ph-20230331

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 March 31, 2023


☐			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 March 31, 2023: 128,296,105

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				Nine Months Ended
	March 31,				March 31,
	2023		2022*		2023		2022*
Net sales	$	5,061,665	$	4,086,387	$	13,969,251	$	11,673,776
Cost of sales	3,340,764		2,709,407		9,373,032		7,781,384
Selling, general and administrative expenses	868,393		640,498		2,519,163		1,853,105

Interest expense	151,993		63,272		416,718		183,982
Other (income) expense, net	(55,866)		239,221		(116,131)		359,247
Income before income taxes	756,381		433,989		1,776,469		1,496,058
Income taxes	165,421		85,901		402,011		308,778
Net income	590,960		348,088		1,374,458		1,187,280
Less: Noncontrolling interest in subsidiaries' earnings	71		71		478		506
Net income attributable to common shareholders	$	590,889	$	348,017	$	1,373,980	$	1,186,774

Earnings per share attributable to common shareholders:
Basic	$	4.61	$	2.71	$	10.71	$	9.23
Diluted	$	4.54	$	2.67	$	10.58	$	9.10

*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				Nine Months Ended
	March 31,				March 31,
	2023		2022		2023		2022
Net income	$	590,960	$	348,088	$	1,374,458	$	1,187,280
Less: Noncontrolling interests in subsidiaries' earnings	71		71		478		506
Net income attributable to common shareholders	590,889		348,017		1,373,980		1,186,774

Other comprehensive income (loss), net of tax
Foreign currency translation adjustment	92,106		(16,898)		145,997		(56,730)
Retirement benefits plan activity	(1,364)		30,455		8,397		91,335
Other comprehensive income	90,742		13,557		154,394		34,605
Less: Other comprehensive (loss) for noncontrolling interests	(299)		(276)		(176)		(862)
Other comprehensive income attributable to common shareholders	91,041		13,833		154,570		35,467
Total comprehensive income attributable to common shareholders	$	681,930	$	361,850	$	1,528,550	$	1,222,241

See accompanying notes to consolidated financial statements.

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PARKER-HANNIFIN CORPORATION

CONSOLIDATED BALANCE SHEET

(Dollars in thousands)

(Unaudited)



	March 31, 2023		June 30, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	534,831	$	535,799
Marketable securities and other investments	23,466		27,862
Trade accounts receivable, net	2,881,534		2,341,504
Non-trade and notes receivable	349,903		543,757
Inventories	3,067,614		2,214,553
Prepaid expenses and other	376,066		6,383,169
Total current assets	7,233,414		12,046,644
Property, plant and equipment	6,807,734		5,897,955
Less: Accumulated depreciation	3,963,939		3,775,197
Property, plant and equipment, net	2,843,795		2,122,758
Deferred income taxes	131,782		110,585
Investments and other assets	1,188,671		788,057
Intangible assets, net	8,287,517		3,135,817
Goodwill	10,830,548		7,740,082
Total assets	$	30,515,727	$	25,943,943
LIABILITIES
Current liabilities:
Notes payable and long-term debt payable within one year	$	1,992,919	$	1,724,310
Accounts payable, trade	2,080,147		1,731,925
Accrued payrolls and other compensation	543,527		470,132
Accrued domestic and foreign taxes	270,807		250,292
Other accrued liabilities	900,769		1,682,659
Total current liabilities	5,788,169		5,859,318
Long-term debt	11,412,304		9,755,825
Pensions and other postretirement benefits	781,139		639,939
Deferred income taxes	1,780,533		307,044
Other liabilities	960,417		521,897
Total liabilities	20,722,562		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 March 31 and June 30	90,523		90,523
Additional capital	355,754		327,307
Retained earnings	16,522,900		15,661,808
Accumulated other comprehensive (loss)	(1,388,628)		(1,543,198)
Treasury shares, at cost; 52,750,023 shares at March 31 and 52,594,956 shares at June 30	(5,799,252)		(5,688,429)
Total shareholders’ equity	9,781,297		8,848,011
Noncontrolling interests	11,868		11,909
Total equity	9,793,165		8,859,920
Total liabilities and equity	$	30,515,727	$	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)


