UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED ~~OCTOBER 31, 2021~~APRIL 30, 2022

☐ 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 1-7891

DONALDSON COMPANY, INC.

(Exact name of registrant as specified in its charter)


Delaware						41-0222640
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)

1400 West 94th Street

Minneapolis, Minnesota 55431

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (952) 887-3131

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $5.00 par value	DCI	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 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, 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

As of ~~November 30, 2021, 123,532,038~~May 31, 2022, 122,865,627 shares of the registrant’s common stock, par value $5.00 per share, were outstanding.

PART I. FINANCIAL INFORMATION


Item 1. Financial Statements

DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In millions, except per share amounts)

(Unaudited)


		Three Months Ended October 31,				Three Months Ended April 30,				Nine Months Ended April 30,
		2021		2020				2022		2021		2022		2021
Net sales	Net sales	$	760.9	$	636.6		Net sales	$	853.2	$	765.0	$	2,416.6	$	2,080.8
Cost of sales	Cost of sales	503.9		413.9			Cost of sales	584.2		507.0		1,640.8		1,374.8
Gross profit	Gross profit	257.0		222.7			Gross profit	269.0		258.0		775.8		706.0
Operating expenses	Operating expenses	149.5		135.5			Operating expenses	158.0		148.6		461.6		433.3
Operating income	Operating income	107.5		87.2			Operating income	111.0		109.4		314.2		272.7
Interest expense	Interest expense	3.4		3.5			Interest expense	3.8		3.2		10.8		9.9
Other expense, net		—		1.5
Other income, net							Other income, net	(4.1)		(4.7)		(6.4)		(4.2)
Earnings before income taxes	Earnings before income taxes	104.1		82.2			Earnings before income taxes	111.3		110.9		309.8		267.0
Income taxes	Income taxes	27.0		20.3			Income taxes	28.3		26.5		78.0		64.4
Net earnings	Net earnings	$	77.1	$	61.9		Net earnings	$	83.0	$	84.4	$	231.8	$	202.6

Weighted average shares – basic	Weighted average shares – basic	124.4		126.8			Weighted average shares – basic	123.4		126.4		123.9		126.6
Weighted average shares – diluted	Weighted average shares – diluted	126.3		128.0			Weighted average shares – diluted	124.6		128.3		125.6		128.2

Net earnings per share – basic	Net earnings per share – basic	$	0.62	$	0.49		Net earnings per share – basic	$	0.67	$	0.67	$	1.87	$	1.60
Net earnings per share – diluted	Net earnings per share – diluted	$	0.61	$	0.48		Net earnings per share – diluted	$	0.67	$	0.66	$	1.85	$	1.58

See Notes to Condensed Consolidated Financial Statements.

DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)


		Three Months Ended October 31,				Three Months Ended April 30,				Nine Months Ended April 30,
		2021		2020				2022		2021		2022		2021
Net earnings	Net earnings	$	77.1	$	61.9		Net earnings	$	83.0	$	84.4	$	231.8	$	202.6
Other comprehensive (loss) income:	Other comprehensive (loss) income:						Other comprehensive (loss) income:
Foreign currency translation loss		(10.5)		(5.0)
Pension liability adjustment, net of deferred taxes of $(0.5) and $(1.5), respectively		2.0		6.1
Foreign currency translation (loss) income							Foreign currency translation (loss) income	(42.8)		(0.2)		(70.4)		36.3
Pension liability adjustment, net of deferred taxes of $0.8, $(5.9), $(0.3) and $(7.6), respectively							Pension liability adjustment, net of deferred taxes of $0.8, $(5.9), $(0.3) and $(7.6), respectively	(1.8)		18.5		2.2		24.6
Derivatives:	Derivatives:						Derivatives:
Gains on hedging derivatives, net of deferred taxes of $(0.2) and $0.0, respectively		1.0		0.3
Reclassifications of losses (gains) on hedging derivatives to net earnings, net of taxes of $(0.3) and $(0.2), respectively		0.3		(0.2)
Gains (losses) on hedging derivatives, net of deferred taxes of $(0.8), $(0.2), $(1.2) and $0.1, respectively							Gains (losses) on hedging derivatives, net of deferred taxes of $(0.8), $(0.2), $(1.2) and $0.1, respectively	2.6		1.0		4.3		(0.1)
Reclassifications of (gains) losses on hedging derivatives to net earnings, net of taxes of $0.1, $(0.1), $0.0 and $0.1, respectively							Reclassifications of (gains) losses on hedging derivatives to net earnings, net of taxes of $0.1, $(0.1), $0.0 and $0.1, respectively	(0.2)		0.1		(0.2)		(0.4)
Total derivatives	Total derivatives	1.3		0.1			Total derivatives	2.4		1.1		4.1		(0.5)

Net other comprehensive (loss) income	Net other comprehensive (loss) income	(7.2)		1.2			Net other comprehensive (loss) income	(42.2)		19.4		(64.1)		60.4
Comprehensive income	Comprehensive income	$	69.9	$	63.1		Comprehensive income	$	40.8	$	103.8	$	167.7	$	263.0

See Notes to Condensed Consolidated Financial Statements.

DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share amounts)

(Unaudited)


		October 31, 2021		July 31, 2021			April 30, 2022		July 31, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	200.8	$	222.8	Cash and cash equivalents	$	168.7	$	222.8

Accounts receivable, less allowances of $6.6 and $7.0, respectively		545.1		552.7
Accounts receivable, less allowances of $5.7 and $7.0, respectively						Accounts receivable, less allowances of $5.7 and $7.0, respectively	585.5		552.7
Inventories, net	Inventories, net	444.7		384.5		Inventories, net	510.7		384.5
Prepaid expenses and other current assets	Prepaid expenses and other current assets	105.2		84.0		Prepaid expenses and other current assets	102.4		84.0
Total current assets	Total current assets	1,295.8		1,244.0		Total current assets	1,367.3		1,244.0
Property, plant and equipment, net	Property, plant and equipment, net	609.7		617.8		Property, plant and equipment, net	591.1		617.8

Goodwill	Goodwill	320.6		322.5		Goodwill	336.6		322.5
Intangible assets, net	Intangible assets, net	59.2		61.6		Intangible assets, net	73.8		61.6

Other long-term assets	Other long-term assets	153.2		154.3		Other long-term assets	150.4		154.3
Total assets	Total assets	$	2,438.5	$	2,400.2	Total assets	$	2,519.2	$	2,400.2

Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current liabilities:	Current liabilities:					Current liabilities:
Short-term borrowings	Short-term borrowings	$	41.2	$	48.5	Short-term borrowings	$	31.3	$	48.5

Accounts payable	Accounts payable	310.0		293.9		Accounts payable	335.8		293.9
Accrued employee compensation and related taxes	Accrued employee compensation and related taxes	108.6		126.8		Accrued employee compensation and related taxes	106.7		126.8

Income taxes payable						Income taxes payable	25.4		17.7
Dividend payable	Dividend payable	—		27.6		Dividend payable	—		27.6
Other current liabilities	Other current liabilities	122.1		109.8		Other current liabilities	107.3		92.1
Total current liabilities	Total current liabilities	581.9		606.6		Total current liabilities	606.5		606.6
Long-term debt	Long-term debt	548.1		461.0		Long-term debt	607.2		461.0
Non-current income taxes payable	Non-current income taxes payable	81.1		80.7		Non-current income taxes payable	74.7		80.7
Deferred income taxes	Deferred income taxes	26.5		26.6		Deferred income taxes	30.9		26.6

Other long-term liabilities	Other long-term liabilities	85.0		88.2		Other long-term liabilities	76.3		88.2
Total liabilities	Total liabilities	1,322.6		1,263.1		Total liabilities	1,395.6		1,263.1

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized, none issued	Preferred stock, $1.00 par value, 1,000,000 shares authorized, none issued	—		—		Preferred stock, $1.00 par value, 1,000,000 shares authorized, none issued	—		—
Common stock, $5.00 par value, 240,000,000 shares authorized, 151,643,194 shares issued	Common stock, $5.00 par value, 240,000,000 shares authorized, 151,643,194 shares issued	758.2		758.2		Common stock, $5.00 par value, 240,000,000 shares authorized, 151,643,194 shares issued	758.2		758.2
Additional paid-in capital	Additional paid-in capital	12.3		5.8		Additional paid-in capital	12.9		5.8
Retained earnings	Retained earnings	1,685.9		1,608.4		Retained earnings	1,785.6		1,608.4

Stock-based compensation plans	Stock-based compensation plans	14.5		12.8		Stock-based compensation plans	17.0		12.8
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(125.4)		(118.2)		Accumulated other comprehensive loss	(182.3)		(118.2)
Treasury stock, 28,133,757 and 26,620,560 shares, respectively, at cost		(1,229.6)		(1,129.9)
Treasury stock, 28,794,251 and 26,620,560 shares, respectively, at cost						Treasury stock, 28,794,251 and 26,620,560 shares, respectively, at cost	(1,267.8)		(1,129.9)
Total stockholders’ equity	Total stockholders’ equity	1,115.9		1,137.1		Total stockholders’ equity	1,123.6		1,137.1
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,438.5	$	2,400.2	Total liabilities and stockholders’ equity	$	2,519.2	$	2,400.2

See Notes to Condensed Consolidated Financial Statements.

DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)


		Three Months Ended October 31,					Nine Months Ended April 30,
		2021		2020			2022		2021
Operating Activities	Operating Activities					Operating Activities
Net earnings	Net earnings	$	77.1	$	61.9	Net earnings	$	231.8	$	202.6
Adjustments to reconcile net earnings to net cash provided by operating activities:	Adjustments to reconcile net earnings to net cash provided by operating activities:					Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	23.8		23.3		Depreciation and amortization	71.0		70.4

Deferred income taxes	Deferred income taxes	0.8		(2.9)		Deferred income taxes	3.0		(5.4)
Stock-based compensation expense	Stock-based compensation expense	9.0		6.3		Stock-based compensation expense	17.0		11.6
Other, net	Other, net	2.7		7.3		Other, net	4.3		16.1
Changes in operating assets and liabilities	Changes in operating assets and liabilities	(70.5)		33.0		Changes in operating assets and liabilities	(183.2)		10.3

Net cash provided by operating activities	Net cash provided by operating activities	42.9		128.9		Net cash provided by operating activities	143.9		305.6

Investing Activities	Investing Activities					Investing Activities
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(18.3)		(18.8)		Purchases of property, plant and equipment	(56.8)		(40.2)

Acquisitions, net of cash acquired						Acquisitions, net of cash acquired	(49.0)		—
Net cash used in investing activities	Net cash used in investing activities	(18.3)		(18.8)		Net cash used in investing activities	(105.8)		(40.2)

Financing Activities	Financing Activities					Financing Activities

Proceeds from long-term debt	Proceeds from long-term debt	124.5		—		Proceeds from long-term debt	249.3		—
Repayments of long-term debt	Repayments of long-term debt	(35.0)		(40.0)		Repayments of long-term debt	(90.0)		(165.0)
Change in short-term borrowings	Change in short-term borrowings	(7.3)		(2.8)		Change in short-term borrowings	(16.4)		21.6

Purchase of non-controlling interests						Purchase of non-controlling interests	—		(14.4)
Purchase of treasury stock	Purchase of treasury stock	(102.9)		(15.6)		Purchase of treasury stock	(153.7)		(78.7)
Dividends paid	Dividends paid	(27.4)		(26.6)		Dividends paid	(81.8)		(79.5)
Tax withholding payments for stock compensation transactions	Tax withholding payments for stock compensation transactions	(0.2)		(2.2)		Tax withholding payments for stock compensation transactions	(1.7)		(4.0)
Exercise of stock options	Exercise of stock options	2.8		8.3		Exercise of stock options	11.5		24.5
Net cash used in financing activities	Net cash used in financing activities	(45.5)		(78.9)		Net cash used in financing activities	(82.8)		(295.5)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(1.1)		2.2		Effect of exchange rate changes on cash	(9.4)		8.8
(Decrease) increase in cash and cash equivalents		(22.0)		33.4
Decrease in cash and cash equivalents						Decrease in cash and cash equivalents	(54.1)		(21.3)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	222.8		236.6		Cash and cash equivalents, beginning of period	222.8		236.6
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	200.8	$	270.0	Cash and cash equivalents, end of period	$	168.7	$	215.3

Supplemental Cash Flow Information	Supplemental Cash Flow Information					Supplemental Cash Flow Information

Income taxes paid	Income taxes paid	$	23.2	$	13.2	Income taxes paid	$	80.5	$	76.5
Interest paid	Interest paid	$	3.1	$	3.6	Interest paid	$	9.4	$	9.0
Supplemental Disclosure of Non-Cash Operating and Investing Transactions	Supplemental Disclosure of Non-Cash Operating and Investing Transactions					Supplemental Disclosure of Non-Cash Operating and Investing Transactions
Accrued property, plant and equipment additions	Accrued property, plant and equipment additions	$	7.8	$	5.0	Accrued property, plant and equipment additions	$	12.0	$	7.3

Leased assets obtained in exchange for new operating lease liabilities	Leased assets obtained in exchange for new operating lease liabilities	$	4.3	$	1.2	Leased assets obtained in exchange for new operating lease liabilities	$	12.9	$	6.2
Transfer of operating lease asset and operating lease liability						Transfer of operating lease asset and operating lease liability	$	—	$	(9.2)
Recognized financing lease asset and finance lease liability						Recognized financing lease asset and finance lease liability	$	—	$	13.9

See Notes to Condensed Consolidated Financial Statements.

DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In ~~millions)~~millions, except per share amounts)

(Unaudited)


		Three Months Ended October 31, 2021 and 2020
		Common Stock		Additional Paid-in Capital		Retained Earnings		Non- Controlling Interest		Stock-Based Compensation Plans		Accumulated Other Comprehensive Loss		Treasury Stock		Total
Balance July 31, 2021		$	758.2	$	5.8	$	1,608.4	$	—	$	12.8	$	(118.2)	$	(1,129.9)	$	1,137.1
Net earnings						77.1										77.1
Other comprehensive loss												(7.2)				(7.2)
Treasury stock acquired														(102.9)		(102.9)
Dividends declared						0.2										0.2
Stock compensation and other activity				6.5		0.2				1.7				3.2		11.6
Balance October 31, 2021		$	758.2	$	12.3	$	1,685.9	$	—	$	14.5	$	(125.4)	$	(1,229.6)	$	1,115.9

																			Three Months Ended April 30, 2022 and 2021
																			Common Stock		Additional Paid-in Capital		Retained Earnings		Non- Controlling Interest		Stock-Based Compensation Plans		Accumulated Other Comprehensive Loss		Treasury Stock		Total

Balance July 31, 2020		$	758.2	$	—	$	1,430.0	$	5.8	$	15.9	$	(184.0)	$	(1,033.0)	$	992.9

Balance January 31, 2022																		Balance January 31, 2022	$	758.2	$	12.0	$	1,702.5	$	—	$	15.5	$	(140.1)	$	(1,231.3)	$	1,116.8
Net earnings	Net earnings					61.9										61.9		Net earnings					83.0										83.0
Other comprehensive income												1.2				1.2
Other comprehensive loss																		Other comprehensive loss											(42.2)				(42.2)
Treasury stock acquired	Treasury stock acquired													(15.6)		(15.6)		Treasury stock acquired													(38.1)		(38.1)
Dividends declared	Dividends declared					0.1										0.1		Dividends declared					0.1										0.1
Stock compensation and other activity	Stock compensation and other activity			2.7		(0.1)		0		(2.9)				12.4		12.1		Stock compensation and other activity			0.9		—				1.5				1.6		4.0
Balance October 31, 2020		$	758.2	$	2.7	$	1,491.9	$	5.8	$	13.0	$	(182.8)	$	(1,036.2)	$	1,052.6
Balance April 30, 2022																		Balance April 30, 2022	$	758.2	$	12.9	$	1,785.6	$	—	$	17.0	$	(182.3)	$	(1,267.8)	$	1,123.6

Balance January 31, 2021																		Balance January 31, 2021	$	758.2	$	5.1	$	1,494.4	$	—	$	13.2	$	(143.0)	$	(1,053.5)	$	1,074.4
Net earnings																		Net earnings					84.4										84.4
Other comprehensive income																		Other comprehensive income											19.4				19.4
Treasury stock acquired																		Treasury stock acquired													(32.4)		(32.4)
Dividends declared																		Dividends declared					0.1										0.1
Stock compensation and other activity																		Stock compensation and other activity			0.3		0.2				(1.1)				8.1		7.5
Balance April 30, 2021																		Balance April 30, 2021	$	758.2	$	5.4	$	1,579.1	$	—	$	12.1	$	(123.6)	$	(1,077.8)	$	1,153.4


	Nine months ended April 30, 2022 and 2021
	Common Stock		Additional Paid-in Capital		Retained Earnings		Non- Controlling Interest		Stock-Based Compensation Plans		Accumulated Other Comprehensive Loss		Treasury Stock		Total
Balance July 31, 2021	$	758.2	$	5.8	$	1,608.4	$	—	$	12.8	$	(118.2)	$	(1,129.9)	$	1,137.1
Net earnings					231.8										231.8
Other comprehensive loss											(64.1)				(64.1)
Treasury stock acquired													(153.7)		(153.7)
Dividends declared ($0.44 per share)					(54.2)										(54.2)
Stock compensation and other activity			7.1		(0.4)				4.2				15.8		26.7
Balance April 30, 2022	$	758.2	$	12.9	$	1,785.6	$	—	$	17.0	$	(182.3)	$	(1,267.8)	$	1,123.6

Balance July 31, 2020	$	758.2	$	—	$	1,430.0	$	5.8	$	15.9	$	(184.0)	$	(1,033.0)	$	992.9
Net earnings					202.6										202.6
Other comprehensive income											60.4				60.4
Treasury stock acquired													(78.7)		(78.7)
Dividends declared ($0.42 per share)					(52.9)										(52.9)
Purchase of non-controlling interests			2.2				(5.9)								(3.7)
Stock compensation and other activity			3.2		(0.6)		0.1		(3.8)				33.9		32.8
Balance April 30, 2021	$	758.2	$	5.4	$	1,579.1	$	—	$	12.1	$	(123.6)	$	(1,077.8)	$	1,153.4

See Notes to Condensed Consolidated Financial Statements.

DONALDSON COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Donaldson Company, Inc. and its subsidiaries (the Company) have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States (U.S.) and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair statement of earnings, comprehensive income, financial position, cash flows and changes in stockholders’ equity have been included and are of a normal recurring nature. Operating results for the three ~~month period~~and nine months ended ~~October 31, 2021~~April 30, 2022 are not necessarily indicative of the results that may be expected for future periods. The year end Condensed Consolidated Balance Sheet information was derived from the Company’s Audited Consolidated Financial Statements but does not include all disclosures required by GAAP. For further information, refer to the Audited Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2021.

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of the Company and all of its majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated. The Company’s joint ventures are not majority-owned and are accounted for under the equity method.

Use of Estimates

The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and ~~assumptions~~assumptions that affect the amount of assets and liabilities and the disclosures regarding contingent assets and liabilities at period end and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

~~The effects~~Operating Environment

Russia and Ukraine

Following the Russia and Ukraine conflict, the Company complied with all sanctions, including those from the European Union, Great Britain and the U.S. and ceased direct product shipments into Russia and Belarus. Total revenues associated with customers in these areas are less than 2% of the ~~ongoing Coronavirus (COVID-19) pandemic continue to impact~~Company’s net sales in the Condensed Consolidated Statements of Earnings. As of April 30, 2022, the Company has related asset exposure in the form of accounts receivables and inventories of approximately $6.8 million. The Company is monitoring the regional and global ~~economic conditions.~~ ramifications of the events unfolding.

Supply Chain Disruptions

The Company continues to experience supply chain disruptions, including global ~~logistic~~logistics and labor challenges ~~labor constraints~~ and ~~low~~constrained supplies of steel, petrochemical products and filter media. These disruptions have ~~slowed~~increased the Company’s ~~production speed~~input costs significantly and ~~increased~~extended lead times. The Company has undertaken steps to mitigate these negative impacts, such as increasing prices, evaluating alternative supply chain options, qualifying additional ~~suppliers. These disruptions impeded the Company’s ability to meet strengthening demand.~~suppliers and strategic raw material purchases. This dynamic impacted results inthrough the ~~first~~third quarter of fiscal 2022 and is expected to continue ~~throughout~~into fiscal ~~2022.~~2023.

Inflation

In connection with the supply chain disruptions described above, the Company has experienced the effects of inflation related to raw materials and operating expenses, including freight, labor and energy. These inflationary pressures have had an adverse impact on profit margins, particularly in recent months. The Company continues to negotiate price increases with its customers and is working with its suppliers to mitigate these cost increases. Inflation impacted results through the third quarter of fiscal 2022 and is expected to continue into fiscal 2023.

New Accounting Standards Not Yet Adopted

The Company considers the applicability and impact of the Financial Accounting Standards Board’s (FASB) Accounting Standards Updates (ASUs) issued but not yet adopted.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) as if the entity had originated the contracts. The guidance is effective for fiscal years beginning after December 15, 2022, with early application permitted. This ASU is applicable to the Company’s fiscal year beginning in the first quarter of fiscal 2024. The Company ~~assessed ASUs recently issued and determined that they were either not applicable or were not expected to~~is currently evaluating the impact the adoption will have ~~a material impact~~ on ~~the Company’s~~its financial ~~reporting.~~statements.

Note 2. Acquisitions

Solaris Biotechnology Srl (Solaris)

On November 22, 2021, the Company acquired Solaris, ~~Biotechnology (Solaris),~~ headquartered in Porto Mantovano, Italy, with U.S. operations based in Berkeley, California, for cash consideration of approximately €41 million, or ~~$46.2 million.~~$45.7 million, net of cash acquired. Solaris designs and manufactures bioprocessing equipment, including bioreactors, fermenters and tangential flow filtration systems for use in food and beverage, biotechnology and other life sciences markets. Solaris ~~expects to generate calendar year 2021 sales of approximately €5 million, or $5.6 million, and will be~~is reported within the Company’s Industrial Filtration Solutions business in the Industrial Products segment. The Company assigned the fair values to the net assets acquired resulting in $27.2 million for goodwill and $20.8 million for intangible assets, none of which are expected to be deductible for tax purposes, as well as a deferred tax liability of $4.4 million. Net working capital was $2.1 million. Net sales of Solaris were immaterial to the Condensed Consolidated Statements of Earnings for the three and nine months ended April 30, 2022.

Pearson Arnold Industrial Services (PAIS)

On November 1, 2021, the Company acquired PAIS, headquartered in the U.S., for cash consideration of approximately $3.3 million, net of cash acquired. PAIS provides equipment, parts and services for dust, mist and fume collection systems, industrial fans and compressed air systems. PAIS is reported within the Industrial Products segment. The Company assigned the fair values to the net assets acquired resulting in $0.4 million for goodwill and $3.0 million for intangible assets, all of which are expected to be deductible for tax purposes. During the three months ended April 30, 2022, the Company adjusted working capital accounts of PAIS, resulting in a corresponding increase in the value of acquired goodwill of $1.8 million. Net sales of PAIS were immaterial to the Condensed Consolidated Statements of Earnings for the three and nine months ended April 30, 2022.

The purchase price allocations for these acquisitions are preliminary pending the outcome of the final valuations of the net assets acquired. Management expects to finalize the purchase accounting for these acquisitions by the first quarter of fiscal 2023. Pro forma financial information for these acquisitions has not been presented because the acquisitions were not material to the Company’s Condensed Consolidated Statements of Earnings. See Note 6 for goodwill and intangible assets acquired.

Note 3. Revenue

The Company recognizes revenue on a wide range of filtration solutions sold to customers in many industries around the globe. Most of the Company’s performance obligations within customer sales contracts are for manufactured filtration systems and replacement parts. The Company also performs limited services and installation. Customer contracts may include multiple performance obligations and the transaction price is allocated to each distinct performance obligation based on its relative standalone selling price.

Revenue Disaggregation

Net sales, generally disaggregated by location where the customer’s order was placed, were as follows (in millions):


		Three Months Ended October 31,				Three Months Ended April 30,				Nine Months Ended April 30,
		2021		2020				2022		2021		2022		2021
U.S. and Canada	U.S. and Canada	$	300.8	$	251.0		U.S. and Canada	$	348.8	$	294.6	$	963.6	$	801.8
Europe, Middle East and Africa (EMEA)	Europe, Middle East and Africa (EMEA)	224.6		187.8			Europe, Middle East and Africa (EMEA)	250.9		232.7		717.2		621.7
Asia Pacific	Asia Pacific	163.7		144.1			Asia Pacific	161.6		169.0		495.6		474.5
Latin America	Latin America	71.8		53.7			Latin America	91.9		68.7		240.2		182.8
Total net sales	Total net sales	$	760.9	$	636.6		Total net sales	$	853.2	$	765.0	$	2,416.6	$	2,080.8

See Note 17 for net sales disaggregated by ~~segment.~~segment and business unit.

Contract Assets and Liabilities

The satisfaction of performance obligations and the resulting recognition of revenue typically correspond with billing of the customer. In limited circumstances, the customer may be billed at a time later than when revenue is recognized, resulting in contract assets, which are reported in other current assets on the Condensed Consolidated Balance Sheets. Contract assets were ~~$18.3~~$18.7 million and $14.9 million as of ~~October 31, 2021~~April 30, 2022 and July 31, 2021, respectively. In other limited circumstances, the customer may make a payment at a time earlier than when revenue is recognized and prior to the satisfaction of performance obligations, resulting in contract liabilities, which are reported in other current liabilities ~~and other long-term liabilities~~ on the Condensed Consolidated Balance Sheets. Contract liabilities were ~~$12.7~~$23.3 million and $12.2 million as of ~~October 31, 2021~~April 30, 2022 and July 31, 2021, respectively.

The Company will recognize revenue in future periods related to remaining performance obligations for certain open contracts. Generally, these contracts have terms of one year or less. The amount of revenue related to unsatisfied performance obligations in which the original duration of the contract is greater than one year is not significant. None of the Company’s contracts contained a significant financing component.

Costs to Obtain or Fulfill a Contract

The Company generally does not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project. The Company may incur certain fulfillment costs such as initial design or mobilization costs which are capitalized if they relate directly to the contract, if they are expected to generate resources that will be used to satisfy the Company’s performance obligation under the contract, and if they are expected to be recovered through revenues generated under the contract. Such costs, which are amortized over the life of the respective project, were not material for any period presented.

