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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, 2021
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☒ | Accelerated Filer | ☐ | ||||||||
| Non-Accelerated Filer | ☐ | Smaller Reporting Company | ☐ | ||||||||
| Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
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, 2020: $34,984,991,426.
The number of Common Shares outstanding on July 31, 2021 was 129,101,437.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the Company’s 2021 Annual Meeting of Shareholders, to be held on October 27, 2021, 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, 2021
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 38 states within the United States and in 44 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 505,000 customers in virtually every significant manufacturing, transportation and processing industry.
We have two reporting segments: Diversified Industrial and Aerospace Systems. During 2021, our technologies and systems were used in the products of these two reporting segments. For 2021, the Company's net sales were $14.3 billion. Diversified Industrial Segment products accounted for 83 percent and Aerospace Systems Segment products accounted for 17 percent of those net sales.
Markets
Our technologies and systems are used throughout various industries and in various applications. The approximately 505,000 customers who purchase Parker products are found in almost every significant manufacturing, transportation and processing industry. No single customer accounted for more than three percent of our total net sales for the year ended June 30, 2021.
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 • Defense • Information technology • Life sciences | • Microelectronics • Oil & gas • Power generation • Renewable energy • Telecommunications • Transportation • Truck & bus | ||||||
| Filtration Group: | • Aerospace & defense • Agriculture • 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 • Forestry • Industrial machinery | • Life sciences • Material handling • Mining • Oil & gas • Renewable energy • Transportation | ||||||
| Instrumentation Group: | • Air conditioning • Alternative fuels • Analytical • Chemical • Food & beverage • 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 transport aircraft • Engines • General & business aviation • Helicopters | • Military aircraft • Missiles • Power generation (industrial gas turbines) • Regional transport aircraft • Unmanned aerial vehicles |
Principal Products and Methods of Distribution
We offer hundreds of thousands of individual products, and no single product contributed more than one percent to our total net sales for the year ended June 30, 2021. 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: sealing, shielding, thermal products and systems, adhesives, coatings and noise vibration and harshness solutions, including:
| • Active vibration control systems • Bearings & dampers • Coatings • Dynamic seals • Elastomeric mounts & isolators • 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 • Rubber-to-substrate adhesives • Specialty chemicals • Structural adhesives • Thermal management • Wireless sensing systems |
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 Internet of Things ("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:
| • Analytical instruments & sample conditioning systems • Compressed natural gas dispensers • Cryogenic valves • Diesel exhaust treatment systems • 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: • Accumulators • Coolers • Cylinders • Electrohydraulic actuators • Helical actuators • Rotary actuators Hydraulic Pumps & Motors: • Drive controlled pumps • Electrohydraulic pumps • Fan drives • Gerotor pumps & motors • Integrated hydrostatic transmissions • Piston pumps & motors • Power take-offs • Screw pumps • Vane pumps & motors Hydraulic and Electro Hydraulic Systems: • Cartridge valves • Hydraulic valves • Industrial valves • Mobile valves | Pneumatics: • Air preparation (FRL) & dryers • Grippers • IO link controllers • Pneumatic cylinders • Pneumatic valves Electronics: • Clusters • Controllers & human machine interfaces ("HMI") • Drives (AC/DC Servo) • Electric actuators & positioners • Electric motors & gearheads • Electronic displays & HMI • IoT • Joysticks • Sensors • 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 16,900 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 build-up ducting • Engine exhaust nozzles & assemblies • Engine systems & components • Fluid conveyance systems & components • Fluid metering, delivery & atomization devices • Fuel systems & components | • Fuel tank inerting systems • Hydraulic systems & components • Lubrication components • Pilot controls • Pneumatic control components • 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 45 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 relationships with key customers based on our advanced technological and engineering capabilities, superior performance in quality, delivery, 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., Senior plc., Raytheon 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:
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decentralized business model;
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technology breadth and interconnectivity;
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engineered products with intellectual property;
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long product life cycles;
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balanced OEM vs. aftermarket;
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low capital investment requirements; and
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great generators and deployers of cash over the cycle.
Patents, Trademarks, Copyrights, Trade Secrets, Licenses
We own a number of patents, trademarks, copyrights, trade secrets 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, trade secret or license or group of patents, trademarks, copyrights, trade secrets 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 $6.5 billion at June 30, 2021 and $5.1 billion at June 30, 2020. Approximately 84 percent of our backlog at June 30, 2021 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, 2021, 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 17 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.
Acquisitions
The Company made no acquisitions in 2021. On August 2, 2021, the Company announced that it reached an agreement on the terms of a recommended cash acquisition of the entire issued and to be issued ordinary share capital of Meggitt plc ("Meggitt"). The proposed Meggitt acquisition and prior year acquisitions are discussed in Notes 1 and 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.
Human Capital Management
At Parker, we align employment levels with the global needs of our business and our customers. As of June 30, 2021, we employed approximately 54,640 persons that we refer to as “team members,” of whom approximately 28,290 were employed by foreign subsidiaries.
Our talented and passionate team members are the foundation of Parker’s enduring growth, bringing new ideas and perspectives to enhance our safety performance, improve productivity and inspire a diverse and inclusive culture. We see a clear path to a brighter future, and it begins with providing our people the resources that enable them to find personal and professional satisfaction in their work, responsibly move our company forward and strengthen our communities, fulfilling our purpose of Enabling Engineering Breakthroughs that Lead to a Better Tomorrow.
The Win Strategy™ 3.0, Purpose and Values
The Win Strategy 3.0 is Parker’s business system that defines the goals and initiatives that drive growth, transformation and success. It works with our purpose, which is a foundational element of The Win Strategy, to engage team members and create responsible and sustainable growth.
The Win Strategy has four overarching goals: Engaged People, Customer Experience, Profitable Growth and Financial Performance, supported by our shared values of a Winning Culture, Passionate People, Valued Customers and Engaged Leadership. Our shared values shape our culture and our interactions with stakeholders and the communities in which we operate and live.
Safety
The safety and well-being of Parker team members is our highest priority. Our safety goal is simple: to achieve an incident-free workplace. We have reduced our Recordable Incident Rate by 72% from fiscal year 2015 through fiscal year 2020. In fiscal year 2021, the recordable incidents per 100 team members was 0.40, a 29% reduction from fiscal year 2020 (inclusive of recent acquisitions).
Building on the great progress we have made, we recently established new long-term safety goals. We are targeting to be best in our peer group by 2023 and to eliminate serious safety incidents by 2025.
To help support these goals we are adopting eight standards aimed at preventing serious safety incidents or an environmental impact. We also developed a new field safety program that provides guidance for team members working outside our facilities to help them identify or anticipate safety risks.
High Performance Teams ("HPTs") are fundamental to our success in driving safety performance, and nearly all of our manufacturing locations have an active, chartered Safety HPT. Approximately 90% of our team members participate in at least one HPT. We will continue to encourage every team member to take action when needed to fulfill our shared responsibility to workplace safety.
Engaged People
Engagement directly influences business performance. We strongly believe in empowering our team members to think as owners and take action to improve their areas of the business. Engagement is deeply ingrained in our culture, and as an overarching goal of The Win Strategy it is key to achieving top quartile financial performance.
Parker activates engagement through our HPTs, which apply the expertise and perspective of team members who are closest to the product and customer to drive improvement throughout the company. Approximately 90% of our people participate in these teams, and more than 6,500 HPTs have already been established worldwide. We closely track our progress toward support of a high performing work environment through our Global Engagement Survey, and in our most recent engagement survey our engagement scores increased to 75%, ranking within the top quartile among our proxy peers.
Diversity and Inclusion
An inclusive environment is a core tenet of Parker’s values and one of our key measures of success within our Win Strategy. Throughout our history, we have been committed to building a welcoming and inclusive workplace that respects every team member’s unique perspective. Our team members come from a diverse range of personal and professional backgrounds, and their collective talent and expertise is the driving force behind the growth and success Parker has achieved.
In 2015, we launched Peer W, our first Business Resource Group focused on supporting the recruitment, development and retention of women at Parker. Peer W has grown into a well-developed global network of 24 local chapters and established a Mentoring Circles program in 2020. We are preparing to introduce additional Business Resource Groups that will enable team members with common interests or backgrounds to come together, share their experiences and establish new and lasting relationships.
We have also established four global HPTs focused on Talent Attraction, Talent Development, Governance and Knowledge. Each team is led by a senior executive and tasked with rethinking the way we attract and develop diverse team members, share knowledge and measure our progress in fostering an inclusive culture.
In 2020, Parker appointed its first Vice President of Diversity and Inclusion to lead our continuing journey.
Compensation and Benefits
As a global employer, we are committed to offering competitive compensation and benefits, tailored in form and amount to geography, industry, experience and performance. Our programs are designed to attract team members, motivate and reward performance, drive growth and support retention. We provide benefit programs with the goal of improving physical, mental and financial wellness of our team members throughout their lifetime. Some examples include base and variable pay, health and insurance benefits, paid time off, and retirement saving plans.
Next: Item 1A. . Risk Factors.