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DONALDSON Co INC

DONALDSON Co INCDCIEarnings & Financial Report

NYSE · Industrials · Industrial & Commercial Fans & Blowers & Air Purifing Equip

Donaldson Company, Inc. is a filtration company engaged in the production and marketing of filtration products used in a variety of industry sectors, including commercial/industrial, aerospace, chemical, alternative energy (windmills), food & beverage, and pharmaceuticals. Also the company's research division, located in Minneapolis, Minn., participated in defense-related projects for various military applications.

What changed in DONALDSON Co INC's 10-K — 2022 vs 2023

Top changes in DONALDSON Co INC's 2023 10-K

264 paragraphs added · 218 removed · 172 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

41 edited+49 added−18 removed10 unchanged
Organizations are supported in partnership with the Donaldson Foundation and through numerous volunteer events. 6 Available Information The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information, including amendments to those reports, available free of charge through its website at ir.donaldson.com , as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the Securities and Exchange Commission (SEC).
Organizations are supported in partnership with the Donaldson Foundation and through numerous volunteer events. 8 Available Information The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information, including amendments to those reports, available free of charge through its website at ir.donaldson.com , as soon as reasonably practicable after it electronically files such material with, or furnishes such material to, the Securities and Exchange Commission (SEC).
Diversity, Equity and Inclusion The Company values and welcomes employees’ unique views and contributions, knowing that together the global team can better understand and meet the needs of its customers and communities. The Company participates in outreach and fundraising efforts for organizations focused on diversity and supporting educational opportunities to underserved students and communities.
Diversity, Equity and Inclusion The Company values and welcomes employees’ unique views and contributions, knowing that together the global team can better understand and meet the needs of its customers and communities. The Company participates in outreach efforts for organizations focused on diversity and supporting educational opportunities to underserved students and communities.
Applications include a suction strainer to protect the pump, high pressure filters, a charge pump or transmission filter, a return-line filter prior to the reservoir and a breather filter located on the reservoir. 2 The Duramax® filter, the Company’s primary mobile hydraulics filter, is renowned for its achievement of higher pressure in a spin-on configuration, allowing it to be designed on systems where other more costly, harder-to-service options were previously used.
Applications include a suction strainer to protect the pump, high pressure filters, a charge pump or transmission filter, a return-line filter prior to the reservoir and a breather filter located on the reservoir. 3 The Duramax® filter, the Company’s primary mobile hydraulics filter, is renowned for its achievement of higher pressure in a spin-on configuration, allowing it to be designed on systems where other more costly, harder-to-service options were previously used.
In fiscal 2022, the Company did not experience any material effect on its capital expenditures, results of operations or financial condition, due to compliance with government rules regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, nor does it expect such impact during fiscal 2023.
In fiscal 2023, the Company did not experience any material effect on its capital expenditures, results of operations or financial condition due to compliance with government rules regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, nor does it expect such impact during fiscal 2024.
To help employees continue to learn and succeed in their careers, while keeping pace with a rapidly changing global marketplace, the Company provides multiple learning opportunities and programs, including online courses and customized development plans.
The Company fosters learning and growth. To help employees continue to learn and succeed in their careers, while keeping pace with a rapidly changing global marketplace, the Company provides multiple learning opportunities and programs, including online courses and customized development plans.
The principles that guide this purpose are as follows: • act with integrity - deliver on commitments and be accountable for actions; • engage and empower people - have a richly diverse and inclusive culture, and provide opportunities for people to grow, build successful careers and make meaningful contributions; • deliver for customers - understand, anticipate and prioritize customers’ needs, delivering differentiated products and solutions that enable their success; • cultivate innovation - pursue innovation in everything from continuous improvement in processes to breakthrough solutions that create value and competitive advantage; • operate safely and sustainably - committed to safety in the workplace, being good stewards of natural resources and reducing environmental impacts; and • enrich communities - share time, resources and talent to make a positive impact. 5 Culture The Company is comprised of a diverse global team.
The principles that guide this purpose are as follows: • act with integrity - deliver on commitments and be accountable for actions; • engage and empower people - have a richly diverse and inclusive culture and provide opportunities for people to grow, build successful careers and make meaningful contributions; • deliver for customers - understand, anticipate and prioritize customers’ needs, delivering differentiated products and solutions that enable their success; • cultivate innovation - pursue innovation in everything from continuous improvement in processes to breakthrough solutions that create value and competitive advantage; • operate safely and sustainably - committed to safety in the workplace, being good stewards of natural resources and reducing environmental impacts; and • enrich communities - share time, resources and talent to make a positive impact.
Technology and features are continually added, such as the Internet-of-Things technology branded as iCue™, which is being integrated into product design to further improve product performance and better connect Donaldson with its end market customers, enabling additional service opportunities. Donaldson is expanding its presence in the industrial service market.
Technology and features are continually added, such as the Internet-of-Things technology branded as iCue™, which is being integrated into product design to further improve product performance and better connect Donaldson with its end market customers, enabling additional service opportunities.
Under most economic conditions, the Company’s market diversification between its diesel engine end markets and its global end markets and 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.
Under most economic conditions, the Company’s market diversification between the regions and various end markets it serves and diversification through 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.
Emission control systems include diesel particulate filters, exhaust fluid mixers and catalytic reduction substrates to reduce emissions of particulate, nitrogen oxide and other greenhouse gases. Exhaust and emissions products support agricultural, construction and mining machinery industries.
Emission control systems include diesel particulate filters, exhaust fluid mixers and catalytic reduction substrates to reduce emissions of particulate matter, nitrogen oxides and other greenhouse gases. Emissions products support agricultural, construction and mining machinery industries, as well as transportation markets.
Seasonality Many of the Company’s end markets are generally stronger in the second half of the Company’s fiscal year. The first half of the fiscal year contains more holiday periods, which typically include more customer plant closures. Diversification The Company’s results of operations are affected by conditions in the global economic and geopolitical environment.
In addition, the first half of the fiscal year contains more holiday periods, which typically include more customer plant closures. Diversification The Company’s results of operations are affected by conditions in the global economic and geopolitical environment.
With a broad base of capabilities, cultures and perspectives, employees reflect the communities they serve. The Company promotes a collaborative workplace. By working together, the Company’s employees can better understand and meet the customers’ needs. While the global team includes filtration industry experts, every role is recognized, and individuals’ contributions have a direct impact. The Company fosters learning and growth.
Culture The Company is comprised of a diverse global team. With a broad base of capabilities, cultures and perspectives, employees reflect the communities they serve. The Company promotes a collaborative workplace. By working together, the Company’s employees can better understand and meet the customers’ needs. Every role is recognized and individuals’ contributions have a direct impact.
The Industrial Products segment’s principal competitors vary from country to country and range from large global competitors to a significant number of smaller competitors who compete in a specific geographical region or in a limited number of product applications.
The Mobile Solutions segment’s principal competitors include several large global competitors and many regional competitors, especially in the Aftermarket business. The Industrial Solutions segment’s principal competitors vary from country to country and range from large global competitors to a significant number of smaller competitors who compete in a specific geographical region or in a limited number of product applications.
Donaldson’s diverse, skilled employees at over 140 locations, 74 of which are manufacturing and distribution centers, on six continents partner with customers — from small business owners to the world’s biggest original equipment manufacturer (OEM) brands — to solve complex filtration challenges.
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.
Applications include air filtration systems, fuel and lube systems, hydraulic applications and exhaust and emissions systems and sensors, indicators and monitoring systems. Engine sells to OEMs in the construction, mining, agriculture, transportation, aerospace and defense end markets and to independent distributors, OEM dealer networks, private label accounts and large fleets.
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.
For over 100 years, the Company has been making a difference with customers, employees, investors, suppliers and communities through a collaborative and diverse workplace where every employee matters. The Company prides itself on providing innovative technologies and solutions backed by talented and dedicated employees guided by its core values.
For over 100 years, the Company has been making a difference with customers, employees, investors, suppliers and communities through a collaborative and diverse workplace where every employee matters.
Donaldson’s four regions and their contributing share of fiscal 2022 revenue are as follows: the U.S. and Canada 40.5%; Europe, Middle East and Africa (EMEA) 29.1%; Asia Pacific (APAC) 20.2%; and Latin America (LATAM) 10.2%. Below are the Company’s manufacturing and distribution centers by region. General The Company’s operating segments are Engine Products (Engine) and Industrial Products (Industrial).
Donaldson’s four regions and their contributing share of fiscal year 2023 revenue are as follows: the U.S. and Canada 42.7%; Europe, Middle East and Africa (EMEA) 29.4%; Asia Pacific (APAC) 17.7%; and Latin America (LATAM) 10.2%. Below are the Company’s manufacturing and distribution centers by region. Strategic Priorities The company has three primary strategic priorities to drive profitable growth.
In addition, Donaldson’s Synteq® DRY and Synteq® XP coalescing technology remove significantly more water in real-world conditions than current barrier or coalescing filters on the market. Fuel and lube filtration also supports agricultural, construction and mining machinery, commercial vehicles, aerospace fixed wing and rotorcraft and defense ground vehicle industries.
In addition, Donaldson’s Synteq® DRY and Synteq® XP coalescing technologies remove significantly more water in real-world conditions than current barrier or coalescing filters on the market. Fuel and lube filtration supports agricultural, construction and mining machinery and commercial vehicles. Hydraulic Hydraulic products provide filtration solutions typically for the same equipment that is filtered by fuel and lube systems.
Employment The Company attracts a qualified workforce through an inclusive and accessible recruiting process that utilizes online recruiting platforms, campus outreach, internships, recruitment vendor partners, job fairs and other recruitment tools. The Company seeks to retain employees by offering competitive wages, benefits and training opportunities, as well as promoting a safe and healthy workplace.
To help employees provide and prepare for the future, the Company provides several other financial and non-financial benefits. Employment The Company attracts a qualified workforce through an inclusive and accessible recruiting process that utilizes online recruiting platforms, campus outreach, internships, recruitment vendor partners, job fairs and other recruitment tools.
The Company believes it is a market leader within many of its product lines, specifically within its Off-Road and On-Road product lines for OEMs and in the Aftermarket business for replacement filters. The Engine Products segment’s principal competitors include several large global competitors and many regional competitors, especially in the Aftermarket business.
The Company participates in a number of highly competitive filtration markets in all segments. Donaldson believes it is a market leader within many of its product lines, specifically within its Off-Road and On-Road product lines for OEMs and in the Aftermarket business for replacement filters.
Human Capital Resources As of July 31, 2022, the Company h ad approximately 14,000 full time employees, of which 61% were in p roduction related roles. The Company’s production facilities augment their resources utilizing contingent labor.
For a discussion of the risks associated with these laws and regulations, see Part I, Item 1A, "Risk Factors." Human Capital Resources As of July 31, 2023, the Company h ad approximately 13,000 full time employees, of which 56% were in p roduction related roles. When necessary, the Company’s production facilities augment their resources utilizing contingent labor.
GTS GTS filtration components are custom-engineered air intake systems for gas turbines and industrial compressors, for both new and retrofit applications. Aftermarket filters and parts are used in a variety of applications including cartridge filters, panel and compact filters, the pulse system, inlet hood components, filter retention hardware and accessories.
Aftermarket filters and parts are used in a variety of applications including cartridge filters, panel and compact filters, pulse systems, inlet hood components, filter retention hardware and accessories. Power Generation filtration components are in power plants, oil and gas delivery systems, other industrial applications and refining and processing machinery.
Solaris designs and manufactures bioprocessing equipment, including bioreactors, fermenters and tangential flow filtration systems for use in food and beverage, biotechnology and other life sciences markets. Purilogics is headquartered in Greenville, South Carolina, and is a biotechnology company that leverages a novel technology platform for the development of membrane chromatography products.
(Solaris), headquartered in Porto Mantovano, Italy and Purlogics LLC (Purlogics) headquartered in Greenville, South Carolina. • Solaris designs and manufactures bioprocessing equipment, including bioreactors, fermenters and tangential flow filtration systems for use in pharma, food and beverage and many other applications that require bioprocess technology. • Purilogics is an early-stage biotechnology company that has developed novel and proprietary Purexa membrane chromatography products used for the purification and streamlined manufacturing of biopharmaceuticals.
The Engine segment repres ents 69.6% of n et sales, is organized based on a combination of customer and products and consists of the Off-Road, On-Road, Aftermarket and Aerospace and Defense business units. Within these business units, Engine products consist of replacement filters for both air and liquid filtration applications as well as exhaust and emissions.
The Mobile Solutions segment represents 63.4% of net sales, 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.
Customers are supported through a global network of channel partners and services centers, which provide a quality customer experience during the design, installation, use, maintenance and repair of the equipment.
Industrial Solutions Industrial Air Filtration Industrial air filtration equipment collects particles through an innovative bag house, or a cartridge style collector, which provides higher air-to-media capacity. Customers are supported through a global network of channel partners and service centers, which provide a quality customer experience during the design, installation, use, maintenance and repair of the equipment.
The Company protects its innovations arising from research and development through patent filings and owns a portfolio of issued patents, including utility and design patents. T he Company also owns various trademarks related to its products and services including Donaldson® and the turbo D logo, Ultra-Web®, PowerCore®, Downflo®, Torit®, Synt eq® XP, LifeTec®, iCue™ and Tetratex®, among others.
T he Company also owns various trademarks related to its products and services including Donaldson® and the turbo D logo, Ultra-Web®, PowerCore®, Downflo®, Torit®, Synt eq® XP, LifeTec®, iCue™ and Tetratex®, among others. No single intel lectual property right is responsible for protecting the Company’s products.
During the years ended July 31, 2022, 2021 and 2020, the Company spent $69.1 million, $67.8 million and $61.2 million, respectively, on research and development activities, which was 2.1%, 2.4% and 2.4% of net sales, respectively.
