Todd M. Leombruno
Executive Vice President and Chief Financial Officer at Parker-Hannifin
Yes. Thanks, Tom. I guess I would like to direct everyone's attention to Slide 15. And I'll just, real quickly, walk through the FY '21 Q4 results. As Tom mentioned earlier, we have some outstanding results to share here. Sales increased over 25% in Q4 versus prior year and finished at $3.9 billion. As we've said, that's an all-time record for the company. And we're really particularly proud of this due to the fact that our aerospace markets are still challenged. It really demonstrates the strength of the portfolio additions that we've spoken about, CLARCOR, LORD and Exotic, and really is driven by strong broad-based demand across all of our industrial businesses. Organic sales are up 22% in the quarter. So basically, the majority of that change is all organic.
This is the first time organic sales have been positive for the company in over two years. Currency also was favorable with a 3.5% impact to total sales. Moving to adjusted segment margins. That 22.2% is an improvement, like Tom said, of 230 basis points from prior year, and it's also 80 basis points improved sequentially from Q3. Just another strong quarter of margin performance as really our teams around the world pivoted to the increased demand levels and managed through a number of challenges. Very proud of our team for that margin performance. Incrementals are also commendable at 31% year-over-year, really impressive considering last year with the depth of the pandemic. And our decrementals last year were fantastic at plus -- or excuse me, minus 13%. And if you remember, that included approximately $175 million of temporary savings in that FY '20 Q4. So we're really happy with the 31% incrementals.
EBITDA margins also expanded 190 basis points from prior year, finishing the quarter at 22.1%. And if you look at that net income number, $577 million, that's an ROS of 14.6%, and that's an increase of nearly 50% from prior year. All of those great results translated to an adjusted EPS of $4.38. That's an increase of $1.39 per share or 46% compared to the prior year number on this slide of $2.99. Just one point I want to reference to the prior year numbers, and I'm really speaking to net income and the EPS numbers only. We have been planning for some time to convert our remaining U.S. locations that used to use LIFO for inventory evaluation to standardize that across the company and move to FIFO inventory valuation purposes.
We made that voluntary change in FY '21 Q4, and we've retrospectively applied that change to prior years, and we've attached the impact of those prior years to this press release in the table section. So the impact to the previously reported quarter last year was minimal. It was only $0.04 last year. So the $2.99 on this page, if you're looking back to prior year, that would have been $3.03 in FY '20. So one other note I want to make, LIFO, we've always booked this at the corporate level. This has no impact to our segment operating margins or the incrementals that I just mentioned to and now 100% of the company's inventory is valued using the FIFO method. So just one last comment on the quarter. Really proud of our team globally. It's just a tremendous effort the team put forth to put up just such a solid quarter to finish really, as Tom said, a record year. So if we can move to Slide 16, this is just a bridge of that $1.39 increase to adjusted EPS that I just mentioned, and what I love here is the largest bar on the page.
Signals the strong operating performance that the teams put together. Our segment operating income on an adjusted basis increased $250 million or 40% from prior year Q4. That accounts to $1.50 of the increase in EPS that we just put up for the quarter of $1.39, so it's really strong execution really everywhere across the company. All the other items you see on the slide, if you net it, it's $0.11 unfavorable. Corporate G&A, income tax and shares were slightly unfavorable, but lower interest and lower other expense partially offset the impact there. So again, most of this is really fantastic due to comparing back to our COVID-impacted quarter of the prior year. If you go to Slide 17, just some color on our segment performance. Really, the message here is our industrial businesses delivered outstanding results across the board. We've spoken in the past about the impact of these portfolio changes have had on the company, and you can see it here in these margin numbers.
Diversified North America sales were $1.8 billion in the quarter. Organic sales improved again in this segment sequentially up and are up 26% versus prior year. Operating margins improved an impressive 300 basis points versus prior year and really finished at 22.5% for the quarter. Obviously, volume helped us a little bit there, but really the disciplined operating performance and cost control really continue to drive the sizable increase to margins. Margins in this segment are a record, all-time record. And incrementals also were very healthy at 34%. And again, I keep referencing the comparables back to last year, which is just a very tough comparison. If you look at order rates, order rates are robust at plus 56%. This is up sequentially from last quarter where we reported plus 11% and really just strong across the board.
If I move to the International -- Diversified International segment, really same story here, a little bit higher organic growth of 28.5%. Sales just reached $1.5 billion in that segment. And again, another story here, adjusted segment operating margins expanded 300 basis points versus prior year and finished at 22.1% in the International segment. Just really, again, strong organic growth in that volume, coupled with that cost containment and productivity initiatives really generated this record margin performance in this segment as well. Order rates again here, tremendous, up a little bit higher than North America at plus 58% versus 14% positive in the last quarter. So really just a great performance out of our industrial businesses. I'll just touch on Aerospace Systems, really slightly. Very sound performance in the current market.
Sales here were $630 million for the quarter. And I'm happy to report organic sales have turned positive in this segment. They are up 1%. We saw strength in commercial and military aftermarkets with strong sequential growth again in Q4, and we're happy to start seeing rate increases from OEMs, particularly in the narrow body and business jet platforms. Aerospace orders also got less negative and improved to minus 7% this quarter on a rolling 12 basis versus minus 19% last quarter and further proof that we are seeing signs of recovery in this area. Operating margins also very strong, 21.6%. That improved sequentially from Q3 and really finished the year at the highest level they've had in the entire fiscal year. So very proud of our aerospace team there. So just looking at the company as a whole, we're really pleased with these results. It's a solid finish to the fiscal year.
