UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

The Company’sOur manufacturing, service, sales, distribution and administrative facilities are located in 4137 states within the United States and in 49 other countries. The Company’sWe sell our products are sold as original and replacement equipment through sales and distribution centers worldwide. The Company markets itsWe market our products through direct-sales employees, independent distributors and sales representatives. The Company'sWe supply products are supplied to approximately 439,000459,000 customers in virtually every significant manufacturing, transportation and processing industry.

Markets

The Company’sOur technologies and systems are used throughout various industries and in various applications. The approximately 439,000459,000 customers who purchase the Company’sParker products are found throughout nearlyin almost every significant manufacturing, transportation and processing industry. No single customer accounted for more than 3% of the Company’sour total net sales for the year ended June 30, 2017.2019.

Although the Company offersWe offer hundreds of thousands of individual products, and no single product contributed more than 1% to the Company’sour total net sales for the year ended June 30, 2017.2019. Listed below are some of the Company’sour principal products.

Diversified Industrial Segment products include standard products, as well as custom products which are engineered and produced to OEMs’OEM specifications for application to particular end products. Both standardStandard and custom products are also used in the replacement of original products. We market our Diversified Industrial Segment products are marketed primarily through field sales employees and approximately 13,70015,500 independent distributor locations throughout the world.

We market our Aerospace Systems Segment products are marketed by the Company’sthrough our regional sales organizations, and are soldwhich sell directly to original equipment manufacturersOEMs and end users throughout the world.

Competition

The Company’s businessParker operates in highly competitive markets and industries. The Company offers itsWe offer our products over numerous, varied markets through itsour divisions operating in 50 countries and consequently hascountries. Our global scope means that we have hundreds of competitors when viewed across itsour various markets and product offerings. The Company’sOur competitors include U.S. and non-U.S. companies. These competitors and the degree of competition vary widely by product lines, end markets, geographic scope and/or geographic locations. Although each of the Company’sour segments has numerous competitors, given the Company’sour market and product breadth, no single competitor competes with the Company with respect to all the products manufacturedwe manufacture and sold by the Company.sell.

In the Diversified Industrial Segment, the CompanyParker competes on the basis of product quality and innovation, customer service, manufacturing and distribution capability, and price competitiveness. The Company believesWe believe that it iswe are one of the market leaders in most of the major markets for itsour most significant Diversified Industrial Segment products. The Company hasWe have comprehensive motion and control packages for the broadest systems capabilities. While the Company’sour primary global competitors include Bosch Rexroth AG, Danaher Corporation, Danfoss A/S, Donaldson Company, Inc., Eaton Corporation plc, Emerson Climate Technologies, Inc., Emerson/ASCO, Festo AG & Co., Freudenberg-NOK, Gates Corporation, IMI/Norgren, SMC Corporation, Swagelok Company, and Trelleborg AB, none of these businesses compete with every group or product in the Company'sour Diversified Industrial Segment and every product line offered by this segment.Segment.

In the Aerospace Systems Segment, the Company haswe have developed alliances with key customers based on the Company’sour advanced technological and engineering capabilities, superior performance in quality, delivery, and service, and price

The Company believesWe believe that itsour platform utilizing nineeight core technologies, which consist of aerospace, electromechanical, filtration, fluid handling, hydraulics, pneumatics, process control, refrigeration, and sealing and shielding, is a positive factor in itsour ability to compete effectively with both large and small competitors. For both of itsour segments, the Company believeswe believe that the following factors also contribute to itsour ability to compete effectively:

Patents, Trademarks, Licenses

The Company ownsWe own a number of patents, trademarks, copyrights and licenses related to its products and hasour products. We also have exclusive and non-exclusive rights to use a number of patents, trademarks and copyrights owned by others. In addition, patent and trademark applications on certain products are now pending, although there can be no assurance that further patents and trademarks will be issued. The Company isWe do not dependent to any material extentdepend on any single patent, trademark, copyright or license or group of patents, trademarks, copyrights or licenses.licenses to any material extent.

