Item 8. . Financial Statements and Supplementary Data.

						Page Number in Form 10-K
Financial Statements
			Consolidated Statement of Income			36
			Consolidated Statement of Comprehensive Income			37
			Business Segment Information			38
			Consolidated Balance Sheet			40
			Consolidated Statement of Cash Flows			41
			Consolidated Statement of Equity			42
			Notes to Consolidated Financial Statements			43

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Parker-Hannifin Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Parker-Hannifin Corporation and subsidiaries (the "Company") as of June 30, 2021 and 2020, the related consolidated statements of income, comprehensive income, equity, and cash flows, for each of the three years in the period ended June 30, 2021, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2021, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

Change in Accounting Principle

As discussed in Notes 1 and 7 to the consolidated financial statements, the Company elected to change its method of accounting for certain inventories from the last-in, first-out (“LIFO”) cost method to the first-in, first-out (“FIFO”) cost method which has been retrospectively applied to the consolidated financial statements as of June 30, 2020 and 2019.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue — Refer to Notes 1 and 2 to the financial statements

Critical Audit Matter Description

The Company is a highly diversified business with revenue derived from the sales of products in a variety of industrial and aerospace markets. The Company’s business activities are carried out by numerous individual business units, which offer unique technology and product platforms within specific geographic areas.

We identified revenue as a critical audit matter given the geographical dispersion of the Company’s operations and business units generating revenue. This required extensive audit effort due to the volume of the underlying transactions and distinctiveness of each individual business unit. High levels of auditor judgement were necessary to determine the nature, timing, and extent of audit procedures performed within the Company.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Company’s revenue transactions included the following, among others:

• We tested the design and effectiveness of internal controls within the revenue business processes, including controls over revenue recognition and controls over the review of operating results.

• For a sample of revenue transactions, we performed detail transaction testing by agreeing the amounts recorded as revenue to source documents and determined that revenue was recognized appropriately.

• For the revenue populations subject to detail testing, we tested the completeness of revenue by making selections from a reciprocal population (e.g. sales order listing) and determined whether the sales order was recorded as a sale in the general ledger.

• For revenue transactions not subject to detail transaction testing, we performed substantive analytical procedures. We developed independent expectations of revenue based on data derived from published industry indices, market and customer trends, and the results of our detail revenue testing and compared these expectations to the revenue recorded by management.

/s/ DELOITTE & TOUCHE, LLP

Cleveland, Ohio

August 25, 2021

We have served as the Company's auditor since 2008.

CONSOLIDATED STATEMENT OF INCOME

						For the years ended June 30,
(Dollars in thousands, except per share amounts)						2021						2020*						2019*
Net Sales						$	14,347,640					$	13,695,520					$	14,320,324
Cost of sales						10,449,680						10,292,291						10,688,970
Selling, general and administrative expenses						1,527,302						1,656,553						1,543,939
Interest expense						250,036						308,161						190,138
Other income, net						(17,003)						(67,112)						(61,247)
(Gain) loss on disposal of assets						(109,332)						(1,227)						9,049
Income before income taxes						2,246,957						1,506,854						1,949,475
Income taxes						500,096						304,522						424,392
Net Income						1,746,861						1,202,332						1,525,083
Less: Noncontrolling interest in subsidiaries' earnings						761						362						567
Net Income Attributable to Common Shareholders						$	1,746,100					$	1,201,970					$	1,524,516
Earnings per Share Attributable to Common Shareholders
Basic earnings per share						$	13.54					$	9.36					$	11.73
Diluted earnings per share						$	13.35					$	9.26					$	11.57

*Years ended June 30, 2020 and 2019 amounts have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 7 to the Consolidated Financial Statements.

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

						For the years ended June 30,
(Dollars in thousands)						2021						2020*						2019*
Net Income						$	1,746,861					$	1,202,332					$	1,525,083
Less: Noncontrolling interests in subsidiaries' earnings						761						362						567
Net income attributable to common shareholders						1,746,100						1,201,970						1,524,516
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment and other (net of tax of $(3,664), $4,820 and $709 in 2021, 2020 and 2019)						328,792						(182,957)						(66,392)
Retirement benefits plan activity (net of tax of $(205,845), $97,477 and $71,821 in 2021, 2020 and 2019)						664,076						(317,546)						(227,783)
Other comprehensive income (loss)						992,868						(500,503)						(294,175)
Less: Other comprehensive income (loss) for noncontrolling interests						720						(676)						53
Other comprehensive income (loss) attributable to common shareholders						992,148						(499,827)						(294,228)
Total Comprehensive Income Attributable to Common Shareholders						$	2,738,248					$	702,143					$	1,230,288

*Years ended June 30, 2020 and 2019 amounts have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 7 to the Consolidated Financial Statements.

The accompanying notes are an integral part of the consolidated financial statements.

BUSINESS SEGMENT INFORMATION

(Dollars in thousands)						2021						2020*						2019*
Net Sales:
Diversified Industrial:
North America						$	6,676,449					$	6,456,298					$	6,808,948
International						5,283,710						4,504,587						5,000,599
Aerospace Systems						2,387,481						2,734,635						2,510,777
						$	14,347,640					$	13,695,520					$	14,320,324
Segment Operating Income:
Diversified Industrial:
North America						$	1,247,419					$	985,944					$	1,138,586
International						988,054						674,763						804,890
Aerospace Systems						402,895						476,900						487,757
Total segment operating income						2,638,368						2,137,607						2,431,233
Corporate administration						178,427						170,903						194,994
Income before interest expense and other expense						2,459,941						1,966,704						2,236,239
Interest expense						250,036						308,161						190,138
Other (income) expense						(37,052)						151,689						96,626
Income before income taxes						$	2,246,957					$	1,506,854					$	1,949,475
Assets:
Diversified Industrial						$	16,518,688					$	15,973,576					$	13,189,204
Aerospace Systems(a)						3,077,395						3,251,522						1,546,053
Corporate						745,117						662,655						2,996,771
						$	20,341,200					$	19,887,753					$	17,732,028
Property Additions:
Diversified Industrial						$	186,233					$	183,981					$	172,348
Aerospace Systems						20,705						44,546						20,748
Corporate						3,019						4,064						1,993
						$	209,957					$	232,591					$	195,089
Depreciation:
Diversified Industrial						$	229,891					$	218,092					$	203,144
Aerospace Systems						32,151						27,749						16,268
Corporate						7,901						7,058						6,263
						$	269,943					$	252,899					$	225,675
Amortization:
Diversified Industrial						$	274,368					$	243,714					$	196,680
Aerospace Systems						51,079						40,918						3,072
						$	325,447					$	284,632					$	199,752

(Dollars in thousands)						2021						2020						2019
By Geographic Area**(b)**
Net Sales:
North America						$	9,046,162					$	9,166,773					$	9,318,195
International						5,301,478						4,528,747						5,002,129
						$	14,347,640					$	13,695,520					$	14,320,324
Long-Lived Assets:
North America						$	1,448,109					$	1,494,858					$	1,052,263
International						818,367						797,877						716,024
						$	2,266,476					$	2,292,735					$	1,768,287

The accounting policies of the business segments are the same as those described in the Significant Accounting Policies footnote except that the business segment results are prepared on a basis that is consistent with the manner in which the Company’s management disaggregates financial information for internal review and decision-making.

(a) Includes an investment in a joint venture in which ownership is 50 percent or less and in which the Company does not have operating control (2021 - $219,081; 2020 - $237,911; 2019 - $234,703).

(b) Net sales are attributed to countries based on the location of the selling unit. North America includes the United States, Canada and Mexico. No country other than the United States represents greater than 10 percent of consolidated sales. Long-lived assets are comprised of property, plant and equipment based on physical location.

*Years ended June 30, 2020 and 2019 amounts have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 7 to the Consolidated Financial Statements.

CONSOLIDATED BALANCE SHEET

(Dollars in thousands)
June 30,						2021						2020*
Assets
Current Assets
Cash and cash equivalents						$	733,117					$	685,514
Marketable securities and other investments						39,116						70,805
Trade accounts receivable, net						2,183,594						1,854,398
Non-trade and notes receivable						326,315						244,870
Inventories						2,090,642						1,964,195
Prepaid expenses and other						243,966						214,986
Total Current Assets						5,616,750						5,034,768
Property, plant and equipment						6,040,220						5,810,681
Less: Accumulated depreciation						3,773,744						3,517,946
Property, plant and equipment, net						2,266,476						2,292,735
Deferred income taxes						104,251						126,839
Investments and other assets						774,239						764,563
Intangible assets, net						3,519,797						3,798,913
Goodwill						8,059,687						7,869,935
Total Assets						$	20,341,200					$	19,887,753
Liabilities and Equity
Current Liabilities
Notes payable and long-term debt payable within one year						$	2,824					$	809,529
Accounts payable, trade						1,667,878						1,111,759
Accrued payrolls and other compensation						507,027						424,231
Accrued domestic and foreign taxes						236,384						195,314
Other accrued liabilities						682,390						607,540
Total Current Liabilities						3,096,503						3,148,373
Long-term debt						6,582,053						7,652,256
Pensions and other postretirement benefits						1,055,638						1,887,414
Deferred income taxes						553,981						418,851
Other liabilities						639,355						539,089
Total Liabilities						11,927,530						13,645,983
Equity
Shareholders' Equity
Serial preferred stock, $.50 par value, authorized 3,000,000 shares; none issued						—						—
Common stock, $.50 par value, authorized 600,000,000 shares; issued 181,046,128 shares in 2021 and 2020						90,523						90,523
Additional capital						329,619						416,585
Retained earnings						14,915,497						13,643,907
Accumulated other comprehensive (loss)						(1,566,727)						(2,558,875)
Treasury shares at cost: 51,900,460 in 2021 and 52,490,165 in 2020						(5,370,605)						(5,364,916)
Total Shareholders' Equity						8,398,307						6,227,224
Noncontrolling interests						15,363						14,546
Total Equity						8,413,670						6,241,770
Total Liabilities and Equity						$	20,341,200					$	19,887,753

*Year ended June 30, 2020 amounts have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 7 to the Consolidated Financial Statements.