Our total incrementals were 31%. I'm really proud about that. And really just a comment, if I look at just our industrial businesses, if I go back to pre-pandemic FY '19 and on a like-for-like basis, if I include LORD in those FY '19 numbers, in the industrial businesses, our sales volume has surpassed pre-COVID levels. So we're really proud about that. Orders you can see in total are plus 43%. And as Tom mentioned, not only did we achieve our FY '23 margin targets, but we surpassed them, and we did that two years early. So if I go to the next slide, Slide 18, cash flow.
We're obviously very proud of this. Tom mentioned this earlier. Full year cash flow from operations was $2.6 billion, that's an all-time record for the company. 17.9% of sales, just outstanding top quartile performance. If you look at that compared to prior year, we generated over $500 million more cash. That's 24% more cash than we did prior year. And like I said, that CFOA at $2.6 billion is a record. Working capital, really solid performance here. And I want to just really thank our teams everywhere around the world for focusing on this. We asked them to focus on this through the pandemic and they delivered soundly. So I want to thank you all for your focus on that.
Free cash flow, also fantastic, 16.5%. That's up 310 basis points versus prior year, and the free cash flow conversion for the year, 135%. So with that, this now marks the 20th year that free cash flow conversion has been greater than 100% and cash flow from operations have been greater than 10%, 20 years running. All of these allowed us to significantly pay down our serviceable debt. We've been vocal about that for the last couple of months. If you look at the last 20 months, we've paid down $3.4 billion of debt and our gross debt-to-EBITDA finished the year at 2.1%. Net debt is 1.9%. So again, the similar story here, we achieved these leverage levels a full one year sooner than we had originally forecast, and it's just an outstanding cash position. It's top quartile execution and really impressive considering the backdrop of the global pandemic. So 19, I will ask you to focus on 19, just flipping to FY '22 and our guidance.
You saw that we released this, this morning. As usual, we're going to provide this on an as-reported and adjusted basis. And I'll just start at the top. Sales. We're forecasting sales to increase in the range of 5% to 9%, really 7% at the midpoint. And really the breakdown of that sales growth is essentially all organic. We do not expect the Meggitt transaction to close in FY '22. Both LORD and Exotic have anniversary-ed, so those are no longer considered acquisition sales. Therefore, we are forecasting no impact to sales from acquisitions. And currency is just a minimal drag at 0.2% of sales. And just like we always do, we have calculated the impact of currency to spot rates at the end of June 30, and we've held those rates study as we forecast FY '22.
One thing I'll note, the sales split for the guide is 48% first half, 52% second half. The next item I'll talk about is segment operating margin. On an as-reported basis, the guidance for the full year is 19.3% at the midpoint, and there's a range of 20 basis points on either side of that. But more importantly, on an adjusted basis, segment operating margin guidance for the full year is 21.6% at the midpoint, same range of 20 basis points on either side of that. This adjusted segment operating margin guide is 50 basis points higher than what we just finished our record FY '21 at. Just some color on adjustments. At a pretax level, business realignment charges are expected to be $35 million for FY '22. LORD cost to achieve are only $7 million for the forecasted year and acquisition-related intangible amortization is $320 million. Just a note on the split, adjusted segment operating margins 46% first half, 52% second half. If you look at the corporate G&A interest and other, $480 million is our forecast. That is the same on an adjusted and an as-reported basis.
Tax rate, we are forecasting full year to be 23%. And finally, EPS on an as-reported basis, our guidance is $14.48 at the midpoint. There's a $0.40 range on either side of that. And our adjusted EPS guidance is $16.60 at the midpoint, same $0.40 range on either side of that. Adjusted EPS split first half is 45%, second half is 55%. And a little color on Q1, we are forecasting adjusted EPS to be $3.60 at the midpoint. Slide 20 is the bridge. And again, this is very similar to Q4. Main driver of the $1.56 or 10% increase to adjusted earnings per share is just our continued strong execution across the enterprise. Segment operating margin is accounting for $1.76 of that change. And then again, just slightly higher corporate G&A, tax and average shares outstanding are a little bit of a drag. But all in, a $1.56 increase in earnings per share, increasing earnings per share by 10%. Lastly, I will just talk about capital deployment. For FY '22, we are committed to our capital deployment strategies. We have a strong 65 year of -- record of consistently, consecutively increasing the annual dividends paid. We're going to continue with that record.
Our payout target is not changed. It remains 30% to 35% of the 5-year average of net income. And of course, we're going to continue to fund organic growth and productivity across our global locations. We expect capital expenditures to be 2% for the year. Our 10b5-1 share repurchase program, we reinstated that this year. We are committed to continuing that in FY '22. And as I mentioned, when I was talking about cash flow, we have extinguished all of our serviceable debt, and we are now in a cash-building position. So our focus for FY '22 will be to continue our record of strong cash flow generation and accumulation in preparation for the closing of the Meggitt transaction. So with that, Tom, I'll turn it back to you, and I'll ask the audience to focus on Slide 22.
