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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2020
OR | | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File number 1-4982
PARKER-HANNIFIN CORPORATION
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Ohio | 34-0451060 |
(State or other jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| | | |
6035 Parkland Boulevard, | Cleveland, | Ohio | 44124-4141 |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (216) 896-3000
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
Title of Each Class | | Trading Symbol | | Name of Each Exchange on which Registered |
Common Shares, $.50 par value | | PH | | New York Stock Exchange |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
| | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
| | | |
Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
| | | | | | |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Number of Common Shares outstanding at December 31, 2020: 129,081,165
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| December 31, | | December 31, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net sales | $ | 3,411,905 | | | $ | 3,497,974 | | | $ | 6,642,445 | | | $ | 6,832,485 | |
Cost of sales | 2,519,545 | | | 2,682,765 | | | 4,903,873 | | | 5,162,506 | |
Selling, general and administrative expenses | 356,572 | | | 491,121 | | | 726,423 | | | 890,300 | |
| | | | | | | |
Interest expense | 62,990 | | | 82,891 | | | 128,948 | | | 152,847 | |
Other (income), net | (103,714) | | | (13,549) | | | (108,606) | | | (61,070) | |
Income before income taxes | 576,512 | | | 254,746 | | | 991,807 | | | 687,902 | |
Income taxes | 129,015 | | | 50,148 | | | 222,593 | | | 144,263 | |
Net income | 447,497 | | | 204,598 | | | 769,214 | | | 543,639 | |
Less: Noncontrolling interest in subsidiaries' earnings | 191 | | | 124 | | | 499 | | | 267 | |
Net income attributable to common shareholders | $ | 447,306 | | | $ | 204,474 | | | $ | 768,715 | | | $ | 543,372 | |
| | | | | | | |
Earnings per share attributable to common shareholders: | | | | | | | |
Basic | $ | 3.47 | | | $ | 1.59 | | | $ | 5.97 | | | $ | 4.23 | |
Diluted | $ | 3.41 | | | $ | 1.57 | | | $ | 5.89 | | | $ | 4.17 | |
See accompanying notes to consolidated financial statements.
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| December 31, | | December 31, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net income | $ | 447,497 | | | $ | 204,598 | | | $ | 769,214 | | | $ | 543,639 | |
Less: Noncontrolling interests in subsidiaries' earnings | 191 | | | 124 | | | 499 | | | 267 | |
Net income attributable to common shareholders | 447,306 | | | 204,474 | | | 768,715 | | | 543,372 | |
| | | | | | | |
Other comprehensive income, net of tax | | | | | | | |
Foreign currency translation adjustment | 217,828 | | | 151,583 | | | 348,510 | | | 48,862 | |
Retirement benefits plan activity | 40,984 | | | 33,416 | | | 81,136 | | | 64,442 | |
Other comprehensive income | 258,812 | | | 184,999 | | | 429,646 | | | 113,304 | |
Less: Other comprehensive income (loss) for noncontrolling interests | 846 | | | 137 | | | 1,277 | | | (12) | |
Other comprehensive income attributable to common shareholders | 257,966 | | | 184,862 | | | 428,369 | | | 113,316 | |
Total comprehensive income attributable to common shareholders | $ | 705,272 | | | $ | 389,336 | | | $ | 1,197,084 | | | $ | 656,688 | |
See accompanying notes to consolidated financial statements.
