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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 — 2023 vs 2024

Top changes in DONALDSON Co INC's 2024 10-K

186 paragraphs added · 193 removed · 163 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

49 edited+6 added−2 removed49 unchanged
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.
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; 7 • 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.
(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.
(Solaris), headquartered in Porto Mantovano, Italy and Purilogics LLC (Purilogics) 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.
Key products/applications include lithography process air filtration, point-of-use chemical filtration, compressed air dryers and liquid filtration. Disk Drive Disk drive delivers products that have advanced materials and absorbent technologies to control moisture and contaminants in microenvironments. Disk drive filters work in the background to help protect critical components in cloud computing: streaming, storage, sharing, gaming and business-to-business interaction.
Key products/applications include lithography process air filtration, point-of-use chemical filtration, compressed air dryers and liquid filtration. Disk Drive Disk drive delivers products that have advanced materials and absorbent technologies to control moisture and contaminants in microenvironments. Disk drive filters work in the background to help protect critical components in cloud computing: streaming, storage, sharing and business-to-business interaction.
Robinson was the Chief Financial Officer for Imation Corp., a global data storage and information security company, from 2014 to 2015. During his 11 years with Imation Corp., he also served as the Investor Relations Officer, Corporate Controller and Chief Accounting Officer. 9 Mr. Scalf was appointed President, Enterprise Operations and Supply Chain in November 2022. Mr.
Robinson was the Chief Financial Officer for Imation Corp., a global data storage and information security company, from 2014 to 2015. During his 11 years with Imation Corp., he also served as the Investor Relations Officer, Corporate Controller and Chief Accounting Officer. Mr. Scalf was appointed President, Enterprise Operations and Supply Chain in November 2022. Mr.
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.
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. 4 During fiscal year 2022, the Company acquired Solaris Biotechnology S.r.l.
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.
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 and naval vessels.
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.
Life Sciences primarily sells to large OEMs and directly to various end users requiring cell growth, separation, purification, high purity filtration and device protection. Diverse Product Groups The Company sells a diverse group of products within each segment and the business units within the segments.
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.
Life Sciences Food and Beverage 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.
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.
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 a preferred choice for OEMs’ engines and equipment.
Scalf joined the Company in 1989 and has held various positions, including Plant Manager; Manager, Site Integration; Director of Operations; General Manager, Exhaust and Emissions; General Manager, Industrial Filtration Solutions Americas; Vice President, Global Industrial Air Filtration; and Senior Vice President, Engine Products.
Scalf joined the Company in 1989 and has held various positions, including Plant Manager; Manager, Site Integration; Director of Operations; General Manager, Exhaust and Emissions; General Manager, Industrial Filtration Solutions Americas; Vice President, Global Industrial Air Filtration; and Senior Vice President, Engine Products. 9
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.
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 69% of the Company’s cost of sales.
Dahlgren joined the Company in 1994 and has held various positions, including Manager Business Development, Disk Drive; Director of Business Development, IVS, Semiconductor, Fuel Cell; General Manager, Engine Air; General Manager, GTS; Vice President, GTS and Special Applications; and Vice President, Asia Pacific. Ms. Kramer was appointed Chief Human Resources Officer in November 2022. Ms.
Dahlgren joined the Company in 1994 and has held various positions, including President, Life Sciences; Manager Business Development, Disk Drive; Director of Business Development, IVS, Semiconductor, Fuel Cell; General Manager, Engine Air; General Manager, GTS; Vice President, GTS and Special Applications; and Vice President, Asia Pacific. Ms. Kramer was appointed Chief Human Resources Officer in November 2022. Ms.
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.
In fiscal 2024, 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 2025.
Robinson 56 Chief Financial Officer 2015 Thomas R. Scalf 57 President, Enterprise Operations and Supply Chain 2014 Ms. Becker was appointed to Chief Legal Officer and Corporate Secretary in November 2022. Ms. Becker joined the Company in 1998 and held positions as Senior Counsel and Assistant Corporate Secretary; Assistant General Counsel; and Vice President, General Counsel and Secretary.
Robinson 57 Chief Financial Officer 2015 Thomas R. Scalf 58 President, Enterprise Operations and Supply Chain 2014 Ms. Becker was appointed to Chief Legal Officer and Corporate Secretary in November 2022. Ms. Becker joined the Company in 1998 and held positions as Senior Counsel and Assistant Corporate Secretary; Assistant General Counsel; and Vice President, General Counsel and Secretary.
Lewis joined the Company in 2002 and has held various positions, including Plant Manager; Director of Operations; General Manager, Liquid Filtration; General Manager, Operations; Vice President, Global Operations; and Senior Vice President, Global Operations. Mr. Robinson was appointed Chief Financial Officer and joined the Company in 2015. Prior to joining the Company, Mr.
Lewis joined the Company in 2002 and has held various positions, including President, Mobile Solutions; Plant Manager; Director of Operations; General Manager, Liquid Filtration; General Manager, Operations; Vice President, Global Operations; and Senior Vice President, Global Operations. Mr. Robinson was appointed Chief Financial Officer and joined the Company in 2015. Prior to joining the Company, Mr.
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.
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. 8 Executive Officers Our executive officers of the Company as of August 31, 2024 were as follows: Name Age Positions and Offices Held First Calendar Year Appointed as an Executive Officer Amy C.
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.
Below are the product groups across the Company’s three segments represented as a percentage of total fiscal 2024 net sales. 2 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.
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.
Donaldson’s diverse and skilled employees at approximately 150 locations on six continents, 77 of which are manufacturing and/or distribution centers, 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.
These filings are available on the SEC’s website at www.sec.gov . Also available on the Company’s website are corporate governance documents, including the Company’s Code of Business Conduct and Business Conduct Help Line, Corporate Governance Guidelines, Director Independence Standards, Audit Committee Charter, Human Resources Committee Charter and Corporate Governance Committee Charter.
These filings are available on the SEC’s website at www.sec.gov . Also available on the Company’s website are corporate governance documents, including the Company’s Code of Business Conduct and Business Conduct Help Line, Corporate Governance Guidelines, Audit Committee Charter, Human Resources Committee Charter and Corporate Governance Committee Charter.
Vehicle Electrification and Medical Device Vehicle electrification and medical device equipment provide a broad range of filters that protect devices and enclosures from pressure fluctuation, liquids and harmful contaminants. Key products include battery, powertrain and headlight vents for electric vehicles as well as venting solutions for hearing aids, ostomy bags and implantable devices.