	Nine Months Ended
	March 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,374,458	$	1,187,280
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	234,649		194,945
Amortization	374,417		237,377

Share incentive plan compensation	117,536		109,781
Deferred income taxes	89,805		(174,270)
Foreign currency transaction loss (gain)	54,927		(26,970)
Gain on disposal of property, plant and equipment	(1,270)		(6,782)
Gain on sale of businesses	(366,345)		(1,472)
(Gain) loss on marketable securities	(1,391)		2,280
Gain on investments	(4,341)		(2,024)

Other	18,890		66,386
Changes in assets and liabilities, net of effect of acquisitions and divestitures:
Accounts receivable, net	(110,317)		(163,900)
Inventories	(27,491)		(274,717)
Prepaid expenses and other	(64,350)		24,061
Other assets	(194,069)		(17,317)
Accounts payable, trade	118,756		91,531
Accrued payrolls and other compensation	(19,357)		(80,483)
Accrued domestic and foreign taxes	36,208		44,266
Other accrued liabilities	141,891		372,491
Pensions and other postretirement benefits	46,681		(20,460)
Other liabilities	(24,393)		(13,565)
Net cash provided by operating activities	1,794,894		1,548,438
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (net of cash of $89,704 in 2023)	(7,146,110)		—
Capital expenditures	(272,603)		(158,864)
Proceeds from sale of property, plant and equipment	11,821		29,320
Proceeds from sale of businesses	471,720		3,366

Purchases of marketable securities and other investments	(31,275)		(20,012)
Maturities and sales of marketable securities and other investments	35,075		17,662
Payments of deal-contingent forward contracts	(1,405,418)		—
Other	251,875		2,766
Net cash used in investing activities	(8,084,915)		(125,762)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options	2,820		2,566
Payments for common shares	(202,731)		(374,996)

Proceeds from notes payable, net	258,458		1,621,483
Proceeds from long-term borrowings	2,011,949		10,667
Payments for long-term borrowings	(1,363,596)		(9,708)
Financing fees paid	(8,911)		(52,655)
Dividends paid	(513,232)		(398,099)
Net cash provided by financing activities	184,757		799,258
Effect of exchange rate changes on cash	(7,781)		106
Net (decrease) increase in cash, cash equivalents and restricted cash	(6,113,045)		2,222,040
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	$	534,831	$	2,955,157

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 March 31, 2023, the results of operations for the three and nine months ended March 31, 2023 and 2022 and cash flows for the nine 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 March 31, 2022, the reclassifications resulted in a $219 million decrease to cost of sales, a $228 million increase to SG&A and a $9 million decrease to other (income) expense, net. During the nine months ended March 31, 2022, the reclassifications resulted in a $625 million decrease to cost of sales, a $652 million increase to SG&A and a $27 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. On May 4, 2023, the Company called $600 million aggregate principal amount of private placement notes assumed in the acquisition ("Acquisition") of Meggitt plc ("Meggitt") and will redeem them at par plus accrued and unpaid interest in June 2023.

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				Nine Months Ended
	March 31,				March 31,
	2023		2022		2023		2022
Motion Systems	$	1,017,974	$	895,839	$	2,837,403	$	2,568,166
Flow and Process Control	1,298,204		1,197,590		3,675,928		3,386,417
Filtration and Engineered Materials	1,550,927		1,360,643		4,378,931		3,875,843
Total	$	3,867,105	$	3,454,072	$	10,892,262	$	9,830,426

Aerospace Systems Segment revenues by primary market:


	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2023		2022		2023		2022
Commercial original equipment manufacturer ("OEM")	$	398,502	$	226,976	$	1,045,850	$	649,631
Commercial aftermarket	381,883		128,486		938,129		367,530
Military OEM	244,451		176,242		649,179		531,348
Military aftermarket	169,724		100,611		443,831		294,841
Total	$	1,194,560	$	632,315	$	3,076,989	$	1,843,350

