ph-20221231

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, 2022


☐			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

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, 2022: 128,266,030

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,
	2022		2021*		2022		2021*
Net sales	$	4,674,811	$	3,824,580	$	8,907,586	$	7,587,389
Cost of sales	3,236,812		2,567,595		6,032,268		5,071,977
Selling, general and administrative expenses	814,966		585,858		1,650,770		1,212,607

Interest expense	146,931		61,360		264,725		120,710
Other (income) expense, net	(40,641)		119,443		(60,265)		120,026
Income before income taxes	516,743		490,324		1,020,088		1,062,069
Income taxes	121,282		102,595		236,590		222,877
Net income	395,461		387,729		783,498		839,192
Less: Noncontrolling interest in subsidiaries' earnings	224		129		407		435
Net income attributable to common shareholders	$	395,237	$	387,600	$	783,091	$	838,757

Earnings per share attributable to common shareholders:
Basic	$	3.08	$	3.02	$	6.10	$	6.52
Diluted	$	3.04	$	2.97	$	6.03	$	6.42

*Prior period amounts have been reclassified to reflect the income statement reclassification as described in Note 1.

See accompanying notes to consolidated financial statements.

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PARKER-HANNIFIN CORPORATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)


	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2022		2021		2022		2021
Net income	$	395,461	$	387,729	$	783,498	$	839,192
Less: Noncontrolling interests in subsidiaries' earnings	224		129		407		435
Net income attributable to common shareholders	395,237		387,600		783,091		838,757

Other comprehensive income (loss), net of tax
Foreign currency translation adjustment	360,374		28,491		53,891		(39,833)
Retirement benefits plan activity	4,990		31,859		9,761		60,881
Other comprehensive income	365,364		60,350		63,652		21,048
Less: Other comprehensive income (loss) for noncontrolling interests	1,253		(47)		123		(586)
Other comprehensive income attributable to common shareholders	364,111		60,397		63,529		21,634
Total comprehensive income attributable to common shareholders	$	759,348	$	447,997	$	846,620	$	860,391

See accompanying notes to consolidated financial statements.

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PARKER-HANNIFIN CORPORATION

CONSOLIDATED BALANCE SHEET

(Dollars in thousands)

(Unaudited)



	December 31, 2022		June 30, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	756,055	$	535,799
Marketable securities and other investments	21,611		27,862
Trade accounts receivable, net	2,578,045		2,341,504
Non-trade and notes receivable	371,474		543,757
Inventories	3,095,722		2,214,553
Prepaid expenses and other	462,093		6,383,169
Total current assets	7,285,000		12,046,644
Property, plant and equipment	6,730,223		5,897,955
Less: Accumulated depreciation	3,890,699		3,775,197
Property, plant and equipment, net	2,839,524		2,122,758
Deferred income taxes	133,348		110,585
Investments and other assets	1,206,194		788,057
Intangible assets, net	8,387,917		3,135,817
Goodwill	10,668,904		7,740,082
Total assets	$	30,520,887	$	25,943,943
LIABILITIES
Current liabilities:
Notes payable and long-term debt payable within one year	$	1,994,333	$	1,724,310
Accounts payable, trade	1,966,757		1,731,925
Accrued payrolls and other compensation	453,037		470,132
Accrued domestic and foreign taxes	236,227		250,292
Other accrued liabilities	1,053,049		1,682,659
Total current liabilities	5,703,403		5,859,318
Long-term debt	12,025,860		9,755,825
Pensions and other postretirement benefits	807,124		639,939
Deferred income taxes	1,751,321		307,044
Other liabilities	898,703		521,897
Total liabilities	21,186,411		17,084,023
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	377,871		327,307
Retained earnings	16,102,883		15,661,808
Accumulated other comprehensive (loss)	(1,479,669)		(1,543,198)
Treasury shares, at cost; 52,780,098 shares at December 31 and 52,594,956 shares at June 30	(5,769,228)		(5,688,429)
Total shareholders’ equity	9,322,380		8,848,011
Noncontrolling interests	12,096		11,909
Total equity	9,334,476		8,859,920
Total liabilities and equity	$	30,520,887	$	25,943,943

See accompanying notes to consolidated financial statements.

