UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________ TO _________________.

Commission File Number 1-7891

DONALDSON COMPANY, INC.

(Exact name of registrant as specified in its charter)


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

1400 West 94th Street

Minneapolis, Minnesota 55431

(Address of principal executive offices, including zip code)

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

Not Applicable

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

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


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of ~~May 24,~~November 30, 2021, ~~125,584,716~~123,532,038 shares of the registrant’s common stock, par value $5.00 per share, were outstanding.

PART I. FINANCIAL INFORMATION


Item 1. Financial Statements

DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In millions, except per share amounts)

(Unaudited)

Three Months Ended
April 30, Nine Months Ended
April 30,
2021 2020 2021 2020
Net sales $ 765.0 $ 629.7 $ 2,080.8 $ 1,964.4
Cost of sales 507.0 420.5 1,374.8 1,300.7
Gross profit 258.0 209.2 706.0 663.7
Operating expenses 148.6 124.7 433.3 406.1
Operating income 109.4 84.5 272.7 257.6
Interest expense 3.2 4.4 9.9 13.5
Other income, net (4.7) (4.3) (4.2) (9.8)
Earnings before income taxes 110.9 84.4 267.0 253.9
Income taxes 26.5 21.0 64.4 61.0
Net earnings $ 84.4 $ 63.4 $ 202.6 $ 192.9
Weighted average shares – basic 126.4 126.9 126.6 127.0
Weighted average shares – diluted 128.3 127.7 128.2 128.5
Net earnings per share – basic $ 0.67 $ 0.50 $ 1.60 $ 1.52
Net earnings per share – diluted $ 0.66 $ 0.50 $ 1.58 $ 1.50


	Three Months Ended October 31,
	2021		2020
Net sales	$	760.9	$	636.6
Cost of sales	503.9		413.9
Gross profit	257.0		222.7
Operating expenses	149.5		135.5
Operating income	107.5		87.2
Interest expense	3.4		3.5
Other expense, net	—		1.5
Earnings before income taxes	104.1		82.2
Income taxes	27.0		20.3
Net earnings	$	77.1	$	61.9

Weighted average shares – basic	124.4		126.8
Weighted average shares – diluted	126.3		128.0

Net earnings per share – basic	$	0.62	$	0.49
Net earnings per share – diluted	$	0.61	$	0.48

See Notes to Condensed Consolidated Financial Statements.

DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

Three Months Ended
April 30, Nine Months Ended
April 30,
2021 2020 2021 2020
Net earnings $ 84.4 $ 63.4 $ 202.6 $ 192.9
Other comprehensive income (loss):
Foreign currency translation (loss) income (0.2) (35.3) 36.3 (24.8)
Pension liability adjustment, net of deferred taxes of $(5.9), $0.7, $(7.6), and $0.4, respectively 18.5 (2.0) 24.6 0
Derivatives:
Gains (losses) on hedging derivatives, net of deferred taxes of $(0.2), $(0.9), $0.1, and $(0.2), respectively 1.0 1.4 (0.1) 2.2
Reclassifications of losses (gains) on hedging derivatives to net earnings, net of taxes of $(0.1), $(1.2), $0.1, and $(1.9), respectively 0.1 2.1 (0.4) 3.4
Total derivatives 1.1 3.5 (0.5) 5.6
Net other comprehensive income (loss) 19.4 (33.8) 60.4 (19.2)
Comprehensive income $ 103.8 $ 29.6 $ 263.0 $ 173.7


	Three Months Ended October 31,
	2021		2020
Net earnings	$	77.1	$	61.9
Other comprehensive (loss) income:
Foreign currency translation loss	(10.5)		(5.0)
Pension liability adjustment, net of deferred taxes of $(0.5) and $(1.5), respectively	2.0		6.1
Derivatives:
Gains on hedging derivatives, net of deferred taxes of $(0.2) and $0.0, respectively	1.0		0.3
Reclassifications of losses (gains) on hedging derivatives to net earnings, net of taxes of $(0.3) and $(0.2), respectively	0.3		(0.2)
Total derivatives	1.3		0.1

Net other comprehensive (loss) income	(7.2)		1.2
Comprehensive income	$	69.9	$	63.1

See Notes to Condensed Consolidated Financial Statements.

DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share amounts)

(Unaudited)

April 30,
2021 July 31,
2020
Assets
Current assets:
Cash and cash equivalents $ 215.3 $ 236.6
Accounts receivable, less allowances of $7.4 and $6.2, respectively 541.3 455.3
Inventories, net 360.1 322.7
Prepaid expenses and other current assets 82.0 82.1
Total current assets 1,198.7 1,096.7
Property, plant and equipment, net 626.3 631.6
Goodwill 322.9 316.8
Other long-term assets 206.7 199.5
Total assets $ 2,354.6 $ 2,244.6
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term borrowings $ 25.1 $ 3.8
Current maturities of long-term debt 19.4 5.7
Accounts payable 268.1 187.7
Accrued employee compensation and related taxes 119.8 71.2
Current income taxes 20.2 17.6
Other current liabilities 96.2 120.8
Total current liabilities 548.8 406.8
Long-term debt 454.6 617.4
Non-current income taxes payable 79.5 87.4
Other long-term liabilities 118.3 129.2
Total liabilities 1,201.2 1,240.8
Redeemable non-controlling interest 0 10.9
Shareholders’ equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized, NaN issued 0 0
Common stock, $5.00 par value, 240,000,000 shares authorized, 151,643,194 shares issued 758.2 758.2
Additional paid-in capital 5.4 0
Retained earnings 1,579.1 1,430.0
Non-controlling interest 0 5.8
Stock-based compensation plans 12.1 15.9
Accumulated other comprehensive loss (123.6) (184.0)
Treasury stock, 25,884,997 and 25,304,515 shares, respectively, at cost (1,077.8) (1,033.0)
Total shareholders’ equity 1,153.4 992.9
Total liabilities and shareholders’ equity $ 2,354.6 $ 2,244.6


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

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

Goodwill	320.6		322.5
Intangible assets, net	59.2		61.6

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

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

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



Dividend payable	—		27.6
Other current liabilities	122.1		109.8
Total current liabilities	581.9		606.6
Long-term debt	548.1		461.0
Non-current income taxes payable	81.1		80.7
Deferred income taxes	26.5		26.6

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




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

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

See Notes to Condensed Consolidated Financial Statements.

DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

Nine Months Ended
April 30,
2021 2020
Operating Activities
Net earnings $ 202.6 $ 192.9
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 70.4 64.6
Deferred income taxes (5.4) 2.4
Stock-based compensation expense 11.6 11.6
Other, net 16.1 19.2
Changes in operating assets and liabilities 10.3 (25.5)
Net cash provided by operating activities 305.6 265.2
Investing Activities
Net expenditures on property, plant and equipment (40.2) (106.2)
Net cash used in investing activities (40.2) (106.2)
Financing Activities
Proceeds from long-term debt 0 262.7
Repayments of long-term debt (165.0) (111.1)
Change in short-term borrowings 21.6 5.7
Purchase of non-controlling interests (14.4) 0
Purchase of treasury stock (78.7) (94.3)
Dividends paid (79.5) (79.8)
Tax withholding payments for stock compensation transactions (4.0) (6.3)
Exercise of stock options 24.5 19.4
Net cash used in financing activities (295.5) (3.7)
Effect of exchange rate changes on cash 8.8 (6.6)
(Decrease) increase in cash and cash equivalents (21.3) 148.7
Cash and cash equivalents, beginning of period 236.6 177.8
Cash and cash equivalents, end of period $ 215.3 $ 326.5
Supplemental Cash Flow Information
Income taxes paid $ 76.5 $ 59.5
Interest paid $ 9.0 $ 14.2
Supplemental Disclosure of Non-Cash Transactions
Accrued property, plant and equipment additions $ 7.3 $ 9.9
Leased assets obtained in exchange for new operating lease liabilities $ 6.2 $ 23.3
Transfer of operating lease asset and operating lease liability $ (9.2) $ 0
Recognized financing lease asset and finance lease liability $ 13.9 $ 0


	Three Months Ended October 31,
	2021		2020
Operating Activities
Net earnings	$	77.1	$	61.9
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	23.8		23.3

Deferred income taxes	0.8		(2.9)
Stock-based compensation expense	9.0		6.3
Other, net	2.7		7.3
Changes in operating assets and liabilities	(70.5)		33.0

Net cash provided by operating activities	42.9		128.9

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



Net cash used in investing activities	(18.3)		(18.8)

Financing Activities


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

Purchase of treasury stock	(102.9)		(15.6)
Dividends paid	(27.4)		(26.6)
Tax withholding payments for stock compensation transactions	(0.2)		(2.2)
Exercise of stock options	2.8		8.3
Net cash used in financing activities	(45.5)		(78.9)
Effect of exchange rate changes on cash	(1.1)		2.2
(Decrease) increase in cash and cash equivalents	(22.0)		33.4
Cash and cash equivalents, beginning of period	222.8		236.6
Cash and cash equivalents, end of period	$	200.8	$	270.0

Supplemental Cash Flow Information

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

Leased assets obtained in exchange for new operating lease liabilities	$	4.3	$	1.2

See Notes to Condensed Consolidated Financial Statements.

DONALDSON COMPANY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN ~~SHAREHOLDERS’~~STOCKHOLDERS’ EQUITY

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

(Unaudited)

Three Months Ended April 30, 2021 and 2020
Common
Stock Additional
Paid-in
Capital Retained
Earnings Non-
Controlling
Interest Stock-Based Compensation Plans Accumulated
Other
Comprehensive
Loss Treasury
Stock Total
Balance January 31, 2021 $ 758.2 $ 5.1 $ 1,494.4 $ 0 $ 13.2 $ (143.0) $ (1,053.5) $ 1,074.4
Net earnings 84.4 84.4
Other comprehensive income 19.4 19.4
Treasury stock acquired (32.4) (32.4)
Dividends declared 0.1 0.1
Stock compensation and other activity 0.3 0.2 (1.1) 8.1 7.5
Balance April 30, 2021 $ 758.2 $ 5.4 $ 1,579.1 $ 0 $ 12.1 $ (123.6) $ (1,077.8) $ 1,153.4
Balance January 31, 2020 $ 758.2 $ 0 $ 1,354.1 $ 5.6 $ 14.5 $ (178.3) $ (1,013.7) $ 940.4
Net earnings 63.4 63.4
Other comprehensive loss (33.8) (33.8)
Treasury stock acquired (29.3) (29.3)
Dividends declared 0.1 0.1
Stock compensation and other activity 1.2 0.1 (0.5) 2.9 3.7
Balance April 30, 2020 $ 758.2 $ 0 $ 1,418.8 $ 5.7 $ 14.0 $ (212.1) $ (1,040.1) $ 944.5


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

		Nine Months Ended April 30, 2021 and 2020
		Common Stock		Additional Paid-in Capital		Retained Earnings		Non- Controlling Interest		Stock-Based Compensation Plans		Accumulated Other Comprehensive Loss		Treasury Stock		Total

Balance July 31, 2020	Balance July 31, 2020	$	758.2	$	0	$	1,430.0	$	5.8	$	15.9	$	(184.0)	$	(1,033.0)	$	992.9	Balance July 31, 2020	$	758.2	$	—	$	1,430.0	$	5.8	$	15.9	$	(184.0)	$	(1,033.0)	$	992.9
Net earnings	Net earnings					202.6										202.6		Net earnings					61.9										61.9
Other comprehensive income	Other comprehensive income											60.4				60.4		Other comprehensive income											1.2				1.2
Treasury stock acquired	Treasury stock acquired													(78.7)		(78.7)		Treasury stock acquired													(15.6)		(15.6)
Dividends declared ($0.42 per share)						(52.9)										(52.9)
Purchase of non-controlling interests				2.2				(5.9)								(3.7)
Dividends declared																		Dividends declared					0.1										0.1
Stock compensation and other activity	Stock compensation and other activity			3.2		(0.6)		0.1		(3.8)				33.9		32.8		Stock compensation and other activity			2.7		(0.1)		0		(2.9)				12.4		12.1
Balance April 30, 2021		$	758.2	$	5.4	$	1,579.1	$	0	$	12.1	$	(123.6)	$	(1,077.8)	$	1,153.4
Balance October 31, 2020																		Balance October 31, 2020	$	758.2	$	2.7	$	1,491.9	$	5.8	$	13.0	$	(182.8)	$	(1,036.2)	$	1,052.6

Balance July 31, 2019		$	758.2	$	0	$	1,281.5	$	5.4	$	21.7	$	(192.9)	$	(981.2)	$	892.7
Net earnings						192.9										192.9
Other comprehensive loss												(19.2)				(19.2)
Treasury stock acquired														(94.3)		(94.3)
Dividends declared ($0.42 per share)						(53.0)										(53.0)
Stock compensation and other activity						(2.6)		0.3		(7.7)				35.4		25.4
Balance April 30, 2020		$	758.2	$	0	$	1,418.8	$	5.7	$	14.0	$	(212.1)	$	(1,040.1)	$	944.5

See Notes to Condensed Consolidated Financial Statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Donaldson Company, Inc. and its subsidiaries (the Company) have been prepared in accordance with generally accepted accounting principles (GAAP) in the United States (U.S.) and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair statement of earnings, comprehensive income, financial position, cash flows and changes in ~~shareholders’~~stockholders’ equity have been included and are of a normal recurring nature. Operating results for the three ~~and nine~~ month ~~periods~~period ended ~~April 30,~~October 31, 2021 are not necessarily indicative of the results that may be expected for future ~~periods~~.periods. The year end Co~~ndensed~~Condensed Consolidated Balance Sheet information was derived from the Company’s Audited Consolidated Financial Statements but does not include all disclosures required by GAAP. For further information, refer to the Audited Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, ~~2020.~~2021.