Upon completing the Acquisition, 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				Nine Months Ended
	March 31,				March 31,
	2023		2022		2023		2022
North America	$	3,364,157	$	2,645,106	$	9,278,815	$	7,451,153
Europe	1,054,157		829,392		2,750,159		2,344,533
Asia Pacific	590,017		560,250		1,777,550		1,735,574
Latin America	53,334		51,639		162,727		142,516
Total	$	5,061,665	$	4,086,387	$	13,969,251	$	11,673,776

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:


	March 31, 2023		June 30, 2022
Contract assets, current (included within Prepaid expenses and other)	$	116,516	$	28,546
Contract assets, noncurrent (included within Investments and other assets)	25,800		794
Total contract assets	142,316		29,340
Contract liabilities, current (included within Other accrued liabilities)	(235,206)		(60,472)
Contract liabilities, noncurrent (included within Other liabilities)	(105,195)		(2,225)
Total contract liabilities	(340,401)		(62,697)
Net contract liabilities	$	(198,085)	$	(33,357)

Net contract liabilities at March 31, 2023 increased from the June 30, 2022 amount primarily due to timing differences between when revenue was recognized and the receipt of advance payments as well as acquiring Meggitt's contract liabilities in excess of Meggitt's contract assets. During the nine months ended March 31, 2023, approximately $39 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 March 31, 2023 was $10.9 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 nine months ended March 31, 2023, 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		(10,687)		416,568
Inventories	833,602		(16,472)		817,130
Prepaid expenses and other	125,763		(1,525)		124,238
Property, plant and equipment	675,232		(10,071)		665,161
Deferred income taxes	5,720		27,022		32,742
Other assets	219,472		(52,072)		167,400
Intangible assets	5,418,795		27,305		5,446,100
Goodwill	2,830,845		185,440		3,016,285
Total assets acquired	$	10,626,388	$	148,940	$	10,775,328
Liabilities:
Notes payable and long-term debt payable within one year	$	306,266	$	3,288	$	309,554
Accounts payable, trade	219,780		(17)		219,763
Accrued payrolls and other compensation	89,226		(2,204)		87,022

Other accrued liabilities	367,605		(60,339)		307,266
Long-term debt	669,321		40,042		709,363
Pensions and other postretirement benefits	85,899		12,827		98,726
Deferred income taxes	1,274,726		95,626		1,370,352
Other liabilities	377,751		59,717		437,468

Total liabilities assumed	3,390,574		148,940		3,539,514
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 $4.0 billion of customer-related intangible assets, $1.1 billion of patents and technology and $332 million of trademarks, each with estimated useful lives of 20 years.

The fair value of the assets acquired includes $89 million and $86 million of operating and finance lease right-of-use assets, respectively. The fair value of liabilities assumed includes $145 million and $89 million of operating and finance lease liabilities, respectively, of which, $19 million and $3 million of operating 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 $127 million of liabilities associated with environmental matters. The environmental matters primarily relate to known exposures arising from environmental litigation, investigations and remediation of certain sites for which Meggitt has been identified as a potentially responsible party. The liabilities are based on outcomes of litigation and estimates of the level and timing of remediation costs, including the period of operating and monitoring activities required.

Our consolidated financial statements for the three and nine months ended March 31, 2023 include the results of operations of Meggitt from the date of acquisition through March 31, 2023. Net sales and segment operating loss attributable to Meggitt during the three months ended March 31, 2023 was $624 million and $4 million, respectively. Net sales and segment operating loss attributable to Meggitt during the nine months ended March 31, 2023 was $1.4 billion and $120 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 $112 million for the nine months ended March 31, 2023. These costs are included in SG&A in the Consolidated Statement of Income.

- 9 -

The following table presents unaudited pro forma information for the three and nine months ended March 31, 2023 and 2022 as if the Acquisition had occurred on July 1, 2021.