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PARKER-HANNIFIN CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Six Months Ended
	December 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	783,498	$	839,192
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	154,455		131,113
Amortization	229,270		158,512

Share incentive plan compensation	89,709		79,385
Deferred income taxes	131,479		(60,928)
Foreign currency transaction loss (gain)	59,083		(17,487)
Gain on disposal of property, plant and equipment	(2,551)		(7,880)
Gain on sale of businesses	(377,251)		(1,520)
Gain on marketable securities	(1,354)		(4,948)
Gain on investments	(2,929)		(1,487)

Other	12,575		55,496
Changes in assets and liabilities, net of effect of acquisitions and divestitures:
Accounts receivable, net	159,576		149,155
Inventories	(56,464)		(243,309)
Prepaid expenses and other	(150,547)		(21,509)
Other assets	(166,192)		(22,934)
Accounts payable, trade	9,104		(53,327)
Accrued payrolls and other compensation	(112,899)		(165,581)
Accrued domestic and foreign taxes	3,214		62,905
Other accrued liabilities	247,574		139,773
Pensions and other postretirement benefits	74,654		(8,759)
Other liabilities	(7,870)		(393)
Net cash provided by operating activities	1,076,134		1,005,469
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (net of cash of $89,704 in 2022)	(7,146,110)		—
Capital expenditures	(185,704)		(105,606)
Proceeds from sale of property, plant and equipment	11,632		22,392
Proceeds from sale of businesses	447,300		2,466

Purchases of marketable securities and other investments	(25,198)		(10,150)
Maturities and sales of marketable securities and other investments	30,594		13,742
Payments of deal-contingent forward contracts	(1,405,418)		—
Other	251,174		2,789
Net cash used in investing activities	(8,021,730)		(74,367)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options	1,124		2,201
Payments for common shares	(121,068)		(319,713)

Proceeds from notes payable, net	235,052		1,899,247
Proceeds from long-term borrowings	2,011,948		10,666
Payments for long-term borrowings	(710,789)		(9,069)
Financing fees paid	(8,911)		(52,108)
Dividends paid	(342,360)		(265,556)
Net cash provided by financing activities	1,064,996		1,265,668
Effect of exchange rate changes on cash	(11,221)		6,978
Net (decrease) increase in cash, cash equivalents and restricted cash	(5,891,821)		2,203,748
Cash, cash equivalents and restricted cash at beginning of year	6,647,876		733,117
Cash, cash equivalents and restricted cash at end of period	$	756,055	$	2,936,865

See accompanying notes to consolidated financial statements.

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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, 2022, the results of operations for the three and six months ended December 31, 2022 and 2021 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 2022 Annual Report on Form 10-K.

The future impacts of the Russia-Ukraine war and the novel coronavirus ("COVID-19") pandemic and their residual effects, including economic uncertainty, inflationary environment and disruption within the global supply chain, labor markets and aerospace industry, on our business remain uncertain. Therefore, accounting estimates and assumptions may change over time in response to these impacts. Interim period results are not necessarily indicative of the results to be expected for the full fiscal year.

Reclassification

Certain prior-year amounts in the Consolidated Statement of Income have been reclassified to conform to the current-year presentation. Effective July 1, 2022, we began classifying certain expenses, previously classified as cost of sales, as selling, general and administrative expenses ("SG&A") or within other (income) expense, net. During the integration of recently acquired businesses, the Company has seen diversity in practice of the classification of certain expenses, and the reclassification was made to better align the presentation of expenses on the Consolidated Statement of Income with management’s internal reporting. The expenses reclassified from cost of sales to SG&A relate to certain administrative activities conducted in production facilities and research and development. Foreign currency transaction expense was also reclassified from cost of sales to other (income) expense, net on the Consolidated Statement of Income. These reclassifications had no impact on net income, earnings per share, cash flows, segment reporting or the financial position of the Company.

During the three months ended December 31, 2021, the reclassifications resulted in a $197 million decrease to cost of sales, a $205 million increase to SG&A and a $8 million decrease to other (income) expense, net. During the six months ended December 31, 2021, the reclassifications resulted in a $407 million decrease to cost of sales, a $424 million increase to SG&A and a $17 million decrease to other (income) expense, net.

Subsequent Events

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 November 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-10, "Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance", which requires entities to provide disclosures on material government assistance transactions for annual reporting periods. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. The new guidance is effective for all entities for annual reporting periods beginning after December 15, 2021; however, early adoption is permitted. The guidance may be applied either prospectively to all in-scope transactions that are reflected in the financial statements at the date of initial application and to new transactions that are entered into after the date of initial application, or retrospectively. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and does not expect it to be material.

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In September 2022, the FASB issued ASU 2022-04, "Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations", which requires a buyer in a supplier finance program to disclose information about the program’s nature, activity during the period, changes from period to period, and potential magnitude. To achieve that objective, the buyer should disclose qualitative and quantitative information about its supplier finance programs, including the outstanding amount under the program, the balance sheet presentation of the outstanding amount, and a rollforward of the obligations in the program. This ASU should be adopted retrospectively for each balance sheet period presented; however, the rollforward information should be provided prospectively. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and does not expect it to be material.