PARKER-HANNIFIN CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | |
| | | |
| December 31, 2020 | | June 30, 2020 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 564,734 | | | $ | 685,514 | |
Marketable securities and other investments | 43,314 | | | 70,805 | |
Trade accounts receivable, net | 1,816,731 | | | 1,854,398 | |
Non-trade and notes receivable | 312,590 | | | 244,870 | |
Inventories | 1,870,948 | | | 1,814,631 | |
Prepaid expenses and other | 191,362 | | | 214,986 | |
Total current assets | 4,799,679 | | | 4,885,204 | |
Property, plant and equipment | 6,026,680 | | | 5,810,681 | |
Less: Accumulated depreciation | 3,724,538 | | | 3,517,946 | |
Property, plant and equipment, net | 2,302,142 | | | 2,292,735 | |
Deferred income taxes | 134,325 | | | 126,839 | |
Investments and other assets | 795,073 | | | 764,563 | |
Intangible assets, net | 3,695,194 | | | 3,798,913 | |
Goodwill | 8,101,016 | | | 7,869,935 | |
Total assets | $ | 19,827,429 | | | $ | 19,738,189 | |
LIABILITIES | | | |
Current liabilities: | | | |
Notes payable and long-term debt payable within one year | $ | 610,909 | | | $ | 809,529 | |
Accounts payable, trade | 1,343,011 | | | 1,111,759 | |
Accrued payrolls and other compensation | 345,973 | | | 424,231 | |
Accrued domestic and foreign taxes | 218,624 | | | 195,314 | |
Other accrued liabilities | 688,566 | | | 607,540 | |
Total current liabilities | 3,207,083 | | | 3,148,373 | |
Long-term debt | 6,602,309 | | | 7,652,256 | |
Pensions and other postretirement benefits | 1,843,209 | | | 1,887,414 | |
Deferred income taxes | 420,699 | | | 382,528 | |
Other liabilities | 631,825 | | | 539,089 | |
Total liabilities | 12,705,125 | | | 13,609,660 | |
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 at December 31 and June 30 | 90,523 | | | 90,523 | |
Additional capital | 385,049 | | | 416,585 | |
Retained earnings | 14,072,152 | | | 13,530,666 | |
Accumulated other comprehensive (loss) | (2,130,506) | | | (2,558,875) | |
Treasury shares, at cost; 51,964,963 shares at December 31 and 52,490,165 shares at June 30 | (5,311,236) | | | (5,364,916) | |
Total shareholders’ equity | 7,105,982 | | | 6,113,983 | |
Noncontrolling interests | 16,322 | | | 14,546 | |
Total equity | 7,122,304 | | | 6,128,529 | |
Total liabilities and equity | $ | 19,827,429 | | | $ | 19,738,189 | |
See accompanying notes to consolidated financial statements.
PARKER-HANNIFIN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited) | | | | | | | | | | | |
| Six Months Ended |
| December 31, |
| 2020 | | 2019 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income | $ | 769,214 | | | $ | 543,639 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation | 135,320 | | | 119,741 | |
Amortization | 162,940 | | | 133,559 | |
| | | |
Share incentive plan compensation | 79,833 | | | 73,069 | |
Deferred income taxes | (3,034) | | | 8,608 | |
Foreign currency transaction (gain) loss | (530) | | | 6,569 | |
Gain on property, plant and equipment | (102,565) | | | (4,478) | |
| | | |
Gain on marketable securities | (6,959) | | | (1,969) | |
Gain on investments | (4,783) | | | (1,849) | |
| | | |
Other | 7,523 | | | — | |
Changes in assets and liabilities, net of effects from acquisitions: | | | |
Accounts receivable, net | 79,685 | | | 379,536 | |
Inventories | (4,264) | | | 25,724 | |
Prepaid expenses and other | 27,646 | | | (50,153) | |
Other assets | (22,052) | | | (38,747) | |
Accounts payable, trade | 193,901 | | | (178,013) | |
Accrued payrolls and other compensation | (92,010) | | | (117,882) | |
Accrued domestic and foreign taxes | 15,244 | | | (7,699) | |
Other accrued liabilities | 53,236 | | | (76,616) | |
Pensions and other postretirement benefits | 35,365 | | | 32,316 | |
Other liabilities | 30,278 | | | (19,387) | |
Net cash provided by operating activities | 1,353,988 | | | 825,968 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Acquisitions (net of cash of $82,192 in 2019) | — | | | (5,075,605) | |