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

						For the years ended June 30,
(Dollars in thousands)						2021						2020*						2019*
Cash Flows From Operating Activities
Net income						$	1,746,861					$	1,202,332					$	1,525,083
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation						269,943						252,899						225,675
Amortization						325,447						284,632						210,514
Stock incentive plan compensation						121,483						111,375						104,078
Deferred income taxes						(51,500)						12,290						36,435
Foreign currency transaction (gain) loss						(10,948)						(10,018)						5,888
(Gain) loss on sale of property, plant and equipment						(109,332)						(1,850)						5,091
Loss on sale of businesses						—						—						5,854
Gain on sale and impairment of investments						(12,616)						(2,084)						(16,749)
(Gain) loss on marketable securities						(11,570)						(587)						7,563
Other						14,424						17,984						—
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable						(298,511)						578,853						2,452
Inventories						(85,597)						206,937						(67,867)
Prepaid expenses and other						(25,508)						(9,312)						(33,335)
Other assets						(8,779)						(23,547)						2,677
Accounts payable, trade						526,781						(370,765)						(12,397)
Accrued payrolls and other compensation						72,412						(62,715)						2,088
Accrued domestic and foreign taxes						36,552						30,918						(30,593)
Other accrued liabilities						11,397						(148,531)						16,698
Pensions and other postretirement benefits						17,875						55,522						(168,368)
Other liabilities						46,187						(53,384)						(90,647)
Net cash provided by operating activities						2,575,001						2,070,949						1,730,140
Cash Flows From Investing Activities
Acquisitions (net of cash acquired of $82,192 in 2020 and $690 in 2019)						—						(5,076,064)						(2,042)
Capital expenditures						(209,957)						(232,591)						(195,089)
Proceeds from sale of property, plant and equipment						140,590						26,345						46,592
Proceeds from sale of businesses						—						—						19,678
Purchase of marketable securities and other investments						(34,809)						(194,742)						(181,780)
Maturities and sales of marketable securities and other investments						79,419						275,483						74,908
Other						24,744						177,576						19,223
Net cash used in investing activities						(13)						(5,023,993)						(218,510)
Cash Flows From Financing Activities
Proceeds from exercise of stock options						4,684						2,623						2,475
Payments for common shares						(218,818)						(216,049)						(860,052)
Acquisition of noncontrolling interests						—						(1,200)						—
(Payments of) proceeds from notes payable, net						(723,496)						136,744						48,828
Proceeds from long-term borrowings						1,213						1,721,211						2,336,749
Payments for long-term borrowings						(1,211,748)						(740,181)						(213,226)
Dividends paid						(475,174)						(453,838)						(412,468)
Net cash (used in) provided by financing activities						(2,623,339)						449,310						902,306
Effect of exchange rate changes on cash						95,954						(30,519)						(16,306)
Net increase (decrease) in cash and cash equivalents						47,603						(2,534,253)						2,397,630
Cash and cash equivalents at beginning of year						685,514						3,219,767						822,137
Cash and cash equivalents at end of year						$	733,117					$	685,514					$	3,219,767
Supplemental Data:
Cash paid during the year for:
Interest						$	236,979					$	308,199					$	169,378
Income taxes						485,885						307,959						454,699

*Years ended June 30, 2020 and 2019 amounts have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 7 to the Consolidated Financial Statements.

The accompanying notes are an integral part of the consolidated financial statements.

CONSOLIDATED STATEMENT OF EQUITY

(Dollars in thousands)						Common Stock						Additional Capital						Retained Earnings*									Accumulated Other Comprehensive (Loss)						Treasury Shares						Noncontrolling Interests						Total*
Balance July 1, 2018 (As reported)						$	90,523					$	496,592					$	11,625,975								$	(1,763,086)					$	(4,590,138)					$	5,627					$	5,865,493
Inventory accounting method change																		105,460																											105,460
Balance July 1, 2018*						$	90,523					$	496,592					$	11,731,435								$	(1,763,086)					$	(4,590,138)					$	5,627					$	5,970,953
Impact of adoption of accounting standards																		51,603									(1,734)																		49,869
Net income*																		1,524,516																					567						1,525,083
Other comprehensive income (loss)																											(294,228)												53						(294,175)
Dividends paid ($3.16 per share)																		(412,404)																					(64)						(412,468)
Stock incentive plan activity												(34,506)																					81,007												46,501
Shares purchased at cost																																	(799,999)												(799,999)
Balance June 30, 2019*						$	90,523					$	462,086					$	12,895,150								$	(2,059,048)					$	(5,309,130)					$	6,183					$	6,085,764
Net income*																		1,201,970																					362						1,202,332
Other comprehensive (loss)																											(499,827)												(676)						(500,503)
Dividends paid ($3.52 per share)																		(453,213)																					(625)						(453,838)
Stock incentive plan activity												(46,265)																					90,981												44,716
Acquisition activity												764																											9,302						10,066
Shares purchased at cost																																	(146,767)												(146,767)
Balance June 30, 2020*						$	90,523					$	416,585					$	13,643,907								$	(2,558,875)					$	(5,364,916)					$	14,546					$	6,241,770
Net income																		1,746,100																					761						1,746,861
Other comprehensive income																											992,148												720						992,868
Dividends paid ($3.67 per share)																		(474,510)																					(664)						(475,174)
Stock incentive plan activity												(86,966)																					94,311												7,345
Shares purchased at cost																																	(100,000)												(100,000)
Balance June 30, 2021						$	90,523					$	329,619					$	14,915,497								$	(1,566,727)					$	(5,370,605)					$	15,363					$	8,413,670

*The balances at June 30, 2018 and the year ended June 30, 2020 and 2019 amounts have been revised to reflect the change in inventory accounting method, as described in Notes 1 and 7 to the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts or as otherwise noted)

The term "year" and references to specific years refer to the applicable fiscal years.

1. Significant Accounting Policies

The significant accounting policies followed in the preparation of the accompanying consolidated financial statements are summarized below.

Nature of Operations - The Company 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. We evaluate performance based on segment operating income before corporate administrative expenses, interest expense and income taxes.

The Diversified Industrial Segment is an aggregation of several business units, which manufacture motion-control and fluid power system components for builders and users of various types of manufacturing, packaging, processing, transportation, agricultural, construction, and military vehicles and equipment. Diversified Industrial Segment products are marketed primarily through field sales employees and independent distributors. The Diversified Industrial North American operations have manufacturing plants and distribution networks throughout the United States, Canada and Mexico and primarily service North America. The Diversified Industrial International operations provide Parker products and services to 42 countries throughout Europe, Asia Pacific, Latin America, the Middle East and Africa.

The Aerospace Systems Segment produces hydraulic, fuel, pneumatic and electro-mechanical systems and components, which are utilized on virtually every domestic commercial, military and general aviation aircraft and also performs a vital role in naval vessels and land-based weapons systems. This segment serves original equipment and maintenance, repair and overhaul customers worldwide. Aerospace Systems Segment products are marketed by field sales employees and are sold directly to manufacturers and end users.

There are no individual customers to whom sales are more than three percent of the Company's consolidated sales. Due to our diverse group of customers throughout the world, we do not consider ourself exposed to any concentration of credit risks.

The Company manufactures and markets its products throughout the world. Although certain risks and uncertainties exist, the diversity and breadth of our products and geographic operations mitigate the risk that adverse changes with respect to any particular product and geographic operation would materially affect our operating results.

Use of Estimates - The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Change in Accounting Principle - During the fourth quarter of 2021, the Company changed its method of accounting for certain domestic inventory previously valued by the last-in, first-out ("LIFO") method to the first-in, first-out ("FIFO") method. All prior periods presented have been retrospectively adjusted to apply the new method of accounting. Refer to Note 7 for more information on the change in inventory accounting method.

Basis of Consolidation - The consolidated financial statements include the accounts of all majority-owned domestic and foreign subsidiaries. All intercompany transactions and profits have been eliminated in the consolidated financial statements. The Company does not have off-balance sheet arrangements. Within the Business Segment Information, intersegment and interarea sales have been eliminated.

Revenue Recognition - Revenues are recognized when control of performance obligations, which are distinct goods or services within the contract, is transferred to the customer. Control is transferred when the customer has the ability to direct the use of and obtain the benefits from the goods or services. When revenue is recognized at a point in time, control generally transfers at time of shipment. Revenues are recognized over time if the customer simultaneously receives control as the Company performs work under a contract, if the customer controls the asset as it is being produced, or if the product produced for the customer has no alternative use and the Company has a contractual right to payment.

For contracts where revenue is recognized over time, we use the cost-to-cost, efforts expended or units of delivery method depending on the nature of the contract, including length of production time. The estimation of these costs and efforts expended requires judgment on the part of management due to the duration of the contractual agreements as well as the technical nature of the products involved. We make adjustments to these estimates on a consistent basis and establish a contract reserve when the estimated costs to complete a contract exceed the expected contract revenues.

A contract’s transaction price is allocated to each distinct performance obligation. When there are multiple performance obligations within a contract, the transaction price is allocated to each performance obligation based on its standalone selling price. The primary method used to estimate a standalone selling price is the price observed in standalone sales to customers of the same product or service. Revenue is recognized when control of the individual performance obligations is transferred to the customer.

We consider the contractual consideration payable by the customer and assesses variable consideration that may affect the total transaction price. Variable consideration primarily includes prompt pay discounts, rebates and volume discounts and is included in the estimated transaction price when there is a basis to reasonably estimate the amount, including whether the estimate should be constrained in order to avoid a significant reversal of revenue in a future period. These estimates are based on historical experience, anticipated performance under the terms of the contract and our best judgment at the time.

Payment terms vary by customer and the geographic location of the customer. The time between when revenue is recognized and payment is due is not significant. Our contracts with customers generally do not include significant financing components or noncash consideration.

Taxes collected from customers and remitted to governmental authorities are excluded from revenue. Shipping and handling costs are treated as fulfillment costs and are included in cost of sales. The costs to obtain a contract where the amortization period for the related asset is one year or less are expensed as incurred.

There is generally no unilateral right to return products. The Company primarily offers an assurance-type standard warranty that the product will conform to certain specifications for a defined period of time or usage after delivery. This type of warranty does not represent a separate performance obligation.

Cash - Cash equivalents consist of short-term, highly liquid investments with a maturity of three months or less. These investments are carried at cost plus accrued interest and are readily convertible into cash.

Marketable Securities and Other Investments - Consist of short-term, highly liquid investments with stated maturities of greater than three months from the date of purchase, which are carried at cost plus accrued interest. Marketable securities and other investments also include investments in equity securities which are carried at fair value. Changes in fair value related to equity securities are recorded in net income. We have the ability to liquidate these investments after giving appropriate notice to the issuer.

Trade Accounts Receivable, Net - Trade accounts receivable are initially recorded at their net collectible amount and are generally recorded at the time the revenue from the sales transaction is recorded. We evaluate the collectibility of our receivables based on historical experience and current and forecasted economic conditions based on management's judgment. Additionally, receivables are written off to bad debt when management makes a final determination of uncollectibility. Allowance for credit losses was $12,078 and $11,644 at June 30, 2021 and 2020, respectively.