Vehicle Electrification and Medical Device Vehicle electrification and medical device equipment provide a broad range of filters that protect devices and enclosures from pressure fluctuation, liquids and harmful contaminants. Key products include battery, powertrain and headlight vents for the automotive industry, including for electric vehicles, as well as venting solutions for hearing aids, ostomy bags and implantable devices.
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.
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, 2024, the Company h ad approximately 14,000 full time employees, of which 58% were in p roduction related roles. When necessary, the Company’s production facilities augment their resources utilizing contingent labor.
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.
Backlog orders expected to b e delivered within 90 days as of July 31, 2024 and 2023 were $574.7 million and $576.4 million, respectively. Seasonality Many of the Company’s end markets are generally stronger in the second half of the Company’s fiscal year.
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).
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).
Becker 58 Chief Legal Officer and Corporate Secretary 2014 Guillermo Briseño 56 President, Industrial Solutions 2022 Tod E. Carpenter 64 Chairman, President and Chief Executive Officer 2008 Andrew Dahlgren 52 President, Life Sciences 2022 Sheila G. Kramer 64 Chief Human Resources Officer 2015 Richard B. Lewis 51 President, Mobile Solutions 2017 Scott J.
Becker 59 Chief Legal Officer and Corporate Secretary 2014 Guillermo Briseño 57 President, Industrial Solutions 2022 Tod E. Carpenter 65 Chairman, President and Chief Executive Officer 2008 Andrew Dahlgren 53 President, Mobile Solutions 2022 Sheila G. Kramer 65 Chief Human Resources Officer 2015 Richard B. Lewis 52 President, Life Sciences 2017 Scott J.
Key Growth Drivers The key growth drivers within each segment are as follows: • Mobile Solutions ◦ Providing solutions to customers to address their higher performance requirements 5 ◦ Utilization of technology to improve efficiencies and fuel economies in all end markets ◦ Increased activity in construction, agriculture and mining markets driven by expansion in living standards • Industrial Solutions ◦ Complementing automation trends through expanded connectivity applications ◦ Industrial equipment designed for optimized energy consumption and carbon footprint reduction ◦ Growing operational efficiency needs to reduce costs associated with maintenance and downtime • Life Sciences ◦ Increasing need for cell and gene therapy as well as membrane applications for disease treatment and cures ◦ Growing customer preference for sustainable food and materials ◦ Continued cloud demand and growing automation trends Competition Principal methods of competition in the Mobile Solutions, Industrial Solutions and Life Sciences segments are technology, innovation, price, geographic coverage, service and product performance.
Key Growth Drivers The key growth drivers within each segment are as follows: • Mobile Solutions ◦ Providing solutions to customers to address their higher performance requirements ◦ Utilization of technology to improve efficiencies and fuel economies in all end markets ◦ Increased activity in construction, transportation, agriculture and mining markets driven by expansion in living standards • Industrial Solutions ◦ Complementing automation trends through expanded connected applications and service offerings ◦ Industrial equipment designed for optimized energy consumption and carbon footprint reduction ◦ Growing operational efficiency needs to reduce costs associated with maintenance and downtime • Life Sciences ◦ Increasing need for cell and gene therapy as well as membrane applications for disease treatment and cures ◦ Changing customer preferences and regulatory standards driving demand for sustainable products, including food, materials, and use of alternative energies ◦ Continually increasing demand for cloud computing capacity and need for highly technical solutions 5 Competition Principal methods of competition in the Mobile Solutions, Industrial Solutions and Life Sciences segments are technology, innovation, price, geographic coverage, service and product performance.
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.
No single intel lectual property right is responsible for protecting the Company’s products. 6 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.
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.
Donaldson’s four regions and their contributing share of fiscal year 2024 revenue are as follows: the U.S. and Canada 44.1%; Europe, Middle East and Africa (EMEA) 28.2%; Asia Pacific (APAC) 16.8%; and Latin America (LATAM) 10.9%. Below are the Company’s manufacturing plants and distribution centers by region. Strategic Priorities The company has three primary strategic priorities to drive profitable growth.
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.
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.
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.
Hydraulics Systems support 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. 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.
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.
The Industrial Solutions segment, which represents 29.7% of net sales in fiscal 2024, is organized based on product type and consists of Industrial Air Filtration, Industrial Gasses, Industrial Hydraulics, Power Generation and Aerospace and Defense products. These products are further organized by the Industrial Filtration Solutions and Aerospace and Defense business units.
Kramer spent 22 years at Lifetouch, Inc. in various human resources roles, including Corporate Vice President, Human Resources from 2009 to 2013. Mr. Lewis was appointed President, Mobile Solutions in November 2022. Mr.
Kramer spent 22 years at Lifetouch, Inc. in various human resources roles, including Corporate Vice President, Human Resources from 2009 to 2013. Mr. Lewis was appointed President, Life Sciences effective August 1, 2024. Mr.
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.
The Life Sciences segment, which represents 7.5% of net sales in fiscal 2024, is organized by end market and consists of the Bioprocessing Equipment and Consumables, Food and Beverage, Vehicle Electrification and Medical Device, Microelectronics and Disk Drive markets.
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.
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.
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.
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.
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 ® , Synteq ® XP, LifeTec ® , iCue ® , Tetratex ® , IsoTag ® , scale-x ® and NevoLine ® , among others.
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.
Extend Market Access - Grow Addressable Market by Extending Presence Across Adjacencies • Significantly grow presence in bioprocessing markets organically and inorganically within Life Sciences segment • Strengthen position across alternative power solutions through innovated and differentiated products Expand Technologies and Solutions - Leverage Foundational Filtration Capabilities to Expand Best-in-class Technology and Service Offerings • Expand Industrial Solutions connected service offerings to gain additional aftermarket share • 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 capabilities 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. 1 The Mobile Solutions segment, which represents 62.8% of net sales in fiscal 2024, is organized based on a combination of customers and products and consists of the Off-Road, On-Road and Aftermarket business units.
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.
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. Filtration involved in liquids, sterile and condensation management are part of the portfolio as well.
Carpenter was appointed Chief Operating Officer in April 2014 and President and Chief Executive Officer in April 2015. Mr. Dahlgren was appointed President, Life Sciences in November 2022. Mr.
Carpenter was appointed Chief Operating Officer in April 2014 and President and Chief Executive Officer in April 2015. Mr. Dahlgren was appointed President, Mobile Solutions effective August 1, 2024. Mr.
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.
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. 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, 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.
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 hydraulics also supports the OEM fluid power and lubrication systems that support those industries.
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.
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. Hydraulic oil is adversely affected by contaminants such as wear metals, particulate, water and oxidation by-products.
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.
During the years ended July 31, 2024, 2023 and 2022, the Company spent $93.6 million, $78.1 million and $69.1 million, respectively, on research and development activities, which was 2.6%, 2.3% and 2.1% of net sales, respectively.
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.
Donaldson offers an innovative portfolio of cartridge-style or bag house collectors that support customers throughout the entire equipment lifecycle from original consultation, design and installation to post-sale maintenance and services. Customers are supported through a global network of channel partners and service centers, which provide a quality customer experience.
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.
For example, materials transformed in manufacturing, such as metal grinding, recycling, plasma cutting, mixing and welding, can create air contamination that may inhibit the production environment, which can be collected and filtered by Donaldson’s products. 3 Industrial Gasses Industrial gasses provides solutions for challenging industrial gas purification objectives with premium filtration, drying and purification products.
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.
Within these business units, products consist of replacement filters for both air and liquid filtration applications and filtration housings for new equipment production and systems related to exhaust and emissions. Applications include air filtration systems, fuel, lube and hydraulic systems, emissions systems and sensors, indicators and monitoring systems.
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.
The Company protects its innovations arising from research and development through patent filings and owns a portfolio of over 3,000 is sued patents, including utility and design patents.
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.
Within these markets, products consist of micro-environment gas and liquid filtration for food and beverage and industrial processes, bioprocessing equipment, including bioreactors and fermenters, bioprocessing consumables including chromatography devices, reagents and filters, polytetrafluoroethylene membrane-based products, as well as specialized air and gas filtration systems for applications including hard disk drives, semiconductor manufacturing, sensors, battery systems and powertrain components.
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.
Technology and features are continually added, such as the iCue™ Connected Filtration Technology, which proactively monitors a facility’s dust collection equipment to reduce unplanned downtime, supporting efficient operation and maintenance costs, and better connect Donaldson with its end market customers, enabling additional service opportunities.
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.
Core Values The Company’s purpose is to advance filtration for a cleaner world.
Removed
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.
Added
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.
Removed
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.
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Alpha-Web TM , the Company’s hydraulic filtration media, features a first-of-its-kind fine-fiber layer to trap and lock particles during frequent flow-rate changes, delivering transformational improvement in hydraulic equipment protection. Advanced contaminant retention results in cleaner oil and helps ensure that equipment will continue to perform better, and longer, with a lower risk of wear, damage and unplanned downtime.
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Emissions products support agricultural, construction and mining machinery industries, as well as transportation markets. Industrial Solutions Industrial Air Filtration Industrial air filtration systems collect dust, fume and mist within manufacturing facilities.
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With continued acquisition activities, Donaldson has expanded its service capabilities and geographic presence, enhancing its ability to meet customer service needs. Industrial dust, fume and mist collectors and filters are utilized globally across major industries including metals, mining, transportation, chemicals, food and beverage, pharmaceuticals, construction materials and emerging markets, such as electric vehicle manufacturing, recycling and alternative power.
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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.
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Organizations are supported in partnership with the Donaldson Foundation and through numerous volunteer events.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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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.
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. 12 Information technology security threats are increasing in frequency and sophistication; to date, none of the threats faced by the Company have been material.
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.
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. 13 Liquidity - changes in the capital and credit markets may negatively affect our ability to access financing to support strategic initiatives.
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.
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. 11 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.
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.
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. Competition - we participate in highly competitive markets with pricing pressure.
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.
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. Cybersecurity Risks Cybersecurity Risks - vulnerability of our information technology systems and security.
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.
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.
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.
No customer accounted for 10% or more of our net sales in fiscal 2024, 2023 or 2022. 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.
Such an event could result in physical damage to and complete or partial closure of one or more of our headquarters, manufacturing facilities or distribution centers, temporary or long-term disruption in the supply of component products from some local and international suppliers, disruption in the transport of our products to customers and disruption of information systems.
Such an event could result in physical damage to and complete or partial closure of our headquarters, manufacturing facilities or distribution centers, temporary or long-term disruption in the supply of component products from some local and international suppliers, disruption in the transport of our products to customers and disruption of information systems.
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.
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 catastrophes in countries in which we operate or in which our suppliers are located.
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.
We operate in highly competitive markets and have numerous competitors that are already 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.
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.
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. 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.
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 unexpected events could adversely impact our business, results of operations, financial condition and cash flows. Operational Risks Supply Chain - unavailable raw materials, significant demand fluctuations and material cost changes could have an impa ct on our sales and cost of sales. We obtain raw materials, including steel, filter media, petroleum-based products and other components from third-party suppliers.
We have experienced and could continue to experience, an increase in the costs of doing business, including increasing raw material prices and transportation costs, which have and could continue to have an adverse impact on our business, results of operations, financial condition and cash flows.
We could experience an increase in the costs of doing business, including increasing raw material prices and transportation costs, which could have an adverse impact on our business, results of operations, financial condition and cash flows. 10 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.
Efficient operations require streamlining processes to maintain or reduce lead times, which we may not be capable of achieving. Unacceptable levels of service for key customers may result if we are not able to fulfill orders on a timely basis or if product quality, warranty or safety issues result from compromised production.
Unacceptable levels of service for key customers may result if we are not able to fulfill orders on a timely basis or if product quality, warranty or safety issues result from compromised production. We may not be able to adjust our production schedules to reflect changes in customer demand on a timely basis.
We may not be able to adjust our production schedules to reflect changes in customer demand on a timely basis. Due to the complexity of our manufacturing operations, we may be unable to timely respond to fluctuations in demand, which could adversely impact our business, results of operations, financial condition and cash flows.
Due to the complexity of our manufacturing operations, we may be unable to timely respond to fluctuations in demand, which could adversely impact our business, results of operations, financial condition and cash flows. Products - maintaining a competitive advantage requires consistent investment with uncertain returns.
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.
Additionally, in some locations we have experienced labor shortages causing significant wage inflation and workplace availability. 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.
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.
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. There is competition for talent with market-leading skills and capabilities in new technologies.
We obtain raw materials, including steel, filter media, petroleum-based products and other components from third-party suppliers. We often concentrate our sourcing of some materials from one supplier or a few suppliers. We rely, in part, on our suppliers to ensure they meet required quality and delivery standards.
We often concentrate our sourcing of some materials from one supplier or a few suppliers. We rely, in part, on our suppliers to ensure they meet required quality and delivery standards. An unanticipated delay in delivery by our suppliers could result in the inability to deliver our products on time and to meet the expectations of our customers.
