UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended July 31, 2022 or ☐ 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 jurisdi ...

Financial Data and Key Metrics Changes - Fiscal 2022 ended with revenue exceeding $3 billion, including a $1 billion contribution from the industrial business [6] - Adjusted earnings per share (EPS) were $2.68, with a fourth-quarter EPS of $0.84, reflecting a 27% year-over-year increase [7][9] - Operating income increased approximately 19% in the fourth quarter, with an operating margin of 14.9%, up 40 basis points year-over-year [26][31] Business Line Data and Key Metrics Changes - Total company sales in the fourth quarter were $890 million, up 15% from the previous year [14] - Engine segment sales were $620 million, an 18% increase, with aftermarket sales up 18% to $442 million [14][16] - Industrial segment sales increased 10% to $270 million, with industrial filtration solutions growing 14% [19] Market Data and Key Metrics Changes - Sales in the Off-Road segment were $108 million, up 21%, driven by high equipment production levels [14] - On-Road sales were $35 million, up 5%, with growth in all major regions except Asia Pacific [15] - China Engine sales decreased by 6% due to market weakness and COVID-19 lockdowns [18] Company Strategy and Development Direction - The company is focused on advancing filtration technology and pursuing organic and inorganic growth opportunities, including acquisitions in the life sciences sector [12][44] - The strategy includes a commitment to higher-margin opportunities and a selective approach to customer projects [36] - The company aims to maintain its leadership in technology-led filtration while managing costs effectively [46] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding stabilization in supply chain challenges and inflationary pressures [11][40] - The outlook for fiscal 2023 includes expectations for record revenue and earnings, with a forecasted operating margin range of 14.5% to 15.1% [22][40] - Concerns about potential recessionary impacts were acknowledged, but management remains confident in the company's resilience [45] Other Important Information - The company returned $281 million to shareholders through dividends and share buybacks [7] - Capital expenditures for fiscal 2023 are projected to be between $115 million and $135 million, focusing on growth initiatives [42] Q&A Session Summary Question: What are the expectations for first versus second half volume in 2023 sales guidance? - Management indicated that sales growth will be stronger in the first half due to easier comparisons, but growth is expected in both halves [51] Question: What was the growth of the Advance and Accelerate portfolio in fiscal 4Q? - The Advance and Accelerate portfolio grew 18% year-over-year and represented about 60% of total business [52] Question: How is the backlog currently compared to historical averages? - The backlog remains strong, although slightly improved, and is still at uncomfortable levels [56] Question: What impact does the lockdown in China have on expectations? - Management is more conservative regarding the outlook in China, factoring in recent experiences [57] Question: How do aftermarket sales typically perform during a recession? - Overall vehicle utilization remains positive, suggesting growth opportunities in the aftermarket [58] Question: What is the expected impact of Russia on revenue? - The impact from Russia is estimated to be about 1% on a consolidated basis, primarily affecting the Engine Aftermarket [71] Question: What is the expected contribution from acquisitions to revenue growth? - The revenue contribution from recent acquisitions is considered relatively immaterial, estimated to be less than $20 million [73] Question: What are the expectations for the Advance and Accelerate portfolio in 2023? - The portfolio is expected to drive revenue growth, with significant contributions anticipated from Off-Road and On-Road segments [80]

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including statements of earnings, comprehensive income, balance sheets, cash flows, and changes in stockholders' equity, along with detailed notes on accounting policies, acquisitions, revenue, and other financial components [Condensed Consolidated Statements of Earnings](index=2&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings) Presents the company's financial performance, detailing net sales, gross profit, operating income, and net earnings for the reported periods Three Months Ended April 30 (Millions $): | Metric | 2022 | 2021 | | :----- | :--- | :--- | | Net Sales | 853.2 | 765.0 | | Gross Profit | 269.0 | 258.0 | | Operating Income | 111.0 | 109.4 | | Net Earnings | 83.0 | 84.4 | | Net Earnings per Share – diluted | 0.67 | 0.66 | Nine Months Ended April 30 (Millions $): | Metric | 2022 | 2021 | | :----- | :--- | :--- | | Net Sales | 2,416.6 | 2,080.8 | | Gross Profit | 775.8 | 706.0 | | Operating Income | 314.2 | 272.7 | | Net Earnings | 231.8 | 202.6 | | Net Earnings per Share – diluted | 1.85 | 1.58 | [Condensed Consolidated Statements of Comprehensive Income](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Details the components of comprehensive income, including net earnings and other comprehensive income/loss items like foreign currency translation and pension adjustments Three Months Ended April 30 (Millions $): | Metric | 2022 | 2021 | | :----- | :--- | :--- | | Net Earnings | 83.0 | 84.4 | | Foreign currency translation (loss) income | (42.8) | (0.2) | | Pension liability adjustment, net | (1.8) | 18.5 | | Total derivatives | 2.4 | 1.1 | | Net other comprehensive (loss) income | (42.2) | 19.4 | | Comprehensive income | 40.8 | 103.8 | Nine Months Ended April 30 (Millions $): | Metric | 2022 | 2021 | | :----- | :--- | :--- | | Net Earnings | 231.8 | 202.6 | | Foreign currency translation (loss) income | (70.4) | 36.3 | | Pension liability adjustment, net | 2.2 | 24.6 | | Total derivatives | 4.1 | (0.5) | | Net other comprehensive (loss) income | (64.1) | 60.4 | | Comprehensive income | 167.7 | 263.0 | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents the company's financial position, including assets, liabilities, and stockholders' equity at specific points in time As of (Millions $): | Metric | April 30, 2022 | July 31, 2021 | | :----- | :------------- | :------------ | | Total current assets | 1,367.3 | 1,244.0 | | Total assets | 2,519.2 | 2,400.2 | | Total current liabilities | 606.5 | 606.6 | | Long-term debt | 607.2 | 461.0 | | Total liabilities | 1,395.6 | 1,263.1 | | Total stockholders' equity | 1,123.6 | 1,137.1 | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes the cash inflows and outflows from operating, investing, and financing activities for the reported periods Nine Months Ended April 30 (Millions $): | Metric | 2022 | 2021 | | :----- | :--- | :--- | | Net cash provided by operating activities | 143.9 | 305.6 | | Net cash used in investing activities | (105.8) | (40.2) | | Net cash used in financing activities | (82.8) | (295.5) | | Decrease in cash and cash equivalents | (54.1) | (21.3) | | Cash and cash equivalents, end of period | 168.7 | 215.3 | - Acquisitions, net of cash acquired, totaled **$49.0 million** for the nine months ended April 30, 2022[13](index=13&type=chunk) - Proceeds from long-term debt were **$249.3 million** for the nine months ended April 30, 2022, significantly higher than $0 in the prior year[13](index=13&type=chunk) - Purchase of treasury stock increased to **$153.7 million** in 2022 from $78.7 million in 2021[13](index=13&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Outlines the changes in the company's equity accounts, including net earnings, other comprehensive income, and share repurchases Three Months Ended April 30 (Millions $): | Metric | 2022 | 2021 | | :----- | :--- | :--- | | Balance January 31 | 1,116.8 | 1,074.4 | | Net earnings | 83.0 | 84.4 | | Other comprehensive (loss) income | (42.2) | 19.4 | | Treasury stock acquired | (38.1) | (32.4) | | Balance April 30 | 1,123.6 | 1,153.4 | Nine Months Ended April 30 (Millions $): | Metric | 2022 | 2021 | | :----- | :--- | :--- | | Balance July 31 | 1,137.1 | 992.9 | | Net earnings | 231.8 | 202.6 | | Other comprehensive (loss) income | (64.1) | 60.4 | | Treasury stock acquired | (153.7) | (78.7) | | Dividends declared | (54.2) | (52.9) | | Balance April 30 | 1,123.6 | 1,153.4 | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1. Summary of Significant Accounting Policies](index=7&type=section&id=Note%201.%20Summary%20of%20Significant%20Accounting%20Policies) Outlines the basis of presentation, principles of consolidation, use of estimates, and key operating environment factors affecting the company's financial statements, along with new accounting standards [Basis of Presentation](index=7&type=section&id=Basis%20of%20Presentation) Explains the basis of financial statement preparation, consolidation principles, and the use of management estimates - Financial statements are unaudited and prepared under GAAP, Form 10-Q, and Rule 10-01 of Regulation S-X[19](index=19&type=chunk) - Management believes all necessary adjustments for a fair statement are included and are of a normal recurring nature[19](index=19&type=chunk) [Principles of Consolidation](index=7&type=section&id=Principles%20of%20Consolidation) Describes the company's consolidation practices for subsidiaries and accounting methods for joint ventures - Consolidated financial statements include the Company and all majority-owned subsidiaries; intercompany transactions are eliminated[20](index=20&type=chunk) - Joint ventures are accounted for under the equity method[20](index=20&type=chunk) [Use of Estimates](index=7&type=section&id=Use%20of%20Estimates) Highlights that financial statements rely on management estimates, which may differ from actual results - Financial statements require management estimates and assumptions, which may lead to actual results differing from those estimates[21](index=21&type=chunk) [Operating Environment](index=7&type=section&id=Operating%20Environment) Details the impact of global events, supply chain disruptions, and inflation on the company's operations and financial performance - Ceased direct product shipments into Russia and Belarus due to sanctions; revenues from these areas are less than **2% of net sales**[22](index=22&type=chunk) - Asset exposure (accounts receivables and inventories) related to Russia/Belarus is approximately **$6.8 million** as of April 30, 2022[22](index=22&type=chunk) - Continues to experience supply chain disruptions (logistics, labor, raw material constraints) leading to significantly increased input costs and extended lead times[23](index=23&type=chunk) - Mitigating supply chain and inflation impacts through price increases, evaluating alternative supply chain options, qualifying additional suppliers, and strategic raw material purchases[23](index=23&type=chunk)[24](index=24&type=chunk) - Inflationary pressures on raw materials and operating expenses (freight, labor, energy) have adversely impacted profit margins, expected to continue into fiscal 2023[24](index=24&type=chunk) [New Accounting Standards Not Yet Adopted](index=7&type=section&id=New%20Accounting%20Standards%20Not%20Yet%20Adopted) Discusses new accounting standards under evaluation and their potential impact on future financial reporting - Evaluating ASU 2021-08, effective for fiscal years beginning after December 15, 2022 (Company's fiscal 2024), regarding accounting for contract assets and liabilities in business combinations[27](index=27&type=chunk) [Note 2. Acquisitions](index=8&type=section&id=Note%202.