Todd M. Leombruno
Executive Vice President and Chief Financial Officer at Parker-Hannifin
Okay. Thanks, Tom. I'll ask everyone to move to Slide 9. And I'll start with our FY '22 Q2 results. As Tom mentioned, this was just an outstanding quarter. Just another reminder that our operations leaders are really driving the company to significantly higher levels of performance. Our sales increased 12% versus the prior year. We did hit a record level of $3.8 billion. Tom mentioned this, but organic sales were very healthy at 13%, currency was about a 1 point drag on sales. That's how we got to the 12% reported sales increase. Demand just remains robust. Our backlogs are healthy, growth remains very broad-based across all of our industrial businesses. If you look into the Aerospace business commercial demand continues to trend positive and we talked about this before, but the acquisitions of CLARCOR, LORD and Exotic continue to outperform our expectations.
When you look at the segment operating margins, it's a Q2 record on an adjusted basis. We did 21.6% segment operating margin that's 120 basis points improvement from prior year and our teams are really managing through the well-documented supply chain issues, the inflationary environment. I really just want to condemn them on our team's swift actions to manage these costs and inflationary actions, still while achieving record sales in the quarter. Tom, mentioned this, but adjusted EBITDA margin was 22.7%, that's up 180 basis points from last year both our adjusted net income and our adjusted EPS is improved by 29% versus prior-year. Net income is $582 million or 15.2% return on sales. And adjusted EPS was $4.46, that's $1.01 increase versus the prior year of $3.45, just a really solid quarter.
If we jump to Slide 10. This is just a bridge on adjusted EPS and I'll just detail some of the components that generated the $1.01 increase in EPS. And as you can see really operating execution is the major driver in this increase. Adjusted segment operating income did increase by $132 million, that's 19% greater than prior year, and that really accounts for 80% of the increase in our EPS this quarter. We did have some other favorable items that was $0.19 favorable, there were some currency gains that were favorable. We did sell a few facilities that we restructured, those closed in the quarter and we do have reduced pension expense versus prior year, all of that added up to $0.19. And then you can see the other items on the slide that all netted to $0.04 favorable, but really the story here is just a very strong operating quarter.
If we go to Slide 11, I'll make a few comments on our segment performance. Tom, mentioned those secular trends, we are seeing growth from those trends across our segments. Every single one of the segments has a record-adjusted segment operating margin this quarter. We did maintain a cost price neutral position, we're very proud of that, incrementals were 30% versus prior year. And I just want to remind everybody that is against a headwind of $65 million of discretionary savings that we had in the prior year. If you exclude those discretionary savings, our incrementals were 48%. So really fantastic performance across the board from our teams. It really highlights the power of the Win Strategy and really demonstrates our ability to perform through this current climate.
If you look at orders, orders are plus 12 and really the demand continue to be robust across our businesses. Just a little color on Diversified Industrial North America sales reached $1.8 billion. Organic growth in that segment was 15% versus prior year. And listen, we're really pleased with the performance in this region. We've talked a lot of -- I've read I know everyone is familiar with the well-documented supply chain issues. Tom, mentioned the Omiron spike, we are not immune to that, but we did keep operating margins at a very high level of 21.3% in this segment and we're proud of that. Order rates are continue to be very high at plus 17%, our backlog is strong and Tom mentioned this 91% of our markets are in growth mode, so great things in the North American businesses.
Industrial International is a great story, sales are $1.4 billion, organic growth is up 14% in this segment. And I want to note that across all the regions within our international segment organic growth was mid-teen positive in every region. So really robust activity there. Maybe more presses impressive is the adjusted operating margins 22.4%, this is an increase of 210 basis points versus the prior year. And certainly, we have volume, we've talked a lot about our growth in distribution internationally. We are benefiting from some product mix. And really the team is doing a great job controlling costs. And this has been a really long-term effort over a long period of time from that team. So I'm really happy that they're able to put up these continued high level of margin performance. Order rates there we're plus 14%, ample backlog, and really solid international performance.