Note 4. Inventories, Net

The components of inventories, net were as follows (in millions):


		October 31, 2021		July 31, 2021			April 30, 2022		July 31, 2021
Raw materials	Raw materials	$	164.0	$	148.1	Raw materials	$	201.3	$	148.1
Work in process	Work in process	53.6		43.2		Work in process	57.1		43.2
Finished products	Finished products	227.1		193.2		Finished products	252.3		193.2
Total inventories, net	Total inventories, net	$	444.7	$	384.5	Total inventories, net	$	510.7	$	384.5

Note 5. Property, Plant and Equipment, Net

The components of property, plant and equipment, net were as follows (in millions):

October 31,
2021 July 31,
2021
Land $ 27.2 $ 27.1
Buildings 409.6 410.8
Machinery and equipment 971.2 972.0
Computer software 144.2 144.3
Construction in progress 45.0 40.6
Less accumulated depreciation (987.5) (977.0)
Total property, plant and equipment, net $ 609.7 $ 617.8


	April 30, 2022		July 31, 2021
Land	$	26.1	$	27.1
Buildings	401.1		410.8
Machinery and equipment	959.9		972.0
Computer software	143.4		144.3
Construction in progress	56.2		40.6
Less accumulated depreciation	(995.6)		(977.0)
Total property, plant and equipment, net	$	591.1	$	617.8

Note 6. Goodwill and Intangible Assets

Goodwill

The Company ~~has allocated~~allocates goodwill to reporting units within its Engine Products and Industrial Products segments. There were no dispositions or impairment charges recorded during the three and nine months ended ~~October 31, 2021~~April 30, 2022 and ~~2020.~~2021. Goodwill is assessed for impairment annually during the third quarter of the fiscal year, or more frequently if events or changes in circumstances indicate ~~that~~ the asset may be impaired. The Company performed its annual impairment assessment during the third quarter of fiscal ~~2021~~2022 and did not record any impairment as a result of this assessment.

Goodwill by reportable segment was as follows (in millions):


		Engine Products Segment		Industrial Products Segment		Total			Engine Products Segment		Industrial Products Segment		Total
Balance as of July 31, 2021	Balance as of July 31, 2021	$	84.7	$	237.8	$	322.5	Balance as of July 31, 2021	$	84.7	$	237.8	$	322.5
Goodwill acquired	Goodwill acquired	—		—		—		Goodwill acquired	—		29.4		29.4
Currency translation		(0.1)		(1.8)		(1.9)
Balance as of October 31, 2021		$	84.6	$	236.0	$	320.6
Foreign currency translation								Foreign currency translation	(0.8)		(14.5)		(15.3)
Balance as of April 30, 2022								Balance as of April 30, 2022	$	83.9	$	252.7	$	336.6

Intangible Assets

Preliminary intangible assets recognized from the Solaris acquisition were $20.8 million, of which technology was $17.3 million with a 15 year useful life, trademarks and tradenames were $3.3 million with a 10 year useful life and backlog was $0.2 million with a six month useful life.

Preliminary intangible assets recognized from the PAIS acquisition were $3.0 million, all of which were customer relationships with a 20 year useful life. See Note 2 for the acquisitions.

Intangible asset classes were as follows (in millions):

October 31, 2021 July 31, 2021
Gross Carrying Amount Accumulated Amortization Total Gross Carrying Amount Accumulated Amortization Total
Customer relationships $ 107.0 $ (57.8) $ 49.2 $ 107.5 $ (56.4) $ 51.1
Patents, trademarks and technology 24.3 (14.3) 10.0 24.3 (13.8) 10.5
Total intangible assets $ 131.3 $ (72.1) $ 59.2 $ 131.8 $ (70.2) $ 61.6


	Customer Relationships						Patents, Trademarks and Technology
	Gross Carrying Amount		Accumulated Amortization		Total Net Value		Gross Carrying Amount		Accumulated Amortization		Total Net Value		Total
Balance as of July 31, 2021	$	107.5	$	(56.4)	$	51.1	$	24.3	$	(13.8)	$	10.5	$	61.6
Intangible assets acquired	3.2		—		3.2		20.6		—		20.6		23.8
Amortization expense	—		(4.7)		(4.7)		—		(2.2)		(2.2)		(6.9)
Foreign currency translation	(4.5)		1.5		(3.0)		(2.0)		0.3		(1.7)		(4.7)
Balance as of April 30, 2022	$	106.2	$	(59.6)	$	46.6	$	42.9	$	(15.7)	$	27.2	$	73.8

Amortization expense was ~~$2.2~~$2.4 million and ~~$2.1~~$6.9 million for the three and nine months ended ~~October 31,~~April 30, 2022, respectively, and was $2.2 million and $6.4 million for the three and nine months ended April 30, 2021, ~~and 2020,~~ respectively. Amortization expense is included in operating expenses in the Condensed Consolidated Statements of Earnings.

Note 7. Long-Term Debt

As of ~~October 31, 2021,~~April 30, 2022, there was ~~$427.5~~$407.5 million available on the Company’s $500.0 million unsecured revolving credit facility that expires on May 21, 2026. In the third quarter of fiscal 2022, the Company borrowed a net $60.0 million on its unsecured revolving credit facility.

~~In fiscal 2021, the~~The Company entered into an agreement in which the Company would issue and sell two tranches of unsecured senior notes, totaling $150.0 million. The first tranche, ~~received~~issued in August 2021, was a $100.0 million 10 year note due 2031 at a fixed interest rate of 2.50%. The second tranche, ~~received~~issued in November 2021, was a $50.0 million seven year note due 2028 at a fixed interest rate of 2.12%.

Certain debt agreements contain financial covenants related to interest coverage and leverage ratios, as well as other non-financial covenants. As of ~~October 31, 2021,~~April 30, 2022, the Company was in compliance with all such covenants.

Note 8. Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The U.S. Internal Revenue Service has completed examinations of the Company’s U.S. ~~federal~~federal income tax returns through 2017. With few exceptions, the Company is no longer subject to state and foreign income tax examinations by tax authorities for years before 2016.

As of ~~October 31, 2021,~~April 30, 2022, gross unrecognized tax benefits were ~~$19.0~~$19.6 million and accrued interest and penalties on these unrecognized tax benefits were ~~$1.7~~$2.1 million. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income taxes in the Condensed Consolidated Statements of Earnings. The Company estimates ~~that~~ within the next 12 months it is reasonably possible ~~that~~ its uncertain tax positions could decrease by as much as $5.3 million due to lapses in statutes of limitation. The statutes of limitation periods for the Company’s various tax jurisdictions range from two years to 10 years.

The Company believes it is remote that any adjustment necessary to the reserve for income taxes over the next 12 months will be material. However, it is possible the ultimate resolution of audits or disputes may result in a material change to the reserve for income taxes, although the quantification of such potential adjustments cannot be made at this time.

Note 9. Earnings Per Share

Basic net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares. Diluted net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares and common share equivalents relating to stock options and other stock incentive plans.

Basic and diluted net earnings per share calculations were as follows (in millions, except per share amounts):


		Three Months Ended October 31,				Three Months Ended April 30,				Nine Months Ended April 30,
		2021		2020				2022		2021		2022		2021
Net earnings	Net earnings	$	77.1	$	61.9		Net earnings	$	83.0	$	84.4	$	231.8	$	202.6

Weighted average common shares outstanding	Weighted average common shares outstanding						Weighted average common shares outstanding
Weighted average common shares – basic	Weighted average common shares – basic	124.4		126.8			Weighted average common shares – basic	123.4		126.4		123.9		126.6
Dilutive impact of stock-based awards	Dilutive impact of stock-based awards	1.9		1.2			Dilutive impact of stock-based awards	1.2		1.9		1.7		1.6
Weighted average common shares – diluted	Weighted average common shares – diluted	126.3		128.0			Weighted average common shares – diluted	124.6		128.3		125.6		128.2

Net earnings per share – basic	Net earnings per share – basic	$	0.62	$	0.49		Net earnings per share – basic	$	0.67	$	0.67	$	1.87	$	1.60
Net earnings per share – diluted	Net earnings per share – diluted	$	0.61	$	0.48		Net earnings per share – diluted	$	0.67	$	0.66	$	1.85	$	1.58
Stock options excluded from net earnings per share calculation	Stock options excluded from net earnings per share calculation	—		1.7			Stock options excluded from net earnings per share calculation	1.7		—		1.6		0.8

Note 10. Stockholders’ Equity

Share Repurchases

The Company’s Board of Directors has authorized the repurchase of up to 13.0 million shares of common stock under the Company’s stock repurchase plan. This repurchase authorization is effective until terminated by the Board of Directors. During the ~~three~~nine months ended ~~October 31, 2021,~~April 30, 2022, the Company ~~repurchased 1.6~~repurchased 2.5 million shares for ~~$102.9~~$153.7 million. As of ~~October 31, 2021,~~April 30, 2022, the Company had remaining authorization to repurchase ~~6.7~~5.8 million shares ~~under~~under this plan.

Dividends Paid and Declared

Dividends ~~paid~~paid were 22.0 cents and ~~21.0~~66.0 cents ~~per~~per share for the three and nine months ended ~~October 31,~~April 30, 2022, respectively, and were 21.0 cents and 63.0 cents for the three and nine months ended April 30, 2021, ~~and 2020,~~ respectively.

On ~~November 19, 2021,~~May 25, 2022, the Company’s Board of Directors declared a cash dividend in the amount of ~~22.0~~23.0 cents per common share, payable ~~December 22, 2021,~~June 24, 2022, to ~~stockholders~~shareholders of record as of ~~December 7, 2021.~~June 9, 2022.

1011

Note 11. Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss for the three months ended ~~October 31,~~April 30, 2022 and 2021 ~~and 2020~~ were as follows (in millions):


		Foreign Currency Translation Adjustment		Pension Benefits			Derivative Financial Instruments			Total			Foreign Currency Translation Adjustment		Pension Benefits			Derivative Financial Instruments			Total
Balance as of July 31, 2021, net of tax		$	(44.0)	$	(74.7)		$	0.5		$	(118.2)
Balance as of January 31, 2022, net of tax												Balance as of January 31, 2022, net of tax	$	(71.6)	$	(70.7)		$	2.2		$	(140.1)
Other comprehensive (loss) income before reclassifications and tax												Other comprehensive (loss) income before reclassifications and tax	(42.8)		(7.6)		(1)	3.4			(47.0)
Tax benefit (expense)												Tax benefit (expense)	—		2.0			(0.8)			1.2
Other comprehensive (loss) income before reclassifications, net of tax												Other comprehensive (loss) income before reclassifications, net of tax	(42.8)		(5.6)			2.6			(45.8)

Reclassifications, before tax												Reclassifications, before tax	—		5.0		(2)	(0.3)		(3)	4.7
Tax (expense) benefit												Tax (expense) benefit	—		(1.2)			0.1			(1.1)
Reclassifications, net of tax												Reclassifications, net of tax	—		3.8			(0.2)			3.6
Other comprehensive (loss) income, net of tax												Other comprehensive (loss) income, net of tax	(42.8)		(1.8)			2.4			(42.2)
Balance as of April 30, 2022, net of tax												Balance as of April 30, 2022, net of tax	$	(114.4)	$	(72.5)		$	4.6		$	(182.3)

Balance as of January 31, 2021, net of tax												Balance as of January 31, 2021, net of tax	$	(37.5)	$	(103.9)		$	(1.6)		$	(143.0)
Other comprehensive (loss) income before reclassifications and tax	Other comprehensive (loss) income before reclassifications and tax	(10.5)		—			1.2			(9.3)		Other comprehensive (loss) income before reclassifications and tax	(0.2)		21.4		(1)	1.2			22.4
Tax expense	Tax expense	—		—			(0.2)			(0.2)		Tax expense	—		(5.2)			(0.2)			(5.4)
Other comprehensive (loss) income before reclassifications, net of tax	Other comprehensive (loss) income before reclassifications, net of tax	(10.5)		—			1.0			(9.5)		Other comprehensive (loss) income before reclassifications, net of tax	(0.2)		16.2			1.0			17.0

Reclassifications, before tax	Reclassifications, before tax	—		2.5			0.6			3.1		Reclassifications, before tax	—		3.0		(2)	0.2		(3)	3.2
Tax expense	Tax expense	—		(0.5)			(0.3)			(0.8)		Tax expense	—		(0.7)			(0.1)			(0.8)
Reclassifications, net of tax	Reclassifications, net of tax	—		2.0			0.3		(1)	2.3		Reclassifications, net of tax	—		2.3			0.1			2.4
Other comprehensive (loss) income, net of tax	Other comprehensive (loss) income, net of tax	(10.5)		2.0			1.3			(7.2)		Other comprehensive (loss) income, net of tax	(0.2)		18.5			1.1			19.4
Balance as of October 31, 2021, net of tax		$	(54.5)	$	(72.7)		$	1.8		$	(125.4)

Balance as of July 31, 2020, net of tax		$	(74.0)	$	(110.0)		$	—		$	(184.0)
Other comprehensive (loss) income before reclassifications and tax		(5.0)		4.0		(2)	0.3			(0.7)
Tax expense		—		(1.0)			—			(1.0)
Other comprehensive (loss) income before reclassifications, net of tax		(5.0)		3.0			0.3			(1.7)
Reclassifications, before tax		—		3.6		(3)	—			3.6
Tax expense		—		(0.5)			(0.2)			(0.7)
Reclassifications, net of tax		—		3.1			(0.2)		(1)	2.9
Other comprehensive (loss) income, net of tax		(5.0)		6.1			0.1			1.2
Balance as of October 31, 2020, net of tax		$	(79.0)	$	(103.9)		$	0.1		$	(182.8)
Balance as of April 30, 2021, net of tax												Balance as of April 30, 2021, net of tax	$	(37.7)	$	(85.4)		$	(0.5)		$	(123.6)

(1)In fiscal 2022 and 2021, pension settlement accounting was triggered. Remeasurements of the Company’s pension obligations resulted in adjustments to accumulated other comprehensive loss of $7.6 million and $21.4 million in fiscal 2022 and 2021, respectively, on the Condensed Consolidated Balance Sheets, see Note 13.