During the years ended July 31, 2023, 2022 and 2021, the Company spent $78.1 million, $69.1 million and $67.8 million, respectively, on research and development activities, which was 2.3%, 2.1% and 2.4% of net sales, respectively. 6 Intellectual Property The Company owns a broad range of intellectual property rights relating to its products and services, which it considers in the aggregate to constitute a valuable asset.
It provides a durable filtration solution in high temperature and humid environments experienced by many diesel, turbine, hybrid and other powered engines. Ultra-Web® HD media technology has a fine fiber technology to create consistent inter-fiber spacing at a microscopic level. It is used in extreme fine dust environments, such as mining machinery.
Ultra-Web® media technology delivers robust filtration in the harshest environments, such as high-temperature and humid conditions frequently encountered by diesel, turbine, hybrid and other powered engines. Our Ultra-Web® HD media technology further enhances our fine fiber performance by ensuring consistent inter-fiber spacing at a microscopic level.
For example, materials transformed in manufacturing, such as metal grinding, plasma cutting, mixing and welding, can create hazardous materials in the air, which can be collected and filtered by Donaldson’s products.
Industrial dust, fume and mist collectors and filters are used within major industries including metals, mining, transportation, chemicals, food and beverage, pharmaceuticals and construction materials. For example, materials transformed in manufacturing, such as metal grinding, plasma cutting, mixing and welding, can create air contamination that can inhibit the production environment, which can be collected and filtered by Donaldson’s products.
The information contained on the Company’s website is not incorporated by reference into this Annual Report and should not be considered as part of this report.
The information contained on the Company’s website is not incorporated by reference into this Annual Report and should not be considered as part of this report. Executive Officers Our executive officers of the Company as of August 31, 2023 were as follows: Name Age Positions and Offices Held First Calendar Year Appointed as an Executive Officer Amy C.
Raw Materials The principal raw materials the Company uses are steel, filter media and petrochemical-based products including plastic, rubber and adhesive products. Purchased raw materials represent approximately 70% of the Company’s cost of sales. The Company continues to experience supply chain disruptions, including global logistics and labor challenges and constrained supplies of steel, petrochemical products and filter media.
The Life Sciences segment’s principal competitors include several large global competitors as well as niche players in the individual markets served by the segment. Raw Materials The principal raw materials the Company uses are steel, filter media and petrochemical-based products including plastic, rubber and adhesive products. Purchased raw materials represent approximately 70% of the Company’s cost of sales.
Air filtration systems support agricultural, construction and mining machinery, commercial vehicles, aerospace fixed wing and rotorcraft and defense ground vehicle industries. Fuel and Lube Systems Fuel and lube systems achieve optimal operations when contaminants are removed. The various components of the engine impacted include fuel injectors, valves, pumps, bearings and actuators.
This makes it ideal for extreme fine dust environments, commonly found in mining and high soot industries. Fuel and Lube Fuel and lube systems achieve optimal operations when contaminants are removed. The various components of the engine impacted include fuel injectors, valves, pumps, bearings and actuators.
Benefits The Company is committed to the health, wealth and work-life balance of employees and offers competitive benefits packages to help support individuals and their families. To support the health and well-being of employees in the U.S. and their dependents, the Company offers a discount on private health insurance policies and provides an employee assistance program.
Benefits The Company is committed to the health, wealth and work-life balance of employees and offers competitive financial compensation packages that may include both base pay and bonus elements in addition to competitive benefits packages to help support individuals and their families.
Employees adapted to evolving conditions and continue to change as processes and procedures are adjusted and aligned with public health authority recommendations. Community Service Generations of the Company’s employees and their families give their time, energy and aid to various philanthropic efforts, addressing the needs of our local communities and helping transform lives.
A variety of training methods are available to fulfill these requirements, including online learning, training, coaching or mentoring and group discussions and activities. Community Service Generations of the Company’s employees and their families give their time, energy and aid to various philanthropic efforts, addressing the needs of our local communities and helping transform lives.
Intellectual Property The Company owns a broad range of intellectual property rights relating to its products and services, which it considers in the aggregate to constitute a valuable asset. These include patents, trade secrets, trademarks, copyrights and other forms of intellectual property rights in the U.S. and a number of foreign countries.
These include patents, trade secrets, trademarks, copyrights and other forms of intellectual property rights in the U.S. and a number of foreign countries. The Company protects its innovations arising from research and development through patent filings and owns a portfolio of over 2,800 issued patents, including utility and design patents.
During fiscal 2022, the Company acquired Pearson Arnold Industrial Services (PAIS) headquartered in the U.S. PAIS provides equipment, parts and services for dust, mist and fume collection systems, industrial fans and compressed air systems. Industrial dust, fume and mist collectors and filters are used within major industries including metals, mining, transportation, chemicals, food and beverage, pharmaceuticals and construction materials.
Donaldson expanded its presence in the industrial service market with its acquisition in 2022 of Pearson Arnold Industrial Services (PAIS) headquartered in the U.S. PAIS provides equipment, parts and services for dust, mist and fume collection systems, industrial fans and compressed air systems.
Core Values The Company’s purpose is to advance filtration for a cleaner world.
The Company prides itself on providing innovative technologies and solutions backed by talented and dedicated employees guided by its core values. 7 Core Values The Company’s purpose is to advance filtration for a cleaner world.
The Duramax® filter is combined with Synteq®™ XP media, a synthetic option for high performance. Hydraulic oil is adversely affected by contaminants such as wear, metals and moisture. As with fuel and lube, contaminated fluid reduces performance and shortens lives of various system components including valves, pumps and actuators.
Hydraulic oil is adversely affected by contaminants such as wear metals, particulate, water and oxidation by-products. Contaminated fluid reduces performance and shortens lives of various system components including valves, pumps, bearings and actuators. Industrial hydraulic applications include steel mills, paper mills, refineries, oil and gas exploration, plastic molding, general manufacturing and power generation.
Industrial sells to various dealers, distributors, OEMs and end users. 1 Diverse Product Groups The Company sells a diverse group of products within each segment and the business units within the segments. Below are the diverse product groups across the Company’s two segments represented as a percentage of total fiscal 2022 net sales.
Life Sciences primarily sells to large OEMs and directly to various end users requiring cell growth, separation, purification, high purity filtration and device protection. 2 Diverse Product Groups The Company sells a diverse group of products within each segment and the business units within the segments.
Backlog orders expected to b e delivered within 90 days as of July 31, 2022 and 2021 were $658.5 million and $626.0 million, respectively. Backlog increased 1.4% for Engine and 15.1% f or Industrial, primarily due to supply chain disruptions and higher demand.
Backlog orders expected to b e delivered within 90 days as of July 31, 2023 and 2022 were $576.4 million and $658.5 million, respectively. Seasonality Many of the Company’s end markets are generally stronger in the second half of the Company’s fiscal year.
No single intel lectual property right is responsible for protecting the Company’s products. Environmental Donaldson is subject to a wide variety of local, state and federal environmental laws and regulations in the U.S., as well as the environmental laws and regulations of other countries in which Donaldson conducts business. Donaldson strives to comply with applicable laws and regulations.
Government Regulations Donaldson is subject to a wide variety of local, state and federal governmental laws and regulations in the U.S., as well as the laws and regulations of other countries in which Donaldson conducts business, including securities laws, tax laws, data privacy, employment and pension-related laws, competition laws, U.S. and foreign export and trade laws, the Foreign Corrupt Practices Act ("FCPA") and similar worldwide anti-bribery laws, government procurement regulations and laws governing improper business practices.
The Industrial segment represe nts 30.4% of net sales, is organized based on product type and consists of the Industrial Filtration Solutions (IFS), Gas Turbines Systems (GTS) and Special Applications business units. Within the IFS business unit, products consist of dust, fume and mist collectors, compressed air purification systems, gas and liquid filtration for food, beverage and industrial processes.
The Industrial Solutions segment represents 29.6% of net sales, 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.
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Customers choose Donaldson’s filtration solutions due to their stringent performance requirements, natural replacement change cycles and need for reliability. The United States (U.S.), China and India represent the largest three individual markets for the Company’s products.
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Below are each of the priorities and areas of focus related to each priority.
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The GTS business unit products consist of air filtration systems for gas turbines. Special applications products include polytetrafluoroethylene (PTFE) membrane-based products as well as specialized air and gas filtration systems for applications including hard disk drives and semi-conductor manufacturing and sensors, indicators and monitoring systems.
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Extend Market Access - Grow Addressable Market by Extending Presence Across Adjacencies • Significantly grow presence in bioprocessing via acquisitions with newly created stand-alone Life Sciences segment • Strengthen position across alternative power solutions through increased focus and introduction of innovative and differentiated products Expand Technologies and Solutions - Leverage Foundational Filtration Capabilities to Expand Best-in-class Technology and Service Offerings 1 • Expand Industrial Solutions connected service offerings while transitioning from a subscription model to a service model to gain additional aftermarket share • Broaden battery vent offering to capture growing electronic vehicle (EV) opportunities • Enhance digital experience through stronger data integration and navigation capabilities Pursue Strategic Acquisitions - Accelerate Long-term Growth Through Strategic Acquisitions in High-margin Areas • Strengthen presence in bioprocessing with disruptive technologies • Penetrate underserved markets and expand service offerings Reportable Segments The Company’s reportable segments are Mobile Solutions, Industrial Solutions and Life Sciences.
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Engine Products Air Filtration Systems Air filtration systems help protect engine components from abrasive wear caused by dust particles. Donaldson’s standard pleated cellulose filters are used in air filtration systems for diesel engine applications around the world. In addition, the Company’s air filtration products include PowerCore®™ and Ultra-Web® filtration technologies.
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Within our industrial portfolio, Donaldson provides the widest 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.
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PowerCore® filtration technology is significantly more efficient and compact than standard pleated cellulose filters. PowerCore® filtration technology is a leader of filtration for diesel-powered engines and equipment, particularly for OEMs. Ultra-Web® media technology is composed of cellulose or a cellulose and synthetic substrate.
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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.
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Hydraulic Applications Hydraulic applications provide filtration solutions for the same equipment that is filtered by fuel and lube systems.
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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.
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Hydraulic applications support integral fluid power systems, which are used in machinery in agricultural, construction and mining machinery, commercial vehicles and aerospace fixed wing and rotorcraft industries. Exhaust and Emissions Exhaust products include sound-reducing mufflers used on machinery and vehicles, and diesel-powered machinery and commercial vehicles.
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The Life Sciences segment represents 7.0% of net sales and is organized by end market, including the Bioprocessing, Food and Beverage, Medical Device, Vehicle Electrification, Microelectronics and Disk Drive business units.
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Industrial Products IFS - Industrial Dust, Fume and Mist Collectors Industrial air filtration equipment collects particles through an innovative bag house, or a cartridge style collector, which provides higher air-to-media capacity.
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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.
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Other Industrial Products Other industrial products consists of the following: • compressed air filtration and purification systems, which provide sterile filtration in products such as breathing air systems, condensate management systems, dryers, filter housing, filter elements and sterile air units; • process filtration products such as LifeTec® filters, Ultrapac™ Smart compressed air treatment system, UltraPleat™ filters and proprietary expanded PTFE membranes, which are used to strengthen customers’ food safety initiatives and meet stringent regulations; and • on-compressor filtration products such as inlet, lube and air-oil separator filters, which support a clean compressor ecosystem.
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Below are the diverse product groups across the Company’s three segments represented as a percentage of total fiscal 2023 net sales. Mobile Solutions Air Filtration Air filtration systems are vital for safeguarding engine components against abrasive wear caused by dust particles. These systems play a pivotal role in supporting agricultural, construction and mining machinery, as well as commercial vehicles.
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Donaldson is expanding its presence in the life sciences market. During fiscal 2022, the Company acquired Solaris Biotechnology S.r.l. (Solaris) and Purilogics, LLC (Purilogics). Solaris is headquartered in Porto Mantovano, Italy, with U.S. operations based in Berkeley, California.
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Donaldson's air filtration solutions are globally renowned, featuring the standard in pleated cellulose filters. The company also offers advanced air filtration technologies, including PowerCore® and Ultra-Web®. PowerCore® filtration technology surpasses standard pleated cellulose filters in efficiency and compactness, making it the preferred choice for OEMs’ engines and equipment.
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Purilogics offers a broad portfolio of purification tools for a wide range of biologics. Purilogics’ proprietary formulations and processes create membranes that have significant competitive advantages, enabling faster and more cost-effective production of increasingly complex biologic drugs.
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The Duramax® filter is combined with Synteq®™ XP media, a synthetic option for high performance. Hydraulics Systems supports agricultural, construction and mining machinery and transportation markets. Emissions Emissions products include sound-reducing mufflers used on machinery and vehicles, diesel-powered machinery and commercial vehicles.
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Special Applications Special applications include the following: • disk drive products such as advanced materials and adsorbent technologies, which control moisture and contaminants in micro environments, and help protect critical components in cloud computing; • integrated venting solutions, which provide vents that protect devices and enclosures from pressure fluctuation, liquids and harmful contaminants, such as automotive headlight, outdoor lighting, medical venting solutions, or batteries in electric vehicles; 3 • semi-conductor filtration solutions, which address concerns over the presence of gas phase molecular contamination at the fabrication, tool and point-of-use locations in semiconductor production; and • PTFE membranes are the core technology used in venting solutions, technical film applications and industrial laminates, which collect fine dust particles for bag house or cartridge style dust collectors.
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Industrial Gasses Industrial gasses provides solutions for challenging industrial gas purification objectives with premium filtration, drying and purification products. This includes delivering dust and particle collectors for air compressors at the inlet and output of air compressors and lube, fuel and air/oil separators used in a manufacturing environment. Major product categories include dryers, compressed air, gasses and steam.