Non-Trade and Notes Receivable - The non-trade and notes receivable caption in the Consolidated Balance Sheet is comprised of the following components:

June 30,						2021						2020
Notes receivable						$	144,441					$	97,370
Accounts receivable, other						181,874						147,500
Total						$	326,315					$	244,870

Plant, Equipment and Depreciation - Plant and equipment are recorded at cost and are depreciated principally using the straight-line method for financial reporting purposes. Depreciation rates are based on estimated useful lives of the assets, generally 40 years for buildings, 15 years for land improvements and building equipment, seven to 10 years for machinery and equipment, and three to eight years for vehicles and office equipment. Improvements, which extend the useful life of property, are capitalized, and maintenance and repairs are expensed. We review plant and equipment for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. When plant and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the appropriate accounts and any gain or loss is included in current income.

The plant and equipment caption in the Consolidated Balance Sheet is comprised of the following components:

June 30,						2021						2020
Land and land improvements						$	342,950					$	345,746
Buildings and building equipment						1,848,141						1,773,041
Machinery and equipment						3,653,566						3,515,842
Construction in progress						195,563						176,052
Total						$	6,040,220					$	5,810,681

Investments and Other Assets - Investments in joint-venture companies in which ownership is 50 percent or less and in which the Company does not have operating control are stated at cost plus the Company's equity in undistributed earnings and amounted to $292,217 and $317,975 at June 30, 2021 and 2020, respectively. A significant portion of the underlying net assets of the joint ventures are related to goodwill. The Company's share of earnings from investments in joint-venture companies were $41,048, $74,517 and $93,239 in 2021, 2020 and 2019, respectively.

Intangible Assets - Intangible assets primarily include patents and technology, trademarks and customer lists and contracts and are recorded at cost and amortized on a straight-line method. Patents and technology are amortized over the shorter of their remaining useful or legal life. Trademarks and customer contracts are amortized over the estimated time period over which an economic benefit is expected to be received. Customer lists are amortized over a period based on anticipated customer attrition rates. The Company reviews intangible assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable.

Goodwill - The Company conducts a formal impairment test of goodwill on an annual basis and between annual tests if an event occurs or circumstances change that would, more likely than not, reduce the fair value of a reporting unit below its carrying value.

Income Taxes - Income taxes are provided based upon income for financial reporting purposes. Tax credits and similar tax incentives are applied to reduce the provision for income taxes in the year in which the credits arise. We recognize accrued interest related to unrecognized tax benefits in income tax expense. Penalties, if incurred, are recognized in income tax expense. Deferred income taxes arise from temporary differences in the recognition of income and expense for tax purposes. Income tax effects resulting from adjusting temporary differences recorded in accumulated other comprehensive (loss) are released when the circumstances on which they are based cease to exist.

Foreign Currency Translation - Assets and liabilities of foreign subsidiaries are translated at current exchange rates, and income and expenses are translated using weighted-average exchange rates. The effects of these translation adjustments, as well as gains and losses from certain intercompany transactions, are reported in accumulated other comprehensive (loss). Such adjustments will affect net income only upon sale or liquidation of the underlying foreign investments. Exchange (gains) losses from transactions in a currency other than the local currency of the entity involved are included within the cost of sales caption in the Consolidated Statement of Income and were $(10,948), $(10,018) and $5,888, in 2021, 2020 and 2019, respectively.

Subsequent Events - We evaluated subsequent events that have occurred through the date of filing of this Annual Report on Form 10-K for the year ended June 30, 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") for 800 pence per share (the "Acquisition"), or approximately £6,308 million. We intend to fund the proposed Acquisition with cash and new debt. The proposed Acquisition remains subject to customary closing conditions, including regulatory clearances and approval by Meggitt’s shareholders.

In connection with the proposed Acquisition, the Company entered into a bridge credit agreement (the "Bridge Credit Agreement") on August 2, 2021. Under the Bridge Credit Agreement, lenders are committed to provide senior, unsecured financing in the aggregate principal amount of £6,524 million. Any borrowings made under the Bridge Credit Agreement would mature 364 days from the initial funding date. The commitments are intended to be drawn to finance the proposed Acquisition only to the extent that we do not arrange for alternative financing prior to closing.

Recent 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. We adopted ASU 2016-13 on July 1, 2020. The adoption of this guidance, using the modified retrospective method, did not result in a cumulative-effect adjustment to retained earnings and did not have a material impact on the consolidated financial statements or related disclosures.

2. 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.

Disaggregation of revenue

Revenue from contracts with customers is disaggregated by technology platforms for the Diversified Industrial Segment, by product platforms for the Aerospace Systems Segment and by geographic location for the total Company.

The Diversified Industrial Segment is an aggregation of several business units, which manufacture motion-control and fluid power system components for builders and users of various types of manufacturing, packaging, processing, transportation, agricultural, construction, and military vehicles and equipment. Contracts consist of individual purchase orders for standard product, blanket purchase orders and production contracts. Blanket purchase orders are often associated with individual purchase orders and have terms and conditions which are subject to a master supply or distributor agreement. Individual production contracts, some of which may include multiple performance obligations, are typically for products manufactured to the customer's specifications. Revenue in the Diversified Industrial Segment is typically recognized at the time of product shipment, but a portion of revenue may be recognized over time for installation services or in situations where the product has no alternative use and we have an enforceable right to payment.

Diversified Industrial Segment revenues by technology platform:

						2021						2020
Motion Systems						$	3,081,366					$	2,996,645
Flow and Process Control						4,108,080						3,795,952
Filtration and Engineered Materials						4,770,713						4,168,288
Total						$	11,960,159					$	10,960,885

The Aerospace Systems Segment produces hydraulic, fuel, pneumatic and electro-mechanical systems and components, which are utilized on virtually every domestic commercial, military and general aviation aircraft. Aerospace Systems Segment products also perform a vital role in naval vessels and land-based weapon systems. Contracts generally consist of blanket purchase orders and individual long-term production contracts. Blanket purchase orders, which have terms and conditions subject to long-term supply agreements, are typically associated with individual purchase orders. Revenue in the Aerospace Systems Segment is typically recognized at the time of product shipment, but a portion of revenue may be recognized over time in situations where the customer controls the asset as it is produced or the product has no alternative use and we have an enforceable right to payment.

Aerospace Systems Segment revenues by product platform:

						2021						2020
Flight Control Actuation						$	698,877					$	711,017
Fuel and Inerting						509,687						592,543
Hydraulics						308,835						411,823
Engines						575,804						616,747
Fluid Conveyance						196,348						304,769
Other						97,930						97,736
Total						$	2,387,481					$	2,734,635

Total revenues by geographic region based on the Company's selling operation's location:

						2021						2020
North America						$	9,046,162					$	9,166,773
Europe						2,919,025						2,596,125
Asia Pacific						2,215,686						1,790,032
Latin America						166,767						142,590
Total						$	14,347,640					$	13,695,520

The majority of revenues from the Aerospace Systems Segment is 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:

						2021						2020
Contract assets, current (included within Prepaid expenses and other)						$	34,190					$	30,827
Contract assets, noncurrent (included within Investments and other assets)						1,884						1,497
Total contract assets						36,074						32,324
Contract liabilities, current (included within Other accrued liabilities)						(51,211)						(51,278)
Contract liabilities, noncurrent (included within Other liabilities)						(3,080)						(3,232)
Total contract liabilities						(54,291)						(54,510)
Net contract liabilities						$	(18,217)					$	(22,186)

At June 30, 2021, the change in net contract liabilities was primarily due to timing differences between when revenue was recognized and the receipt of advance payments. During 2021, approximately $33 million of revenue was recognized that was included in the contract liabilities at June 30, 2020.

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 June 30, 2021 was $6,503 million, of which approximately 84 percent is expected to be recognized as revenue within the next 12 months and the balance thereafter.

3. Acquisitions

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 estimated fair values of Lord's and Exotic's assets acquired and liabilities assumed on the respective acquisition dates. These estimates are based on available information and are 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. All measurement period adjustments were completed within a year from the acquisition date, and such adjustments did not have a material impact on the Company's results of operations and financial position.

The final purchase price allocations for acquisitions in 2020 is as follows:

			Lord						Exotic
			October 29, 2019						September 16, 2019
Assets:
Cash and cash equivalents			$	74,013					$	8,179
Accounts receivable			153,765						81,336
Inventories			248,600						114,661
Prepaid expenses			24,230						1,343
Property, plant and equipment			409,163						178,393
Deferred income taxes			—						2,057
Other assets			41,335						1,226
Intangible assets			1,446,660						874,470
Goodwill			1,970,603						503,725
Total assets acquired			4,368,369						1,765,390
Liabilities:
Notes payable and long-term debt payable within one year			156						—
Accounts payable, trade			56,186						23,176
Accrued payrolls and other compensation			57,571						8,863
Accrued domestic and foreign taxes			2,898						2,123
Other accrued liabilities			88,394						25,662
Long-term debt			221,161						—
Pensions and other postretirement benefits			115,017						—
Deferred income taxes			304,445						—
Other liabilities			55,832						—
Noncontrolling interests			11,266						—
Total liabilities and noncontrolling interests assumed			912,926						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 an 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 $869,190 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. These intangible assets were valued using the income approach, which includes significant assumptions around future revenue growth and discount rates. Such assumptions are classified as level 3 inputs within the fair value hierarchy.

Our consolidated financial statements for 2020 include the results of operations of Lord and Exotic from their respective acquisition dates through June 30, 2020. Net sales and segment operating income attributable to these acquisitions during this period and included in our consolidated financial statements totaled $949,066 and $22,330, respectively.

Acquisition-related transaction and integration costs totaled $119,214 in 2020. These costs are included in selling, general, and administrative expenses in the Consolidated Statement of Income.

4. Business Realignment and Acquisition Integration Charges

The Company incurred business realignment and acquisition integration charges in 2021, 2020 and 2019. During 2021, business realignment charges primarily consisted of actions taken to address the impact of COVID-19 on our business. Such charges were also incurred in 2020, especially within the Aerospace Systems Segment. In 2021, 2020, and 2019 business realignment charges included severance costs related to actions taken under the Company's simplification initiative aimed at reducing organizational and process complexity as well as plant closures. The 2019 acquisition integration charges relate to the 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 acquisition integration charges presented in the Business Segment Information are as follows:

			2021						2020						2019
Diversified Industrial			$	38,557					$	52,288					$	27,830
Aerospace Systems			6,680						22,101						—
Corporate administration			1,399						1,175						—
Other expense			1,226						50						305

Workforce reductions in connection with such business realignment and acquisition integration charges in the Business Segment Information are as follows:

			2021						2020						2019
Diversified Industrial			820						2,394						598
Aerospace Systems			327						1,254						—
Corporate administration			20						31						—

The business realignment and acquisition integration charges are presented in the Consolidated Statement of Income as follows:

			2021						2020						2019
Cost of sales			$	33,746					$	58,791					$	14,650
Selling, general and administrative expenses			12,890						16,773						13,180
(Gain) loss on disposal of assets			1,226						50						305

As of June 30, 2021, approximately $56 million in severance payments were made relating to business realignment charges. Remaining payments related to current-year and prior-year business realignment actions of approximately $15 million, a majority of which are expected to be paid by June 30, 2022, 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 and acquisition integration actions 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:

			2021						2020
Diversified Industrial			$	11,222					$	20,669
Aerospace Systems			719						1,908

These charges are primarily included in selling, general and administrative expenses within the Consolidated Statement of Income.