Capital expenditures | (92,907) | | | (118,593) | |
Proceeds from sale of property, plant and equipment | 124,428 | | | 20,993 | |
| | | |
| | | |
Purchases of marketable securities and other investments | (16,029) | | | (190,129) | |
Maturities and sales of marketable securities and other investments | 52,019 | | | 198,872 | |
Other | 11,183 | | | 9,374 | |
Net cash provided by (used in) investing activities | 78,694 | | | (5,155,088) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from exercise of stock options | 3,137 | | | 1,923 | |
Payments for common shares | (60,825) | | | (136,815) | |
| | | |
(Payments for) proceeds from notes payable, net | (113,500) | | | 931,546 | |
Proceeds from long-term borrowings | — | | | 1,721,181 | |
Payments for long-term borrowings | (1,210,848) | | | (236,505) | |
Dividends paid | (227,228) | | | (227,025) | |
Net cash (used in) provided by financing activities | (1,609,264) | | | 2,054,305 | |
Effect of exchange rate changes on cash | 55,802 | | | 3,403 | |
Net decrease in cash and cash equivalents | (120,780) | | | (2,271,412) | |
Cash and cash equivalents at beginning of year | 685,514 | | | 3,219,767 | |
Cash and cash equivalents at end of period | $ | 564,734 | | | $ | 948,355 | |
See accompanying notes to consolidated financial statements.
PARKER-HANNIFIN CORPORATION
BUSINESS SEGMENT INFORMATION
(Dollars in thousands)
(Unaudited)
The Company operates in two reportable business segments: Diversified Industrial and Aerospace Systems.
Diversified Industrial - This segment produces a broad range of motion-control and fluid systems and components used in all kinds of manufacturing, packaging, processing, transportation, mobile construction, refrigeration and air conditioning, agricultural, and military machinery and equipment and has a significant portion of international operations. Sales are made directly to major original equipment manufacturers ("OEMs") and through a broad distribution network to smaller OEMs and the aftermarket.
Aerospace Systems - This segment designs and manufactures products and provides aftermarket support for commercial, business jet, military and general aviation aircraft, missile and spacecraft markets. The Aerospace Systems Segment provides a full range of systems and components for hydraulic, pneumatic and fuel applications.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | December 31, | | December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Net sales | | | | | | | | |
Diversified Industrial: | | | | | | | | |
North America | | $ | 1,566,877 | | | $ | 1,615,852 | | | $ | 3,094,988 | | | $ | 3,240,457 | |
International | | 1,259,625 | | | 1,147,084 | | | 2,388,876 | | | 2,225,934 | |
Aerospace Systems | | 585,403 | | | 735,038 | | | 1,158,581 | | | 1,366,094 | |
Total net sales | | $ | 3,411,905 | | | $ | 3,497,974 | | | $ | 6,642,445 | | | $ | 6,832,485 | |
Segment operating income | | | | | | | | |
Diversified Industrial: | | | | | | | | |
North America | | $ | 281,619 | | | $ | 211,339 | | | $ | 550,452 | | | $ | 486,531 | |
International | | 220,213 | | | 153,816 | | | 407,114 | | | 322,389 | |
Aerospace Systems | | 90,729 | | | 121,039 | | | 177,495 | | | 244,019 | |
Total segment operating income | | 592,561 | | | 486,194 | | | 1,135,061 | | | 1,052,939 | |
Corporate general and administrative expenses | | 38,720 | | | 35,660 | | | 75,455 | | | 84,562 | |
Income before interest expense and other expense | | 553,841 | | | 450,534 | | | 1,059,606 | | | 968,377 | |
Interest expense | | 62,990 | | | 82,891 | | | 128,948 | | | 152,847 | |
Other (income) expense | | (85,661) | | | 112,897 | | | (61,149) | | | 127,628 | |
Income before income taxes | | $ | 576,512 | | | $ | 254,746 | | | $ | 991,807 | | | $ | 687,902 | |
PARKER-HANNIFIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts or as otherwise noted)
As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms "Company", "Parker", "we" or "us" refer to Parker-Hannifin Corporation and its subsidiaries.