(2)Includes reclassifications of $1.1 million in fiscal 2022 and 2021, and also included net amortization of prior service costs and actuarial losses of $3.9 million and $1.9 million in fiscal 2022 and 2021, respectively, included in other income, net in the Condensed Consolidated Statements of Earnings, see Note 13.

(3)Relates to designated forward foreign currency exchange contracts that were reclassified from accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets to ~~other expense,~~ net sales, cost of sales and operating expenses in the Condensed Consolidated Statements of Earnings, see Note 14.

~~(2)~~

Changes in accumulated other comprehensive loss for the nine months ended April 30, 2022 and 2021 were as follows (in millions):


	Foreign Currency Translation Adjustment		Pension Benefits			Derivative Financial Instruments			Total
Balance as of July 31, 2021, net of tax	$	(44.0)	$	(74.7)		$	0.5		$	(118.2)
Other comprehensive (loss) income before reclassifications and tax	(70.4)		(9.3)		(1)	5.5			(74.2)
Tax benefit (expense)	—		2.4			(1.2)			1.2
Other comprehensive (loss) income before reclassifications, net of tax	(70.4)		(6.9)			4.3			(73.0)

Reclassifications, before tax	—		11.8		(2)	(0.2)		(3)	11.6
Tax expense	—		(2.7)			—			(2.7)
Reclassifications, net of tax	—		9.1			(0.2)			8.9
Other comprehensive (loss) income, net of tax	(70.4)		2.2			4.1			(64.1)
Balance as of April 30, 2022, net of tax	$	(114.4)	$	(72.5)		$	4.6		$	(182.3)

Balance as of July 31, 2020, net of tax	$	(74.0)	$	(110.0)		$	—		$	(184.0)
Other comprehensive income (loss) before reclassifications and tax	36.3		25.4		(1)	(0.2)			61.5
Tax (expense) benefit	—		(6.2)			0.1			(6.1)
Other comprehensive income (loss) before reclassifications, net of tax	36.3		19.2			(0.1)			55.4

Reclassifications, before tax	—		6.8		(2)	(0.5)		(3)	6.3
Tax (expense) benefit	—		(1.4)			0.1			(1.3)
Reclassifications, net of tax	—		5.4			(0.4)			5.0
Other comprehensive income (loss), net of tax	36.3		24.6			(0.5)			60.4
Balance as of April 30, 2021, net of tax	$	(37.7)	$	(85.4)		$	(0.5)		$	(123.6)

(1)In fiscal 2022 and 2021, pension settlement accounting was triggered. In addition, pension curtailment accounting was triggered ~~and the Company recorded a charge of $0.8 million.~~in fiscal 2021. Remeasurements of the Company’s pension obligations resulted in ~~a decrease~~adjustments to accumulated other comprehensive loss of ~~$4.0~~$9.3 million and $25.4 million in fiscal 2022 and 2021, respectively, on the Condensed Consolidated Balance Sheets, see Note 13.

~~(3)~~(2)Includes reclassifications of $2.3 million and $1.9 million in fiscal 2022 and 2021, respectively, and also includes net amortization of prior service costs and actuarial losses of $9.5 million and $4.9 million in fiscal 2022 and 2021, respectively, included in other income, net ~~periodic benefit costs~~in the Condensed Consolidated Statements of Earnings, see Note 13.

(3)Relates to designated forward foreign currency exchange contracts that were reclassified from accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets to net sales, cost of sales and operating expenses in the Condensed Consolidated Statements of Earnings, see Note ~~13.~~14.

Note 12. Stock-Based Compensation

The Company recognizes compensation expense for all stock-based awards based on the grant date fair value of the award. Stock-based awards consist primarily of non-qualified stock options, performance-based awards, restricted stock awards and restricted stock units. Grants related to restricted stock awards and restricted stock units are immaterial. The Company issues treasury shares for stock options and performance-based awards.

Stock Options

The exercise price of options granted is equal to the market price of the Company’s common stock at the date of the grant. Options are generally exercisable for up to 10 years from the date of grant and vest in equal increments over three years.

~~For the~~ ~~three months ended October 31, 2021 and 2020, the Company recorded pretax~~Pretax stock-based compensation expense associated with options ~~of $6.9~~was $1.4 million and ~~$5.1~~$10.2 million for the three and nine months ended April 30, 2022, respectively, and was $1.8 million and $9.3 million for the three and nine months ended April 30, 2021, respectively.

Fair value is calculated using the Black-Scholes option pricing model. The weighted average fair value for options granted during the ~~three~~nine months ended ~~October 31,~~April 30, 2022 and 2021 ~~and 2020 was~~was $14.24 and ~~$10.08 per~~$10.23 per share, respectively.

Option activity was as follows:


		Options	Weighted Average Exercise Price			Options	Weighted Average Exercise Price
Balance outstanding as of July 31, 2021	Balance outstanding as of July 31, 2021	6,444,743	$	44.05	Balance outstanding as of July 31, 2021	6,444,743	$	44.05
Granted	Granted	834,105	59.40		Granted	898,726	59.18
Exercised	Exercised	(70,555)	38.41		Exercised	(308,945)	37.50
Canceled/forfeited	Canceled/forfeited	(9,131)	50.21		Canceled/forfeited	(43,560)	53.07
Balance outstanding as of October 31, 2021		7,199,162	$	45.88
Balance outstanding as of April 30, 2022					Balance outstanding as of April 30, 2022	6,990,964	$	46.23

Performance-Based Awards

Performance-based awards are payable in common stock and are based on a formula that measures Company performance over a three year period. These awards are settled after three years with payouts ranging from zero to 200% of the target award ~~value~~ depending on achievement.

Pretax performance-based awards expense was $1.8 million and $5.6 million for the three and nine months ended April 30, 2022, respectively. For the three months ended ~~October 31,~~April 30, 2021, ~~and 2020, the Company recorded~~ pretax performance-based ~~award~~awards was a reduction in expense of ~~$1.7~~$0.8 million ~~and $0.9 million, respectively.~~resulting from an adjustment to anticipated performance achievement. For the nine months ended April 30, 2021, pretax performance-based awards expense was $1.2 million.

Performance-based ~~award~~awards for non-vested activity ~~was~~were as follows:


		Performance Shares	Weighted Average Grant Date Fair Value			Performance Shares	Weighted Average Grant Date Fair Value
Balance outstanding as of July 31, 2021	Balance outstanding as of July 31, 2021	200,567	$	48.76	Balance outstanding as of July 31, 2021	200,567	$	48.76
Granted	Granted	88,400	59.40		Granted	88,400	59.40
Vested	Vested	—	—		Vested	—	—
Canceled	Canceled	—	—		Canceled	(3,580)	53.23
Balance outstanding as of October 31, 2021		288,967	$	52.02
Balance outstanding as of April 30, 2022					Balance outstanding as of April 30, 2022	285,387	$	52.00

Note 13. Employee Benefit ~~Plans~~

~~Defined Benefit Pension~~ Plans

The Company has defined benefit pension plans for ~~many of its~~certain hourly and salaried employees. These plans generally provide pension benefits based on years of service and compensation level. Components of net periodic ~~benefit cost~~pension costs other than the service cost component are included in other ~~expense,~~income, net in the Condensed Consolidated Statements of Earnings.

Net periodic pension ~~(benefits)~~ costs for the Company’s pension plans were as follows (in millions):


		Three Months Ended October 31,				Three Months Ended April 30,				Nine Months Ended April 30,
		2021		2020				2022		2021		2022		2021

Service cost	Service cost	$	1.8	$	2.2		Service cost	$	1.8	$	2.0	$	5.4	$	6.1
Interest cost	Interest cost	2.5		2.4			Interest cost	2.4		2.5		7.4		7.4
Expected return on assets	Expected return on assets	(6.3)		(5.8)			Expected return on assets	(6.2)		(5.9)		(18.7)		(17.6)
Prior service cost amortization	Prior service cost amortization	0.1		0.1			Prior service cost amortization	0.1		0.1		0.2		0.4
Actuarial loss amortization	Actuarial loss amortization	1.8		2.2			Actuarial loss amortization	1.8		2.1		5.4		6.2
Settlement charge							Settlement charge	1.1		1.1		2.3		1.1
Curtailment charge							Curtailment charge	—		—		—		0.8
Net periodic pension costs							Net periodic pension costs	$	1.0	$	1.9	$	2.0	$	4.4

Curtailment charge		—		0.8
Net periodic pension (benefits) costs		$	(0.1)	$	1.9

In the second and third quarters of fiscal 2022, the Company recorded pension settlement charges of $1.2 million and $1.1 million, respectively, as a result of lump sum distributions exceeding the service and interest cost components of the annual net periodic pension cost. The corresponding remeasurements resulted in a decrease in the Company’s net pension assets and a corresponding adjustment to other comprehensive loss in the Condensed Consolidated Statement of Comprehensive Income of $1.7 million and $7.6 million in the second and third quarters of fiscal 2022, respectively. See Note 11.

In the first quarter of fiscal 2021, the Company recorded a pension curtailment charge of $0.8 million as a result of freezing ~~the~~ pension benefits to certain employees. Additionally, in the third quarter of fiscal 2021, the Company recorded a pension settlement charge of $1.1 million as a result of lump sum distributions exceeding the service and interest cost components of the annual net periodic pension cost. The corresponding ~~remeasurement~~remeasurements resulted in ~~a decrease~~an increase in the Company’s net pension ~~obligation and an~~assets, as well as a corresponding adjustment to other comprehensive ~~income~~loss in the Condensed Consolidated Statement of Comprehensive Income of ~~$4.0~~$25.4 million. See Note 11.

The Company’s general funding policy is to make at least the minimum required contributions as required by applicable regulations, plus any additional amounts ~~that~~ it determines to be appropriate. Future required pension plan contributions may change significantly depending on the actual rate of return on plan assets, discount rates and regulatory requirements.

Note 14. Fair Value Measurements

Fair value measurements of financial instruments are reported in one of three levels based on the lowest level of significant input used. For Level 1, inputs to the fair value measurement are quoted prices in active markets for identical assets or liabilities. For Level 2, inputs to the fair value measurement include quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. For Level 3, inputs to the fair value measurement are unobservable inputs or are based on valuation techniques.

Short-Term Financial Instruments

As of ~~October 31, 2021~~April 30, 2022 and July 31, 2021, the carrying values of cash and cash equivalents, accounts receivable, short-term borrowings and accounts payable approximate fair value because of the short-term nature of these instruments, and are classified as Level 1 in the fair value hierarchy.

Long-Term Debt

As of ~~October 31, 2021,~~April 30, 2022, the estimated fair values of fixed interest rate long-term debt were ~~$392.3~~$395.4 million compared to the carrying values of ~~$375.0~~$425.0 million. As of July 31, 2021, the estimated fair values of fixed interest rate long-term debt were $297.4 million compared to the carrying values of $275.0 million. The fair values are estimated by discounting the projected cash flows using the interest rates at which similar amounts of debt could currently be borrowed. The carrying values of total variable interest rate long-term debt were ~~$175.7~~$184.7 million and ~~$188.3~~and $188.3 million as of ~~October 31, 2021~~April 30, 2022 and July 31, 2021, respectively, and approximate their fair values. Long-term ~~debt~~debt is classified as Level 2 in the fair value hierarchy.

Equity Method Investments

The Company holds equity method investments in its joint ventures, which are included in other long-term assets on the Condensed Consolidated Balance Sheets. The aggregate carrying amount of these investments was ~~$23.9~~$25.6 million and $24.2 million as of ~~October 31, 2021~~April 30, 2022 and July 31, 2021, respectively. These equity method investments are measured at fair value on a non-recurring basis. The fair value of the Company’s equity method investments has not been adjusted as there have been no triggering events or changes in circumstance that would have had an adverse impact on the value of these investments. In the event ~~that~~ these investments are required to be measured, they would fall within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value, as the investments are in privately-held entities.

Derivative Fair Value Measurements

The Company enters into derivative instrument agreements, including forward foreign currency exchange contracts and net investment hedges to manage risk in connection with changes in foreign currency. The Company only enters into derivative instrument agreements with counterparties who have highly rated credit. The Company does not enter into derivative instrument agreements for trading or speculative purposes.

The fair values of the Company’s forward foreign currency exchange contracts and net investment hedges reflect the amounts that would be received to sell the assets or paid to transfer the liabilities in an orderly transaction between market participants at the measurement date (exit price). The fair values are based on inputs other than quoted prices that are observable for the asset or liability and are determined by standard calculations and models that use readily observable market parameters. These inputs include foreign currency exchange rates and interest rates. Industry standard data providers are the primary source for forward and spot rate information for both interest rates and foreign currency exchange rates. The fair values of the Company’s forward foreign currency exchange contracts and net investment hedges are classified as Level 2 in the fair value hierarchy.

Forward Foreign Currency Exchange Contracts

The Company buys materials from foreign suppliers. Those transactions can be denominated in those suppliers’ local currency. The Company also sells to customers in foreign countries. Those transactions can be denominated in those customers’ local currency. Both of these transaction types can create volatility in the Company’s financial statements. The Company uses forward currency exchange contracts to manage those exposures and fluctuations. These contracts generally mature in 12 months or less, which is consistent with the forecasts of the related purchases and sales. Certain contracts are designated as cash flow hedges, whereas the remaining contracts, most of which are related to certain intercompany transactions, are not designated.

Net Investment Hedges

The Company uses fixed-to-fixed cross-currency swap agreements to hedge its exposure to adverse foreign currency exchange rate movements for ~~its~~its operations in Europe. The Company has elected the spot method for designating these contracts as net investment hedges.