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GTS filtration components are in power plants, oil and gas delivery systems, and other industrial applications and refining and processing machinery. Competition Principal methods of competition in both the Engine Products and Industrial Products segments are technology, innovation, price, geographic coverage, service and product performance. The Company participates in a number of highly competitive filtration markets in both segments.
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Filtration involved in liquids, sterile and condensation management are part of the portfolio as well. Industrial gasses products are used within major industries including metals, mining, transportation, chemicals and construction materials. Industrial Hydraulics Industrial hydraulics helps to solve customers’ toughest contamination challenges with premium filtration products for hydraulics and lubrication.
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These disruptions have increased the Company’s input costs significantly and extended lead times. The Company has undertaken steps to mitigate these negative impacts, such as increasing prices, carrying a higher level of inventories, evaluating alternative supply chain options, qualifying additional suppliers and making strategic raw material purchases.
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Industrial hydraulics also supports the OEM fluid power and lubrication systems that support those industries. Power Generation Power generation provides leading OEMs air inlet equipment systems that deliver filtration and air handling performance. Power Generation filtration components are custom-engineered air intake systems for gas turbines and industrial compressors, for both new and retrofit applications.
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Strategy Donaldson’s strategy is based on three main pillars to support its purpose of Advancing Filtration for a Cleaner World. The pillars are as follows: • technology-led filtration company - Donaldson is a technology-led filtration company with world-class materials, science and conversion expertise.
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Aerospace and Defense Aerospace and defense products are specifically designed to protect critical systems from contamination to ensure proper and efficient operation. The filtration portfolio includes engine intake, cabin air, avionics air, fuel, lubrication and hydraulics. Applications are found on fixed wing aircraft, helicopters, ground defense vehicles, weapons systems and naval vessels.
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The Company focuses on creating and offering digitally intelligent solutions to its worldwide customers; 4 • diverse businesses with expanding market opportunities - Donaldson has a diverse portfolio of businesses and products that serve multiple end markets.
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Life Sciences Food and Beverage 4 Donaldson’s food and beverage business provides filtration solutions that enable process and product integrity for food and beverage manufacturing and support development of sustainable foods. Key products and applications include sterile liquid, air and steam filtration, compressed air dryers, bioreactors and fermenters and tangential and direct flow filtration.
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Through organic growth execution and strategic acquisitions, Donaldson has opportunities to expand into additional end markets and geographies; and • global presence with deep customer relationships - Donaldson’s global presence, employee development and commitment to customer relationships drives the Company’s end-to-end operational excellence and high levels of customer satisfaction.
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Other Life Sciences Bioprocessing Equipment and Consumables Donaldson’s bioprocessing business provides equipment and consumables to support the development and production of biologic drugs and genetic medicines, including mAbs mRNA and cell and gene therapies, along with many other applications that use a bioprocessing workflow. In fiscal year 2023, Donaldson acquired Isolere Bio, Inc.
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In other parts of the world, the Company offers competitive financial compensation packages that may include both base pay and bonus elements in addition to social programs specific to the countries in which it operates. To help employees provide and prepare for the future, the Company provides several other financial and non-financial benefits.
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(Isolere), headquartered in Durham, North Carolina and Univercells Technologies (UTEC), headquartered in Nivelles, Belgium. • Isolere is an early-stage biotechnology company that has developed novel and proprietary IsoTag™ reagents used for the purification and streamlined manufacturing of biopharmaceuticals.
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A variety of training methods are available to fulfill these requirements, including online learning, training, coaching or mentoring and group discussions and activities. The Company most recently demonstrated these principles as it conceived and implemented its Coronavirus (COVID-19) pandemic response, which included implementing comprehensive protocols to help keep employees safe and healthy.
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Aimed initially at the purification of viral vectors used for cell and gene therapies, IsoTag™ reagents are designed to substantially improve product quality and purity with faster timelines compared to competing solutions. • UTEC is a global producer of innovative biomanufacturing solutions for cell and gene therapy research, development and commercial manufacturing.
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UTEC’s product offering includes the unique scale-X™ single-use structured fixed-bed bioreactor for the intensified production of viruses used in cell and gene therapy, viral vaccines and other therapeutics.
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In addition, UTEC’s automated NevoLine™ Upstream platform incorporates industry-standard filtration to provide integrated up-and mid-stream processing capabilities in a single unit, driving productivity improvements, a reduction in operational footprints and greater consistency of results. During fiscal year 2022, the Company acquired Solaris Biotechnology S.r.l.
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Aimed initially at the purification of pDNA, mRNA and mAbs, Purilogics’ platform is able to address a wide range of biologics. Purilogics’ Purexa membranes have significant competitive advantages over traditional resin and monolith technologies, enabling improved productivity, speed and production costs.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Personnel - our success has been, and could in the future be affected, if we are not able to attract, engage and retain qualified personnel. Our success depends in large part on our ability to identify, recruit, engage, train and retain highly skilled, qualified and diverse personnel globally and successfully execute management transitions at leadership levels of the Company.
Personnel - our success has been and could in the future be affected, if we are not able to attract, engage, train and retain qualified personnel. Our success depends in large part on our ability to identify, recruit, engage, train and retain highly skilled, qualified and diverse personnel globally and successfully execute management transitions at leadership levels of the Company.
It is not possible to predict the outcome of investigations and lawsuits, and we could inc ur judgments, fines or penalties or enter into settlements of lawsuits and claims that could have an adverse effect on our business, reputation, results of operations, financial condition and cash flows in any particular period.
It is not possible to predict the outcome of investigations and lawsuits and we could inc ur judgments, fines or penalties or enter into settlements of lawsuits and claims that could have an adverse effect on our reputation, business, results of operations, financial condition and cash flows in any particular period.
These risk factors should be considered with the Company’s cautionary comments related to forward-looking statements when evaluating information provided in this Annual Report. Risks not currently known to the Company, or the Company currently believes are immaterial, may also impair the Company’s business, reputation, financial condition and results of operations.
These risk factors should be considered with the Company’s cautionary comments related to forward-looking statements when evaluating information provided in this Annual Report. Risks not currently known to the Company, or which the Company currently believes are immaterial, may also impair the Company’s business, reputation, financial condition and results of operations.
We may not be able to realize the expected benefits and cost savings if we do not successfully execute these plans while continuing to invest in business growth. Difficulties could be encountered or such cost savings may not otherwise be realized, which could adversely impact our business, results of operations, financial condition and cash flows.
We may not be able to realize the expected benefits and cost savings if we do not successfully execute these plans while continuing to invest in business growth. Such cost savings may not otherwise be realized or other difficulties could be encountered, which could adversely impact our business, results of operations, financial condition and cash flows.
Significant fluctuations of the U.S. dollar in comparison to the foreign currencies of our subsidiaries during discrete periods may have a negative impact on our results of operations, financial condition and cash flows. Liquidity - changes in the capital and credit markets may negatively affect our ability to access financing to support strategic initiatives.
Significant fluctuations of the U.S. dollar in comparison to the foreign currencies of our subsidiaries during discrete periods may have a negative impact on our business, results of operations, financial condition and cash flows. Liquidity - changes in the capital and credit markets may negatively affect our ability to access financing to support strategic initiatives.
We may incur defense costs, fines, penalties, damage to our reputation and business disruptions, which could resul t in an adverse effect on our results of operations, financial condition and cash flows. 7 Business Disruption - unexpected events, including natural disasters, may increase our cost of doing business or disrupt our operations.
We may incur defense costs, fines, penalties, damage to our reputation and business disruptions, which could resul t in an adverse effect on our results of operations, financial condition and cash flows. Business Disruption - unexpected events, including natural disasters, may increase our cost of doing business or disrupt our operations.
In addition, we may not be able to maintain our insurance at a reasonable cost or in sufficient amounts to protect us against any losses. Financial Risks Currency - an unfavorable fluctuation in foreign currency exchange rates could impact our results of operations.
In addition, we may not be able to maintain our insurance at a reasonable cost or in sufficient amounts to protect us against any losses. 13 Financial Risks Currency - an unfavorable fluctuation in foreign currency exchange rates could impact our results of operations.
These patents have a limited life and, in some cases, have expired or will expire in the near future. Competitors and others may also initiate litigation to challenge the validity of our intellectual property or allege that we infringe their intellectual property.
These patents have a limited life and, in some cases, have expired or will expire in the near future. Competitors and others may also initiate litigation to challenge the validity of our intellectual property rights or allege that we infringe their intellectual property rights.
Products - maintaining a competitive advantage requires consistent investment with uncertain returns. We operate in highly competitive markets and have numerous competitors that may already be well-established in those markets. We expect our competitors to continue to improve the design and performance of their products and to introduce new products that could be competitive in both price and performance.
Products - maintaining a competitive advantage requires consistent investment with uncertain returns. We operate in highly competitive markets and have numerous competitors that are already be well-established in those markets. We expect our competitors to continue to improve the design and performance of their products and to introduce new products that could be competitive in both price and performance.
The divestitures may also result in o ngoing financial or legal proceedings, such as retained liabilities, which could have an adverse impact on our results of operations, financial condition and cash flows. Cybersecurity Risks Cybersecurity Risks - vulnerability of our information technology systems and security.
The divestitures may also result in o ngoing financial or legal proceedings, such as retained liabilities, which could have an adverse impact on our business, results of operations, financial condition and cash flows. 12 Cybersecurity Risks Cybersecurity Risks - vulnerability of our information technology systems and security.
There could be an occurrence of one or more unexpected events, including a terrorist attack, war or civil unrest, a weather event, a natural disaster, a pandemic or other catastrophe in countries in which we operate or in which our suppliers are located.
There could be an occurrence of one or more unexpected events, including a terrorist attack, war or civil unrest, a weather event, a natural disaster, a climate-related event, a pandemic or other catastrophe in countries in which we operate or in which our suppliers are located.
However, there can be no assurance our efforts will prevent all potential failures, cybersecurity attacks or breaches in our systems. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data.
We have invested in protection to prevent these threats; however, there can be no assurance our efforts will prevent all potential failures, cybersecurity attacks or breaches of our systems. These threats pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data.
Our stability, growth and profitability are subject to a number of risks of doing business globally including the following: • political and military events, including the rise of nationalism and support for protectionist policies; • ongoing military action by Russia in Ukraine, or in neighboring regions; • tariffs, trade barriers and other trade restrictions; • legal and regulatory requirements, including import, export, defense regulations, anti-corruption laws and foreign exchange controls; • potential difficulties in staffing and managing local operations; • credit risk of local customers and distributors; • deterioration in economic conditions, including the effect of inflation on our customers and suppliers; • difficulties in protecting our intellectual property; and • local economic, political and social conditions.
Our stability, growth and profitability are subject to a number of risks of doing business globally including the following: • political and military events, including the rise of nationalism and support for protectionist policies; • tariffs, trade barriers and other trade restrictions; • legal and regulatory requirements, including import, export, defense regulations, anti-corruption laws and foreign exchange controls; • potential difficulties in staffing and managing local operations; • credit risk of local customers and distributors; • deterioration in economic conditions, including the effect of inflation on our customers and suppliers; • difficulties in protecting our intellectual property; and • local economic, political and social conditions.
Regulatory litigation or actions that could impose significant penalties may be brought against us in the event of a breach of data or alleged non-compliance with such laws and regulations. Information technology security threats are increasing in frequency and sophistication. We have invested in protection to prevent these threats; to date none of them have been material.
Regulatory litigation or actions that could impose significant penalties may be brought against us in the event of a breach of data or alleged non-compliance with such laws and regulations. Information technology security threats are increasing in frequency and sophistication; to date, none of the threats faced by the Company have been material.
Our data is subject to a variety of U.S. and international laws and regulations that pertain to the collection and handling of personal information. The laws require us to notify governmental authorities and affected individuals of data breaches involving certain personal information. These laws include the European General Data Protection Regulation and the California Consumer Privacy Act.
Our data is subject to a variety of U.S. and international laws and regulations that pertain to the collection and handling of personal information. The laws require us to notify governmental authorities and affected individuals of data breaches involving certain personal information. These laws include the European GDPR and the CCPA.
We are subject to increasingly stringent laws and regulations in the countries in which we operate, including those governing the environment (e.g., emissions to air; discharges to water; and the generation, handling, storage, transportation, treatment and disposal of waste materials) and data protection and privacy.
We are subject to increasingly stringent laws and regulations in the countries in which we operate, including those governing the environment (e.g., emissions to air; discharges to water; and the generation, handling, storage, transportation, treatment and disposal of waste materials; and the use of raw materials and goods such as iron, steel aluminum, electricity, natural gas and hydrogen) and data protection and privacy.
Although we forecast demand, additional plant capacity takes significant time to bring online, and thus changes in demand could result in longer lead times. We cannot guarantee we will be able to adjust manufacturing capacity, in the short-term, to meet higher customer demand.
Our ability to fulfill customer orders is dependent on our manufacturing and distribution operations. Although we forecast demand, additional plant capacity takes significant time to bring online and thus, unexpected or extreme changes in demand could result in longer lead times. We cannot guarantee we will be able to adjust manufacturing capacity, in the short-term, to meet higher customer demand.
Our financia l projections assume certain ongoing productivity improvements as a key component of our business strategy to, among other things, contain operating expenses, maintain competitiveness, increase operating efficiencies and align manufacturing capacity to demand.
Productivity Improvements - if we do not successfully manage productivity improvements, we may not realize the expected benefits. Our financia l projections assume certain ongoing productivity improvements as a key component of our business strategy to, among other things, contain operating expenses, maintain competitiveness, increase operating efficiencies and align manufacturing capacity to demand.
However, a number of our customers are concentrated in similar cyclical industries (e.g., construction, agriculture, mining, oil and gas, transportation, power generation and disk drive), resulting in additional risk based on their respective economic conditions.
