motion Systems Group: | Mobile: • Agriculture • Construction • Marine • Material handling • Military • Transportation • Truck & bus • Turf | Industrial: • Distribution • General machinery • Machine tool • Mining • Oil & gas • Power generation • Semiconductor |
Aerospace Systems Segment**.** Our Aerospace Systems Segment sells products primarily in the commercial and military aerospace markets to both OEMs and to end users for spares, maintenance, repair and overhaul. The major markets for products of the Aerospace Systems Segment are listed below:
| • Aftermarket services • Commercial transports • Engines • General & business aviation • Helicopters | • Military aircraft • Missiles • Power generation • Regional transports • Unmanned aerial vehicles |
Principal Products and Methods of Distribution
We offer hundreds of thousands of individual products, and no single product contributed more than 1% to our total net sales for the year ended June 30, 2019. Listed below are some of our principal products.
Diversified Industrial Segment**.** Our Diversified Industrial Segment products consist of a broad range of motion-control and fluid systems and components, which are described below by group:
Engineered Materials Group: static and dynamic sealing devices, including:
| • Dynamic seals • Elastomeric o-rings • Electromagnetic interference shielding • Extrusion & fabricated seals • High-temperature metal seals | • Homogeneous & inserted elastomeric shapes • Medical products fabrication & assembly • Metal & plastic composite bonded seals • Precision-cut seals • Thermal management |
Filtration Group: filters, systems and diagnostics solutions to monitor and remove contaminants from fuel, air, oil, water and other liquids and gases, including:
| • Aerospace filters & systems • Air pollution control & dust collection systems & filters • Compressed air & gas treatment solutions • Engine fuel, oil, air & closed crankcase ventilation filtration systems • Filtration & purification systems • Fluid condition monitoring systems • Gas turbine air inlet filters • Heating, ventilation & air conditioning filters | • Hydraulic & lubrication filters & systems • Industrial & analytical gas generators • Instrumentation filters • Membrane, fiber, & sintered metal filters • Natural gas filters • Process liquid, air & gas filters • Sterile air filters • Water purification filters & systems |
Fluid Connectors Group: connectors which control, transmit and contain fluid, including:
| • Check valves • Diagnostic and IoT sensors • Hose couplings • Hose crimpers • Industrial hose • Low pressure fittings & adapters | • Polytetrafluoroethylene (PTFE) hose & tubing • Quick couplings • Rubber & thermoplastic hose • Tube fittings & adapters • Tubing & plastic fittings |
Instrumentation Group: high quality flow control solutions that are critical to a wide range of applications involving extreme corrosion resistance, temperatures, pressures and precise flow, including:
| • Accumulators • Analytical instruments & sample conditioning systems • Compressed natural gas dispensers • Cryogenic valves • Electronic valves • Emissions • Filter driers • Fluid system & control fittings, meters, valves, regulators, & manifold valves | • Fluoropolymer chemical delivery fittings, valves & pumps • High pressure fittings, valves, pumps & systems • High-purity gas delivery fittings, valves & regulators • Miniature valves & pumps • Natural gas on-board fuel systems • Pressure regulating valves • Refrigeration & air conditioning electronic controls & monitoring • Solenoid valves |
Motion Systems Group: hydraulic, pneumatic, and electromechanical components and systems for builders and users of mobile and industrial machinery and equipment, including:
| Hydraulic Actuation: • Cylinders • Rotary actuators • Helical actuators • Accumulators • Electrohydraulic actuators • Coolers Hydraulic Pumps & Motors: • Piston pumps & motors • Vane pumps & motors • Gerotor pumps & motors • Power take-offs • Fan drives • Electrohydraulic pumps • Drive controlled pumps • Screw pumps • Integrated hydrostatic transmissions | Hydraulic and Electro Hydraulic Systems: • Hydraulic valves • Cartridge valves • Industrial valves • Mobile valves Pneumatics: • Pneumatic valves • Air preparation (FRL) & dryers • Pneumatic cylinders • Grippers • IO link controllers Electronics: • Electric actuators & positioners • Electronic displays & human machine interfaces (HMI) • Controllers & HMI • Sensors • IoT • Electric motors & gearheads • Drives (AC/DC Servo) • Joysticks • Clusters • Software |
Diversified Industrial Segment products include standard products, as well as custom products which are engineered and produced to OEM specifications for application to particular end products. Standard and custom products are also used in the replacement of original products. We market our Diversified Industrial Segment products primarily through field sales employees and approximately 15,500 independent distributor locations throughout the world.
Aerospace Systems Segment**.** Our Aerospace Systems Segment products are used in commercial and military airframe and engine programs and include:
| • Control actuation systems & components • Engine systems & components • Fluid conveyance systems & components • Fluid metering, delivery & atomization devices • Fuel systems & components • Fuel tank inerting systems | • Hydraulic systems & components • Lubrication components • Pneumatic control components • Power conditioning & management systems • Thermal management • Wheels & brakes |
We market our Aerospace Systems Segment products through our regional sales organizations, which sell directly to OEMs and end users throughout the world.
Competition
Parker operates in highly competitive markets and industries. We offer our products over numerous, varied markets through our divisions operating in 50 countries. Our global scope means that we have hundreds of competitors across our various markets and product offerings. Our competitors include U.S. and non-U.S. companies. These competitors and the degree of competition vary widely by product lines, end markets, geographic scope and/or geographic locations. Although each of our segments has numerous competitors, given our market and product breadth, no single competitor competes with the Company with respect to all the products we manufacture and sell.