As of April 30, 2022, the total notional amount of foreign exchange forward contracts designated as net investment hedges was €80 million, or $88.8 million, which includes a hedge for $33.0 million entered into in the third quarter of fiscal 2022. The maturity dates of these derivative instruments designated as net investment hedges range from 2027 to 2029.

Fair Value of Derivatives Contracts

The fair value of the Company’s derivative contracts, recorded on the Condensed Consolidated Balance Sheets, was as follows (in millions):


		Total Notional Amounts				Assets				Liabilities					Notional Amounts				Assets				Liabilities
		October 31,		July 31,		October 31,		July 31,		October 31,		July 31,			April 30,		July 31,		April 30,		July 31,		April 30,		July 31,
		2021		2021		2021		2021		2021		2021			2022		2021		2022		2021		2022		2021
Designated as hedging instruments	Designated as hedging instruments													Designated as hedging instruments
Forward foreign currency exchange contracts	Forward foreign currency exchange contracts	$	86.1	$	117.2	$	1.8	$	1.0	$	1.2	$	1.2	Forward foreign currency exchange contracts	$	33.8	$	117.2	$	1.2	$	1.0	$	1.3	$	1.2
Net investment hedge		55.8		55.8		1.1		1.1		0.7		2.0
Net investment hedges														Net investment hedges	88.8		55.8		4.8		1.1		—		2.0

Total designated	Total designated	141.9		173.0		2.9		2.1		1.9		3.2		Total designated	122.6		173.0		6.0		2.1		1.3		3.2

Not designated as hedging instruments	Not designated as hedging instruments													Not designated as hedging instruments
Forward foreign currency exchange contracts	Forward foreign currency exchange contracts	222.0		154.2		1.6		0.5		0.6		0.4		Forward foreign currency exchange contracts	171.9		154.2		1.2		0.5		2.5		0.4
Total not designated	Total not designated	222.0		154.2		1.6		0.5		0.6		0.4		Total not designated	171.9		154.2		1.2		0.5		2.5		0.4
Total	Total	$	363.9	$	327.2	$	4.5	$	2.6	$	2.5	$	3.6	Total	$	294.5	$	327.2	$	7.2	$	2.6	$	3.8	$	3.6

Forward foreign currency exchange contract assets were recorded in other current ~~assets and in other long-term~~ assets on the Condensed Consolidated Balance Sheets. Forward foreign currency exchange contract liabilities were recorded in other current liabilities on the Condensed Consolidated Balance Sheets. The net investment ~~hedge was~~hedges were recorded in other current assets, other long-term assets and in other long-term liabilities on the Condensed Consolidated Balance Sheets.

Changes in the fair value of the Company’s designated hedges are reported in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets until the related transaction occurs. Designated hedges are recognized as a component of net sales, cost of sales and operating expenses in the Condensed Consolidated Statements of Earnings upon occurrence of the related hedged transaction.

Hedges which are not designated are recognized in other ~~expense,~~income, net in the Condensed Consolidated Statements of ~~Earnings~~Earnings. This recognition is timed to coincide with that of the related hedged transactions. Changes in the fair value of these hedges are, likewise, recognized in other ~~expense,~~income, net in the Condensed Consolidated Statements of Earnings.

The Company classifies cash flows from derivatives designated in a qualifying cash flow hedging relationship in the same category as the cash flows from the hedged items. Cash flows from these derivative transactions are recorded in operating activities in the Condensed Consolidated Statements of Cash Flows.

Amounts related to forward foreign currency exchange contracts are expected to be reclassified into earnings during the next 12 months based on the timing of inventory purchases and sales. Amounts related to excluded components, ~~associated with~~such as forward points, are excluded from the assessment of hedge effectiveness of net investment ~~hedge~~hedges, and are expected to be reclassified into earnings ~~through its termination in July 2029.~~throughout their maturity dates. See Note 11 for additional information on accumulated other comprehensive loss.

Credit Risk Related Contingent Features

Contract provisions may require the posting of collateral or settlement of the contracts for various reasons, including if the Company’s credit ratings are downgraded below its investment grade credit rating by any of the major credit agencies or for cross default contractual provisions if there is a failure under other financing arrangements related to payment terms or covenants. As of ~~October 31, 2021~~April 30, 2022 and July 31, 2021, no collateral was posted.

Counterparty Credit Risk

There is risk that counterparties to derivative contracts will fail to meet their contractual obligations. In order to mitigate counterparty credit risk, the Company only enters into contracts with carefully selected financial institutions based on their credit ratings and certain other financial factors.

Note 15. Guarantees

Letters of Credit

The Company has letters of credit which guarantee payment to third parties in the event the Company is in breach of contract terms as detailed in each letter of credit. The outstanding debt contingent liability for standby letters of credit was as follows (in millions):


		October 31, 2021		July 31, 2021			April 30, 2022		July 31, 2021
Contingent liability for standby letters of credit issued under the Company’s revolving credit facility	Contingent liability for standby letters of credit issued under the Company’s revolving credit facility	$	7.5	$	7.7	Contingent liability for standby letters of credit issued under the Company’s revolving credit facility	$	7.5	$	7.7
Amounts drawn for letters of credit under the Company’s revolving credit facility	Amounts drawn for letters of credit under the Company’s revolving credit facility	$	—	$	—	Amounts drawn for letters of credit under the Company’s revolving credit facility	$	—	$	—

Advanced Filtration Systems Inc. (AFSI)

The Company has an unconsolidated joint venture, AFSI, established by the Company and Caterpillar Inc. (Caterpillar) in 1986. AFSI designs and manufactures high-efficiency fluid filters used in Caterpillar’s machinery worldwide. The Company and Caterpillar equally own the shares of AFSI, and both companies guarantee certain debt and banking services, including credit and debit cards, merchant processing and treasury management services, of the joint venture. The Company accounts for AFSI as an equity method investment.

The outstanding debt relating to AFSI, which the Company guarantees half, was ~~$38.6~~$61.1 million and $37.8 million as of ~~October 31, 2021~~April 30, 2022 and July 31, 2021, respectively. AFSI’s $63.0 million revolving credit facility expires July 31, 2024.

Earnings from AFSI, which are recorded in other ~~expense,~~income, net in the Condensed Consolidated Statements of Earnings were ~~$1.2~~$3.2 million and ~~$2.0~~$6.6 million for the three and nine months ended ~~October 31,~~April 30, 2022, respectively, and $2.6 million and $6.4 million for the three and nine months ended April 30, 2021, ~~and 2020,~~ respectively.

Note 16. Commitments and Contingencies

The Company records provisions when it is probable ~~that~~ a liability has been incurred and the amount of the loss can be reasonably estimated. Claims and litigation are reviewed quarterly and provisions are taken or adjusted to reflect the status of a particular matter. The Company believes the estimated liability in its Condensed Consolidated Financial Statements for claims or litigation is adequate and appropriate for the probable and estimable outcomes. Liabilities recorded were not material to the Company’s financial position, results of operations or liquidity. The Company believes it is remote that the settlement of any of the currently identified claims or litigation will be materially in excess of what is accrued.

~~Warranty Reserves~~

The Company estimates warranty expense on certain products at the time of sale using quantitative measures based on historical warranty claim experience and evaluation of specific customer warranty issues. There were no individually or collectively material specific warranty matters accrued for, or significant settlements made, during the three months ended October 31, 2021 and 2020. The Company’s accrued warranty reserves were $5.9 million and $6.1 million as of October 31, 2021 and July 31, 2021, respectively.

Note 17. Segment Reporting

The Company’s reportable segments are Engine Products and Industrial Products. The Company determines its operating segments consistent with the manner in which it manages its operations and evaluates performance for internal review and decision-making. Corporate and unallocated includes corporate expenses determined to be non-allocable to the segments, such as interest expense, restructuring charges and certain incentive compensation.

The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations and sharing of assets. Therefore, the Company does not represent ~~that~~ these segments, if operated independently, would report earnings before income taxes ~~and other financial information shown~~as stated below.

Segment details were as follows (in millions):


		Three Months Ended October 31,				Three Months Ended April 30,				Nine Months Ended April 30,
		2021		2020				2022		2021		2022		2021
Net sales	Net sales						Net sales
Engine Products segment	Engine Products segment	$	527.2	$	436.2		Engine Products segment	$	601.0	$	531.0	$	1,682.3	$	1,429.6
Industrial Products segment	Industrial Products segment	233.7		200.4			Industrial Products segment	252.2		234.0		734.3		651.2
Total Company	Total Company	$	760.9	$	636.6		Total Company	$	853.2	$	765.0	$	2,416.6	$	2,080.8

Earnings before income taxes	Earnings before income taxes						Earnings before income taxes
Engine Products segment	Engine Products segment	$	72.3	$	60.4		Engine Products segment	$	89.2	$	84.4	$	226.5	$	206.1
Industrial Products segment	Industrial Products segment	38.3		27.5			Industrial Products segment	38.8		37.6		114.6		90.9
Corporate and unallocated	Corporate and unallocated	(6.5)		(5.7)			Corporate and unallocated	(16.7)		(11.1)		(31.3)		(30.0)
Total Company	Total Company	$	104.1	$	82.2		Total Company	$	111.3	$	110.9	$	309.8	$	267.0

Net sales by ~~product group~~business unit were as follows (in millions):


		Three Months Ended October 31,				Three Months Ended April 30,				Nine Months Ended April 30,
		2021		2020				2022		2021		2022		2021
Engine Products segment	Engine Products segment						Engine Products segment
Off-Road	Off-Road	$	93.9	$	64.8		Off-Road	$	108.2	$	95.7	$	297.6	$	238.4
On-Road	On-Road	31.5		32.0			On-Road	36.1		39.7		100.7		105.0
Aftermarket	Aftermarket	374.3		317.0			Aftermarket	425.4		371.4		1,198.1		1,018.7
Aerospace and Defense	Aerospace and Defense	27.5		22.4			Aerospace and Defense	31.3		24.2		85.9		67.5
Total Engine Products segment	Total Engine Products segment	527.2		436.2			Total Engine Products segment	601.0		531.0		1,682.3		1,429.6

Industrial Products segment	Industrial Products segment						Industrial Products segment
Industrial Filtration Solutions	Industrial Filtration Solutions	165.5		135.6			Industrial Filtration Solutions	178.5		163.7		515.2		449.3
Gas Turbine Systems	Gas Turbine Systems	16.6		23.0			Gas Turbine Systems	30.5		25.5		76.7		71.9
Special Applications	Special Applications	51.6		41.8			Special Applications	43.2		44.8		142.4		130.0
Total Industrial Products segment	Total Industrial Products segment	233.7		200.4			Total Industrial Products segment	252.2		234.0		734.3		651.2
Total Company	Total Company	$	760.9	$	636.6		Total Company	$	853.2	$	765.0	$	2,416.6	$	2,080.8

Concentrations

There ~~were~~were no customers that accounted for over 10% of net sales for the three and nine months ended ~~October 31, 2021~~April 30, 2022 or ~~2020.~~2021. There were no ~~customers~~customers that accounted for over 10% of gross accounts receivable as of ~~October 31, 2021~~April 30, 2022 or as of July 31, 2021.

Note 18. Restructuring

In the second quarter of fiscal 2021, the Company initiated activities to further improve its operating and manufacturing cost structure, primarily in EMEA. These activities resulted in restructuring expenses, primarily related to severance, of $14.8 million. Charges of $5.8 million were included in cost of sales and $9.0 million were included in operating expenses in the Condensed Consolidated ~~Statements~~Statement of Earnings for the year ended July 31, 2021. Charges of $2.5 million relate to the Engine Products segment, $6.5 million relate to the Industrial Products segment and $5.8 million relate to corporate and unallocated expenses. For the three months ended October 31, 2021, $2.5 million of the restructuring expenses were paid. As of October 31, 2021, $7.8 million was accrued.

This initiative is now substantially completed.

1618

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company is a global manufacturer of filtration systems and replacement parts. The Company’s core strengths include leading filtration technology, strong customer relationships and its global presence. Products are manufactured and sold around the world. Products are sold to original equipment manufacturers (OEMs), distributors, dealers and directly to end users.

The Company’s operating segments are Engine Products and Industrial Products. The Engine Products segment consists of replacement filters for both air and liquid filtration applications, air filtration systems, liquid filtration systems for fuel, lube and hydraulic applications, exhaust and emissions systems and sensors, indicators and monitoring systems. The Engine Products segment sells to OEMs in the construction, mining, agriculture, aerospace, defense and transportation end markets and to independent distributors, OEM dealer networks, private label accounts and large fleets. The Industrial Products segment consists of dust, fume and mist collectors, compressed air purification systems, gas and liquid filtration for food, beverage and industrial processes, air filtration systems for gas turbines, polytetrafluoroethylene membrane-based products and specialized air and gas filtration systems for applications including hard disk drives and semi-conductor manufacturing and sensors, indicators and monitoring systems. The Industrial Products segment sells to various dealers, distributors, OEMs and end users.

Operating Environment

Russia and Ukraine

Following the Russia and Ukraine conflict, the Company complied with all sanctions, including those from the European Union, Great Britain and the United States (U.S.) and ceased direct product shipments into Russia and Belarus. Total revenues associated with customers in these areas are less than 2% of the Company’s net sales in the Condensed Consolidated Statements of Earnings. As of April 30, 2022, the Company has related asset exposure in the form of accounts receivables and inventories of approximately $6.8 million. The Company is monitoring the regional and global ramifications of the events unfolding.