5. Income Taxes

Certain amounts below have been adjusted to reflect the retrospective application of our change in inventory accounting method as described in Notes 1 and 7.

Income before income taxes was derived from the following sources:

			2021						2020						2019
United States			$	1,273,037					$	828,160					$	1,140,983
Foreign			973,920						678,694						808,492
			$	2,246,957					$	1,506,854					$	1,949,475

Income taxes include the following:

			2021						2020						2019
Federal
Current			$	247,094					$	105,796					$	160,858
Deferred			(52,960)						24,905						18,133
Foreign
Current			269,607						167,680						206,167
Deferred			8,851						(14,247)						3,202
State and local
Current			34,895						18,756						20,932
Deferred			(7,391)						1,632						15,100
			$	500,096					$	304,522					$	424,392

A reconciliation of the effective income tax rate to the statutory federal rate follows:

			2021						2020						2019
Statutory federal income tax rate			21.0		%				21.0		%				21.0		%
State and local income taxes			1.0						1.4						1.7
Tax related to international activities			3.6						1.8						2.9
Transition tax related to the TCJ Act			—						(0.7)						0.8
Remeasurement of deferred tax assets and liabilities related to the TCJ Act			—						—						(0.9)
Cash surrender value of life insurance			(0.6)						(0.3)						(0.1)
Federal manufacturing deduction			—						—						0.1
Foreign derived intangible income deduction			(1.0)						(1.5)						(1.0)
Research tax credit			(0.4)						(0.6)						(0.5)
Share-based compensation			(1.6)						(1.5)						(1.7)
Other			0.3						0.6						(0.5)
Effective income tax rate			22.3		%				20.2		%				21.8		%

We made the accounting policy election to treat taxes related to Global Intangible Low-Taxed Income ("GILTI") as a current period expense when incurred. The tax rate impact of GILTI is included with tax related to international activities in the table above.

On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, a significant tax-and-spending package intended to provide economic stimulus to address the impact of the COVID-19 pandemic. The CARES Act did not result in a material impact on our effective tax rate.

On December 27, 2020, the Consolidated Appropriations Act, 2021, was signed into law. In addition to providing funding for the government, this law provides further COVID-19 economic relief, and extends certain expiring tax provisions. This act did not result in a material impact on our effective tax rate.

Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of assets and liabilities. The differences comprising the net deferred taxes shown on the Consolidated Balance Sheet at June 30 were as follows:

			2021						2020
Retirement benefits			$	322,931					$	504,747
Other liabilities and reserves			136,710						139,872
Long-term contracts			5,562						7,392
Stock-based compensation			30,165						35,483
Loss carryforwards			861,013						754,655
Unrealized currency exchange gains and losses			18,841						39,256
Inventory			(11,753)						(31,081)
Tax credit carryforwards			19,709						33,176
Undistributed foreign earnings			(21,722)						(15,196)
Depreciation and amortization			(945,422)						(988,886)
Valuation allowance			(865,764)						(771,430)
Net deferred tax (liability)			$	(449,730)					$	(292,012)
Change in net deferred tax (liability):
Provision for deferred tax			$	51,500					$	(12,290)
Items of other comprehensive (loss) income			(209,509)						102,297
Acquisitions and other			291						(301,690)
Total change in net deferred tax			$	(157,718)					$	(211,683)

As of June 30, 2021, we recorded deferred tax assets of $861,013 resulting from $3,473 million in loss carryforwards. A valuation allowance of $841,789 related to the loss carryforwards has been established due to the uncertainty of their realization. Of this valuation allowance, $816,388 relates to non-operating entities whose loss carryforward utilization is considered to be remote. Some of the loss carryforwards can be carried forward indefinitely; others can be carried forward from three years to 20 years. In addition, a valuation allowance of $23,975 related to other future deductible items has been established due to the uncertainty of their realization.

Although future distributions of foreign earnings to the United States should not be subject to U.S. federal income taxes, other U.S. or foreign taxes may be imposed on such earnings. We have analyzed existing factors and determined we will no longer permanently reinvest certain foreign earnings. On these undistributed foreign earnings of approximately $712 million that are no longer permanently reinvested outside of the United States, we have recorded a deferred tax liability of $16 million. The remaining undistributed foreign earnings of approximately $1,609 million remain permanently reinvested outside the United States at June 30, 2021. Of these undistributed earnings, we have recorded a deferred tax liability of $6 million where certain foreign holding companies are not permanently reinvested in their subsidiaries. It is not practicable to estimate the additional taxes, including applicable foreign withholding taxes, that might be payable on the potential distribution of such permanently reinvested foreign earnings.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

			2021						2020						2019
Balance July 1			$	86,277					$	140,662					$	153,091
Additions for tax positions related to current year			10,145						4,955						2,272
Additions for tax positions of prior years			10,320						798						45
Additions for acquisitions			2,376						43,532						—
Reductions for tax positions of prior years			(1,996)						(41,726)						(927)
Reductions for settlements			(7,165)						(53,520)						(832)
Reductions for expiration of statute of limitations			(2,252)						(3,820)						(9,388)
Effect of foreign currency translation			3,054						(4,604)						(3,599)
Balance June 30			$	100,759					$	86,277					$	140,662

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $100,759, $86,277 and $140,662 as of June 30, 2021, 2020 and 2019, respectively. The accrued interest related to the gross unrecognized tax benefits, excluded from the amounts above, was $17,862, $14,247 and $25,214 as of June 30, 2021, 2020 and 2019, respectively.

It is reasonably possible that, within the next 12 months, the amount of gross unrecognized tax benefits could be reduced by up to approximately $40,000 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 unrecognized tax benefits within the next 12 months is expected to be insignificant.

We file income tax returns in the United States and in various foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world. We are open to assessment of our U.S. federal income tax returns by the Internal Revenue Service for years after 2013, and our state and local income tax returns for years after 2013. We are open to assessment for significant foreign jurisdictions for years after 2011.

6. Earnings Per Share

Basic earnings per share are computed using the weighted-average number of common shares outstanding during the year. Diluted earnings per share are computed using the weighted-average number of common shares and common share equivalents outstanding during the year. Common share equivalents represent the dilutive effect of outstanding equity-based awards. The reconciliation of the numerator and denominator of basic and diluted earnings per share was as follows:

			2021						2020*						2019*
Numerator:
Net income attributable to common shareholders			$	1,746,100					$	1,201,970					$	1,524,516
Denominator:
Basic - weighted-average common shares			128,999,879						128,418,495						129,997,640
Increase in weighted-average common shares from dilutive effect of equity-based awards			1,834,599						1,386,539						1,783,977
Diluted - weighted-average common shares, assuming exercise of equity-based awards			130,834,478						129,805,034						131,781,617
Basic earnings per share			$	13.54					$	9.36					$	11.73
Diluted earnings per share			$	13.35					$	9.26					$	11.57

*****Years ended June 30, 2020 and 2019 amounts have been adjusted to reflect the change in inventory accounting method, as described in Notes 1 and 7 to the Consolidated Financial Statements.

For 2021, 2020 and 2019, 0.4 million, 0.6 million and 0.9 million common shares, respectively, subject to equity-based awards were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive.

7. Inventories

Inventories are stated at the lower of cost or net realizable value. During the fourth quarter of 2021, the Company voluntarily changed its method of accounting for certain domestic inventory previously valued by the LIFO method to the FIFO method. The cumulative effect of this change on periods presented prior to 2019 resulted in an increase in Retained earnings of $105,460 at July 1, 2018. The FIFO method of accounting for inventory is preferable because it conforms the Company's entire inventory to a single method of accounting, it aligns the inventory cost flow assumption with the physical flow of goods, and improves comparability within the industry.

The inventories caption in the Consolidated Balance Sheet is comprised of the following components:

June 30,						2021						2020*
Finished products						$	733,744					$	703,630
Work in process						1,089,976						988,564
Raw materials						266,922						272,001
Total						$	2,090,642					$	1,964,195

*****Year ended June 30, 2020 amounts have been revised to reflect the change in inventory accounting method, as described above and in Note 1 to the consolidated financial statements.

As a result of the retrospective application of this change in accounting method, the following financial statement line items within the accompanying financial statements were adjusted, as follows:

			2021																		2020																		2019
Dollars in thousands, except per share amounts			As Computed Under LIFO						As Reported Under FIFO						Effect of Change						As Reported						Adjusted						Effect of Change						As Reported						Adjusted						Effect of Change
Consolidated Statements of Income
Cost of sales			$	10,464,495					$	10,449,680					$	(14,815)					$	10,286,518					$	10,292,291					$	5,773					$	10,703,484					$	10,688,970					$	(14,514)
Income before income taxes			2,232,142						2,246,957						14,815						1,512,627						1,506,854						(5,773)						1,933,425						1,949,475						16,050
Income tax expense			499,269						500,096						827						305,924						304,522						(1,402)						420,494						424,392						3,898
Net income			1,732,873						1,746,861						13,988						1,206,703						1,202,332						(4,371)						1,512,931						1,525,083						12,152
Net income attributable to common shareholders			1,732,112						1,746,100						13,988						1,206,341						1,201,970						(4,371)						1,512,364						1,524,516						12,152
Earnings per share attributable to common shareholders:
Basic			$	13.43					$	13.54					$	0.11					$	9.39					$	9.36					$	(0.03)					$	11.63					$	11.73					$	0.10
Diluted			$	13.24					$	13.35					$	0.11					$	9.29					$	9.26					$	(0.03)					$	11.48					$	11.57					$	0.09
Consolidated Statements of Comprehensive Income
Net income			$	1,732,873					$	1,746,861					$	13,988					$	1,206,703					$	1,202,332					$	(4,371)					$	1,512,931					$	1,525,083					$	12,152
Net income attributable to common shareholders			1,732,112						1,746,100						13,988						1,206,341						1,201,970						(4,371)						1,512,364						1,524,516						12,152
Total comprehensive income attributable to common shareholders			2,724,260						2,738,248						13,988						706,514						702,143						(4,371)						1,218,136						1,230,288						12,152

			2021																		2020																		2019
Dollars in thousands, except per share amounts			As Computed Under LIFO						As Reported Under FIFO						Effect of Change						As Reported						Adjusted						Effect of Change						As Reported						Adjusted						Effect of Change
Consolidated Balance Sheets
Inventories			$	1,926,263					$	2,090,642					$	164,379					$	1,814,631					$	1,964,195					$	149,564
Deferred income taxes - noncurrent liability			516,831						553,981						37,150						382,528						418,851						36,323
Retained earnings			14,788,268						14,915,497						127,229						13,530,666						13,643,907						113,241
Consolidated Statements of Cash Flows
Net income			$	1,732,873					$	1,746,861					$	13,988					$	1,206,703					$	1,202,332					$	(4,371)					$	1,512,931					$1,525,083						$	12,152
Deferred income taxes			(52,327)						(51,500)						827						13,692						12,290						(1,402)						32,537						36,435						3,898
Inventories			(70,782)						(85,597)						(14,815)						201,164						206,937						5,773						(51,817)						(67,867)						(16,050)

The effect of change in inventory in 2020 represents the excess of gross FIFO inventories over the cost of such inventories valued on a LIFO basis of $219,854 less the related excess and obsolete reserve of $70,290.