%20Acquisitions) The company acquired Solaris Biotechnology Srl for $45.7 million and Pearson Arnold Industrial Services (PAIS) for $3.3 million in November 2021. These acquisitions, reported in the Industrial Products segment, were immaterial to net sales for the reported periods, and their purchase price allocations are preliminary - Acquired Solaris Biotechnology Srl for approximately **$45.7 million** (net of cash) on November 22, 2021, adding bioprocessing equipment to the Industrial Filtration Solutions business[28](index=28&type=chunk) - Acquired Pearson Arnold Industrial Services (PAIS) for approximately **$3.3 million** (net of cash) on November 1, 2021, expanding industrial dust, mist, and fume collection services within the Industrial Products segment[29](index=29&type=chunk) - Both acquisitions were immaterial to net sales for the three and nine months ended April 30, 2022[28](index=28&type=chunk)[29](index=29&type=chunk) - Preliminary goodwill of **$27.2 million** and intangible assets of **$20.8 million** were recognized for Solaris; **$0.4 million** goodwill and **$3.0 million** intangible assets for PAIS[28](index=28&type=chunk)[29](index=29&type=chunk) [Note 3. Revenue](index=8&type=section&id=Note%203.%20Revenue) The company recognizes revenue from filtration solutions, primarily manufactured systems and replacement parts, disaggregated by customer location. Contract assets and liabilities increased as of April 30, 2022, reflecting timing differences between billing and revenue recognition [Revenue Disaggregation](index=8&type=section&id=Revenue%20Disaggregation) Details the company's net sales disaggregated by geographic region for the reported periods Net Sales by Geography (Three Months Ended April 30, Millions $): | Region | 2022 | 2021 | YoY Change (%) | | :----- | :--- | :--- | :------------- | | U.S. and Canada | 348.8 | 294.6 | 18.4% | | EMEA | 250.9 | 232.7 | 7.8% | | Asia Pacific | 161.6 | 169.0 | -4.4% | | Latin America | 91.9 | 68.7 | 33.7% | | **Total Net Sales** | **853.2** | **765.0** | **11.5%** | Net Sales by Geography (Nine Months Ended April 30, Millions $): | Region | 2022 | 2021 | YoY Change (%) | | :----- | :--- | :--- | :------------- | | U.S. and Canada | 963.6 | 801.8 | 20.2% | | EMEA | 717.2 | 621.7 | 15.4% | | Asia Pacific | 495.6 | 474.5 | 4.5% | | Latin America | 240.2 | 182.8 | 31.4% | | **Total Net Sales** | **2,416.6** | **2,080.8** | **16.1%** | [Contract Assets and Liabilities](index=9&type=section&id=Contract%20Assets%20and%20Liabilities) Reports the balances of contract assets and liabilities, reflecting timing differences in revenue recognition As of (Millions $): | Metric | April 30, 2022 | July 31, 2021 | | :----- | :------------- | :------------ | | Contract assets | 18.7 | 14.9 | | Contract liabilities | 23.3 | 12.2 | [Note 4. Inventories, Net](index=9&type=section&id=Note%204.%20Inventories,%20Net) Total inventories, net, increased to $510.7 million as of April 30, 2022, from $384.5 million as of July 31, 2021, driven by increases across raw materials, work in process, and finished products Components of Inventories, Net (Millions $): | Component | April 30, 2022 | July 31, 2021 | | :-------- | :------------- | :------------ | | Raw materials | 201.3 | 148.1 | | Work in process | 57.1 | 43.2 | | Finished products | 252.3 | 193.2 | | **Total inventories, net** | **510.7** | **384.5** | [Note 5. Property, Plant and Equipment, Net](index=9&type=section&id=Note%205.%20Property,%20Plant%20and%20Equipment,%20Net) Property, plant and equipment, net, decreased slightly to $591.1 million as of April 30, 2022, from $617.8 million as of July 31, 2021, primarily due to increased accumulated depreciation, despite an increase in construction in progress Components of Property, Plant and Equipment, Net (Millions $): | Component | 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](index=9&type=section&id=Note%206.%20Goodwill%20and%20Intangible%20Assets) Goodwill increased to $336.6 million as of April 30, 2022, primarily due to acquisitions in the Industrial Products segment, while intangible assets, net, also increased to $73.8 million, reflecting new technology and customer relationships from acquisitions [Goodwill](index=9&type=section&id=Goodwill) Details the changes in goodwill by reportable segment, including acquisitions and foreign currency translation adjustments Goodwill by Reportable Segment (Millions $): | Segment | July 31, 2021 | Goodwill Acquired | Foreign Currency Translation | April 30, 2022 | | :------ | :------------ | :---------------- | :--------------------------- | :------------- | | Engine Products Segment | 84.7 | — | (0.8) | 83.9 | | Industrial Products Segment | 237.8 | 29.4 | (14.5) | 252.7 | | **Total** | **322.5** | **29.4** | **(15.3)** | **336.6** | [Intangible Assets](index=10&type=section&id=Intangible%20Assets) Provides a breakdown of intangible assets, including those acquired, amortization expense, and foreign currency translation impacts - Preliminary intangible assets from Solaris acquisition totaled **$20.8 million**, including **$17.3 million** for technology (15-year useful life) and **$3.3 million** for trademarks/tradenames (10-year useful life)[38](index=38&type=chunk) - Preliminary intangible assets from PAIS acquisition totaled **$3.0 million**, all for customer relationships (20-year useful life)[38](index=38&type=chunk) Intangible Assets (Millions $): | Class | July 31, 2021 Net Value | Acquired | Amortization Expense | Foreign Currency Translation | April 30, 2022 Net Value | | :---- | :---------------------- | :------- | :------------------- | :--------------------------- | :----------------------- | | Customer Relationships | 51.1 | 3.2 | (4.7) | (3.0) | 46.6 | | Patents, Trademarks and Technology | 10.5 | 20.6 | (2.2) | (1.7) | 27.2 | | **Total Net Value** | **61.6** | **23.8** | **(6.9)** | **(4.7)** | **73.8** | [Note 7. Long-Term Debt](index=10&type=section&id=Note%207.%20Long-Term%20Debt) The company's long-term debt increased, with $407.5 million available on its revolving credit facility and the issuance of $150.0 million in unsecured senior notes in fiscal 2022. The company remains in compliance with all debt covenants - **$407.5 million** available on the **$500.0 million** unsecured revolving credit facility as of April 30, 2022[40](index=40&type=chunk) - Issued two tranches of unsecured senior notes totaling **$150.0 million** in fiscal 2022: **$100.0 million** (10-year, 2.50% fixed) and **$50.0 million** (7-year, 2.12% fixed)[40](index=40&type=chunk) - The Company was in compliance with all financial covenants as of April 30, 2022[40](index=40&type=chunk) [Note 8. Income Taxes](index=10&type=section&id=Note%208.%20Income%20Taxes) Gross unrecognized tax benefits were $19.6 million as of April 30, 2022, with accrued interest and penalties of $2.1 million. The company estimates a potential decrease of up to $5.3 million in uncertain tax positions within 12 months due to statute of limitations lapses Unrecognized Tax Benefits (Millions $): | Metric | April 30, 2022 | | :----- | :------------- | | Gross unrecognized tax benefits | 19.6 | | Accrued interest and penalties | 2.1 | - Estimates a potential decrease of up to **$5.3 million** in uncertain tax positions within the next 12 months due to lapses in statutes of limitation[41](index=41&type=chunk) [Note 9. Earnings Per Share](index=11&type=section&id=Note%209.%20Earnings%20Per%20Share) Basic and diluted net earnings per share calculations are provided, showing diluted EPS of $0.67 for the three months and $1.85 for the nine months ended April 30, 2022 EPS (Three Months Ended April 30): | Metric | 2022 | 2021 | | :----- | :--- | :--- | | Net earnings (Millions $) | 83.0 | 84.4 | | Weighted average common shares – basic (Millions) | 123.4 | 126.4 | | Weighted average common shares – diluted (Millions) | 124.6 | 128.3 | | Net earnings per share – basic ($) | 0.67 | 0.67 | | Net earnings per share – diluted ($) | 0.67 | 0.66 | EPS (Nine Months Ended April 30): | Metric | 2022 | 2021 | | :----- | :--- | :--- | | Net earnings (Millions $) | 231.8 | 202.6 | | Weighted average common shares – basic (Millions) | 123.9 | 126.6 | | Weighted average common shares – diluted (Millions) | 125.6 | 128.2 | | Net earnings per share – basic ($) | 1.87 | 1.60 | | Net earnings per share – diluted ($) | 1.85 | 1.58 | [Note 10. Stockholders' Equity](index=11&type=section&id=Note%2010.%20Stockholders'%20Equity) The company repurchased 2.5 million shares for $153.7 million during the nine months ended April 30, 2022, with 5.8 million shares remaining authorized. Dividends paid increased to 66.0 cents per share for the nine months ended April 30, 2022 [Share Repurchases](index=11&type=section&id=Share%20Repurchases) Details the company's share repurchase activities, including the number of shares bought back and remaining authorization - Repurchased **2.5 million shares** for **$153.7 million** during the nine months ended April 30, 2022[44](index=44&type=chunk) - As of April 30, 2022, **5.8 million shares** remained authorized for repurchase under the plan[44](index=44&type=chunk) [Dividends Paid and Declared](index=11&type=section&id=Dividends%20Paid%20and%20Declared) Reports the dividends paid and declared per common share for the reported periods Dividends Paid (Cents per share): | Period | 2022 | 2021 | | :----- | :--- | :--- | | Three months ended April 30 | 22.0 | 21.0 | | Nine months ended April 30 | 66.0 | 63.0 | - A cash dividend of **23.0 cents per common share** was declared on May 25, 2022, payable June 24, 2022[45](index=45&type=chunk) [Note 11. Accumulated Other Comprehensive Loss](index=12&type=section&id=Note%2011.