Principles of Consolidation

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

Use of Estimates

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

The effects of the ongoing ~~coronavirus~~Coronavirus (COVID-19) pandemic continue to impact global economic conditions. The Company ~~experienced increased sales in the third quarter~~continues to experience supply chain disruptions, including global logistic challenges, labor constraints and low supplies of ~~fiscal 2021 compared to the third quarter of fiscal 2020; however,~~steel, petrochemical products and filter media. These disruptions have slowed the Company’s ~~supply chain~~production speed and ~~manufacturing operations have experienced logistics and production-timing constraints, and may continue~~increased lead times. The Company has undertaken steps to ~~experience~~mitigate these negative impacts, such ~~constraints in the future partly depending upon the severity and duration of the COVID-19 pandemic. Management cannot predict with specificity the extent and duration of any future impact on~~as qualifying additional suppliers. These disruptions impeded the Company’s ~~business and financial~~ability to meet strengthening demand. This dynamic impacted results ~~from the COVID-19 pandemic~~.

~~New Accounting Standards Recently Adopted~~

~~In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13,~~ ~~Measurement of Credit Losses on Financial Instruments~~ (ASU 2016-13). In November 2018, the FASB issued an update, ASU 2018-19, that clarifies the scope of the standard in the amendments in ASU 2016-13. This guidance introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. Financial instruments impacted include accounts receivable and other financial assets measured at amortized cost and other off-balance sheet credit exposures. The Company adopted ASU 2016-13 in the first quarter of fiscal ~~2021 using~~2022 and is expected to continue throughout fiscal 2022.

New Accounting Standards Not Yet Adopted

The Company considers the ~~modified retrospective approach.~~applicability and impact of the Financial Accounting Standards Board’s Accounting Standards Updates (ASUs) issued but not yet adopted. The ~~adoption did~~Company assessed ASUs recently issued and determined that they were either not applicable or were not expected to have a material impact on ~~its Condensed Consolidated Financial Statements.~~the Company’s financial reporting.

~~In April 2019,~~

Note 2. Acquisitions

On November 22, 2021, the ~~FASB issued ASU 2019-04,~~ ~~Codification Improvements~~Company acquired Solaris Biotechnology (Solaris), headquartered in Porto Mantovano, Italy, with U.S. operations based in Berkeley, California, for approximately €41 million, or $46.2 million. Solaris designs and manufactures bioprocessing equipment, including bioreactors, fermenters and tangential flow filtration systems for use in food and beverage, biotechnology and other life sciences markets. Solaris expects to ~~Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives~~generate calendar year 2021 sales of approximately €5 million, or $5.6 million, and ~~Hedging~~ ~~and~~ ~~Topic 825, Financial Instruments~~ ~~(ASU 2019-04). This guidance clarifies~~will be reported within the ~~standards on credit losses (Topic 326), derivatives and hedging (Topic 815), and recognition and measurement of financial instruments (Topic 825). The Company adopted ASU 2019-04~~Company’s Industrial Filtration Solutions business in the Industrial Products segment. Management expects to finalize the purchase accounting by the first quarter of fiscal ~~2021 using the modified retrospective approach. The adoption did not have a material impact on its Condensed Consolidated Financial Statements.~~2023.

Note ~~2. Acquisitions and Divestitures~~3. Revenue

~~In fiscal 2019, the~~The Company ~~acquired~~ 91% of the shares of BOFA International LTD (BOFA), headquartered in the United Kingdom, for cash consideration of $101.3 million less cash acquired of $2.2 million. BOFA designs, develops and manufactures fume extraction systems acrossrecognizes revenue on a wide range of ~~industrial air~~ filtration ~~applications. The acquisition allowed~~solutions sold to customers in many industries around the ~~Company to accelerate its long-term global growth in the fume collection business and add additional filtration technology to~~globe. Most of the Company’s ~~existing product lines. In~~performance obligations within customer sales contracts are for manufactured filtration systems and replacement parts. The Company also performs limited services and installation. Customer contracts may include multiple performance obligations and the ~~second quarter of fiscal 2021, the Company acquired the remaining 9% of the shares of BOFA for $8.0 million.~~ transaction price is allocated to each distinct performance obligation based on its relative standalone selling price.

~~Note 3. Supplemental Balance Sheet Information~~Revenue Disaggregation

~~The components of net inventories are~~Net sales, generally disaggregated by location where the customer’s order was placed, were as follows (in millions):

April 30,
2021 July 31,
2020
Raw materials $ 125.0 $ 109.6
Work in process 38.6 32.8
Finished products 196.5 180.3
Total inventories, net $ 360.1 $ 322.7


	Three Months Ended October 31,
	2021		2020
U.S. and Canada	$	300.8	$	251.0
Europe, Middle East and Africa (EMEA)	224.6		187.8
Asia Pacific	163.7		144.1
Latin America	71.8		53.7
Total net sales	$	760.9	$	636.6

See Note 17 for net sales disaggregated by segment.

Contract Assets and Liabilities

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

The Company will recognize revenue in future periods related to remaining performance obligations for certain open contracts. Generally, these contracts have terms of one year or less. The amount of revenue related to unsatisfied performance obligations in which the original duration of the contract is greater than one year, is not significant.

Note 4. Inventories, Net

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

April 30,
2021 July 31,
2020
Land $ 27.4 $ 24.9
Buildings 409.5 384.5
Machinery and equipment 957.8 880.1
Computer software 144.9 145.4
Construction in progress 59.1 102.8
Less: accumulated depreciation (972.4) (906.1)
Total property, plant and equipment, net $ 626.3 $ 631.6

~~Land and buildings include $2.0 million and $11.9 million, respectively, or $13.9 million related to a finance lease as of April 30, 2021.~~


	October 31, 2021		July 31, 2021
Raw materials	$	164.0	$	148.1
Work in process	53.6		43.2
Finished products	227.1		193.2
Total inventories, net	$	444.7	$	384.5

Note ~~4. Earnings Per Share~~5. Property Plant and Equipment, Net

~~Basic~~The components of property, plant and equipment, net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares. Diluted net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares and common share equivalents relating to stock options and stock incentive plans.

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

Three Months Ended
April 30, Nine Months Ended
April 30,
2021 2020 2021 2020
Net earnings $ 84.4 $ 63.4 $ 202.6 $ 192.9
Weighted average common shares outstanding
Weighted average common shares – basic 126.4 126.9 126.6 127.0
Dilutive impact of stock-based awards 1.9 0.8 1.6 1.5
Weighted average common shares – diluted 128.3 127.7 128.2 128.5
Net earnings per share – basic $ 0.67 $ 0.50 $ 1.60 $ 1.52
Net earnings per share – diluted $ 0.66 $ 0.50 $ 1.58 $ 1.50
Stock options excluded from net earnings per share 0 2.5 0.8 1.7


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

Note 6. Goodwill and Intangible Assets

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

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



	Engine Products Segment		Industrial Products Segment		Total
Balance as of July 31, 2021	$	84.7	$	237.8	$	322.5
Goodwill acquired	—		—		—
Currency translation	(0.1)		(1.8)		(1.9)
Balance as of October 31, 2021	$	84.6	$	236.0	$	320.6

Intangible asset classes were as follows (in millions):


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

Amortization expense was $2.2 million and $2.1 million for the three months ended October 31, 2021 and 2020, respectively.

Note 7. Long-Term Debt

As of October 31, 2021, there was $427.5 million available on the Company’s $500.0 million unsecured revolving credit facility that expires on May 21, 2026.

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

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

Note 8. Income Taxes

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

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

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

Note ~~5. Goodwill~~9. Earnings Per Share

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

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


	Three Months Ended October 31,
	2021		2020
Net earnings	$	77.1	$	61.9

Weighted average common shares outstanding
Weighted average common shares – basic	124.4		126.8
Dilutive impact of stock-based awards	1.9		1.2
Weighted average common shares – diluted	126.3		128.0

Net earnings per share – basic	$	0.62	$	0.49
Net earnings per share – diluted	$	0.61	$	0.48
Stock options excluded from net earnings per share calculation	—		1.7

Note 10. Stockholders’ Equity

Share Repurchases

The Company’s Board of Directors has authorized the repurchase of up to 13.0 million shares of common stock under the Company’s stock repurchase plan. This repurchase authorization is ~~assessed~~effective until terminated by the Board of Directors. During the three months ended October 31, 2021, the Company repurchased 1.6 million shares for ~~impairment annually during~~$102.9 million. As of October 31, 2021, the ~~third quarter of~~Company had remaining authorization to repurchase 6.7 million shares under this plan.

Dividends Paid and Declared

Dividends paid were 22.0 cents and 21.0 cents per share for the ~~fiscal year, or more frequently if events or changes in circumstances indicate that the asset may be impaired. The Company performed its annual impairment assessment during the third quarter of fiscal~~three months ended October 31, 2021 and ~~did not~~2020, respectively.

On November 19, 2021, the Company’s Board of Directors declared a cash dividend in the amount of 22.0 cents per share, payable December 22, 2021, to stockholders of record ~~any impairment~~ as ~~a result~~ of ~~this assessment.~~December 7, 2021.

~~Goodwill by reportable segment is~~

Note 11. Accumulated Other Comprehensive Loss

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

Nine months ended April 30, 2021
Engine
Products Industrial
Products Total
Balance at beginning of period $ 84.8 $ 232.0 $ 316.8
Goodwill acquired 0 0 0
Currency translation 0.1 6.0 6.1
Balance at end of period $ 84.9 $ 238.0 $ 322.9


	Foreign Currency Translation Adjustment		Pension Benefits			Derivative Financial Instruments			Total
Balance as of July 31, 2021, net of tax	$	(44.0)	$	(74.7)		$	0.5		$	(118.2)
Other comprehensive (loss) income before reclassifications and tax	(10.5)		—			1.2			(9.3)
Tax expense	—		—			(0.2)			(0.2)
Other comprehensive (loss) income before reclassifications, net of tax	(10.5)		—			1.0			(9.5)
Reclassifications, before tax	—		2.5			0.6			3.1
Tax expense	—		(0.5)			(0.3)			(0.8)
Reclassifications, net of tax	—		2.0			0.3		(1)	2.3
Other comprehensive (loss) income, net of tax	(10.5)		2.0			1.3			(7.2)
Balance as of October 31, 2021, net of tax	$	(54.5)	$	(72.7)		$	1.8		$	(125.4)

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

~~Intangible asset classes are as follows (in millions):~~(1)Relates to designated forward foreign currency exchange contracts that were reclassified from accumulated other comprehensive loss to other expense, net in the Condensed Consolidated Statements of Earnings, see Note 14.

April 30, 2021 July 31, 2020
Gross Carrying Amount Accumulated Amortization Total Gross Carrying Amount Accumulated Amortization Total
Customer relationships $ 107.5 $ (54.9) $ 52.6 $ 105.2 $ (50.0) $ 55.2
Patents, trademarks and technology 24.3 (13.3) 11.0 23.7 (11.6) 12.1
Total intangible assets, net $ 131.8 $ (68.2) $ 63.6 $ 128.9 $ (61.6) $ 67.3

~~Amortization expense~~(2)In fiscal 2021, pension curtailment accounting was ~~$2.2 million~~triggered and ~~$6.4 million for~~ the ~~three and nine months ended April 30, 2021, respectively, and was $2.1 million and $6.4 million for the three and nine months ended April 30, 2020, respectively.~~

~~Note 6. Revenue~~

~~The~~ Company ~~recognizes revenue on~~recorded a ~~wide range~~charge of ~~filtration solutions sold to customers in many industries around the globe. Most~~$0.8 million. Remeasurements of the Company’s ~~performance~~pension obligations ~~within customer sales contracts are for manufactured filtration systems~~resulted in a decrease to accumulated other comprehensive loss of $4.0 million, see Note 13.

(3)Includes net amortization of prior service costs and replacement parts. The Company also performs limited services and installation. Customer contracts may include multiple performance obligations and the transaction price is allocated to each distinct performance obligation based on its relative standalone selling price.