As a result of the retrospective application of this change in accounting principle, the following financial statement line items within the unaudited interim 2021 and 2020 quarterly condensed consolidated financial statements were adjusted, as follows:

			Three Months Ended
(Unaudited)			September 30, 2020																		December 31, 2020																		March 31, 2021
Dollars in thousands, except per share amounts			As Reported						Adjusted						Effect of Change						As Reported						Adjusted						Effect of Change						As Reported						Adjusted						Effect of Change
Consolidated Statements of Income
Cost of sales			$	2,384,328					$	2,386,449					$	2,121					$	2,519,545					$	2,518,165					$	(1,380)					$	2,714,773					$	2,712,785					$	(1,988)
Income before income taxes			415,295						413,174						(2,121)						576,512						577,892						1,380						597,352						599,340						1,988
Income tax expense			93,578						93,063						(515)						129,015						129,350						335						125,619						126,101						482
Net income			321,717						320,111						(1,606)						447,497						448,542						1,045						471,733						473,239						1,506
Net income attributable to common shareholders			321,409						319,803						(1,606)						447,306						448,351						1,045						471,647						473,153						1,506
Earnings per share attributable to common shareholders:
Basic			$	2.50					$	2.48					$	(0.02)					$	3.47					$	3.48					$	0.01					$	3.65					$	3.67					$	0.02
Diluted			$	2.47					$	2.45					$	(0.02)					$	3.41					$	3.42					$	0.01					$	3.59					$	3.60					$	0.01

			Three Months Ended
(Unaudited)			September 30, 2019																		December 31, 2019																		March 31, 2020
Dollars in thousands, except per share amounts			As Reported						Adjusted						Effect of Change						As Reported						Adjusted						Effect of Change						As Reported						Adjusted						Effect of Change
Consolidated Statements of Income
Cost of sales			$	2,479,741					$	2,480,992					$	1,251					$	2,682,765					$2,686,131						$	3,366					$2,766,693						$2,759,637						$	(7,056)
Income before income taxes			433,156						431,905						(1,251)						254,746						251,380						(3,366)						454,157						461,213						7,056
Income tax expense			94,115						93,811						(304)						50,148						49,331						(817)						86,788						88,501						1,713
Net income			339,041						338,094						(947)						204,598						202,049						(2,549)						367,369						372,712						5,343
Net income attributable to common shareholders			338,898						337,951						(947)						204,474						201,925						(2,549)						367,253						372,596						5,343
Earnings per share attributable to common shareholders:
Basic			$	2.64					$	2.63					$	(0.01)					$	1.59					$	1.57					$	(0.02)					$	2.86					$	2.90					$	0.04
Diluted			$	2.60					$	2.60					$	—					$	1.57					$	1.55					$	(0.02)					$	2.83					$	2.87					$	0.04

8. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill are as follows:

			Diversified Industrial Segment						Aerospace Systems Segment						Total
Balance June 30, 2019			$	5,355,165					$	98,640					$	5,453,805
Acquisitions			1,966,865						503,725						2,470,590
Foreign currency translation and other			(54,457)						(3)						(54,460)
Balance June 30, 2020			$	7,267,573					$	602,362					$	7,869,935
Acquisitions			3,738						—						3,738
Foreign currency translation and other			185,998						16						186,014
Balance June 30, 2021			$	7,457,309					$	602,378					$	8,059,687

Acquisitions represent the goodwill allocation during the measurement period subsequent to the applicable acquisition dates. Refer to Note 3 for further discussion.

We test goodwill for impairment at the reporting unit level on an annual basis and between annual tests whenever events or circumstances indicate that the carrying value of a reporting unit may exceed its fair value. Our annual impairment tests performed in 2021, 2020 and 2019 resulted in no impairment loss being recognized. We did not identify any events or circumstances during 2021 that required performance of an interim impairment test.

Intangible assets are amortized on a straight-line method over their legal or estimated useful lives. The gross carrying value and accumulated amortization for each major category of intangible asset at June 30 are as follows:

			2021												2020
			Gross Carrying Amount						Accumulated Amortization						Gross Carrying Amount						Accumulated Amortization
Patents and technology			$	999,952					$	216,314					$	991,596					$	162,528
Trademarks			762,130						331,905						748,326						285,197
Customer lists and other			3,869,772						1,563,838						3,791,505						1,284,789
Total			$	5,631,854					$	2,112,057					$	5,531,427					$	1,732,514

Total intangible asset amortization expense in 2021, 2020 and 2019 was $325,447, $284,632 and $205,164, respectively. Estimated intangible asset amortization expense for the five years ending June 30, 2022 through 2026 is $319,900, $304,906, $297,945, $287,617 and $282,431, 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 in 2021, 2020 or 2019.

9. Financing Arrangements

The Company has a line of credit totaling $2,500 million through a multi-currency revolving credit agreement with a group of banks, of which $2,500 million was available as of June 30, 2021. The credit agreement expires in September 2024; however, the Company has the right to request a one-year extension of the expiration date on an annual basis, which request may result in changes to the current terms and conditions of the credit agreement. Advances from the credit agreement can be used for general corporate purposes, including acquisitions, and for the refinancing of existing indebtedness. The credit agreement requires the payment of an annual facility fee, the amount of which may increase in the event our credit ratings are lowered. Although a lowering of our credit ratings would likely increase the cost of future debt, it would not limit our ability to use the credit agreement nor would it accelerate the repayment of any outstanding borrowings.

The Company is currently authorized to sell up to $2,500 million of short-term commercial paper notes. There were no commercial paper notes outstanding at June 30, 2021 and $723,500 outstanding at June 30, 2020. The Company had no outstanding borrowings from foreign banks at June 30, 2021 and 2020. The weighted-average interest rate on notes payable during 2021 and 2020 was 0.2 percent and 2.2 percent, respectively.

In the ordinary course of business, some of our locations may enter into financial guarantees through financial institutions which enable customers to be reimbursed in the event of nonperformance by the Company.

The Company's credit agreements and indentures governing certain debt agreements contain various covenants, the violation of which would limit or preclude the use of the applicable agreements for future borrowings, or might accelerate the maturity of the related outstanding borrowings covered by the applicable agreements. Based on our rating level at June 30, 2021, the most restrictive financial covenant provides that the ratio of debt to debt-shareholders' equity cannot exceed 0.65 to 1.0. As of June 30, 2021, our debt to debt-shareholders' equity ratio was 0.44 to 1.0. We are in compliance with all covenants.

10. Debt

June 30,						2021						2020
Domestic:
Fixed rate medium-term notes, 3.30% to 6.25%, due 2023 - 2045						$	2,125,000					$	2,125,000
Senior Notes, 2.70% to 4.10%, due 2024 - 2049						3,675,000						3,675,000
Term loans, Libor plus 112.5 bps, due 2023 - 2024						—						1,210,313
Foreign:
Euro Senior Notes, 1.125%, due 2025						830,060						786,520
Other long-term debt						15,968						12,708
Deferred debt issuance costs						(61,156)						(71,256)
Total long-term debt						6,584,872						7,738,285
Less: Long-term debt payable within one year						2,819						86,029
Long-term debt, net						$	6,582,053					$	7,652,256

During 2021, we repaid the remaining $890 million and $320 million balances related to the $925 million and $800 million term loans, respectively.

Principal amounts of long-term debt payable in the five years ending June 30, 2022 through 2026 are $2,819, $302,396, $576,224, $1,330,535 and $439, respectively. The principal amounts of long-term debt payable exclude the amortization of debt issuance costs.

11. 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 12 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:

			2021						2020
Operating lease expense			$	48,171					$	50,267
Short-term lease cost			7,674						8,566
Variable lease cost			5,835						5,108
Total lease cost			$	61,680					$	63,941

Supplemental cash flow information related to operating leases are as follows:

			2021						2020
Cash paid for amounts included in the measurement of operating lease liabilities			$	47,080					$	48,562
Right-of-use assets obtained in exchange for operating lease obligations			41,637						41,069

Supplemental balance sheet information related to operating leases is as follows:

			2021						2020
Operating lease right-of-use assets (included within Investments and other assets)			$	131,880					$	138,601
Current operating lease liabilities (included within Other accrued liabilities)			$	40,193					$	43,327
Long-term operating lease liabilities (included within Other liabilities)			93,904						96,446
Total operating lease liabilities			$	134,097					$	139,773
Weighted average remaining lease term			5.5 years						5.2 years
Weighted average discount rate			1.8		%				2.1		%

Maturities of lease liabilities at June 30, 2021 are as follows:

			Operating Leases
2022			$	42,101
2023			29,349
2024			19,633
2025			15,068
2026			10,700
Thereafter			24,715
Total operating lease payments			$	141,566
Less imputed interest			7,469
Total operating lease liabilities			$	134,097

Rental expense in 2019 was $126,752.

12. Retirement Benefits

Pensions - The Company has noncontributory defined benefit pension plans covering eligible employees, including certain employees in foreign countries. Plans for most salaried employees provide pay-related benefits based on years of service. Plans for hourly employees generally provide benefits based on flat-dollar amounts and years of service. We also have arrangements for certain key employees, which provide for supplemental retirement benefits. In general, the Company's policy is to fund these plans based on legal requirements, tax considerations, local practices and investment opportunities. We also sponsor defined contribution plans and participate in government-sponsored programs in certain foreign countries.

A summary of the Company's defined benefit pension plans follows:

			2021						2020						2019
Benefit cost
Service cost			$	84,188					$	82,743					$	76,647
Interest cost			102,475						142,479						160,542
Expected return on plan assets			(267,579)						(266,674)						(251,072)
Amortization of prior service cost			5,325						5,633						6,655
Amortization of unrecognized actuarial loss			207,897						165,815						121,823
Amortization of transition obligation			18						18						18
Net periodic benefit cost			$	132,324					$	130,014					$	114,613

Components of net pension benefit cost, other than service cost, are included in other (income), net in the Consolidated Statement of Income.