Removed
An unanticipated delay in delivery by our suppliers could result in the inability to deliver our products on time and to meet the expectations of our customers.
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We cannot guarantee we will be able to adjust manufacturing capacity, in the short-term, to meet higher customer demand. Efficient operations require streamlining processes to maintain or reduce lead times, which we may not be capable of achieving.
Removed
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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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.
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 13, 2024, there were 1,116 registered stockholders of common stock.
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.
This repurchase authorization is effective until terminated by the Board of Directors. The Company has remaining authorization to repurchase 10.7 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, 2024.
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.
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.
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.
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, 2024 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, 2024 347,111 $ 74.07 347,111 11,064,623 June 1 - June 30, 2024 316,576 $ 72.83 315,000 10,749,623 July 1 - July 31, 2024 3,948 $ 71.44 3,948 10,745,675 Total 667,635 $ 73.47 666,059 10,745,675 15 On November 17, 2023, the Board of Directors authorized the repurchase of up to 12.0 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, 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.
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, 2019 2020 2021 2022 2023 2024 Donaldson Company, Inc. $ 100.00 $ 98.41 $ 136.76 $ 114.17 $ 133.92 $ 161.96 S&P 500 Stock Index $ 100.00 $ 111.96 $ 152.76 $ 145.67 $ 164.63 $ 201.10 S&P Industrial Machinery Index $ 100.00 $ 104.65 $ 151.08 $ 130.18 $ 162.64 $ 185.80 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.
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The “Total Number of Shares Purchased” column of the table above includes 1,576 shares of previously owned shares tendered by option holders in payment of the exercise price of options during the three months ended July 31, 2024.
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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 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Item 6. [Reserved] 16 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 28 Item 8.
Item 6. [Reserved] 16 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 30 Item 8.
Financial Statements and Supplementary Data 31 Management’s Report on Internal Control over Financial Reporting 31 Report of Independent Registered Public Accounting Firm 32 Consolidated Statements of Earnings 34 Consolidated Statements of Comprehensive Income 35 Consolidated Balance Sheets 36 Consolidated Statements of Cash Flows 37 Consolidated Statements of Changes in Stockholders’ Equity 38 Notes to Consolidated Financial Statements 39
Financial Statements and Supplementary Data 33 Report of Independent Registered Public Accounting Firm 33 Consolidated Statements of Earnings 35 Consolidated Statements of Comprehensive Income 36 Consolidated Balance Sheets 37 Consolidated Statements of Cash Flows 38 Consolidated Statements of Changes in Stockholders’ Equity 39 Notes to Consolidated Financial Statements 40

Item 7. Management's Discussion & Analysis

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

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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.
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 changes; 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.
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.
Revenue is recognized to the extent it is probable a significant reversal of revenue will not occur when the contingency is resolved. 27 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.
New Accounting Standard Not Yet Adopted For the new accounting standard not yet adopted, refer to Note 1 Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report.
New Accounting Standard Not Yet Adopted For the new accounting standards not yet adopted, refer to Note 1 Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report.
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 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. 29 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 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.
The Company considers current and historical data and uses a third-party specialist to assist management in determining these estimates. 28 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.
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.
Alternative Assumptions If the Company were to use alternative assumptions for its pension plans as of July 31, 2024, a one percentage point change in the assumptions would impact fiscal 2024 net periodic benefit cost as follows (in millions): +1% (1)% Rate of return $ (4.3) $ 4.3 Discount rate $ (0.3) $ 0.4 The Company’s net periodic benefit cost recognized in the Consolidated Statements of Earnings was $6.6 million, $6.2 million and $2.8 million for the years ended July 31, 2024, 2023 and 2022, respectively.
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.
The Company performed its annual impairment assessment during the third quarter of fiscal 2024. 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.
Within these business units, products consist of micro-environment gas and liquid filtration for food and beverage and industrial processes, bioprocessing equipment, including bioreactors and fermenters, bioprocessing consumables including chromatography devices, reagents and filters, polytetrafluoroethylene membrane-based products, as well as specialized air and gas filtration systems for applications including hard disk drives, semiconductor manufacturing, sensors, battery systems and powertrain components.
Within these markets, products consist of micro-environment gas and liquid filtration for food and beverage and industrial processes, bioprocessing equipment, including bioreactors and fermenters, bioprocessing consumables including chromatography devices, reagents and filters, polytetrafluoroethylene membrane-based products, as well as specialized air and gas filtration systems for applications including hard disk drives, semiconductor manufacturing, sensors, battery systems and powertrain components.
Financing Activities Cash used in fin ancing activities generally relates to the use of cash for payment of dividends and repurchases of the Company’s common stock, net of borrowing activity and proceeds from the exercise of stock options.
Financing Activities Cash used in financing activities generally relates to the use of cash for payment of dividends and repurchases of the Company’s common stock, net of borrowing activity and proceeds from the exercise of stock options.
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.
As of July 31, 2024, the Company was in compliance with all such covenants. 25 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.
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.
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 Industrial Air Filtration, Industrial Gasses, Industrial Hydraulics, Power Generation and Aerospace and Defense products.
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.
Donaldson’s diverse and skilled employees at approximately 150 locations on six continents, 77 of which are manufacturing and/or distribution centers, 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.
Short-term borrowing capacity as of July 31, 2023 was as follows (in millions): European Commercial Paper Program U.S.
Short-term borrowing capacity as of July 31, 2024 was as follows (in millions): European Commercial Paper Program U.S.
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.
The liability for unrecognized tax benefits, accrued interest and penalties was $23.0 million and $16.7 million as of July 31, 2024 and 2023, 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.
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.
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.
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.
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, 2024 and 2023 were $122.8 million and $114.4 million, respectively.
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.
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 $593.0 million available for further borrowing under existing credit facilities as of July 31, 2024.
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.
Similar appropriate benchmarks are used to determine the discount rate for the non-U.S. plans. The Company utilized a 5.44% and 5.58% weighted average discount rate for its U.S. plans for the years ended July 31, 2024 and 2023, 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.
The Company used a 4.33% and 4.80% weighted average discount rate for its non-U.S. plans for the years ended July 31, 2024 and 2023, respectively.
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.
A discussion of the changes in the Company’s results of operations and liquidity and capital resources for the year ended July 31, 2023 from July 31, 2022 can be found in Part II, “Item 7.
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.
Losses before income taxes for the Life Sciences segment for the year ended July 31, 2024 were $10.4 million, or a loss of 3.9% of net sales, a decrease from earnings of 4.1% of net sales for the year ended July 31, 2023.
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.