~~Revenue Disaggregation~~

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

Three Months Ended
April 30, Nine Months Ended
April 30,
2021 2020 2021 2020
U.S. and Canada $ 294.6 $ 265.2 $ 801.8 $ 819.6
Europe, Middle East and Africa (EMEA) 232.7 182.1 621.7 570.9
Asia Pacific 169.0 134.9 474.5 412.8
Latin America 68.7 47.5 182.8 161.1
Total net sales $ 765.0 $ 629.7 $ 2,080.8 $ 1,964.4

~~See Note 17 for~~actuarial losses included in net ~~sales disaggregated by segment.~~

~~Contract Assets and Liabilities~~

The satisfaction of performance obligations and the resulting recognition of revenue typically correspond with billing the customer. In limited circumstances, the customer may be billed at a time later than when revenue is recognized, resulting in contract assets, which are reported inperiodic benefit costs that were reclassified from accumulated other ~~current assets~~comprehensive loss on the Condensed Consolidated Balance ~~Sheets. Contract assets were $12.5 million~~Sheets to net sales, cost of sales and $11.9 million as of April 30, 2021 and July 31, 2020, respectively. In other limited circumstances, the customer may make a payment at a time earlier than when revenue is recognized and prior to the satisfaction of performance obligations, resultingoperating expenses in ~~contract liabilities, which are reported in other current liabilities and other long-term liabilities on~~ the Condensed Consolidated ~~Balance Sheets. Contract liabilities were $13.5 million and $10.0 million as~~Statements of ~~April 30, 2021 and July 31, 2020, respectively.~~

Earnings, see Note ~~7. Warranty~~

~~The Company estimates warranty expense on certain products at the time of sale. The reconciliation of warranty reserves is as follows (in millions):~~

Nine Months Ended
April 30,
2021 2020
Balance at beginning of period $ 9.5 $ 11.2
Accruals for warranties issued during the reporting period 0.9 2.0
Accruals related to pre-existing warranties (including changes in estimates) (1.7) (0.9)
Settlements made during the period (2.3) (2.5)
Balance at end of period $ 6.4 $ 9.8

~~There were no individually material specific warranty matters accrued for or significant settlements made the nine months ended April 30, 2021 or 2020.~~

~~Note 8. Stock-Based Compensation~~

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

~~Stock Options~~

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

~~Stock option expense is as follows (in millions):~~

Three Months Ended
April 30, Nine Months Ended
April 30,
2021 2020 2021 2020
Pretax compensation expense associated with stock options $ 1.8 $ 1.3 $ 9.3 $ 9.0

Stock-based compensation expense is recognized using the fair value method for all stock option awards. The Company determines the fair value of these awards using the Black-Scholes option pricing model.

~~Stock option activity is as follows:~~

Options
Outstanding Weighted
Average
Exercise Price
Outstanding as of July 31, 2020 6,533,979 $ 42.44
Granted 1,004,631 46.61
Exercised (747,367) 34.95
Canceled/forfeited (28,414) 50.15
Outstanding as of April 30, 2021 6,762,829 $ 43.86

~~Performance-Based Awards~~

Performance-based awards are payable in common stock and are based on a formula that measures Company performance over a three year period. These awards are settled after three years with payouts ranging from 0 to 200% of the target award value depending on achievement.

~~Performance-based award expense is as follows (in millions):~~

Three Months Ended
April 30, Nine Months Ended
April 30,
2021 2020 2021 2020
Pretax compensation expense associated with performance-based awards $ (0.8) $ (0.3) $ 1.2 $ 1.5

~~Performance-based award activity is as follows:~~

Performance Shares
Outstanding Weighted
Average Grant
Date Fair
Value
Non-vested at July 31, 2020 198,200 $ 54.93
Granted 106,100 46.06
Vested 0 0
Canceled 0 0
Non-vested at April 30, 2021 304,300 $ 51.84

13.

Note 9.12. Stock-Based Compensation

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

Stock Options

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

For the three months ended October 31, 2021 and 2020, the Company recorded pretax stock-based compensation expense associated with options of $6.9 million and $5.1 million, respectively. Fair value is calculated using the Black-Scholes option pricing model. The weighted average fair value for options granted during the three months ended October 31, 2021 and 2020 was $14.24 and $10.08 per share, respectively.

Option activity was as follows:


	Options	Weighted Average Exercise Price
Balance outstanding as of July 31, 2021	6,444,743	$	44.05
Granted	834,105	59.40
Exercised	(70,555)	38.41
Canceled/forfeited	(9,131)	50.21
Balance outstanding as of October 31, 2021	7,199,162	$	45.88

Performance-Based Awards

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

For the three months ended October 31, 2021 and 2020, the Company recorded pretax performance-based award expense of $1.7 million and $0.9 million, respectively.

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


	Performance Shares	Weighted Average Grant Date Fair Value
Balance outstanding as of July 31, 2021	200,567	$	48.76
Granted	88,400	59.40
Vested	—	—
Canceled	—	—
Balance outstanding as of October 31, 2021	288,967	$	52.02

Note 13. Employee Benefit Plans

Defined Benefit Pension Plans

The Company has defined benefit pension plans for many of its hourly and salaried employees. There are 2 types of plans in the U.S. The Hourly Pension Plan is primarily for union production employees. The Company no longer allows entrants into the Hourly Pension Plan and certain participating employees continue to accrue Company contribution credits. The Salaried Pension Plan is for some salaried and non-union production employees. The Company no longer allows entrants into the Salaried Pension Plan and the participating employees no longer accrue Company contribution credits. Non-U.S. defined benefit pension plans consist of plans in Belgium, Germany, Mexico and the United Kingdom. These plans generally provide pension benefits based on years of service and compensation level. Components of net periodic benefit cost other than the service cost component are included in other ~~income,~~expense, net onin the Condensed Consolidated Statements of Earnings.

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


		Three Months Ended April 30,				Nine Months Ended April 30,					Three Months Ended October 31,
		2021		2020		2021		2020			2021		2020
Net periodic benefit costs

Service cost	Service cost	$	2.0	$	1.5	$	6.1	$	4.7	Service cost	$	1.8	$	2.2
Interest cost	Interest cost	2.5		3.3		7.4		10.1		Interest cost	2.5		2.4
Expected return on assets	Expected return on assets	(5.9)		(6.5)		(17.6)		(19.5)		Expected return on assets	(6.3)		(5.8)
Prior service cost amortization	Prior service cost amortization	0.1		0.2		0.4		0.5		Prior service cost amortization	0.1		0.1
Actuarial loss amortization	Actuarial loss amortization	2.1		1.6		6.2		4.8		Actuarial loss amortization	1.8		2.2
Settlement cost		1.1		2.3		1.1		2.3

Curtailment charge	Curtailment charge	0		0		0.8		0		Curtailment charge	—		0.8
Net periodic benefit costs		$	1.9	$	2.4	$	4.4	$	2.9
Net periodic pension (benefits) costs										Net periodic pension (benefits) costs	$	(0.1)	$	1.9

~~During the first quarter of~~In fiscal 2021, the Company recorded a pension curtailment charge of $0.8 million as a result of freezing the pension ~~benefit~~benefits to ~~certai~~n employees in the Hourly Pension Plan. During the third quarter of fiscal 2021 and fiscal 2020, the Company recorded a settlement charge of $1.1 million and $2.3 million, respectively, as a result of lump sum distributions during the year exceeding the sum of the service and interest cost components of the annual net periodic pension cost in the Salaried Pension Plan.certain employees. The ~~corresponding remeasurements~~corresponding remeasurement resulted in a decrease in the Company’s pension obligation ~~for the Hourly Pension Plan,~~and an ~~increase in the Company’s pension asset for the Salaried Pension Plan, with a corresponding~~ adjustment to other comprehensive income ~~(loss) on~~ in the Condensed Consolidated ~~Statements~~Statement of Comprehensive Income of ~~$25.4 million (see~~$4.0 million. See Note ~~14).~~11.

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

~~Note 10. Income Taxes~~

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to state and foreign income tax examinations by tax authorities for years before 2015. The U.S. Internal Revenue Service has completed examinations of the Company’s U.S. federal income tax returns through 2017.

As of April 30, 2021, gross unrecognized tax benefits were $17.9 million and accrued interest and penalties on these unrecognized tax benefits were $1.8 million. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income taxes on the Condensed Consolidated Statements of Earnings. The Company estimates that within the next 12 months it is reasonably possible that its uncertain tax positions could decrease by as much as $1.7 million due to lapses in statutes of limitation. The statutes of limitation periods for the Company’s various tax jurisdictions range from two years to ten years.

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

~~Note 11. Fair Value Measurements~~

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

~~Short-term Financial Instruments~~

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

~~Long-term Debt~~

As of April 30, 2021, the estimated fair values of fixed interest rate long-term debt were $293.3 million compared to the carrying values of $275.0 million. As of July 31, 2020, the estimated fair values of fixed interest rate long-term debt were $297.3 million compared to the carrying values of $275.0 million. The fair values are estimated by discounting the projected cash flows using the rates at which similar amounts of debt could currently be borrowed. The carrying values of variable interest rate long-term debt were $186.3 million and $350.0 million as of April 30, 2021 and July 31, 2020, respectively, and approximate fair values. Long-term debt is cl~~assified as Level 2 in the fair value hierarchy.~~

~~Equity Method Investments~~

The Company holds equity method investments, which are included in other long-term assets on the accompanying Condensed Consolidated Balance Sheets. The aggregate carrying amount of these investments was $24.2 million and $21.7 million as of April 30, 2021 and July 31, 2020, respectively. These equity method investments are measured at fair value on a non-recurring basis. The fair value of the Company’s equity method investments has not been estimated as there have been no identified events or changes in circumstance that would have had an adverse impact on the value of these investments. In the event that these investments are required to be measured, they would fall within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value, as the investments are in privately-held entities.

~~Derivative Fair Value Measurements~~

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

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

~~Forward Foreign Currency Exchange Contracts~~

The Company buys materials from foreign suppliers. Those transactions can be denominated in those suppliers’ local currency. The Company also sells to customers in foreign countries. Those transactions can be denominated in those customers’ local currency. Both of these transaction types can create volatility in the Company’s financial statements. The Company uses forward currency exchange contracts to manage those exposures and fluctuations. These contracts generally mature in twelve months or less, which is consistent with the forecasts of the rel~~ated purchases and sales. Certain contracts are designated as cash flow hedges, whereas the remaining contracts, related to certain intercompany transactions, are undesignated.~~

~~Net Investment Hedges~~

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

~~Interest Rate Swaps~~

~~The Company uses swap ag~~reements to hedge exposure related to interest expense and to manage its exposure to interest rate movements. During the first and third quarters of fiscal 2021, the Company entered into interest rate swap agreements designated as cash flow hedges with aggregate notional amounts of $40.0 million and $25.0 million, respectively, hedging future fixed-rate debt issuances, which effectively fixed a portion of interest payments based on the ten year treasury rates. Both instruments terminated on May 5, 2021 generating a realized gain of $2.6 million, and were subsequently recognized in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheet and will be amortized to interest expense over the life of the related debt which is set to be issued in August 2021.

~~Fair Value of Derivative Contracts~~

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

Fair Values Significant Other Observable Inputs
Total Notional Amounts
Assets (1)
Liabilities (2) (3)
April 30, July 31, April 30, July 31, April 30, July 31,
2021 2020 2021 2020 2021 2020
Designated as hedging instruments
Forward foreign currency exchange contracts(4)
$ 39.5 $ 68.1 $ 0.4 $ 0.1 $ 0.9 $ 0.6
Net investment hedge 55.8 55.8 1.1 1.2 3.3 0
Interest rate swaps 65.0 0 3.0 0 0 0
Total designated 160.3 123.9 4.5 1.3 4.2 0.6
Not designated as hedging instruments
Forward foreign currency exchange contracts(5)
151.4 169.1 0.9 2.0 0.9 0.8
Total not designated 151.4 169.1 0.9 2.0 0.9 0.8
Total $ 311.7 $ 293.0 $ 5.4 $ 3.3 $ 5.1 $ 1.4

~~(1)~~As of April 30, 2021, the Company recorded $5.3 million in other current assets on the Company’s Condensed Consolidated Balance Sheets. As of July 31, 2020, the Company recorded $3.2 million and $0.1 million in other current assets and other long-term assets, respectively, on the Company’s Condensed Consolidated Balance Sheets.

~~(2)The forward foreign currency exchange contracts are recorded in other current liabilities on the Company’s Condensed Consolidated Balance Sheets.~~

~~(3)The net investment hedge is recorded in other long-term liabilities on the Company’s Condensed Consolidated Balance Sheets.~~

~~(4)~~The total notional amount of $39.5 million as of April 30, 2021 includes purchases of $26.9 million and sales of $12.6 million, or a net of $14.4 million. The total notional amount of $68.1 million as of July 31, 2020 includes purchases of $45.2 million and sales of $22.9 million, or a net of $22.3 million.

~~(5)~~The total notional amount of $151.4 million as of April 30, 2021 includes purchases of $76.6 million and sales of $74.8 million, or a net of $1.8 million. The total notional amount of $169.1 million as of July 31, 2020 includes purchases of $82.9 million and sales of $86.2 million, or a net of $(3.2) million.

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

Hedges which are not designated are recognized in other income, net in the Company’s Condensed Consolidated Statements of Earnings upon occurrence of the related hedged transaction. Changes in the fair value of these hedges are recognized in other income, net.

~~Cash flows are recorded in operating activities in the Condensed Consolidated Statements of Cash Flows.~~

Amounts related to forward foreign currency exchange contracts are expected to be reclassified into earnings during the next twelve months, based upon the timing of inventory purchases and sales. Amounts related to the net investment hedge are expected to be reclassified into earnings through their termination in July 2029. See Note 14 for additional information on accumulated other comprehensive loss.

~~Credit Risk Related Contingent Features~~

Contract provisions may require the posting of collateral or settlement of the contracts for various reasons, including if the Company’s credit ratings are downgraded below its investment grade credit rating by any of the major credit agencies or for cross default contractual provisions if there is a failure under other financing arrangements related to payment terms or covenants. As of April 30, 2021 and July 31, 2020, no collateral was posted.

~~Counterparty Credit Risk~~

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

~~Note 12. Borrowings~~

The Company had a $500.0 million unsecured revolving credit facility that was due to expire July 21, 2022. As of April 30, 2021, there was $417.3 million available on this facility. On May 21, 2021, the Company entered into a new five year committed, unsecured, revolving credit facility in the amount of $500.0 million, which replaced the Company’s previously existing $500.0 million unsecured revolving credit facility. The new agreement includes an option to increase the facility up to $250.0 million per the terms of the agreement, matures May 21, 2026 and has substantially the same terms and conditions as the previous agreement.

The Company also had a 364 day revolving credit agreement for $100.0 million as of April 30, 2021 that provided incremental borrowing capacity above the Company’s $500.0 million unsecured revolving credit facility. The 364 day revolving credit agreement expired on May 17, 2021 and the Company did not renew this agreement.

On May 21, 2021, the Company issued $150.0 million in senior unsecured notes. The first tranche is a $100.0 million ten year note due 2031 at a fixed interest rate of 2.5%, and proceeds will be received in August 2021. The second tranche is a $50.0 million seven year note due 2028 at a fixed interest rate of 2.12%, and proceeds will be received in November 2021. Interest payments will be due semi-annually. The unsecured notes specify both financial and non-financial covenants and address events of default.

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

~~Note 13. Shareholders’ Equity~~

~~Share Repurchases~~

The Company’s Board of Directors has authorized the repurchase of up to 13.0 million shares of common stock under the Company’s stock repurchase plan. This repurchase authorization is effective until terminated by the Board of Directors. During the nine months ended April 30, 2021, the Company repurchased 1,411,321 shares for $78.7 million. As of April 30, 2021, the Company had remaining authorization to repurchase 9.3 million shares under this plan.

~~Dividends Paid and Declared~~

~~Dividends paid were 21.0 and 63.0 cents per common share for the three and nine months ended April 30, 2021 and 2020.~~

~~On May 26, 2021, the Company’s Board of Directors declared a cash dividend in the amount of 22.0 cents per common share, payable June 25, 2021, to shareholders of record as of June 10, 2021.~~

Note 14. ~~Accumulated Other Comprehensive Loss~~Fair Value Measurements

~~Changes~~Fair value measurements of financial instruments are reported in ~~accumulated~~one of three levels based on the lowest level of significant input used. For Level 1, inputs to the fair value measurement are quoted prices in active markets for identical assets or liabilities. For Level 2, inputs to the fair value measurement include quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other ~~comprehensive loss~~than quoted prices that are observable for the ~~three months ended April 30,~~asset or liability, either directly or indirectly. For Level 3,inputs to the fair value measurement are unobservable inputs or are based on valuation techniques.

Short-Term Financial Instruments

As of October 31, 2021 and ~~2020~~July 31, 2021, the carrying values of cash and cash equivalents, accounts receivable, short-term borrowings and accounts payable approximate fair value because of the short-term nature of these instruments, and are classified as Level 1 in the fair value hierarchy.

Long-Term Debt

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

Equity Method Investments

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

Derivative Fair Value Measurements

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

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

Forward Foreign Currency Exchange Contracts

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

Net Investment Hedges

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

Fair Value of Derivatives Contracts

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

Foreign
Currency
Translation
Adjustment Pension
Benefits Derivative
Financial
Instruments Total
Balance as of January 31, 2021, net of tax $ (37.5) $ (103.9) $ (1.6) $ (143.0)
Other comprehensive (loss) income before reclassifications and tax (0.2) 21.4 (1) 1.2 22.4
Tax expense 0 (5.2) (0.2) (5.4)
Other comprehensive (loss) income before reclassifications, net of tax (0.2) 16.2 1.0 17.0
Reclassifications, before tax 0 3.0 (2) 0.2 (3) 3.2
Tax expense 0 (0.7) (0.1) (0.8)
Reclassifications, net of tax 0 2.3 0.1 2.4
Other comprehensive (loss) income, net of tax (0.2) 18.5 1.1 19.4
Balance as of April 30, 2021, net of tax $ (37.7) $ (85.4) $ (0.5) $ (123.6)
Balance as of January 31, 2020, net of tax $ (82.2) $ (97.0) $ 0.9 $ (178.3)
Other comprehensive (loss) income before reclassifications and tax (35.3) (7.9) (1) 2.3 (40.9)
Tax benefit (expense) 0 1.9 (0.9) 1.0
Other comprehensive (loss) income before reclassifications, net of tax (35.3) (6.0) 1.4 (39.9)
Reclassifications, before tax 0 5.2 (2) 3.3 (3) 8.5
Tax expense 0 (1.2) (1.2) (2.4)
Reclassifications, net of tax 0 4.0 2.1 6.1
Other comprehensive (loss) income, net of tax (35.3) (2.0) 3.5 (33.8)
Balance as of April 30, 2020, net of tax $ (117.5) $ (99.0) $ 4.4 $ (212.1)



	Total Notional Amounts				Assets				Liabilities
	October 31,		July 31,		October 31,		July 31,		October 31,		July 31,
	2021		2021		2021		2021		2021		2021
Designated as hedging instruments
Forward foreign currency exchange contracts	$	86.1	$	117.2	$	1.8	$	1.0	$	1.2	$	1.2
Net investment hedge	55.8		55.8		1.1		1.1		0.7		2.0

Total designated	141.9		173.0		2.9		2.1		1.9		3.2

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

~~(1)~~InForward foreign currency exchange contract assets were recorded in other current assets and in other long-term assets on the ~~third quarter of fiscal 2021, pension settlement accounting~~Condensed Consolidated Balance Sheets. Forward foreign currency exchange contract liabilities were recorded in other current liabilities on the Condensed Consolidated Balance Sheets. The net investment hedge was ~~triggered~~recorded in other current assets and in other long-term liabilities on the ~~Company recorded a charge of $1.1 million (see Note 9). As a result~~Condensed Consolidated Balance Sheets.

Changes in the fair value of the ~~related remeasurement, the~~ Company’s ~~pension asset increased with a corresponding adjustment to other comprehensive loss of $21.4 million.~~

In the third quarter of fiscal 2020, pension settlement accounting was triggered and the Company recorded a charge of $2.3 million (see Note 9). As a result of the related remeasurement, the Company’s pension obligations increased with a corresponding adjustment to other comprehensive loss of $7.9 million.

~~(2)Includes net amortization of prior service costs and actuarial losses included~~designated hedges are reported in ~~net periodic benefit costs (see Note 9) that were reclassified from~~ accumulated other comprehensive loss on the ~~Company’s~~ Condensed Consolidated Balance Sheets tountil the related transaction occurs. Designated hedges are recognized as a component of net sales, cost of sales and operating expenses onin the ~~Company’s~~Condensed Consolidated Statements of Earnings upon occurrence of the related hedged transaction.

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

~~(3)Relates~~The Company classifies cash flows from derivatives designated in a qualifying cash flow hedging relationship in the same category as the cash flows from the hedged items. Cash flows from these derivative transactions are recorded in operating activities in the Condensed Consolidated Statements of Cash Flows.

Amounts related to ~~designated~~ forward foreign currency exchange contracts ~~that were~~are expected to be reclassified ~~from~~into earnings during the next 12 months based on the timing of inventory purchases and sales. Amounts related to excluded components associated with the net investment hedge are expected to be reclassified into earnings through its termination in July 2029. See Note 11 for additional information on accumulated other comprehensive ~~loss to other income, net on~~loss.

Credit Risk Related Contingent Features

Contract provisions may require the posting of collateral or settlement of the contracts for various reasons, including if the Company’s ~~Condensed Consolidated Statements~~credit ratings are downgraded below its investment grade credit rating by any of ~~Earnings (see Note 11).~~the major credit agencies or for cross default contractual provisions if there is a failure under other financing arrangements related to payment terms or covenants. As of October 31, 2021 and July 31, 2021, no collateral was posted.

Counterparty Credit Risk

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

1614

~~Changes~~Note 15. Guarantees

Letters of Credit

The Company has letters of credit which guarantee payment to third parties in ~~accumulated other comprehensive loss~~the event the Company is in breach of contract terms as detailed in each letter of credit. The outstanding debt contingent liability for ~~the nine months ended April 30, 2021 and 2020 are~~standby letters of credit was as follows (in millions):

Foreign
Currency
Translation
Adjustment Pension
Benefits Derivative
Financial
Instruments Total
Balance as of July 31, 2020, net of tax $ (74.0) $ (110.0) $ 0 $ (184.0)
Other comprehensive income (loss) before reclassifications and tax 36.3 25.4 (1) (0.2) 61.5
Tax (expense) benefit 0 (6.2) 0.1 (6.1)
Other comprehensive income (loss) before reclassifications, net of tax 36.3 19.2 (0.1) 55.4
Reclassifications, before tax 0 6.8 (2) (0.5) (3) 6.3
Tax (expense) benefit 0 (1.4) 0.1 (1.3)
Reclassifications, net of tax 0 5.4 (0.4) 5.0
Other comprehensive income (loss), net of tax 36.3 24.6 (0.5) 60.4
Balance at April 30, 2021, net of tax $ (37.7) $ (85.4) $ (0.5) $ (123.6)
Balance as of July 31, 2019, net of tax $ (92.7) $ (99.0) $ (1.2) $ (192.9)
Other comprehensive (loss) income before reclassifications and tax (24.8) (7.9) (1) 2.4 (30.3)
Tax benefit (expense) 0 1.9 (0.2) 1.7
Other comprehensive (loss) income before reclassifications, net of tax (24.8) (6.0) 2.2 (28.6)
Reclassifications, before tax 0 7.5 (2) 5.3 (3) 12.8
Tax expense 0 (1.5) (1.9) (3.4)
Reclassifications, net of tax 0 6.0 3.4 9.4
Other comprehensive (loss) income, net of tax (24.8) 0 5.6 (19.2)
Balance as of April 30, 2020, net of tax $ (117.5) $ (99.0) $ 4.4 $ (212.1)


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

Advanced Filtration Systems Inc. (AFSI)

~~(1)In the first quarter of fiscal 2021, pension curtailment accounting was triggered and~~The Company has an unconsolidated joint venture, AFSI, established by the Company ~~recorded a charge of $0.8 million. In the third quarter of fiscal 2021, pension settlement accounting was triggered~~ and ~~the Company recorded a charge of $1.1 million (see Note 9). As a result of the related remeasurements, the Company’s pension obligations decreased~~Caterpillar Inc. (Caterpillar) in 1986. AFSI designs and ~~the Company’s pension asset increased with a corresponding adjustment to other comprehensive loss on the Company’s Condensed Consolidated Balance Sheets of $25.4 million.~~

~~(2)~~manufactures high-efficiency fluid filters used in Caterpillar’s machinery worldwide. Includes net amortization of prior service costs and actuarial losses included in net periodic benefit costs (see Note 9) that were reclassified from accumulated other comprehensive loss on the Company’s Condensed Consolidated Balance Sheets to cost of sales and operating expenses on the Company’s Condensed Consolidated Statements of Earnings.

~~(3)~~Relates to designated forward foreign currency exchange contracts that were reclassified from accumulated other comprehensive loss to other income, net on the Company’s Condensed Consolidated Statements of Earnings (see Note 11).

~~Note 15. Guarantees~~

The Company and Caterpillar ~~Inc.~~ equally own the shares of ~~Advanced Filtration Systems Inc. (AFSI), an unconsolidated joint venture,~~AFSI, and ~~guarantee~~both companies guarantee certain debt and banking services, including credit and debit cards, merchant processing and treasury management services, of the joint venture. The Company accounts for AFSI as an equity method investment.

The outstanding debt relating to AFSI, ~~and the contingent liability for standby letters of credit relating to~~which the Company ~~are~~guarantees half, was $38.6 million and $37.8 million as ~~follows (in millions):~~of October 31, 2021 and July 31, 2021, respectively.

April 30,
2021 July 31,
2020
Outstanding debt (the Company guarantees half) $ 34.2 $ 40.0
Contingent liability for standby letters of credit $ 7.7 $ 7.5
Amounts drawn for letters of credit $ 0 $ 0

~~The letters of credit guarantee payment to third parties in the event the Company is in breach of contract terms as detailed in each letter of credit.~~

~~Items relating to~~Earnings from AFSI, which are recorded in other ~~income,~~expense, net onin the ~~Company’s~~ Condensed Consolidated Statements of Earnings ~~are as follows (in millions):~~

Three Months Ended
April 30, Nine Months Ended
April 30,
2021 2020 2021 2020
Investment earnings from AFSI $ 0.8 $ 0.8 $ 1.4 $ 1.2
Royalty income from AFSI $ 1.8 $ 1.6 $ 5.0 $ 5.2

were $1.2 million and $2.0 million for the three months ended October 31, 2021 and 2020, respectively.

Note 16. Commitments and Contingencies

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

Warranty Reserves

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

Note 17. Segment Reporting

The ~~Company~~Company’s ~~has 2~~ reportable ~~segments:~~segments are Engine Products and Industrial Products. The Company determines its operating segments consistent with the manner in which it manages its operations and evaluates performance for internal review and decision-making. Corporate and unallocated includes corporate expenses determined to be non-allocable to the segments, such as interest expense and certain ~~restructuring charges.~~incentive compensation.

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

~~Segment details are as follows (in millions):~~

Three Months Ended
April 30, Nine Months Ended
April 30,
2021 2020 2021 2020
Net sales
Engine Products segment $ 531.0 $ 420.4 $ 1,429.6 $ 1,315.2
Industrial Products segment 234.0 209.3 651.2 649.2
Total Company $ 765.0 $ 629.7 $ 2,080.8 $ 1,964.4

Earnings before income taxes
Engine Products segment $ 84.4 $ 56.5 $ 206.1 $ 172.2
Industrial Products segment 37.6 34.7 90.9 98.8
Corporate and unallocated (11.1) (6.8) (30.0) (17.1)
Total Company $ 110.9 $ 84.4 $ 267.0 $ 253.9

1815

Segment details were as follows (in millions):


	Three Months Ended October 31,
	2021		2020
Net sales
Engine Products segment	$	527.2	$	436.2
Industrial Products segment	233.7		200.4
Total Company	$	760.9	$	636.6

Earnings before income taxes
Engine Products segment	$	72.3	$	60.4
Industrial Products segment	38.3		27.5
Corporate and unallocated	(6.5)		(5.7)
Total Company	$	104.1	$	82.2

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


		Three Months Ended April 30,				Nine Months Ended April 30,					Three Months Ended October 31,
		2021		2020		2021		2020			2021		2020
Engine Products segment	Engine Products segment									Engine Products segment
Off-Road	Off-Road	$	95.7	$	63.5	$	238.4	$	199.6	Off-Road	$	93.9	$	64.8
On-Road	On-Road	39.7		25.1		105.0		99.5		On-Road	31.5		32.0
Aftermarket	Aftermarket	371.4		301.9		1,018.7		929.4		Aftermarket	374.3		317.0
Aerospace and Defense	Aerospace and Defense	24.2		29.9		67.5		86.7		Aerospace and Defense	27.5		22.4
Total Engine Products segment	Total Engine Products segment	531.0		420.4		1,429.6		1,315.2		Total Engine Products segment	527.2		436.2

Industrial Products segment	Industrial Products segment									Industrial Products segment
Industrial Filtration Solutions	Industrial Filtration Solutions	163.7		137.4		449.3		441.4		Industrial Filtration Solutions	165.5		135.6
Gas Turbine Systems	Gas Turbine Systems	25.5		29.2		71.9		74.2		Gas Turbine Systems	16.6		23.0
Special Applications	Special Applications	44.8		42.7		130.0		133.6		Special Applications	51.6		41.8
Total Industrial Products segment	Total Industrial Products segment	234.0		209.3		651.2		649.2		Total Industrial Products segment	233.7		200.4
Total Company	Total Company	$	765.0	$	629.7	$	2,080.8	$	1,964.4	Total Company	$	760.9	$	636.6

Concentrations

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

Note 18. Restructuring

In the second quarter of fiscal 2021, the Company initiated activities to further improve its operating and manufacturing cost structure, primarily in ~~its EMEA region.~~EMEA. These activities resulted in ~~the Company incurring~~ restructuring expenses, primarily related to severance, of $14.8 ~~million in the second quarter. The Company continues to expect that it will not incur additional restructuring expenses in fiscal 2021. Expenses~~million. Charges of $5.8 million ~~are~~were included in cost of sales and $9.0 million ~~are~~were included in operating expenses onin the Condensed Consolidated Statements of Earnings for the ~~nine months~~year ended ~~April 30,~~July 31, 2021. ~~Expenses~~Charges of $2.5 million relate to the Engine Products segment, $6.5 million relate to the Industrial Products segment and $5.8 million relate to ~~the Corporate~~corporate and unallocated ~~segment.~~expenses. For the three ~~and nine~~ months ended ~~April 30,~~October 31, 2021, ~~$1.5~~$2.5 million ~~and $2.0 million, respectively,~~ of the restructuring expenses were ~~paid and~~ ~~$12.8~~paid. As of October 31, 2021, $7.8 million was ~~accrued as of April 30, 2021.~~accrued.

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

Overview

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

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

Supply Chain Disruptions

~~Coronavirus (COVID-19) pandemic~~

The effects of the ongoing ~~COVID-19~~Coronavirus (COVID-19) pandemic continue to impact global economic conditions. The Company ~~experienced~~continues to experience supply chain disruptions, including global logistic challenges, labor constraints and low supplies of steel, petrochemical products and filter media. These disruptions have slowed the Company’s production speed and increased ~~sales~~lead times. The Company has undertaken steps to mitigate these negative impacts, such as qualifying additional suppliers. These disruptions impeded the Company’s ability to meet strengthening demand. This dynamic impacted results in the ~~third~~first quarter of fiscal ~~2021 compared~~2022 and is expected to continue throughout fiscal 2022.

Inflation

In connection with the ~~third~~supply chain disruptions described above, the Company has experienced the effects of inflation related to raw materials and operating expenses. These inflationary pressures have had an adverse impact on profit margins, particularly in recent months. The Company continues to negotiate price increases with customers to mitigate these cost increases. Inflation impacted results in the first quarter of fiscal ~~2020; however, the Company’s supply chain~~2022 and ~~manufacturing operations have experienced logistic and production-timing constraints, and may~~is expected to continue ~~to experience such constraints in the future partly depending upon the severity and duration of the COVID-19 pandemic.~~ ~~Management cannot predict with specificity the extent and duration of any future impact on the Company’s business and financial results from the COVID-19 pandemic~~.throughout fiscal 2022.

Consolidated Results of Operations

~~Three months ended April 30, 2021 compared with three months ended April 30, 2020~~

Operating results ~~for the three months ended April 30, 2021 and 2020 are~~were as follows (in millions):


		Three Months Ended April 30,									Three Months Ended October 31,
		2021		% of net sales		2020		% of net sales			2021		% of net sales		2020		% of net sales
Net sales	Net sales	$	765.0			$	629.7			Net sales	$	760.9			$	636.6
Cost of sales	Cost of sales	507.0		66.3	%	420.5		66.8	%	Cost of sales	503.9		66.2	%	413.9		65.0	%
Gross profit	Gross profit	258.0		33.7		209.2		33.2		Gross profit	257.0		33.8		222.7		35.0
Operating expenses	Operating expenses	148.6		19.4		124.7		19.8		Operating expenses	149.5		19.7		135.5		21.3
Operating income	Operating income	109.4		14.3		84.5		13.4		Operating income	107.5		14.1		87.2		13.7
Interest expense	Interest expense	3.2		0.4		4.4		0.7		Interest expense	3.4		0.5		3.5		0.5
Other income, net		(4.7)		(0.6)		(4.3)		(0.7)
Other expense, net										Other expense, net	—		—		1.5		0.2
Earnings before income taxes	Earnings before income taxes	110.9		14.5		84.4		13.4		Earnings before income taxes	104.1		13.7		82.2		12.9
Income taxes	Income taxes	26.5		3.5		21.0		3.3		Income taxes	27.0		3.5		20.3		3.2
Net earnings	Net earnings	$	84.4	11.0	%	$	63.4	10.1	%	Net earnings	$	77.1	10.1	%	$	61.9	9.7	%

Net Sales

Net sales for the three months ended ~~April 30,~~October 31, 2021 ~~were $765.0~~were $760.9 million, compared with ~~$629.7~~$636.6 million for the three months ended ~~April 30,~~October 31, 2020, an increase of ~~$135.3~~$124.3 million, or ~~21.5%~~19.5%. Net ~~sales~~sales increased ~~$110.6~~$91.0 million, or ~~26.3%~~20.9%, inin the Engine Products segment ~~and~~and increased ~~$24.7~~$33.3 million, or ~~11.8%~~16.6%, in ~~the~~the Industrial Products ~~segment~~segment. Foreign currency translation increased sales by $3.0 million compared ~~with~~to the ~~same period in the prior fiscal year.~~three months ended October 31, 2020. Refer to the Segment Results of Operations section for further discussion on the Engine Products and Industrial Products segments. During the three months ended ~~April 30,~~October 31, 2021, sales increased with varied demand by market and geography. For the three months ended ~~April 30,~~October 31, 2021 ~~the~~, sales in Latin America (LATAM) ~~region sales~~ increased ~~44.6%~~33.5%, ~~the~~United States (U.S.) increased 19.8%, Europe, Middle East and Africa (EMEA) ~~region sales~~ increased ~~27.8%, the~~19.6% and Asia Pacific (APAC) ~~region sales~~ increased ~~25.3%,~~13.6%.

Cost of Sales and the United States (U.S.) region sales increased 11.1%. Additionally, sales for the three months ended April 30, 2021 were positively impacted by foreign currency translation of $27.9 million, or 3.8%.Gross Margin

Cost of sales for the three months ended ~~April 30,~~October 31, 2021 were ~~$507.0~~$503.9 million, compared with ~~$420.5~~$413.9 million for the three months ended ~~April 30,~~October 31, 2020, an increase of ~~$86.5~~$90.0 million, or ~~20.6%~~21.7%. ~~Gross~~Gross margin was ~~33.7%~~33.8%, compared with ~~33.2%~~35.0% during the same period in the prior fiscal year. The gross margin ~~increase~~decrease was primarily driven by increased raw material, labor and freight costs, partially offset by increased leverage from higher sales and ~~improved pricing, partially offset by higher commodity and freight expenses and an unfavorable sales mix.~~increased pricing.

Operating Expenses

Operating expenses for the three months ended ~~April 30,~~October 31, 2021 were ~~$148.6~~$149.5 million, compared with ~~$124.7~~$135.5 million for the three months ended ~~April 30,~~October 31, 2020, an increase of ~~$23.9~~$14.0 million, or ~~19.1%~~10.4%. As a percentage of net sales, operating expenses ~~for the current year quarter~~ were ~~19.4%~~19.7%, compared with ~~19.8% during~~21.3% during the same period in the prior fiscal year. The decrease in operating ~~expense~~expenses as a percentage of net sales reflects increased leverage from higher ~~sales, partially offset by increased incentive compensation expense.~~sales.

Non-Operating Items

Interest expense was ~~$3.2~~$3.4 million for the three months ended October 31, 2021, compared with $3.5 million for the three months ended ~~April 30,~~October 31, 2020, a decrease of $0.1 million, or 1.7%. The change reflects comparative debt levels.

Other expense, net for the three months ended October 31, 2021 was zero, compared with ~~$4.4~~other expense, net of $1.5 million for the three months ended ~~April 30,~~October 31, 2020, a decrease of ~~$1.2 million.~~ $1.5 million. The decrease was primarily ~~due to lower debt levels~~ ~~compared with the same period in the prior fiscal year.~~

Other income, net for the three months ended April 30, 2021 was $4.7 million, compared with $4.3 million for the three months ended April 30, 2020, an increase of $0.4 million. The increase was primarily driven by ~~foreign exchange gains and~~ a ~~lower~~ pension ~~settlement~~curtailment charge in fiscal ~~2021, partially offset by costs related to the Company’s support of its communities.~~2021.

