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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________
FORM 10-Q
_____________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2024
    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 jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 West 94th Street
Minneapolis, Minnesota 55431
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (952) 887-3131
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $5.00 par valueDCINew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 Large accelerated filerAccelerated filer
 Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of February 27, 2024, 120,369,127 shares of the registrant’s common stock, par value $5.00 per share, were outstanding.




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In millions, except per share amounts)
(Unaudited)
Three Months Ended
January 31,
Six Months Ended
January 31,
2024202320242023
Net sales$876.7 $828.3 $1,723.0 $1,675.6 
Cost of sales568.1 543.9 1,113.5 1,104.0 
Gross profit308.6 284.4 609.5 571.6 
Selling, general and administrative156.8 149.6 311.8 298.8 
Research and development22.1 18.5 43.4 37.2 
Operating expenses178.9 168.1 355.2 336.0 
Operating income129.7 116.3 254.3 235.6 
Interest expense5.6 4.6 11.1 9.2 
Other income, net(4.9)(1.6)(8.7)(3.4)
 Earnings before income taxes129.0 113.3 251.9 229.8 
Income taxes30.3 27.3 61.1 56.6 
 Net earnings $98.7 $86.0 $190.8 $173.2 
Weighted average shares – basic 120.5 121.7 120.7 122.2 
Weighted average shares – diluted122.1 123.3 122.4 123.7 
Net earnings per share – basic$0.82 $0.71 $1.58 $1.42 
Net earnings per share – diluted$0.81 $0.70 $1.56 $1.40 
See Notes to Condensed Consolidated Financial Statements.
2


DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
Three Months Ended
January 31,
Six Months Ended
January 31,
2024202320242023
Net earnings $98.7 $86.0 $190.8 $173.2 
Other comprehensive income:
Foreign currency translation gain (loss)
20.9 65.3 (16.7)25.2 
Pension liability adjustment, net of deferred taxes of $0.0, $0.3, $(0.2) and $(0.1), respectively
(0.2)(0.7)0.8 0.5 
Derivatives:
(Loss) gain on hedging derivatives, net of deferred taxes of $0.1, $1.0, $0.0 and $(0.1), respectively
(0.8)(3.1)(0.7)0.3 
Reclassification of loss on hedging derivatives to net earnings, net of taxes of $0.3, $0.9, $0.1 and $0.3, respectively
(0.8)(1.8)(0.1)(0.6)
Total derivatives(1.6)(4.9)(0.8)(0.3)
Net other comprehensive income (loss)
19.1 59.7 (16.7)25.4 
Comprehensive income $117.8 $145.7 $174.1 $198.6 
 
See Notes to Condensed Consolidated Financial Statements.
3


DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share amounts)
(Unaudited)
January 31,
2024
July 31,
2023
Assets
Current assets:
Cash and cash equivalents$193.8 $187.1 
Accounts receivable, less allowances of $5.9 and $8.3, respectively
599.3 599.7 
Inventories, net433.4 418.1 
Prepaid expenses and other current assets90.7 81.1 
Total current assets1,317.2 1,286.0 
Property, plant and equipment, net647.0 652.9 
Goodwill475.9 481.1 
Intangible assets, net179.4 188.1 
Other long-term assets164.0 162.4 
Total assets$2,783.5 $2,770.5 
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings$50.4 $34.1 
Current maturities of long-term debt211.7 125.0 
Accounts payable325.8 304.9 
Accrued employee compensation and related taxes110.3 119.4 
Deferred revenue29.7 25.3 
Income taxes payable37.1 32.3 
Dividends payable
30.1 30.4 
Other current liabilities98.4 85.0 
Total current liabilities893.5 756.4 
Long-term debt352.0 496.6 
Non-current income taxes payable40.1 56.5 
Deferred income taxes21.9 32.3 
Other long-term liabilities100.2 108.0 
Total liabilities1,407.7 1,449.8 
Stockholders’ equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized, none issued
  
Common stock, $5.00 par value, 240,000,000 shares authorized, 151,643,194 shares issued
758.2 758.2 
Additional paid-in capital24.0 24.8 
Retained earnings2,219.0 2,087.8 
Accumulated other comprehensive loss(189.2)(172.5)
Treasury stock, 31,318,617 and 30,528,696 shares, respectively, at cost
(1,436.2)(1,377.6)
Total stockholders’ equity1,375.8 1,320.7 
Total liabilities and stockholders’ equity$2,783.5 $2,770.5 
 See Notes to Condensed Consolidated Financial Statements.
4


DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Six Months Ended
January 31,
20242023
Operating Activities  
Net earnings $190.8 $173.2 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization48.9 44.8 
Deferred income taxes(10.3)(7.1)
Stock-based compensation expense14.5 13.7 
Other, net1.4 2.9 
Changes in operating assets and liabilities(20.3)(7.0)
Net cash provided by operating activities225.0 220.5 
Investing Activities
Purchases of property, plant and equipment(44.5)(57.6)
Net cash used in investing activities(44.5)(57.6)
Financing Activities
Proceeds from long-term debt35.0 40.0 
Repayments of long-term debt(88.7)(65.0)
Change in short-term borrowings16.3 0.3 
Purchase of treasury stock(86.6)(115.2)
Dividends paid(60.3)(56.2)
Exercise of stock options and other12.6 19.3 
Net cash used in financing activities(171.7)(176.8)
Effect of exchange rate changes on cash(2.1) 
Increase (decrease) in cash and cash equivalents6.7 (13.9)
Cash and cash equivalents, beginning of period187.1 193.3 
Cash and cash equivalents, end of period$193.8 $179.4 
Supplemental Cash Flow Information
Income taxes paid$85.1 $72.3 
Interest paid$11.3 $8.9 
Supplemental Disclosure of Non-Cash Operating and Investing Transactions
Accrued property, plant and equipment additions$14.5 $19.2 
Leased assets obtained in exchange for new operating lease liabilities$8.2 $10.3 

See Notes to Condensed Consolidated Financial Statements.
5


DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In millions, except per share amounts)
(Unaudited)
Three Months Ended January 31, 2024 and 2023
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Balance as of October 31, 2023$758.2 $25.6 $2,180.2 $(208.3)$(1,419.6)$1,336.1 
Net earnings98.7 98.7 
Other comprehensive income19.1 19.1 
Treasury stock acquired(33.4)(33.4)
Dividends declared ($0.50 per share)
(60.2)(60.2)
Stock compensation and other activity(1.6)0.3 16.8 15.5 
Balance as of January 31, 2024$758.2 $24.0 $2,219.0 $(189.2)$(1,436.2)$1,375.8 
Balance as of October 31, 2022$758.2 $22.2 $1,932.8 $(239.9)$(1,318.5)$1,154.8 
Net earnings86.0 86.0 
Other comprehensive income59.7 59.7 
Treasury stock acquired(69.5)(69.5)
Dividends declared ($0.46 per share)
(56.0)(56.0)
Stock compensation and other activity(2.0)— 21.2 19.2 
Balance as of January 31, 2023$758.2 $20.2 $1,962.8 $(180.2)$(1,366.8)$1,194.2 