Backlog and Seasonal Nature of Business

Backlog consists of written firm orders from a customer to deliver products and, in the case of blanket purchase orders, only includes the portion of the order for which a schedule or release date has been agreed to with the customer. The dollar value of backlog is equal to the amount that is expected to be billed to the customer and reported as a sale. The Company'sOur backlog by business segment for the past two years is included in Part II, Item 7 of this Annual Report on Form 10-K and is incorporated herein by reference. The Company’sOur backlog was $3.8$4.2 billion at June 30, 20172019 and $3.2$4.1 billion at June 30, 2016.2018. Approximately 88%90 percent of the Company’sour backlog at June 30, 20172019 is scheduled for delivery in the succeeding twelve months. The Company’sBecause of the breadth and global scope of our business, our overall business is generally not seasonal in nature.

Environmental Regulation

Certain of the Company’sour operations necessitaterequire the use and handling of hazardous materials and, as a result, the Company is subject to United States federal, state, and local laws and regulations as well as non-U.S. laws and regulations designed to protect the environment and regulate the discharge of materials into the environment. These laws impose penalties, fines and other sanctions for non-compliance and liability for response costs, property damage and personal injury resulting from past and current spills, disposals or other releases of, or exposures to, hazardous materials. Among other environmental laws, the Company iswe are subject to the United States federal "Superfund" law, under which the Company haswe have been designated as a "potentially responsible party" and may be liable for cleanup costs associated with various waste sites, some of which are on the United States Environmental Protection Agency’s Superfund priority list.

The Company believesWe believe that itsour policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and the consequent financial liability to the Company. Compliance with environmental laws and regulations requires continuing management efforts and expenditures by the Company. Compliance with environmental laws and regulations has not had in the past, and, the Company believes,we believe, will not have in the future, a material adverse effect on theour capital expenditures, earnings, or competitive position of the Company.position.

As of June 30, 2017, the Company had aOur reserve of $20.8 million for environmental matters that were probableis discussed in Note 16 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K and reasonably estimable. This reserve was recorded based upon the best estimate of costs to be incurred in light of the progress made in determining the magnitude of remediation costs, the timing and extent of remedial actions requiredis incorporated herein by governmental authorities and the amount of the Company’s liability in proportion to other responsible parties.

Energy Matters and Sources and Availability of Raw Materials

The Company’sOur primary energy source for both of itsour business segments is electric power. While the Companywe cannot predict future costs of electric power, the primary source for production of the required electric power is expected to be coal and natural gas from substantial, proven coal and natural gas reserves available to electric utilities. The Company isWe are subject to governmental regulations in regard to energy supplies in the United States and elsewhere. To date, the Company haswe have not experienced any significant disruptions of itsour operations due to energy curtailments.

Steel,We primarily use steel, brass, copper, aluminum, nickel, rubber and thermoplastic materials and chemicals areas the principal raw materials used by the Company. Thesein our products. We expect these materials are expected to be available from numerous sources in quantities sufficient to meet the requirements of the Company.our requirements.

Employees

The Company employedWe employ approximately 56,69055,610 persons as of June 30, 2017,2019, of whom approximately 29,23028,500 were employed by foreign subsidiaries.

The Company made threeno material acquisitions during 2017,in 2019. During 2019, we entered into a definitive agreement under which we expect to acquire LORD Corporation ("Lord"). The proposed Lord acquisition and prior-year acquisitions are more fully discussed in Note 23 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K and are incorporated herein by reference. On July 29, 2019, the Company announced that it had entered into a definitive agreement to acquire EMFCO Holdings Incorporated, parent company of Exotic Metals Forming Company LLC ("Exotic"). The proposed Exotic acquisition is discussed in Note 1 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference.