%20Accumulated%20Other%20Comprehensive%20Loss) Accumulated other comprehensive loss increased significantly to $(182.3) million as of April 30, 2022, from $(118.2) million as of July 31, 2021, primarily due to foreign currency translation losses and pension benefit adjustments Accumulated Other Comprehensive Loss (Three Months Ended April 30, Millions $): | Component | Jan 31, 2022 | Other Comprehensive (Loss) Income | Reclassifications | April 30, 2022 | | :-------- | :----------- | :-------------------------------- | :---------------- | :------------- | | Foreign Currency Translation Adjustment | (71.6) | (42.8) | — | (114.4) | | Pension Benefits | (70.7) | (5.6) | 3.8 | (72.5) | | Derivative Financial Instruments | 2.2 | 2.6 | (0.2) | 4.6 | | **Total** | **(140.1)** | **(45.8)** | **3.6** | **(182.3)** | Accumulated Other Comprehensive Loss (Nine Months Ended April 30, Millions $): | Component | July 31, 2021 | Other Comprehensive (Loss) Income | Reclassifications | April 30, 2022 | | :-------- | :------------ | :-------------------------------- | :---------------- | :------------- | | Foreign Currency Translation Adjustment | (44.0) | (70.4) | — | (114.4) | | Pension Benefits | (74.7) | (6.9) | 9.1 | (72.5) | | Derivative Financial Instruments | 0.5 | 4.3 | (0.2) | 4.6 | | **Total** | **(118.2)** | **(73.0)** | **8.9** | **(182.3)** | - Pension settlement accounting triggered in fiscal 2022 and 2021, resulting in adjustments to accumulated other comprehensive loss[47](index=47&type=chunk)[49](index=49&type=chunk) [Note 12. Stock-Based Compensation](index=13&type=section&id=Note%2012.%20Stock-Based%20Compensation) The company recognizes compensation expense for stock-based awards, including stock options and performance-based awards. Pretax stock option expense increased for the nine months ended April 30, 2022, while performance-based awards expense also increased [Stock Options](index=13&type=section&id=Stock%20Options) Details the pretax stock-based compensation expense for stock options and related activity for the reported periods Pretax Stock-Based Compensation Expense (Options, Millions $): | Period | 2022 | 2021 | | :----- | :--- | :--- | | Three months ended April 30 | 1.4 | 1.8 | | Nine months ended April 30 | 10.2 | 9.3 | - Weighted average fair value for options granted increased to **$14.24 per share** for the nine months ended April 30, 2022, from $10.23 in the prior year[53](index=53&type=chunk) Option Activity (Nine Months Ended April 30, 2022): | Activity | Options | Weighted Average Exercise Price ($) | | :------- | :------ | :-------------------------------- | | Balance outstanding as of July 31, 2021 | 6,444,743 | 44.05 | | Granted | 898,726 | 59.18 | | Exercised | (308,945) | 37.50 | | Canceled/forfeited | (43,560) | 53.07 | | **Balance outstanding as of April 30, 2022** | **6,990,964** | **46.23** | [Performance-Based Awards](index=14&type=section&id=Performance-Based%20Awards) Reports the pretax compensation expense for performance-based awards and their activity for the reported periods Pretax Performance-Based Awards Expense (Millions $): | Period | 2022 | 2021 | | :----- | :--- | :--- | | Three months ended April 30 | 1.8 | (0.8) (reduction) | | Nine months ended April 30 | 5.6 | 1.2 | Performance-Based Awards (Nine Months Ended April 30, 2022): | Activity | Performance Shares | Weighted Average Grant Date Fair Value ($) | | :------- | :----------------- | :--------------------------------------- | | Balance outstanding as of July 31, 2021 | 200,567 | 48.76 | | Granted | 88,400 | 59.40 | | Canceled | (3,580) | 53.23 | | **Balance outstanding as of April 30, 2022** | **285,387** | **52.00** | [Note 13. Employee Benefit Plans](index=14&type=section&id=Note%2013.%20Employee%20Benefit%20Plans) Net periodic pension costs decreased to $2.0 million for the nine months ended April 30, 2022, from $4.4 million in the prior year. Pension settlement charges were recorded in fiscal 2022 and 2021, leading to adjustments in other comprehensive loss Net Periodic Pension Costs (Nine Months Ended April 30, Millions $): | Component | 2022 | 2021 | | :-------- | :--- | :--- | | Service cost | 5.4 | 6.1 | | Interest cost | 7.4 | 7.4 | | Expected return on assets | (18.7) | (17.6) | | Prior service cost amortization | 0.2 | 0.4 | | Actuarial loss amortization | 5.4 | 6.2 | | Settlement charge | 2.3 | 1.1 | | Curtailment charge | — | 0.8 | | **Net periodic pension costs** | **2.0** | **4.4** | - Pension settlement charges of **$1.2 million** and **$1.1 million** were recorded in the second and third quarters of fiscal 2022, respectively, due to lump sum distributions[59](index=59&type=chunk) - Remeasurements of pension obligations resulted in a decrease in net pension assets and a corresponding adjustment to other comprehensive loss of **$1.7 million** and **$7.6 million** in Q2 and Q3 fiscal 2022, respectively[59](index=59&type=chunk) [Note 14. Fair Value Measurements](index=15&type=section&id=Note%2014.%20Fair%20Value%20Measurements) The company uses fair value measurements for financial instruments, primarily Level 1 for short-term instruments and Level 2 for long-term debt and derivatives. Derivative instruments, including forward foreign currency exchange contracts and net investment hedges, are used to manage foreign currency risk [Short-Term Financial Instruments](index=15&type=section&id=Short-Term%20Financial%20Instruments) Identifies short-term financial instruments and their classification within the fair value hierarchy - Cash and cash equivalents, accounts receivable, short-term borrowings, and accounts payable are classified as Level 1 fair value measurements due to their short-term nature[61](index=61&type=chunk) [Long-Term Debt](index=15&type=section&id=Long-Term%20Debt) Details the fair value and carrying value of long-term debt, including fixed and variable interest rate components Long-Term Debt Fair Value (Millions $): | Metric | April 30, 2022 | July 31, 2021 | | :----- | :------------- | :------------ | | Estimated fair value of fixed interest rate long-term debt | 395.4 | 297.4 | | Carrying value of fixed interest rate long-term debt | 425.0 | 275.0 | | Carrying value of total variable interest rate long-term debt | 184.7 | 188.3 | - Long-term debt is classified as Level 2 in the fair value hierarchy[62](index=62&type=chunk) [Equity Method Investments](index=15&type=section&id=Equity%20Method%20Investments) Reports the aggregate carrying amount of equity method investments and their classification within the fair value hierarchy - Aggregate carrying amount of equity method investments was **$25.6 million** as of April 30, 2022[63](index=63&type=chunk) - Equity method investments would fall within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs[63](index=63&type=chunk) [Derivative Fair Value Measurements](index=15&type=section&id=Derivative%20Fair%20Value%20Measurements) Explains the company's use of derivative instruments to manage foreign currency risk and their fair value classification - Uses derivative instruments (forward foreign currency exchange contracts, net investment hedges) to manage foreign currency risk, not for trading or speculative purposes[64](index=64&type=chunk)[108](index=108&type=chunk) - Derivative fair values are based on observable market parameters (foreign currency exchange rates, interest rates) and are classified as Level 2 in the fair value hierarchy[67](index=67&type=chunk) Fair Value of Derivatives Contracts (Notional Amounts, Millions $): | Type | April 30, 2022 | July 31, 2021 | | :--- | :------------- | :------------ | | Designated as hedging instruments - Forward foreign currency exchange contracts | 33.8 | 117.2 | | Designated as hedging instruments - Net investment hedges | 88.8 | 55.8 | | Not designated as hedging instruments - Forward foreign currency exchange contracts | 171.9 | 154.2 | | **Total** | **294.5** | **327.2** | [Note 15. Guarantees](index=17&type=section&id=Note%2015.%20Guarantees) The company has $7.5 million in standby letters of credit and guarantees half of Advanced Filtration Systems Inc.'s (AFSI) debt, which was $61.1 million as of April 30, 2022. Earnings from AFSI increased for the three and nine months ended April 30, 2022 [Letters of Credit](index=17&type=section&id=Letters%20of%20Credit) Details the company's contingent liabilities related to standby letters of credit Standby Letters of Credit (Millions $): | Metric | April 30, 2022 | July 31, 2021 | | :----- | :------------- | :------------ | | Contingent liability for standby letters of credit | 7.5 | 7.7 | [Advanced Filtration Systems Inc. (AFSI)](index=17&type=section&id=Advanced%20Filtration%20Systems%20Inc.%20(AFSI)) Reports on the company's guarantee of AFSI's debt and the earnings derived from this equity method investment - Guarantees half of AFSI's outstanding debt, which was **$61.1 million** as of April 30, 2022 (up from $37.8 million in July 2021)[71](index=71&type=chunk) Earnings from AFSI (Millions $): | Period | April 30, 2022 | April 30, 2021 | | :----- | :------------- | :------------- | | Three months ended April 30 | 3.2 | 2.6 | | Nine months ended April 30 | 6.6 | 6.4 | [Note 16. Commitments and Contingencies](index=17&type=section&id=Note%2016.%20Commitments%20and%20Contingencies) The company records provisions for probable and estimable liabilities related to claims and litigation, which were not material to its financial position, results of operations, or liquidity - Provisions for claims and litigation are recorded when probable and estimable, and were not material to the company's financial position, results of operations, or liquidity[72](index=72&type=chunk) - It is considered remote that the settlement of identified claims or litigation will materially exceed accrued amounts[72](index=72&type=chunk) [Note 17. Segment Reporting](index=18&type=section&id=Note%2017.%20Segment%20Reporting) The company operates in two reportable segments: Engine Products and Industrial Products. Both segments showed increased net sales and earnings before income taxes for the three and nine months ended April 30, 2022, with Aftermarket and Industrial Filtration Solutions being key drivers Net Sales by Segment (Three Months Ended April 30, Millions $): | Segment | 2022 | 2021 | YoY Change (%) | | :------ | :--- | :--- | :------------- | | Engine Products | 601.0 | 531.0 | 13.2% | | Industrial Products | 252.2 | 234.0 | 7.8% | | **Total Company** | **853.2** | **765.0** | **11.5%** | Net Sales by Segment (Nine Months Ended April 30, Millions $): | Segment | 2022 | 2021 | YoY Change (%) | | :------ | :--- | :--- | :------------- | | Engine Products | 1,682.3 | 1,429.6 | 17.7% | | Industrial Products | 734.3 | 651.2 | 12.8% | | **Total Company** | **2,416.6** | **2,080.8** | **16.1%** | Earnings Before Income Taxes by Segment (Three Months Ended April 30, Millions $): | Segment | 2022 | 2021 | YoY Change (%) | | :------ | :--- | :--- | :------------- | | Engine Products | 89.2 | 84.4 | 5.7% | | Industrial Products | 38.8 | 37.6 | 3.2% | | Corporate and unallocated | (16.7) | (11.1) | -50.5% | | **Total Company** | **111.3** | **110.9** | **0.4%** | Earnings Before Income Taxes by Segment (Nine Months Ended April 30, Millions $): | Segment | 2022 | 2021 | YoY Change (%) | | :------ | :--- | :--- | :------------- | | Engine Products | 226.5 | 206.1 | 9.9% | | Industrial Products | 114.6 | 90.9 | 26.1% | | Corporate and unallocated | (31.3) | (30.0) | -4.3% | | **Total Company** | **309.8** | **267.0** | **16.0%** | - No single customer accounted for over **10% of net sales** or gross accounts receivable[75](index=75&type=chunk) [Note 18. Restructuring](index=18&type=section&id=Note%2018.%20Restructuring) The company's fiscal 2021 restructuring activities, primarily in EMEA, are substantially completed, resulting in $14.8 million in expenses (severance) and expected annualized savings of approximately $8 million - Fiscal 2021 restructuring activities, primarily in EMEA, are substantially completed[76](index=76&type=chunk) - Resulted in **$14.8 million** in restructuring expenses (severance) in fiscal 2021, with **$5.8 million** in cost of sales and **$9.0 million** in operating expenses[76](index=76&type=chunk) - Expected annualized savings from these activities are approximately **$8 million**[88](index=88&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition, discussing consolidated results, segment performance, liquidity, capital resources, and the impact of the operating environment, including global conflicts, supply chain disruptions, and inflation [Overview](index=19&type=section&id=Overview) Provides a high-level description of the company's business, its global operations, and key product segments - The Company is a global manufacturer of filtration systems and replacement parts, leveraging leading technology, strong customer relationships, and global presence[78](index=78&type=chunk) - Operates in two segments: Engine Products (filters, systems for construction, mining, agriculture, aerospace, defense, transportation) and Industrial Products (dust, fume, mist collectors, air purification, gas/liquid filtration, specialized systems)[78](index=78&type=chunk) [Operating Environment](index=19&type=section&id=Operating%20Environment) Discusses the impact of geopolitical events, supply chain disruptions, and inflationary pressures on the company's operations - Ceased direct product shipments into Russia and Belarus due to sanctions; related revenues are less than **2% of net sales**, with **$6.8 million** in asset exposure[78](index=78&type=chunk) - Supply chain disruptions (logistics, labor, raw material constraints) have significantly increased input costs and extended lead times, impacting Q3 fiscal 2022 results and expected to continue into fiscal 2023[78](index=78&type=chunk) - Inflationary pressures on raw materials and operating expenses have adversely impacted profit margins, with the company negotiating price increases and working with suppliers to mitigate costs[78](index=78&type=chunk) [Consolidated Results of Operations](index=19&type=section&id=Consolidated%20Results%20of%20Operations) Analyzes the company's overall financial performance, highlighting changes in net sales, gross margin, operating expenses, and net earnings for the reported periods [Three months ended April 30, 2022 compared with three months ended April 30, 2021](index=19&type=section&id=Three%20months%20ended%20April%2030,%202022%20compared%20with%20three%20months%20ended%20April%2030,%202021) Net sales increased by 11.5% to $853.2 million, primarily due to pricing, despite a 2.2 percentage point decrease in gross margin to 31.5% driven by higher input costs. Net earnings slightly decreased by 1.8% to $83.0 million [Net Sales](index=20&type=section&id=Net%20Sales) Details the drivers of net sales growth, including pricing, volume, and the impact of foreign currency translation Net Sales (Three Months Ended April 30, Millions $): | Metric | 2022 | 2021 | Change (Millions $) | Change (%) | | :----- | :--- | :--- | :------------------ | :--------- | | Net Sales | 853.2 | 765.0 | 88.2 | 11.5% | - Foreign currency translation decreased sales by **$22.0 million**[80](index=80&type=chunk) - Sales growth was primarily due to pricing, with Latin America up **33.7%**, U.S. and Canada up **18.4%**, EMEA up **7.8%**, and Asia Pacific down **4.4%**[80](index=80&type=chunk) [Cost of Sales and Gross Margin](index=20&type=section&id=Cost%20of%20Sales%20and%20Gross%20Margin) Examines the factors influencing cost of sales and gross margin, such as input costs and pricing strategies Cost of Sales and Gross Margin (Three Months Ended April 30, Millions $): | Metric | 2022 | 2022 (% of net sales) | 2021 | 2021 (% of net sales) | | :----- | :--- | :-------------------- | :--- | :-------------------- | | Cost of sales | 584.2 | 68.5% | 507.0 | 66.3% | | Gross profit | 269.0 | 31.5% | 258.0 | 33.7% | - Gross margin decreased primarily due to increased raw material, freight, energy, and labor costs, partially offset by higher sales driven by pricing[80](index=80&type=chunk) [Operating Expenses](index=20&type=section&id=Operating%20Expenses) Analyzes trends in operating expenses, including their relationship to net sales and the impact of expense management Operating Expenses (Three Months Ended April 30, Millions $): | Metric | 2022 | 2022 (% of net sales) | 2021 | 2021 (% of net sales) | | :----- | :--- | :-------------------- | :--- | :-------------------- | | Operating expenses | 158.0 | 18.5% | 148.6 | 19.4% | - Decrease in operating expenses as a percentage of net sales reflects greater leverage from higher sales and expense management[80](index=80&type=chunk) [Non-Operating Items](index=20&type=section&id=Non-Operating%20Items) Reviews changes in non-operating items like interest expense and other income, net, and their underlying causes Non-Operating Items (Three Months Ended April 30, Millions $): | Metric | 2022 | 2021 | Change (Millions $) | Change (%) | | :----- | :--- | :--- | :------------------ | :--------- | | Interest expense | 3.8 | 3.2 | 0.6 | 19.4% | | Other income, net | (4.1) | (4.7) | 0.6 | -12.8% | - Increase in interest expense reflects a higher debt level[80](index=80&type=chunk) - Decrease in other income, net, was primarily driven by higher foreign exchange losses[80](index=80&type=chunk) [Income Taxes](index=20&type=section&id=Income%20Taxes) Discusses the company's income tax expense and effective tax rate, including the impact of discrete tax benefits Income Taxes (Three Months Ended April 30, Millions $): | Metric | 2022 | 2022 (Effective Tax Rate) | 2021 | 2021 (Effective Tax Rate) | | :----- | :--- | :------------------------ | :--- | :------------------------ | | Income taxes | 28.3 | 25.4% | 26.5 | 23.9% | - Increase in effective tax rate primarily due to a reduction in net discrete tax benefits[80](index=80&type=chunk) [Net Earnings](index=20&type=section&id=Net%20Earnings) Summarizes the company's net earnings and the percentage change compared to prior periods Net Earnings (Three Months Ended April 30, Millions $): | Metric | 2022 | 2021 | Change (Millions $) | Change (%) | | :----- | :--- | :--- | :------------------ | :--------- | | Net earnings | 83.0 | 84.4 | (1.4) | -1.8% | [Nine months ended April 30, 2022 compared with nine months ended April 30, 2021](index=20&type=section&id=Nine%20months%20ended%20April%2030,%202022%20compared%20with%20nine%20months%20ended%20April%2030,%202021) Net sales increased by 16.1% to $2,416.6 million, and net earnings increased by 14.4% to $231.8 million. Gross margin decreased to 32.1% due to higher input costs, but operating expenses as a percentage of sales improved [Net Sales](index=21&type=section&id=Net%20Sales) Details the drivers of net sales growth, including pricing, volume, and the impact of foreign currency translation Net Sales (Nine Months Ended April 30, Millions $): | Metric | 2022 | 2021 | Change (Millions $) | Change (%) | | :----- | :--- | :--- | :------------------ | :--------- | | Net Sales | 2,416.6 | 2,080.8 | 335.8 | 16.1% | - Foreign currency translation decreased sales by **$37.0 million**[82](index=82&type=chunk) - Sales growth from both higher volume and pricing, with Latin America up **31.4%**, U.S. and Canada up **20.2%**, EMEA up **15.4%**, and Asia Pacific up **4.5%**[82](index=82&type=chunk) [Cost of Sales and Gross Margin](index=21&type=section&id=Cost%20of%20Sales%20and%20Gross%20Margin) Examines the factors influencing cost of sales and gross margin, such as input costs and pricing strategies Cost of Sales and Gross Margin (Nine Months Ended April 30, Millions $): | Metric | 2022 | 2022 (% of net sales) | 2021 | 2021 (% of net sales) | | :----- | :--- | :-------------------- | :--- | :-------------------- | | Cost of sales | 1,640.8 | 67.9% | 1,374.8 | 66.1% | | Gross profit | 775.8 | 32.1% | 706.0 | 33.9% | - Gross margin decrease primarily driven by increased raw material, freight, and labor costs, partially offset by pricing and volume leverage[83](index=83&type=chunk) - Prior fiscal year gross margin was negatively impacted by **$5.8 million** in restructuring charges that did not repeat[83](index=83&type=chunk) [Operating Expenses](index=21&type=section&id=Operating%20Expenses) Analyzes trends in operating expenses, including their relationship to net sales and the impact of expense management Operating Expenses (Nine Months Ended April 30, Millions $): | Metric | 2022 | 2022 (% of net sales) | 2021 | 2021 (% of net sales) | | :----- | :--- | :-------------------- | :--- | :-------------------- | | Operating expenses | 461.6 | 19.1% | 433.3 | 20.8% | - Decrease in operating expenses as a percentage of net sales reflects greater leverage from higher sales, expense management, and the non-recurrence of **$9.0 million** in prior fiscal year restructuring charges[84](index=84&type=chunk) [Non-Operating Items](index=21&type=section&id=Non-Operating%20Items) Reviews changes in non-operating items like interest expense and other income, net, and their underlying causes Non-Operating Items (Nine Months Ended April 30, Millions $): | Metric | 2022 | 2021 | Change (Millions $) | Change (%) | | :----- | :--- | :--- | :------------------ | :--------- | | Interest expense | 10.8 | 9.9 | 0.9 | 9.1% | | Other income, net | (6.4) | (4.2) | 2.2 | 52.4% | - Increase in interest expense reflects a higher debt level[85](index=85&type=chunk) - Increase in other income, net, was driven by lower charitable contributions[85](index=85&type=chunk) [Income Taxes](index=21&type=section&id=Income%20Taxes) Discusses the company's income tax expense and effective tax rate, including the impact of discrete tax benefits Income Taxes (Nine Months Ended April 30, Millions $): | Metric | 2022 | 2022 (Effective Tax Rate) | 2021 | 2021 (Effective Tax Rate) | | :----- | :--- | :------------------------ | :--- | :------------------------ | | Income taxes | 78.0 | 25.2% | 64.4 | 24.1% | - Increase in effective tax rate primarily due to a reduction in net discrete tax benefits[86](index=86&type=chunk) [Net Earnings](index=21&type=section&id=Net%20Earnings) Summarizes the company's net earnings and the percentage change compared to prior periods Net Earnings (Nine Months Ended April 30, Millions $): | Metric | 2022 | 2021 | Change (Millions $) | Change (%) | | :----- | :--- | :--- | :------------------ | :--------- | | Net