The Company utilized a 6.16% and 5.66% asset-based weighted average expected return on plan assets for its U.S. plans for the years ended July 31, 2024 and 2023, respectively. The Company utilized a 5.01% and 4.39% asset-based weighted average expected return on plan assets for its non-U.S. plans for the years ended July 31, 2024 and 2023, respectively.
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.
Borrowing capacity as of July 31, 2024 was as follows (in millions): Revolving credit facility $ 500.0 Reductions to borrowing capacity: Outstanding borrowings 110.0 Contingent liability for standby letters of credit 7.5 Total reductions 117.5 Remaining borrowing capacity $ 382.5 Weighted average interest rate as of July 31, 2024 6.44 % Certain debt agreements contain financial covenants related to i nterest coverage and leverage ratios, as well as other non-financial covenants.
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%.
Selling, General and Administrative Expenses Selling, gener al and administrative expenses for the year ended July 31, 2024 were $636.7 million, or 17.8% of net sales, compared with $602.3 million, or 17.6% of net sales, for the year ended July 31, 2023, an increase of $34.4 million, or 5.7%.
The Company calculates days inventory outstanding as the average inventories, net for the quarter, divided by cost of sales for the quarter multiplied by the number of days in the quarter and calculates inventory turns as the cost of sales for the quarter, annualized by the ratio of the number of days in the year to the number of days in the quarter, divided by the average inventories, net for the quarter.
The Company calculates days inventory outstanding as the average inventories, net for the quarter, divided by cost of sales for the quarter multiplied by the number of days in the quarter.
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.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2023, the Company established a new segment reporting structure which resulted in three reportable segments: Mobile Solutions, Industrial Solutions and Life Sciences. See Note 19.
Within our Industrial Solutions portfolio, Donaldson provides a wide product offering in the market to industrial customers consisting of equipment, ancillary components, replacement parts, performance monitoring and service globally, that cost-effectively enhance productivity and manufacturing efficiency.
These products are further organized by the Industrial Filtration Solutions and Aerospace and Defense business units. Within our Industrial Solutions portfolio, Donaldson provides a wide product offering in the market to industrial customers consisting of equipment, ancillary components, replacement parts, performance monitoring and service globally, that cost-effectively enhance productivity and manufacturing efficiency.
Our significant accounting policies are disclosed in Note 1 in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report.
Critical Accounting Estimates The Company’s Consolidated Financial Statements are prepared in conformity with GAAP. Our significant accounting policies are disclosed in Note 1 in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report.
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.
Financial Condition The Company’s total capitalization components and debt-to-capitalization ratio were as follows (in millions): July 31, 2024 % of total capitalization 2023 % of total capitalization Short-term borrowings $ 28.3 1.4 % $ 34.1 1.7 % Current maturities of long-term debt 25.0 1.2 125.0 6.3 Long-term debt 483.4 23.9 496.6 25.1 Total debt 536.7 26.5 655.7 33.2 Total stockholders’ equity 1,489.1 73.5 1,320.7 66.8 Total capitalization $ 2,025.8 100.0 % $ 1,976.4 100.0 % As of July 31, 2024, total debt, including short-term borrowings and long-term debt, represented 26.5% of total capitalization, defined as total debt plus total stockholders’ equity, compared with 33.2% as of July 31, 2023.
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.
The decrease in cash used in investing activities was primarily driven by lower cash used related to acquisitions. 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.
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.
Cash used in financing activities for the year ended July 31, 2024 was $355.9 million, compared with $222.2 million for the year ended July 31, 2023, an increase of $133.7 million.
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%.
Cost of Sales and Gross Margin Cost of sales for the year ended July 31, 2024 was $2,311.9 million, compared with $2,270.2 million for the year ended July 31, 2023, an increase of $41.7 million, or 1.8%.
Income Taxes The effective tax rates were 23.4% and 24.1% for the years ended July 31, 2023 and 2022, respectively. The lower effective tax rate was primarily due to an increase in tax benefits on export income and an overall increase in discrete tax benefits.
Income Taxes The effective tax rates were 22.7% and 23.4% for the years ended July 31, 2024 and 2023, respectively. The lower effective tax rate was primarily due to an increase in excess tax benefits on stock-based compensation.
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.
Share repurchases for the years ended July 31, 2024 and 2023 were $162.7 million and $141.8 million, respectively. Capital Resources Additional sources of liquidity are existing cash and available credit facilities. Cash and cash equivalents as of July 31, 2024 was $232.7 million, compared with $187.1 million as of July 31, 2023.
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.
Cash Flow Summary Cash flows were as follows (in millions): July 31, 2024 2023 $ Change Net cash provided by (used in): Operating activities $ 492.5 $ 544.5 $ (52.0) Investing activities (86.9) (327.3) 240.4 Financing activities (355.9) (222.2) (133.7) Effect of exchange rate changes on cash (4.1) (1.2) (2.9) Increase (decrease) in cash and cash equivalents $ 45.6 $ (6.2) $ 51.8 Operating Activities Cash provided by operating activities for the year ended July 31, 2024 w as $492.5 million, compared with $544.5 million for the year ended July 31, 2023, a decrease of $52.0 million.
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.
Net Earnings Net earnings for the year ended July 31, 2024 were $414.0 million, compared with $358.8 million for the year ended July 31, 2023, an increase of $55.2 million, or 15.4%. Diluted EPS were $3.38 for the year ended July 31, 2024, compared with $2.90 for the year ended July 31, 2023.
The Company determined the fair value for all its reporting units was substantially in excess of their respective carrying values and there were no indicators of impairment for any of the reporting units evaluated.
The Company determined the fair value for all its reporting units was substantially in excess of their respective carrying values and there were no indicators of impairment for any of the reporting units evaluated. 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 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%.
The increase in research and development expenses as a percentage of net sales was primarily due to increased headcount and incremental expenses associated with investments in acquired Life Sciences businesses. 19 Non-Operating Items Intere st expense for the year ended July 31, 2024 was $21.4 million, compared with $19.2 million for the year ended July 31, 2023, an increase of $2.2 million, or 11.3%.
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.
Earnings before income taxes for the Industrial Solutions segment f or the year ended July 31, 2024 were $198.8 million, or 18.6% of net sales, an increase from 18.4% of net sales for the year ended July 31, 2023.
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.
The impact of these fluctuations on net earnings was as follows (in millions): Year Ended July 31, 2024 2023 Prior year net earnings $ 358.8 $ 332.8 Change in net earnings excluding translation 56.0 40.4 Impact of foreign currency translation (1) (0.8) (14.4) Current year net earnings $ 414.0 $ 358.8 (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.