If we look at Aerospace systems really continued signs of a rebound there, sales of $618 million, organic sales are positive at almost 6% and we did see very strong demand in our commercial OEM and MRO markets. Great margin performance here as well. Operating margins have increased 270 basis points to finish the quarter at 20.7%. And again, I just want to remind everyone that that is still at pre-COVID volume levels, so great margin performance from our Aerospace team. Aerospace orders on a 12-month rolling rate did decline 7%, but one item I want to make clear for everybody is, we did have few large multi-year military orders in the prior period that really created a tough comp just in Aerospace. If we exclude those orders Aerospace orders would be plus mid-teens positive.
So, we're seeing continued signs of steady improvement in Aerospace, our order dollars in Aerospace in the quarter were at the highest level, they've been in the last three quarters. So great quarter out of Aerospace. But if you really look at the segments, it's really outstanding operating performance. We've got positive growth, strong order dollars, robust backlogs, record margins, and really just solid execution across the board. So great segment performance.
If I take you to Slide 12 and talk about cash flow on a year-to-date basis, we did exceed $1 billion in cash flow from operations that is 13.3% to sales. Free cash flow is $900 million or almost 12% of sales and conversion on a year-to-date basis is now 107%. We still continue to diligently manage working capital across the company. We really are just responding to these increased demand levels that we have. The working capital change did improve in the quarter as we forecasted in the quarter, it was a 1.9% use of cash versus last year it was a 4.1% source of cash. So for the full year I just want to reiterate, we continue to forecast mid-teens cash flow from operations and free cash flow for the full year will exceed 100%.
If we go to Slide 13 now, I just want to make a few comments on our capital deployment activity. I'm sure many people have seen this, but last week our Board approved a dividend declaration of $1.03 per share that is fully supportive of our long-standing 65-year record of increasing dividends paid. And I want to give an update on the Meggitt financing. We continue to make progress on our financing plan, our plan is flexible, it is efficient, it is risk-mitigating. I did mention on the last call that we secured a deal contingent forward hedge contract in the amount of GBP6.4 billion, accounting rules require us to mark those contracts to market that impact in the quarter was a non-cash charge of $149 million. We booked that in the other expense line and we are treating that as an adjusted item.
We now have $2.5 billion of cash deposited in escrow to fund the Meggitt transaction that is listed on our balance sheet as restricted cash. And that was funded from a combination of commercial paper and some cash on hand, a result of that our gross debt to EBITDA ended up being 1.7 times in the quarter, net debt was 2.5 times if you account for the $2.5 billion of restricted cash net debt to EBITDA would be 1.8.
Okay, so if we go to Slide 14, I just want to give some details on the increase to guidance that we announced this morning. And of course, we're giving this on an as reported and an adjusted basis, full-year adjusted EPS is raised by $0.75. We did guide to $17.30 at the midpoint last quarter, we have moved that to $18.05 and that is at the midpoint. We've also narrowed the range, range is now $0.25 up or down and sales is also raised, we're raising the midpoint to a range of 10% at the midpoint. We've got a range of 9% to 11% and the breakdown of that sales change at the midpoint is organic growth is 10.5%, currency will be about one point unfavorable, and of course, there's no impact from acquisitions. As Tom said, we don't expect Meggitt to close in our fiscal year.
If we look at the full-year adjusted segment operating margin, we're also raising that 20 basis points from the prior guide. Full-year now we expect that to be 20% at the midpoint. There is a 20 basis point range on either side of that. And corporate G&A and other is expected to be $656 million on an as reported basis, but $435 million on an adjusted basis. So, of course, there is a couple of adjusted items in there. The acquisition-related intangible assets, that is a standard adjustment. The realignment expenses standard adjustment, LORD costs to achieve standard adjustment. But we are adjusting these transaction-related expenses for Meggitt. Year-to-date, we've got $71 million worth of transaction costs and of course that $149 million non-cash mark-to-market loss that I just mentioned.
We're going to continue to adjust for the transaction-related expenses as they are incurred. If you look at tax rate, tax rate is now going to be slightly lower than what we had forecasted just based on first-half activity, we expect that to be 22% now. And finally, guidance for the full year assumes sales, adjusted operating income and EPS all split, 48% first half, 52% second half. And just a little bit more color, Q3 -- FY '22 Q3 adjusted EPS guide, we have at $4.54.
So with that, Tom, I'll hand it back to you for closing comments, and I'll ask everyone to go to Slide 15.