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,
	2022		2021		2022		2021
Motion Systems	$	913,415	$	843,655	$	1,819,429	$	1,672,327
Flow and Process Control	1,173,260		1,103,404		2,377,724		2,188,827
Filtration and Engineered Materials	1,451,709		1,259,144		2,828,004		2,515,200
Total	$	3,538,384	$	3,206,203	$	7,025,157	$	6,376,354

Aerospace Systems Segment revenues by primary market:


	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2022		2021		2022		2021
Commercial original equipment manufacturer ("OEM")	$	383,038	$	213,095	$	647,348	$	422,655
Commercial aftermarket	351,606		125,768		556,246		239,044
Military OEM	234,057		181,126		404,728		355,106
Military aftermarket	167,726		98,388		274,107		194,230
Total	$	1,136,427	$	618,377	$	1,882,429	$	1,211,035

Upon completing the acquisition ("Acquisition") of Meggitt plc ("Meggitt"), we reviewed the disaggregation of revenue disclosure for the Aerospace Systems Segment and believe that disaggregation by primary market provides more meaningful information than disaggregation by product platform.

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,
	2022		2021		2022		2021
North America	$	3,079,738	$	2,421,073	$	5,914,658	$	4,806,047
Europe	942,070		753,171		1,696,002		1,515,141
Asia Pacific	599,135		607,190		1,187,533		1,175,324
Latin America	53,868		43,146		109,393		90,877
Total	$	4,674,811	$	3,824,580	$	8,907,586	$	7,587,389

The majority of revenues from the Aerospace Systems Segment are generated from sales to customers within North America.

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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, 2022		June 30, 2022
Contract assets, current (included within Prepaid expenses and other)	$	115,698	$	28,546
Contract assets, noncurrent (included within Investments and other assets)	26,813		794
Total contract assets	142,511		29,340
Contract liabilities, current (included within Other accrued liabilities)	(228,462)		(60,472)
Contract liabilities, noncurrent (included within Other liabilities)	(111,405)		(2,225)
Total contract liabilities	(339,867)		(62,697)
Net contract liabilities	$	(197,356)	$	(33,357)

Net contract liabilities at December 31, 2022 increased from the June 30, 2022 amount primarily due to acquiring Meggitt's contract liabilities in excess of Meggitt's contract assets. During the six months ended December 31, 2022, approximately $29 million of revenue was recognized that was included in the contract liabilities at June 30, 2022.

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, 2022 was $10.6 billion, of which approximately 84 percent is expected to be recognized as revenue within the next 12 months and the balance thereafter.

4. Acquisitions and divestitures

Acquisitions

On September 12, 2022, we completed the Acquisition of all the outstanding ordinary shares of Meggitt for 800 pence per share, resulting in an aggregate cash purchase price of $7.2 billion, including the assumption of debt.

Meggitt is a leader in design, manufacturing and aftermarket support of technologically differentiated systems and equipment in aerospace, defense and selected energy markets with annual sales of approximately $2.1 billion for the year ended December 31, 2021. For segment reporting purposes, approximately 82 percent of Meggitt's sales are included in the Aerospace Systems Segment, while the remaining 18 percent are included in the Diversified Industrial Segment.

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 table presents the preliminary estimated fair values of Meggitt's assets acquired and liabilities assumed on the Acquisition date. These preliminary estimates are based on available information and will be 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. Such revisions may have a material impact on our results of operations and financial position within the measurement period. During the current-year quarter and six months ended December 31, 2022, these revisions did not have a material impact on the Consolidated Statement of Income.

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	September 12, 2022 (previously reported)		Measurement Period Adjustments		September 12, 2022 (revised)
Assets:
Cash and cash equivalents	$	89,704	$	—	$	89,704
Accounts receivable	427,255		(4,530)		422,725
Inventories	833,602		(20,008)		813,594
Prepaid expenses and other	125,763		—		125,763
Property, plant and equipment	675,232		—		675,232
Deferred income taxes	5,720		—		5,720
Other assets	219,472		18,652		238,124
Intangible assets	5,418,795		—		5,418,795
Goodwill	2,830,845		60,374		2,891,219
Total assets acquired	$	10,626,388	$	54,488	$	10,680,876
Liabilities:
Notes payable and long-term debt payable within one year	$	306,266	$	3,052	$	309,318
Accounts payable, trade	219,780		—		219,780
Accrued payrolls and other compensation	89,226		—		89,226