In the Diversified Industrial Segment, Parker competes on the basis of product quality and innovation, customer service, manufacturing and distribution capability, and price competitiveness. We believe that we are one of the market leaders in most of the major markets for our most significant Diversified Industrial Segment products. We have comprehensive motion and control packages for the broadest systems capabilities. While our primary global competitors include Bosch Rexroth AG, Danaher Corporation, Danfoss A/S, Donaldson Company, Inc., Eaton Corporation plc, Emerson Climate Technologies, Inc., Emerson/ASCO, Festo AG & Co., Freudenberg-NOK, Gates Corporation, IMI/Norgren, SMC Corporation, Swagelok Company, and Trelleborg AB, none of these businesses compete with every group or product in our Diversified Industrial Segment.
In the Aerospace Systems Segment, we have developed alliances with key customers based on our advanced technological and engineering capabilities, superior performance in quality, delivery, and service, and price competitiveness. This has enabled us to obtain significant original equipment business on new aircraft programs for our systems and components as well as the follow-on repair and replacement business for these programs. Further, the Aerospace Systems Segment utilizes low-cost manufacturing techniques and best cost region strategies to achieve a lower cost producer status. Although we believe that we are one of the market leaders in most of the major markets for our most significant Aerospace Systems Segment products, primary global competitors for these products include Eaton Corporation plc, Honeywell International, Inc., Moog Inc., Triumph Group, Inc., UTC Collins Aerospace, Woodward, Inc. and Safran S.A.
We believe that our platform utilizing eight core technologies, which consist of electromechanical, filtration, fluid handling, hydraulics, pneumatics, process control, refrigeration, and sealing and shielding, is a positive factor in our ability to compete effectively with both large and small competitors. For both of our segments, we believe that the following factors also contribute to our ability to compete effectively:
| • | decentralized business model; |
| • | technology breadth and interconnectivity; |
| • | engineered products with intellectual property; |
| • | long product life cycles; |
| • | balanced OEM vs. aftermarket; |
| • | low capital investment requirements; and |
| • | great generators and delployers of cash over the cycle. |
Patents, Trademarks, Licenses
We own a number of patents, trademarks, copyrights and licenses related to our products. We also have exclusive and non-exclusive rights to use patents, trademarks and copyrights owned by others. In addition, patent and trademark applications are pending, although there can be no assurance that further patents and trademarks will be issued. We do not depend on any single patent, trademark, copyright or license or group of patents, trademarks, copyrights or licenses to any material extent.
Backlog and Seasonal Nature of Business
Backlog consists of written firm orders from a customer to deliver products and, in the case of blanket purchase orders, only includes the portion of the order for which a schedule or release date has been agreed to with the customer. The dollar value of backlog is equal to the amount that is expected to be billed to the customer and reported as a sale. Our backlog by business segment for the past two years is included in Part II, Item 7 of this Annual Report on Form 10-K and is incorporated herein by reference. Our backlog was $4.2 billion at June 30, 2019 and $4.1 billion at June 30, 2018. Approximately 90 percent of our backlog at June 30, 2019 is scheduled for delivery in the succeeding twelve months. Because of the breadth and global scope of our business, our overall business is generally not seasonal in nature.
Environmental Regulation
Certain of our operations require the use and handling of hazardous materials and, as a result, the Company is subject to United States federal, state, and local laws and regulations as well as non-U.S. laws and regulations designed to protect the environment and regulate the discharge of materials into the environment. These laws impose penalties, fines and other sanctions for non-compliance and liability for response costs, property damage and personal injury resulting from past and current spills, disposals or other releases of, or exposures to, hazardous materials. Among other environmental laws, we are subject to the United States federal "Superfund" law, under which we have been designated as a "potentially responsible party" and may be liable for cleanup costs associated with various waste sites, some of which are on the United States Environmental Protection Agency’s Superfund priority list.
As of June 30, 2019, Parker was involved in environmental remediation at various U.S. and non-U.S. manufacturing facilities presently or formerly operated by us and as a "potentially responsible party," along with other companies, at off-site waste disposal facilities and regional sites.
We believe that our policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and the consequent financial liability to the Company. Compliance with environmental laws and regulations requires continuing management efforts and expenditures by the Company. Compliance with environmental laws and regulations has not had in the past, and, we believe, will not have in the future, a material adverse effect on our capital expenditures, earnings, or competitive position.
Our reserve for environmental matters is discussed in Note 16 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference.
Energy Matters and Sources and Availability of Raw Materials
Our primary energy source for both of our business segments is electric power. While we cannot predict future costs of electric power, the primary source for production of the required electric power is expected to be coal and natural gas from coal and natural gas reserves available to electric utilities. We are subject to governmental regulations in regard to energy supplies in the United States and elsewhere. To date, we have not experienced any significant disruptions of our operations due to energy curtailments.
We primarily use steel, brass, copper, aluminum, nickel, rubber and thermoplastic materials and chemicals as the principal raw materials in our products. We expect these materials to be available from numerous sources in quantities sufficient to meet our requirements.
Employees
We employ approximately 55,610 persons as of June 30, 2019, of whom approximately 28,500 were employed by foreign subsidiaries.
Acquisitions
The Company made no material acquisitions in 2019. During 2019, we entered into a definitive agreement under which we expect to acquire LORD Corporation ("Lord"). The proposed Lord acquisition and prior-year acquisitions are discussed in Note 3 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K and are incorporated herein by reference. On July 29, 2019, the Company announced that it had entered into a definitive agreement to acquire EMFCO Holdings Incorporated, parent company of Exotic Metals Forming Company LLC ("Exotic"). The proposed Exotic acquisition is discussed in Note 1 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference.
Next: Item 1A. . Risk Factors.