Supply Chain Disruptions

~~The effects of the ongoing Coronavirus (COVID-19) pandemic continue to impact global economic conditions.~~ The Company continues to experience supply chain disruptions, including global ~~logistic~~logistics and labor challenges ~~labor constraints~~ and ~~low~~constrained supplies of steel, petrochemical products and filter media. These disruptions have ~~slowed~~increased the Company’s ~~production speed~~input costs significantly and ~~increased~~extended lead times. The Company has undertaken steps to mitigate these negative impacts, such as increasing prices, evaluating alternative supply chain options, qualifying additional ~~suppliers. These disruptions impeded the Company’s ability to meet strengthening demand.~~suppliers and strategic raw material purchases. This dynamic impacted results inthrough the ~~first~~third quarter of fiscal 2022 and is expected to continue ~~throughout~~into fiscal ~~2022.~~2023.

Inflation

In connection with the supply chain disruptions described above, the Company has experienced the effects of inflation related to raw materials and ~~operating expenses.~~other expenses, including freight, labor and energy. These inflationary pressures have had an adverse impact on profit margins, particularly in recent months. The Company continues to negotiate price increases with its customers and is working with its suppliers to ~~mitigate~~mitigate these cost increases. Inflation impacted results inthrough the ~~first~~third quarter of fiscal 2022 and is expected to continue ~~throughout~~into fiscal ~~2022.~~2023.

Consolidated Results of Operations

Three months ended April 30, 2022 compared with three months ended April 30, 2021

Operating results were as follows (in millions):


		Three Months Ended October 31,									Three Months Ended April 30,
		2021		% of net sales		2020		% of net sales			2022		% of net sales		2021		% of net sales
Net sales	Net sales	$	760.9			$	636.6			Net sales	$	853.2			$	765.0
Cost of sales	Cost of sales	503.9		66.2	%	413.9		65.0	%	Cost of sales	584.2		68.5	%	507.0		66.3	%
Gross profit	Gross profit	257.0		33.8		222.7		35.0		Gross profit	269.0		31.5		258.0		33.7
Operating expenses	Operating expenses	149.5		19.7		135.5		21.3		Operating expenses	158.0		18.5		148.6		19.4
Operating income	Operating income	107.5		14.1		87.2		13.7		Operating income	111.0		13.0		109.4		14.3
Interest expense	Interest expense	3.4		0.5		3.5		0.5		Interest expense	3.8		0.4		3.2		0.4
Other expense, net		—		—		1.5		0.2
Other income, net										Other income, net	(4.1)		(0.5)		(4.7)		(0.6)
Earnings before income taxes	Earnings before income taxes	104.1		13.7		82.2		12.9		Earnings before income taxes	111.3		13.0		110.9		14.5
Income taxes	Income taxes	27.0		3.5		20.3		3.2		Income taxes	28.3		3.3		26.5		3.5
Net earnings	Net earnings	$	77.1	10.1	%	$	61.9	9.7	%	Net earnings	$	83.0	9.7	%	$	84.4	11.0	%

Net Sales

Net sales for the three months ended ~~October 31, 2021 we~~April 30, 2022 were $853.2 million, compa~~re $760.9 million, compared~~red with ~~$636.6~~$765.0 million for the three months ended ~~October 31, 2020,~~April 30, 2021, an increase of ~~$124.3~~$88.2 million, or ~~19.5%~~11.5%. Net s~~ales~~ales increased ~~$91.0~~$70.0 million, or ~~20.9%~~13.2%, inin the Engine Products segment andand increased ~~$33.3~~$18.2 million, or ~~16.6%~~7.8%, in thethe Industrial Products segment. Foreign currency translation ~~increased~~decreased sales by ~~$3.0~~$22.0 million compared to the three months ended ~~October 31, 2020~~April 30, 2021. Refer to the Segment Results of Operations section for further discussion on the Engine Products and Industrial Products segments. During the three months ended ~~October 31, 2021,~~April 30, 2022, sales increased with varied demand by market and ~~geography.~~geography primarily due to pricing. For the three months ended ~~October 31, 2021~~April 30, 2022, sales in Latin America (LATAM) increased ~~33.5%~~33.7%, ~~United States (U.S.)~~U.S. and Canada increased ~~19.8%~~18.4%, Europe, Middle East and Africa (EMEA) increased ~~19.6%~~7.8% and Asia Pacific (APAC) ~~increased 13.6%~~decreased 4.4%.

Cost of Sales and Gross Margin

Cost of sales for the three months ended ~~October 31, 2021~~April 30, 2022 were ~~$503.9~~$584.2 million,, compared with ~~$413.9~~$507.0 million for the three months ended ~~October 31, 2020,~~April 30, 2021, an increase of ~~$90.0~~$77.2 million, or ~~21.7%~~15.2%. G~~ross~~ross margin ~~was~~ ~~33.8%~~was 31.5%, compared with ~~35.0%~~33.7% during the same period in the prior fiscal year. The gross margin decrease was primarily driven by increased raw material, ~~labor~~freight, energy and ~~freight~~labor costs, partially offset by ~~increased leverage from~~ higher sales ~~and increased~~driven in large part by pricing.

Operating Expenses

Operating expenses for the three months ended ~~October 31, 2021 were~~ April 30, 2022 w~~$149.5~~ere $158.0 million,, compared with ~~$135.5~~$148.6 million for the three months ended ~~October 31, 2020,~~ April 30, 2021, an increase of ~~$14.0~~$9.4 million, or ~~10.4%~~6.3%. As a percentage of net sales, operating expenses were ~~19.7%~~18.5%, compared with ~~21.3% during~~19.4% during the same period in the prior fiscal year. The decrease in operating expenses as a percentage of net sales reflects ~~increased~~greater leverage from higher ~~sales.~~sales as well as expense management.

Non-Operating Items

Interest expense was ~~$3.4 million~~ ~~for the three months ended October 31, 2021, compared with $3.5~~$3.8 million for the three months ended ~~October 31, 2020,~~ ~~a decrease of $0.1 million, or 1.7%~~. ~~The change reflects~~ ~~comparative debt levels.~~

~~Other expense, net~~ ~~for the three months ended October 31, 2021 was zero,~~April 30, 2022, compared with ~~other expense, net of~~ ~~$1.5~~$3.2 million for the three months ended ~~October 31, 2020,~~ April 30, 2021, an increase of $0.6 million, or 19.4%. The increase reflects a higher debt level.

Other income, net for the three months ended April 30, 2022 was $4.1 million, compared with other income, net of $4.7 million for the three months ended April 30, 2021, a decrease of ~~$1.5 million~~. $0.6 million. The decrease was primarily driven by ~~a pension curtailment charge in fiscal 2021.~~higher foreign exchange losses.

Income Taxes

The effective tax rate for the three months ended ~~October 31, 2021~~April 30, 2022 was ~~25.9%~~25.4%, compared with ~~24.7%~~23.9% for the three months ended ~~October 31, 2020.~~April 30, 2021. The increase in the effective tax rate was primarily due to a reduction in net discrete tax benefits.

Net Earnings

Net earnings for the three months ended ~~October 31, 2021 were $77.1~~April 30, 2022 were $83.0 million, compared with net earnings of ~~$61.9~~$84.4 million for the three months ended ~~October 31, 2020,~~April 30, 2021, a decrease of $1.4 million, or 1.8%.

Nine months ended April 30, 2022 compared with nine months ended April 30, 2021

Operating results were as follows (in millions):


	Nine Months Ended April 30,
	2022		% of net sales		2021		% of net sales
Net sales	$	2,416.6			$	2,080.8
Cost of sales	1,640.8		67.9	%	1,374.8		66.1	%
Gross profit	775.8		32.1		706.0		33.9
Operating expenses	461.6		19.1		433.3		20.8
Operating income	314.2		13.0		272.7		13.1
Interest expense	10.8		0.4		9.9		0.5
Other income, net	(6.4)		(0.3)		(4.2)		(0.2)
Earnings before income taxes	309.8		12.8		267.0		12.8
Income taxes	78.0		3.2		64.4		3.1
Net earnings	$	231.8	9.6	%	$	202.6	9.7	%

Net Sales

Net sales for the nine months ended April 30, 2022 were $2,416.6 million, compared with $2,080.8 million for the nine months ended April 30, 2021, an increase of ~~$15.2~~$335.8 million, or ~~24.4%~~16.1%. Net sales increased $252.7 million, or 17.7%, in the Engine Products segment and increased $83.1 million, or 12.8%, in the Industrial Products segment. Foreign currency translation decreased sales by $37.0 million compared to the nine months ended April 30, 2021. Refer to the Segment Results of Operations section for further discussion on the Engine Products and Industrial Products segments. During the nine months ended April 30, 2022, sales increased with varied demand by market and geography from both higher volume and pricing. For the nine months ended April 30, 2022, sales in LATAM increased 31.4%, U.S. and Canada increased 20.2%, EMEA increased 15.4% and APAC increased 4.5%.

Cost of Sales and Gross Margin

Cost of sales for the nine months ended April 30, 2022 were $1,640.8 million, compared with $1,374.8 million for the nine months ended April 30, 2021, an increase of $266.0 million, or 19.3%. Gross margin was 32.1%, compared with 33.9% during the same period in the prior fiscal year. The gross margin decrease was primarily driven by increased raw material, freight and labor costs, partially offset by pricing and volume leverage on higher sales. Prior fiscal year gross margin was also negatively impacted by restructuring charges of $5.8 million that did not repeat.

Operating Expenses

Operating expenses for the nine months ended April 30, 2022 were $461.6 million, compared with $433.3 million for the nine months ended April 30, 2021, an increase of $28.3 million, or 6.5%. As a percentage of net sales, operating expenses were 19.1%, compared with 20.8% during the same period in the prior fiscal year. The decrease in operating expenses as a percentage of net sales reflects greater leverage from higher sales, expense management and restructuring charges of $9.0 million in the prior fiscal year that did not repeat.

Non-Operating Items

Interest expense was $10.8 million for the nine months ended April 30, 2022, compared with $9.9 million for the nine months ended April 30, 2021, an increase of $0.9 million, or 9.1%. The increase reflects a higher debt level.

Other income, net for the nine months ended April 30, 2022 was $6.4 million, compared with other income, net of $4.2 million for the nine months ended April 30, 2021, an increase of $2.2 million. The increase was driven by lower charitable contributions.

Income Taxes

The effective tax rate for the nine months ended April 30, 2022 was 25.2%, compared with 24.1% for the nine months ended April 30, 2021. The increase in the effective tax rate was primarily due to a reduction in net discrete tax benefits.

Net Earnings

Net earnings for the nine months ended April 30, 2022 were $231.8 million, compared with net earnings of $202.6 million for the nine months ended April 30, 2021, an increase of $29.2 million, or 14.4%.

Restructuring

Segment Results of Operations

Net sales and earnings before income taxes were as follows (in millions):


		Three Months Ended October 31,								Three Months Ended April 30,						Nine Months Ended April 30,
		2021		2020		$ Change		% Change				2022		2021			2022		2021
Net sales	Net sales										Net sales

Engine Products segment	Engine Products segment	$	527.2	$	436.2	$	91.0	20.9	%		Engine Products segment	$	601.0	$	531.0		$	1,682.3	$	1,429.6

Industrial Products segment	Industrial Products segment	233.7		200.4		33.3		16.6			Industrial Products segment	252.2		234.0			734.3		651.2

Total Company	Total Company	$	760.9	$	636.6	$	124.3	19.5	%		Total Company	$	853.2	$	765.0		$	2,416.6	$	2,080.8

Earnings before income taxes	Earnings before income taxes										Earnings before income taxes
Engine Products segment	Engine Products segment	$	72.3	$	60.4	$	11.9	19.7	%		Engine Products segment	$	89.2	$	84.4		$	226.5	$	206.1
Industrial Products segment	Industrial Products segment	38.3		27.5		10.8		39.3			Industrial Products segment	38.8		37.6			114.6		90.9
Corporate and unallocated(1)	Corporate and unallocated(1)	(6.5)		(5.7)		(0.8)		14.0			Corporate and unallocated(1)	(16.7)		(11.1)			(31.3)		(30.0)
Total Company	Total Company	$	104.1	$	82.2	$	21.9	26.6	%		Total Company	$	111.3	$	110.9		$	309.8	$	267.0

(1)Corporate and unallocated includes corporate expenses determined to be non-allocable to the segments, such as interest expense, restructuring charges and certain incentive compensation.

Engine Products Segment

Net sales were as follows (in millions):


		Three Months Ended October 31,								Three Months Ended April 30,						Nine Months Ended April 30,
		2021		2020		$ Change		% Change				2022		2021			2022		2021
Off-Road	Off-Road	$	93.9	$	64.8	$	29.1	44.9	%		Off-Road	$	108.2	$	95.7		$	297.6	$	238.4
On-Road	On-Road	31.5		32.0		(0.5)		(1.4)			On-Road	36.1		39.7			100.7		105.0
Aftermarket	Aftermarket	374.3		317.0		57.3		18.1			Aftermarket	425.4		371.4			1,198.1		1,018.7
Aerospace and Defense	Aerospace and Defense	27.5		22.4		5.1		22.9			Aerospace and Defense	31.3		24.2			85.9		67.5
Total Engine Products segment	Total Engine Products segment	$	527.2	$	436.2	$	91.0	20.9	%		Total Engine Products segment	$	601.0	$	531.0		$	1,682.3	$	1,429.6

Engine Products segment earnings before income taxes	Engine Products segment earnings before income taxes	$	72.3	$	60.4	$	11.9	19.7	%		Engine Products segment earnings before income taxes	$	89.2	$	84.4		$	226.5	$	206.1

Three months ended April 30, 2022 compared with three months ended April 30, 2021

Net sales for the Engine Products segment ~~for~~for the three months ended ~~October 31, 2021~~April 30, 2022 were ~~$527.2~~$601.0 million, compared with ~~$436.2~~$531.0 million for the three months ended ~~October 31, 2020,~~April 30, 2021, an increase of ~~$91.0~~$70.0 million, or ~~20.9%~~13.2%. Excluding a ~~$2.4~~$13.9 million ~~increase~~decrease from foreign currency translation, net sales increased ~~20.3%~~15.8%.

~~Net sales of Off-Road were $93.9 million, an increase of~~ ~~44.9% compared with the three months ended October 31, 2020. In constant currency, net sales~~ All business units benefited from increased ~~$29.2 million, or 45.1%. Off-Road sales reflected strong growth in every major region due to increased equipment demand as economic conditions improved compared to the prior year.~~

~~Net sales of On-Road were $31.5 million, a decrease of 1.4% compared with the three months ended October 31, 2020. In constant currency, net sales decreased $0.4 million, or 1.2%. On-Road sales decreased in the U.S. primarily due to the Company’s decision to discontinue selling diesel exhaust fluid tanks as well as supply chain constraints.~~pricing.

Net sales of Aftermarket ~~were $374.3~~increased $54.0 million ~~an increase of 18.1% compared with the three months ended October 31, 2020. In constant currency, net sales increased $54.6 million, or 17.2%. Aftermarket sales experienced~~which reflected broad growth across ~~all~~most regions, as ~~economic conditions improved.~~end-market demand continued. In addition, n

~~Net~~et sales of ~~Aerospace and Defense were $27.5~~Off-Road increased $12.5 million ~~an increase of 22.9% compared with the three months ended October 31, 2020. In constant currency, net sales increased $5.2 million, or 23.1%. Aerospace and Defense sales increased in the U.S.~~ primarily due to ~~improved economic conditions~~equipment production levels remaining high in most regions, with the ~~commercial aerospace market compared~~exception of China, and strong sales for Exhaust and Emissions in EMEA. This growth was partially offset by a decrease resulting from the recent shut-downs in certain areas in China related to the ~~prior year, which had experienced a greater impact from the COVID-19~~Coronavirus (COVID-19) pandemic.

Earnings before income taxes for the Engine Products segment for the three months ended ~~October 31, 2021~~April 30, 2022 were ~~$72.3~~$89.2 million, or ~~13.7%~~14.8% of Engine Products’ net sales, a decrease ~~fro~~m ~~13.9%~~from 15.9% of net sales for the three months ended ~~October 31, 2020.~~April 30, 2021. The decrease was driven by higher raw material, freight, energy and labor ~~freight~~ costs, ~~and an unfavorable mix of sales,~~ partially offset by ~~increased leverage from~~ higher sales driven in large part by pricing.

Nine months ended April 30, 2022 compared with nine months ended April 30, 2021

Net sales for the Engine Products segment for the nine months ended April 30, 2022 were $1,682.3 million, compared with $1,429.6 million for the nine months ended April 30, 2021, an increase of $252.7 million, or 17.7%. Excluding a $23.3 million decrease from foreign currency translation, net sales increased 19.3%.

Net sales of Aftermarket increased $179.4 million which reflected broad growth across all regions driven by continued high end-market demand and ~~improved~~ pricing. Net sales of Off-Road increased $59.2 million primarily due to increased pricing, equipment production levels remaining high in most regions, with the exception of China, and strong sales for Exhaust and Emissions in EMEA.

Earnings before income taxes for the Engine Products segment for the nine months ended April 30, 2022 were $226.5 million, or 13.5% of Engine Products’ net sales, a decrease from 14.4% of net sales for the nine months ended April 30, 2021. The decrease was driven by higher raw material, freight, energy and labor costs, partially offset by both pricing and higher volume. Prior fiscal year earnings were also negatively impacted by restructuring charges of $2.5 million that did not repeat.

Industrial Products Segment

Net sales were as follows (in millions):


		Three Months Ended October 31,								Three Months Ended April 30,						Nine Months Ended April 30,
		2021		2020		$ Change		% Change				2022		2021			2022		2021
Industrial Filtration Solutions		$	165.5	$	135.6	$	29.9	22.0	%
Industrial Filtration Solutions (IFS)											Industrial Filtration Solutions (IFS)	$	178.5	$	163.7		$	515.2	$	449.3
Gas Turbine Systems	Gas Turbine Systems	16.6		23.0		(6.4)		(27.8)			Gas Turbine Systems	30.5		25.5			76.7		71.9
Special Applications	Special Applications	51.6		41.8		9.8		23.3			Special Applications	43.2		44.8			142.4		130.0
Total Industrial Products segment	Total Industrial Products segment	$	233.7	$	200.4	$	33.3	16.6	%		Total Industrial Products segment	$	252.2	$	234.0		$	734.3	$	651.2

Industrial Products segment earnings before income taxes	Industrial Products segment earnings before income taxes	$	38.3	$	27.5	$	10.8	39.3	%		Industrial Products segment earnings before income taxes	$	38.8	$	37.6		$	114.6	$	90.9

Three months ended April 30, 2022 compared with three months ended April 30, 2021

Net sales for the Industrial Products segment for the three months ended ~~October 31, 2021 were $233.7~~April 30, 2022 were $252.2 million, compared with ~~$200.4~~$234.0 million for the three months ended ~~October 31, 2020,~~April 30, 2021, an increase of ~~$33.3~~$18.2 million, or ~~16.6%~~7.8%. ~~Excluding a $0.6~~Excluding an $8.1 million ~~increase~~decrease from foreign currency ~~translation,~~translation, net sales increased ~~16.3%~~11.2%.

Net sales of ~~Industrial Filtration Solutions (IFS) were $165.5~~IFS increased $14.8 million ~~an increase of 22.0% compared with the three months ended October 31, 2020. In constant currency, net sales increased $28.8 million, o~~due to strong growth across most end-markets~~r 21.2%. IFS sales increased across all business units and regions,~~ with growth strongest in the U.S. reflecting improved ~~market~~end-market conditions for both first-fit and replacement parts of dust collection products, as well as continued strength in Process Filtration within the food and ~~beverage~~beverage market. Thi

~~Net sales of Gas Turbine Systems (GTS) were $16.6 million,~~s growth was partially offset by a decrease ~~of 27.8% compared with~~resulting from the ~~three months ended October 31, 2020. In constant currency,~~recent shut-downs in certain areas in China related to the COVID-19 pandemic. IFS includes net sales ~~decreased $6.4 million, or 27.9%. The decrease in~~ ~~GTS sales was driven by lower sales of replacement parts in APAC, EMEA and the U.S., as well as lower sales of small turbines~~related to acquisitions in the ~~U.S.~~second quarter of fiscal 2022 of Solaris Biotechnology Srl (Solaris) and Pearson Arnold Industrial Services (PAIS), which were immaterial to the quarter. All business units in IFS benefited from increased pricing.

~~Net sales of Special Applications were $51.6 million, an increase of 23.3% compared with the three months ended October 31, 2020. In constant currency, net sales increased $10.3 million, or 24.6%. Special Applications sales increased with growth across the product portfolio and regions, primarily led by APAC due to~~ ~~improved market conditions across several industries, including hard disk drive, minerals, automotive and semi-conductor manufacturers.~~

Earnings before income taxes for the Industrial Products segment for the three months ended ~~October 31, 2021~~April 30, 2022 were ~~$38.3~~$38.8 million,, or ~~16.4%~~15.4% of Industrial Products’ net sales, ~~an increase~~a decrease from ~~13.7%~~16.1% of net sales for the three months ended ~~October 31, 2020.~~ April 30, 2021. The decrease was driven by increased raw material, freight and labor costs as well as an unfavorable sales mix, partially offset by higher sales driven in large part by pricing.

Nine months ended April 30, 2022 compared with nine months ended April 30, 2021

Net sales for the Industrial Products segment for the nine months ended April 30, 2022 were $734.3 million, compared with $651.2 million for the nine months ended April 30, 2021, an increase of $83.1 million, or 12.8%. Excluding a $13.7 million decrease from foreign currency translation, net sales increased 14.9%.

Net sales of IFS increased $65.9 million primarily in the U.S. reflecting improved end-market conditions in Industrial Air Filtration (IAF) for both first-fit and replacement parts of dust collection products. EMEA had continued strength in IAF and Process Filtration within the food and beverage market. IFS includes net sales related to acquisitions in the second quarter of fiscal 2022 of Solaris and PAIS, which were immaterial for the nine months ended April 30, 2022. All business units in IFS benefited from increased pricing.

Earnings before income taxes for the Industrial Products segment for the nine months ended April 30, 2022 were $114.6 million, or 15.6% of Industrial Products’ net sales, an increase from 14.0% of Industrial Products’ sales for the nine months ended April 30, 2021. The increase was driven by ~~greater leverage from~~both pricing and higher ~~sales,~~volume, partially offset by increased raw material, freight and labor costs. Prior fiscal year earnings were also negatively impacted by restructuring charges of $6.5 million that did not repeat.

Liquidity, Capital Resources and Financial Condition

Liquidity

Liquidity is assessed in terms of the Company’s ability to generate cash to fund its operating, investing and financing activities. Significant factors affecting liquidity are cash flows generated from operating activities, capital expenditures, acquisitions, dividends, repurchases of outstanding shares, adequacy of available credit facilities and the ability to attract long-term capital with satisfactory terms. The Company generates substantial cash from the operation of its businesses as its primary source of liquidity, with sufficient liquidity available to fund growth through reinvestment in existing businesses and strategic acquisitions.

Operating Activities

Cash provided by operating activities for the ~~three~~nine months ended ~~October 31, 2021~~April 30, 2022 was ~~$42.9~~$143.9 million,, compared with ~~$128.9~~$305.6 million for the ~~three~~nine months ended ~~October 31, 2020,~~April 30, 2021, a decrease of ~~$86.0~~$161.7 million. The decrease in cash provided by operating activities was primarily driven by an increase in inventory as the Company continues to experience strengthening demand while mitigating supply chain disruptions as well as higher incentive compensation paid, partially offset by higher earnings.

Investing Activities

Cash used in investing activities for the ~~three~~nine months ended ~~October 31, 2021~~April 30, 2022 was ~~$18.3~~$105.8 million, compared with ~~$18.8~~$40.2 million for the ~~three~~nine months ended ~~October 31, 2020, a decrease~~April 30, 2021, an increase of ~~$0.5~~$65.6 million. In fiscal 2022, the Company ~~continued investing~~acquired Solaris and PAIS for cash consideration of $49.0 million and invested a higher level of capital in ~~its strategic priorities,~~various projects, including capacity ~~expansion.~~ expansion, tooling for new programs and cost reduction initiatives.

Financing Activities

Cash used in financing activities generally relates to the use of cash for payment of dividends and repurchases of the Company’s common stock, net borrowing activity and proceeds from the exercise of stock options. Cash used in financing activities for the nine months ended April 30, 2022 was $82.8 million, compared with $295.5 million for the nine months ended April 30, 2021, a decrease of $212.7 million. The decrease in the use of cash was primarily driven by proceeds from the issuance of new debt in fiscal 2022 of $249.3 million, partially offset by lower debt payments and a higher level of share repurchases. To determine the level of dividend and share repurchases, the Company considers recent and projected performance across key financial metrics, including earnings, cash flow from operations and total debt. Dividends paid for the ~~three~~nine months ended ~~October 31,~~April 30, 2022 and 2021 ~~and 2020 were $27.4~~were $81.8 million and ~~$26.6~~$79.5 million, respectively. Share repurchases for the ~~three~~nine months ended ~~October 31,~~April 30, 2022 and 2021 ~~and 2020~~ were ~~$102.9~~$153.7 million and $78.7 million, respectiv~~$15.6 million~~ely.~~, respectively.~~

~~Cash used in financing acti~~vities for the three months ended October 31, 2021 was $45.5 million, compared with $78.9 million for the three months ended October 31, 2020, a decrease of $33.4 million. In fiscal 2022, cash was received from issuing long-term debt. ~~In both fiscal~~ ~~2022 and~~ ~~2021, cash was used to repay borrowings and to fund the Company’s needs, driven by expenditures on property, plant and equipment, dividends and share repurchases.~~

Capital Resources and Financial Condition

Cash and cash equivalents as of ~~October 31, 2021~~April 30, 2022 was ~~$200.8~~$168.7 million, compared with $222.8 million as of July 31, 2021. The Company has capacity of ~~$669.5~~$637.0 million ~~available~~available for further borrowing under existing credit ~~faciliti~~esfacilities as of ~~October 31, 2021,~~April 30, 2022, which includes ~~$427.5~~$407.5 million available on the Company’s $500.0 million unsecured revolving credit facility that expires on May 21, 2026. The Company believes ~~that~~ the liquidity available from the combination of expected cash generated by operating activities, existing cash and available credit under existing credit facilities will be sufficient to meet its cash requirements for the next 12 months.

~~To understand~~In order to help measure and analyze the ~~impacts~~impact of working capital management, the Company calculates days sales outstanding as the average accounts receivable, net for the quarter, divided by net sales for the quarter multiplied by the number of days in the quarter, and calculates inventory turns as the cost of sales for the quarter, annualized by the ratio of the number of ~~the~~ days in the year to the number of days in the quarter, divided by the average inventories, net for the quarter. The Company calculates days payable outstanding as the average accounts payable for the quarter, divided by cost of sales for the quarter multiplied by the number of days in the quarter.

Accounts receivable, net as of ~~October 31, 2021,~~April 30, 2022, was ~~$545.1~~$585.5 million, compared with $552.7 million as of July 31, 2021, ~~a decrease~~an increase of ~~$7.6~~$32.8 million. Days sales outstanding were 6659 days as of ~~October 31, 2021, up~~April 30, 2022, a decrease from 65 days atas of July 31, 2021.