			2021						2020
Change in benefit obligation
Benefit obligation at beginning of year			$	6,405,623					$	5,487,574
Service cost			84,188						82,743
Interest cost			102,475						142,479
Acquisition			—						380,237
Plan amendments			2,311						3,286
Actuarial (gain) loss			(91,719)						569,306
Benefits paid			(264,062)						(232,048)
Foreign currency translation and other			84,187						(27,954)
Benefit obligation at end of year			$	6,323,003					$	6,405,623
Change in plan assets
Fair value of plan assets at beginning of year			$	4,594,106					$	4,244,969
Actual gain on plan assets			831,762						253,684
Acquisition			—						280,103
Employer contributions			76,936						72,753
Benefits paid			(264,062)						(232,048)
Foreign currency translation and other			66,835						(25,355)
Fair value of plan assets at end of year			$	5,305,577					$	4,594,106
Funded status			$	(1,017,426)					$	(1,811,517)

Amounts recognized on the Consolidated Balance Sheet
Other accrued liabilities			$	(4,944)					$	(1,423)
Pensions and other postretirement benefits			(1,012,482)						(1,810,094)
Net amount recognized			$	(1,017,426)					$	(1,811,517)
Amounts recognized in Accumulated Other Comprehensive (Loss)
Net actuarial loss			$	1,090,343					$	1,921,389
Prior service cost			15,006						17,184
Transition obligation			8						26
Net amount recognized			$	1,105,357					$	1,938,599

The presentation of the amounts recognized on the Consolidated Balance Sheet and in accumulated other comprehensive (loss) is on a debit (credit) basis and excludes the effect of income taxes.

At June 30, 2021, the benefit obligation decreased primarily due to slightly higher discount rates, partially offset by updated census data and assumptions.

The benefit obligation increased in 2020 upon acquisition of the Lord pension plans. Significant reductions in the discount rates also contributed to the increase in the benefit obligation, which was partially offset by a reduced salary scale and updated mortality assumptions for the domestic qualified defined benefit plan.

Investment gains are the primary contributing factor for the increase in plan assets' fair value during 2021. The increase in the plan assets' fair value in 2020 is attributable to the acquisition of the Lord pension plans and investment gains.

The accumulated benefit obligation for all defined benefit plans was $6,069 million and $6,102 million at June 30, 2021 and 2020, respectively.

Information for pension plans with accumulated benefit obligations in excess of plan assets:

			2021						2020
Accumulated benefit obligation			$	5,358,817					$	6,028,952
Fair value of plan assets			4,546,301						4,503,316

Information for pension plans with projected benefit obligations in excess of plan assets:

			2021						2020
Projected benefit obligation			$	5,620,693					$	6,348,500
Fair value of plan assets			4,568,113						4,523,545

We expect to make cash contributions of approximately $102 million to our defined benefit pension plans in 2022, the majority of which relates to our non-U.S. plans. Estimated future benefit payments in the five years ending June 30, 2022 through 2026 are $303,856, $283,530, $327,149, $302,877 and $305,135, respectively, and $1,644,821 in the aggregate for the five years ending June 30, 2027 through June 30, 2031.

The assumptions used to measure net periodic benefit cost for the Company's significant defined benefit plans are:

			2021						2020						2019
U.S. defined benefit plan
Discount rate			2.36		%				3.28		%				4.01		%
Average increase in compensation			2.98		%				3.60		%				3.65		%
Expected return on plan assets			6.75		%				7.00		%				7.00		%
Non-U.S. defined benefit plans
Discount rate			0.2 to 3.03%						0.2 to 2.96%						0.3 to 3.37%
Average increase in compensation			1.75 to 4.50%						1.75 to 3.90%						1.75 to 5.50%
Expected return on plan assets			1.0 to 5.40%						1.0 to 5.75%						1.0 to 5.75%

The assumptions used to measure the benefit obligation for the Company's significant defined benefit plans are:

			2021						2020
U.S. defined benefit plan
Discount rate			2.55		%				2.36		%
Average increase in compensation			3.05		%				2.98		%
Non-U.S. defined benefit plans
Discount rate			0.25 to 2.95%						0.2 to 3.03%
Average increase in compensation			1.75 to 4.50%						1.75 to 4.50%

The discount rate assumption is based on current rates of high-quality, long-term corporate bonds over the same estimated time period that benefit payments will be required to be made. The expected return on plan assets assumption is based on the weighted-average expected return of the various asset classes in the plans' portfolio. The asset class return is developed using historical asset return performance as well as current market conditions such as inflation, interest rates and equity market performance.

The weighted-average allocation of the majority of the assets related to defined benefit plans is as follows:

			2021						2020
Equity securities			38		%				41		%
Debt securities			41		%				49		%
Other investments			21		%				10		%
			100		%				100		%

The weighted-average target asset allocation as of June 30, 2021 is 40 percent equity securities, 43 percent debt securities and 17 percent other investments. The investment strategy for the Company's worldwide defined benefit pension plan assets focuses on achieving prudent actuarial funding ratios while maintaining acceptable levels of risk in order to provide adequate liquidity to meet immediate and future benefit requirements. This strategy requires investment portfolios that are broadly diversified across various asset classes and external investment managers. Assets held in the U.S. defined benefit plan account for approximately 75 percent of our total defined benefit plan assets. The overall investment strategy with respect to our U.S. defined benefit plan is to use a funding strategy more heavily weighted toward liability-hedging assets as the funded status improves. Over time, we will continue to add long duration fixed income investments to the portfolio. These securities are highly correlated with our pension liabilities and will be managed in a liability framework.

The fair values of pension plan assets at June 30, 2021 and at June 30, 2020, by asset class, are as follows:

			June 30, 2021						Quoted Prices In Active Markets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Cash and cash equivalents			$	248,525					$	241,421					$	7,104					$	—
Equity securities
U.S. based companies			408,301						408,301						—						—
Non-U.S. based companies			12,834						12,834						—						—
Fixed income securities
Corporate debt securities			531,497						1,440						530,057						—
Government issued securities			151,458						105,167						46,291						—
Mutual funds
Equity funds			6,768						6,768						—						—
Fixed income funds			6,506						6,506						—						—
Mutual funds measured at net asset value			368,340
Common/Collective trusts measured at net asset value			3,161,683
Limited Partnerships measured at net asset value			126,606
Miscellaneous			283,059						—						283,059						—
Total at June 30, 2021			$	5,305,577					$	782,437					$	866,511					$	—

			June 30, 2020						Quoted Prices In Active Markets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Cash and cash equivalents			$	97,112					$	96,004					$	1,108					$	—
Equity securities
U.S. based companies			243,656						243,656						—						—
Non-U.S. based companies			9,152						9,152						—						—
Fixed income securities
Corporate debt securities			616,582						1,477						615,105						—
Government issued securities			471,059						379,128						91,931						—
Mutual funds
Equity funds			111,466						111,466						—						—
Fixed income funds			12,912						12,912						—						—
Mutual funds measured at net asset value			259,776
Common/Collective trusts
Common/Collective trusts measured at net asset value			2,711,736
Limited Partnerships measured at net asset value			104,760
Miscellaneous			(44,105)						—						(44,105)						—
Total at June 30, 2020			$	4,594,106					$	853,795					$	664,039					$	—

Cash and cash equivalents are valued at cost, which approximates fair value. During 2021, the U.S. defined benefit plan implemented a new liability-hedging initiative that requires the plan to maintain a certain cash balance. At June 30, 2021, this required cash balance totaled approximately $162 million.

Equity securities are valued at the closing price reported on the active market on which the individual securities are traded. U.S. based companies include Parker stock with a fair value of $408,301 and $243,656 as of June 30, 2021 and 2020, respectively.

Fixed income securities are valued using both market observable inputs for similar assets that are traded on an active market and the closing price on the active market on which the individual securities are traded.

Mutual funds are valued using the closing market price reported on the active market on which the fund is traded or at net asset value per share and primarily consist of equity and fixed income funds. The equity funds primarily provide exposure to U.S. and international equities, real estate and commodities. The fixed income funds primarily provide exposure to high-yield securities and emerging market fixed income instruments. Mutual funds measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy and are presented in the tables above to permit reconciliation of the fair value hierarchy to total pension plan assets. Redemption of a certain mutual fund is subject to a lock-up period, lasting throughout its duration, scheduled to terminate July 2026. However, this mutual fund may extend its duration up to an additional two years under certain conditions.

Common/Collective trusts primarily consist of equity, fixed income and real estate funds and are valued using the closing market price reported on the active market on which the fund is traded or at net asset value per share. Common/Collective trust investments can be redeemed without restriction after giving appropriate notice to the issuer. Generally, redemption of the entire investment balance of all common/collective trusts requires no more than a 90-day notice period. The equity funds provide exposure to large, mid and small cap U.S. equities, international large and small cap equities and emerging market equities. The fixed income funds provide exposure to U.S., international and emerging market debt securities. Common/Collective trusts measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy and are presented in the tables above to permit reconciliation of the fair value hierarchy to total pension plan assets.

Limited Partnerships' interest in venture capital investments are measured at fair value based on net asset value as determined by the respective fund investment. A certain limited partnership investment, subject to a one year lock-up period expiring June 30, 2022, is restricted to a maximum redemption of 20 percent of its account balance every six months upon a 90-day notification period. Limited Partnerships measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy and are presented in the tables above to permit reconciliation of the fair value hierarchy to total pension plan assets.

Miscellaneous primarily includes insurance contracts held in the asset portfolio of the Company's non-U.S. defined benefit pension plans and net payables for securities purchased but not settled in the asset portfolio of the Company's U.S. defined benefit pension plan. Insurance contracts are valued at the present value of future cash flows promised under the terms of the insurance contracts.

The primary investment objective of equity securities and equity funds, within both the mutual fund and common/collective trust asset class, is to obtain capital appreciation in an amount that at least equals various market-based benchmarks. The primary investment objective of fixed income securities and fixed income funds, within both the mutual fund and common/collective trust asset class, is to provide for a constant stream of income while preserving capital. The primary investment objective of limited partnerships is to achieve capital appreciation through an investment program focused on specialized investment strategies. The primary investment objective of the investments in the miscellaneous category is to provide a stable rate of return over a specified period of time.

Employee Savings Plan - We sponsor an employee stock ownership plan ("ESOP") as part of our legacy savings and investment 401(k) plan. The ESOP is available to eligible domestic employees. Company matching contributions, up to a maximum of four percent of an employee's annual compensation, are recorded as compensation expense. Participants may direct company matching contributions to any investment option within the savings and investment 401(k) plan.