No customer accounted for 10% or more of our net sales in fiscal 2023, 2022 or 2021. However, a number of our customers are concentrated in similar cyclical industries (e.g., construction, agriculture, mining, oil and gas, transportation, power generation and disk drive), resulting in additional risk based on their respective economic conditions.
We may not be able to attract and retain qualified personnel and it may be difficult for us to compete effectively, which could adversely impact our business. 8 Operations - complexity of manufacturing could cause inability to meet demand and result in the loss of customers. Our ability to fulfill customer orders is dependent on our manufacturing and distribution operations.
We may not be able to attract and retain qualified personnel and it may be difficult for us to compete effectively, which could adversely impact our business, results of operations, financial condition and cash flows. Operations - complexity of manufacturing could cause inability to meet demand and result in the loss of customers.
Any such disruptions could have a negative impact on the global economy, which could materially adversely affect our business, results of operations, financial condition and cash flows. Operational Risks Supply Chain - unavailable raw materials, significant demand fluctuations and material cost inflation have and could continue to have an impa ct on our sales and cost of sales.
Certain unexpected events could adversely impact our business, results of operations, financial condition and cash flows. 10 Operational Risks Supply Chain - unavailable raw materials, significant demand fluctuations and material cost inflation have and could continue to have an impa ct on our sales and cost of sales.
Certain industry market trends guide decisions we make in operating the Company, and our growth could be threatened by disruptive technologies. We may be adversely impacted by changes in technology that could reduce or eliminate the demand for our products. These risks include wider adoption of technologies providing alternatives to diesel engines such as electrification of equipment.
Certain industry market trends guide decisions we make in operating the Company and our growth could be threatened by disruptive technologies. We may be adversely impacted by changes in technology that could reduce or eliminate the demand for our products.
Our success is also dependent on retaining key customers, which requires us to successfully manage relationships and anticipate the needs of our customers in the channels in which we sell our products.
Our success is also dependent on retaining key customers, which requires us to successfully manage relationships and anticipate the needs of our customers in the channels in which we sell our products. Changes in economic conditions could materially and adversely impact our business, results of operations, financial condition and cash flows.
Competition - we participate in highly competitive markets with pricing pressure. The businesses and product lines in which we participate are very competitive and we risk losing business based on a wide range of factors, including pric e, technology, performance, reliability and availability, geographic coverage and customer service.
The businesses and product lines in which we participate are very competitive and we risk losing business based on a wide range of factors, including pric e, technology, performance, reliability and availability, geographic coverage and customer service. Our customers continue to seek technological innovation, productivity gains, competitive prices, reliability and availability from us and their other suppliers.
There is competition for talent with market-leading skills and capabilities in new technologies. Additionally, in some locations we have experienced significant wage inflation due to a shortage of labor, as well as labor shortages, amid low levels of unemployment or workforce availability in these markets.
There is competition for talent with market-leading skills and capabilities in new technologies. Additionally, in some locations we have experienced labor shortages causing significant wage inflation and workplace availability.
Such disruptive innovation could create new markets and displace existing companies and products, resulting in significantly negative consequences for the Company. If we do not properly address future customer needs, we may be slower to adapt to such disruption, which could adversely impact our business, results of operations, financial condition and cash flows.
If we do not properly address future customer needs, we may be slower to adapt to such disruption, which could adversely impact our business, results of operations, financial condition and cash flows. 11 Competition - we participate in highly competitive markets with pricing pressure.
We may be adversely impacted by new or changing laws and regulations that affect both our operations and our ability to develop and sell products that meet our customers’ requirements. We are involved in various product liability, product warranty, intellectual property, environmental claims and other legal proceedings that arise in and outside of the ordinary course of our business.
We are involved in various product liability, product warranty, intellectual property, environmental claims and other legal proceedings that arise in and outside of the ordinary course of our business.
The variability complicates the supply chain, affects working capital needs, requires balance between relationships and drives a more targeted sales force. As a result of these and other factors, we may not be able to compete effectively, which could adversely impact our business, results of operations, financial condition and cash flows.
As a result of these and other factors, we may not be able to compete effectively, which could adversely impact our business, results of operations, financial condition and cash flows. Customer Concentration and Retention - a number of our customers operate in similar cyclical industries. Changes in economic conditions in these industries could impact our sales.
We may also be required to develop an alternative, non-infringing product that could be costly and time-consuming, or acquire a license on terms that are unfavorable to us. 10 Protecting or defending against such claims could significantly increase our costs and divert management’s time and attention away from other business matters, which could adversely impact our business and results of operations, financial condition and cash flows.
Protecting or defending against such claims could significantly increase our costs and divert management’s time and attention away from other business matters, which could adversely impact our business, results of operations, financial condition and cash flows. Legal and Regulatory - costs associated with lawsuits, investigations or complying with laws and regulations.
We may be required to pay substantial damages if it is determined our products infringe on their intellectual property.
We may be required to pay substantial damages if it is determined our products infringe on their intellectual property rights. We may also be required to develop an alternative, non-infringing product that could be costly and time-consuming, or acquire a license on terms that are unfavorable to us.
Legal and Regulatory - costs associated with lawsuits, investigations or complying with laws and regulations. We are subject to many laws and regulations in the jurisdictions in which we operate. We routinely incur costs in order to comply with these laws and regulations.
We are subject to many laws and regulations in the jurisdictions in which we operate. We routinely incur costs in order to comply with these laws and regulations. We may be adversely impacted by new or changing laws and regulations that affect both our operations and our ability to develop and sell products that meet our customers’ requirements.
Our customers continue to seek technological innovation, productivity gains, competitive prices, reliability and availability from us and their other suppliers. Additionally, we sell through a variety of channels (e.g., OEM, dealer, distributor, eCommerce) in a diverse set of highly competitive filtration markets.
Additionally, we sell through a variety of channels (e.g., OEM, dealer, distributor and eCommerce) in a diverse set of highly competitive filtration markets. The variability complicates the supply chain, affects working capital needs, requires balance between relationships and drives a more targeted sales force.
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Certain unexpected events could adversely impact our business, results of operations, financial condition and cash flows. COVID-19 Pandemic Business Disruption - the COVID-19 pandemic had, and in the future could have, a negative effect on our business, results of operations, financial condition and cash flows.
Added
These risks include wider adoption of technologies providing alternatives to diesel engines such as electrification of equipment or other alternative power solutions. Such disruptive innovation could create new markets and displace existing companies and products, resulting in significantly negative consequences for the Company.
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The COVID-19 pandemic has significantly impacted the global economy and, consequently, the Company’s business and operations have been, and could continue to be, adversely affected by the COVID-19 pandemic.
Added
Environmental, Social and Governance (ESG) - achieving commitments could result in additional costs and our inability to achieve them could have an adverse impact on our reputation and performance. We periodically communicate our strategies, commitments and targets related to ESG matters, including greenhouse gas (GHG) emissions and diversity, equity and inclusion through the issuance of our ESG report.
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We experienced temporary shutdowns in certain facilities and we, our employees, suppliers or customers may be prevented in the future from conducting business activities for an indefinite period of time due to shutdowns, import or export restrictions or other preventative measures that may be requested or mandated by governmental authorities.
Added
Although we intend to meet these strategies, commitments and targets, we may be unable to achieve them due to impacts on resources, operational costs and technological advancements.
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Further, the COVID-19 pandemic has significantly increased economic uncertainty, has led to volatility in customer demand for the Company’s products and services and has caused supply chain disruptions. These events have and could adversely impact our business, results of operations, financial condition and cash flows.
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In addition, standards and processes for measuring and reporting GHG emissions and other sustainability metrics may change over time, result in inconsistent data or result in significant revisions to our strategies, commitments and targets, or our ability to achieve them.
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Russia and Ukraine Conflict - the ongoing military action by Russia in Ukraine could have a negative impact on the global economy which could materially adversely affect our business, results of operations, financial condition and cash flows. On February 24, 2022, Russian forces launched significant military action against Ukraine.
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Any scrutiny of our carbon emissions or other sustainability disclosures, our failure to achieve related strategies, commitments and targets or failure to meet sustainability requirements could negatively impact our reputation as well as the demand for our products and adversely affect our business, results of operations, financial condition and cash flow.
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As a result, the U.S. and other countries imposed sanctions, penalties and export controls against certain Russian entities and individuals.
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Although the duration and impact of the ongoing conflict in Ukraine are highly unpredictable, the conflict could lead to substantial market disruptions, including counter-sanctions, volatility in the credit available to us and our customers, heightened inflation and energy costs, supply chain disruptions, or delays in delivering products to our customers.
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Customer Concentration and Retention - a number of our customers operate in similar cyclical industries. Economic conditions in these industries could impact our sales. No customer accounted for 10% or more of our net sales in fiscal 2022, 2021 or 2020.
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Changes in the economic conditions could materially and adversely impact our results of operations, financial condition and cash flows. 9 Productivity Improvements - if we do not successfully manage productivity improvements, we may not realize the expected benefits.

Item 2. Properties

Properties — owned and leased real estate

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Item 2. Properties The Company’s corporate headquarters and research facilities are located in Minneapolis, Minnesota. The Company also has administrative and engineering offices and research facilities in the regions of EMEA, APAC and LATAM.
Item 2. Properties The Company’s corporate headquarters and corporate research facilities are located in Minneapolis, Minnesota. The Company also has administrative and engineering offices, as well as research facilities in the regions of EMEA, APAC and LATAM.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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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.
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. Item 4. Mine Safety Disclosures Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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The table set forth in Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report is also incorporated herein by reference. 13 The graph below compares the cumulative total stockholder return on the Company’s common stock for the last five fiscal years with the cumulative total return of the Standard & Poor’s (S&P) 500 Stock Index and the S&P Industrial Machinery Index.
The table set forth in Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report is also incorporated herein by reference. 15 The graph below compares the cumulative total stockholder return on the Company’s common stock for the last five fiscal years with the cumulative total return of the Standard & Poor’s (S&P) 500 Stock Index and the S&P Industrial Machinery Index.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock, par value $5.00 per share, is traded on the New York Stock Exchange under the symbol “DCI.” As of September 9, 2022, there were 1,215 registered stockholders of common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common stock, par value $5.00 per share, is traded on the New York Stock Exchange under the symbol “DCI.” As of September 8, 2023, there were 1,168 registered stockholders of common stock.
This repurchase authorization is effective until terminated by the Board of Directors. The Company has remaining authorization to repurchase 5.4 million shares under this plan. There were no repurchases of common stock made outside of the Company’s current repurchase authorization during the three months ended July 31, 2022.
This repurchase authorization is effective until terminated by the Board of Directors. The Company has remaining authorization to repurchase 2.9 million shares under this plan. There were no repurchases of common stock made outside of the Company’s current repurchase authorization during the three months ended July 31, 2023.
Information in connection with purchases made by, or on behalf of, the Company or any affiliated purchaser of the Company, of shares of the Company’s common stock during the three months ended July 31, 2022 was as follows: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs May 1 - May 31, 2022 — $ — — 5,756,816 June 1 - June 30, 2022 213,596 $ 47.44 213,596 5,543,220 July 1 - July 31, 2022 140,506 $ 48.42 140,506 5,402,714 Total 354,102 $ 47.83 354,102 5,402,714 On May 31, 2019, the Board of Directors authorized the repurchase of up to 13.0 million shares of the Company’s common stock.
To determine the appropriate level of dividend payouts, the Company considers recent and projected performance across key financial metrics, including earnings, cash flow from operations and total debt. 14 Information in connection with purchases made by, or on behalf of, the Company or any affiliated purchaser of the Company, of shares of the Company’s common stock during the three months ended July 31, 2023 was as follows: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs May 1 - May 31, 2023 176,000 $ 63.80 176,000 3,104,805 June 1 - June 30, 2023 187,091 $ 60.40 187,091 2,917,714 July 1 - July 31, 2023 — $ — — 2,917,714 Total 363,091 $ 62.05 363,091 2,917,714 On May 31, 2019, the Board of Directors authorized the repurchase of up to 13.0 million shares of the Company’s common stock.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN Among Donaldson Company Inc., the S&P 500 Index and the S&P Industrial Machinery Index As of July 31, 2017 2018 2019 2020 2021 2022 Donaldson Company, Inc. $ 100.00 $ 102.00 $ 108.55 $ 106.83 $ 148.46 $ 123.94 S&P 500 Stock Index $ 100.00 $ 116.24 $ 125.52 $ 140.53 $ 191.75 $ 182.85 S&P Industrial Machinery Index $ 100.00 $ 112.88 $ 121.10 $ 126.73 $ 182.96 $ 157.65 Item 6. [Reserved] Reserved.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN Among Donaldson Company Inc., the S&P 500 Index and the S&P Industrial Machinery Index As of July 31, 2018 2019 2020 2021 2022 2023 Donaldson Company, Inc. $ 100.00 $ 106.43 $ 104.74 $ 145.55 $ 121.51 $ 142.53 S&P 500 Stock Index $ 100.00 $ 107.99 $ 120.90 $ 164.96 $ 157.31 $ 177.78 S&P Industrial Machinery Index $ 100.00 $ 107.28 $ 112.27 $ 162.08 $ 139.66 $ 174.48 Item 6. [Reserved] Reserved.
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To determine the appropriate level of dividend payouts, the Company considers recent and projected performance across key financial metrics, including earnings, cash flow from operations and total debt.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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The Company believes the liquidity available from the combination of expected cash generated by operating activities, existing cash and available credit under existing credit facilities will be sufficient to meet its cash requirements for the next 12 months and beyond, including working capital needs, debt service obligations, capital expenditures, payment of anticipated dividends, share repurchase activity and potential acquisitions.