The Company'sOur business is sensitive to global macro-economic conditions. Moderate economic growth persists in the economic regions in which the Company conducts substantial operations. Future macroeconomic downturns may have an adverse effect on theour business, results of operations and financial condition, of the Company and itsas well as our distributors, customers and suppliers, and on activity in many of the industries and markets in which the Company and its distributors, customers and suppliers operate.we serve. Among the economic factors which may have such an effect are manufacturing and other end-market activity, currency exchange rates, air travel trends, difficulties entering new markets, tariffs and governmental trade and monetary policies, and general economic conditions such as inflation, deflation, interest rates and credit availability. These factors may, among other things, negatively impact theour level of purchases, capital expenditures, and creditworthiness, of the Company and itsas well as our distributors, customers and suppliers, and, therefore, the Company’s revenues, operating profits, margins, and order rates.

The Company has remained focused on maintaining its financial strength by adjusting its cost structure to reflect changing demand levels, maintaining a strong balance sheet and managing its cash. The CompanyWe cannot predict changes in worldwide or regional economic conditions and government policies, as such conditions are highly volatile and beyond the Company’sour control. If these conditions deteriorate or remain at depressed levels for extended periods, however, the Company’sour business, results of operations and financial condition could be materially adversely affected.

The Company’sOur net sales derived from customers outside the United States were approximately 39% in 2019, 41% in 2018 and 40% in 2017, 41% in 2016 and 42% in 2015.2017. In addition, many of the Company’sour manufacturing operations and suppliers are located outside the United States. The Company expects net sales from non-U.S. markets to continue to represent a significant portion of its total net sales. The Company’sOur non-U.S. operations are subject to risks in addition to those facing itsour domestic operations, including:

If the Company iswe are unable to successfully manage the risks associated with expanding itsour global business or adequately manage operational fluctuations internationally, the risks could have a material adverse effect on the Company’sour business, results of operations or financial condition.

In addition, the Companywe may not be able to integrate successfully any businesses that it purchaseswe purchase into itsour existing business orand it is possible that any acquired businesses or joint ventures willmay not be profitable. Specifically, the Company is devotingFor example, we have devoted significant management attention and resources to integrating the business practices and operations of Clarcor with the businesses of the Company. The CompanyClarcor. We may encounter or have encountered the following difficulties during the integration process of Clarcor:

The Company’sOur acquisition of Clarcor greatly expanded the size and complexity of itsour business. The Company’sproposed acquisitions of Lord and Exotic would further expand the size and complexity of our business. Our future success depends, in part, on the ability to manage this expanded business, which may pose or has posed substantial challenges for management, including challenges related to the management and monitoring of the expanded global operations and new manufacturing processes and products, and the associated costs and complexity. There can be no assurance of successful management of these matters or that the Companywe will realize the expected benefits of the acquisition of Clarcor.Clarcor or the proposed acquisitions of Lord and Exotic.

The CompanyWe regularly executesexecute organizational changes such as acquisitions, divestitures and realignments to support itsour growth and cost management strategies. The CompanyWe also engagesengage in initiatives aimed to increase productivity, efficiencies and cash flow and to reduce costs. The Company further commits significant resources to identify, develop and retain key employees to ensure uninterrupted leadership and direction. If the Company iswe are unable to successfully manage these and other organizational changes, the ability to complete such activities and realize anticipated synergies or cost savings as well as the Company'sour results of operations and financial condition could be materially adversely affected. The Company alsoWe cannot offer assurances that any of these initiatives will continue to be beneficial to the extent anticipated, or that the estimated efficiency improvements, incremental cost savings or cash flow improvements will be realized as anticipated or at all.

The Company reliesWe rely extensively on information technology systems to manage and operate itsour business, some of which are managed by third parties. The security and functionality of these information technology systems, and the processing of data by these systems, are critical to our business operations. If these systems, or any part of the systems, are damaged, intruded upon, attacked, shutdown or cease to function properly (whether by planned upgrades, force majeure, telecommunications failures, hardware or software break-ins or viruses, or other cybersecurity incidents) and the Company sufferswe suffer any resulting interruption in itsour ability to manage and operate itsour business or if itsour products are effected, the Company'sour results of operations and financial condition could be materially adversely affected.

Demand for and supply of the Company’sour products may be adversely affected by numerous factors, some of which the Companywe cannot predict or control. Such factors include:

If any of these factors occur, the demand for and supply of the Company’sour products could suffer, which could materially adversely affect the Company’s results of operations.