Income Taxes

The effective tax rate for the three months ended ~~April 30,~~October 31, 2021 was ~~23.9%~~25.9%, compared with ~~24.9%~~24.7% for the three months ended ~~April 30,~~October 31, 2020. ~~The decrease in the effective tax rate was primarily due to an overall increase in net discrete tax benefits.~~

~~Net earnings for the three months ended April 30, 2021 were $84.4 million, compared with net earnings of $63.4 million for the three months ended April 30, 2020, an increase of $21.0 million.~~

~~Nine months ended April 30, 2021 compared with nine months ended April 30, 2020~~

~~Operating results for the nine months ended April 30, 2021 and 2020 are as follows (in millions):~~

Nine Months Ended April 30,
2021 % of net sales 2020 % of net sales
Net sales $ 2,080.8 $ 1,964.4
Cost of sales 1,374.8 66.1 % 1,300.7 66.2 %
Gross profit 706.0 33.9 663.7 33.8
Operating expenses 433.3 20.8 406.1 20.7
Operating income 272.7 13.1 257.6 13.1
Interest expense 9.9 0.5 13.5 0.7
Other income, net (4.2) (0.2) (9.8) (0.5)
Earnings before income taxes 267.0 12.8 253.9 12.9
Income taxes 64.4 3.1 61.0 3.1
Net earnings $ 202.6 9.7 % $ 192.9 9.8 %

Net sales for the nine months ended April 30, 2021 were $2,080.8 million, compared with $1,964.4 million for the nine months ended April 30, 2020, an increase of $116.4 million, or 5.9%. Net sales increased $114.4 million, or 8.7%, in the Engine Products segment and increased $2.0 million, or 0.3%, in the Industrial Products segment compared with the same period in the prior fiscal year. Refer to the Segment Results of Operations section for further discussion on the Engine Products and Industrial Products segments. During the nine months ended April 30, 2021, sales increased with varied demand by market and geography. For the nine months ended April 30, 2021, the APAC region sales increased 14.9%, the LATAM region sales increased 13.5%, and the EMEA region sales increased 8.9%. The increase was partially offset by the U.S. region sales which decreased 2.2%. Additionally, sales for the nine months ended April 30, 2021 were positively impacted by the effect of foreign currency translation of $51.1 million, or 2.5%.

Cost of sales for the nine months ended April 30, 2021 were $1,374.8 million, compared with $1,300.7 million for the nine months ended April 30, 2020, an increase of $74.1 million, or 5.7%. Gross margin for the nine months ended April 30, 2021 was 33.9%, compared with 33.8% during the same period in the prior fiscal year. Gross margin benefited from an increased leverage from higher sales and improved pricing, partially offset by an unfavorable sales mix and restructuring charges of $5.8 million.

Operating expenses for the nine months ended April 30, 2021 were $433.3 million, compared with $406.1 million for the nine months ended April 30, 2020, an increase of $27.2 million, or 6.7%. As a percentage of net sales, operating expenses for the current year period were 20.8%, compared with 20.7% during the same period in the prior fiscal year. The increase in operating expenses as a percentage of net sales resulted from increased incentive compensation and restructuring charges of $9.0 million, partially offset by increased leverage from higher sales.

Interest expense was $9.9 million for the nine months ended April 30, 2021, compared with $13.5 million for the nine months ended April 30, 2020, a decrease of $3.6 million. The decrease was primarily due to lower debt level~~s compared with the same period in the prior fiscal year.~~

Other income, net for the nine months ended April 30, 2021 was $4.2 million, compared with other income, net of $9.8 million for the nine months ended April 30, 2020, a decrease of $5.6 million. The decrease was primarily related to the Company’s support of its communities, partially offset by lower pension settlement and curtailment expenses.

~~The effective tax rate for the nine months ended April 30, 2021 was 24.1%, compared with 24.0% for the nine months ended April 30, 2020.~~ The increase in the effective tax rate was primarily due to ~~an overall decrease~~a reduction in net discrete tax benefits.

Net Earnings

Net earnings for the ~~nine~~three months ended ~~April 30,~~October 31, 2021 ~~were $202.6~~were $77.1 million, compared with net earnings of ~~$192.9~~$61.9 million for the ~~nine~~three months ended ~~April 30,~~October 31, 2020, an increase of ~~$9.7 million.~~$15.2 million, or 24.4%.

Restructuring

In the second quarter of fiscal 2021, the Company initiated activities to further improve its operating and manufacturing cost structure, primarily in ~~its EMEA region.~~EMEA. These activities resulted in ~~the Company incurring~~ restructuring expenses, primarily related to severance, of $14.8 ~~million in the second quarter. The Company continues to expect that it will not incur additional restructuring expenses in fiscal 2021. Expenses~~million. Charges of $5.8 million ~~are~~were included in cost of sales and $9.0 million ~~are~~were included in operating expenses onin the Condensed Consolidated Statements of Earnings for the ~~nine months~~year ended ~~April 30,~~July 31, 2021. ~~Expenses~~Charges of $2.5 million relate to the Engine Products segment, $6.5 million relate to the Industrial Products segment and $5.8 million relate to ~~Corporate~~corporate and unallocated ~~segment.~~expenses. For the three ~~and nine~~ months ended ~~April 30,~~October 31, 2021, ~~$1.5~~$2.5 million ~~and $2.0 million, respectively,~~ of the restructuring expenses were ~~paid and~~ paid. As of October 31, 2021, $7.8 million was accr~~$12.8 million~~ued. ~~were accrued at April 30, 2021.~~ The Company expects ~~$8.0~~approximately $8 million in annualized savings from these restructuring activities once ~~they are~~ completed by the beginning of the third quarter of fiscal 2022.

Segment Results of Operations

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


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

Engine Products segment	Engine Products segment	$	531.0	$	420.4	$	1,429.6	$	1,315.2	Engine Products segment	$	527.2	$	436.2	$	91.0	20.9	%

Industrial Products segment	Industrial Products segment	234.0		209.3		651.2		649.2		Industrial Products segment	233.7		200.4		33.3		16.6

Total Company	Total Company	$	765.0	$	629.7	$	2,080.8	$	1,964.4	Total Company	$	760.9	$	636.6	$	124.3	19.5	%

Earnings before income taxes	Earnings before income taxes									Earnings before income taxes
Engine Products segment	Engine Products segment	$	84.4	$	56.5	$	206.1	$	172.2	Engine Products segment	$	72.3	$	60.4	$	11.9	19.7	%
Industrial Products segment	Industrial Products segment	37.6		34.7		90.9		98.8		Industrial Products segment	38.3		27.5		10.8		39.3
Corporate and unallocated(1)	Corporate and unallocated(1)	(11.1)		(6.8)		(30.0)		(17.1)		Corporate and unallocated(1)	(6.5)		(5.7)		(0.8)		14.0
Total Company	Total Company	$	110.9	$	84.4	$	267.0	$	253.9	Total Company	$	104.1	$	82.2	$	21.9	26.6	%

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

Engine Products Segment

Net sales ~~are~~were as follows (in millions):


		Three Months Ended April 30,				Nine Months Ended April 30,					Three Months Ended October 31,
		2021		2020		2021		2020			2021		2020		$ Change		% Change
Off-Road	Off-Road	$	95.7	$	63.5	$	238.4	$	199.6	Off-Road	$	93.9	$	64.8	$	29.1	44.9	%
On-Road	On-Road	39.7		25.1		105.0		99.5		On-Road	31.5		32.0		(0.5)		(1.4)
Aftermarket	Aftermarket	371.4		301.9		1,018.7		929.4		Aftermarket	374.3		317.0		57.3		18.1
Aerospace and Defense	Aerospace and Defense	24.2		29.9		67.5		86.7		Aerospace and Defense	27.5		22.4		5.1		22.9
Total Engine Products segment	Total Engine Products segment	$	531.0	$	420.4	$	1,429.6	$	1,315.2	Total Engine Products segment	$	527.2	$	436.2	$	91.0	20.9	%

Engine Products segment earnings before income taxes	Engine Products segment earnings before income taxes	$	84.4	$	56.5	$	206.1	$	172.2	Engine Products segment earnings before income taxes	$	72.3	$	60.4	$	11.9	19.7	%

~~Three months ended April 30, 2021~~ ~~compared with~~ ~~three months ended April 30, 2020~~

Net sales for the Engine Products segment for the three months ended ~~April 30,~~October 31, 2021 were ~~$531.0~~$527.2 million, compared with ~~$420.4~~$436.2 million for the three months ended ~~April 30,~~October 31, 2020, an increase of ~~$110.6~~$91.0 million, or ~~26.3%, and 22.0%~~ ~~excluding the impact~~20.9%. Excluding a $2.4 million increase from foreign currency ~~translation. The Engine Products segment experienced~~translation, net sales increased 20.3%.

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

Net sales of On-Road ~~and Aftermarket businesses in all regions, partially offset by~~were $31.5 million, a ~~decline in Aerospace and Defense~~decrease of 1.4% compared with the three months ended October 31, 2020. In constant currency, net sales ~~as a result of ongoing weakness in commercial aerospace.~~ decreased $0.4 million, or 1.2%~~The increase in~~. On-Road sales ~~was led by increased Class 8 truck build rates~~decreased in the U.S. ~~and~~primarily due to the Company’s decision to discontinue selling diesel exhaust fluid tanks as well as supply chain constraints.

Net sales of Aftermarket were $374.3 million, an increase of 18.1% compared with the three months ended October 31, 2020. In constant currency, net sales increased ~~build rates and market share gains in China. The Off-Road sales increase included strong growth in EMEA, Latin America, and in China.~~$54.6 million, or 17.2%. Aftermarket sales experienced broad growth across all regions as ~~utilization rates for construction equipment, agriculture equipment,~~economic conditions improved.

Net sales of Aerospace and ~~on-road heavy-duty trucks remain at~~Defense were $27.5 million, an increase of 22.9% compared with the three months ended October 31, 2020. In constant currency, net sales increased $5.2 million, or 23.1%. Aerospace and Defense sales increased in the U.S. primarily due to improved economic conditions in the commercial aerospace market compared to the prior year, which had experienced a ~~high level.~~greater impact from the COVID-19 pandemic.

Earnings before income taxes for the Engine Products segment for the three months ended ~~April 30,~~October 31, 2021 were ~~$84.4~~$72.3 million, or ~~15.9%~~13.7% of Engine Products’ net sales, ~~an increase from $56.5 million, or 13.4%~~a decrease from 13.9% of ~~Engine Products’~~net sales for the three months ended ~~April 30,~~October 31, 2020. The ~~increase~~decrease was driven by higher raw material, labor, freight costs and an unfavorable mix of sales, partially offset by increased leverage from higher sales and improved ~~pricing partially offset by higher commodity and freight expenses and increased incentive compensation.~~

~~Nine months ended April 30, 2021 compared with nine months ended April 30, 2020~~

Net sales for the Engine Products segment for the nine months ended April 30, 2021 were $1,429.6 million, compared with $1,315.2 million for the nine months ended April 30, 2020, an increase of $114.4 million, or 8.7%, andpricing. ~~6.4%~~ ~~excluding the impact from currency translation. The Engine Products segment experienced growth across most of its businesses as economic conditions improved globally.~~ ~~Year-to-date results reflected an economic recovery curve portraying a soft first-half of the fiscal year and increasing momentum.~~ The Engine Products segment sales increase was primarily driven by the Off-Road and Aftermarket businesses across most product groups, and foreign currency gains. Specifically, sales in the APAC region increased from the prior year, led by China where market share gains and improving economic conditions drove strong sales growth in the Off-Road business and Aftermarket channels.

Earnings before income taxes for the Engine Products segment for the nine months ended April 30, 2021 were $206.1 million, or 14.4% of Engine Products’ sales, an increase from $172.2 million, or 13.1% of Engine Products’ sales for the nine months ended April 30, 2020. The increase was driven by increased leverage from higher sales and improved pricing, partially offset by higher incentive compensation, unfavorable sales mix, and restructuring charges of $2.5 million incurred in the second quarter of fiscal 2021.