The increase was primarily driven by net proceeds of $155.4 million from the issuance of debt in the prior year, compared to relatively flat net debt in the current year.
The increase was primarily driven by net debt repayments of $114.8 million due to strong operating cash flows in the current year, compared to relatively flat net debt in the prior year.
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.
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, 2023 (the “2023 Annual Report”), which was filed with the SEC on September 22, 2023.
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 equipment 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.
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 equipment applications, gas and liquid filtration for industrial processes and connected services which provide on-demand maintenance services and replacements to support Industrial Air Filtration products.
The Life Sciences segment is organized by end market and consists of the Bioprocessing Equipment and Consumables, Food and Beverage, Vehicle Electrification and Medical Device, Microelectronics and Disk Drive business units.
Industrial Solutions sells through multiple channels which include OEMs, distributors and direct-to-consumer in some markets. The Life Sciences segment is organized by end market and consists of the Bioprocessing Equipment and Consumables, Food and Beverage, Vehicle Electrification and Medical Device, Microelectronics and Disk Drive markets.
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.
(AFSI), established by the Company and Caterpillar Inc. (Caterpillar) in 1986. AFSI designs and manufactures high-efficiency fluid filters used in Caterpillar’s machinery worldwide. The Company and Caterpillar equally own the shares of AFSI and both companies guaran tee certain debt and banking services, including credit and debit cards, merchant processing and treasury management services, of the joint venture.
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.
Under most economic conditions, the Company’s market diversification between its diesel engine end markets, its global end markets, its diversification through technology and its OEM and replacement parts customers has helped to limit the impact of weakness in any one product line, market or geography on the consolidated operating results of the Company. 17 C onsolidated Results of Operations Operating Results Operating results were as follows (in millions, except per share amounts): Year Ended July 31, 2024 % of net sales 2023 % of net sales Net sales $ 3,586.3 $ 3,430.8 Cost of sales 2,311.9 64.5 % 2,270.2 66.2 % Gross profit 1,274.4 35.5 1,160.6 33.8 Selling, general and administrative 636.7 17.8 602.3 17.6 Research and development 93.6 2.6 78.1 2.3 Operating expenses 730.3 20.4 680.4 19.8 Operating income 544.1 15.2 480.2 14.0 Interest expense 21.4 0.6 19.2 0.6 Other income, net (12.6) (0.3) (7.7) (0.2) Earnings before income taxes 535.3 14.9 468.7 13.7 Income taxes 121.3 3.4 109.9 3.2 Net earnings $ 414.0 11.5 % $ 358.8 10.5 % Net earnings per share (EPS) – diluted $ 3.38 $ 2.90 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, 2024 % of net sales 2023 % of net sales U.S. and Canada $ 1,583.1 44.1 % $ 1,464.7 42.7 % Europe, Middle East and Africa (EMEA) 1,012.9 28.2 1,007.8 29.4 Asia Pacific (APAC) 601.5 16.8 608.8 17.7 Latin America (LATAM) 388.8 10.9 349.5 10.2 Total Company $ 3,586.3 100.0 % $ 3,430.8 100.0 % 18 Net Sales (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.
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.
Foreign currency translation decreased net sales by $0.5 million, reflecting decreases in the Mobile Solutions and Life Sciences segments of $2.1 million and $0.6 million, respectively, and an increase in the Industrial Solutions segment of $2.2 million. In fiscal 2024, the Company’s net sales increased primarily from higher volume and pricing actions.
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.
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.
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.
Gross margin as a percentage of net sales for the year ended July 31, 2024 was 35.5% compared with 33.8% for the year ended July 31, 2023, an increase of 1.7 percentage points. The increase in gross margin as a percentage of net sales was primarily driven by lower input costs, pricing actions and favorable product mix.
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.
Life Sciences Segment Net sales and earnings before income taxes were as follows (in millions): Year Ended July 31, 2024 VS 2023 2024 2023 $ Change % Change Life Sciences segment net sales $ 269.0 $ 241.3 $ 27.7 11.5 % Life Sciences segment (losses) earnings before income taxes $ (10.4) $ 9.9 $ (20.3) NM Life Sciences segment (losses) earnings before income taxes % of net sales (3.9) % 4.1 % N/A (8.0) % 23 (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 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.
The decrease was driven by the expected impact from investments made to scale up the Company’s recently-acquired businesses. 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.
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.
Credit Facilities European Operations Credit Facilities Rest of the World Credit Facilities Total Available short-term credit facilities $ 108.3 $ 100.0 $ 48.4 $ 46.7 $ 303.4 Reductions to borrowing capacity: Outstanding borrowings 22.8 0.2 — 5.3 28.3 Other non-borrowing reductions — — 38.9 25.7 64.6 Total reductions 22.8 0.2 38.9 31.0 92.9 Remaining borrowing capacity $ 85.5 $ 99.8 $ 9.5 $ 15.7 $ 210.5 Weighted average interest rate as of July 31, 2024 4.34 % 6.44 % N/A 0.56 % 3.62 % Other non-borrowing reductions include financial instruments such as bank guarantees and foreign exchange instruments.
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.
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.
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.
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. 16 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, 2024 and 2023.
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%.
Research and Development Expenses Resea rch and development expenses for the year ended July 31, 2024 were $93.6 million, or 2.6% of net sales, compared with $78.1 million, or 2.3% of net sales, for the year ended July 31, 2023, an increase of $15.5 million, or 19.8%.
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.
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. 20 Segment Results of Operations Net sales and earnings before income taxes were as follows (in millions): Year Ended July 31, 2024 VS 2023 2024 2023 $ Change % Change Net sales Mobile Solutions $ 2,250.8 $ 2,174.8 $ 76.0 3.5 % Industrial Solutions 1,066.5 1,014.7 51.8 5.1 Life Sciences 269.0 241.3 27.7 11.5 Total Company $ 3,586.3 $ 3,430.8 $ 155.5 4.5 % Earnings (loss) before income taxes Mobile Solutions $ 404.5 $ 330.4 $ 74.1 22.4 % Industrial Solutions 198.8 186.2 12.6 6.8 Life Sciences (10.4) 9.9 (20.3) NM Corporate and unallocated (1) (57.6) (57.8) 0.2 0.3 Total Company $ 535.3 $ 468.7 $ 66.6 14.2 % (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.
Excluding a $12.7 million decrease from foreign currency translation, net sales decreased 9.0%, primarily driven by weakness in market demand for products in the disk drive business, which more than offset growth in the food and beverage and bioprocessing businesses.