	Three Months Ended				Nine Months Ended
(Unaudited)	March 31,				March 31,
	2023		2022		2023		2022
Net sales	$	5,061,665	$	4,549,854	$	14,350,581	$	13,189,507
Net income attributable to common shareholders	612,049		424,025		1,244,907		977,102

The historical consolidated financial information of Parker and Meggitt has been adjusted in the pro forma information in the table above to give effect to events that are directly attributable to the Acquisition and factually supportable. To reflect the occurrence of the Acquisition on July 1, 2021, the unaudited pro forma information includes adjustments for the amortization of the step-up inventory to fair value and incremental depreciation and amortization expense resulting from the fair value adjustments to property, plant and equipment and intangible assets. These adjustments were based upon a preliminary purchase price allocation. Additionally, adjustments to financing costs and income tax expense were also made to reflect the capital structure and anticipated effective tax rate of the combined entity. Additionally, the pro forma information includes adjustments for nonrecurring transactions directly related to the Acquisition, including the gain on the divestiture of the aircraft wheel and brake business, loss on deal-contingent forward contracts, and transaction costs. These non-recurring adjustments totaled $(1) million and $196 million during the three months ended March 31, 2023 and 2022, respectively, and $197 million and $177 million during the nine months ended March 31, 2023 and 2022, respectively. The resulting pro forma amounts are not necessarily indicative of the results that would have been obtained if the Acquisition had occurred as of the beginning of the period presented or that may occur in the future, and do not reflect future synergies, integration costs or other such costs or savings.

Divestitures

During September 2022, we divested our aircraft wheel and brake business, which was part of the Aerospace Systems Segment, for proceeds of $443 million. The resulting pre-tax gain of $374 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.

During March 2023, we divested a French aerospace business, which was part of the Aerospace Systems Segment, for proceeds of $27 million. The resulting pre-tax loss of $12 million is included in other (income) expense, net in the Consolidated Statement of Income. The operating results and net assets of the French aerospace business were immaterial to the Company's consolidated results of operations and financial position.

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 March 31, 2023.

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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 nine months ended March 31, 2023 and 2022.


	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2023		2022		2023		2022
Numerator:
Net income attributable to common shareholders	$	590,889	$	348,017	$	1,373,980	$	1,186,774
Denominator:
Basic - weighted average common shares	128,293,039		128,426,675		128,343,788		128,549,040
Increase in weighted average common shares from dilutive effect of equity-based awards	1,858,448		1,916,906		1,488,201		1,889,553
Diluted - weighted average common shares, assuming exercise of equity-based awards	130,151,487		130,343,581		129,831,989		130,438,593

Basic earnings per share	$	4.61	$	2.71	$	10.71	$	9.23
Diluted earnings per share	$	4.54	$	2.67	$	10.58	$	9.10

For the three months ended March 31, 2023 and 2022, 124,025 and 493,609 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 nine months ended March 31, 2023 and 2022, 1,011,006 and 384,955 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 March 31, 2023, we repurchased 152,388 shares at an average price, including commissions, of $328.11 per share. During the nine months ended March 31, 2023, we repurchased 514,612 shares at an average price, including commissions, of $291.48 per share.

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 $33 million and $10 million at March 31, 2023 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.

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8. Non-trade and notes receivable

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


	March 31, 2023		June 30, 2022
Notes receivable	$	112,585	$	103,558
Cash collateral receivable(a)	—		250,000

Accounts receivable, other	237,318		190,199
Total	$	349,903	$	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:


	March 31, 2023		June 30, 2022
Finished products	$	831,620	$	811,702
Work in process	1,569,885		1,128,501
Raw materials	666,109		274,350
Total	$	3,067,614	$	2,214,553

10. Business realignment and acquisition integration charges

We incurred business realignment and acquisition integration charges in the first nine months of fiscal 2023 and 2022. In both the first nine 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				Nine Months Ended
	March 31,				March 31,
	2023		2022		2023		2022
Diversified Industrial	$	8,075	$	2,771	$	14,464	$	8,835
Aerospace Systems	166		318		3,016		913

Other (income) expense, net	—		63		—		63

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


	Three Months Ended		Nine Months Ended
	March 31,		March 31,
	2023	2022	2023	2022
Diversified Industrial	282	50	499	133
Aerospace Systems	14	4	30	9

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


	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2023		2022*		2023		2022*
Cost of sales	$	5,033	$	1,178	$	10,746	$	2,311
Selling, general and administrative expenses	3,208		1,911		6,734		7,437
Other (income) expense, net	—		63		—		63
*Prior period amounts have been reclassified to reflect the income statement reclassification as described in Note 1.