Inventories, net as of ~~October 31, 2021,~~April 30, 2022, was ~~$444.7~~$510.7 million, compared with $384.5 million as of July 31, 2021, an increase of ~~$60.2~~$126.2 million. Inventory turns were 4.8 times and 5.4 times per year as of ~~October 31, 2021~~April 30, 2022 and July 31, 2021, respectively.

Accounts payable as of April 30, 2022, was $335.8 million, compared with $293.9 million as of July 31, 2021, an increase of $41.9 million. Days payable outstanding were 50 days as of April 30, 2022, consistent with 50 days as of July 31, 2021.

Long-term debt outstanding was ~~$548.1~~$607.2 million as of ~~October 31, 2021,~~April 30, 2022, compared with $461.0 million as of July 31, 2021, an increase of ~~$87.1~~$146.2 million primarily due to ~~an increase in~~ proceeds from long-term ~~debt.~~ debt received in fiscal 2022. In the third quarter of fiscal 2022, the Company borrowed $60.0 million on its unsecured revolving credit facility.

As of ~~October 31, 2021, tota~~lApril 30, 2022, total debt, including long-term debt and short-term borrowings, represented ~~34.6%~~ 36.2% of total capitalization, defined as total debt plus total stockholders’ equity, compared with 30.9% as of July 31, 2021. As of ~~October 31, 2021,~~April 30, 2022, the Company was in compliance with its financial covenants.

The Company guarantees 50% of certain debt of its joint venture, Advanced Filtration Systems Inc., as further discussed in Note 15 in the Notes to Condensed Consolidated Financial Statements included in Item 1 of this report.

New Accounting Standards Not Yet Adopted

For new accounting standards not yet adopted, refer to Note 1 in the Notes to Condensed Consolidated Financial Statements included in Item 1 of this report.

Critical Accounting Policies

There have been no material changes to the Company’s critical accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2021.

Safe Harbor Statement ~~under~~Under the Private Securities Litigation Reform Act of 1995

The Company, through its management, may make forward-looking statements reflecting the Company’s current views with respect to future events and expectations, such as forecasts, plans, trends and projections relating to the Company’s business and financial performance. These forward-looking statements, which may be included in reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), in press releases and in other documents and materials as well as in written or oral statements made by or on behalf of the Company, are subject to certain risks and uncertainties, including those discussed in Part I, Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2021, which could cause actual results to differ materially from historical results or those anticipated. The words or phrases such as “will likely result,” “are expected to,” “will continue,” “will allow,” “estimate,” “project,” “believe,” “expect,” “anticipate,” “forecast,” “plan” and similar expressions are intended to identify forward-looking statements within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act of 1933, as amended, as enacted by the Private Securities Litigation Reform Act of 1995 (PSLRA). In particular, the Company desires to take advantage of the protections of the PSLRA in connection with the forward-looking statements made in this Quarterly Report on Form 10-Q. All statements other than statements of historical fact are forward-looking statements. These statements do not guarantee future performance.

These forward-looking statements speak only as of the date such statements are made and are subject to risks and uncertainties that could affect the Company’s performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed. These factors include, but are not limited to, challenges in global operations; impacts of global economic, industrial and political conditions on product ~~demand;~~demand, including the Russia and Ukraine conflict; impacts from unexpected events, including the COVID-19 pandemic; effects of unavailable raw materials or material cost inflation; inability to attract and retain qualified personnel; inability to meet customer demand; inability to maintain competitive advantages; threats from disruptive technologies; effects of highly competitive markets with pricing pressure; exposure to customer concentration in certain cyclical industries; impairment of intangible assets; inability to manage productivity improvements; inability to maintain an effective system of internal control over financial reporting; vulnerabilities associated with information technology systems and security; inability to protect and enforce intellectual property rights; costs associated with governmental laws and regulations; impacts of foreign currency fluctuations; effects of changes in capital and credit markets; changes in tax laws and tax rates, regulations and results of examinations; and results of execution of any acquisition, divestiture and other strategic transactions strategy. These and other factors are described in Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2021. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s market risk includes the potential loss arising from adverse changes in foreign currency exchange rates, interest rates and commodity prices. In an attempt to manage these risks, the Company employs certain strategies to mitigate the effect of these fluctuations. The Company does not enter into any of these instruments for speculative trading purposes.

The Company maintains significant assets and operations outside the U.S., resulting in exposure to foreign currency gains and losses. A portion of the Company’s foreign currency exposure is naturally hedged by incurring liabilities, including bank debt, denominated in the local currency in which the Company’s foreign subsidiaries are located.

During the ~~three~~nine months ended ~~October 31, 2021,~~April 30, 2022, the U.S. dollar was generally ~~weaker~~stronger than in the ~~three~~nine months ended ~~October 31, 2020~~April 30, 2021 compared with many of the currencies of the foreign countries in which the Company operates. The overall ~~weaker~~stronger dollar had a ~~positive~~negative impact on the Company’s international net sales ~~results~~and net earnings because the foreign denominated revenues translated into ~~more~~less U.S. ~~dollars. Foreign currency translation had a positive impact to net sales and net earnings~~dollars in many regions around the world. The estimated impact of foreign currency translation for the ~~three~~nine months ended ~~October 31, 2021,~~April 30, 2022, resulted in an overall ~~increase~~decrease in reported net sales of ~~$3.0~~$37.0 million and ~~an increase~~a decrease in reported net earnings of ~~$0.4~~$4.8 million.

Derivative Fair Value Measurements

Forward Foreign Currency Exchange Contracts

Net Investment Hedges

The Company uses fixed-to-fixed cross-currency swap agreements to hedge its exposure to adverse foreign currency exchange rate movements for its operations in Europe. The Company has elected the spot method for designating these contracts as net investment ~~hedges.~~hedges.

As of April 30, 2022, the total notional amount of foreign exchange forward contracts designated as net investment hedges was €80 million, or $88.8 million, which includes a hedge for $33.0 million entered into in the third quarter of fiscal 2022. The ~~Company has one contract, which terminates in July~~maturity dates of these derivative instruments designated as net investment hedges range from 2027 to 2029.

Based on the net investment hedge outstanding as of ~~October 31, 2021,~~April 30, 2022, a 10% appreciation of the U.S. dollar compared to the Euro, would result in a net gain of ~~$5.8~~$8.0 million in the fair value of these contracts.

Interest Rates

The Company’s exposure to market risk for changes in interest rates primarily relates to debt obligations that are at variable rates, as well as the potential increase in the fair value of long-term debt resulting from a potential decrease in interest rates. As of ~~October 31, 2021,~~April 30, 2022, the Company’s financial liabilities with exposure to changes in interest rates consisted mainly of ~~$65.0~~$85.0 million outstanding on the Company’s revolving credit facility, €80.0 million, or ~~$93.2~~$84.4 million of a variable rate term loan and ¥2.0 billion, or ~~$17.6~~$15.4 million, of variable rate senior notes. As of ~~October 31, 2021,~~April 30, 2022, additional short-term borrowings outstanding consisted of ~~$39.0 million and ¥250.0 million, or $2.2~~$31.3 million. Assuming a hypothetical 0.5 percentage point increase in short-term interest rates, with all other variables remaining constant, interest expense would have increased approximately ~~$0.1~~$0.8 million and interest income would have increased ~~approximately $0.1 million~~by an immaterial amount in the ~~three~~nine months ended ~~October 31, 2021.~~April 30, 2022. Interest rate changes would also affect the fair market value of fixed-rate debt. As of ~~October 31, 2021,~~April 30, 2022, the estimated fair ~~value~~values of fixed interest rate long-term debt ~~with fixed interest rates was $392.3~~were $395.4 million compared to ~~its~~the carrying ~~value~~values of ~~$375.0~~$425.0 million. The fair ~~value is~~values are estimated by discounting the projected cash flows using the interest ~~rate~~rates at which similar amounts of debt could currently be borrowed.

Commodity Prices

The Company is exposed to market risk from fluctuating prices of purchased commodity raw materials, including steel, filter media and petrochemical-based products including plastics, rubber and adhesives. On an ongoing basis, the Company enters into selective supply arrangements that allow the Company to reduce volatility in its costs. The Company strives to recover or offset all material cost increases through selective price increases to its customers and the Company’s cost reduction initiatives, which include material substitution, process improvement and product redesigns. However, an increase in commodity prices could result in lower gross profit.

Chinese Notes

Consistent with common business practice in China, the Company’s Chinese subsidiaries accept bankers’ acceptance notes from Chinese customers in settlement of certain customer billed accounts receivable. Bankers’ acceptance notes represent a commitment by the issuing financial institution to pay a certain amount of money at a specified future maturity date to the legal owner of the bankers’ acceptance note as of the maturity date. The maturity dates of bankers’ acceptance notes vary, but it is the Company’s policy to only accept bankers’ acceptance notes with maturity dates no more than 180 daysdays from the date of the Company’s receipt of such draft. As of ~~October 31, 2021~~April 30, 2022 and July 31, 2021, the Company ~~owned $9.5~~owned $6.4 million and $14.1 million, respectively, of these bankers’ acceptance notes and includes them in accounts receivable on the Condensed Consolidated Balance Sheets.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management of the Company, with the participation of its Chief Executive Officer and its Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period. Based on their evaluation, as of the end of the period covered, the Company’s Chief Executive Officer and Chief Financial Officer concluded ~~that~~ the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective. The Company’s disclosure controls and procedures are designed so ~~that~~ information required to be disclosed by the issuer in the reports ~~that~~ it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and ~~that~~ such information is accumulated and communicated to management of the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control ~~over~~Over Financial Reporting

No change in the Company’s internal control over financial reporting (as defined by Rule 13a-15(f) under the Exchange Act) occurred during the fiscal quarter ended ~~October 31, 2021,~~April 30, 2022, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

There are inherent risks and uncertainties associated with the Company’s global operations that involve the manufacturing and sale of products for highly demanding customer applications throughout the world. These risks and uncertainties could adversely affect the Company’s operating performances or financial condition. The “Risk Factors” section in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2021 outlines the risks and uncertainties ~~that~~ the Company believes are the most material to its business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases of Equity Securities

Information in connection with purchases made by, or on behalf of, the Company or any affiliated purchaser of the Company, of shares of the Company’s common stock during the three months ended ~~October 31, 2021~~April 30, 2022 was as follows:

Period
Total Number
of Shares
Purchased (1)
Average Price
Paid per Share Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
or Programs Maximum
Number
of Shares
that May Still
Be Purchased
Under the Plans
or Programs
August 1 - August 31, 2021 799,537 $ 67.78 799,537 7,503,177
September 1 - September 30, 2021 790,000 61.63 790,000 6,713,177
October 1 - October 31, 2021 — — — 6,713,177
Total 1,589,537 $ 64.72 1,589,537 6,713,177


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Still Be Purchased Under the Plans or Programs
February 1 - February 28, 2022	218,994	$	52.52	218,994	6,274,264
March 1 - March 31, 2022	517,448	51.29		517,448	5,756,816
April 1 - April 30, 2022	—	—		—	5,756,816
Total	736,442	$	51.65	736,442	5,756,816

(1)On May 31, 2019, the Board of ~~Directors~~Directors authorized the repurchase of up to 13.0 million shares of the Company’s common stock. This repurchase authorization is effective until terminated by the Board of Directors. The Company has remaining authorization to repurchase ~~6.7~~5.8 million shares under this plan. There were no repurchases of common stock made outside of the Company’s current repurchase authorization during the three months ended ~~October 31, 2021.~~April 30, 2022. While not considered repurchases of shares, the Company does at times withhold shares that would otherwise be issued under stock-based awards to cover the withholding of taxes due as a result of exercising stock options or payment of stock-based awards.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits


3-A*			Restated Certificate of Incorporation of Registrant as currently in effect (Filed as Exhibit 3-A to Form 10-Q Report for the second quarter ended January 31, 2012)
3-B*			Amended and Restated Bylaws of Registrant, dated as of July 29, 2016 ~~(Filed~~(Filed as Exhibit 3-C to Form 8-K Report filed on July 29, 2016)
31-A			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31-B			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32			Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101			The following information from Donaldson Company, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended ~~October 31, 2021,~~April 30, 2022, as filed with the Securities and Exchange Commission, formatted in inline eXtensible Business Reporting Language (iXBRL): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Changes in Stockholders’ Equity and (vi) the Notes to Condensed Consolidated Financial Statements
104			The cover page from Donaldson Company Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~October 31, 2021,~~April 30, 2022, formatted in iXBRL (included as Exhibit 101)


*			Exhibit has previously been filed with the Securities and Exchange Commission and is incorporated herein by reference as an exhibit.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



			DONALDSON COMPANY, INC.
			(Registrant)


Date: ~~December 8, 2021~~June 6, 2022	By:	/s/ Tod E. Carpenter
		Tod E. Carpenter Chairman, President and Chief Executive Officer (duly authorized officer)


Date: ~~December 8, 2021~~June 6, 2022	By:	/s/ Scott J. Robinson
		Scott J. Robinson Senior Vice President and Chief Financial Officer (principal financial officer)


Date: ~~December 8, 2021~~June 6, 2022	By:	~~/s/ Peter~~/s/ Andrew J. ~~Keller~~Cebulla
			~~Peter~~Andrew J. ~~Keller~~Cebulla Corporate Controller (principal accounting officer)

2629


	October 31, 2021						July 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Total		Gross Carrying Amount		Accumulated Amortization		Total
Customer relationships	$	107.0	$	(57.8)	$	49.2	$	107.5	$	(56.4)	$	51.1
Patents, trademarks and technology	24.3		(14.3)		10.0		24.3		(13.8)		10.5
Total intangible assets	$	131.3	$	(72.1)	$	59.2	$	131.8	$	(70.2)	$	61.6