earnings | 231.8 | 202.6 | 29.2 | 14.4% | [Restructuring](index=21&type=section&id=Restructuring) Summarizes the company's restructuring activities, including expenses incurred and expected annualized savings - Fiscal 2021 restructuring activities, primarily in EMEA, are substantially completed[88](index=88&type=chunk) - Resulted in **$14.8 million** in expenses (severance), with **$5.8 million** in cost of sales and **$9.0 million** in operating expenses in fiscal 2021[88](index=88&type=chunk) - Expected annualized savings from these activities are approximately **$8 million**[88](index=88&type=chunk) [Segment Results of Operations](index=22&type=section&id=Segment%20Results%20of%20Operations) Analyzes the financial performance of the company's Engine Products and Industrial Products segments, detailing sales and earnings drivers [Engine Products Segment](index=22&type=section&id=Engine%20Products%20Segment) Net sales for the Engine Products segment increased by 13.2% (3 months) and 17.7% (9 months), driven by Aftermarket and Off-Road growth and increased pricing, despite higher input costs impacting earnings before income taxes as a percentage of sales [Three months ended April 30, 2022 compared with three months ended April 30, 2021](index=22&type=section&id=Three%20months%20ended%20April%2030,%202022%20compared%20with%20three%20months%20ended%20April%2030,%202021) Compares the Engine Products segment's net sales and earnings before income taxes for the three-month periods, highlighting key business unit performance Engine Products Net Sales (Three Months Ended April 30, Millions $): | Business Unit | 2022 | 2021 | Change (Millions $) | Change (%) | | :------------ | :--- | :--- | :------------------ | :--------- | | Off-Road | 108.2 | 95.7 | 12.5 | 13.1% | | On-Road | 36.1 | 39.7 | (3.6) | -9.1% | | Aftermarket | 425.4 | 371.4 | 54.0 | 14.5% | | Aerospace and Defense | 31.3 | 24.2 | 7.1 | 29.3% | | **Total Engine Products segment** | **601.0** | **531.0** | **70.0** | **13.2%** | - Excluding foreign currency translation, net sales increased **15.8%**[90](index=90&type=chunk) - All business units benefited from increased pricing[90](index=90&type=chunk) - Earnings before income taxes were **$89.2 million** (**14.8% of net sales**), down from 15.9% in prior year, driven by higher raw material, freight, energy, and labor costs, partially offset by pricing[90](index=90&type=chunk) [Nine months ended April 30, 2022 compared with nine months ended April 30, 2021](index=22&type=section&id=Nine%20months%20ended%20April%2030,%202022%20compared%20with%20nine%20months%20ended%20April%2030,%202021) Compares the Engine Products segment's net sales and earnings before income taxes for the nine-month periods, detailing growth drivers and cost impacts Engine Products Net Sales (Nine Months Ended April 30, Millions $): | Business Unit | 2022 | 2021 | Change (Millions $) | Change (%) | | :------------ | :--- | :--- | :------------------ | :--------- | | Off-Road | 297.6 | 238.4 | 59.2 | 24.8% | | On-Road | 100.7 | 105.0 | (4.3) | -4.1% | | Aftermarket | 1,198.1 | 1,018.7 | 179.4 | 17.6% | | Aerospace and Defense | 85.9 | 67.5 | 18.4 | 27.3% | | **Total Engine Products segment** | **1,682.3** | **1,429.6** | **252.7** | **17.7%** | - Excluding foreign currency translation, net sales increased **19.3%**[91](index=91&type=chunk) - Earnings before income taxes were **$226.5 million** (**13.5% of net sales**), down from 14.4% in prior year, driven by higher raw material, freight, energy, and labor costs, partially offset by pricing and higher volume[93](index=93&type=chunk) - Prior fiscal year earnings were negatively impacted by **$2.5 million** in restructuring charges that did not repeat[93](index=93&type=chunk) [Industrial Products Segment](index=23&type=section&id=Industrial%20Products%20Segment) Net sales for the Industrial Products segment increased by 7.8% (3 months) and 12.8% (9 months), primarily driven by Industrial Filtration Solutions (IFS) due to improved end-market conditions and pricing. Earnings before income taxes as a percentage of sales were impacted by input costs and sales mix [Three months ended April 30, 2022 compared with three months ended April 30, 2021](index=23&type=section&id=Three%20months%20ended%20April%2030,%202022%20compared%20with%20three%20months%20ended%20April%2030,%202021) Compares the Industrial Products segment's net sales and earnings before income taxes for the three-month periods, focusing on business unit performance and cost factors Industrial Products Net Sales (Three Months Ended April 30, Millions $): | Business Unit | 2022 | 2021 | Change (Millions $) | Change (%) | | :------------ | :--- | :--- | :------------------ | :--------- | | Industrial Filtration Solutions (IFS) | 178.5 | 163.7 | 14.8 | 9.0% | | Gas Turbine Systems | 30.5 | 25.5 | 5.0 | 19.6% | | Special Applications | 43.2 | 44.8 | (1.6) | -3.6% | | **Total Industrial Products segment** | **252.2** | **234.0** | **18.2** | **7.8%** | - Excluding foreign currency translation, net sales increased **11.2%**[93](index=93&type=chunk) - IFS growth was strong across most end-markets, particularly in the U.S. (dust collection) and Process Filtration (food and beverage), partially offset by China COVID-19 shutdowns[93](index=93&type=chunk) - Earnings before income taxes were **$38.8 million** (**15.4% of net sales**), down from 16.1% in prior year, driven by increased raw material, freight, and labor costs, and unfavorable sales mix, partially offset by pricing[93](index=93&type=chunk) [Nine months ended April 30, 2022 compared with nine months ended April 30, 2021](index=23&type=section&id=Nine%20months%20ended%20April%2030,%202022%20compared%20with%20nine%20months%20ended%20April%2030,%202021) Compares the Industrial Products segment's net sales and earnings before income taxes for the nine-month periods, detailing growth drivers and profitability impacts Industrial Products Net Sales (Nine Months Ended April 30, Millions $): | Business Unit | 2022 | 2021 | Change (Millions $) | Change (%) | | :------------ | :--- | :--- | :------------------ | :--------- | | Industrial Filtration Solutions (IFS) | 515.2 | 449.3 | 65.9 | 14.7% | | Gas Turbine Systems | 76.7 | 71.9 | 4.8 | 6.7% | | Special Applications | 142.4 | 130.0 | 12.4 | 9.5% | | **Total Industrial Products segment** | **734.3** | **651.2** | **83.1** | **12.8%** | - Excluding foreign currency translation, net sales increased **14.9%**[93](index=93&type=chunk) - IFS growth primarily in the U.S. (Industrial Air Filtration) and EMEA (IAF and Process Filtration)[93](index=93&type=chunk) - Earnings before income taxes were **$114.6 million** (**15.6% of net sales**), up from 14.0% in prior year, driven by pricing and higher volume, partially offset by increased raw material, freight, and labor costs[93](index=93&type=chunk) - Prior fiscal year earnings were negatively impacted by **$6.5 million** in restructuring charges that did not repeat[93](index=93&type=chunk) [Liquidity, Capital Resources and Financial Condition](index=24&type=section&id=Liquidity,%20Capital%20Resources%20and%20Financial%20Condition) Assesses the company's ability to generate and manage cash, including operating, investing, and financing activities, and its overall financial health [Liquidity](index=24&type=section&id=Liquidity) Discusses the company's primary sources of liquidity and its assessment of future cash requirements - Primary source of liquidity is cash flow from operating activities, supplemented by available credit facilities[95](index=95&type=chunk) - Believes available liquidity will be sufficient to meet cash requirements for the next 12 months[99](index=99&type=chunk) [Operating Activities](index=24&type=section&id=Operating%20Activities) Analyzes cash flows from operating activities, highlighting factors influencing changes in net cash provided Cash Provided by Operating Activities (Nine Months Ended April 30, Millions $): | Metric | 2022 | 2021 | Change (Millions $) | | :----- | :--- | :--- | :------------------ | | Net cash provided by operating activities | 143.9 | 305.6 | (161.7) | - Decrease driven by increased inventory (mitigating supply chain disruptions) and higher incentive compensation paid, partially offset by higher earnings[96](index=96&type=chunk) [Investing Activities](index=24&type=section&id=Investing%20Activities) Examines cash flows from investing activities, including acquisitions and capital expenditures Cash Used in Investing Activities (Nine Months Ended April 30, Millions $): | Metric | 2022 | 2021 | Change (Millions $) | | :----- | :--- | :--- | :------------------ | | Net cash used in investing activities | (105.8) | (40.2) | (65.6) | - Increase due to **$49.0 million** for Solaris and PAIS acquisitions and higher capital investments for capacity expansion, new programs, and cost reduction[97](index=97&type=chunk) [Financing Activities](index=24&type=section&id=Financing%20Activities) Reviews cash flows from financing activities, such as debt issuance, repayments, share repurchases, and dividends Cash Used in Financing Activities (Nine Months Ended April 30, Millions $): | Metric | 2022 | 2021 | Change (Millions $) | | :----- | :--- | :--- | :------------------ | | Net cash used in financing activities | (82.8) | (295.5) | 212.7 | - Decrease in cash usage driven by **$249.3 million** proceeds from new debt issuance, partially offset by lower debt payments and higher share repurchases (**$153.7 million** in 2022 vs. $78.7 million in 2021)[98](index=98&type=chunk) - Dividends paid were **$81.8 million** in 2022 and **$79.5 million** in 2021[98](index=98&type=chunk) [Capital Resources and Financial Condition](index=24&type=section&id=Capital%20Resources%20and%20Financial%20Condition) Presents key financial position metrics, including cash, receivables, inventories, debt, and capitalization ratios Key Financial Position Metrics (Millions $): | Metric | April 30, 2022 | July 31, 2021 | Change (Millions $) | | :----- | :------------- | :------------ | :------------------ | | Cash and cash equivalents | 168.7 | 222.8 | (54.1) | | Accounts receivable, net | 585.5 | 552.7 | 32.8 | | Inventories, net | 510.7 | 384.5 | 126.2 | | Accounts payable | 335.8 | 293.9 | 41.9 | | Long-term debt outstanding | 607.2 | 461.0 | 146.2 | - Days sales outstanding decreased to **59 days** (from 65 days), while inventory turns decreased to **4.8 times** (from 5.4 times)[99](index=99&type=chunk) - Days payable outstanding remained consistent at **50 days**[99](index=99&type=chunk) - Total debt (including short-term borrowings) represented **36.2% of total capitalization** as of April 30, 2022, up from 30.9% as of July 31, 2021[101](index=101&type=chunk) - The company has **$637.0 million** available for borrowing under existing credit facilities, including **$407.5 million** on its revolving credit facility[99](index=99&type=chunk) [New Accounting Standards Not Yet