			2021						2020						2019
Shares held by ESOP			4,497,902						5,306,643						6,134,280
Company matching contributions			$	66,249					$	69,434					$	72,032

In addition to shares within the ESOP, as of June 30, 2021, employees have elected to invest in 1,258,763 shares of common stock within a company stock fund of the savings and investment 401(k) plan.

The Company has a retirement income account ("RIA") within our legacy savings and investment 401(k) plan. We make a cash contribution to the participant's RIA each year and participants do not contribute to the RIA. Prior to January 1, 2021, the amount of the annual contribution was based on the participant's age and years of service. Beginning January 1, 2021, we amended the RIA ensuring most participants receive a flat three percent annual contribution of eligible compensation with some grandfathered participants receiving annual contribution calculated at a higher percent of eligible compensation. Under the amended RIA, no participant will receive less than the flat three percent contribution. The Company recognized $41,680, $38,387 and $30,603 in expense related to the RIA in 2021, 2020 and 2019, respectively.

During 2020, we acquired several defined contribution plans comprised of similar company matching contributions and RIA features as our legacy plan. We recorded additional company matching expense of $4,623 and $4,190 and RIA expense of $5,425 and $7,439, respectively, for these acquired plans in 2021 and 2020. During 2021, these acquired plans were merged into our legacy savings and investment 401(k) plan.

Other Postretirement Benefits - The Company provides postretirement medical and life insurance benefits to certain retirees and eligible dependents. Most plans are contributory, with retiree contributions adjusted annually. The plans are unfunded and pay stated percentages of covered medically necessary expenses incurred by retirees after subtracting payments by Medicare or other providers and after stated deductibles have been met. For most plans, the Company has established cost maximums to more effectively control future medical costs. We have reserved the right to change these benefit plans.

The Company recognized $1,237, $1,551 and $1,838 in expense related to other postretirement benefits in 2021, 2020 and 2019, respectively. Components of net other postretirement benefit cost, other than service cost, are included in other (income), net in the Consolidated Statement of Income.

			2021						2020
Change in benefit obligation
Benefit obligation at beginning of year			$	72,130					$	60,998
Service cost			328						250
Interest cost			983						1,686
Acquisition			—						12,638
Actuarial (gain) loss			(4,139)						1,276
Benefits paid			(5,563)						(4,718)
Benefit obligation at end of year			$	63,739					$	72,130
Funded status			$	(63,739)					$	(72,130)

Amounts recognized on the Consolidated Balance Sheet
Other accrued liabilities			$	(5,634)					$	(6,374)
Pensions and other postretirement benefits			(58,105)						(65,756)
Net amount recognized			$	(63,739)					$	(72,130)
Amounts recognized in Accumulated Other Comprehensive (Loss)
Net actuarial gain			$	(4,311)					$	(173)
Prior service credit			—						(73)
Net amount recognized			$	(4,311)					$	(246)

The presentation of the amounts recognized on the Consolidated Balance Sheet and in accumulated other comprehensive (loss) is on a debit (credit) basis and is before the effect of income taxes.

The decrease in the benefit obligation in 2021, largely reflected in the net actuarial gain component, is primarily due to a slightly higher discount rate and updated census data and actuarial assumptions. The increase in the benefit obligation in 2020, primarily reflected in the acquisition component, is a result of assuming Lord's postretirement plans.

The assumptions used to measure the net periodic benefit cost for postretirement benefit obligations are:

			2021						2020						2019
Discount rate			2.14		%				3.15		%				3.92		%
Current medical cost trend rate (Pre-65 participants)			6.73		%				7.09		%				7.47		%
Current medical cost trend rate (Post-65 participants)			7.03		%				7.43		%				7.87		%
Ultimate medical cost trend rate			4.50		%				4.50		%				4.50		%
Medical cost trend rate decreases to ultimate in year			2028						2028						2026

The discount rate assumption used to measure the benefit obligation was 2.36 percent and 2.14 percent in 2021 and 2020, respectively.

Estimated future benefit payments for other postretirement benefits in the five years ending June 30, 2022 through 2026 are $5,634, $5,155, $4,828, $4,540 and $4,317, respectively, and $18,566 in the aggregate for the five years ending June 30, 2027 through June 30, 2031.

Other - The Company has established nonqualified deferred compensation programs, which permit officers, directors and certain management employees to annually elect to defer a portion of their compensation, on a pre-tax basis, until their retirement. The retirement benefit to be provided is based on the amount of compensation deferred, company matching contributions and earnings on the deferrals. In addition, we maintain a defined contribution nonqualified supplemental executive pension plan in which the Company is the only contributor. During 2021, 2020 and 2019, we recorded expense relating to these programs of $44,906, $5,863 and $5,916, respectively.

The Company has invested in corporate-owned life insurance policies to assist in meeting the obligations under these programs. The policies are held in a rabbi trust and are recorded as assets of the Company.

13. Equity

Changes in accumulated other comprehensive (loss) in shareholders' equity by component:

			Foreign Currency Translation Adjustment and Other						Retirement Benefit Plans						Total
Balance June 30, 2019			$	(1,011,656)					$	(1,047,392)					$	(2,059,048)
Other comprehensive (loss) before reclassifications			(182,281)						(447,161)						(629,442)
Amounts reclassified from accumulated other comprehensive (loss)			—						129,615						129,615
Balance June 30, 2020			$	(1,193,937)					$	(1,364,938)					$	(2,558,875)
Other comprehensive income before reclassifications			328,072						502,853						830,925
Amounts reclassified from accumulated other comprehensive (loss)			—						161,223						161,223
Balance June 30, 2021			$	(865,865)					$	(700,862)					$	(1,566,727)

Significant reclassifications out of accumulated other comprehensive (loss) in shareholders' equity during 2021:

Details about Accumulated Other Comprehensive (Loss) Components						Income (Expense) Reclassified from Accumulated Other Comprehensive (Loss)						Consolidated Statement of Income Classification
Retirement benefit plans
Amortization of prior service cost and initial net obligation						$	(5,270)					Other (income) expense, net
Recognized actuarial loss						(207,896)						Other (income) expense, net
Total before tax						(213,166)
Tax benefit						51,943
Net of tax						$	(161,223)

Significant reclassifications out of accumulated other comprehensive (loss) in shareholders' equity during 2020:

Details about Accumulated Other Comprehensive (Loss) Components						Income (Expense) Reclassified from Accumulated Other Comprehensive (Loss)						Consolidated Statement of Income Classification
Retirement benefit plans
Amortization of prior service cost and initial net obligation						$	(5,531)					Other (income) expense, net
Recognized actuarial loss						(165,550)						Other (income) expense, net
Total before tax						(171,081)
Tax benefit						41,466
Net of tax						$	(129,615)

Share Repurchases - The Company has a program to repurchase its common shares. On October 22, 2014, the Board of Directors of the Company approved an increase in the overall number of shares authorized to repurchase under the program so that, beginning on such date, the aggregate number of shares authorized for repurchase was 35 million. There is no limitation on the number of shares that can be repurchased in a year. Repurchases may be funded primarily from operating cash flows and commercial paper borrowings and the shares are initially held as treasury shares. In March 2020, the Company suspended the share repurchase program in response to business uncertainty resulting from the COVID-19 pandemic. During 2021, the Company reinitiated the share repurchase program and began repurchasing shares under the program in February 2021.

The number of common shares repurchased at the average purchase price follows:

			2021						2020						2019
Shares repurchased			331,259						818,581						4,755,273
Average price per share including commissions			$	301.88					$	179.29					$	168.23

14. Stock Incentive Plans

The Company's 2016 Omnibus Stock Incentive Plan ("2016 SIP") provides for the granting of share-based incentive awards in the form of nonqualified stock options, stock appreciation rights ("SARs"), restricted stock units ("RSUs") and restricted and unrestricted stock to officers and key employees of the Company. On October 23, 2019, the number of shares of common stock authorized for issuance under the 2016 SIP increased to 23.8 million shares. At June 30, 2021, 11.3 million common stock shares were available for future issuance.

We satisfy share-based incentive award obligations by issuing shares of common stock out of treasury, which have been repurchased pursuant to our share repurchase program described in Note 13, or through the issuance of previously unissued common stock.

SARs - Upon exercise, SARs entitle the participant to receive shares of common stock equal to the increase in value of the award between the grant date and the exercise date. SARs are exercisable from one to three years after the date of grant and expire no more than 10 years after grant.

The fair value of each SAR award granted in 2021, 2020 and 2019 was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

			2021						2020						2019
Risk-free interest rate			0.4		%				1.5		%				2.8		%
Expected life of award			5.4 years						5.1 years						5.1 years
Expected dividend yield of stock			2.0		%				2.0		%				1.9		%
Expected volatility of stock			35.2		%				25.9		%				24.2		%
Weighted-average fair value			$	53.92					$	31.68					$	35.09

The risk-free interest rate was based on U.S. Treasury yields with a term similar to the expected life of the award. The expected life of the award was derived by referring to actual exercise and post-vesting employment termination experience. The expected dividend yield was based on our historical dividend rate and stock price over a period similar to the expected life of the award. The expected volatility of stock was derived by referring to changes in our historical common stock prices over a time-frame similar to the expected life of the award.

SAR activity during 2021 is as follows (aggregate intrinsic value in millions):

			Number of Shares						Weighted-Average Exercise Price						Weighted-Average Remaining Contractual Term						Aggregate Intrinsic Value
Outstanding June 30, 2020			5,183,970						$	132.42
Granted			741,852						$	209.56
Exercised			(1,741,352)						$	116.51
Canceled			(35,884)						$	185.29
Outstanding June 30, 2021			4,148,586						$	152.44					6.3 years						$	641.7
Exercisable June 30, 2021			2,677,757						$	134.55					5.1 years						$	462.1

A summary of the status and changes of shares subject to SAR awards and the related average price per share follows:

			Number of Shares						Weighted-Average Grant Date Fair Value
Nonvested June 30, 2020			1,539,502						$	32.41
Granted			741,852						$	53.92
Vested			(774,721)						$	32.09
Canceled			(35,804)						$	42.50
Nonvested June 30, 2021			1,470,829						$	43.19

During 2021, 2020 and 2019, we recognized stock-based compensation expense of $35,212, $26,108 and $26,568, respectively, relating to SAR awards. The Company derives a tax deduction measured by the excess of the market value over the grant price at the date stock-based awards are exercised. The related income tax benefit was credited to income tax expense.

At June 30, 2021, $13,089 of expense with respect to nonvested SAR awards has yet to be recognized and will be amortized into expense over a weighted-average period of approximately 16 months. The total fair value of shares vested during 2021, 2020 and 2019 was $24,857, $27,209 and $25,365, respectively.

Information related to SAR awards exercised during 2021, 2020 and 2019 is as follows:

			2021						2020						2019
Net cash proceeds			$	4,684					$	2,623					$	2,475
Intrinsic value			225,025						133,641						95,502
Income tax benefit			$	37,437					$	21,132					$	15,584
Number of shares surrendered			316,330						228,986						158,610

RSUs - RSUs constitute an agreement to deliver shares of common stock to the participant at the end of a vesting period. Generally, the RSUs granted to employees vest, and the underlying stock is issued ratably, over a three-year graded vesting period. Nonvested RSUs may not be transferred and do not have dividend or voting rights. For each nonvested RSU, recipients are entitled to receive a dividend equivalent, payable in cash or common shares, equal to the cash dividend per share paid to common shareholders.

The fair value of each RSU award granted in 2021, 2020 and 2019 was based on the fair market value of our common stock on the date of grant. A summary of the status and changes of shares subject to RSU awards for employees and the related average price per share follows:

			Number of Shares						Weighted-Average Grant Date Fair Value
Nonvested June 30, 2020			350,573						$	160.66
Granted			137,488						$	218.17
Vested			(130,121)						$	161.75
Canceled			(8,354)						$	188.20
Nonvested June 30, 2021			349,586						$	182.22

During 2021, 2020 and 2019, we recognized stock-based compensation expense of $26,009, $25,560 and $25,258, respectively, relating to RSU awards for employees. At June 30, 2021, $20,543 of expense with respect to nonvested RSU awards has yet to be recognized and will be amortized into expense over a weighted-average period of approximately 20 months. The total fair value of RSU awards vested during 2021, 2020 and 2019 was $21,048, $23,380 and $20,475, respectively. We recognized an income tax benefit of $796, $1,037 and $1,548 relating to the issuance of common stock for RSU awards that vested during 2021, 2020 and 2019, respectively.

Additionally, we granted RSUs with a one-year vesting period to non-employee members of the Board of Directors. Recipients receive a dividend equivalent payable in common shares, equal to the cash dividend per share paid to common shareholders. A summary of the status and changes of shares subject to Board of Directors RSU awards and the related average price per share follows:

			Number of Shares						Weighted-Average Grant Date Fair Value
Nonvested June 30, 2020			8,262						$	187.49
Granted			8,122						$	214.46
Vested			(8,298)						$	187.49
Canceled			(610)						$	203.23
Nonvested June 30, 2021			7,476						$	215.51

The fair value of each RSU award granted to the Board of Directors in 2021, 2020 and 2019 was based on the fair market value of our common stock on the date of grant. In 2021, 2020 and 2019, we recognized stock-based compensation expense of $1,458, $1,434, and $1,345, respectively, relating to these awards. During 2021, 2020 and 2019, we recognized an income tax benefit (cost) of $2,115, $86 and $(82), respectively, related to the vesting of Board of Directors RSU awards. At June 30, 2021, $649 of expense with respect to nonvested RSU awards granted to the Board of Directors has yet to be recognized and will be amortized into expense over a weighted-average period of approximately five months.

LTIP - The Company's Long Term Incentive Plans ("LTIP") provide for the issuance of unrestricted stock to certain officers and key employees based on the attainment of certain goals relating to our revenue growth, earnings per share growth and return on invested capital during the three-year performance period.

Stock issued and surrendered for LTIP						2021						2020						2019
LTIP three-year plan						2018-19-20						2017-18-19						2016-17-18
Number of shares issued						210,864						279,469						293,136
Number of shares surrendered						105,402						132,449						134,169
Share value on date of issuance						$	317.60					$	134.95					$	183.00
Total value of shares issued						$	66,970					$	37,714					$	53,644

Under the Company's 2019-20-21 LTIP, a payout of unrestricted stock will be issued in April 2022.

The fair value of each LTIP award granted in 2021, 2020 and 2019 was based on the fair market value of our common stock on the date of grant. These nonvested LTIP awards entitle participants to earn a dividend equivalent unit, payable in common shares, equal to the cash dividend per share paid to common shareholders. These dividend equivalent units do not have dividend or voting rights and are subject to the same performance goals as the initial award granted. A summary of the status and changes of shares relating to the LTIP and the related average price per share follows:

			Number of Shares						Weighted-Average Grant Date Fair Value
Nonvested June 30, 2020			539,059						$	186.75
Granted			141,122						$	242.80
Vested			(173,582)						$	208.83
Canceled			(11,548)						$	199.95
Nonvested June 30, 2021			495,051						$	194.68

During 2021, 2020 and 2019, we recorded stock-based compensation expense of $58,804, $58,273 and $50,908, respectively, relating to the LTIP. During 2021, 2020 and 2019, we recognized an income tax benefit (cost) of $1,974, $(1,251) and $14,101, respectively, relating to the LTIP.

15. Research and Development

Research and development costs amounted to $259,039 in 2021, $293,837 in 2020 and $294,852 in 2019. These amounts include both costs incurred by the Company related to independent research and development initiatives as well as costs incurred in connection with research and development contracts. Costs incurred in connection with research and development contracts amounted to $54,051 in 2021, $56,964 in 2020 and $44,484 in 2019. These costs are included in the total research and development cost for each of the respective years.

16. Financial Instruments

The Company’s 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 of equity investments are recognized in net income.

The carrying value of long-term debt, which excludes the impact of net unamortized debt issuance costs, and estimated fair value of long-term debt at June 30 are as follows:

						2021						2020
Carrying value of long-term debt						$	6,646,029					$	7,809,541
Estimated fair value of long-term debt						7,527,268						8,574,401

The fair value of long-term debt is classified within level 2 of the fair value hierarchy.

The Company utilizes 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 the Company does not anticipate any material non-performance by any of the counterparties. The Company does 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.

During 2020, we settled the cross-currency swap with an aggregate notional amount of €235 million, which was designated as a net investment hedge, for proceeds of $44 million. These proceeds are included in cash flows from investing activities in the Consolidated Statement of Cash Flows. Additionally, we entered into two cross-currency swaps with aggregate notional amounts of €359 million and ¥2,149 million due June 2029. These cross-currency swaps have been designated as hedges of net investments in certain foreign subsidiaries.

During 2021, we amended the two cross-currency swaps with aggregate notional amounts of €359 million and ¥2,149 million due June 2029 to cross-currency swaps with aggregate notional amounts of €69 million due November 2034, €290 million due May 2038 and ¥2,149 million due November 2034. These cross-currency swaps are each subject to a credit support annex ("CSA") where either party is obligated to post collateral if the outstanding position exceeds a certain threshold governed by the CSA's starting in June 2029. These cross-currency swaps have been designated as hedges of net investments in certain foreign subsidiaries.

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 on the Consolidated Balance Sheet are as follows:

			Balance Sheet Caption						2021						2020
Net investment hedges
Cross-currency swap contracts			Other liabilities						$	71,798					$	30,860
Cash flow hedges
Forward exchange contracts			Non-trade and notes receivable						5,376						5,311
Forward exchange contracts			Other accrued liabilities						9,435						3,474
Costless collar contracts			Non-trade and notes receivable						110						2,250
Costless collar contracts			Other accrued liabilities						901						661

The cross-currency swap, forward exchange contracts and costless collar contracts are reflected on a gross basis in the Consolidated Balance Sheet. The Company has not entered into any master netting arrangements.

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.

Derivatives not designated as hedges are adjusted to fair value by recording gains and losses through the cost of sales caption in the Consolidated Statement of Income.

Derivatives designated as hedges are adjusted to fair value by recording gains and losses through accumulated other comprehensive (loss) on the Consolidated Balance Sheet until the hedged item is recognized in earnings. We elected to assess the effectiveness of the €69 million, €290 million and ¥2,149 million cross-currency swap hedging instruments using the spot method. Under this method, the periodic interest settlements are recognized directly in earnings through interest expense.

Net gains (losses) of $16 million and $(27) million relating to forward exchange contracts were recorded within cost of sales on the Consolidated Statement of Income for the year ended June 30, 2021 and 2020, respectively. All other gains or losses on derivative financial instruments that were recorded in the Consolidated Statement of Income during 2021, 2020 and 2019 were not material.

(Losses) gains on derivative and non-derivative financial instruments that were recorded in accumulated other comprehensive (loss) in the Consolidated Balance Sheet are as follows:

			2021						2020
Cross-currency swap contracts			$	(31,988)					$	(9,435)
Foreign denominated debt			(32,882)						7,205

During 2021 and 2020, the periodic interest settlements related to the cross-currency swaps were not material. No portion of these financial instruments were excluded from the effectiveness testing during 2019.

A summary of financial assets and liabilities that were measured at fair value on a recurring basis at June 30, 2021 and 2020 are as follows:

						June 30, 2021						Quoted Prices In Active Markets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Assets:
Equity securities						$	20,517					$	20,517					$	—					$	—
Derivatives						5,486						—						5,486						—
Liabilities:
Derivatives						82,134						—						82,134						—

						June 30, 2020						Quoted Prices In Active Markets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Assets:
Equity securities						$	7,901					$	7,901					$	—					$	—
Derivatives						7,561						—						7,561						—
Liabilities:
Derivatives						34,995						—						34,995						—

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 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.

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.

17. Contingencies

The Company is involved in various litigation matters arising in the normal course of business, including proceedings based on product liability claims, workers' compensation claims and alleged violations of various environmental laws. We are self-insured in the United States for health care, workers' compensation, general liability and product liability up to predetermined amounts, above which third party insurance applies. Management regularly reviews the probable outcome of these proceedings, the expenses expected to be incurred, the availability and limits of the insurance coverage and the established accruals for liabilities. While the outcome of pending proceedings cannot be predicted with certainty, management believes that any liabilities that may result from these proceedings will not have a material adverse effect on our liquidity, financial condition or results of operations.

Environmental - The Company is currently responsible for environmental remediation at various manufacturing facilities presently or formerly operated by the Company and has been named as a “potentially responsible party,” along with other companies, at off-site waste disposal facilities and regional sites.

As of June 30, 2021, we had an accrual of $17,059 for environmental matters, which are probable and reasonably estimable. The accrual is recorded based upon the best estimate of costs to be incurred in light of the progress made in determining the magnitude of remediation costs, the timing and extent of remedial actions required by governmental authorities and the amount of our liability in proportion to other responsible parties.

Our estimated total liability for environmental matters ranges from a minimum of $17.1 million to a maximum of $73.5 million. The largest range for any one site is approximately $11.4 million. The actual costs we will incur are dependent on final determination of contamination and required remedial action, negotiations with governmental authorities with respect to cleanup levels, changes in regulatory requirements, innovations in investigatory and remedial technologies, effectiveness of remedial technologies employed, the ability of other responsible parties to pay, and any insurance or other third-party recoveries.