The markets in which the Company operateswe serve are characterized by rapidly changing technologies and frequent introductions of new products and services. The Company’sOur ability to develop new products based on technological innovation can affect itsour competitive position and often requires the investment of significant resources. If the Company does notwe cannot develop, or hashave difficulties or delays in the development of, innovativedeveloping new and enhanced products and services, or failsif we fail to gain market or regulatory acceptance of new products and technologies, the Company'sour revenues may be materially reduced and the Company'sour competitive position could be materially adversely affected. In addition, the Companywe may invest in research and development of products and services, or in acquisitions or other investments, that do not lead to significant revenue, which could adversely affect our profitability.

The Company’sOur supply of raw materials for its businesses could be interrupted for a variety of reasons, including availability and pricing. Furthermore, recently implemented changes to United States and other countries' tariff and import/export regulations may have a negative impact on the availability and pricing of raw materials. Prices for raw materials necessary for production have fluctuated significantly in the past and significant increases could adversely affect the Company’sour results of operations and profit margins. Although the Company generally attemptsOur efforts to manage these fluctuations by, among other things, passing along increased raw material prices to its customers in the form of price increases thereto our customers, may be subject to a time delay between the increased raw material prices and the Company’sour ability to increase the price of itsour products, or the Companywe may be unable to increase the prices of itsour products due to pricing pressure, contract terms or other factors whichfactors. Any such inability to manage fluctuations could adversely impact our results of operations and cash flows.

The Company’sOur suppliers of component parts may significantly and quickly increase their prices in response to increases in costs of raw materials that they use to manufacture the component parts. As a result, the Companywe may not be able to increase itsour prices commensurately with itsour increased costs. Consequently, the Company’sour results of operations or financial condition could be materially adversely affected.

Further, our operations are subject to certain antitrust and competition laws in the jurisdictions in which we conduct our business, in particular the United States and Europe. These laws prohibit, among other things, anticompetitive agreements and practices. If any of our commercial agreements or practices are found to violate or infringe such laws, we may be subject to riskscivil and other penalties. We may also be subject to third-party claims for damages. Further, agreements that infringe antitrust and competition laws may be void and unenforceable, in whole or in part, or require modification in order to be lawful and enforceable. Accordingly, any violation of these laws could harm our reputation and could have a material adverse effect on our earnings, cash flows and financial condition.

The CompanyParker is subject to income taxes in the United StatesU.S. and various non-U.S. jurisdictions. The Company'sOur domestic and international tax liabilities are dependent upon the location of earnings among these different jurisdictions. The Company’sOur future results of operation could be adversely affected by changes in the Company's effective tax rate as a result of changes in tax laws and judicial or regulatory interpretation thereof, the mix of earnings in countries with differing statutory tax rates, changes in overall profitability, changes in generally accepted accounting principles, changes in the valuation of deferred tax assets or changes in tax laws or regulations.

The Company’sOur businesses expose itus to potential product liability risks that are inherent in the design, manufacture and sale of itsour products and the products of third-party vendors that the Company useswe use or resells.resell. Significant product liability claims could have a material adverse effect on the Company’s financial condition, liquidity and results of operations. Although the Companywe currently maintainsmaintain what it believeswe believe to be suitable and adequate product liability insurance, there can be no assurance that the Companywe will be able to maintain itsour insurance on acceptable terms or that itsour insurance will provide adequate protection against all potential significant liabilities.

Protecting the Company’sour intellectual property is critical to itsour innovation efforts. The Company ownsWe own a number of patents, trade secrets, copyrights, trademarks, trade names and other forms of intellectual property in itsrelated to our products and services throughout the world and in the operation of itsour business. The CompanyWe also hashave exclusive and non-exclusive rights to intellectual property owned by others. The Company’sOur intellectual property may be challenged or infringed upon by third parties or the Companywe may be unable to maintain, renew or enter into new license agreements with third-party owners of intellectual property on reasonable terms. In addition, the global nature of the Company’sour business increases the risk that the Company’sour intellectual property may be subject to infringement or other unauthorized use or disclosure by others. In some cases, the Company’sour ability to protect itsour intellectual property rights by legal recourse or otherwise may be limited, particularly in countries where laws or enforcement practices are inadequate or undeveloped. Unauthorized use or disclosure of the Company’sour intellectual property rights or the Company'sour inability to preserve existing intellectual property rights could adversely impact the Company’sour competitive position and results of operations.