The Company believes the liquidity available from the combination of expected cash generated by operating activities, existing cash and available credit under existing credit facilities will be sufficient to meet its cash requirements for the next 12 months and beyond, including working capital needs, debt service obligations, capital expenditures, payment of dividends, share repurchase activity and potential acquisitions.
The Company performed its annual impairment assessment during the third quarter of fiscal 2022. The goodwill impairment assessment is conducted at a reporting unit level, which is one level below the operating segment level, and utilizes either a qualitative or quantitative assessment.
The Company performed its annual impairment assessment during the third quarter of fiscal 2023. The goodwill impairment assessment is conducted at a reporting unit level, which is one level below the operating segment level and utilizes either a qualitative or quantitative assessment.
As of July 31, 2022, the Company was in compliance with all such covenants. 20 Capital Requirements The Company’s cash requirements within the next 12 months include short-term borrowings, accounts payable, accrued expenses, income taxes payable, dividends payable, purchase commitments and other current liabilities.
As of July 31, 2023, the Company was in compliance with all such covenants. Capital Requirements The Company’s cash requirements within the next 12 months include short-term borrowings, accounts payable, accrued expenses, income taxes payable, dividends payable, purchase commitments and other current liabilities.
The decrease was driven by supply chain disruptions which increased input costs, higher raw material, freight, energy and labor costs, partially offset by pricing.
The decrease was driven by supply chain disruptions, which increased input costs, including raw material, freight, labor and energy costs, partially offset by pricing.
The liability for unrecognized tax benefits, accrued interest and penalties was $16.3 million and $20.3 million as of July 31, 2022 and 2021, respectively. The Company believes it is remote that any adjustment necessary to the reserve for income taxes for the next 12 months will be material.
The liability for unrecognized tax benefits, accrued interest and penalties was $16.7 million and $16.3 million as of July 31, 2023 and 2022, respectively. The Company believes it is remote that any adjustment necessary to the reserve for income taxes for the next 12 months will be material.
Short-Term Borrowings and Long-Term Debt in the Notes to Consolidated Financial Statements, included in Item 8 of Part II in this Annual Report on Form 10-K for further detail of the Company’s debt and the timing of expected future principal and interest payments; and • operating leases - see Note 9.
Short-Term Borrowings and Long-Term Debt in the Notes to Consolidated Financial Statements, included in Item 8 of Part II in this Annual Report for further detail of the Company’s debt and the timing of expected future principal and interest payments; and • operating leases - see Note 9.
Short-term borrowing capacity as of July 31, 2022 was as follows (in millions): European Commercial Paper Program U.S.
Short-term borrowing capacity as of July 31, 2023 was as follows (in millions): European Commercial Paper Program U.S.
These statements do not guarantee future performance. 24 These forward-looking statements speak only as of the date such statements are made and are subject to risks and uncertainties that could affect the Company’s performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed.
These forward-looking statements speak only as of the date such statements are made and are subject to risks and uncertainties that could affect the Company’s performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed.
The outstanding debt relating to AFSI, which the Company guarantees half, was $68.8 million and $37.8 million as of July 31, 2022 and 2021, respectively. AFSI has $63.0 million in revolving credit facilities which expire in 2024 and $17.0 million in an additional multi-currency revolving credit facility which terminates upon notification of either party.
The outstanding debt relating to AFSI, which the Company guarantees half, was $59.6 million and $68.8 million as of July 31, 2023 and 2022, respectively. AFSI has $63.0 million in revolving credit facilities which expire in 2024 and $17.0 million in an additional multi-currency revolving credit facility which terminates upon notification of either party.
Leases in the Notes to Consolidated Financial Statements, included in Item 8 of Part II in this Annual Report on Form 10-K for further detail of our lease obligations and the timing of expected future payments.
Leases in the Notes to Consolidated Financial Statements, included in Item 8 of Part II in this Annual Report for further detail of our lease obligations and the timing of expected future payments.
These factors include, but are not limited to, challenges in global operations; impacts of global economic, industrial and political conditions on product demand, including the Russia and Ukraine conflict; impacts from unexpected events, including the COVID-19 pandemic; effects of unavailable raw materials or material cost inflation; inability to attract and retain qualified personnel; inability to meet customer demand; inability to maintain competitive advantages; threats from disruptive technologies; effects of highly competitive markets with pricing pressure; exposure to customer concentration in certain cyclical industries; inability to manage productivity improvements; results of execution of any acquisition, divestiture and other strategic transactions; vulnerabilities associated with information technology systems and security; inability to protect and enforce intellectual property rights; costs associated with governmental laws and regulations; impacts of foreign currency fluctuations; and effects of changes in capital and credit markets.
These factors include, but are not limited to, challenges in global operations; impacts of global economic, industrial and political conditions on product demand; impacts from unexpected events; effects of unavailable raw materials, significant demand fluctuations or material cost inflation; inability to attract and retain qualified personnel; inability to meet customer demand; inability to maintain competitive advantages; threats from disruptive technologies; effects of highly competitive markets with pricing pressure; exposure to customer concentration in certain cyclical industries; inability to manage productivity improvements; inability to achieve commitments related to ESG; results of execution of any acquisition, divestiture and other strategic transactions; vulnerabilities associated with information technology systems and security; inability to protect and enforce intellectual property rights; costs associated with governmental laws and regulations; impacts of foreign currency fluctuations; and effects of changes in capital and credit markets.
Similar appropriate benchmarks are used to determine the discount rate for the non-U.S. plans. The Company utilized a 4.62% and 2.55% weighted average discount rate for its U.S. plans for the years ended July 31, 2022 and 2021, respectively.
Similar appropriate benchmarks are used to determine the discount rate for the non-U.S. plans. The Company utilized a 5.58% and 4.62% weighted average discount rate for its U.S. plans for the years ended July 31, 2023 and 2022, respectively.
A discussion of changes in the Company’s results of operations and liquidity and capital resources for the year ended July 31, 2021 from July 31, 2020 can be found in Part II, “Item 7.
A discussion of the changes in the Company’s results of operations and liquidity and capital resources for the year ended July 31, 2022 from July 31, 2021 for non-segment specific comparisons can be found in Part II, “Item 7.
The impact was as follows (in millions): Year Ended July 31, 2022 2021 Prior year net sales $ 2,853.9 $ 2,581.8 Change in net sales excluding translation 539.8 194.1 Impact of foreign currency translation (1) (87.1) 78.0 Current year net sales $ 3,306.6 $ 2,853.9 (1) The impact of foreign currency translation was calculated by translating current fiscal year foreign currency net sales into U.S. dollars using the average foreign currency exchange rates for the prior fiscal year.
The impact was as follows (in millions): Year Ended July 31, 2023 2022 Prior year net sales $ 3,306.6 $ 2,853.9 Change in net sales excluding translation 237.6 539.8 Impact of foreign currency translation (1) (113.4) (87.1) Current year net sales $ 3,430.8 $ 3,306.6 (1) The impact of foreign currency translation was calculated by translating current fiscal year foreign currency net sales into U.S. dollars using the average foreign currency exchange rates for the prior fiscal year.
In particular, the Company desires to take advantage of the protections of the PSLRA in connection with the forward-looking statements made in this Annual Report. All statements other than statements of historical fact are forward-looking statements.
In particular, the Company desires to take advantage of the protections of the PSLRA in connection with the forward-looking statements made in this Annual Report. All statements other than statements of historical fact are forward-looking statements. These statements do not guarantee future performance.
The Company utilized a 5.41% and 5.33% asset-based weighted average expected return on plan assets for its U.S. plans for the years ended July 31, 2022 and 2021, respectively. The Company utilized a 3.40% and 3.13% asset-based weighted average expected return on plan assets for its non-U.S. plans for the years ended July 31, 2022 and 2021, respectively.
The Company utilized a 5.66% and 5.41% asset-based weighted average expected return on plan assets for its U.S. plans for the years ended July 31, 2023 and 2022, respectively. The Company utilized a 4.39% and 3.40% asset-based weighted average expected return on plan assets for its non-U.S. plans for the years ended July 31, 2023 and 2022, respectively.
To determine the level of dividend and share repu rchases, the Company considers recent and projected performance across key financial metrics, including earnings, cash flow from operations and total debt. Dividends paid for the years ended July 31, 2022 and 2021 were $110.1 million and $107.2 million, respectively.
To determine the level of dividend and share repurchases, the Company considers recent and projected performance across key financial metrics, including earnings, cash flow from operations and total debt. Dividends paid for the years ended July 31, 2023 and 2022 were $114.4 million and $110.1 million, respectively.
Additionally, in fiscal 2023, the Company expects its cash paid for capital expenditures to be between $115 million and $135 million, primarily associated wi th capacity expansion, new products and technologies as well as infrastructure investments.
Additionally, in fiscal 2024, the Company expects its cash paid for capital expenditures to be between $95 million and $115 million, primarily associated with capacity expansion, new products and technologies as well as infrastructure investments.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) provides a comparison of the Company’s results of operations, as well as liquidity and capital resources for the years ended July 31, 2022 and 2021.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) provides a comparison of the Company’s results of operations, liquidity and capital resources for the years ended July 31, 2023 and 2022, as well as revenue and segment specific comparisons for 2021.
The Company used a 3.26% and 1.55% weighted average discount rate for its non-U.S. plans for the years ended July 31, 2022 and 2021, respectively.
The Company used a 4.80% and 3.26% weighted average discount rate for its non-U.S. plans for the years ended July 31, 2023 and 2022, respectively.
Borrowing capacity as of July 31, 2022 was as follows (in millions): Revolving credit facility $ 500.0 Reductions to borrowing capacity: Outstanding borrowings 125.0 Contingent liability for standby letters of credit 7.5 Total reductions 132.5 Remaining borrowing capacity $ 367.5 Weighted average interest rate as of July 31, 2022 2.88 % Certain debt agreements contain financial covenants related to interest coverage and leverage ratios, as well as other non-financial covenants.
Borrowing capacity as of July 31, 2023 was as follows (in millions): Revolving credit facility $ 500.0 Reductions to borrowing capacity: Outstanding borrowings 96.2 Contingent liability for standby letters of credit 7.5 Total reductions 103.7 Remaining borrowing capacity $ 396.3 Weighted average interest rate as of July 31, 2023 5.09 % Certain debt agreements contain financial covenants related to i nterest coverage and leverage ratios, as well as other non-financial covenants.
Estimates include many factors such as the nature of the acquired company’s business, its historical financial position and results, customer retention rates, discount rates and expected future performance. Independent valuation specialists are used to assist in determining certain fair value calculations. The Company estimates the fair value of acquired customer relationships using the multi-period excess earnings method.
Estimates include many factors such as the nature of the acquired company’s business, its historical financial position and results, technology obsolescence, customer retention rates, discount rates, royalty rates and expected future performance. Independent valuation specialists are used to assist in determining certain fair value calculations.
The expected returns on plan assets are used to develop the following fiscal years’ expense for the plans. 23 Alternative Assumptions If the Company were to use alternative assumptions for its pension plans as of July 31, 2022, a one percentage point change in the assumptions would impact fiscal 2022 net periodic benefit cost as follows (in millions): +1% (1)% Rate of return $ (4.8) $ 4.8 Discount rate $ (0.7) $ 1.8 The Company’s net periodic benefit cost recognized in the Consolidated Statements of Earnings was $2.8 million, $5.3 million and $7.2 million for the years ended July 31, 2022, 2021 and 2020, respectively.
Alternative Assumptions If the Company were to use alternative assumptions for its pension plans as of July 31, 2023, a one percentage point change in the assumptions would impact fiscal 2023 net periodic benefit cost as follows (in millions): +1% (1)% Rate of return $ (4.5) $ 4.5 Discount rate $ (0.3) $ 0.8 The Company’s net periodic benefit cost recognized in the Consolidated Statements of Earnings was $6.2 million, $2.8 million and $5.3 million for the years ended July 31, 2023, 2022 and 2021, respectively.
The Company calculates days payable outstanding as the average accounts payable for the quarter, divided by cost of sales for the quarter multiplied by the number of days in the quarter. A ccounts receivable, net as of July 31, 2022 was $616.6 million, compared with $552.7 million as of July 31, 2021, an increase of $63.9 million.
The Company calculates days payable outstanding as the average accounts payable for the quarter, divided by cost of sales for the quarter multiplied by the number of days in the quarter. Accounts receivable, net as of July 31, 2023 was $599.7 million, compared with $616.6 million as of July 31, 2022, a decrease of $16.9 million.
A significant portion of the Company’s cash and cash equivalents are held by subsidiaries throughout the world as over half of the Company’s earnings occur outside the U.S. Ad ditionally, the Company has capacity of $615.0 million available for further borrowing under existing credit facilities as of July 31, 2022.
A significant portion of the Company’s cash and cash equivalents is held by subsidiaries throughout the world as over half of the Company’s earnings occur outside the U.S. Additionally, the Company has capacity of $620.7 million available for further borrowing under existing credit facilities as of July 31, 2023.
Share repurchases for the years ended July 31, 2022 and 2021 were $170.6 million and $142.2 million, respectively. Capital Resources Additional so urces of liquidity are existing cash and available credit facilities. Cash and cash equivalents as of July 31, 2022 was $193.3 million, compared with $222.8 million as of July 31, 2021.
Share repurchases for the years ended July 31, 2023 and 2022 were $141.8 million and $170.6 million, respectively. Capital Resources Additional so urces of liquidity are exi sting cash and available credit facilities. Cash and cash equivalents as of July 31, 2023 was $187.1 million, compared with $193.3 million as of July 31, 2022.
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 guaran tee certain debt and banking services, including credit and debit cards, merchant processing and treasury management services, of the joint venture. The Company accounts for AFSI as an equity method investment.
The Company and Caterpillar equally own the shares of AFSI and both companies guaran tee 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.
Donaldson’s diverse, skilled employees at over 140 locations, 74 of which are manufacturing and distribution centers, on six continents partner with customers — from small business owners to the world’s biggest OEM brands — to solve complex filtration challenges. Customers choose Donaldson’s filtration solutions due to their stringent performance requirements, natural replacement change cycles and need for reliability.
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.
For volume, purchase rebates and discounts, management estimates are based on the terms of the arrangements with customers, historical payment experience, field inventory levels, volume in quantity or mix of purchases of product during a specified time period and expectations for changes in relevant trends in the future.
Revenue is recognized to the extent it is probable a significant reversal of revenue will not occur when the contingency is resolved. 25 For volume, purchase rebates and discounts, management estimates are based on the terms of the arrangements with customers, historical payment experience, field inventory levels, volume in quantity or mix of purchases of product during a specified time period and expectations for changes in relevant trends in the future.
Days inventory outstanding were 78 days as of July 31, 2022, an increase from 68 days as of July 31, 2021. Inventory turns were 4.7 times and 5.4 times per year as of July 31, 2022 and 2021, respectively.
Days inventory outstanding were 69 days as of July 31, 2023, a decrease from 78 days as of July 31, 2022. Inventory turns were 5.3 times and 4.7 times per year as of July 31, 2023 and 2022, respectively.
Discount Rates The Company’s objective in selecting a discount rate is to select the best estimate of the rate at which the benefit obligations could be effectively settled on the measurement date, taking into account the nature and duration of the benefit obligations of the plan.
The Company considers current and historical data and uses a third-party specialist to assist management in determining these estimates. 26 Discount Rates The Company’s objective in selecting a discount rate is to select the best estimate of the rate at which the benefit obligations could be effectively settled on the measurement date, taking into account the nature and duration of the benefit obligations of the plan.
At the time of sale to a customer, the Company records an estimate of variable consideration as a reduction from gross sales. The Company primarily relies on historical experience and anticipated future performance to estimate the variable consideration. Revenue is recognized to the extent it is probable a significant reversal of revenue will not occur when the contingency is resolved.
At the time of sale to a customer, the Company records an estimate of variable consideration as a reduction from gross sales. The Company primarily relies on historical experience and anticipated future performance to estimate the variable consideration.
Cash Flow Summary Cash flows were as follows (in millions): July 31, 2022 2021 $ Change Net cash provided by (used in): Operating activities $ 252.8 $ 401.9 $ (149.1) Investing activities (154.0) (58.3) (95.7) Financing activities (114.2) (363.3) 249.1 Effect of exchange rate changes on cash (14.1) 5.9 (20.0) Decrease in cash and cash equivalents $ (29.5) $ (13.8) $ (15.7) Operating Activities Cash provided by operating activities for the year ended July 31, 2022 was $252.8 million, compared with $401.9 million for the year ended July 31, 2021, a decrease of $149.1 million.
Cash Flow Summary Cash flows were as follows (in millions): July 31, 2023 2022 $ Change Net cash provided by (used in): Operating activities $ 544.5 $ 252.8 $ 291.7 Investing activities (327.3) (154.0) (173.3) Financing activities (222.2) (114.2) (108.0) Effect of exchange rate changes on cash (1.2) (14.1) 12.9 Decrease in cash and cash equivalents $ (6.2) $ (29.5) $ 23.3 22 Operating Activities Cash provided by operating activities for the year ended July 31, 2023 w as $544.5 million, compared with $252.8 million for the year ended July 31, 2022, an increase of $291.7 million.
In accounting for these defined benefit pension plans, management must make a variety of estimates and assumptions including discount rates and expected return on plan assets. The Company considers current and historical data and uses a third-party specialist to assist management in determining these estimates.
In accounting for these defined benefit pension plans, management must make a variety of estimates and assumptions including discount rates and expected return on plan assets.
Financial Condition The Company’s total capitalization components and debt-to-capitalization ratio were as follows (in millions): July 31, 2022 % 2021 % Short-term borrowings $ 3.7 0.2 % $ 48.5 2.9 % Current maturities of long-term debt — — — — Long-term debt 644.3 36.2 461.0 28.0 Total debt 648.0 36.4 509.5 30.9 Total stockholders’ equity 1,133.2 63.6 1,137.1 69.1 Total capitalization $ 1,781.2 100.0 % $ 1,646.6 100.0 % As of July 31, 2022, total debt, including short-term borrowings and long-term debt, represent ed 36.4% of total capitalization, defined as total debt plus total stockholders’ equity, compared with 30.9% as of July 31, 2021.
Financial Condition The Company’s total capitalization components and debt-to-capitalization ratio were as follows (in millions): July 31, 2023 % 2022 % Short-term borrowings $ 34.1 1.7 % $ 3.7 0.2 % Current maturities of long-term debt 125.0 6.3 — — Long-term debt 496.6 25.1 644.3 36.2 Total debt 655.7 33.2 648.0 36.4 Total stockholders’ equity 1,320.7 66.8 1,133.2 63.6 Total capitalization $ 1,976.4 100.0 % $ 1,781.2 100.0 % As of July 31, 2023, total debt, including short-term borrowings and long-term debt, represented 33.2% of total capitalization, defined as total debt plus total stockholders’ equity, compared with 36.4% as of July 31, 2022.
Selling, General and Administrative Expenses Selling, general and administrative expenses for the year ended July 31, 2022 were $554.8 million, or 16.8% of net sales, compared with $519.2 million, or 18.2% of net sales, for the year ended July 31, 2021, an increase of $35.6 million, or 6.9%.
Selling, General and Administrative Expenses Selling, gener al and administrative expenses for the year ended July 31, 2023 were $602.3 million, or 17.6% of net sales, compared with $554.8 million, or 16.8% of net sales, for the year ended July 31, 2022, an increase of $47.5 million, or 8.6%.
The increase was driven by higher sales leveraging operating expenses and pricing, partially offset by supply chain disruptions which increased input costs and increased raw material, freight, labor and energy costs. Prior fiscal year earnings were negatively impacted by restructuring charges of $6.5 million .
The increase was driven by higher sales leveraging operating expenses and pricing, partially offset by supply chain disruptions which increased input costs, including raw material, freight, labor and energy costs.
In fiscal 2022, the Company acquired Solaris, Purilogics and PAIS for cash consideration of $68.9 million, net of cash acquired, and invested a higher level of capital investment in various projects, including capacity expansion, cost reduction initiatives and tooling for new programs.
In fiscal 2023, the Company acquired Isolere and UTEC for cash consideration of $209.2 million, net of cash acquired, and invested a higher level of capital in various projects, including capacity expansion and tooling for new programs.
This approach is typically applied when cash flows are not directly generated by the asset, but rather, by an operating group which includes the particular asset.
The Company estimates the fair value of acquired customer relationships using the multi-period excess earnings method. This approach is typically applied when cash flows are not directly generated by the asset, but rather, by an operating group which includes the particular asset.
The impact of these fluctuations on net earnings was as follows (in millions): Year Ended July 31, 2022 2021 Prior year net earnings $ 286.9 $ 257.0 Change in net earnings excluding translation 56.8 19.1 Impact of foreign currency translation (1) (10.9) 10.8 Current year net earnings $ 332.8 $ 286.9 (1) The impact of foreign currency translation was calculated by translating current fiscal year foreign currency net earnings into U.S. dollars using the average foreign currency exchange rates for the prior fiscal year.
The impact of these fluctuations on net earnings was as follows (in millions): Year Ended July 31, 2023 2022 Prior year net earnings $ 332.8 $ 286.9 Change in net earnings excluding translation 40.4 56.8 Impact of foreign currency translation (1) (14.4) (10.9) Current year net earnings $ 358.8 $ 332.8 (1) The impact of foreign currency translation was calculated by translating current fiscal year foreign currency net earnings into U.S. dollars using the average foreign currency exchange rates for the prior fiscal year. 19 Restructuring 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.
Inflation impacted results throughout fiscal 2022 and is expected to continue into fiscal 2023. 15 C onsolidated Results of Operations Operating Results Operating results were as follows (in millions, except per share amounts): Year Ended July 31, 2022 % of net sales 2021 % of net sales Net sales $ 3,306.6 $ 2,853.9 Cost of sales 2,239.2 67.7 % 1,882.2 66.0 % Gross profit 1,067.4 32.3 971.7 34.0 Selling, general and administrative 554.8 16.8 519.2 18.2 Research and development 69.1 2.1 67.8 2.4 Operating expenses 623.9 18.9 587.0 20.6 Operating income 443.5 13.4 384.7 13.5 Interest expense 14.9 0.4 13.0 0.5 Other income, net (9.8) (0.3) (9.3) (0.3) Earnings before income taxes 438.4 13.3 381.0 13.3 Income taxes 105.6 3.2 94.1 3.3 Net earnings $ 332.8 10.1 % $ 286.9 10.1 % Net earnings per share (EPS) – diluted $ 2.66 $ 2.24 Geographic Net Sales by Origination Net sal es, generally disaggregated by l ocation where the customer’s order was received, were as follows (in millions): Year Ended July 31, 2022 % of net sales 2021 % of net sales U.S. and Canada $ 1,336.8 40.5 % $ 1,084.2 38.0 % EMEA 963.6 29.1 865.7 30.3 APAC 669.0 20.2 649.2 22.8 LATAM 337.2 10.2 254.8 8.9 Total Company $ 3,306.6 100.0 % $ 2,853.9 100.0 % Impact of Foreign Currency Translation on Net Sales Net sales were impacted by fluctuations in foreign currency exchange rates.
These inflationary pressures have had an adverse impact on the Company’s profit margins throughout the twelve months of fiscal 2023 when compared to the prior year, however they have been generally mitigated by pricing actions primarily implemented in the prior year. 17 C onsolidated Results of Operations Operating Results Operating results were as follows (in millions, except per share amounts): Year Ended July 31, 2023 % of net sales 2022 % of net sales Net sales $ 3,430.8 $ 3,306.6 Cost of sales 2,270.2 66.2 % 2,239.2 67.7 % Gross profit 1,160.6 33.8 1,067.4 32.3 Selling, general and administrative 602.3 17.6 554.8 16.8 Research and development 78.1 2.3 69.1 2.1 Operating expenses 680.4 19.8 623.9 18.9 Operating income 480.2 14.0 443.5 13.4 Interest expense 19.2 0.6 14.9 0.4 Other income, net (7.7) (0.2) (9.8) (0.3) Earnings before income taxes 468.7 13.7 438.4 13.3 Income taxes 109.9 3.2 105.6 3.2 Net earnings $ 358.8 10.5 % $ 332.8 10.1 % Net earnings per share (EPS) – diluted $ 2.90 $ 2.66 Geographic Net Sales by Origination Net sal es, generally disaggregated by l ocation where the customer’s order was received, were as follows (in millions): Year Ended July 31, 2023 % of net sales 2022 % of net sales U.S. and Canada $ 1,464.7 42.7 % $ 1,336.8 40.5 % Europe, Middle East and Africa (EMEA) 1,007.8 29.4 963.6 29.1 Asia Pacific (APAC) 608.8 17.7 669.0 20.2 Latin America (LATAM) 349.5 10.2 337.2 10.2 Total Company $ 3,430.8 100.0 % $ 3,306.6 100.0 % Impact of Foreign Currency Translation on Net Sales Net sales were impacted by fluctuations in foreign currency exchange rates.
While, the Company uses its best estimates and assumptions, especially at the acquisition date, including its estimates for intangible assets, pre-acquisition contingencies and any contingent consideration, where applicable, the fair value estimates are inherently uncertain and subject to refinement.
The multi-period excess earnings method is consistent with the approach used to value acquired customer relationships and the relief from royalty method is consistent with the approach used to value trade names and/or trademarks. 27 While the Company uses its best estimates and assumptions, especially at the acquisition date, including its estimates for intangible assets, pre-acquisition contingencies and any contingent consideration, where applicable, the fair value estimates are inherently uncertain and subject to refinement.
The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed elsewhere in this Annual Report, particularly Item 1A, “Risk Factors” and in the Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. 14 Throughout this MD&A, the Company refers to measures used by management to evaluate performance, including a number of financial measures that are not defined under generally accepted accounting principles (GAAP) in the U.S.
This discussion contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed elsewhere in this Annual Report, particularly Item 1A, “Risk Factors” and in the Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995.
Earnings before income taxes for the Engine Products segment for the year ended July 31, 2022 were $329.2 million, or 14.3% of Engine Products’ net sales, a decrease from 14.8% of net sales for the year ended July 31, 2021.
Earnings before income taxes for the Life Sciences segment for the year ended July 31, 2023 were $9.9 million, or 4.1% of net sales, a decrease from 23.3% of net sales for the year ended July 31, 2022.
Days sales outstanding were 62 days as of July 31, 2022, a decrease from 65 days as of July 31, 2021. Inven tories, net as of July 31, 2022 was $502.4 million, compared with $384.5 million as of July 31, 2021, an increase of $117.9 million.
Days sales outstanding were 64 days as of July 31, 2023, an increase from 62 days as of July 31, 2022. Inventories, net as of July 31, 2023 was $418.1 million, compared with $502.4 million as of July 31, 2022, a decrease of $84.3 million.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended July 31, 2021 (the “2021 Annual Report”), which was filed with the SEC on September 24, 2021.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended July 31, 2022 (the “2022 Annual Report”), which was filed with the SEC on September 23, 2022. 16 The MD&A should be read in conjunction with the Company’s Consolidated Financial Statements and Notes included in Item 8 of this Annual Report.
Research and development expenses as a percentage of net sales reflects the Company’s continued investment in technology. Non-Operating Items Interest expense for the year ended July 31, 2022 was $14.9 million, compared with $13.0 million, for the year ended July 31, 2021, an increase of $1.9 million, or 13.9%. The increase reflected a higher debt level.
The increase in research and development expenses as a percentage of net sales was primarily due to higher headcount. Non-Operating Items Interest expense for the year ende d July 31, 2023 was $19.2 million, compared with $14.9 million for the year ended July 31, 2022, an increase of $4.3 million, or 28.9%.
Research and Development Expenses Research and development expenses for the year ended July 31, 2022 were $69.1 million, or 2.1% of net sales, compared with $67.8 million, or 2.4% of net sales, for the year ended July 31, 2021, an increase of $1.3 million, or 2.0%.
This was partially offset by expense leverage on higher sales. Research and Development Expenses Research and development e xpenses for the year ended July 31, 2023 were $78.1 million, or 2.3% of net sales, compared with $69.1 million, or 2.1% of net sales, for the year ended July 31, 2022, an increase of $9.0 million, or 13.0%.
Gross margin as a percentage of net sales for the year ended July 31, 2022 was 32.3% compared with 34.0% for the year ended July 31, 2021, a decrease of 1.7%.
Gross margin as a percentage of net sales for the year ended July 31, 2023 was 33.8% com pared with 32.3% for the year ended July 31, 2022 , an increase of 1.5 percentage points.
The judgments required in determining the estimated fair values and expected useful lives assigned to each class of assets and liabilities acquired can significantly affect net income. New Accounting Standard Not Yet Adopted For the new accounting standard not yet adopted, refer to Note 1 in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report.
The judgments required in determining the estimated fair values and expected useful lives assigned to each class of assets and liabilities acquired can significantly affect net income.
Excluding a $32.0 million decrease from foreign currency translation, net sales increased 15.6%. Net sales of IFS increased $89.3 million primarily in the U.S. reflecting improved end market conditions in Industrial Air Filtration (IAF) for both first-fit and replacement parts of dust collection products. EMEA had continued strength in IAF and Process Filtration within the food and beverage market.
Net sales of IFS increased $95.7 million, primarily in the U.S., reflecting improved end-market conditions in Industrial Air Filtration for both first-fit and replacement parts of dust collection products.
Liquidity, Capital Resources, Capital Requirements and Financial Condition Liquidity Liquidity is assessed in terms of the Company’s ability to generate cash to fund its operating, investing and financing activities.
The decrease was driven by supply chain disruptions which increased input costs, including raw material, freight, labor and energy costs, partially offset by pricing. Liquidity, Capital Resources, Capital Requirements and Financial Condition Liquidity Liquidity is assessed in terms of the Company’s ability to generate cash to fund its operating, investing and financing activities.
For reporting units evaluated using a qualitative assessment, if it is determined the fair value more likely than not exceeds the carrying value, no further assessment is necessary. The Company has elected this option for certain reporting units.
The optional qualitative assessment evaluates general economic, industry and entity-specific factors that could impact the reporting units’ fair values. For reporting units evaluated using a qualitative assessment, if it is determined the fair value more likely than not exceeds the carrying value, no further assessment is necessary.
Earnings before income taxes for the Industrial Products segment for the year ended July 31, 2022 were $162.5 million, or 16.2% of Industrial Products’ net sales, an increase from 14.9% of net sales for the year ended July 31, 2021.
Earnings before income taxes for the Industrial Solutions segment for the year ended July 31, 2023 wer e $186.2 million, or 18.4% of net sales, an increase fro m 14.8% of net sales for the year ended July 31, 2022.
Working Capital In order to help measure and analyze the impact of working capital management, the Company calculates days sales outstanding as the average accounts receivable, net for the quarter, divided by net sales for the quarter multiplied by the number of days in the quarter.
In fiscal 2022, the Company received proceeds of $150.0 million of unsecured senior notes for which it had entered into an agreement in fiscal 2021 and had additional borrowings on its revolving credit facilities. 24 Working Capital In order to help measure and analyze the impact of working capital management, the Company calculates days sales outstanding as the average accounts receivable, net for the quarter, divided by net sales for the quarter multiplied by the number of days in the quarter.
In fiscal 2022, the Company’s net sales increased from strong, broad-based end-market demand and higher pricing. 16 Cost of Sales and Gross Margin Cost of sales for the year ended July 31, 2022 was $2,239.2 million, compared with $1,882.2 million for the year ended July 31, 2021, an increase of $357.0 million, or 19.0%.
Cost of Sales and Gross Margin Cost of sales for the year ended July 31, 2023 was $2,270.2 million , compared with $2,239.2 million for the year ended July 31, 2022, an increase of $31.0 million, or 1.4%.
The Company’s operating segments are Engine Products and Industrial Products. The Engine segment is organized based on a combination of customers and products and consists of the Off-Road, On-Road, Aftermarket and Aerospace and Defense business units. Within these business units, Engine products consist of replacement filters for both air and liquid filtration applications as well as exhaust and emissions.
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.
The Company expects approximately $8 million in annualized savings from these restructuring activities, and the initiative is now substantially completed. 17 Segment Results of Operations Net sales and earnings before income taxes were as follows (in millions): Year Ended July 31, 2022 2021 $ Change % Change Net sales Engine Products segment $ 2,302.7 $ 1,957.7 $ 345.0 17.6 % Industrial Products segment 1,003.9 896.2 107.7 12.0 Total Company $ 3,306.6 $ 2,853.9 $ 452.7 15.9 % Earnings before income taxes Engine Products segment $ 329.2 $ 289.0 $ 40.2 13.9 % Industrial Products segment 162.5 133.3 29.2 21.9 Corporate and unallocated (1) (53.3) (41.3) (12.0) 29.1 Total Company $ 438.4 $ 381.0 $ 57.4 15.1 % (1) Corporate and unallocated includes corporate expenses determined to be non-allocable to the segments, such as interest expense, restructuring charges and certain incentive compensation.
Segment Results of Operations Net sales and earnings before income taxes were as follows (in millions): Year Ended July 31, 2023 VS 2022 2022 VS 2021 2023 2022 2021 $ Change % Change $ Change % Change Net sales Mobile Solutions $ 2,174.8 $ 2,126.5 $ 1,818.4 $ 48.3 2.3 % $ 308.1 16.9 % Industrial Solutions 1,014.7 901.0 781.0 113.7 12.6 120.0 15.4 Life Sciences 241.3 279.1 254.5 (37.8) (13.5) 24.6 9.7 Total Company $ 3,430.8 $ 3,306.6 $ 2,853.9 $ 124.2 3.8 % $ 452.7 15.9 % Earnings (loss) before income taxes Mobile Solutions $ 330.4 $ 293.8 $ 276.1 $ 36.6 12.5 % $ 17.7 6.4 % Industrial Solutions 186.2 133.0 81.0 53.2 40.0 52.0 64.2 Life Sciences 9.9 64.9 65.2 (55.0) (84.7) (0.3) (0.5) Corporate and unallocated (1) (57.8) (53.3) (41.3) (4.5) (8.4) (12.0) 29.1 Total Company $ 468.7 $ 438.4 $ 381.0 $ 30.3 6.9 % $ 57.4 15.1 % (1) Corporate and unallocated includes interest expense and certain corporate expenses determined to be non-allocable to the segments, such as restructuring charges and business development expenses.
Credit Facilities European Operations Credit Facilities Rest of the World Credit Facilities Total Available short-term credit facilities $ 102.1 $ 100.0 $ 42.4 $ 52.8 $ 297.3 Reductions to borrowing capacity: Outstanding borrowings — — — 3.7 3.7 Other non-borrowing reductions — — 27.0 19.1 46.1 Total reductions — — 27.0 22.8 49.8 Remaining borrowing capacity $ 102.1 $ 100.0 $ 15.4 $ 30.0 $ 247.5 Weighted average interest rate as of July 31, 2022 N/A N/A N/A 0.37 % N/A Other non-borrowing reductions include financial instruments such as bank guarantees and foreign exchange instruments.
Credit Facilities European Operations Credit Facilities Rest of the World Credit Facilities Total Available short-term credit facilities $ 110.3 $ 100.0 $ 45.0 $ 50.8 $ 306.1 Reductions to borrowing capacity: Outstanding borrowings 24.3 9.8 — — 34.1 Other non-borrowing reductions — — 28.8 18.8 47.6 Total reductions 24.3 9.8 28.8 18.8 81.7 Remaining borrowing capacity $ 86.0 $ 90.2 $ 16.2 $ 32.0 $ 224.4 Weighted average interest rate as of July 31, 2023 4.09 % 6.17 % N/A N/A 4.69 % Other non-borrowing reductions include financial instruments such as bank guarantees and foreign exchange instruments. 23 Long-term borrowing capacity is maintained through a $500.0 million unsecured rev olving credit facility.
Engine Products Segment Net sales were as follows (in millions): Year Ended July 31, 2022 2021 $ Change % Change Off-Road $ 405.8 $ 328.1 $ 77.7 23.7 % On-Road 136.1 138.8 (2.7) (2.0) Aftermarket 1,640.3 1,394.6 245.7 17.6 Aerospace and Defense 120.5 96.2 24.3 25.3 Total Engine Products segment $ 2,302.7 $ 1,957.7 $ 345.0 17.6 % Engine Products segment earnings before income taxes $ 329.2 $ 289.0 $ 40.2 13.9 % Net sales for the Engine Products segment for the year ended July 31, 2022 were $2,302.7 million, compared with $1,957.7 million for the year ended July 31, 2021, an increase of $345.0 million, or 17.6%.
Mobile Solutions Segment Net sales and earnings before income taxes were as follows (in millions): Year Ended July 31, 2023 VS 2022 2022 VS 2021 2023 2022 2021 $ Change % Change $ Change % Change Net sales Off-Road $ 428.7 $ 390.5 $ 316.3 $ 38.2 9.8 % $ 74.2 23.5 % On-Road 145.8 136.1 138.8 9.7 7.2 (2.7) (1.9) Aftermarket 1,600.3 1,599.9 1,363.3 0.4 — 236.6 17.4 Total Mobile Solutions segment $ 2,174.8 $ 2,126.5 $ 1,818.4 $ 48.3 2.3 % $ 308.1 16.9 % Mobile Solutions segment earnings before income taxes $ 330.4 $ 293.8 $ 276.1 $ 36.6 12.5 % $ 17.7 6.4 % Fiscal 2023 compared with Fiscal 2022 Net sales for the Mobile Solutions segment for the year ended July 31, 2023 w ere $2,174.8 million , compared with $2,126.5 million for the year ended July 31, 2022, an increase of $48.3 million, or 2.3%.
Accounts payable as of July 31, 2022 was $338.5 million, compared with $293.9 million as of July 31, 2021, an increase of $44.6 million.
Accounts payable as of July 31, 2023 was $304.9 million, compared with $338.5 million as of July 31, 2022, a decrease of $33.6 million. Days payable outstanding were 49 days as of July 31, 2023, a decrease from 52 days as of July 31, 2022.
Net Sales Net sales for the year ended July 31, 2022 increased $452.7 million, or 15.9% from fiscal 2021, reflecting higher sales in the Engine Products segment of $345.0 million, or 17.6%, and the Industrial Products segment of $107.7 million, or 12.0%.
In fiscal 2023, the Company’s net sales increased primarily from higher pricing, partially offset by a negative impact from foreign currency translation. 18 Net sales for the year ended July 31, 2022 increased $452.7 million, or 15.9% from fiscal 2021, reflecting higher sales in the Mobile Solutions segment of $308.1 million, or 16.9%, the Industrial Solutions segment of $120.0 million, or 15.4% and the Life Sciences segment of $24.6 million, or 9.7%.
Foreign currency translation decreased net sales by $87.1 million compared to the prior fiscal year, reflecting decreases in the Engine Products and Industrial Products segments of $55.1 million and $32.0 million, respectively.
Foreign currency translation decreased net sales by $87.1 million compared to the prior fiscal year, reflecting decreases in the Mobile Solutions, Industrial Solutions and Life Sciences segments of $52.1 million, $21.4 million and $13.6 million, respectively. In fiscal 2022, the Company’s net sales increased from strong, broad-based end-market demand and higher pricing.
Cash used in financing activities for the year ended July 31, 2022 was $114.2 million, compared with $363.3 million for the year ended July 31, 2021, a decrease of $249.1 million. The decrease was driven primarily by proceeds from the issuance of new debt.
Cash used in financing activities for the year ended July 31, 2023 was $222.2 million, compared with $114.2 million for the year ended July 31, 2022, an increase of $108.0 million.
Prior fiscal year earnings were negatively impacted by restructuring charges of $2.5 million. 18 Industrial Products Segment Net sales were as follows (in millions): Year Ended July 31, 2022 2021 $ Change % Change Industrial Filtration Solutions (IFS) $ 711.2 $ 621.9 $ 89.3 14.4 % Gas Turbine Systems 110.2 96.2 14.0 14.6 Special Applications 182.5 178.1 4.4 2.5 Total Industrial Products $ 1,003.9 $ 896.2 $ 107.7 12.0 % Industrial Products segment earnings before income taxes $ 162.5 $ 133.3 $ 29.2 21.9 % Net sales for the Industrial Products segment for the year ended July 31, 2022 were $1,003.9 million, compared with $896.2 million for the year ended July 31, 2021, an increase of $107.7 million, or 12.0%.
Industrial Solutions Segment Net sales and earnings before income taxes were as follows (in millions): Year Ended July 31, 2023 VS 2022 2022 VS 2021 2023 2022 2021 $ Change % Change $ Change % Change Net sales Industrial Filtration Solutions (IFS) $ 872.2 $ 780.5 $ 684.8 $ 91.7 11.7 % $ 95.7 14.0 % Aerospace and Defense 142.5 120.5 96.2 22.0 18.3 24.3 25.3 Total Industrial Solutions segment $ 1,014.7 $ 901.0 $ 781.0 $ 113.7 12.6 % $ 120.0 15.4 % Industrial Solutions segment earnings before income taxes $ 186.2 $ 133.0 $ 81.0 $ 53.2 40.0 % $ 52.0 64.2 % Fiscal 2023 compared with Fiscal 2022 Net sales for the Industrial Solutions segment for the year ended July 31, 2023 w ere $1,014.7 million, compared with $901.0 million for the year ended July 31, 2022, an increase of $113.7 million, or 12.6%.
Days payable outstanding were 52 days as of July 31, 2022, an increase from 51 day s as of July 31, 2021. 21 Off-Balance Sheet Arrangements Joint Venture Guarantee The Company has an unconsolidated joint venture, Advanced Filtration Systems Inc. (AFSI), established by the Company and Caterpillar Inc. (Caterpillar) in 1986.
Off-Balance Sheet Arrangements Joint Venture Guarantee The Company has an unconsolidated joint venture, Advanced Filtration Systems Inc. (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.
Long-term borrowing capacity is maintained through a $500.0 million rev olving credit facility. Borrowings against the credit facility are reported on the Consolidated Balance Sheets.
Borrowings against the credit facility are reported on the Consolidated Balance Sheets.
Net sales of Off-Road increased $77.7 million primarily due to increased pricing, equipment production levels remaining high in most regions, with the exception of mainland China, and strong sales for Exhaust and Emissions in EMEA. Aerospace and Defense increased by $24.3 million as stronger economic conditions in the commercial aerospace industry and market share gains drove results.
Excluding a $52.1 million decrease from foreign currency translation, net sales increased 19.8%. Net sales of Off-Road increased $74.2 million primarily due to increased pricing, continued high equipment production levels in most regions, with the exception of mainland China, and strong sales for Emissions Systems in EMEA.
Charges of $5.8 million were included in cost of sales and $9.0 million were included in operating expenses in the Consolidated Statement of Earnings for the year ended July 31, 2021.
Charges of $2.9 million were included in cost of sales and $18.9 million were included in selling, general and administrative expenses in the accompanying Consolidated Statements of Earnings.
The lower effective tax rate was primarily due to an overall increase in discrete tax benefits. Net Earnings Net earnings for the year ended July 31, 2022 were $332.8 million, compared with $286.9 million for the year ended July 31, 2021, an increase of $45.9 million, or 16.0%.
Net Earnings Net earnings for the year ended July 31, 2023 were $358.8 million, compared with $332.8 million for the year ended July 31, 2022, an increase of $26.0 million, or 7.8%. Diluted EPS were $2.90 for the year ended July 31, 2023, compared with $2.66 for the year ended July 31, 2022.
Other income, net for the year ended July 31, 2022 was $9.8 million, compared with $9.3 million, for the year ended July 31, 2021, an increase of $0.5 million, or 5.0%. Income Taxes The effective tax rates were 24.1% and 24.7% for the years ended July 31, 2022 and 2021, respectively.
Fiscal 2022 compared with Fiscal 2021 Net sales for the Life Sciences segment for the year ended July 31, 2022 were $279.1 million, compared with $254.5 million for the year ended July 31, 2021, an increase of $24.6 million, or 9.7%. Excluding a $13.6 million decrease from foreign currency translation, net sales increased 15.0%.
Excluding a $55.1 million decrease from foreign currency translation, net sales increased 20.4%. Net sales of Aftermarket increased $245.7 million, which reflected broad growth across all regions driven by pricing and continued high end-market demand.
Net sales of Aftermarket increased $236.6 million, which reflected broad growth across all regions driven by pricing and continued high end-market demand. Earnings before income taxes for the Mobile Solutions segment for the year ended July 31, 2022 were $293.8 million, or 13.8% of net sales, a decrease from 15.2% of net sales for the year ended July 31, 2021.
Diluted EPS were $2.66 for the year ended July 31, 2022, compared with $2.24 for the year ended July 31, 2021. Net earnings were impacted by fluctuations in foreign currency exchange rates.
Net earnings were impacted by fluctuations in foreign currency exchange rates.
An impairment loss would be recognized when the carrying amount of a reporting unit’s net assets exceeds the estimated fair value of the reporting unit. 22 The optional qualitative assessment evaluates general economic, industry and entity-specific factors that could impact the reporting units’ fair values.
In addition, as a result of the organizational redesign, the Company performed a qualitative impairment assessment based on the new segments in the second quarter of fiscal 2023 and concluded there was no impairment. An impairment loss would be recognized when the carrying amount of a reporting unit’s net assets exceeds the estimated fair value of the reporting unit.
The gross margin as a percentage of net sales decrease was driven by supply chain disruptions which increased input costs, higher raw material, freight, energy and labor costs as well as an inventory charge of $1.0 million related to the Russia and Ukraine conflict in the current fiscal year, partially offset by pricing.
The increase in gross margin as a percentage of net sales was primarily driven by pricing actions, partially offset by higher input costs as well as $2.9 million of costs associated with exiting of a lower-margin customer program and a lower-margin product.
Applications include air filtration systems, fuel and lube systems, hydraulic applications and exhaust and emissions systems and sensors, indicators and monitoring systems. Engine sells to OEMs in the construction, mining, agriculture, transportation, aerospace and defense end markets and to independent distributors, OEM dealer networks, private label accounts and large fleets.
Mobile Solutions sells to 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.
Removed
The MD&A should be read in conjunction with the Company’s Consolidated Financial Statements and Notes included in Item 8 of this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties.
Added
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations In the second quarter of fiscal 2023, the Company established a new segment reporting structure which resulted in three reportable segments: Mobile Solutions, Industrial Solutions and Life Sciences. We have reflected this change in all historical periods presented. See Note 19.
Removed
The Industrial segment is organized based on product type and consists of the IFS, GTS and Special Applications business units. Within the IFS business unit, products consist of dust, fume and mist collectors, compressed air purification systems, gas and liquid filtration for food, beverage and industrial processes. The GTS business unit products consist of air filtration systems for gas turbines.
Added
Segment Reporting in the Notes to Consolidated Financial Statements, included in Item 8 of Part II in this Annual Report for further detail of this change.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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On an ongoing basis, the Company enters into selective supply arrangements that allow the Company to reduce volatility in its costs. The Company strives to recover or offset all material cost increases through selective price increases to its customers and the Company’s cost reduction initiatives, which include material substitution, process improvement and product redesigns.
On an ongoing basis, the Company enters into selective supply arrangements that allow the Company to reduce volatility in its costs. The Company strives to recover or offset all material cost increases through price increases to its customers and the Company’s cost reduction initiatives, which include material substitution, process improvement and product redesigns.
However, an increase in commodity prices could result in lower gross profit. Bankers’ Acceptance Notes Consistent with common business practice in APAC, the Company has subsidiaries which accept bankers’ acceptance notes from their customers in settlement of certain customer billed accounts receivable.
However, an increase in commodity prices could result in lower gross profit. 29 Bankers’ Acceptance Notes Consistent with common business practice in APAC, the Company has subsidiaries which accept bankers’ acceptance notes from their customers in settlement of certain customer billed accounts receivable.
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.
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.
A portion of the Company’s foreign currency exposure is naturally hedged by incurring liabilities, including bank debt, denominated in the local currency in which the Company’s foreign subsidiaries are located. During fiscal 2022, the U.S. dollar was generally stronger than in fiscal 2021 compared with many of the currencies of the foreign countries in which the Company operates.
A portion of the Company’s foreign currency exposure is naturally hedged by incurring liabilities, including bank debt, denominated in the local currency in which the Company’s foreign subsidiaries are located. During fiscal 2023, the U.S. dollar was generally stronger than in fiscal 2022 compared with many of the currencies of the foreign countries in which the Company operates.
The Company does not enter into any of these instruments for trading or speculative purposes. The Company maintains significant assets and operations outside the U.S., resulting in exposure to foreign currency gains and losses.
The Company does not enter into any of these strategies for trading or speculative purposes. The Company maintains significant assets and operations outside the U.S., resulting in exposure to foreign currency gains and losses.
The plans were overfunded by $17.2 million as of July 31, 2022, since the fair value of the plan assets exceeded the projected benefit obligation. Commodity Prices The Company is exposed to market risk from fluctuating prices of purchased commodity raw materials, including steel, filter media and petrochemical-based products including plastics, rubber and adhesives.
The plans were overfunded by $14.9 million as of July 31, 2023, since the fair value of the plan assets exceeded the projected benefit obligation. Commodity Prices The Company is exposed to market risk from fluctuating prices of purchased commodity raw materials, including steel, filter media and petrochemical-based products including plastics, rubber and adhesives.
Interest rate changes would also affect the fair market value of fixed-rate debt. As of July 31, 2022, the estimated fair values of fixed interest rate long-term debt were $396.9 million compared to the carrying values of $425.0 million.
Interest rate changes would also affect the fair market value of fixed-rate debt. 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 plans’ projected benefit obligation is inversely related to changes in interest rates. Consistent with published bond indices, in fiscal 2022, the Company increased its weighted average discount rate from 2.55% to 4.62% on its U.S. plans and increased its weighted average discount rate from 1.55% to 3.26% on its non-U.S. plans.
The plans’ projected benefit obligation is inversely related to changes in interest rates. Consistent with published bond indices, in fiscal 2023, the Company increased its weighted average discount rate from 4.62% to 5.58% on its U.S. plans and increased its weighted average discount rate from 3.26% to 4.80% on its non-U.S. plans.
As of July 31, 2022, additional short-term borrowings outstanding consisted of $3.7 million. Assuming a hypothetical 0.5 percentage point increase in short-term interest rates, with all other variables remaining constant, interest expense would have increased approximately $1.1 million and interest income would have increased by an immaterial amount in fiscal 2022.
As of July 31, 2023, additional short-term borrowings outstanding consisted of $34.1 million. Assuming a hypothetical 0.5 percentage point increase in short-term interest rates, with all other variables remaining constant, interest expense would have increased approximately $1.2 million and interest income would have increased by approximately $0.9 million in fiscal 2023.
The total notional amount of net investment hedges as of July 31, 2022 and 2021 were €80 million, or $88.8 million, and €50 million, or $55.8 million, respectively. The maturity dates range from 2027 to 2029.
The total notional amount of net investment hedges as of July 31, 2023 and 2022 was €80 million, or $88.8 million. The maturity dates range from 2027 to 2029.
As of July 31, 2022 and 2021, the Company owned $12.6 million and $14.1 million, respectively, of these bankers’ acceptance notes and includes them in accounts receivable on the Consolidated Balance Sheets. 26
As of July 31, 2023 and 2022, the Company owned $13.2 million and $12.6 million, respectively, of these bankers’ acceptance notes and includes them in accounts receivable on the Consolidated Balance Sheets. 30
As of July 31, 2022, the Company’s financial liabilities with exposure to changes in interest rates consisted mainly of $125.0 million outstanding on the Company’s revolving credit facility, €80.0 million, or $81.7 million of a variable rate term loan, and ¥2.0 billion, or $15.0 million, of variable rate senior notes.
As of July 31, 2023, the Company’s financial liabilities with exposure to changes in interest rates consisted mainly of €60.0 million and $30.0 million, or a total of $96.2 million, outstanding on the Company’s unsecured revolving credit facility, €80.0 million, or $88.2 million of a variable rate term loan and ¥2.0 billion, or $14.0 million, of variable rate senior notes.
The total notional amounts of the foreign currency forward contracts designated as hedges as of July 31, 2022 and 2021 were $158.0 million and $117.2 million, respectively. The total notional amounts of the foreign currency forward contracts not designated as hedges as of July 31, 2022 and 2021 were $151.6 million and $154.2 million, respectively.
The total notional amounts of the foreign currency forward contracts designated as hedges as of July 31, 2023 and 2022 were $84.9 million and $158.0 million, respectively. The total notional amounts of the foreign currency forward contracts not designated as hedges as of July 31, 2023 and 2022 were $147.5 million and $151.6 million, respectively.
See Notes 12, 15 and 16 in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report. 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 only enters into derivative instrument agreements with counterparties who have highly rated credit. See Notes 12, 15 and 16 in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report. Foreign Currency Forward Contracts - Cash Flow Hedges and Derivatives Not Designated as Hedging Instruments The Company buys materials from foreign suppliers.
Based on the net investment hedges outstanding as of July 31, 2022, a 10% appreciation of the U.S. dollar compared to the Euro, would result in a net gain of $7.8 million in the fair value of these contracts. 25 Interest Rates The Company’s exposure to market risk for changes in interest rates primarily relates to debt obligations that are at variable rates, as well as the potential increase in the fair value of long-term debt resulting from a potential decrease in interest rates.
Interest Rates The Company’s exposure to market risk for changes in interest rates primarily relates to debt obligations that are at variable rates, as well as the potential increase in the fair value of long-term debt resulting from a potential decrease in interest rates.
The estimated impact of foreign currency translation for the year ended July 31, 2022 resulted in an overall decrease in reported net sales of $87.1 million and a decrease in reported net earnings of $10.9 million.
The estimated impact of foreign currency translation for the year ended July 31, 2023 resulted in an overall decrease in reported net sales of $113.4 million and a decrease in reported net earnings of $14.4 million. 28 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.
Removed
Derivative Fair Value Measurements The Company enters into derivative instrument agreements, including foreign currency forward contracts, net investment hedges and interest rate swaps, to manage risk in connection with changes in foreign currency and interest rates. The Company only enters into derivative instrument agreements with counterparties who have highly rated credit.
Added
Based on the net investment hedges outstanding as of July 31, 2023, a 10% appreciation of the U.S. dollar compared to the Euro, would result in a net gain of $7.7 million in the fair value of these contracts.

Other DCI 10-K year-over-year comparisons