1. Management representation
In the opinion of the management of the Company, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company's financial position as of December 31, 2020, the results of operations for the three and six months ended December 31, 2020 and 2019 and cash flows for the six months then ended. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s 2020 Annual Report on Form 10-K.
The novel coronavirus ("COVID-19") pandemic is having, and will likely continue to have, an adverse effect on our business, and its future impacts remain highly uncertain and unpredictable. Therefore, accounting estimates and assumptions may change over time in response to COVID-19 and may change materially in future periods. Interim period results are not necessarily indicative of the results to be expected for the full fiscal year.
The Company has evaluated subsequent events that occurred through the date these financial statements were issued. No subsequent events have occurred that required adjustment to or disclosure in these financial statements.
2. New accounting pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, "Measurement of Credit Losses on Financial Instruments." ASU 2016-13 requires a financial asset (or a group of financial assets) measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. Credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. 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.
3. Revenue recognition
Revenue is derived primarily from the sale of products in a variety of mobile, industrial and aerospace markets. A majority of the Company’s revenues are recognized at a point in time. However, a portion of the Company’s revenues are recognized over time.
Diversified Industrial Segment revenues by technology platform: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | December 31, | | December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Motion Systems | | $ | 720,315 | | | $ | 752,306 | | | $ | 1,377,456 | | | $ | 1,519,120 | |
Flow and Process Control | | 949,949 | | | 942,249 | | | 1,874,074 | | | 1,953,604 | |
Filtration and Engineered Materials | | 1,156,238 | | | 1,068,381 | | | 2,232,334 | | | 1,993,667 | |
Total | | $ | 2,826,502 | | | $ | 2,762,936 | | | $ | 5,483,864 | | | $ | 5,466,391 | |
Aerospace Systems Segment revenues by product platform: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | December 31, | | December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Flight Control Actuation | | $ | 167,263 | | | $ | 180,423 | | | $ | 325,365 | | | $ | 353,682 | |
Fuel, Inerting and Engine Motion Control | | 136,107 | | | 159,474 | | | 255,070 | | | 311,687 | |
Hydraulics | | 70,845 | | | 110,385 | | | 146,763 | | | 218,760 | |
Engine Components | | 141,264 | | | 179,605 | | | 290,301 | | | 273,400 | |
Airframe and Engine Fluid Conveyance | | 45,186 | | | 79,123 | | | 92,548 | | | 163,802 | |
Other | | 24,738 | | | 26,028 | | | 48,534 | | | 44,763 | |
Total | | $ | 585,403 | | | $ | 735,038 | | | $ | 1,158,581 | | | $ | 1,366,094 | |
Total Company revenues by geographic region based on the Company's selling operation's location: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | December 31, | | December 31, |
| | 2020 | | 2019 | | 2020 | | 2019 |
North America | | $ | 2,147,822 | | | $ | 2,344,338 | | | $ | 4,243,987 | | | $ | 4,600,089 | |
Europe | | 682,960 | | | 652,586 | | | 1,298,532 | | | 1,291,724 | |
Asia Pacific | | 539,953 | | | 463,840 | | | 1,025,101 | | | 861,554 | |
Latin America | | 41,170 | | | 37,210 | | | 74,825 | | | 79,118 | |
Total | | $ | 3,411,905 | | | $ | 3,497,974 | | | $ | 6,642,445 | | | $ | 6,832,485 | |
The majority of revenues from the Aerospace Systems Segment are generated from sales to customers within North America.
Contract balances
Contract assets and contract liabilities are reported on a contract-by-contract basis. Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. Payments from customers are received based on the terms established in the contract with the customer.