The Company’sOur operations necessitate the use and handling of hazardous materials and, as a result, it is subject us to various United StatesU.S. federal, state and local laws and regulations, as well as non-U.S. laws, designed to protect the environment and to regulate the discharge of materials into the environment. These laws impose penalties, fines and other sanctions for non-compliance and liability for response costs, property damages and personal injury resulting from past and current spills, disposals or other releases of, or the exposure to, hazardous materials. Among other laws, the Company iswe are subject to the United StatesU.S. federal "Superfund" law, under which it haswe have been designated as a "potentially responsible party" and may be liable for clean-up costs associated with various waste sites, some of which are on the United States Environmental Protection Agency’s Superfund priority list. The CompanyWe could incur substantial costs as a result of non-compliance with or liability for cleanup or other costs or damages under environmental laws, including the Superfund"Superfund" law.

In addition, increased worldwide focus on climate change issues has led to recent legislative and regulatory efforts to limit greenhouse gas emissions, including regulation of such emissions through a "cap-and-trade" system globally. Increased regulation of greenhouse gas emissions and other climate changeschange concerns could subject the Companyus to additional costs and restrictions, including increased energy and raw material costs. Until definitive regulations are adopted, the Company iswe are not able to predict how such regulations would affect the Company’sour business, operations or financial results.

The CompanyWe may be subject to other more stringent environmental laws in the future. If more stringent environmental laws are enacted in the future, these laws could have a material adverse effect on the Company’sour business, results of operations and financial condition.

The funding requirements and the amount of expenses recorded for the Company’sour defined benefit pension plans are dependent on changes in market interest rates and the value of plan assets, which are dependent on actual plan asset returns. Significant changes in market interest rates and decreases in the fair value of plan assets and investment losses on plan assets would increase funding requirements and expenses and may adversely impact the Company’sour results of operations.

The Company absorbs a portion of healthcare costs for its employees. If healthcare costs rise significantly and the Company continueswe continue to absorb the majority of these costs, these increasing costs may adversely impact the Company'sour future results of operations.

In addition to the risks identified herein, doing business with the United StatesU.S. government subjects the Companyus to unusual risks, including dependence on the level of government spending and compliance with and changes in governmental procurementacquisition regulations. Agreements relating to the sale of products to government entities may be subject to termination, reduction or modification, either at the convenience of the government or for the Company’sour failure to perform, or other unsatisfactory performance under the applicable contract. The Company isWe are subject to government investigations of our business practices and compliance with government procurementacquisition regulations. If the Company were charged with wrongdoing as a result of any such investigation, it could be suspended from bidding on or receiving awards of new government contracts, and we could be subject to fines or penalties associated with contract non-compliance or resulting from such investigations, which could have a material adverse effect on the Company’sour results of operations.

The Company’sOur executive officers as of August 15, 2017,2019, were as follows:

Mr. Williams has been a Director since January 2015; Chief Executive Officer since February 2015; and Chairman of the Board since January 2016. He was an Executive Vice President from August 2008 to February 2015 and an Operating Officer from November 2006 to February 2015. He is also a Director of Chart Industries, Inc.Goodyear Tire & Rubber Company.

Mr. Banks has been a Director since January 2015 and President and Chief Operating Officer since February 2015. He was an Executive Vice President from August 2008 to February 2015 and an Operating Officer from November 2006 to February 2015. He is also a Director of Nordson Corporation.

Ms. Suever has been Executive Vice President - Finance & Administration and Chief Financial Officer since April 2017. She was Vice President and Controller from December 2010 to April 2017. She is also a director of Hexcel Corporation.