Industrial Products Segment

Net sales ~~are~~were as follows (in millions):


		Three Months Ended April 30,				Nine Months Ended April 30,					Three Months Ended October 31,
		2021		2020		2021		2020			2021		2020		$ Change		% Change
Industrial Filtration Solutions	Industrial Filtration Solutions	$	163.7	$	137.4	$	449.3	$	441.4	Industrial Filtration Solutions	$	165.5	$	135.6	$	29.9	22.0	%
Gas Turbine Systems	Gas Turbine Systems	25.5		29.2		71.9		74.2		Gas Turbine Systems	16.6		23.0		(6.4)		(27.8)
Special Applications	Special Applications	44.8		42.7		130.0		133.6		Special Applications	51.6		41.8		9.8		23.3
Total Industrial Products segment	Total Industrial Products segment	$	234.0	$	209.3	$	651.2	$	649.2	Total Industrial Products segment	$	233.7	$	200.4	$	33.3	16.6	%

Industrial Products segment earnings before income taxes	Industrial Products segment earnings before income taxes	$	37.6	$	34.7	$	90.9	$	98.8	Industrial Products segment earnings before income taxes	$	38.3	$	27.5	$	10.8	39.3	%

~~Three months ended April 30, 2021~~ ~~compared with~~ ~~three months ended April 30, 2020~~

Net sales for the Industrial Products segment for the three months ended ~~April 30,~~October 31, 2021 were ~~$234.0~~$233.7 million, compared with ~~$209.3~~$200.4 million for the three months ended ~~April 30,~~October 31, 2020, an increase of ~~$24.7~~$33.3 million, or ~~11.8%, and 7.1% excluding the impact~~16.6%. Excluding a $0.6 million increase from foreign currency translation. Sales growth in the Industrial Filtration Solutions (IFS) business was due in part to a strong sales increase in China. Industrial Air Filtration experienced rebound in demand for dust collection products with all major regions reporting growth. Process Filtration experienced significant sales gains particularly in the EMEA and APAC regions. Gas Turbine Systems’ (GTS) sales decreased as a result of a decline in demand for small gas turbines for the oil and gas market, a slowing of retrofit activity, and the timing of projects. Special Applicationstranslation, net sales increased although on a constant currency basis sales were down slightly owing to continuing softness in the disk drive market. Partially offsetting the decline in disk drive sales were increases in Integrated Venting Solutions (IVS), Semicon/Imaging, and Membranes.16.3%.

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

Net sales of Gas Turbine Systems (GTS) were $16.6 million, a decrease of 27.8% compared with the three months ended October 31, 2020. In constant currency, net sales decreased $6.4 million, or 27.9%. The decrease in GTS sales was driven by lower sales of replacement parts in APAC, EMEA and the U.S., as well as lower sales of small turbines in the U.S.

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

Earnings before income taxes for the Industrial Products segment for the three months ended ~~April 30,~~October 31, 2021 were ~~$37.6~~$38.3 million ~~compared with $34.7 million for the three months ended April 30, 2020,~~ , or 16.4% of Industrial Products’ net sales, an increase ~~of $2.9 million, or 8.4%. Earnings before income taxes as a percent~~ from 13.7% of net sales for the three months ended ~~April 30, 2021 were 16.1%, a decrease from 16.6% for the three months ended April 30, 2020, which~~October 31, 2020. The increase was ~~primarily~~ driven by greater leverage from higher ~~commodity and freight expenses higher incentive compensation and an unfavorable~~ sales, ~~mix,~~ partially offset by increased ~~leverage from higher sales.~~

~~Nine months ended April 30, 2021 compared with nine months ended April 30, 2020~~

Net sales for the Industrial Products segment for the nine months ended April 30, 2021 were $651.2 million, compared with $649.2 million for the nine months ended April 30, 2020, an increase of $2.0 million, or 0.3%,raw material, freight and ~~a decrease of~~ labor costs.~~2.9% excluding the impact from foreign currency translation.~~ ~~Year-to-date results reflected an economic recovery curve portraying a soft first-half of the fiscal year and increasing momentum, although at a slower rate than the Engine Products segment.~~ Sales growth in the IFS business was led by continued strength in Process Filtration related to the food and beverage industry, as well as growth in Industrial Fume Extraction and On-Compressor businesses. Partially offsetting this growth was lower demand for dust collection products where, in most geographies, the COVID-19 pandemic lessened industrial production and customers’ willingness to make capital investments. Conditions were more favorable in China, where sales of dust collection products increased as benefits from market share gains were complemented by recovery from the COVID-19 pandemic. Within the Special Applications business, lower sales of disk drive filters and PTFE roll-goods were partially offset by strong growth in sales of IVS. The GTS business experienced lower sales of First-Fit products in the U.S. and EMEA, partially offset by growing Replacement product sales in the U.S.

Earnings before income taxes for the Industrial Products segment for the nine months ended April 30, 2021 were $90.9 million, or 14.0% of Industrial Products’ sales, a decrease from $98.8 million, or 15.2% of Industrial Products’ sales for the nine months ended April 30, 2020. The decrease was driven by restructuring charges of $6.5 million incurred in the second quarter of fiscal 2021, higher incentive compensation and unfavorable sales mix, partially offset by increased leverage from higher sales.

Liquidity, ~~and~~ Capital Resources and Financial Condition

Liquidity

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

Operating Activities

Cash provided by operating activities for the ~~nine~~three months ended ~~April 30,~~October 31, 2021 was ~~$305.6~~$42.9 million, compared with ~~$265.2~~$128.9 million for the ~~nine~~three months ended ~~April 30,~~October 31, 2020, ~~an increase~~a decrease of ~~$40.4~~$86.0 million. The ~~increase~~ decrease in cash provided by operating activities was primarily driven by ~~year-over-year improvements~~an increase in ~~net operating assets and liabilities~~inventory as the Company continues to ~~manage its working capital.~~experience strengthening demand while mitigating supply chain disruptions as well as higher incentive compensation paid, partially offset by higher earnings.

Investing Activities

Cash used in investing ~~activities~~activities for the ~~nine~~three months ended ~~April 30,~~October 31, 2021 was ~~$40.2~~$18.3 million, ~~compared~~compared with ~~$106.2~~$18.8 million for the ~~nine~~three months ended ~~April 30,~~October 31, 2020, a decrease of ~~$66.0~~$0.5 million. In fiscal ~~2021,~~2022, the Company continued investing in ~~capital expenditures aligned with~~ its strategic priorities, ~~though capital expenditures decreased in fiscal 2021 as the Company brings to completion many of its significant capital projects from the last two fiscal years.~~including capacity expansion.

Financing Activities

Cash used in financing activities generally relates to the use of cash for payment of dividends and repurchases of the Company’s common stock, net borrowing activity and proceeds from the exercise of stock options. To determine the level of ~~dividends~~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 ~~nine~~three months ended ~~April 30,~~October 31, 2021 and 2020 were ~~$79.5~~$27.4 million and ~~$79.8~~$26.6 million, respectively. Share repurchases for the ~~nine~~three months ended ~~April 30,~~October 31, 2021 and 2020 were ~~$78.7~~$102.9 million and $~~94.3~~15.6 million, respectively.

Cash used in financing activities for the ~~nine~~three months ended ~~April 30,~~October 31, 2021 was ~~$295.5~~$45.5 million, compared with ~~$3.7~~$78.9 million for the ~~nine~~three months ended ~~April 30,~~October 31, 2020,~~, an increase~~ a decrease of ~~$291.8 million~~. $33.4 million. In fiscal 2022, cash was received from issuing long-term debt. In both fiscal 2022 and 2021, cash was used to repay borrowings and to fund the Company’s needs, driven by expenditures on property, plant and equipment, dividends and share ~~repurchases~~repurchases.

Capital Resources and purchases of non-controlling interests. In fiscal 2020, proceeds from long-term debt were used to fund the Company’s needs, driven by expenditures on property, plant and equipment, dividends and share repurchases. In addition, during the third quarter of fiscal 2020, the Company borrowed $100.0 million on its revolver as a precautionary measure to strengthen its liquidity position due to uncertainty related to COVID-19, which was repaid in the fourth quarte~~r of fiscal 2020.~~Financial Condition

Cash and cash equivalents as of ~~April 30,~~October 31, 2021 was ~~$215.3~~$200.8 million, compared with ~~$236.6~~$222.8 million as of July 31, ~~2020.~~2021. The Company has capacity of ~~$799.0~~$669.5 million available for further borrowing under existing credit ~~facilities~~facilities as of ~~April 30, 2021.~~October 31, 2021, which includes $427.5 million available on the Company’s $500.0 million unsecured revolving credit facility that expires on May 21, 2026. The Company believes that the liquidity available from the combination of expected cash generated by operating activities, existing cash and available credit under existing credit facilities will be ~~adequate~~sufficient to meet its cash requirements for the next ~~twelve~~12 months.

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

Accounts receivable, net as of ~~April 30,~~October 31, 2021, was ~~$541.3~~$545.1 million, compared with ~~$455.3~~$552.7 million as of July 31, ~~2020, an increase~~2021, a decrease of ~~$86.0~~$7.6 million. Days sales ~~outstanding~~outstanding were 60 66 days as of ~~April 30,~~October 31, 2021, ~~down~~up from 6365 days at July 31, ~~2020. Days sales outstanding is calculated using the count back method, which calculates the number of days of most recent revenue that is reflected in the net accounts receivable balance.~~2021.

Inventories, net as of ~~April 30,~~October 31, 2021, was ~~$360.1~~$444.7 million,, compared with ~~$322.7~~$384.5 million as of July 31, ~~2020,~~ 2021, an increase of ~~$37.4 million~~.$60.2 million. Inventory turns were ~~5.7~~ 4.8 times a~~nd 4.9~~and 5.4 times per year as of ~~April 30,~~October 31, 2021 and July 31, ~~2020,~~2021, respectively.Inventory turns are calculated by taking the annualized cost of sales based on the trailing three month period divided by the average of the beginning and ending net inventory values of the three month period. The inventory turn improvement was driven by higher levels of sales.

Long-term debt outstanding was ~~$454.6~~$548.1 million as of ~~April 30,~~October 31, 2021, compared with ~~$617.4~~$461.0 million as of July 31, ~~2020, a decrease~~2021, an increase of ~~$162.8~~$87.1 million primarily due to ~~the use of strong cash flows to pay down balances on the Company’s revolving credit facility.~~an increase in proceeds from long-term debt. As of ~~April 30,~~October 31, 2021, total debt, including long-term debt and short-term borrowings, represented ~~30.2%~~34.6% of total capitalization, defined as total debt plus total ~~shareholders’~~stockholders’ equity, compared with ~~38.7%~~30.9% as of July 31, ~~2020.~~2021. As of ~~April 30,~~October 31, 2021, the Company iswas in compliance with its financial covenants.

~~The Company had a $500.0 million unsecured revolving credit facility that was due to expire July 21, 2022. As of April 30, 2021, there was $417.3 million available on this facility. On May 21,~~In fiscal 2021, the Company entered into ~~a new five year committed, unsecured, revolving credit facility~~an agreement in ~~the amount of $500.0 million,~~ which replaced the Company’s previously existing $500.0 million unsecured revolving credit facility. The new agreement includes an option to increase the facility up to $250.0 million per the terms of the agreement, matures May 21, 2026 and has substantially the same terms and conditions as the previous agreement.

~~On May 21, 2021, the Company issued~~would issue and sell two tranches of unsecured senior notes, totaling $150.0 ~~million in senior unsecured notes.~~million. The first tranche, isreceived in August 2021, was a $100.0 million ~~ten~~10 year note due 2031 at a fixed interest rate of ~~2.5%, and proceeds will be received in August 2021.~~2.50%. The second tranche, isreceived in November 2021, was a $50.0 million seven year note due 2028 at a fixed interest rate of 2.12%~~, and proceeds will be received in November 2021. Interest payments will be due semi-annually. The unsecured notes specify both financial and non-financial covenants and address events of default.~~.

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

New Accounting Standards Not Yet Adopted

~~None.~~For new accounting standards not yet adopted, refer to Note 1 in the Notes to Condensed Consolidated Financial Statements included in Item 1 of this report.

Critical Accounting Policies

There have been no material changes to the Company’s critical accounting policies as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, ~~2020.~~2021.

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

The Company, through its management, may make forward-looking statements reflecting the Company’s current views with respect to future events and expectations, such as forecasts, plans, trends and projections relating to the Company’s business and financial performance. These forward-looking statements, which may be included in reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), in press releases and in other documents and materials as well as in written or oral statements made by or on behalf of the Company, are subject to certain risks and uncertainties, including those discussed in Part I, Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, ~~2020,~~2021, which could cause actual results to differ materially from historical results or those anticipated. The words or phrases such as “will likely result,” “are expected to,” “will continue,” “will allow,” “estimate,” “project,” “believe,” “expect,” “anticipate,” “forecast,” “plan” and similar expressions are intended to identify forward-looking statements within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act of 1933, as amended, as enacted by the Private Securities Litigation Reform Act of 1995 (PSLRA). In particular, the Company desires to take advantage of the protections of the PSLRA in connection with the forward-looking statements made in this Quarterly Report on Form 10-Q. All statements other than statements of historical fact are forward-looking statements. These statements do not guarantee future performance.

