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Acquisitions and divestitures
 9 Months Ended
Mar. 31, 2023
Business Combination and Asset Acquisition [Abstract]  
Acquisitions and divestitures 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.
September 12, 2022 (previously reported)Measurement Period AdjustmentsSeptember 12, 2022 (revised)
Assets:
Cash and cash equivalents$89,704 $— $89,704 
Accounts receivable427,255 (10,687)416,568 
Inventories833,602 (16,472)817,130 
Prepaid expenses and other125,763 (1,525)124,238 
Property, plant and equipment675,232 (10,071)665,161 
Deferred income taxes5,720 27,022 32,742 
Other assets219,472 (52,072)167,400 
Intangible assets5,418,795 27,305 5,446,100 
Goodwill2,830,845 185,440 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, trade219,780 (17)219,763 
Accrued payrolls and other compensation89,226 (2,204)87,022 
Other accrued liabilities367,605 (60,339)307,266 
Long-term debt669,321 40,042 709,363 
Pensions and other postretirement benefits85,899 12,827 98,726 
Deferred income taxes1,274,726 95,626 1,370,352 
Other liabilities377,751 59,717 437,468 
Total liabilities assumed3,390,574 148,940 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.
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 EndedNine Months Ended
(Unaudited)March 31,March 31,
2023202220232022
Net sales$5,061,665 $4,549,854 $14,350,581 $13,189,507 
Net income attributable to common shareholders612,049 424,025 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.