Six Months Ended January 31, 2024 and 2023
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Balance as of July 31, 2023$758.2 $24.8 $2,087.8 $(172.5)$(1,377.6)$1,320.7 
Net earnings190.8 190.8 
Other comprehensive loss
(16.7)(16.7)
Treasury stock acquired(87.1)(87.1)
Dividends declared ($0.50 per share)
(60.1)(60.1)
Stock compensation and other activity(0.8)0.5 28.5 28.2 
Balance as of January 31, 2024$758.2 $24.0 $2,219.0 $(189.2)$(1,436.2)$1,375.8 
Balance as of July 31, 2022$758.2 $17.0 $1,845.7 $(205.6)$(1,282.1)$1,133.2 
Net earnings173.2 173.2 
Other comprehensive income
25.4 25.4 
Treasury stock acquired(115.2)(115.2)
Dividends declared ($0.46 per share)
(55.9)(55.9)
Stock compensation and other activity3.2 (0.2)30.5 33.5 
Balance as of January 31, 2023$758.2 $20.2 $1,962.8 $(180.2)$(1,366.8)$1,194.2 

See Notes to Condensed Consolidated Financial Statements.

6


DONALDSON COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of Donaldson Company, Inc. and its subsidiaries (the Company) have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States (U.S.) and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair statement of earnings, comprehensive income, financial position, cash flows and changes in stockholders’ equity have been included and are of a normal recurring nature. Operating results for the three and six months ended January 31, 2024 are not necessarily indicative of the results that may be expected for future periods. The year-end Condensed Consolidated Balance Sheet information was derived from the Company’s Audited Consolidated Financial Statements but does not include all disclosures required by GAAP. For further information, refer to the Audited Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2023.
Principles of Consolidation
The Condensed Consolidated Financial Statements include the accounts of the Company and all its majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated. The Company’s joint ventures are not majority-owned and are accounted for under the equity method.
Use of Estimates
The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amount of assets and liabilities and the disclosures regarding contingent assets and liabilities at period end and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
New Significant Accounting Standard Recently Adopted
In October 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) as if the entity had originated the contracts. The Company adopted ASU 2021-08 in the first quarter of fiscal 2024 and will apply this guidance to all future business combinations. The adoption did not have an impact on its Condensed Consolidated Financial Statements.
New Significant Accounting Standards Not Yet Adopted
The Company considers the applicability and impact of the FASB’s ASUs issued but not yet adopted.
In December 2023, FASB issued ASU No. 2023-09, Income Taxes (Topic 820), “Improvements to Income Tax Disclosures,” which enhances the transparency and decision usefulness of income tax disclosures. The guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company does not expect adoption of this standard will have a material impact on the related disclosures within its financial statements.
In November 2023, FASB issued ASU No. 2023-07, Segment Reporting (Topic 280), “Improvements to Reportable Segment Disclosures,” which improves the segment disclosures to include reportable segment’s expenses. The guidance is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company does not expect adoption of this standard will have a material impact on the related disclosures within its financial statements.
In October 2023, FASB issued ASU No. 2023-06, "Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative," which modifies the disclosure or presentation requirements of various FASB topics in the Codification. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-K becomes effective, with early adoption prohibited. The Company does not expect adoption of this standard will have a material impact on its financial statements.
7


In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair values; it also requires additional disclosures, including the nature and remaining duration of such restrictions. The guidance is effective for fiscal years beginning after December 15, 2023, with early application permitted. This ASU is applicable to the Company’s fiscal year beginning in the first quarter of fiscal 2025. The Company does not expect adoption of this standard will have a material impact on its financial statements.
Note 2. Acquisitions
Univercells Technologies (UTEC)
In the fourth quarter of fiscal 2023, the Company acquired UTEC, headquartered in Nivelles, Belgium, for cash consideration of €134.6 million, or $147.2 million, net of cash acquired. UTEC is a global producer of innovative biomanufacturing solutions for cell and gene therapy research, development and commercial manufacturing. UTEC is reported within the Company’s Life Sciences segment. The Company assigned the fair values to the net assets acquired resulting in $95.8 million for goodwill and $52.5 million for intangible assets, the amortization of which is not deductible for tax purposes. The valuation resulted in a deferred tax liability of $13.1 million and a deferred tax asset of $7.0 million. Net working capital was a net liability of $0.9 million, there were $6.6 million of other non-current assets and $0.7 million of other non-current liabilities. The purchase price allocation for this acquisition is preliminary pending the outcome of the final valuation of the net assets acquired. Net sales of UTEC were immaterial to the Consolidated Statements of Earnings for the three and six months ended January 31, 2024. Management expects to finalize the purchase accounting by the fourth quarter of fiscal 2024.
Isolere Bio, Inc. (Isolere)
In the third quarter of fiscal 2023, the Company acquired Isolere, headquartered in Durham, North Carolina, for cash consideration of $62.4 million, net of cash acquired. Isolere develops reagents and accompanying filtration processes used for the purification and streamlined manufacturing of biopharmaceuticals. Isolere is reported within the Company’s Life Sciences segment. The Company assigned the fair values to the net assets acquired resulting in $28.2 million for goodwill and $44.5 million for intangible assets, the amortization of which is not deductible for tax purposes, resulting in a deferred tax liability of $10.9 million. Net working capital was a net liability of $0.4 million, and there were $1.2 million of other non-current assets and $0.2 million other non-current liabilities. Purchase accounting was finalized in the first quarter of fiscal 2024. Net sales of Isolere were immaterial to the Condensed Consolidated Statements of Earnings for the three and six months ended January 31, 2024.
Purchase Price Summary
The components of the above acquisitions, net of cash acquired in fiscal 2023, as of each acquisition date were as follows (in millions):
2023
Intangible assets:
Technology$84.9 
Trademarks and tradenames8.2 
Customer relationships
1.2 
Non-competition agreements2.7 
Intangible assets acquired97.0 
Tangible assets, net10.4 
Assets acquired, net107.4 
Goodwill124.0 
Aggregate purchase price231.4 
Add deferred tax asset
7.0 
Less deferred tax liability(24.0)
Less cash acquired(4.8)
Acquisitions, net of cash acquired$209.6 
There have been no acquisitions in fiscal 2024.
8


Note 3. Revenue
The Company recognizes revenue on a wide range of filtration solutions sold to customers in many industries around the globe. Most of the Company’s performance obligations within customer sales contracts are for manufactured filtration systems and replacement parts. The Company also performs limited services and installation. Customer contracts may include multiple performance obligations and the transaction price is allocated to each distinct performance obligation based on its relative standalone selling price.
Revenue Disaggregation
Net sales, generally disaggregated by location where the customer’s order was placed, were as follows (in millions):
Three Months Ended
January 31,
Six Months Ended
January 31,
2024202320242023
U.S. and Canada$376.9 $346.4 $758.4 $721.7 
Europe, Middle East and Africa (EMEA)251.6 252.1 485.9 478.8 
Asia Pacific (APAC)151.0 142.4 291.1 293.0 
Latin America (LATAM)97.2 87.4 187.6 182.1 
Total net sales$876.7 $828.3 $1,723.0 $1,675.6 
See Note 18 for net sales disaggregated by segment and business unit.
Contract Assets and Liabilities
The satisfaction of performance obligations and the resulting recognition of revenue typically correspond with billing of the customer. In limited circumstances, the customer may be billed at a time later than when revenue is recognized, resulting in contract assets, which are reported in other current assets on the Condensed Consolidated Balance Sheets. Contract assets were $11.2 million and $13.3 million as of January 31, 2024 and July 31, 2023, respectively. In other limited circumstances, the customer may make a payment at a time earlier than when revenue is recognized and prior to the satisfaction of performance obligations, resulting in contract liabilities, which are reported in deferred revenue on the Condensed Consolidated Balance Sheets. Contract liabilities were $29.7 million and $25.3 million as of January 31, 2024 and July 31, 2023, respectively.
The Company will recognize revenue in future periods related to remaining performance obligations for certain open contracts. Generally, these contracts have terms of one year or less. The amount of revenue related to unsatisfied performance obligations in which the original duration of the contract is greater than one year is not significant. None of the Company’s contracts contained a significant financing component.
Note 4. Inventories, Net
The components of inventories, net were as follows (in millions):
January 31,
2024
July 31,
2023
Raw materials$160.9 $155.1 
Work in process57.3 50.9 
Finished products215.2 212.1 
Total inventories, net$433.4 $418.1 
Note 5. Property, Plant and Equipment, Net
The components of property, plant and equipment, net were as follows (in millions):
January 31,
2024
July 31,
2023
Land$29.2 $29.3 
Buildings444.8 430.8 
Machinery and equipment1,023.7 989.0 
Computer software142.7 142.0 
Construction in progress81.5 107.7 
Less accumulated depreciation(1,074.9)(1,045.9)
Total property, plant and equipment, net$647.0 $652.9 
9


Note 6. Goodwill and Intangible Assets
Goodwill
The Company allocates goodwill to reporting units within its Mobile Solutions, Industrial Solutions and Life Sciences segments. There were no dispositions or impairment charges recorded during the three and six months ended January 31, 2024 and 2023. Goodwill is assessed for impairment annually during the third quarter of the fiscal year, or more frequently if events or changes in circumstances indicate the asset may be impaired. The Company performed its annual impairment assessment during the third quarter of fiscal 2023 and did not record any impairment as a result of this assessment.
Goodwill by reportable segment was as follows (in millions):
Mobile
Solutions Segment
Industrial
Solutions Segment
Life Sciences Segment
Total
Balance as of July 31, 2023
$25.5 $289.1 $166.5 $481.1 
Purchase price adjustments
  (1.1)(1.1)
Foreign currency translation(0.1)(1.8)(2.2)(4.1)
Balance as of January 31, 2024$25.4 $287.3 $163.2 $475.9 
Intangible Assets
Intangible assets preliminarily recognized from the UTEC acquisition were $52.5 million, of which $43.2 million was technology with an 18 year useful life, $6.7 million was trademarks with a 10 year useful life, $1.4 million was non-competition agreements with a 2 year useful life and $1.2 million was customer relationships with a 10 year useful life.
There was a foreign currency translation gain of $1.5 million and loss of $1.7 million for the three and six months ended January 31, 2024, respectively, and gain of $3.8 million and a gain of $1.7 million for the three and six months ended January 31, 2023, respectively.
10


Intangible asset classes were as follows (in millions):
January 31, 2024
Weighted Amortizable Life (in Years)Gross Carrying AmountAccumulated AmortizationNet
Customer relationships10.4$107.2 $(67.7)$39.5 
Patents18.433.4 (7.0)26.4 
Trademarks8.615.9 (4.6)11.3 
Technology16.8115.7 (16.1)99.6 
Non-compete agreements2.83.9 (1.3)2.6 
Total intangible assets$276.1 $(96.7)$179.4 

July 31, 2023
Weighted Amortizable Life (in Years)Gross Carrying AmountAccumulated AmortizationNet
Customer relationships10.8$107.8 $(65.6)$42.2 
Patents18.933.4 (6.3)27.1 
Trademarks9.015.9 (3.9)12.0 
Technology17.2116.3 (12.9)103.4 
Non-compete agreements3.14.0(0.6)3.4 
Total intangible assets$277.4 $(89.3)$188.1 
Intangible asset amortization expense was $3.8 million and $7.8 million for the three and six months ended January 31, 2024, respectively, and was $2.5 million and $5.1 million for the three and six months ended January 31, 2023, respectively. Amortization expense is included in selling, general and administrative expenses in the Condensed Consolidated Statements of Earnings.
Note 7. Long-Term Debt
As of January 31, 2024, there was $452.5 million available and $40.0 million outstanding on the Company’s $500.0 million unsecured revolving credit facility that expires on May 21, 2026.
Certain debt agreements contain financial covenants related to interest coverage and leverage ratios, as well as other non-financial covenants. As of January 31, 2024, the Company was in compliance with all such covenants.
Note 8. Income Taxes
The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The U.S. Internal Revenue Service has completed examinations of the Company’s U.S. federal income tax returns through fiscal 2019. With few exceptions, the Company is no longer subject to state and foreign income tax examinations by tax authorities for years before fiscal 2018.
As of January 31, 2024, gross unrecognized tax benefits were $15.8 million and accrued interest and penalties on these unrecognized tax benefits were $2.2 million. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income taxes in the Condensed Consolidated Statements of Earnings. The Company estimates within the next 12 months it is reasonably possible its uncertain tax positions could decrease by as much as $4.0 million due to lapses in statutes of limitation. The statutes of limitation periods for the Company’s various tax jurisdictions range from two years to 10 years.
The Company believes it is remote that any adjustment necessary to the reserve for income taxes over the next 12 months will be material. However, it is possible the ultimate resolution of audits or disputes may result in a material change to the reserve for income taxes, although the quantification of such potential adjustments cannot be made at this time.
11