Total contract assets and contract liabilities are as follows: | | | | | | | | | | | | | | |
| | December 31, 2020 | | June 30, 2020 |
Contract assets, current (included within Prepaid expenses and other) | | $ | 32,401 | | | $ | 30,827 | |
Contract assets, noncurrent (included within Investments and other assets) | | 1,908 | | | 1,497 | |
Total contract assets | | 34,309 | | | 32,324 | |
Contract liabilities, current (included within Other accrued liabilities) | | (49,360) | | | (51,278) | |
Contract liabilities, noncurrent (included within Other liabilities) | | (3,420) | | | (3,232) | |
Total contract liabilities | | (52,780) | | | (54,510) | |
Net contract liabilities | | $ | (18,471) | | | $ | (22,186) | |
At December 31, 2020, the change in net contract liabilities was primarily due to timing differences between when revenue was recognized and the receipt of advance payments. During the six months ended December 31, 2020, approximately $27 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 December 31, 2020 was $5,762 million, of which approximately 83 percent is expected to be recognized as revenue within the next 12 months and the balance thereafter.
4. Earnings per share
The following table presents a reconciliation of the numerator and denominator of basic and diluted earnings per share for the three and six months ended December 31, 2020 and 2019. | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| December 31, | | December 31, |
| 2020 | | 2019 | | 2020 | | 2019 |
Numerator: | | | | | | | |
Net income attributable to common shareholders | $ | 447,306 | | | $ | 204,474 | | | $ | 768,715 | | | $ | 543,372 | |
Denominator: | | | | | | | |
Basic - weighted average common shares | 129,013,781 | | | 128,396,933 | | | 128,860,763 | | | 128,430,463 | |
Increase in weighted average common shares from dilutive effect of equity-based awards | 2,061,874 | | | 2,098,448 | | | 1,621,801 | | | 1,723,616 | |
Diluted - weighted average common shares, assuming exercise of equity-based awards | 131,075,655 | | | 130,495,381 | | | 130,482,564 | | | 130,154,079 | |
| | | | | | | |
Basic earnings per share | $ | 3.47 | | | $ | 1.59 | | | $ | 5.97 | | | $ | 4.23 | |
Diluted earnings per share | $ | 3.41 | | | $ | 1.57 | | | $ | 5.89 | | | $ | 4.17 | |
For the three months ended December 31, 2020 and 2019, 247,107 and 2,718 common shares subject to equity-based awards, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive. For the six months ended December 31, 2020 and 2019, 636,032 and 767,692 common shares subject to equity-based awards, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive.
5. Share repurchase program
The Company has a program to repurchase its common shares. On October 22, 2014, the Board of Directors of the Company approved an increase in the overall number of shares authorized for repurchase under the program so that, beginning on such date, the aggregate number of shares authorized for repurchase was 35 million. There is no limitation on the number of shares that can be repurchased in a fiscal year. There is no expiration date for this program. Repurchases may be funded primarily from operating cash flows and commercial paper borrowings and the shares are initially held as treasury shares. During the current-year quarter, the Company reinitiated the share repurchase program, which was suspended in March 2020 in response to business uncertainty resulting from the COVID-19 pandemic. We did not repurchase any shares under the program during the current-year quarter.
6. 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 $17,056 and $11,644 at December 31, 2020 and June 30, 2020, respectively.
7. Non-trade and notes receivable
The non-trade and notes receivable caption in the Consolidated Balance Sheet is comprised of the following components:
| | | | | | | | | | | | | | |
| | December 31, 2020 | | June 30, 2020 |
Notes receivable | | $ | 154,469 | | | $ | 97,370 | |
| | | | |
Accounts receivable, other | | 158,121 | | | 147,500 | |
Total | | $ | 312,590 | | | $ | 244,870 | |
8. Inventories
The inventories caption in the Consolidated Balance Sheet is comprised of the following components: | | | | | | | | | | | | | | |
| | December 31, 2020 | | June 30, 2020 |
Finished products | | $ | 704,075 | | | $ | 694,577 | |
Work in process | | 930,099 | | | 881,104 | |
Raw materials | | 236,774 | | | 238,950 | |
Total | | $ | 1,870,948 | | | $ | 1,814,631 | |
9. Business realignment and acquisition integration charges
We incurred business realignment and acquisition integration charges in the first six months of fiscal 2021 and 2020. During fiscal 2021, business realignment charges primarily consisted of actions taken to address the impact of COVID-19 on our business. In both fiscal 2021 and 2020, 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. 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 charges presented in the Business Segment Information are as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| December 31, | | December 31, |
| 2020 | | 2019 | | 2020 | | 2019 |
Diversified Industrial | $ | 16,536 | | | $ | 9,667 | | | $ | 27,108 | | | $ | 14,392 | |
Aerospace Systems | 1,386 | | | 52 | | | 5,337 | | | 45 | |
Corporate general and administrative expenses | 184 | | | 117 | | | 798 | | | 122 | |
Other expense | 661 | | | — | | | 1,225 | | | — | |
Workforce reductions in connection with business realignment charges in the Business Segment Information are as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| December 31, | | December 31, |
| 2020 | | 2019 | | 2020 | | 2019 |
Diversified Industrial | 292 | | | 599 | | | 676 | | | 818 | |
Aerospace Systems | 45 | | | 16 | | | 285 | | | 16 | |
Corporate general and administrative expenses | 5 | | | 4 | | | 18 | | | 5 | |
The business realignment charges are presented in the Consolidated Statement of Income as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| December 31, | | December 31, |
| 2020 | | 2019 | | 2020 | | 2019 |
Cost of sales | $ | 14,183 | | | $ | 7,679 | | | $ | 26,333 | | | $ | 11,024 | |
Selling, general and administrative expenses | 3,923 | | | 2,157 | | | 6,910 | | | 3,535 | |
Other (income), net | 661 | | | — | | | 1,225 | | | — | |
During the first six months of fiscal 2021, approximately $32 million in payments were made relating to business realignment charges. Remaining payments related to business realignment actions of approximately $26 million, a majority of which are expected to be paid by December 31, 2021, are primarily reflected within the other accrued liabilities caption in the Consolidated Balance Sheet. Additional charges may be recognized in future periods related to the business realignment 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 fiscal 2020 acquisitions of LORD Corporation ("Lord") and Exotic Metals Forming Company ("Exotic"): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| December 31, | | December 31, |
| 2020 | | 2019 | | 2020 | | 2019 |
Diversified Industrial | $ | 3,249 | | | $ | 6,725 | | | $ | 6,864 | | | $ | 10,139 | |
Aerospace Systems | 343 | | | 489 | | | 675 | | | 1,084 | |
These charges are primarily included in selling, general and administrative expenses within the Consolidated Statement of Income.