During the first nine months of fiscal 2023, approximately $15 million in payments were made relating to business realignment charges. Remaining payments related to business realignment actions of approximately $11 million, a majority of which are expected to be paid by December 31, 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.

In addition to the business realignment charges discussed above, we also incurred $20 million of expense in the prior-year quarter and first nine months of fiscal 2022 as a result of our exit of business operations in Russia. These charges primarily consisted of write-downs of inventory and other working capital items and $8 million of foreign currency translation expense reclassified from accumulated other comprehensive income. Within the business segment information in Note 17, $7 million of expense was recorded in the other (income) expense, net caption, while the remainder of the charge was split evenly between the Aerospace Systems Segment and the Diversified Industrial International businesses.

We also incurred the following acquisition integration charges:


	Three Months Ended				Nine Months Ended
	March 31,				March 31,
	2023		2022		2023		2022
Diversified Industrial	$	5,395	$	933	$	7,276	$	2,942
Aerospace Systems	25,849		—		69,377		—

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 March 31, 2023 and 2022 are as follows:


	Common Stock		Additional Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)		Treasury Shares		Noncontrolling Interests		Total Equity
Balance at December 31, 2022	$	90,523	$	377,871	$	16,102,883	$	(1,479,669)	$	(5,769,228)	$	12,096	$	9,334,476
Net income					590,889						71		590,960

Other comprehensive income (loss)							91,041				(299)		90,742
Dividends paid ($1.33 per share)					(170,872)								(170,872)
Stock incentive plan activity			(22,117)						19,976				(2,141)

Shares purchased at cost									(50,000)				(50,000)
Balance at March 31, 2023	$	90,523	$	355,754	$	16,522,900	$	(1,388,628)	$	(5,799,252)	$	11,868	$	9,793,165

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	Common Stock		Additional Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)		Treasury Shares		Noncontrolling Interests		Total Equity
Balance at December 31, 2021	$	90,523	$	344,312	$	15,488,764	$	(1,545,093)	$	(5,623,424)	$	13,198	$	8,768,280
Net income					348,017						71		348,088
Other comprehensive income (loss)							13,833				(276)		13,557
Dividends paid ($1.03 per share)					(132,543)								(132,543)
Stock incentive plan activity			19,055						6,422				25,477

Shares purchased at cost									(50,000)				(50,000)
Balance at March 31, 2022	$	90,523	$	363,367	$	15,704,238	$	(1,531,260)	$	(5,667,002)	$	12,993	$	8,972,859

Changes in equity for the nine months ended March 31, 2023 and 2022 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					1,373,980						478		1,374,458
Other comprehensive income (loss)							154,570				(176)		154,394
Dividends paid ($3.99 per share)					(512,888)						(343)		(513,231)
Stock incentive plan activity			28,447						39,177				67,624

Shares purchased at cost									(150,000)				(150,000)
Balance at March 31, 2023	$	90,523	$	355,754	$	16,522,900	$	(1,388,628)	$	(5,799,252)	$	11,868	$	9,793,165


	Common Stock		Additional Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)		Treasury Shares		Noncontrolling Interests		Total Equity
Balance at June 30, 2021	$	90,523	$	329,619	$	14,915,497	$	(1,566,727)	$	(5,370,605)	$	15,363	$	8,413,670

Net income					1,186,774						506		1,187,280
Other comprehensive income (loss)							35,467				(862)		34,605
Dividends paid ($3.09 per share)					(398,033)						(66)		(398,099)
Stock incentive plan activity			33,748						33,937