Note 9. Earnings Per Share
Basic net earnings per share (EPS) is computed by dividing net earnings by the weighted average number of outstanding common shares. Diluted net EPS is computed by dividing net earnings by the weighted average number of outstanding common shares and common share equivalents relating to stock options and other stock incentive plans.
Basic and diluted net EPS calculations were as follows (in millions, except per share amounts):
Three Months Ended
January 31,
Six Months Ended
January 31,
2024202320242023
Net earnings$98.7 $86.0 $190.8 $173.2 
Weighted average common shares outstanding
Weighted average common shares – basic120.5 121.7 120.7 122.2 
Dilutive impact of stock-based awards1.6 1.6 1.7 1.5 
Weighted average common shares – diluted122.1 123.3 122.4 123.7 
Net EPS – basic$0.82 $0.71 $1.58 $1.42 
Net EPS – diluted$0.81 $0.70 $1.56 $1.40 
Impact of potentially anti-dilutive stock options excluded from net EPS calculation
   1.6 
Note 10. Stockholders’ Equity
Share Repurchases
In November 2023, the Board of Directors authorized the repurchase of up to 12.0 million shares of common stock under the Company’s stock repurchase plan, replacing the Company’s previous stock repurchase plan dated May 31, 2019. This repurchase authorization is effective until terminated by the Board of Directors. During the six months ended January 31, 2024, the Company repurchased 1.4 million shares for $87.1 million. During the six months ended January 31, 2023, the Company repurchased 2.1 million shares for $115.2 million. As of January 31, 2024, the Company had remaining authorization to repurchase 11.8 million shares under the November 2023 stock repurchase plan.
Dividends
Dividends paid were 25.0 cents and 50.0 cents per common share for the three and six months ended January 31, 2024 and were 23.0 cents and 46.0 cents per common share for the three and six months ended January 31, 2023, respectively.
12


Note 11. Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss for the three months ended January 31, 2024 and 2023 were as follows (in millions):
Foreign
Currency
Translation
Adjustment
Pension
Benefits
Derivative
Financial
Instruments
Total
Balance as of October 31, 2023, net of tax$(147.2)$(66.2)$5.1 $(208.3)
Other comprehensive income (loss) before reclassifications and tax
20.9  

(0.9)20.0 
Tax benefit
  0.1 0.1 
Other comprehensive income (loss) before reclassifications, net of tax
20.9  (0.8)20.1 
Reclassifications, before tax (0.2)
(1)
(1.1)(1.3)
Tax benefit
  0.3 0.3 
Reclassifications, net of tax (0.2)(0.8)
(2)
(1.0)
Other comprehensive income (loss), net of tax
20.9 (0.2)(1.6)19.1 
Balance as of January 31, 2024, net of tax$(126.3)$(66.4)$3.5 $(189.2)
Balance as of October 31, 2022, net of tax$(183.7)$(66.3)$10.1 $(239.9)
Other comprehensive income (loss) before reclassifications and tax
65.3  

(4.1)61.2 
Tax benefit
  1.0 1.0 
Other comprehensive income (loss) before reclassifications, net of tax
65.3  (3.1)62.2 
Reclassifications, before tax (1.0)
(1)
(2.7)(3.7)
Tax benefit
 0.3 0.9 1.2 
Reclassifications, net of tax (0.7)(1.8)
(2)
(2.5)
Other comprehensive income (loss), net of tax
65.3 (0.7)(4.9)59.7 
Balance as of January 31, 2023, net of tax$(118.4)$(67.0)$5.2 $(180.2)
(1)Amounts include foreign currency translation gain of $0.6 million and $1.5 million and net amortization of prior service costs and actuarial losses of $0.4 million and $0.5 million in fiscal 2024 and 2023, respectively, included in other income, net in the Condensed Consolidated Statements of Earnings, see Note 13.
(2)Relates to designated foreign currency forward contracts that were reclassified from accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets to net sales, cost of sales and selling, general and administrative expenses in the Condensed Consolidated Statements of Earnings, see Note 14.
13


Changes in accumulated other comprehensive loss for the six months ended January 31, 2024 and 2023 were as follows (in millions):
Foreign
Currency
Translation
Adjustment
Pension
Benefits
Derivative
Financial
Instruments
Total
Balance as of July 31, 2023, net of tax$(109.6)$(67.2)$4.3 $(172.5)
Other comprehensive loss before reclassifications and tax
(16.7) (0.7)(17.4)
Tax expense    
Other comprehensive loss before reclassifications, net of tax
(16.7) (0.7)(17.4)
Reclassifications, before tax 1.0 
(1)
(0.2)0.8 
Tax (expense) benefit (0.2)0.1 (0.1)
Reclassifications, net of tax 0.8 (0.1)
(2)
0.7 
Other comprehensive (loss) income, net of tax
(16.7)0.8 (0.8)(16.7)
Balance at January 31, 2024, net of tax$(126.3)$(66.4)$3.5 $(189.2)
Balance as of July 31, 2022, net of tax$(143.6)$(67.5)$5.5 $(205.6)
Other comprehensive income before reclassifications and tax
25.2  0.4 25.6 
Tax expense
  (0.1)(0.1)
Other comprehensive income before reclassifications, net of tax
25.2  0.3 25.5 
Reclassifications, before tax 0.6 
(1)
(0.9)(0.3)
Tax (expense) benefit
 (0.1)0.3 0.2 
Reclassifications, net of tax 0.5 (0.6)
(2)
(0.1)
Other comprehensive income (loss), net of tax
25.2 0.5 (0.3)25.4 
Balance at January 31, 2023, net of tax$(118.4)$(67.0)$5.2 $(180.2)
(1)Amounts include foreign currency translation loss of $0.2 million and gain of $0.5 million and net amortization of prior service costs and actuarial losses of $0.8 million and $1.1 million in fiscal 2024 and 2023, respectively, included in other income, net in the Condensed Consolidated Statements of Earnings, see Note 13.
(2)Relates to designated foreign currency forward contracts that were reclassified from accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets to net sales, cost of sales and selling, general and administrative expenses in the Condensed Consolidated Statements of Earnings, see Note 14.
Note 12. Stock-Based Compensation
The Company recognizes compensation expense for all stock-based awards based on the grant date fair value of the award. Stock-based awards consist primarily of non-qualified stock options, performance-based awards, restricted stock awards and restricted stock units. Grants related to restricted stock awards and restricted stock units are immaterial. The Company issues treasury shares for stock options and performance-based awards.
Stock Options
The exercise price of options granted is equal to the market price of the Company’s common stock at the date of the grant. Options are generally exercisable for up to 10 years from the date of grant and vest in equal increments over three years.
Pretax stock-based compensation expense associated with options was $2.0 million and $10.5 million for the three and six months ended January 31, 2024, respectively, and was $1.8 million and $9.3 million for the three and six months ended January 31, 2023, respectively.
Fair value is calculated using the Black-Scholes option pricing model. The weighted average fair value for options granted was $18.98 and $15.62 per share during the six months ended January 31, 2024 and 2023, respectively.
14


Option activity was as follows:
OptionsWeighted
Average
Exercise Price
Balance outstanding as of July 31, 20236,777,407 $47.80 
Granted804,398 59.87 
Exercised(559,697)42.15 
Expired/forfeited(29,565)52.07 
Balance outstanding as of January 31, 20246,992,543 $49.62 
Performance-Based Awards
Performance-based awards are payable in common stock and are based on a formula that measures Company performance over a three-year period. These awards are settled after three years with payouts ranging from 0% to 200% of the target award depending on achievement.
Pretax performance-based awards expense was $1.5 million and $3.1 million for the three and six months ended January 31, 2024, respectively, and was $1.7 million and $3.5 million for the three and six months ended January 31, 2023, respectively.
Performance-based awards for non-vested activity were as follows:
Performance SharesWeighted
Average Grant
Date Fair
Value
Balance outstanding as of July 31, 2023194,761 $54.46 
Granted114,800 59.66 
Vested  
Forfeited  
Balance outstanding as of January 31, 2024309,561 $56.39 
Note 13. Employee Benefit Plans
The Company has defined benefit pension plans for certain hourly and salaried employees. They consist of plans in the U.S., Belgium, Germany, Mexico and the United Kingdom. These plans generally provide pension benefits based on years of service and compensation level. Components of net periodic pension costs other than the service cost component are included in other income, net in the Condensed Consolidated Statements of Earnings.
Net periodic pension costs for the Company’s pension plans were as follows (in millions):
 Three Months Ended
January 31,
Six Months Ended
January 31,
 2024202320242023
Service cost$1.2 $1.6 $2.4 $3.2 
Interest cost5.1 4.2 10.2 8.3 
Expected return on assets(6.4)(6.4)(12.9)(12.7)
Prior service cost amortization 0.1  0.1 
Actuarial loss amortization0.4 0.5 0.8 1.1 
Net periodic pension costs$0.3 $ $0.5 $ 
The Company’s general funding policy is to make at least the minimum required contributions under applicable regulations, plus any additional amounts it determines to be appropriate. Future required pension plan contributions may change significantly depending on the actual rate of return on plan assets, discount rates and regulatory requirements.
15


Note 14. Derivative Instruments and Hedging
Derivative Fair Value Measurements
The Company enters into derivative instrument agreements, including foreign currency forward contracts and net investment hedges, to manage risk in connection with changes in foreign currency. The Company only enters into derivative instrument agreements with counterparties who have highly rated credit. There is risk the counterparties to derivative contracts will fail to meet their contractual obligations. In order to mitigate counterparty credit risk, the Company only enters into contracts with carefully selected financial institutions based upon their credit ratings and certain other financial factors.
Contract provisions may require the posting of collateral or settlement of the contracts for various reasons, including if the Company’s credit ratings are downgraded below its investment grade credit rating by any of the major credit agencies, or for cross default contractual provisions, if there is a failure under other financing arrangements related to payment terms or covenants. As of January 31, 2024 and July 31, 2023, no collateral was posted.
The Company does not enter into derivative instrument agreements for trading or speculative purposes. For discussion on the fair value of the Company’s derivatives, see Note 15.
Foreign Currency Forward Contracts - Cash Flow Hedges and Derivatives Not Designated as Hedging Instruments
The Company buys materials from foreign suppliers. Those transactions can be denominated in those suppliers’ local currency. The Company also sells to customers in foreign countries. Those transactions can be denominated in those customers’ local currency. Both of these transaction types can create volatility in the Company’s financial statements. The Company uses foreign currency forward contracts to manage those exposures and fluctuations. These contracts generally mature in 12 months or less, which is consistent with the forecasts of the related purchases and sales. Certain contracts are designated as cash flow hedges, whereas the remaining contracts, most of which are related to certain intercompany transactions which offset balance sheet exposure, are not designated as hedging instruments. The total notional amount of the foreign currency forward contracts designated as hedges was $53.0 million and $84.9 million as of January 31, 2024 and July 31, 2023, respectively. The total notional amount of the foreign currency forward contracts not designated as hedges was $148.0 million and $147.5 million as of January 31, 2024 and July 31, 2023, respectively.
Changes in the fair value of the Company’s designated hedges are reported in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets until the related transaction occurs, see Note 11. Designated hedges are recognized as a component of either net sales, cost of sales, selling, general and administrative expenses or other income, net in the Condensed Consolidated Statements of Earnings upon occurrence of the related hedged transaction.
Hedges and subsequent changes in the fair value of hedges that are not designated are recognized in other income, net in the Condensed Consolidated Statements of Earnings along with the related hedged transactions.
Amounts related to foreign currency forward contracts designated as hedges are expected to be reclassified into earnings during the next 12 months based upon the timing of inventory purchases and sales.
Net Investment Hedges
The Company uses fixed-to-fixed cross-currency swap agreements to hedge its exposure to adverse foreign currency exchange rate movements for its operations in Europe. The Company has elected the spot method for designating these contracts as net investment hedges.
The total notional amount of net investment hedges was €80 million, or $88.8 million, as of January 31, 2024 and July 31, 2023. The maturity dates range from 2027 to 2029.
Gains and losses resulting from a change in fair value of the net investment hedge are offset by gains and losses on the underlying foreign currency exposure and are included in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets. Amounts related to excluded components associated with the net investment hedge are expected to be reclassified into earnings in interest expense in the Condensed Consolidated Statements of Earnings through their maturity.
Cash Flows
Cash flows from derivative transactions are recorded in operating activities in the Condensed Consolidated Statements of Cash Flows.
16


Note 15. Fair Value Measurements
Fair value measurements of financial instruments are reported in one of three levels based on the lowest level of significant input used. For Level 1, inputs to the fair value measurement are quoted prices in active markets for identical assets or liabilities. For Level 2, inputs to the fair value measurement include quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. For Level 3, inputs to the fair value measurement are unobservable inputs or are based on valuation techniques.
Short-Term Financial Instruments
As of January 31, 2024 and July 31, 2023, the carrying values of cash and cash equivalents, accounts receivable, short-term borrowings and accounts payable approximate fair value because of the short-term nature of these instruments. Short-term financial instruments are classified as Level 1 in the fair value hierarchy.
Long-Term Debt
As of January 31, 2024, the estimated fair values of fixed interest rate long-term debt were $388.0 million compared to the carrying values of $425.0 million, inclusive of a current portion with a fair value of $124.5 million and carrying value of $125.0 million. As of July 31, 2023, the estimated fair values of fixed interest rate long-term debt were $378.9 million compared to the carrying values of $425.0 million. The fair values are estimated by discounting the projected cash flows using the interest rates at which similar amounts of debt could currently be borrowed. The carrying values of total variable interest rate long-term debt were $140.2 million and $198.4 million as of January 31, 2024 and July 31, 2023, respectively and approximate their fair values. Long-term debt is classified as Level 2 in the fair value hierarchy.
Equity Method Investments
The Company holds equity method investments in its joint ventures, which are included in other long-term assets on the Condensed Consolidated Balance Sheets. The aggregate carrying amount of these investments was $24.3 million and $24.4 million as of January 31, 2024 and July 31, 2023, respectively. These equity method investments are measured at fair value on a non-recurring basis. The fair value of the Company’s equity method investments has not been adjusted for the three or six months ended January 31, 2024 or 2023 as there have been no triggering events or changes in circumstance that would have had an adverse impact on the value of these investments. In the event these investments are required to be measured, they would fall within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value, as the investments are in privately-held entities.
Derivative Fair Value Measurements
The fair values of the Company’s foreign currency forward contracts and net investment hedges reflect the amounts that would be received to sell the assets or paid to transfer the liabilities in an orderly transaction between market participants at the measurement date (exit price). The fair values are based on inputs other than quoted prices that are observable for the asset or liability and are determined by standard calculations and models that use readily observable market parameters. These inputs include foreign currency exchange rates. Industry standard data providers are the primary source for forward and spot rate information for foreign currency exchange rates. The fair values of the Company’s foreign currency forward contracts and net investment hedges are classified as Level 2 in the fair value hierarchy. For discussion of the Company’s derivatives and hedging, see Note 14.
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Fair Value of Derivatives Contracts
The fair value of the Company’s derivative contracts, recorded on the Condensed Consolidated Balance Sheets, was as follows (in millions):
AssetsLiabilities
Balance Sheet LocationJanuary 31,
2024
July 31,
2023
January 31,
2024
July 31,
2023
Designated as hedging instruments
Foreign currency forward contractsOther current assets and other current liabilities$0.6 $0.6 $0.9 $0.1 
Net investment hedgesOther current assets and other long-term assets3.6 3.6   
Total designated4.2 4.2 0.9 0.1 
Not designated as hedging instruments
Foreign currency forward contractsOther current assets and other current liabilities0.6 0.7 0.3 1.4 
Total not designated0.6 0.7 0.3 1.4 
Total $4.8 $4.9 $1.2 $1.5 
Amounts related to excluded components, such as forward points, are excluded from the assessment of hedge effectiveness of net investment hedges and are expected to be reclassified into earnings throughout their maturity dates. See Note 11 for additional information on accumulated other comprehensive loss.
Fair Value of Contingent Consideration
The fair value of the contingent consideration liability is determined using a probability-weighted discounted cash flow method. This fair value measurement is based on unobservable inputs in the market and thus, represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the purchase agreement (e.g., potential payment amounts, length of measurement periods, manner of calculating any amounts due) and utilizes assumptions with regard to future financial and operational milestones, probabilities of achieving such milestones and a discount rate. Depending on the contractual terms of the purchase agreement, the probability of achieving such milestones generally represents the only significant unobservable input. The contingent consideration liability is measured at fair value each reporting period and changes in estimates of fair value are recognized in earnings.
The fair value of the Company’s contingent consideration liability that uses unobservable inputs was $26.0 million as of January 31, 2024 and $25.0 million as of July 31, 2023. The maximum potential payout of the contingent consideration as of January 31, 2024 and July 31, 2023 was $30.7 million, see Note 17.
Note 16. Guarantees
Letters of Credit
The Company has letters of credit which guarantee payment to third parties in the event the Company is in breach of contract terms as detailed in each letter of credit. The outstanding contingent liability for standby letters of credit was as follows (in millions):
January 31,
2024
July 31,
2023
Contingent liability for standby letters of credit issued under the Company’s revolving credit facility
$7.5 $7.5 
Amounts drawn for letters of credit under the Company’s revolving credit facility
$ $ 
Advanced Filtration Systems Inc. (AFSI)
The Company has an unconsolidated joint venture, AFSI, established by the Company and Caterpillar Inc. (Caterpillar) in 1986. AFSI designs and manufactures high-efficiency fluid filters used in Caterpillar’s machinery worldwide. The Company and Caterpillar equally own the shares of AFSI and both companies guarantee certain debt and banking services, including credit and debit cards, merchant processing and treasury management services, of the joint venture. The Company accounts for AFSI as an equity method investment.
18


The outstanding debt relating to AFSI, which the Company guarantees half, was $55.4 million and $59.6 million as of January 31, 2024 and July 31, 2023, respectively. AFSI has a $63.0 million revolving credit facility, which expires July 31, 2024, and an additional $17.0 million multi-currency revolving credit facility, which terminates upon notification by either AFSI or the financial institution.
Earnings from AFSI, which are recorded in other income, net in the Condensed Consolidated Statements of Earnings, were $2.5 million and $4.2 million for the three and six months ended January 31, 2024, respectively, and were $0.5 million and $1.8 million for the three and six months ended January 31, 2023, respectively.
Note 17. Commitments and Contingencies
The Company records provisions when it is probable a liability has been incurred and the amount of the loss can be reasonably estimated. Claims and litigation are reviewed quarterly and provisions are taken or adjusted to reflect the status of a particular matter. The Company believes the estimated liability in its Condensed Consolidated Financial Statements for claims or litigation is adequate and appropriate for the probable and estimable outcomes. Liabilities recorded were not material to the Company’s financial position, results of operations or liquidity. The Company believes it is remote that the settlement of any of the currently identified claims or litigation will be materially in excess of what is accrued.
Contingent Compensation and Consideration
Acquisition Agreement - Purilogics
The Company's agreement with Purilogics includes deferred payment provisions representing potential milestone payments for Purilogics’ former owners. The provisions are made up of two general types of arrangements, contingent compensation and contingent consideration. The contingent compensation arrangement is contingent on the former owner’s future employment with the Company and the related amounts are recognized over the required employment period. The contingent consideration is not contingent on employment and was recorded as purchase consideration in both other current and other long-term liabilities on the Condensed Consolidated Balance Sheets at the time of the initial acquisition based on the fair value of the estimated liability. The amounts are paid over a two- to five-year period, contingent on the achievement of certain revenue and manufacturing milestones.
The total contingent compensation arrangement liability was $1.7 million and $1.1 million as of January 31, 2024 and July 31, 2023, respectively, which was included in other long-term liabilities on the Condensed Consolidated Balance Sheets. The maximum payout of the contingent compensation arrangement upon completion of the future performance periods was $3.0 million as of January 31, 2024 and July 31, 2023, inclusive of the $1.7 million and $1.1 million accrued, respectively.
The Company primarily determines the contingent consideration liability based on the forecasted probability of achieving the respective milestones. The contingent consideration liability is measured at fair value each reporting period and changes in estimates of fair value are recognized in earnings. The total contingent consideration liability was $24.3 million and $23.2 million as of January 31, 2024 and July 31, 2023, respectively, and was included in other current and other long-term liabilities on the Condensed Consolidated Balance Sheets. The maximum payout of the contingent consideration was $29.0 million, inclusive of the $24.3 million and $23.2 million accrued as of January 31, 2024 and July 31, 2023, respectively.
Other Acquisition Agreements
For other acquisitions, there was no contingent compensation arrangement liability as of January 31, 2024, as the contingent compensation agreement was terminated. The total contingent compensation arrangement liability was $0.9 million as of July 31, 2023, which was included in other long-term liabilities on the Condensed Consolidated Balance Sheets.
The total contingent consideration liability was $1.7 million, which was included in other long-term liabilities on the Condensed Consolidated Balance Sheets, as of January 31, 2024 and July 31, 2023. The maximum payout of the contingent consideration was $1.7 million, which concludes three years from the acquisition date of November 22, 2021 and was fully accrued as of January 31, 2024 and July 31, 2023.
For additional discussion regarding the fair value of the Company’s contingent consideration liability, see Note 15.
Note 18. Segment Reporting
The Company’s reportable segments are: Mobile Solutions, Industrial Solutions and Life Sciences. The organizational structure also includes Corporate and Unallocated, which includes interest expense and certain corporate expenses determined to be non-allocable to the segments, such as restructuring charges and business development expenses. The Company determines its operating segments consistent with the manner in which it manages its operations and evaluates performance for internal review and decision-making. For the three and six months ended January 31, 2023, Corporate and Unallocated also included non-recurring charges of $9.3 million and $16.9 million, see Note 19.
19


The Mobile Solutions segment is organized based on a combination of customers and products and consists of the Off-Road, On-Road and Aftermarket business units. Within these business units, products consist of replacement filters for both air and liquid filtration applications and filtration housings for new equipment production and systems related to exhaust and emissions. Applications include air filtration systems, fuel, lube and hydraulic systems, emissions systems and sensors, indicators and monitoring systems. Mobile Solutions sells to original equipment manufacturers (OEMs) in the construction, mining, agriculture and transportation end markets and to independent distributors and OEM dealer networks.
The Industrial Solutions segment is organized based on product type and consists of the Industrial Air Filtration, Industrial Gasses, Industrial Hydraulics, Power Generation and Aerospace and Defense business units. Within our Industrial Solutions portfolio, the Company provides a wide product offering in the market to industrial customers consisting of equipment, ancillary components, replacement parts, performance monitoring and service globally, that cost-effectively enhances productivity and manufacturing efficiency. Industrial Air Filtration, Industrial Gasses and Industrial Hydraulics products consist of dust, fume and mist collectors, compressed air and industrial gasses purification systems, hydraulic and lubricated rotating filtration applications as well as gas and liquid filtration for industrial processes. Power Generation products consist of air inlet systems and filtration sold to gas compression, power generation and natural gas liquification industries. Aerospace and Defense products consist of air, fuel, lubrication and hydraulic filtration for fixed-wing and rotorcraft aerospace applications and ground defense vehicle and naval platforms. Industrial Solutions businesses sell through multiple channels which include OEMs, distributors and direct-to-consumer in some markets.
The Life Sciences segment is organized by end market, including the Bioprocessing, Food and Beverage, Medical Device, Vehicle Electrification, Microelectronics and Disk Drive business units. Our products include gas and liquid filtration bioprocessing equipment (including bioreactors, fermenters and filtration skids), bioprocessing consumables (including membrane chromatography devices, reagents and filters) and specialized air and gas filtration systems for hard disk drive, semiconductor and electric vehicle applications. Life Sciences primarily sells to large OEMs and directly to various end users requiring cell growth, separation, purification, high purity filtration and device protection.
The Company is an integrated enterprise, characterized by substantial intersegment cooperation, cost allocations and sharing of assets. Therefore, the Company does not represent that these segments, if operated independently, would report earnings before income taxes and other financial information as stated below.
Segment details were as follows (in millions):
Three Months Ended
January 31,
Six Months Ended
January 31,
2024202320242023
Net sales
Mobile Solutions$550.3 $522.5 $1,090.3 $1,077.4 
Industrial Solutions263.4 246.4 509.6 476.0 
Life Sciences63.0 59.4 123.1 122.2 
Total Company$876.7 $828.3 $1,723.0 $1,675.6 
Earnings (loss) before income taxes
Mobile Solutions$99.2 $78.6 $191.4 $158.9 
Industrial Solutions47.4 46.3 90.7 83.9 
Life Sciences(5.8)6.3 (10.0)17.1 
Corporate and unallocated(11.8)(17.9)(20.2)(30.1)
Total Company$129.0 $113.3 $251.9 $229.8 
Assets by segment were as follows (in millions):
January 31, 2024July 31, 2023
Mobile Solutions$1,276.8 $1,243.8 
Industrial Solutions792.6 788.1 
Life Sciences513.5 513.8 
Corporate and unallocated200.6 224.8 
Total assets$2,783.5 $2,770.5 
20


Net sales by business unit were as follows (in millions):
Three Months Ended
January 31,
Six Months Ended
January 31,
2024202320242023
Mobile Solutions segment
Off-Road$91.9 $106.2 $186.6 $209.8 
On-Road33.5 34.5 71.3 70.5 
Aftermarket424.9 381.8 832.4 797.1 
Total Mobile Solutions segment550.3 522.5 1,090.3 1,077.4 
Industrial Solutions segment
Industrial Filtration Solutions224.5 211.8 435.1 407.8 
Aerospace and Defense38.9 34.6 74.5 68.2 
Total Industrial Solutions segment263.4 246.4 509.6 476.0 
Life Sciences segment
Total Life Sciences segment63.0 59.4 123.1 122.2 
Total Company$876.7 $828.3 $1,723.0 $1,675.6 
Concentrations
There were no customers that accounted for over 10% of net sales for the three and six months ended January 31, 2024 or 2023. There were no customers that accounted for over 10% of gross accounts receivable as of January 31, 2024 or July 31, 2023.
Note 19. Restructuring and Other Charges
There were no material charges for restructuring or other related activities for the three and six months ended January 31, 2024.
During the first quarter of fiscal 2023, the Company announced a company-wide organizational redesign to further support the Company’s growth strategies and better serve its customers. In conjunction with the organizational redesign, the Company recorded $7.6 million of charges consisting of $4.2 million of severance charges and $3.4 million of other organizational redesign costs. These amounts were included in selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Earnings.
During the second quarter of fiscal 2023, the Company recorded additional charges of $9.3 million, consisting of $3.1 million of severance charges, $1.4 million of other organizational redesign costs and $4.8 million of costs mainly associated with the exiting of a lower-margin customer program. Of these amounts, $1.5 million were included in cost of sales and $7.8 million were included in selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Earnings.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Founded in 1915, Donaldson Company, Inc. is a global leader in technology-led filtration products and solutions, serving a broad range of industries and advanced markets. Donaldson’s diverse, skilled employees at over 150 locations, 75 of which are manufacturing and/or distribution centers, on six continents, partner with customers - from small business owners to the world’s largest original equipment manufacturer (OEM) brands - to solve complex filtration challenges. Customers choose Donaldson’s filtration solutions due to their stringent performance requirements and need for reliability.
The Company’s operating segments are Mobile Solutions, Industrial Solutions and Life Sciences. The Mobile Solutions segment is organized based on a combination of customers and products and consists of the Off-Road, On-Road and Aftermarket business units. Within these business units, products consist of replacement filters for both air and liquid filtration applications and filtration housings for new equipment production and systems related to exhaust and emissions. Applications include air filtration systems, fuel, lube and hydraulic systems, emissions systems and sensors, indicators and monitoring systems. Mobile Solutions sells to OEMs in the construction, mining, agriculture and transportation end markets and to independent distributors and OEM dealer networks.
21


The Industrial Solutions segment is organized based on product type and consists of the Industrial Air Filtration, Industrial Gasses, Industrial Hydraulics, Power Generation and Aerospace and Defense business units. Within our Industrial Solutions portfolio, the Company provides a wide product offering in the market to industrial customers consisting of equipment, ancillary components, replacement parts, performance monitoring and service globally, that cost-effectively enhances productivity and manufacturing efficiency. Industrial Air Filtration, Industrial Gasses and Industrial Hydraulics products consist of dust, fume and mist collectors, compressed air and industrial gasses purification systems, hydraulic and lubricated rotating filtration applications as well as gas and liquid filtration for industrial processes. Power Generation products consist of air inlet systems and filtration sold to gas compression, power generation and natural gas liquification industries. Aerospace and Defense products consist of air, fuel, lubrication and hydraulic filtration for fixed-wing and rotorcraft aerospace applications and ground defense vehicle and naval platforms. Industrial Solutions businesses sell through multiple channels which include OEMs, distributors and direct-to-consumer in some markets.
The Life Sciences segment is organized by end market, including the Bioprocessing, Food and Beverage, Medical Device, Vehicle Electrification, Microelectronics and Disk Drive business units. Our products include gas and liquid filtration bioprocessing equipment (including bioreactors, fermenters and filtration skids), bioprocessing consumables (including membrane chromatography devices, reagents and filters) and specialized air and gas filtration systems for hard disk drive, semiconductor and electric vehicle applications. Life Sciences primarily sells to large OEMs and directly to various end users requiring cell growth, separation, purification, high purity filtration and device protection.
The Company’s results of operations are affected by conditions in the global economic and geopolitical environment. Under most economic conditions, the Company’s diversification between its diesel engine end markets, its global end markets, its diversification through technology and its OEM and replacement parts customers has helped to limit the impact of weakness in any one product line, market or geography on the consolidated operating results of the Company.
Consolidated Results of Operations
Three months ended January 31, 2024 compared with three months ended January 31, 2023
Operating Results
Operating results were as follows (in millions, except per share amounts):
Three Months Ended January 31,
2024% of net sales2023% of net sales
Net sales$876.7 $828.3 
Cost of sales568.1 64.8 %543.9 65.7 %
Gross profit308.6 35.2 284.4 34.3 
Selling, general and administrative156.8 17.9 149.6 18.1 
Research and development22.1 2.5 18.5 2.2 
Operating expenses178.9 20.4 168.1 20.3 
Operating income129.7 14.8 116.3 14.0 
Interest expense5.6 0.6 4.6 0.6 
Other income, net(4.9)(0.5)(1.6)(0.2)
Earnings before income taxes129.0 14.7 113.3 13.7 
Income taxes30.3 3.5 27.3 3.3 
Net earnings $98.7 11.3 %$86.0 10.4 %
Net earnings per share (EPS) - diluted$0.81 $0.70 
22


Geographic Net Sales by Origination
Net sales, generally disaggregated by location where the customer’s order was received, were as follows (in millions):
Three Months Ended January 31,
2024% of net sales2023% of net sales
U.S. and Canada$376.9 43.0 %$346.4 41.8 %
Europe, Middle East and Africa (EMEA)
251.6 28.7 252.1 30.4 
Asia Pacific (APAC)151.0 17.2 142.4 17.2 
Latin America (LATAM)
97.2 11.1 87.4 10.6 
Total Company$876.7 100.0 %$828.3 100.0 %
Net Sales
Net sales for the three months ended January 31, 2024 increased $48.4 million, or 5.8%, from the three months ended January 31, 2023, reflecting higher sales in the Mobile Solutions segment of $27.8 million, or 5.3% growth, the Industrial Solutions segment of $17.0 million, or 6.9%, growth and the Life Sciences segment of $3.6 million, or 6.0% growth. Foreign currency translation increased net sales by $4.8 million compared to the three months ended January 31, 2023, reflecting increases in the Mobile Solutions, Industrial Solutions and Life Sciences segments of $2.7 million, $1.6 million and $0.5 million, respectively. During the three months ended January 31, 2024, the Company’s net sales increase was driven primarily by volume increases and higher pricing.
Gross Margin
Gross margin as a percentage of net sales for the three months ended January 31, 2024 was 35.2% compared with 34.3% for the three months ended January 31, 2023. The increase in gross margin as a percentage of net sales was primarily driven by higher pricing and lower freight and select material costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended January 31, 2024 were $156.8 million, or 17.9% of net sales, compared with $149.6 million, or 18.1% of net sales, for the three months ended January 31, 2023, an increase of $7.2 million, or 4.9%. The decrease in selling, general and administrative expenses as a percentage of net sales was primarily due to a decrease in severance and other non-recurring costs, partially offset by increased headcount and incremental expenses associated with investments in acquired Life Sciences businesses.
Research and Development Expenses
Research and development expenses for the three months ended January 31, 2024 were $22.1 million, or 2.5% of net sales, compared with $18.5 million, or 2.2% of net sales, for the three months ended January 31, 2023, primarily due to increased headcount.
Non-Operating Items
Interest expense for the three months ended January 31, 2024 was $5.6 million, compared with $4.6 million for the three months ended January 31, 2023, an increase of $1.0 million, or 20.3%. The increase reflected rising variable interest rates.
Other income, net for the three months ended January 31, 2024 was $4.9 million, compared with other income, net of $1.6 million for the three months ended January 31, 2023, an increase of $3.3 million, which was driven primarily by increases in earnings from joint ventures and lower foreign currency losses.
Income Taxes
The effective tax rate was 23.5% and 24.1% for the three months ended January 31, 2024 and 2023, respectively. The decrease in the effective tax rate was primarily due to a favorable shift in the mix of global earnings and increased foreign tax credit benefits.
Net Earnings
Net earnings for the three months ended January 31, 2024 were $98.7 million, compared with $86.0 million for the three months ended January 31, 2023, an increase of $12.7 million, or 14.8%. Diluted EPS were $0.81 for the three months ended January 31, 2024, compared with $0.70 for the three months ended January 31, 2023, an increase of $0.11, or 15.9%.
23


Six months ended January 31, 2024 compared with six months ended January 31, 2023
Operating Results
Operating results were as follows (in millions, except per share amounts):
Six Months Ended January 31,
2024% of net sales2023% of net sales
Net sales$1,723.0 $1,675.6 
Cost of sales1,113.5 64.6 %1,104.0 65.9 %
Gross profit609.5 35.4 571.6 34.1 
Selling, general and administrative311.8 18.1 298.8 17.8 
Research and development43.4 2.5 37.2 2.2 
Operating expenses355.2 20.6 336.0 20.1 
Operating income254.3 14.8 235.6 14.1 
Interest expense11.1 0.6 9.2 0.5 
Other income, net(8.7)(0.5)(3.4)(0.2)
Earnings before income taxes251.9 14.6 229.8 13.7 
Income taxes61.1 3.5 56.6