Other accrued liabilities	367,605		(222)		367,383
Long-term debt	669,321		38,483		707,804
Pensions and other postretirement benefits	85,899		12,116		98,015
Deferred income taxes	1,274,726		685		1,275,411
Other liabilities	377,751		374		378,125

Total liabilities assumed	3,390,574		54,488		3,445,062
Net assets acquired	$	7,235,814	$	—	$	7,235,814

Goodwill is calculated as the excess of the purchase price over the net assets acquired and represents cost synergies and enhancements to our existing technologies. For tax purposes, Meggitt's goodwill is not deductible. Based upon a preliminary acquisition valuation, we acquired $3.2 billion of customer-related intangible assets, $1.7 billion of patents and technology and $490 million of trademarks, each with estimated useful lives of 20 years.

The fair value of the assets acquired includes $161 million and $76 million of operating lease right-of-use assets and finance lease right-of-use assets, respectively. The fair value of liabilities assumed includes $150 million and $87 million of operating lease liabilities and finance lease liabilities, respectively, of which, $17 million and $2 million of operating lease liabilities and finance lease liabilities, respectively, are current liabilities.

Long-term debt assumed includes $900 million aggregate principal amount of private placement notes with fixed interest rates ranging from 2.78 percent to 3.60 percent, and maturity dates ranging from July 2023 to July 2026. In October 2022, we paid off $300 million aggregate principal amount of private placement notes in two tranches pursuant to an offer to noteholders according to change in control provisions. These notes carried fixed interest rates of 2.78 percent and 3.00 percent and had maturity dates of November 2023 and November 2025, respectively. Upon acquiring Meggitt, we also assumed $113 million of liabilities associated with environmental matters.

Our consolidated financial statements for the three and six months ended December 31, 2022 include the results of operations of Meggitt from the date of acquisition through December 31, 2022. Net sales and segment operating loss attributable to Meggitt during the three months ended December 31, 2022 was $629 million and $89 million, respectively. Net sales and segment operating loss attributable to Meggitt during the six months ended December 31, 2022 was $772 million and $116 million, respectively. Segment operating loss attributable to Meggitt includes estimated amortization and depreciation expense associated with the preliminary fair value estimates of intangible assets, plant and equipment, and inventory, as well as acquisition integration charges. Refer to Note 10 for further discussion of acquisition integration charges.

Acquisition-related transaction costs totaled $111 million for the six months ended December 31, 2022. These costs are included in SG&A in the Consolidated Statement of Income.

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Divestitures

During September 2022, we divested our aircraft wheel and brake business, which was part of the Aerospace Systems Segment, for proceeds of $441 million. The resulting pre-tax gain of $373 million is included in other (income) expense, net in the Consolidated Statement of Income. The operating results and net assets of the aircraft wheel and brake business were immaterial to the Company's consolidated results of operations and financial position. As of June 30, 2022, the aggregate carrying amount of aircraft wheel and brake assets held for sale was $66 million. These assets primarily included goodwill and inventory and were recorded within prepaid expenses and other assets in the Consolidated Balance Sheet. Goodwill was allocated to the aircraft wheel and brake business using the relative fair value method.

Restricted Cash

At June 30, 2022, prepaid expenses and other in the Consolidated Balance Sheet included a $6.1 billion balance in an escrow account restricted to payments for the Acquisition. These funds were used to finance a portion of the Acquisition, and there was no restricted cash at December 31, 2022.

5. 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, 2022 and 2021.


	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2022		2021		2022		2021
Numerator:
Net income attributable to common shareholders	$	395,237	$	387,600	$	783,091	$	838,757
Denominator:
Basic - weighted average common shares	128,313,322		128,493,725		128,369,162		128,610,223
Increase in weighted average common shares from dilutive effect of equity-based awards	1,731,691		2,087,940		1,592,534		1,974,989
Diluted - weighted average common shares, assuming exercise of equity-based awards	130,045,013		130,581,665		129,961,696		130,585,212

Basic earnings per share	$	3.08	$	3.02	$	6.10	$	6.52
Diluted earnings per share	$	3.04	$	2.97	$	6.03	$	6.42

For the three months ended December 31, 2022 and 2021, 1,075,737 and 440,106 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, 2022 and 2021, 983,648 and 330,977 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.

6. 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 three months ended December 31, 2022, we repurchased 176,458 shares at an average price, including commissions, of $283.35 per share. During the six months ended December 31, 2022, we repurchased 362,224 shares at an average price, including commissions, of $276.07 per share.

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7. 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 $32 million and $10 million at December 31, 2022 and June 30, 2022, respectively. The increase in the allowance for credit losses from the June 30, 2022 amount is primarily due to the Acquisition.

8. 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, 2022		June 30, 2022
Notes receivable	$	129,877	$	103,558
Cash collateral receivable(a)	—		250,000

Accounts receivable, other	241,597		190,199
Total	$	371,474	$	543,757

(a) The cash collateral receivable at June 30, 2022 related to the deal-contingent forward contracts settled in the first three months of fiscal 2023.

9. Inventories

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


	December 31, 2022		June 30, 2022
Finished products	$	867,470	$	811,702
Work in process	1,561,760		1,128,501
Raw materials	666,492		274,350
Total	$	3,095,722	$	2,214,553

10. Business realignment and acquisition integration charges

We incurred business realignment and acquisition integration charges in the first six months of fiscal 2023 and 2022. In both the first six months of fiscal 2023 and 2022, 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. In fiscal 2023, a majority of the business realignment charges were incurred in Europe. In fiscal 2022, 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 by business segment are as follows:


	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2022		2021		2022		2021
Diversified Industrial	$	4,377	$	3,047	$	6,389	$	6,064
Aerospace Systems	1,001		598		2,850		595

Reductions to our workforce made in connection with such business realignment charges by business segment are as follows:


	Three Months Ended		Six Months Ended
	December 31,		December 31,
	2022	2021	2022	2021
Diversified Industrial	166	48	217	83
Aerospace Systems	4	5	16	5

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


	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2022		2021*		2022		2021*
Cost of sales	$	3,214	$	946	$	5,713	$	1,133
Selling, general and administrative expenses	2,164		2,699		3,526		5,526

*Prior period amounts have been reclassified to reflect the income statement reclassification as described in Note 1.

During the first six months of fiscal 2023, approximately $9 million in payments were made relating to business realignment charges. Remaining payments related to business realignment actions of approximately $8 million, a majority of which are expected to be paid by June 30, 2023, 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:


	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2022		2021		2022		2021
Diversified Industrial	$	1,695	$	807	$	1,881	$	2,009
Aerospace Systems	31,723		—		43,528		—

Charges incurred in fiscal 2023 and 2022 relate to the acquisitions of Meggitt and LORD Corporation, respectively. In both fiscal 2023 and 2022, these charges were primarily included in SG&A within the Consolidated Statement of Income.

11. Equity

Changes in equity for the three months ended December 31, 2022 and 2021 are as follows:


	Common Stock		Additional Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)		Treasury Shares		Noncontrolling Interests		Total Equity
Balance at September 30, 2022	$	90,523	$	360,443	$	15,878,565	$	(1,843,780)	$	(5,723,230)	$	10,883	$	8,773,404
Net income					395,237						224		395,461

Other comprehensive income							364,111				1,253		365,364
Dividends paid ($1.33 per share)					(170,919)						(264)		(171,183)
Stock incentive plan activity			17,428						4,002				21,430

Shares purchased at cost									(50,000)				(50,000)
Balance at December 31, 2022	$	90,523	$	377,871	$	16,102,883	$	(1,479,669)	$	(5,769,228)	$	12,096	$	9,334,476


	Common Stock		Additional Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)		Treasury Shares		Noncontrolling Interests		Total Equity
Balance at September 30, 2021	$	90,523	$	358,677	$	15,233,799	$	(1,605,490)	$	(5,586,728)	$	15,064	$	8,505,845
Net income					387,600						129		387,729
Other comprehensive income (loss)							60,397				(47)		60,350
Dividends paid ($1.03 per share)					(132,635)								(132,635)
Stock incentive plan activity			(14,365)						13,304				(1,061)
Liquidation activity											(1,948)		(1,948)
Shares purchased at cost									(50,000)				(50,000)
Balance at December 31, 2021	$	90,523	$	344,312	$	15,488,764	$	(1,545,093)	$	(5,623,424)	$	13,198	$	8,768,280

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Changes in equity for the six months ended December 31, 2022 and 2021 are as follows:


	Common Stock		Additional Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)		Treasury Shares		Noncontrolling Interests		Total Equity
Balance at June 30, 2022	$	90,523	$	327,307	$	15,661,808	$	(1,543,198)	$	(5,688,429)	$	11,909	$	8,859,920

Net income					783,091						407		783,498
Other comprehensive income							63,529				123		63,652
Dividends paid ($2.66 per share)					(342,016)						(343)		(342,359)
Stock incentive plan activity			50,564						19,201				69,765

Shares purchased at cost									(100,000)				(100,000)
Balance at December 31, 2022	$	90,523	$	377,871	$	16,102,883	$	(1,479,669)	$	(