Mr. Hart has been Executive Vice President - Human Resources & External Affairs since January 2016. He was Vice President - Total Rewards from August 2013 to January 2016; and Area Vice President - Human Resources of the Fluid Connectors Group, Filtration Group and Climate and Industrial Controls Group from October 2010 to August 2013.

Mr. Bowman has been Vice President and President - Instrumentation Group since September 2016. He was Vice President, Operations - Filtration Group from March 2015 to August 2016; and Vice President, Operations - Fluid Connectors Group from November 2007 to February 2015.

Mr. Leombruno has been Vice President and Controller since July 2017. He was Vice President and Controller - Engineered Materials Group from January 2015 to June 2017; and Director of Investor Relations from June 2012 to December 2014.

Mr. Leonti has been Vice President, General Counsel and Secretary since July 2014. He was Assistant Secretary from April 2011 to July 2014; and Associate General Counsel from January 2008 to July 2014.

Mr. Malone has been Vice President and President of the Filtration Group since December 2014. He was Vice President - Operations of the Filtration Group from January 2013 to December 2014; and2014.

Mr. Parel has been Vice President and Chief ExecutiveInformation Officer of Purolator Filters (a German joint venture)since October 2018. He was Vice President and Chief Information Officer at Dover Corporation from April 2006May 2016 through October 2018. Prior to January 2013.Dover, he held several IT leadership roles at Baker Hughes from March 2010 to May 2016, including IT Integration Leader and Senior Director, IT North America.

Ms. Parmentier has been Vice President and President of the Motion Systems Group since February 2019. She was Vice President and President of the Engineered Materials Group sincefrom September 2015.2015 to February 2019. She was General Manager of the Hose Products Division from May 2014 to September 2015; and General Manager of the Sporlan Division from May 2012 to May 2014; and Business Unit Manager of the Sporlan Division from December 2008 to May 2012.2014.

Mr. Ross has been Vice President since July 2012 and President of the Fluid Connectors Group since September 2015. He was President of the Engineered Materials Group from July 2012 to September 2015; Vice President - Operations of the Hydraulics Group from July 2011 to July 2012; and General Manager of the Hydraulic Valve Division from June 2007 to July 2011.2015.

Mr. Weeks has been Vice President and President of the Engineered Materials Group since February 2019. He was Vice President and President of the Motion Systems Group sincefrom September 2015.2015 to February 2019. He was Vice President - Operations of the Aerospace Group from April 2013 to September 2015; and Senior Vice President and General Manager of the Fluid and Electrical Distribution Division of Eaton Corporation plc (power management company) from July 2003 to April 2013.2015.

PART II

Overview

A PMI above 50 indicates that the manufacturing activity specific to a region of the world in the mobile and industrial markets is expanding. A PMI below 50 indicates the opposite. Recent PMI levels for some regions around the world were as follows:

During 2017, the Company completed three acquisitions, including the acquisition of Clarcor which is further discussed in Note 2 to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. Acquisitions will be considered from time to time to the extent there is a strong strategic fit, while at the same time maintaining the Company’s strong financial position. The CompanyIn addition, we will continue to assess itsour existing businesses and initiate efforts to divest businesses that are not considered to be a good long-term strategic fit for the Company. Future business divestitures could have a negative effect on the Company’s results of operations.

   

The Company’sCompany's goal is to maintain no less than an “A” rating on senior debt to ensure availability and reasonable cost of external funds. In periods following significant capital deployment, including for share repurchases or acquisitions, certain of the ratings assigned to the Company's senior debt may be, and at June 30, 2017 were, lower than the stated goal. The Company's ability to borrow funds at desirable tenors and interest rates in February 2017 was not significantly impacted by certain ratings on senior debt that were below an "A" level. The Company does not believe that its ability to borrow funds in the future at desirable tenors and affordable interest rates will be impacted if certain of its ratings are below an "A" level at the time of such borrowings.a strong investment-grade credit profile. At June 30, 2017,2019, the long-term credit ratings assigned to the Company's senior debt securities by the credit rating agencies engaged by the Company were as follows: