Parker-Hannifin Corp

Previous wording

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative, from management's perspective, on our financial condition and results of operations. The following discussion and analysis should be read in conjunction with, the consolidated financial statements and the accompanying notes in Item 1 in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended June 30, 2025. As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms "Company", "Parker", "we" or "us" refer to Parker-Hannifin Corporation and its subsidiaries. Dollars are presented in millions, except per share amounts or as otherwise noted. The Company has changed its presentation on the consolidated financial statements from thousands to millions and, as a result, any necessary rounding adjustments have been made to prior period disclosed amounts within MD&A.

Current wording

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative, from management's perspective, on our financial condition and results of operations. The following discussion and analysis should be read in conjunction with the consolidated financial statements and the accompanying notes in Item 1 in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended June 30, 2026. As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms "Company", "Parker", "we" or "us" refer to Parker-Hannifin Corporation and its subsidiaries. Dollars are presented in millions, except per share amounts or as otherwise noted.

Previous wording

Over the long term, the extent to which our business and results of operations will be impacted by global economic and political uncertainty and geopolitical risks depends on future developments that remain uncertain. In particular, the tariff environment continues to be very dynamic. In February 2026, the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act ("IEEPA") on goods imported into the U.S. were unauthorized. We will continue to monitor developments; however, given the uncertainty surrounding potential refunds, we have not recorded a receivable for IEEPA tariffs paid as of March 31, 2026. Additionally, geopolitical tensions in the Middle East, including the ongoing conflict involving Iran, could adversely affect global supply chains and exert upward pressure on commodity, energy and logistic costs. We will continue to monitor the global environment and manage our business with the goal to minimize unfavorable impacts on operations and financial results.

Current wording

Over the long term, the extent to which our business and results of operations will be impacted by global economic and political uncertainty and geopolitical risks depends on future developments that remain uncertain. We will continue to monitor the global environment and manage our business with the goal to minimize unfavorable impacts on operations and financial results.

Previous wording

Interest expense increased during the current-year quarter primarily due to higher average debt outstanding, and decreased in the first nine months of fiscal 2026 primarily due to lower average interest rates.

Current wording

Interest expense increased during the current-year quarter compared to the prior-year quarter, primarily due to higher average debt outstanding.

Previous wording

The fiscal 2026 effective tax rate is expected to be approximately 21 percent.

Current wording

The fiscal 2027 effective tax rate is expected to be approximately 22.5%.

Previous wording

We operate in two reportable business segments: Diversified Industrial and Aerospace Systems. The business segment information presents sales and operating income on a basis that is consistent with the manner in which our various businesses are managed for internal review and decision-making.

Current wording

The following segment information is presented on a basis that is consistent with the manner in which the Company's various businesses are managed for internal review and decision-making.

Previous wording

Backlog consists of written firm orders from a customer to deliver products and, in the case of blanket purchase orders, only includes the portion of the order for which a schedule or release date has been agreed to with the customer. The dollar value of backlog is equal to the amount that is expected to be billed to the customer and reported as a sale.

Current wording

The following segment discussions include information relating to backlog for each segment. Backlog consists of written firm orders from a customer to deliver products and, in the case of blanket purchase orders, only includes the portion of the order for which a schedule or release date has been agreed to with the customer. The dollar value of backlog is equal to the amount that is expected to be billed to the customer and reported as a sale.

Previous wording

The Diversified Industrial Segment operations experienced the following percentage changes in net sales in the current-year periods versus the comparable prior-year periods:

Current wording

The Diversified Industrial segment operations experienced the following percentage changes in net sales:

Previous wording

Within the Aerospace Systems Segment, business realignment and acquisition integration charges were immaterial during the current-year quarter and first nine months of fiscal 2026. During the prior-year quarter and first nine months of fiscal 2025, business realignment and acquisition integration charges were $3 million and $15 million, respectively, and primarily related to acquisition integration activities. We do not expect to incur material business realignment or acquisition integration charges for the remainder of fiscal 2026. However, continually changing business conditions could impact the ultimate costs we incur.

Current wording

We expect to incur approximately $75 million and $35 million in business realignment and acquisition integration charges, respectively, during the remainder of fiscal 2027. Continually changing business conditions could impact the ultimate costs we incur.

Previous wording

Diversified Industrial Segment backlog, as of March 31, 2026, increased from both the comparable prior-year quarter and the June 30, 2025 balance of $3.7 billion, primarily due to orders exceeding shipments in both the North America and International businesses.

Current wording

Diversified Industrial backlog, as of September 30, 2026, increased from June 30, 2026 and the prior-year quarter, primarily due to the addition of FGC backlog as well as orders exceeding shipments in both the North America and International businesses.

Previous wording

Aerospace Systems Segment sales increased in the current-year quarter due to higher volume in all market segments. During the first nine months of fiscal 2026, sales increased primarily due to higher volume in the commercial OEM and aftermarket, as well as the defense OEM market segment.

Current wording

Aerospace Systems sales increased in the current-year quarter compared to prior-year quarter, due to higher volume across all market segments, especially in the commercial OEM and aftermarket market segments.

Previous wording

Aerospace Systems Segment backlog as of March 31, 2026, increased from the prior-year quarter primarily due to orders exceeding shipments in the commercial and defense OEM market segments, as well as the commercial aftermarket market segment. The increase in backlog from the June 30, 2025 balance of $7.4 billion is primarily due to orders exceeding shipments in all market segments, especially in the commercial OEM and aftermarket market segments.

Current wording

Aerospace Systems backlog as of September 30, 2026, increased from June 30, 2026 and the prior-year quarter primarily due to orders exceeding shipments in all market segments.

Previous wording

Corporate general and administrative expenses in both the current-year quarter and first nine months of fiscal 2026 primarily included salaries, benefits and incentive compensation expense, professional service fees, information technology, charitable contributions and other discretionary spending.

Current wording

Corporate general and administrative expenses primarily included salaries, benefits and incentive compensation expense, professional service fees, information technology, charitable contributions and other discretionary spending.

Previous wording

We expect that our cash and cash equivalents, cash flows from operations, availability under our commercial paper program and Filtration Group Credit Facilities, and access to capital markets will be sufficient to meet these liquidity needs for the next twelve months and the foreseeable future.

Current wording

We expect that our cash and cash equivalents, cash flows from operations, availability under our commercial paper program, 2027 Credit Facility, and access to capital markets will be sufficient to meet these liquidity needs for the next twelve months and the foreseeable future.

Previous wording

At March 31, 2026, we had cash and cash equivalents totaling $476 million, of which $423 million was held by our foreign subsidiaries. We intend to repatriate certain foreign earnings, which may result in non-federal U.S. or foreign tax liabilities. All other undistributed foreign earnings are considered to be permanently reinvested.

Current wording

At September 30, 2026, we had cash and cash equivalents totaling $711 million, of which $585 million was held by our foreign subsidiaries. We intend to repatriate certain foreign earnings, which may result in non-federal U.S. or foreign tax liabilities. All other undistributed foreign earnings are considered to be permanently reinvested.

Previous wording

Net cash provided by operating activities increased $319 million for the first nine months of fiscal 2026 compared to the first nine months of fiscal 2025. The increase was primarily driven by higher net income adjusted for non-cash items (including depreciation, amortization, stock-based compensation expense, deferred income taxes and gains on sale of businesses), which more than offset the increased working capital requirements, specifically within accounts receivable and inventory. We continue to focus on managing inventory and other working capital requirements.

Current wording

Net cash provided by operating activities decreased $30 million in the current-year quarter compared to the prior-year quarter. The decrease was primarily driven by increased working capital requirements within accounts receivable and inventory and higher income taxes paid, partially offset by higher net income adjusted for non-cash items (including depreciation, amortization, stock-based compensation expense and deferred income taxes). Cash flows from operating activities in the current-year quarter were also negatively impacted by acquisition-related transaction costs of $55 million. We continue to focus on managing inventory and other working capital requirements.

Previous wording

•Days sales outstanding relating to trade accounts receivable was 53 days at March 31, 2026, 51 days at June 30, 2025 and 53 days at March 31, 2025.

Current wording

•Days sales outstanding relating to trade accounts receivable was 51 days at September 30, 2026, 50 days at June 30, 2026 and 52 days at September 30, 2025. For purposes of the September 30, 2026 calculation, FGC sales were adjusted to reflect a full quarter of sales.

Previous wording

•Days supply of inventory on hand was 88 days at March 31, 2026, 82 days at June 30, 2025 and 85 days at March 31, 2025.

Current wording

•Days supply of inventory on hand was 92 days at September 30, 2026, 86 days at June 30, 2026 and 93 days at September 30, 2025.

Previous wording

•Net commercial paper borrowings of $323 million in the first nine months of fiscal 2026 compared to net commercial paper repayments of $213 million in the first nine months of fiscal 2025.

Current wording

•Net commercial paper borrowings of $1.8 billion in the current-year quarter compared to net commercial paper borrowings of $1.1 billion in prior-year quarter.

Previous wording

•Repurchases under our share repurchase program amounted to 1.0 million common shares for $825 million during the first nine months of fiscal 2026, compared to 1.2 million common shares for $750 million during the first nine months of fiscal 2025.

Current wording

•Repurchases under our share repurchase program amounted to 0.1 million common shares for $75 million during the current-year quarter, compared to 0.6 million common shares for $475 million during the prior-year quarter.

Previous wording

In August 2025, we amended our revolving credit agreement to increase the total line of credit to $3.75 billion, and authorized a corresponding increase in the commercial paper program size to $3.75 billion. The revolving credit agreement expires in June 2028; however, we have the right to request a one-year extension of the expiration date. Advances from the credit agreement can be used for general corporate purposes, including acquisitions, and for the refinancing of existing indebtedness. Issuances of commercial paper reduce the amount of credit available under the revolving credit agreement. As of March 31, 2026, there were no borrowings outstanding under the revolving credit agreement, and commercial paper notes outstanding were $2.1 billion. Taking into account outstanding commercial paper notes, $1.7 billion was available for borrowing under the credit agreement as of March 31, 2026.

Current wording

On September 4, 2026, the Company entered into a new revolving credit agreement, which replaces the previous amended and restated revolving credit agreement and provides for an increase in the total line of credit to $5.0 billion. The Company also increased the size of its commercial paper program to $5.0 billion. The revolving credit agreement expires in September 2031; however, we have the right to request an extension up to one year. Advances from the revolving credit agreement can be used for general corporate purposes, including acquisitions, and for the refinancing of existing indebtedness. Issuances of commercial paper reduce the amount of credit available under the revolving credit agreement. As of September 30, 2026, there were no borrowings outstanding under the revolving credit agreement, and commercial paper notes outstanding were $2.8 billion. Taking into account outstanding commercial paper notes, $2.2 billion was available for borrowing under the revolving credit agreement as of September 30, 2026.

Previous wording

On December 10, 2025, we entered into a 364-Day Term Loan Agreement and a Three-Year Term Loan Agreement, which provide for senior unsecured delayed draw term loan facilities in aggregate principal amounts of $5.25 billion and $2.50 billion, respectively. Proceeds from the Filtration Group Credit Facilities, if and when drawn, will be used to finance a portion of the consideration for the Company's proposed acquisition of Filtration Group. The Filtration Group Credit Facilities mature 364 days and three years, respectively, following the date of the initial funding of all or a portion of the applicable delayed draw term loan. As of March 31, 2026, we have not borrowed any funds under the Filtration Group Credit Facilities.

Current wording

During fiscal 2026, the Company entered into the 2026 Credit Facilities, consisting of a 364-Day Term Loan Agreement and a Three-Year Term Loan Agreement that provide for senior unsecured delayed draw term loan facilities in aggregate principal amounts of $5.25 billion and $2.50 billion, respectively. On August 13, 2026, the Company borrowed the full $7.75 billion aggregate amount available under the 2026 Credit Facilities. We used the proceeds from the 2026 Credit Facilities to finance a portion of the consideration for the FGC acquisition. In September 2026, we repaid the 364-Day Term Loan in full and terminated the agreement. The Three-Year Term Loan Agreement matures three years following August 13, 2026.

Previous wording

We primarily utilize unsecured medium-term notes and senior notes to meet our financing needs and we expect to continue to borrow funds at reasonable rates over the long term.

Current wording

We primarily utilize unsecured senior notes, term loan debt, and medium-term notes to meet our financing needs and we expect to continue to borrow funds at reasonable rates over the long term.

Previous wording

Our credit agreements and indentures governing certain debt securities contain various covenants. Violation of these covenants would limit or preclude the use of the credit agreements for future borrowings or could accelerate the maturity of the related outstanding borrowings. Based on our rating level at March 31, 2026, the most restrictive financial covenant requires that the ratio of debt to debt-shareholders' equity not exceed 0.65 to 1.0. As of March 31, 2026, we are in compliance with all covenants, with a ratio of 0.40 to 1.0. We expect to remain in compliance with all covenants set forth in our credit agreements and indentures.

Current wording

Our credit agreements and indentures governing certain debt securities contain various covenants. Violation of these covenants would limit or preclude the use of the credit agreements for future borrowings or could accelerate the maturity of the related outstanding borrowings. As of September 30, 2026, we are in compliance with all covenants set forth in our credit agreements and indentures.

Previous wording

We are targeting 2.0 to 2.5 percent of sales for capital expenditures for fiscal 2026 and have an annual long-term target of 2.0 percent. We will continue to prioritize capital expenditures related to safety, productivity and strategic investments.

Current wording

We are targeting 2.5% of sales for capital expenditures for fiscal 2027 and have an annual long-term target of 2.0%. We will continue to prioritize capital expenditures related to safety, productivity and strategic investments.

Previous wording

We declared a quarterly cash dividend of $1.80 per share on January 22, 2026, which was paid on March 6, 2026. Dividends have been paid for 303 consecutive quarters. Additionally, we declared a quarterly cash dividend of $2.00 per share on April 23, 2026, payable on June 5, 2026, increasing our annual dividend per share paid to shareholders for 70 consecutive fiscal years.

Current wording

We declared a quarterly cash dividend of $2.00 per share on August 20, 2026, which was paid on September 11, 2026. Dividends have been paid for 305 consecutive quarters, including a yearly increase in dividends for 70 consecutive fiscal years. Additionally, we declared a quarterly cash dividend of $2.00 per share on October 28, 2026, payable on December 4, 2026.

Previous wording

On August 21, 2025, the Board of Directors approved an update to the number of shares available under our previous share repurchase authorization so that the aggregate number of shares available for repurchase as of such date was 20.0 million. There is no limitation on the number of shares that can be repurchased in a year and there is no expiration date for the program. As of March 31, 2026, 19.0 million shares remained available under the repurchase authorization. Refer to Note 10 to the consolidated financial statements for further discussion of share repurchases.

Current wording

On August 21, 2025, the Board of Directors approved an update to the number of shares available under our previous share repurchase authorization so that the aggregate number of shares available for repurchase as of such date was 20.0 million. There is no limitation on the number of shares that can be repurchased in a year and there is no expiration date for the program. As of September 30, 2026, 18.8 million shares remained available under the repurchase authorization. Refer to Note 10 to the consolidated financial statements for further discussion of share repurchases.

Previous wording

Acquisitions will be considered from time to time to the extent there is a strong strategic fit, while at the same time maintaining our strong financial position. In addition, we will continue to assess our existing businesses and initiate efforts to divest businesses that are not considered to be a good long-term strategic fit for Parker. On September 18, 2025, we completed the acquisition of Curtis, for approximately $1.0 billion, net of cash acquired. On November 11, 2025, we announced that we have agreed to acquire Filtration Group from Madison Industries for approximately $9.25 billion in cash. The transaction is subject to customary closing conditions, including receipt of applicable regulatory approvals, and is expected to close within 12 months from the announcement date. We expect to fund the transaction with a combination of new debt, including borrowings under the Filtration Group Credit Facilities and cash. Refer to Note 4 to the consolidated financial statements for further discussion.

Current wording

Acquisitions will be considered from time to time to the extent there is a strong strategic fit, while at the same time maintaining our strong financial position. In addition, we will continue to assess our existing businesses and initiate efforts to divest businesses that are not considered to be a good long-term strategic fit for Parker.

Previous wording

•uncertainties surrounding timing, successful completion or integration of acquisitions and similar transactions, including the pending acquisition of Filtration Group and the integration of Curtis;

Current wording

•uncertainties surrounding timing, successful completion or integration of acquisitions and similar transactions, including the pending acquisition of CIRCOR Aerospace, and the integration of FGC and Curtis;