Adopted](index=25&type=section&id=New%20Accounting%20Standards%20Not%20Yet%20Adopted) Refers to the relevant note for details on new accounting standards under evaluation - Refer to Note 1 for details on new accounting standards not yet adopted[102](index=102&type=chunk) [Critical Accounting Policies](index=25&type=section&id=Critical%20Accounting%20Policies) States that there have been no material changes to the company's critical accounting policies - No material changes to critical accounting policies since the fiscal year ended July 31, 2021, Annual Report on Form 10-K[103](index=103&type=chunk) [Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995](index=25&type=section&id=Safe%20Harbor%20Statement%20Under%20the%20Private%20Securities%20Litigation%20Reform%20Act%20of%201995) Provides a cautionary statement regarding forward-looking information and outlines key risk factors - Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical results or anticipated outcomes[104](index=104&type=chunk) - Key risk factors include global operations challenges, impacts of economic/political conditions (e.g., Russia-Ukraine conflict), supply chain disruptions, inflation, inability to attract/retain personnel, competitive markets, and foreign currency fluctuations[104](index=104&type=chunk) - The company undertakes no obligation to publicly update or revise forward-looking statements unless required by law[104](index=104&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from foreign currency exchange rates, interest rates, and commodity prices, which it manages through various strategies including derivative instruments and supply arrangements [Foreign Currency Exchange Rates](index=25&type=section&id=Foreign%20Currency%20Exchange%20Rates) Explains the company's exposure to foreign currency risk and the impact of exchange rate fluctuations on financial results - Significant assets and operations outside the U.S. expose the company to foreign currency gains and losses[105](index=105&type=chunk) - A stronger U.S. dollar negatively impacted international net sales by **$37.0 million** and net earnings by **$4.8 million** for the nine months ended April 30, 2022[107](index=107&type=chunk) [Derivative Fair Value Measurements](index=26&type=section&id=Derivative%20Fair%20Value%20Measurements) Describes the company's use of derivative instruments for managing foreign currency risk, not for speculative purposes - Uses derivative instruments (forward foreign currency exchange contracts, net investment hedges) to manage foreign currency risk, not for trading or speculative purposes[108](index=108&type=chunk) [Forward Foreign Currency Exchange Contracts](index=26&type=section&id=Forward%20Foreign%20Currency%20Exchange%20Contracts) Details the use of forward currency exchange contracts to mitigate volatility from foreign-denominated transactions - Uses forward currency exchange contracts to manage volatility from foreign-denominated purchases and sales, with contracts generally maturing in 12 months or less[109](index=109&type=chunk) [Net Investment Hedges](index=26&type=section&id=Net%20Investment%20Hedges) Explains the company's use of cross-currency swap agreements to hedge foreign currency exposure for European operations - Uses fixed-to-fixed cross-currency swap agreements to hedge foreign currency exposure for European operations[110](index=110&type=chunk) - Total notional amount of net investment hedges was **€80 million** (**$88.8 million**) as of April 30, 2022[110](index=110&type=chunk) - A hypothetical **10% appreciation** of the U.S. dollar against the Euro would result in an **$8.0 million net gain** in the fair value of these contracts[110](index=110&type=chunk) [Interest Rates](index=26&type=section&id=Interest%20Rates) Outlines the company's exposure to interest rate risk from variable-rate debt and the potential impact of rate changes - Exposure to market risk for changes in interest rates primarily relates to variable-rate debt obligations[111](index=111&type=chunk) - As of April 30, 2022, variable-rate debt included **$85.0 million** on revolving credit facility, **€80.0 million** (**$84.4 million**) term loan, and **¥2.0 billion** (**$15.4 million**) senior notes, plus **$31.3 million** in short-term borrowings[111](index=111&type=chunk) - A hypothetical **0.5 percentage point increase** in short-term interest rates would increase interest expense by approximately **$0.8 million** for the nine months ended April 30, 2022[111](index=111&type=chunk) [Commodity Prices](index=26&type=section&id=Commodity%20Prices) Addresses the market risk associated with fluctuating commodity raw material prices and the company's mitigation strategies - Exposed to market risk from fluctuating prices of commodity raw materials, including steel, filter media, and petrochemical-based products[112](index=112&type=chunk) - Mitigates risk through selective supply arrangements, price increases to customers, and cost reduction initiatives (material substitution, process improvement, product redesigns)[112](index=112&type=chunk) [Chinese Notes](index=27&type=section&id=Chinese%20Notes) Reports on the acceptance of bankers' acceptance notes by Chinese subsidiaries and their associated financial details - Chinese subsidiaries accept bankers' acceptance notes from customers, with maturity dates no more than 180 days[114](index=114&type=chunk) Chinese Bankers' Acceptance Notes (Millions $): | Metric | April 30, 2022 | July 31, 2021 | | :----- | :------------- | :------------ | | Bankers' acceptance notes | 6.4 | 14.1 | [Item 4. Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of April 30, 2022, and there were no material changes to internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=27&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) States management's conclusion on the effectiveness of disclosure controls and procedures - CEO and CFO concluded that disclosure controls and procedures were effective as of April 30, 2022[115](index=115&type=chunk) - Controls are designed to ensure information required for SEC reports is recorded, processed, summarized, and reported timely[115](index=115&type=chunk) [Changes in Internal Control Over Financial Reporting](index=27&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) Confirms that no material changes occurred in internal control over financial reporting during the quarter - No material changes to internal control over financial reporting occurred during the fiscal quarter ended April 30, 2022[116](index=116&type=chunk) [PART II. OTHER INFORMATION](index=27&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) The company records provisions for probable and estimable liabilities related to claims and litigation, which were not material to its financial position, results of operations, or liquidity - Provisions for claims and litigation are recorded when probable and estimable, and were not material to the company's financial position, results of operations, or liquidity[118](index=118&type=chunk) - It is considered remote that the settlement of identified claims or litigation will materially exceed accrued amounts[118](index=118&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) The company's global operations involve inherent risks and uncertainties that could adversely affect its performance or financial condition, as detailed in its Annual Report on Form 10-K for fiscal year ended July 31, 2021 - Inherent risks and uncertainties in global operations could adversely affect operating performance or financial condition[119](index=119&type=chunk) - Refer to the "Risk Factors" section in the Annual Report on Form 10-K for the fiscal year ended July 31, 2021, for a detailed outline of material risks[119](index=119&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=28&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's share repurchase activities during the quarter, showing the number of shares bought back and the remaining authorization under its plan [Repurchases of Equity Securities](index=28&type=section&id=Repurchases%20of%20Equity%20Securities) Details the company's share repurchase activities, including the number of shares bought back and remaining authorization Repurchases of Equity Securities (Three Months Ended April 30, 2022): | Period | Total Number of Shares Purchased | Average Price Paid per Share ($) | Maximum Number of Shares that May Still Be Purchased Under the Plans or Programs | | :----- | :------------------------------- | :------------------------------- | :------------------------------------------------------------------------------- | | February 1 - February 28, 2022 | 218,994 | 52.52 | 6,274,264 | | March 1 - March 31, 2022 | 517,448 | 51.29 | 5,756,816 | | April 1 - April 30, 2022 | — | — | 5,756,816 | | **Total** | **736,442** | **51.65** | **5,756,816** | - As of April 30, 2022, the company had remaining authorization to repurchase **5.8 million shares**[121](index=121&type=chunk) [Item 3. Defaults Upon Senior Securities](index=28&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the company - This item is not applicable to the company[121](index=121&type=chunk) [Item 4. Mine Safety Disclosures](index=28&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable to the company[121](index=121&type=chunk) [Item 5. Other Information](index=28&type=section&id=Item%205.%20Other%20Information) This item is not applicable to the company - This item is not applicable to the company[121](index=121&type=chunk) [Item 6. Exhibits](index=28&type=section&id=Item%206.%20Exhibits) Lists the exhibits filed with the Form 10-Q, including the restated certificate of incorporation, amended bylaws, certifications of officers, and XBRL financial data - Includes certifications of CEO and CFO (31-A, 31-B, 32), and financial statements formatted in iXBRL (101, 104)[122](index=122&type=chunk) [SIGNATURES](index=29&type=section&id=SIGNATURES) Certifies the submission of the report by the company's principal executive and financial officers [SIGNATURES](index=29&type=section&id=SIGNATURES) The report is signed by the Chairman, President and Chief Executive Officer, Senior Vice President and Chief Financial Officer, and Corporate Controller, certifying its submission on June 6, 2022 - Report signed by Tod E. Carpenter (Chairman, President and CEO), Scott J. Robinson (SVP and CFO), and Andrew J. Cebulla (Corporate Controller) on June 6, 2022[126](index=126&type=chunk)[127](index=127&type=chunk)

Donaldson Company, Inc. (NYSE:DCI) Q3 2022 Earnings Conference Call June 1, 2022 10:00 AM ET Company Participants Sarika Dhadwal - Director of Investor Relations Scott Robinson - Senior Vice President & Chief Financial Officer Tod Carpenter - Chairman, Chief Executive Officer & President Conference Call Participants Brian Drab - William Blair Rob Mason - Baird Adam Farley - Stifel Operator Good morning. My name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone t ...

Financial Data and Key Metrics Changes - The company achieved sales of $803 million, an 18% increase year-over-year, with pricing contributing approximately 6% to this growth [4][9] - Earnings per share (EPS) rose by 30% to $0.57, or 10% on an adjusted basis [4][16] - Operating income increased by 26%, with operating margin at 11.9%, reflecting a 70 basis point increase [16][19] - Gross margin pressure was significant due to increased costs in materials, freight, and labor, leading to a revised gross margin outlook down 100 to 150 basis points [17][26] Business Line Data and Key Metrics Changes - Engine segment sales reached $554 million, up 20%, with aftermarket sales increasing by 21% to $398 million [9][10] - Industrial segment sales grew by 15% to $248 million, with Industrial Filtration Solutions (IFS) sales increasing by 14% [12][13] - Aerospace and Defense sales were up 30% to $27 million, benefiting from a strengthening commercial aerospace industry [12] Market Data and Key Metrics Changes - Engine sales in China decreased by approximately 5%, following a 40% increase the previous year [11] - On-Road sales were $33 million, reflecting a 70 basis point decrease from the prior year, primarily due to the discontinuation of a product line [10] - The company noted that sales to Eastern Europe, including Ukraine, Russia, and Belarus, account for less than 2% of total sales [15] Company Strategy and Development Direction - The company is focusing on capacity expansion in North America, China, and Poland, and is investing in R&D to meet future filtration needs [6][31] - The company is pursuing M&A activity, with recent acquisitions aimed at enhancing capabilities in the food and beverage market [7][33] - A commitment to ESG and diversity initiatives has been emphasized, with new leadership in diversity, equity, and inclusion [33] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing macroeconomic headwinds impacting gross margins, including inflation and supply chain disruptions [8][26] - The company raised its fiscal 2022 sales guidance to a range of 11% to 15%, driven by strong first-half results and ongoing pricing actions [22][28] - Management expressed confidence in achieving a stronger second half compared to the first half, despite challenges [8][28] Other Important Information - The company upgraded its global ERP system, which is expected to support growth plans [29] - Capital expenditures for the quarter were $15 million, with a commitment to returning capital to shareholders through dividends and share repurchases [21] Q&A Session Summary Question: How much of the top-line lift is driven by price? - The second quarter had a price impact of approximately 6%, with volume and FX contributing 12% for a total revenue increase of 18% [36] Question: What is the impact of the conflict in Ukraine on strategy? - The company is monitoring the situation closely and will make strategic decisions as more information becomes available [38] Question: What was the growth rate of the Advanced and Accelerate portfolio? - The portfolio grew by 20% for the quarter, representing about 50% of the business [39] Question: How confident is the company in sequential margin improvement? - Management expressed confidence in improving gross margins as price increases are layered in and operational challenges decrease [42][43] Question: What is the update on the Solaris acquisition? - Integration is progressing well, with tangible opportunities in food and beverage and biopharmaceutical markets [45] Question: How are aftermarket sales performing? - Aftermarket sales are strong across various regions, with the only weakness noted in China [47] Question: Is energy a significant headwind? - Yes, energy costs are contributing to overall cost increases alongside freight and labor [50][51] Question: Are customers showing signs of pricing fatigue? - There is a general fatigue regarding pricing actions, but customers understand the necessity of these increases [52] Question: What is the outlook for free cash flow conversion? - The company maintains a free cash flow conversion estimate of 70% to 80%, despite challenges from increasing working capital needs [54][56] Question: What is the status of PowerCore sales growth? - PowerCore sales grew by 31% overall, with first-fit sales up 15% and replacement sales up 36% [72]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _____________________________________________________________ _____________________________________________________________ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ 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 JANUARY 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHAN ...

Financial Performance - Net sales for the three months ended October 31, 2021, were $760.9 million, an increase of $124.3 million, or 19.5%, compared to $636.6 million for the same period in 2020[72]. - Gross profit for the three months ended October 31, 2021, was $257.0 million, with a gross margin of 33.8%, down from 35.0% in the prior year due to increased raw material and labor costs[74]. - Net earnings for the three months ended October 31, 2021, were $77.1 million, an increase of $15.2 million, or 24.4%, compared to $61.9 million in the same period in 2020[78]. - The effective tax rate for the three months ended October 31, 2021, was 25.9%, up from 24.7% in the prior year, primarily due to a reduction in net discrete tax benefits[77]. Segment Performance - The Engine Products segment saw a net sales increase of $91.0 million, or 20.9%, while the Industrial Products segment increased by $33.3 million, or 16.6%[80]. - The Engine Products segment's earnings before income taxes were $72.3 million, representing 13.7% of net sales, a slight decrease from 13.9% in the previous year[82]. - The Industrial Products segment reported earnings before income taxes of $38.3 million, a 39.3% increase compared to $27.5 million in the same period last year[82]. - Net sales of Industrial Filtration Solutions (IFS) were $165.5 million, an increase of 22.0% compared to the same period in 2020[84]. - Net sales of Gas Turbine Systems (GTS) were $16.6 million, a decrease of 27.8% compared to the same period in 2020[84]. - Net sales of Special Applications were $51.6 million, an increase of 23.3% compared to the same period in 2020[84]. - Earnings before income taxes for the Industrial Products segment were $38.3 million, or 16.4% of net sales, up from 13.7% in the same period last year[84]. Operating Expenses and Cash Flow - Operating expenses increased by $14.0 million, or 10.4%, totaling $149.5 million, but decreased as a percentage of net sales from 21.3% to 19.7%[75]. - Cash provided by operating activities was $42.9 million, a decrease of $86.0 million compared to $128.9 million for the same period in 2020[86]. - Cash used in investing activities was $18.3 million, a slight decrease from $18.8 million in the same period last year[87]. - Dividends paid were $27.4 million, compared to $26.6 million in the same period last year[88]. - Share repurchases increased significantly to $102.9 million from $15.6 million in the same period last year[88]. Debt and Cash Position - Cash and cash equivalents as of October 31, 2021, were $200.8 million, down from $222.8 million as of July 31, 2021[90]. - Long-term debt outstanding increased to $548.1 million from $461.0 million as of July 31, 2021[90]. Challenges and Expectations - Supply chain disruptions and inflation have negatively impacted production speed and profit margins, with ongoing challenges expected throughout fiscal 2022[71]. - The company expects approximately $8 million in annualized savings from restructuring activities initiated in the second quarter of fiscal 2021[79].

Donaldson Company, Inc. (NYSE:DCI) Q1 2022 Earnings Conference Call December 1, 2021 10:00 AM ET Company Participants Sarika Dhadwal - Director, IR Tod Carpenter - Chairman, President & CEO Scott Robinson - SVP & CFO Conference Call Participants Brian Drab - William Blair Dillon Cumming - Morgan Stanley Robert Mason - Robert Baird Daniel Rizzo - Jefferies Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are desi ...

Part I [Business](index=3&type=section&id=Item%201.%20Business) Donaldson Company, Inc. is a global manufacturer of filtration systems, operating through Engine and Industrial Products segments, serving diverse markets with business seasonality - The company operates through two primary segments: Engine Products and Industrial Products, selling to OEMs, distributors, and end-users across various global markets[7](index=7&type=chunk) - Business seasonality is influenced by the construction and agricultural industries, leading to stronger performance in the second half of the fiscal year. The first half is also impacted by more holiday periods and customer plant closures[9](index=9&type=chunk) Backlog Orders (as of July 31) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Backlog (expected within 90 days) | $626.0 million | $362.4 million | | Engine Products Segment Increase | 84.8% | - | | Industrial Products Segment Increase | 47.4% | - | Research and Development Expenses | Fiscal Year | R&D Expense (millions) | % of Net Sales | | :--- | :--- | :--- | | 2021 | $67.8 | 2.4% | | 2020 | $61.2 | 2.4% | | 2019 | $62.3 | 2.2% | - As of July 31, 2021, the company had approximately **13,100** full-time employees, with **62%** in production-related roles[16](index=16&type=chunk) [Risk Factors](index=6&type=section&id=Item%201A.%20Risk%20Factors) The company faces macroeconomic, operational, cybersecurity, legal, and financial risks, including global operations challenges, supply chain disruptions, and technological changes - Macroeconomic and Geopolitical Risks: The company's global operations are subject to risks from political events, tariffs, trade barriers, and varying legal and regulatory requirements[28](index=28&type=chunk) - COVID-19 Pandemic Impact: The pandemic has caused volatility in product demand and supply chain constraints, leading to difficulties in meeting increased demand within normal delivery timeframes[28](index=28&type=chunk) - Operational Risks: Key operational risks include supply chain disruptions leading to material cost inflation, challenges in attracting and retaining qualified personnel, and the complexity of manufacturing operations which may hinder the ability to meet fluctuating customer demand[31](index=31&type=chunk)[32](index=32&type=chunk) - Competition and Technology Risks: The company operates in highly competitive markets and faces risks from disruptive technologies, such as the electrification of equipment, which could reduce demand for its traditional diesel engine products[35](index=35&type=chunk)[36](index=36&type=chunk) - Cybersecurity Risks: The company faces increasing frequency and sophistication of information technology security threats, which could lead to compromise of confidential data, production downtimes, and operational disruptions[40](index=40&type=chunk) - Financial Risks: The company is exposed to unfavorable fluctuations in foreign currency exchange rates, potential disruptions in credit markets affecting access to financing, and changes in effective tax rates across various jurisdictions[45](index=45&type=chunk)[46](index=46&type=chunk) [Unresolved Staff Comments](index=11&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments from the SEC - There are no unresolved staff comments[48](index=48&type=chunk) [Properties](index=11&type=section&id=Item%202.%20Properties) The company's corporate headquarters are in Minneapolis, Minnesota, with global administrative, manufacturing, and distribution facilities - Corporate headquarters and research facilities are in Minneapolis, Minnesota, with numerous other manufacturing and distribution properties located worldwide[49](index=49&type=chunk) [Legal Proceedings](index=11&type=section&id=Item%203.%20Legal%20Proceedings) The company has adequate provisions for legal proceedings, with no material excess impact expected from settlements beyond accrued amounts - Recorded liabilities for legal proceedings are not material to the company's financial position, and it is considered remote that settlements will materially exceed accrued amounts[50](index=50&type=chunk) [Mine Safety Disclosures](index=11&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[51](index=51&type=chunk) [Information About Our Executive Officers](index=11&type=section&id=Information%20About%20Our%20Executive%20Officers) This section details biographical information, positions, and professional history for the company's executive officers as of August 31, 2021 - The report lists the names, ages, positions, and business experience of eight executive officers, including Chairman, President and CEO Tod E. Carpenter and SVP and CFO Scott J. Robinson[52](index=52&type=chunk)[54](index=54&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=12&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE, with over 1 million shares repurchased in Q4 FY2021, and a five-year return underperforming market indices Share Repurchases (Q4 FY2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | May 2021 | 300,000 | $62.54 | | June 2021 | 332,171 | $61.86 | | July 2021 | 382,661 | $64.81 | | **Total** | **1,014,832** | **$63.17** | - As of July 31, 2021, the company has remaining authorization to repurchase **8.3 million** shares under its current plan[58](index=58&type=chunk) - Over the five fiscal years from 2016 to 2021, the cumulative total return on the company's common stock was **98.43%**, compared to **122.51%** for the S&P 500 Stock Index and **124.99%** for the S&P Industrial Machinery Index[60](index=60&type=chunk)[61](index=61&type=chunk) [Selected Financial Data](index=13&type=section&id=Item%206.%20Selected%20Financial%20Data) This section is reserved and contains no information - This item is reserved[62](index=62&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=13&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) FY2021 saw net sales increase by **10.5%** to **$2.85 billion** and net earnings grow by **11.6%** to **$286.9 million**, driven by strong demand despite supply chain and inflation challenges [Consolidated Results of Operations](index=14&type=section&id=Consolidated%20Results%20of%20Operations) FY2021 net sales increased **10.5%** to **$2,853.9 million** and net earnings rose **11.6%** to **$286.9 million**, driven by economic recovery and foreign currency translation - The company is experiencing supply chain disruptions and inflationary pressures on raw materials and operating expenses, which are expected to continue into fiscal 2022[68](index=68&type=chunk)[69](index=69&type=chunk) Consolidated Results of Operations (in millions, except EPS) | Metric | FY 2021 | FY 2020 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,853.9 | $2,581.8 | 10.5% | | Gross Profit | $971.7 | $871.6 | 11.5% | | Operating Income | $384.7 | $340.1 | 13.1% | | Net Earnings | $286.9 | $257.0 | 11.6% | | Diluted EPS | $2.24 | $2.00 | 12.0% | - Foreign currency translation had a positive impact, increasing net sales by **$78.0 million** and net earnings by **$10.8 million** in fiscal 2021[75](index=75&type=chunk)[82](index=82&type=chunk) - The effective tax rate increased to **24.7%** in FY2021 from **23.3%** in FY2020, primarily due to a decrease in discrete tax benefits[81](index=81&type=chunk) [Segment Results of Operations](index=17&type=section&id=Segment%20Results%20of%20Operations) FY2021 saw Engine Products net sales increase **13.3%** to **$1,957.7 million** and Industrial Products net sales grow **4.9%** to **$896.2 million**, with both segments improving earnings Engine Products Segment Net Sales (in millions) | Product Line | FY 2021 | FY 2020 | % Change | | :--- | :--- | :--- | :--- | | Off-Road | $328.1 | $256.5 | 27.9% | | On-Road | $138.8 | $124.4 | 11.5% | | Aftermarket | $1,394.6 | $1,228.9 | 13.5% | | Aerospace & Defense | $96.2 | $117.7 | (18.3)% | | **Total** | **$1,957.7** | **$1,727.5** | **13.3%** | Industrial Products Segment Net Sales (in millions) | Product Line | FY 2021 | FY 2020 | % Change | | :--- | :--- | :--- | :--- | | Industrial Filtration Solutions | $621.9 | $581.2 | 7.0% | | Gas Turbine Systems | $96.2 | $101.6 | (5.3)% | | Special Applications | $178.1 | $171.5 | 3.8% | | **Total** | **$896.2** | **$854.3** | **4.9%** | - The company initiated restructuring activities in Q2 2021, primarily in the EMEA region, resulting in charges of **$14.8 million**. These actions are expected to generate approximately **$8 million** in annualized savings[84](index=84&type=chunk) [Liquidity and Capital Resources](index=18&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$222.8 million** in cash and **$655.2 million** in available credit, reducing total debt to **30.9%** of capitalization Cash Flow Summary (in millions) | Activity | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Net cash from Operating | $401.9 | $387.0 | | Net cash used in Investing | $(58.3) | $(128.9) | | Net cash used in Financing | $(363.3) | $(199.5) | - As of July 31, 2021, the company had **$222.8 million** in cash and cash equivalents and **$655.2 million** available for borrowing under existing credit facilities[90](index=90&type=chunk) - Total debt as a percentage of total capitalization decreased from **38.7%** in FY2020 to **30.9%** in FY2021[99](index=99&type=chunk) - In Q4 2021, the company entered into an agreement to issue **$150.0 million** in unsecured senior notes, with proceeds to be received in fiscal 2022[92](index=92&type=chunk) [Critical Accounting Policies](index=21&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies involve significant management estimates for revenue recognition, goodwill impairment, income taxes, defined benefit pension plans, and business combinations - Revenue Recognition: Estimates for variable consideration (rebates, returns) are based on historical experience and future expectations[102](index=102&type=chunk) - Goodwill: The annual impairment assessment relies on discounted cash flow models and market approaches, which use significant estimates like growth rates and discount rates[105](index=105&type=chunk) - Income Taxes: Management must estimate current and future tax exposures across multiple jurisdictions and assess the realizability of deferred tax assets[106](index=106&type=chunk) - Defined Benefit Pension Plans: Accounting for pension plans requires key estimates for discount rates, expected return on plan assets, and mortality rates[107](index=107&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=24&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company manages market risks from foreign currency, interest rates, and commodity prices using derivatives, with foreign currency positively impacting FY2021 net sales by **$78.0 million** - The company's primary market risks are foreign currency exchange rates, interest rates, and commodity prices[118](index=118&type=chunk) - In fiscal 2021, foreign currency translation increased reported net sales by **$78.0 million** and net earnings by approximately **$10.8 million**[120](index=120&type=chunk) - A hypothetical **0.5 percentage point** increase in short-term interest rates would have increased fiscal 2021 interest expense by approximately **$0.8 million**[124](index=124&type=chunk) - The company is exposed to fluctuating prices of key raw materials, including steel, filter media, and petrochemical-based products[125](index=125&type=chunk) [Financial Statements and Supplementary Data](index=27&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents management's effective internal control assertion and PricewaterhouseCoopers LLP's unqualified audit opinion on financial statements and internal controls as of July 31, 2021 - Management concluded that the company's internal control over financial reporting was effective as of July 31, 2021[129](index=129&type=chunk) - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[133](index=133&type=chunk) - The auditor identified the goodwill impairment assessment for one reporting unit within the Industrial Products segment as a critical audit matter due to the significant management judgment involved in estimating its fair value[142](index=142&type=chunk)[143](index=143&type=chunk) Key Consolidated Balance Sheet Data (in millions) | Metric | As of July 31, 2021 | As of July 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $1,244.0 | $1,096.7 | | Total Assets | $2,400.2 | $2,244.6 | | Total Current Liabilities | $606.6 | $406.8 | | Total Liabilities | $1,263.1 | $1,240.8 | | Total Stockholders' Equity | $1,137.1 | $992.9 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=63&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes or disagreements with its accountants regarding accounting principles or financial disclosure - None reported[271](index=271&type=chunk) [Controls and Procedures](index=63&type=section&id=Item%209A.%20Controls%20and%20Procedures) The CEO and CFO concluded disclosure controls and procedures were effective as of July 31, 2021, with no material changes to internal control during Q4 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year[272](index=272&type=chunk) - No material changes were made to the internal control over financial reporting during the fourth quarter of fiscal 2021[273](index=273&type=chunk) [Other Information](index=63&type=section&id=Item%209B.%20Other%20Information) No other information is reported for this item - None[273](index=273&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=63&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement and Part I of this report - Most information required for this item is incorporated by reference from the 2021 Proxy Statement[275](index=275&type=chunk) [Executive Compensation](index=63&type=section&id=Item%2011.%20Executive%20Compensation) Executive and director compensation information is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[276](index=276&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=64&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership and equity compensation plan information is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[280](index=280&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=64&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Related person transactions and director independence information is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[280](index=280&type=chunk) [Principal Accounting Fees and Services](index=64&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information on principal accounting fees and services, including audit committee pre-approval policies, is incorporated by reference from the 2021 Proxy Statement - Information is incorporated by reference from the 2021 Proxy Statement[281](index=281&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=64&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the Form 10-K report, including certifications and material contracts - This item lists all financial statements, schedules, and exhibits filed with the report, including certifications by the CEO and CFO[283](index=283&type=chunk)[287](index=287&type=chunk) [Form 10-K Summary](index=66&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has not provided a summary for this item - None[288](index=288&type=chunk)

Financial Data and Key Metrics Changes - Total sales for Q4 2021 reached $773 million, a 25% increase from the previous year, indicating strong sales momentum [8][27] - Full-year EPS was reported at $0.66, reflecting a 32% increase year-over-year, with operating income up 36% [27][28] - Operating margin for Q4 was 14.5%, an increase of 110 basis points from the prior year, primarily driven by gross margin growth [28] Business Line Data and Key Metrics Changes - Engine segment sales increased by 28%, with offroad sales up 58%, driven by first-fit businesses and new emission standards in Europe [9][10] - Onroad sales grew by 36%, with innovative products growing twice as fast as non-proprietary counterparts [12] - Industrial segment sales grew by 19.5%, with Industrial Filtration Solutions (IFS) sales up more than 23% [19] Market Data and Key Metrics Changes - In the US, onroad sales benefited from higher Class A truck production, with like-for-like growth around 35% after excluding certain products [13] - Latin America saw onroad sales triple compared to the previous year, although this was from a small base [14] - Aerospace and defense sales declined by 8%, primarily due to ongoing pressures in commercial aerospace [17] Company Strategy and Development Direction - The company aims to pursue growth opportunities in advanced and accelerate businesses while raising prices to mitigate cost increases [6][54] - Strategic initiatives include investing in process filtration, dust collection replacement parts, and engine aftermarket to drive above-market growth [55][58] - The company is focused on maintaining a strong balance sheet to capitalize on acquisition opportunities in the life sciences sector [49][56] Management's Comments on Operating Environment and Future Outlook - Management anticipates challenging conditions in the first half of fiscal 2022 due to supply chain disruptions and raw material inflation [5][36] - Despite these challenges, the company expects to deliver record levels of sales and profit in fiscal 2022 [7][24] - Management is optimistic about returning to growth in aerospace and defense and expects continued strong performance in other segments [17][38] Other Important Information - The company achieved a record cash conversion of 116% in fiscal 2021, with improved inventory turns and lower capital expenditures [35] - The company plans to repurchase about 2% of its shares in fiscal 2022, continuing its trend of annual dividend increases [34][49] - Fiscal 2022 sales are expected to grow between 5% and 10%, with specific growth projections for Engine and Industrial segments [37][39] Q&A Session Summary Question: Can you provide more detail on backlog and order rates? - Management noted that backlog is higher than desired due to supply chain difficulties, particularly in the US, and they are under pressure to hire employees to address this [64][65] Question: What is the outlook for segment margins given price-cost headwinds? - Management indicated that both segments face similar headwinds from raw material pricing, with an expected operating margin growth despite challenges [66][74] Question: What are the expectations for labor shortages and inflation? - Management acknowledged labor shortages affecting both their facilities and supply base, and they have implemented salary adjustments and recruitment incentives [77][78] Question: How does the company view opportunities for market share growth? - Management has observed some smaller competitors exiting the market, which presents opportunities for Donaldson to capture market share with its technology-based products [85] Question: What is the status of the life sciences M&A pipeline? - The company reported a robust pipeline in the life sciences sector and is actively pursuing opportunities, although specific deals cannot be predicted [92]