Excluding a $0.6 million decrease from foreign currency translation, net sales increased 11.7%, primarily driven by strong market demand and market share gains in disk drive, sales of bioprocessing equipment and strong food and beverage markets in EMEA.
Net sales of Aftermarket increased $0.4 million, primarily driven by pricing, offset by volume decline generally resulting from large OEM customer inventory reductions. 20 Earnings before income taxes for t he Mobile Solutions segment for the year ended July 31, 2023 were $330.4 million, or 15.2% of net sales, an increase from 13.8% of net sales for the year ended July 31, 2022.
Earnings before income taxes for t he Mobile Solutions segment for the year ended July 31, 2024 were $404.5 million, or 18.0% of net sales, an increase from 15.2% of net sales for the year ended July 31, 2023. The increase was driven by higher volume, favorable product mix related to sales of replacement parts and pricing actions.
The increase in interest expense reflected rising variable interest rates. Other income, net for the year ended July 31, 2023 was $7.7 million, compared with $9.8 million for the year ended July 31, 2022, a decrease of $2.1 million, or 21.0%, driven by higher pension related expenses, partially offset by higher interest income.
The increase reflected higher interest rates. Other income, net for the year ended July 31, 2024 was $12.6 million, compared with $7.7 million for the year ended July 31, 2023, an increase of $4.9 million, or 62.6%, driven by lower foreign exchange losses in the current year and higher income from joint ventures, partially offset by higher donations.
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%.
Net sales for the Life Sciences segment for the year ended July 31, 2024 were $269.0 million, compared with $241.3 million for the year ended July 31, 2023, an increase of $27.7 million, or 11.5%, driven by a $17.6 million volume increase, a $1.0 million increase from pricing benefits and a $9.7 million increase from acquisitions.
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.
The Company accounts for AFSI as an equity method investment. The outstanding debt relating to AFSI, which the Company guarantees half, was $51.0 million and $59.6 million as of July 31, 2024 and 2023, respectively.
The Company’s cash requirements greater than 12 months from various contractual obligations and commitments primarily include: • debt obligations and interest payments - see Note 7.
Additionally, in fiscal 2025, the Company expects its cash paid for capital expenditures to be between $85 million and $105 million, primarily associated with capacity expansion and new products and technologies. The Company’s cash requirements greater than 12 months from various contractual obligations and commitments primarily include: • debt obligations and interest payments - see Note 7.
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%.
Industrial Solutions Segment Net sales and earnings before income taxes were as follows (in millions): Year Ended July 31, 2024 VS 2023 2024 2023 $ Change % Change Net sales Industrial Filtration Solutions (IFS) $ 901.1 $ 872.2 $ 28.9 3.3 % Aerospace and Defense 165.4 142.5 22.9 16.0 Total Industrial Solutions segment $ 1,066.5 $ 1,014.7 $ 51.8 5.1 % Industrial Solutions segment earnings before income taxes $ 198.8 $ 186.2 $ 12.6 6.8 % Industrial Solutions segment earnings before income taxes % of net sales 18.6 % 18.4 % N/A 0.2 % 22 (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.
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 sells through multiple channels which include OEMs, distributors and direct-to-consumer in some markets.
Power Generation products consist of air inlet systems and filtration sold to gas compression, power generation and natural gas liquification industries. Aerospace and Defense products consist of air, fuel, lubrication and hydraulic filtration for fixed-wing and rotorcraft aerospace applications and ground defense vehicle and naval platforms.
Borrowings against the credit facility are reported on the Consolidated Balance Sheets.
Long-term borrowing capacity is maintained through a $500.0 million unsecured rev olving credit facility. Borrowings against the credit facility are reported on the Consolidated Balance Sheets.
The increase was driven by pricing actions, which were partially offset by higher input costs. Fiscal 2022 compared with Fiscal 2021 Net sales for the Mobile Solutions segment for the year ended July 31, 2022 were $2,126.5 million, compared with $1,818.4 million for the year ended July 31, 2021, an increase of $308.1 million, or 16.9%.
Net sales for the Industrial Solutions segment for the year ended July 31, 2024 w ere $1,066.5 million, compared with $1,014.7 million for the year ended July 31, 2023, an increase of $51.8 million, or 5.1%, driven by a $33.4 million volume increase and a $16.2 million increase from pricing benefits.
The Company does not believe this guarantee will have a current or future effect on its financial condition, results of operations, liquidity or capital resources. Critical Accounting Estimates The Company’s Consolidated Financial Statements are prepared in conformity with GAAP.
AFSI has $63.0 million in revolving credit facilities which expire in 2027 and $17.0 million in an additional multi-currency revolving credit facility which terminates upon notification of either party. The Company does not believe this guarantee will have a current or future effect on its financial condition, results of operations, liquidity or capital resources.
Long-te rm deb t outstanding as of July 31, 2023 was $496.6 million compared with $644.3 million as of July 31, 2022, a decrease of $147.7 million.
Long-te rm deb t outstanding as of July 31, 2024 was $508.4 million compared with $621.6 million as of July 31, 2023, a decrease of $113.2 million. In fiscal 2024, the Company used strong operating cash flows to reduce the long-term debt outstanding.
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%.
Net sales by segment (in millions): July 31, 2023 Sales volume Pricing Acquisitions Currency translation July 31, 2024 Mobile Solutions segment $ 2,174.8 $ 24.3 $ 53.8 $ — $ (2.1) $ 2,250.8 Industrial Solutions segment 1,014.7 33.4 16.2 — 2.2 1,066.5 Life Sciences segment 241.3 17.6 1.0 9.7 (0.6) 269.0 Total Company $ 3,430.8 $ 75.3 $ 71.0 $ 9.7 $ (0.5) $ 3,586.3 Net sales for the year ended July 31, 2024 increased $155.5 million, or 4.5% f rom fiscal 2023, refle cting higher sales in the Mobile Solutions segment of $76.0 million, or 3.5%, the Industrial Solutions segment of $51.8 million, or 5.1%, and the Life Sciences segment of $27.7 million, or 11.5%.
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%.
NM = Not meaningful Mobile Solutions Segment Net sales and earnings before income taxes were as follows (in millions): Year Ended July 31, 2024 VS 2023 2024 2023 $ Change % Change Net sales Off-Road $ 380.8 $ 428.7 $ (47.9) (11.2) % On-Road 139.8 145.8 (6.0) (4.1) Aftermarket 1,730.2 1,600.3 129.9 8.1 Total Mobile Solutions segment $ 2,250.8 $ 2,174.8 $ 76.0 3.5 % Mobile Solutions segment earnings before income taxes $ 404.5 $ 330.4 $ 74.1 22.4 % Mobile Solutions segment earnings before income taxes % of net sales 18.0 % 15.2 % N/A 2.8 % 21 (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.
Excluding a $26.8 million decrease from foreign currency translation, net sales increased 15.6%. Net sales of IFS increased $91.7 million , reflecting higher sales volume in industrial dust collection, a higher level of large power generation projects and pricing benefits.
Excluding a $2.2 million increase from foreign currency translation, net sales increased 4.9%. Net sales of IFS increased $28.9 million, reflecting higher sales volume in power generation and industrial dust collection from strong demand in most geographies. Net sales of aerospace and defense increased by $22.9 million due to ongoing strength in the aerospace and defense end markets.
The increase in selling, general and administrative expenses as a percentage of net sales was primarily due to severance and other organizational redesign charges of $15.3 million, $3.6 million of costs mainly associated with the exiting of a lower-margin customer program and a lower-margin product and the impact of recent acquisitions.
The increase in selling, general and administrative expenses as a percentage of net sales was primarily due to increased headcount and incremental expenses associated with investments in acquired Life Sciences businesses, partially offset by lower restructuring charges in fiscal year 2024 compared to the prior year.
Investing Activities Cash used in investing activities for the year ended July 31, 2023 was $327.3 million, compared with $154.0 million for the year ended July 31, 2022, an increase of $173.3 million.
The decrease in cash provided by operating activities was primarily driven by an increase in working capital requirements during the current year based on additional inventory needs to increase on-time deliveries, partially offset by higher earnings in the current year. 24 Investing Activities Cash used in investing activities for the year ended July 31, 2024 was $86.9 million, compared with $327.3 million for the year ended July 31, 2023, a decrease of $240.4 million.
E xcluding a $73.8 million decrease from foreign currency translation, net sales increased 5.7%. Net sales of Off-Road increased $38.2 million, primarily due to pricing actions and high levels of global equipment production.
Excluding a $2.1 million decrease from foreign currency translation, net sales increased 3.6%. Net sales of Off-Road decreased $47.9 million, due to weak agriculture end market conditions.
Net Sales Net sales for the year ended July 31, 2023 increased $124.2 million, or 3.8% from fiscal 2022, refle cting higher sales in the Mobile Solutions segment of $48.3 million, or 2.3% and the Industrial Solutions segment of $113.7 million, or 12.6%, and decreased sales in the Life Sciences segment of $37.8 million, or 13.5%.
Net sales for the Mobile Solutions segment for the year ended July 31, 2024 w ere $2,250.8 million, compared with $2,174.8 million for the year ended July 31, 2023, an increase of $76.0 million, or 3.5%, driven by a $24.3 million volume increase and a $53.8 million increase from pricing benefits.
Removed
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.
Added
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.
Removed
Under most economic conditions, the Company’s market diversification between its diesel engine end markets, its global end markets, its diversification through technology and its OEM and replacement parts customers has helped to limit the impact of weakness in any one product line, market or geography on the consolidated operating results of the Company.
Added
The impact of currency translation does not change the underlying drivers of revenue shown in this chart.
Removed
Operating Environment Inflation While inflation was not significant in the fourth quarter or the twelve months of fiscal 2023, as compared to the prior year, the Company continues to experience the effects of the prior year inflation related to raw materials and other expenses, including labor and energy.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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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.
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 2024, the U.S. dollar was generally stronger than in fiscal 2023 compared with many of the currencies of the foreign countries in which the Company operates.
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.
However, an increase in commodity prices could result in lower gross profit. 31 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.
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 interes t rates.
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.
The total notional amount of net investment hedges as of July 31, 2024 and 2023 was €80 million, or $88.8 million. The maturity dates range from 2027 to 2029.
The fair values are estimated by discounting the projected cash flows using the interest rates at which similar amounts of debt could currently be borrowed. In addition, the Company is exposed to market risk for changes in interest rates for the impact to its qualified defined benefit pension plans.
The fair values are estimated by discounting the projected cash flows using the interest rates at which similar amounts o f debt could currently be borrowed. In addition, the Company is exposed to market risk for changes in interest rates for the impact to its qualified defined benefit pension plans.
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.
The plans were overfunded by $9.6 million as of July 31, 2024, 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.
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.
Based on the net investment hedges outstanding as of July 31, 2024, a 10% appreciation of the U.S. dollar compared to the Euro, would result in a net gain of $7.9 million in the fair value of these contracts.
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.
The estimated impact of foreign currency translation for the year ended July 31, 2024 resulted in an overall decrease in reported net sales of $0.5 million and a decrease in reported net earnings of $0.8 million. 30 Derivative Fair Value Measurements The Company enters into derivative instrument agreements, including foreign currency forward contracts and net investment hedges, to manage risk in connection with changes in foreign currency.
The 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.
The plans’ projected benefit obligation is inversely related to changes in interest rates. Consistent with published bond indices, in fiscal 2024, the Company decreased its weighted average discount rate from 5.58% to 5.44% on its U.S. plans and decreased its weighted average discount rate from 4.80% to 4.33% on its non-U.S. plans.
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, 2024 and 2023, the Company owned $8.4 million and $13.2 million, respectively, of these bankers’ acceptance notes and includes them in accounts receivable on the Consolidated Balance Sheets. 32
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.
As of July 31, 2024, the Company’s financial liabilities with exposure to changes in interest rates consisted of $110.0 million, outstanding on the Company’s unsecured revolving credit facility, €80.0 million, or $86.6 million, of a variable rate term loan and ¥2.0 billion, or $13.4 million, of variable rate senior notes.
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.
The total notional amounts of the foreign currency forward contracts designated as hedges as of July 31, 2024 and 2023 were $32.3 million and $84.9 million, respectively. The total notional amounts of the foreign currency forward contracts not designated as hedges as of July 31, 2024 and 2023 were $249.7 million and $147.5 million, respectively.
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.
As of July 31, 2024, short-term borrowings outstanding consisted of $28.3 million . Assuming a hypothetical 0.5 percentage point increase in short-term interest rates, with all other variables remaining constant, interest expense would have increased approximately $1.2 million in t he 12 months ended July 31, 2024 .
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 Company had no interest rate hedging agreements in fiscal year 2024 or 2023. Interest rate changes would also affect the fair market value of fixed-rate debt. As of July 31, 2024, the estimated fair values of fixed interest rate long-term debt were $267.7 million c ompared to the carrying values of $300.0 million.

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