These forward-looking statements speak only as of the date such statements are made and are subject to risks and uncertainties that could affect the Company’s performance and could cause the Company’s actual results for future periods to differ materially from ~~these statements.~~any opinions or statements expressed. These factors include, but are not limited to, ~~pandemics~~challenges in global operations; impacts of global economic, industrial and political conditions on product demand; impacts from unexpected events, including the COVID-19 pandemic; economic and industrial conditions worldwide; the Company’s ability to maintain competitive advantages; threats from disruptive innovation; highly competitive markets with pricing pressure; the Company’s ability to protect and enforce its intellectual property; the difficulties in operating globally; customer concentration in certain cyclical industries; significant demand fluctuations;effects of unavailable raw materials or material cost inflation; inability of operations to meet customer demand; difficulties with information technology systems and security; foreign currency fluctuations; governmental laws and regulations; litigation; changes in tax laws and tax rates; regulations and results of examinations; the Company’s ability to attract and retain qualified personnel; ~~changes~~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 ~~capital and credit markets; execution of the Company’s acquisition, divestiture and other strategic transactions strategy; the possibility~~certain cyclical industries; impairment of intangible ~~asset impairment; the Company’s ability~~assets; inability to manage productivity improvements; ~~unexpected events and business disruptions; the Company’s ability~~inability to maintain an effective system of internal control over financial reporting; ~~the United Kingdom’s decision~~vulnerabilities associated with information technology systems and security; inability to ~~end its membership~~protect and enforce intellectual property rights; costs associated with governmental laws and regulations; impacts of foreign currency fluctuations; effects of changes in ~~the European Union~~capital and credit markets; changes in tax laws and tax rates, regulations and results of examinations; and results of execution of any acquisition, divestiture and other strategic transactions strategy. These and other factors ~~included~~are described in ~~Part I,~~ Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, ~~2020.~~2021. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

Item 3. Quantitative and Qualitative Disclosures ~~about~~About Market Risk

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

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

During the ~~nine~~three months ended ~~April 30,~~October 31, 2021, the U.S. dollar was generally weaker than in the ~~nine~~three months ended ~~April 30,~~October 31, 2020 compared with many of the currencies of the foreign countries in which the Company operates. The overall weaker dollar had a positive impact on the Company’s international net sales results because the foreign denominated revenues translated into more U.S. dollars. Foreign currency translation had a positive impact to net sales and net earnings in many regions around the world. The estimated impact of foreign currency translation for the ~~nine~~three months ended ~~April 30,~~October 31, 2021, resulted in an overall increase in reported net sales ~~by $51.1~~of $3.0 million and an increase in reported net earnings of ~~approximately $7.1 million, compared with the same period in the prior fiscal year.~~$0.4 million.

Derivative Fair Value Measurements

The Company enters into derivative instrument agreements, including forward foreign currency exchange contracts and net investment hedges ~~and interest rate swaps,~~ to manage risk in connection with changes in foreign ~~currency and interest rates.~~currency. The Company only enters into derivative instrument agreements with counterparties who have highly rated credit. The Company does not enter into derivative instrument agreements for trading or speculative ~~purposes (see~~purposes. See Note 11 and Note 14 to the Notes to the Condensed Consolidated Financial ~~Statements).~~Statements.

Forward Foreign Currency Exchange Contracts

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

Net Investment Hedges

The Company uses fixed-to-fixed cross-currency swap agreements to hedge its exposure to adverse foreign currency exchange rate movements for its operations in Europe. The Company has elected the spot method offor designating these contracts as ~~cash flow~~net investment hedges. The Company has one contract, which terminates in July 2029.

Based on the net investment ~~hedges~~hedge outstanding as of ~~April 30,~~October 31, 2021, a 10% appreciation of the U.S. dollar compared to the Euro, would result in a net gain of ~~$6.1~~$5.8 million in the fair value of these contracts.

~~Interest Rate Swaps~~

The Company uses swap agreements to hedge exposure related to interest expense and to manage its exposure to interest rate movements. During the first and third quarters of fiscal 2021, the Company entered into interest rate swap agreements designated as cash flow hedges with aggregate notional amounts of $40.0 million and $25.0 million, respectively, hedging future fixed-rate debt issuances, which effectively fixed a portion of interest payments based on the ten year treasury rates. Both instruments were terminated on May 5, 2021 generating a realized gain of $2.6 million. This gain will be carried on the balance sheet and amortized as an offset to interest expense over the life of the related debt, which is set to be issued in August 2021.

Interest Rates

The Company’s exposure to market risk for changes in interest rates primarily relates ~~primarily~~ to debt obligations that are at variable rates, as well as the potential increase in the fair value of long-term debt resulting from a potential decrease in interest rates. As of ~~April 30,~~October 31, 2021, the Company’s financial liabilities with exposure to changes in interest rates consisted mainly of ~~$75.0~~$65.0 million outstanding on the Company’s revolving credit facility, €80.0 million, or ~~$96.6~~$93.2 million onof a variable rate term loan and ~~¥1.6~~¥2.0 billion, or ~~$14.7~~$17.6 million, of variable rate senior notes. As of ~~April 30,~~October 31, 2021, additional short-term borrowings outstanding consisted of ~~$15.2~~$39.0 million and ~~¥1.0 billion,~~¥250.0 million, or ~~$9.2~~$2.2 million. Assuming a hypothetical 0.5 percentage point increase ~~of 0.5%~~ in short-term interest rates, with all other variables remaining constant, interest expense would have increased ~~roughly $0.7~~approximately $0.1 million and interest income would have increased ~~roughly $0.3~~approximately $0.1 million in the ~~nine~~three months ended ~~April 30,~~October 31, 2021. Interest rate changes would also affect the fair market value of fixed-rate debt. As of ~~April 30,~~October 31, 2021, the estimated fair value of long-term debt with fixed interest rates was ~~$293.3~~$392.3 million compared to its carrying value of ~~$275.0~~$375.0 million. The fair value is estimated by discounting the projected cash flows using the interest rate at which similar amounts of debt could currently be borrowed.

Commodity Prices

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

Chinese Notes

Consistent with common business practice in China, the Company’s Chinese subsidiaries accept bankers’ acceptance notes from Chinese customers in settlement of certain customer billed accounts receivable. Bankers’ acceptance notes represent a commitment by the issuing financial institution to pay a certain amount of money at a specified future maturity date to the legal owner of the bankers’ acceptance note as of the maturity date. The maturity ~~date~~dates of bankers’ acceptance notes ~~varies,~~vary, but it is the Company’s policy to only accept bankers’ acceptance notes with maturity dates no more than ~~270~~180 days from the date of the Company’s receipt of such draft. As of ~~April 30,~~October 31, 2021 and July 31, ~~2020,~~2021, the Company owned ~~$12.5~~$9.5 million and ~~$12.1~~$14.1 million, respectively, of these bankers’ acceptance notes and includes them in accounts receivable on the ~~Company’s~~ Condensed Consolidated Balance Sheets.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There are inherent risks and uncertainties associated with the Company’s global operations that involve the manufacturing and sale of products for highly demanding customer applications throughout the world. These risks and uncertainties could adversely affect the Company’s operating performances or financial condition. The “Risk Factors” section in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, ~~2020~~2021 outlines the risks and uncertainties that the Company believes are the most material to its business.

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

Repurchases of Equity Securities

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

Period
Total Number
of Shares
Purchased (1)
Average Price
Paid per Share Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
or Programs Maximum
Number
of Shares
that May Still
Be Purchased
Under the Plans
or Programs
February 1 - February 28, 2021 34,367 $ 59.68 34,367 9,813,885
March 1 - March 31, 2021 235,751 59.40 235,751 9,578,134
April 1 - April 30, 2021 270,000 60.42 270,000 9,308,134
Total 540,118 $ 59.93 540,118 9,308,134


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

(1)~~The~~On May 31, 2019, the Board of Directors ~~has~~ authorized the repurchase of up to 13.0 million shares of the Company’s common stock. This repurchase authorization is effective until terminated by the Board of Directors. The Company has remaining authorization to repurchase ~~9.3~~6.7 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 ~~April 30,~~October 31, 2021. While not considered repurchases of shares, the Company does at times withhold shares that would otherwise be issued under stock-based awards to cover the withholding of taxes due as a result of exercising stock options or ~~vesting~~payment of stock-based awards.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits


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


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

SIGNATURES

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



			DONALDSON COMPANY, INC.
			(Registrant)


Date: ~~June 7,~~December 8, 2021	By:	/s/ Tod E. Carpenter
		Tod E. Carpenter Chairman, President and Chief Executive Officer (duly authorized officer)


Date: ~~June 7,~~December 8, 2021	By:	/s/ Scott J. Robinson
		Scott J. Robinson Senior Vice President and Chief Financial Officer (principal financial officer)


Date: ~~June 7,~~December 8, 2021	By:	/s/ Peter J. Keller
		Peter J. Keller Corporate Controller (principal accounting officer)


	April 30, 2021		July 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	215.3	$	236.6

Accounts receivable, less allowances of $7.4 and $6.2, respectively	541.3		455.3
Inventories, net	360.1		322.7
Prepaid expenses and other current assets	82.0		82.1
Total current assets	1,198.7		1,096.7
Property, plant and equipment, net	626.3		631.6

Goodwill	322.9		316.8


Other long-term assets	206.7		199.5
Total assets	$	2,354.6	$	2,244.6

Liabilities and Shareholders’ Equity
Current liabilities:
Short-term borrowings	$	25.1	$	3.8
Current maturities of long-term debt	19.4		5.7
Accounts payable	268.1		187.7
Accrued employee compensation and related taxes	119.8		71.2


Current income taxes	20.2		17.6
Other current liabilities	96.2		120.8
Total current liabilities	548.8		406.8
Long-term debt	454.6		617.4



Non-current income taxes payable	79.5		87.4
Other long-term liabilities	118.3		129.2
Total liabilities	1,201.2		1,240.8


Redeemable non-controlling interest	0		10.9

Shareholders’ equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized, NaN issued	0		0
Common stock, $5.00 par value, 240,000,000 shares authorized, 151,643,194 shares issued	758.2		758.2
Additional paid-in capital	5.4		0
Retained earnings	1,579.1		1,430.0
Non-controlling interest	0		5.8
Stock-based compensation plans	12.1		15.9
Accumulated other comprehensive loss	(123.6)		(184.0)
Treasury stock, 25,884,997 and 25,304,515 shares, respectively, at cost	(1,077.8)		(1,033.0)
Total shareholders’ equity	1,153.4		992.9
Total liabilities and shareholders’ equity	$	2,354.6	$	2,244.6


	Nine months ended April 30, 2021
	Engine Products		Industrial Products		Total
Balance at beginning of period	$	84.8	$	232.0	$	316.8
Goodwill acquired	0		0		0
Currency translation	0.1		6.0		6.1
Balance at end of period	$	84.9	$	238.0	$	322.9


	April 30, 2021						July 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Total		Gross Carrying Amount		Accumulated Amortization		Total
Customer relationships	$	107.5	$	(54.9)	$	52.6	$	105.2	$	(50.0)	$	55.2
Patents, trademarks and technology	24.3		(13.3)		11.0		23.7		(11.6)		12.1
Total intangible assets, net	$	131.8	$	(68.2)	$	63.6	$	128.9	$	(61.6)	$	67.3


	Options Outstanding	Weighted Average Exercise Price
Outstanding as of July 31, 2020	6,533,979	$	42.44
Granted	1,004,631	46.61
Exercised	(747,367)	34.95
Canceled/forfeited	(28,414)	50.15
Outstanding as of April 30, 2021	6,762,829	$	43.86


	Performance Shares Outstanding	Weighted Average Grant Date Fair Value
Non-vested at July 31, 2020	198,200	$	54.93
Granted	106,100	46.06
Vested	0	0
Canceled	0	0
Non-vested at April 30, 2021	304,300	$	51.84


					Fair Values Significant Other Observable Inputs
	Total Notional Amounts				Assets (1)				Liabilities (2) (3)
	April 30,		July 31,		April 30,		July 31,		April 30,		July 31,
	2021		2020		2021		2020		2021		2020
Designated as hedging instruments
Forward foreign currency exchange contracts(4)	$	39.5	$	68.1	$	0.4	$	0.1	$	0.9	$	0.6
Net investment hedge	55.8		55.8		1.1		1.2		3.3		0
Interest rate swaps	65.0		0		3.0		0		0		0
Total designated	160.3		123.9		4.5		1.3		4.2		0.6

Not designated as hedging instruments
Forward foreign currency exchange contracts(5)	151.4		169.1		0.9		2.0		0.9		0.8
Total not designated	151.4		169.1		0.9		2.0		0.9		0.8
Total	$	311.7	$	293.0	$	5.4	$	3.3	$	5.1	$	1.4


	April 30, 2021		July 31, 2020
Outstanding debt (the Company guarantees half)	$	34.2	$	40.0
Contingent liability for standby letters of credit	$	7.7	$	7.5
Amounts drawn for letters of credit	$	0	$	0


	Nine Months Ended April 30,
	2021		% of net sales		2020		% of net sales
Net sales	$	2,080.8			$	1,964.4
Cost of sales	1,374.8		66.1	%	1,300.7		66.2	%
Gross profit	706.0		33.9		663.7		33.8
Operating expenses	433.3		20.8		406.1		20.7
Operating income	272.7		13.1		257.6		13.1
Interest expense	9.9		0.5		13.5		0.7
Other income, net	(4.2)		(0.2)		(9.8)		(0.5)
Earnings before income taxes	267.0		12.8		253.9		12.9
Income taxes	64.4		3.1		61.0		3.1
Net earnings	$	202.6	9.7	%	$	192.9	9.8	%