10. Equity
Changes in equity for the three months ended December 31, 2020 and 2019 are as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) | | Treasury Shares | | Noncontrolling Interests | | Total Equity |
Balance at September 30, 2020 | $ | 90,523 | | | $ | 428,329 | | | $ | 13,738,533 | | | $ | (2,388,472) | | | $ | (5,339,949) | | | $ | 15,285 | | | $ | 6,544,249 | |
Net income | | | | | 447,306 | | | | | | | 191 | | | 447,497 | |
| | | | | | | | | | | | | |
Other comprehensive income | | | | | | | 257,966 | | | | | 846 | | | 258,812 | |
Dividends paid ($0.88 per share) | | | | | (113,687) | | | | | | | | | (113,687) | |
Stock incentive plan activity | | | (43,280) | | | | | | | 28,713 | | | | | (14,567) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance at December 31, 2020 | $ | 90,523 | | | $ | 385,049 | | | $ | 14,072,152 | | | $ | (2,130,506) | | | $ | (5,311,236) | | | $ | 16,322 | | | $ | 7,122,304 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) | | Treasury Shares | | Noncontrolling Interests | | Total Equity |
Balance at September 30, 2019 | $ | 90,523 | | | $ | 464,440 | | | $ | 13,003,084 | | | $ | (2,130,594) | | | $ | (5,330,837) | | | $ | 6,176 | | | $ | 6,102,792 | |
Net income | | | | | 204,474 | | | | | | | 124 | | | 204,598 | |
Other comprehensive income | | | | | | | 184,862 | | | | | 137 | | | 184,999 | |
Dividends paid ($0.88 per share) | | | | | (113,306) | | | | | | | (366) | | | (113,672) | |
Stock incentive plan activity | | | (8,578) | | | | | | | 16,107 | | | | | 7,529 | |
Acquisition activity | | | | | | | | | | | 6,255 | | | 6,255 | |
Shares purchased at cost | | | | | | | | | (50,000) | | | | | (50,000) | |
Balance at December 31, 2019 | $ | 90,523 | | | $ | 455,862 | | | $ | 13,094,252 | | | $ | (1,945,732) | | | $ | (5,364,730) | | | $ | 12,326 | | | $ | 6,342,501 | |
Changes in equity for the six months ended December 31, 2020 and 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) | | Treasury Shares | | Noncontrolling Interests | | Total Equity |
Balance at June 30, 2020 | $ | 90,523 | | | $ | 416,585 | | | $ | 13,530,666 | | | $ | (2,558,875) | | | $ | (5,364,916) | | | $ | 14,546 | | | $ | 6,128,529 | |
| | | | | | | | | | | | | |
Net income | | | | | 768,715 | | | | | | | 499 | | | 769,214 | |
Other comprehensive income | | | | | | | 428,369 | | | | | 1,277 | | | 429,646 | |
Dividends paid ($1.76 per share) | | | | | (227,229) | | | | | | | | | (227,229) | |
Stock incentive plan activity | | | (31,536) | | | | | | | 53,680 | | | | | 22,144 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance at December 31, 2020 | $ | 90,523 | | | $ | 385,049 | | | $ | 14,072,152 | | | $ | (2,130,506) | | | $ | (5,311,236) | | | $ | 16,322 | | | $ | 7,122,304 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss) | | Treasury Shares | | Noncontrolling Interests | | Total Equity |
Balance at June 30, 2019 | $ | 90,523 | | | $ | 462,086 | | | $ | 12,777,538 | | | $ | (2,059,048) | | | $ | (5,309,130) | | | $ | 6,183 | | | $ | 5,968,152 | |
| | | | | | | | | | | | | |
Net income | | | | | 543,372 | | | | | | | 267 | | | 543,639 | |
Other comprehensive income (loss) | | | | | | | 113,316 | | | | | (12) | | | 113,304 | |
Dividends paid ($1.76 per share) | | | | | (226,658) | | | | | | | (367) | | | (227,025) | |
Stock incentive plan activity | | | (6,224) | | | | | | | 44,400 | | | | | 38,176 | |
Acquisition activity | | | | | | | | | | | 6,255 | | | 6,255 | |
Shares purchased at cost | | | | | | | | | (100,000) | | | | | (100,000) | |
Balance at December 31, 2019 | $ | 90,523 | | | $ | 455,862 | | | $ | 13,094,252 | | | $ | (1,945,732) | | | $ | (5,364,730) | | | $ | 12,326 | | | $ | 6,342,501 | |
Changes in accumulated other comprehensive (loss) in shareholders' equity by component for the six months ended December 31, 2020 and 2019 are as follows: | | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustment | | Retirement Benefit Plans | | Total |
Balance at June 30, 2020 | $ | (1,193,937) | | | $ | (1,364,938) | | | $ | (2,558,875) | |
Other comprehensive income before reclassifications | 347,233 | | | — | | | 347,233 | |
Amounts reclassified from accumulated other comprehensive (loss) | — | | | 81,136 | | | 81,136 | |
Balance at December 31, 2020 | $ | (846,704) | | | $ | (1,283,802) | | | $ | (2,130,506) | |
| | | | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustment | | Retirement Benefit Plans | | Total |
Balance at June 30, 2019 | $ | (1,011,656) | | | $ | (1,047,392) | | | $ | (2,059,048) | |
| | | | | |
Other comprehensive income before reclassifications | 48,874 | | | — | | | 48,874 | |
Amounts reclassified from accumulated other comprehensive (loss) | — | | | 64,442 | | | 64,442 | |
Balance at December 31, 2019 | $ | (962,782) | | | $ | (982,950) | | | $ | (1,945,732) | |
Significant reclassifications out of accumulated other comprehensive (loss) in shareholders' equity for the three and six months ended December 31, 2020 and 2019 are as follows: | | | | | | | | | | | | | | | | | | | | |
Details about Accumulated Other Comprehensive (Loss) Components | | Income (Expense) Reclassified from Accumulated Other Comprehensive (Loss) | | Consolidated Statement of Income Classification |
| | Three Months Ended | | Six Months Ended | | |
| | December 31, 2020 | | December 31, 2020 | | |
Retirement benefit plans | | | | | | |
Amortization of prior service cost and initial net obligation | | $ | (1,420) | | | $ | (2,238) | | | Other (income), net |
Recognized actuarial loss | | (52,763) | | | (105,028) | | | Other (income), net |
Total before tax | | (54,183) | | | (107,266) | | | |
Tax benefit | | 13,199 | | | 26,130 | | | |
Net of tax | | $ | (40,984) | | | $ | (81,136) | | | |
| | | | | | | | | | | | | | | | | | | | |
Details about Accumulated Other Comprehensive (Loss) Components | | Income (Expense) Reclassified from Accumulated Other Comprehensive (Loss) | | Consolidated Statement of Income Classification |
| | Three Months Ended | | Six Months Ended | | |
| | December 31, 2019 | | December 31, 2019 | | |
Retirement benefit plans | | | | | | |
Amortization of prior service cost and initial net obligation | | $ | (1,284) | | | $ | (2,767) | | | Other (income), net |
Recognized actuarial loss | | (42,703) | | | (82,188) | | | Other (income), net |
Total before tax | | (43,987) | | | (84,955) | | | |
Tax benefit | | 10,571 | | | 20,513 | | | |
Net of tax | | $ | (33,416) | | | $ | (64,442) | | | |
11. Goodwill and intangible assets
The changes in the carrying amount of goodwill for the six months ended December 31, 2020 are as follows: | | | | | | | | | | | | | | | | | |
| Diversified Industrial Segment | | Aerospace Systems Segment | | Total |
Balance at June 30, 2020 | $ | 7,267,573 | | | $ | 602,362 | | | $ | 7,869,935 | |
Acquisitions | 3,738 | | | — | | | 3,738 | |
| | | | | |
| | | | | |
Foreign currency translation and other | 227,317 | | | 26 | | | 227,343 | |
Balance at December 31, 2020 | $ | 7,498,628 | | | $ | 602,388 | | | $ | 8,101,016 | |
The acquisitions line represents adjustments to the Lord goodwill allocation during the measurement period subsequent to its acquisition date. The impact of these adjustments during the first six months of fiscal 2021 was immaterial to our results of operations and financial position. At December 31, 2020, purchase price allocations for both Lord and Exotic are complete.
We did not identify any events or circumstances during the first six months of fiscal 2021 that required performance of an interim goodwill impairment test. However, the effects of COVID-19 on the global economy, including further market disruption, lack of economic recovery or lower than anticipated customer demand, may require the performance of an interim goodwill impairment test in future periods.
Intangible assets are amortized using the straight-line method over their legal or estimated useful lives. The following summarizes the gross carrying value and accumulated amortization for each major category of intangible assets:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | June 30, 2020 |
| Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | |