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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________________________________________
FORM i 10-Q
_____________________________________________________________
(Mark One)
i ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED i OCTOBER
31, 2019 OR i ☐ 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 i 1-7891
i DONALDSON COMPANY, INC.
(Exact name of registrant as specified in its charter)
|
| | |
i Delaware | | i 41-0222640 |
(State
or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
i 1400 West 94th Street i Minneapolis,
i Minnesota i 55431
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: ( i 952)
i 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 |
i Common Stock, $5.00 par value | i DCI | i 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. ☒ i 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). ☒ i 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. (Check one): |
| | | | |
| i Large
accelerated filer | ☒ | Accelerated filer | ☐ |
| | | | |
| Non-accelerated filer | ☐ | Smaller reporting company | i ☐ |
| | | | |
| Emerging
growth company | i ☐ | | |
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). i ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: common stock, $5 par value - i 126,560,779
shares as of November 30, 2019.
PART I. FINANCIAL INFORMATION
|
| |
Item
1. | Financial Statements |
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In millions, except per share amounts)
(Unaudited)
|
| | | | | | | |
| |
| 2019 |
| | 2018 |
|
Net sales | $ | i 672.7 |
| | $ | i 701.4 |
|
Cost
of sales | i 441.4 |
| | i 463.0 |
|
Gross
profit | i 231.3 |
| | i 238.4 |
|
Operating
expenses | i 142.6 |
| | i 139.7 |
|
Operating
income | i 88.7 |
| | i 98.7 |
|
Interest
expense | i 4.7 |
| | i 4.2 |
|
Other
income, net | ( i 2.6 | ) | | ( i 1.9 | ) |
Earnings
before income taxes | i 86.6 |
| | i 96.4 |
|
Income
taxes | i 21.6 |
| | i 22.6 |
|
Net
earnings | $ | i 65.0 |
| | $ | i 73.8 |
|
| | | |
Weighted
average shares – basic | i 126.9 |
| | i 128.8 |
|
Weighted
average shares – diluted | i 128.6 |
| | i 131.0 |
|
| | | |
Net
earnings per share – basic | $ | i 0.51 |
| | $ | i 0.57 |
|
Net
earnings per share – diluted | $ | i 0.51 |
| | $ | i 0.56 |
|
See
Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
|
| | | | | | | |
| |
| 2019 |
| | 2018 |
|
Net earnings | $ | i 65.0 |
| | $ | i 73.8 |
|
Other
comprehensive income (loss): | | | |
Foreign currency translation income (loss) | i 8.1 |
| | ( i 24.2 | ) |
Pension
liability adjustment, net of deferred taxes of $0.1 and $(0.4), respectively | i 0.8 |
| | i 1.6 |
|
| | | |
Derivatives: | | | |
Gain
on hedging derivatives, net of deferred taxes of $0.2 and $(0.2), respectively | i 0.3 |
| | i 0.5 |
|
Reclassifications
of losses on hedging derivatives to net income, net of taxes of $(0.7) and $0, respectively | i 1.2 |
| | i — |
|
Total
derivatives | i 1.5 |
| | i 0.5 |
|
| | | |
Net
other comprehensive income (loss) | i 10.4 |
| | ( i 22.1 | ) |
Comprehensive
income | $ | i 75.4 |
| | $ | i 51.7 |
|
See
Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
(Unaudited)
|
| | | | | | | |
| |
| | |
|
Assets | |
| | |
|
Current assets: | |
| | |
|
Cash
and cash equivalents | $ | i 210.0 |
| | $ | i 177.8 |
|
Accounts
receivable, less allowance of $4.9 and $4.8, respectively | i 501.5 |
| | i 529.5 |
|
Inventories,
net | i 361.5 |
| | i 332.8 |
|
Prepaid
expenses and other current assets | i 86.1 |
| | i 82.5 |
|
Total
current assets | i 1,159.1 |
| | i 1,122.6 |
|
Property,
plant and equipment, net | i 606.2 |
| | i 588.9 |
|
Right-of-use
lease assets | i 79.3 |
| | — |
|
Goodwill | i 307.9 |
| | i 303.1 |
|
Intangible
assets, net | i 71.2 |
| | i 70.9 |
|
Deferred
income taxes | i 14.0 |
| | i 14.2 |
|
Other
long-term assets | i 45.6 |
| | i 42.9 |
|
Total
assets | $ | i 2,283.3 |
| | $ | i 2,142.6 |
|
| | | |
Liabilities
and shareholders’ equity | | | |
Current liabilities: | | | |
Short-term borrowings | $ | i 60.9 |
| | $ | i 2.1 |
|
Current
maturities of long-term debt | i 50.0 |
| | i 50.2 |
|
Trade
accounts payable | i 229.1 |
| | i 237.5 |
|
Current
lease liabilities | i 24.8 |
| | — |
|
Other current liabilities | i 166.3 |
| | i 193.1 |
|
Total
current liabilities | i 531.1 |
| | i 482.9 |
|
Long-term
debt | i 596.8 |
| | i 584.4 |
|
Non-current
income taxes payable | i 111.4 |
| | i 110.9 |
|
Deferred
income taxes | i 17.0 |
| | i 13.2 |
|
Long-term
lease liabilities | i 54.4 |
| | — |
|
Other long-term liabilities | i 44.9 |
| | i 48.5 |
|
Total
liabilities | i 1,355.6 |
| | i 1,239.9 |
|
| | | |
Commitments
and contingencies (Note 15) | i
|
| | i
|
|
Redeemable
non-controlling interest | i 10.7 |
| | i 10.0 |
|
| | | |
Shareholders’
equity: | | | |
Preferred stock, $1.00 par value, 1,000,000 shares authorized, none issued | i — |
| | i — |
|
Common
stock, $5.00 par value, 240,000,000 shares authorized, 151,643,194 shares issued | i 758.2 |
| | i 758.2 |
|
Retained
earnings | i 1,346.0 |
| | i 1,281.5 |
|
Non-controlling
interest | i 5.4 |
| | i 5.4 |
|
Stock-compensation
plans | i 15.1 |
| | i 21.7 |
|
Accumulated
other comprehensive loss | ( i 182.5 | ) | | ( i 192.9 | ) |
Treasury
stock, 25,166,367 and 24,324,483 shares, respectively, at cost | ( i 1,025.2 | ) | | ( i 981.2 | ) |
Total
shareholders’ equity | i 917.0 |
| | i 892.7 |
|
Total
liabilities and shareholders’ equity | $ | i 2,283.3 |
| | $ | i 2,142.6 |
|
See
Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
|
| | | | | | | |
| |
| 2019 |
| | 2018 |
|
Operating Activities | |
| | |
|
Net
earnings | $ | i 65.0 |
| | $ | i 73.8 |
|
Adjustments
to reconcile net earnings to net cash provided by operating activities: | | | |
Depreciation and amortization | i 21.2 |
| | i 19.3 |
|
Deferred
income taxes | i 3.1 |
| | ( i 0.4 | ) |
Stock-based
compensation expense | i 6.6 |
| | i 6.9 |
|
Other,
net | i 7.1 |
| | ( i 1.0 | ) |
Changes
in operating assets and liabilities, excluding effect of acquired business | ( i 16.9 | ) | | ( i 35.3 | ) |
Net
cash provided by operating activities | i 86.1 |
| | i 63.3 |
|
| | | |
Investing
Activities | | | |
Net expenditures on property, plant and equipment | ( i 37.1 | ) | | ( i 28.2 | ) |
Acquisitions,
net of cash acquired | i — |
| | ( i 96.0 | ) |
Net
cash used in investing activities | ( i 37.1 | ) | | ( i 124.2 | ) |
| | | |
Financing
Activities | | | |
Proceeds from long-term debt | i 122.9 |
| | i 135.0 |
|
Repayments
of long-term debt | ( i 111.1 | ) | | ( i 14.5 | ) |
Change
in short-term borrowings | i 58.2 |
| | i 32.1 |
|
Purchase
of treasury stock | ( i 65.0 | ) | | ( i 80.9 | ) |
Dividends
paid | ( i 26.6 | ) | | ( i 24.4 | ) |
Tax
withholding payments for stock compensation transactions | ( i 4.1 | ) | | ( i 2.2 | ) |
Exercise
of stock options | i 11.0 |
| | i 16.2 |
|
Net
cash (used in) provided by financing activities | ( i 14.7 | ) | | i 61.3 |
|
Effect
of exchange rate changes on cash | ( i 2.1 | ) | | ( i 5.2 | ) |
Increase
(decrease) in cash and cash equivalents | i 32.2 |
| | ( i 4.8 | ) |
Cash
and cash equivalents, beginning of period | i 177.8 |
| | i 204.7 |
|
Cash
and cash equivalents, end of period | $ | i 210.0 |
| | $ | i 199.9 |
|
| | | |
Supplemental
Cash Flow Information | | | |
Cash paid during the year for: | | | |
Income taxes | $ | i 11.4 |
| | $ | i 12.3 |
|
Interest | $ | i 5.6 |
| | $ | i 4.1 |
|
Supplemental
disclosure of non-cash investing transactions | | | |
Accrued property, plant and equipment additions | $ | i 16.6 |
| | $ | i 11.4 |
|
See
Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In millions, except per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Non- Controlling Interest | | Stock
Compensation Plans | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total |
| $ | i 758.2 |
| | $ | i — |
| | $ | i 1,281.5 |
| | $ | i 5.4 |
| | $ | i 21.7 |
| | $ | ( i 192.9 | ) | | $ | ( i 981.2 | ) | | $ | i 892.7 |
|
Net
earnings | | | | | i 65.0 |
| | | | | | | | | | i 65.0 |
|
Other
comprehensive income | | | | | | | | | | | i 10.4 |
| | | | i 10.4 |
|
Treasury
stock acquired | | | | | | | | | | | | | ( i 65.0 | ) | | ( i 65.0 | ) |
Dividends
declared | | | | | i 0.2 |
| | | | | | | | | | i 0.2 |
|
Stock
compensation and other activity | | | | | ( i 0.7 | ) | | | | ( i 6.6 | ) | | | | i 21.0 |
| | i 13.7 |
|
| $ | i 758.2 |
| | $ | i — |
| | $ | i 1,346.0 |
| | $ | i 5.4 |
| | $ | i 15.1 |
| | $ | ( i 182.5 | ) | | $ | ( i 1,025.2 | ) | | $ | i 917.0 |
|
| | | | | | | | | | | | | | | |
| $ | i 758.2 |
| | $ | i — |
| | $ | i 1,122.1 |
| | $ | i 4.8 |
| | $ | i 21.3 |
| | $ | ( i 149.8 | ) | | $ | ( i 898.8 | ) | | $ | i 857.8 |
|
Net
earnings | | | | | i 73.8 |
| | | | | | | | | | i 73.8 |
|
Other
comprehensive loss | | | | | | | | | | | ( i 22.1 | ) | | | | ( i 22.1 | ) |
Treasury
stock acquired | | | | | | | | | | | | | ( i 80.9 | ) | | ( i 80.9 | ) |
Dividends
declared | | | | | i 0.2 |
| | | | | | | | | | i 0.2 |
|
Stock
compensation and other activity | | | i
|
| | ( i 3.5 | ) | | i
|
| | ( i 0.1 | ) | | | | i 29.2 |
| | i 25.6 |
|
| $ | i 758.2 |
| | $ | i — |
| | $ | i 1,192.6 |
| | $ | i 4.8 |
| | $ | i 21.2 |
| | $ | ( i 171.9 | ) | | $ | ( i 950.5 | ) | | $ | i 854.4 |
|
See
Notes to Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. i Summary
of Significant Accounting Policies
i 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 in the United States (GAAP) 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 shareholders’ equity have been included and are of a normal recurring nature. Operating results for the three month period ended October 31, 2019 are not necessarily indicative of the results that may be expected for future periods. The year-end Condensed Consolidated Balance Sheet information was derived from the Company’s Audited 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 year ended July 31, 2019. i New Accounting Standards Recently Adopted In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842) (ASU 2016-02), which requires lessees to recognize right-of-use assets and lease liabilities for substantially all leases. This accounting guidance was effective for the
Company in the beginning of the first quarter of fiscal 2020 on a modified retrospective basis. In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842) Narrow-Scope Improvements for Lessors (ASU 2018-20), which amends ASU 2016-02, to provide additional guidance on accounting for certain expenses such as property taxes and insurance paid on behalf of the lessor by the lessee. The Company adopted ASU 2016-02 in the first quarter of fiscal 2020, and increased assets and liabilities by $ i 71.5
million, as of August 1, 2019. Refer to Note 17 for further discussion. In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). The guidance allows a company to elect to reclassify from accumulated other comprehensive income (AOCI) to retained earnings the stranded tax effects from the adoption of the new federal corporate tax rate that became effective January 1, 2018 as a result of the U.S. Tax Cuts and Jobs Act (TCJA). The amount of the reclassification is calculated as the difference between the amount initially charged to other comprehensive income (OCI) at the previously enacted tax rate that remains
in AOCI and the amount that would have been charged using the newly enacted tax rate, excluding any valuation allowance prior to tax reform. The Company adopted ASU 2018-02 in the first quarter of fiscal 2020 and elected to not reclassify tax effects stranded in accumulated other comprehensive loss. As such, there is no impact on the Company’s Condensed Consolidated Financial Statements. New Accounting Standards Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13). In November 2018, the FASB issued 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, trade receivables, other financial assets measured at amortized cost and other off-balance sheet credit exposures. The new guidance is effective for the Company beginning in the first quarter of fiscal 2021, with early adoption permitted. The Company is evaluating the impact of the adoption of ASU 2016-13 on its Consolidated Financial Statements. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic
815 Derivatives and Hedging and Topic 825, Financial Instruments (ASU 2019-04). This guidance clarifies the recently issued standards on credit losses (Topic 326), derivatives and hedging (Topic 815), and recognition and measurement of financial instruments (Topic 825). The new guidance is effective for the Company beginning in the first quarter of fiscal 2021. The Company is evaluating the impact of the adoption of ASU 2019-04 on its Consolidated Financial Statements. / Note
2. i Acquisitions
In the first quarter of fiscal 2019, the Company acquired i 88%
of the shares of BOFA International LTD (BOFA), headquartered in the United Kingdom, for cash consideration of $ i 98.2 million less cash acquired of $ i 2.2
million. In the fourth quarter of 2019, the Company acquired an additional i 3% of the shares, increasing its ownership to i 91%.
BOFA designs, develops and manufactures fume extraction systems across a wide range of industrial air filtration applications. The acquisition allowed the Company to accelerate its global growth in the fume collection business and add additional filtration technology to the Company’s existing product lines.
Note 3. i Supplemental
Balance Sheet Information
i The components of net inventories are as follows (in millions):
|
| | | | | | | |
| |
| | |
|
Raw materials | $ | i 116.0 |
| | $ | i 114.7 |
|
Work
in process | i 36.3 |
| | i 33.0 |
|
Finished
products | i 209.2 |
| | i 185.1 |
|
Inventories,
net | $ | i 361.5 |
| | $ | i 332.8 |
|
/
i The
components of net property, plant and equipment are as follows (in millions):
|
| | | | | | | |
| |
| | |
|
Land | $ | i 24.3 |
| | $ | i 24.2 |
|
Buildings | i 328.3 |
| | i 325.3 |
|
Machinery
and equipment | i 824.9 |
| | i 813.5 |
|
Computer
software | i 143.4 |
| | i 142.8 |
|
Construction
in progress | i 133.2 |
| | i 114.3 |
|
Less:
accumulated depreciation | ( i 847.9 | ) | | ( i 831.2 | ) |
Property,
plant and equipment, net | $ | i 606.2 |
| | $ | i 588.9 |
|
/ Note
4. i Earnings Per Share
The Company’s basic net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares. The Company’s 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. Certain outstanding
options were excluded from the diluted net earnings per share calculations because their exercise prices are greater than the average market price of the Company’s common stock during those periods. Options excluded from the diluted net earnings per share calculations were i 1.7 million and i 0.8
million for the three months ended October 31, 2019 and 2018, respectively. i The following table presents the information necessary to calculate basic and diluted net earnings per share (in millions, except per share amounts):
|
| | | | | | | |
| |
| 2019 |
| | 2018 |
|
Net earnings for basic and diluted earnings per share computation | $ | i 65.0 |
| | $ | i 73.8 |
|
| | | |
Weighted
average common shares outstanding: | | | |
Weighted average common shares – basic | i 126.9 |
| | i 128.8 |
|
Dilutive
impact of share-based awards | i 1.7 |
| | i 2.2 |
|
Weighted
average common shares – diluted | i 128.6 |
| | i 131.0 |
|
| | | |
Net
earnings per share – basic | $ | i 0.51 |
| | $ | i 0.57 |
|
Net
earnings per share – diluted | $ | i 0.51 |
| | $ | i 0.56 |
|
/
Note
5. i Goodwill and Other Intangible Assets
Goodwill is assessed for impairment annually, 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 2019 and did not record any impairment as a result of this assessment. i The
following is a reconciliation of goodwill by reportable segment for the three months ended October 31, 2019 (in millions): |
| | | | | | | | | | | |
| Engine Products | | Industrial Products | | Total Goodwill |
| $ | i 84.5 |
| | $ | i 218.6 |
| | $ | i 303.1 |
|
Goodwill
acquired | i — |
| | i — |
| | i — |
|
Currency
translation | ( i 0.1 | ) | | i 4.9 |
| | i 4.8 |
|
| $ | i 84.4 |
| | $ | i 223.5 |
| | $ | i 307.9 |
|
/
i The
following table summarizes the net intangible asset classes as of October 31, 2019 (in millions): |
| | | | | | | | |
| | Gross Carrying Amount | | Accumulated Amortization |
Customer relationships | | $ | i 103.6 |
| | $ | ( i 45.1 | ) |
Patents,
trademarks and technology | | i 22.8 |
| | ( i 10.1 | ) |
Total
other intangible assets, net | | $ | i 126.4 |
| | $ | ( i 55.2 | ) |
The
following table summarizes the net intangible asset classes as of July 31, 2019 (in millions): |
| | | | | | | | |
| | Gross Carrying Amount | | Accumulated Amortization |
Customer relationships | | $ | i 101.5 |
| | $ | ( i 43.3 | ) |
Patents,
trademarks and technology | | i 22.3 |
| | ( i 9.6 | ) |
Total
other intangible assets, net | | $ | i 123.8 |
| | $ | ( i 52.9 | ) |
/ Note
6. i Revenue
The Company recognizes revenue on a wide range of filtration solutions sold to customers in many industries around the globe. Most of the Company’s performance obligations within customer sales contracts are for manufactured filtration systems and replacement parts. The
Company does perform 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
i Net sales disaggregated by geography based on the location where the customer’s order was placed are as follows (in millions):
|
| | | | | | | |
| |
| 2019 |
| | 2018 |
|
United States | $ | i 286.9 |
| | $ | i 305.1 |
|
Europe,
Middle East and Africa | i 194.8 |
| | i 196.3 |
|
Asia
Pacific | i 133.5 |
| | i 147.3 |
|
Latin
America | i 57.5 |
| | i 52.7 |
|
Total
net sales | $ | i 672.7 |
| | $ | i 701.4 |
|
See
Note 16 for net sales disaggregated by segment.
/
The satisfaction of performance obligations and the resulting recognition of revenue typically corresponds 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 in prepaid expenses and other
current assets on the Condensed Consolidated Balance Sheets. Contract assets were $ i 11.8 million and $ i 12.4
million as of October 31, 2019 and July 31, 2019, respectively. In other limited circumstances, the Company will require a down payment from the customer prior to the satisfaction of performance obligations. This results in contract liabilities, or deferred revenue, which is reported in other current liabilities on the Condensed Consolidated Balance Sheets, depending on when revenue is expected to be recognized. Contract liabilities were $ i 13.6
million and $ i 10.4 million as of October 31, 2019 and July 31, 2019, respectively. The Company will recognize revenue in future periods related to remaining performance obligations for certain open
contracts. i 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
7. i Warranty
The Company estimates warranty expense on certain products at the time of sale. i The
following is a reconciliation of warranty reserves for the three months ended October 31, 2019 and 2018 (in millions): |
| | | | | | | |
| |
| 2019 |
| | 2018 |
|
Balance
at beginning of period | $ | i 11.2 |
| | $ | i 18.9 |
|
Accruals
for warranties issued during the reporting period | i 0.4 |
| | i 0.3 |
|
Accruals
related to pre-existing warranties (including changes in estimates) | ( i 0.3 | ) | | ( i 0.4 | ) |
Less:
settlements made during the period | ( i 1.0 | ) | | ( i 1.7 | ) |
Balance
at end of period | $ | i 10.3 |
| | $ | i 17.1 |
|
There
were no material specific warranty matters accrued for or significant settlements made in the three months ended October 31, 2019 or 2018. Note 8. i Stock-Based Compensation
The 2010 Plan allowed, and the 2019 plan currently allows, for granting of nonqualified stock options, incentive stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalents, and other stock-based awards.
Stock Options
Options are granted to key employees whereby the option exercise price is equivalent to the market
price of the Company’s common stock at the date of grant. Options are generally exercisable for up to i 10 years from the date of grant and vest in equal increments over i three
years. i The following table summarizes expense associated with stock options during the three months ended October 31, 2019 and 2018 (in millions): |
| | | | | | | | |
| | |
| | 2019 |
| | 2018 |
|
Pretax compensation expense associated with stock options | | $ | i 5.3 |
| | $ | i 4.9 |
|
Tax
benefits associated with stock options | | $ | i 1.1 |
| | $ | i 1.1 |
|
/ Stock-based
employee compensation expense is recognized using the fair-value method. The Company determines the fair value of stock option awards using the Black-Scholes option pricing model.
i The following table summarizes stock option activity during the three months ended October
31, 2019: |
| | | | | | |
| Options Outstanding | | Weighted Average Exercise Price |
| i 6,531,250 |
| | $ | i 39.66 |
|
Granted | i 879,541 |
| | i 51.61 |
|
Exercised | ( i 389,551 | ) | | i 28.71 |
|
Canceled | ( i 17,996 | ) | | i 49.98 |
|
| i 7,003,244 |
| | $ | i 41.74 |
|
/ The
total intrinsic value of options exercised during the three months ended October 31, 2019 was $ i 8.9 million. The weighted average fair value for options granted during the three months ended October 31,
2019 and 2018 was $ i 10.85 and $ i 12.43
per share, respectively. As of October 31, 2019, the aggregate intrinsic value of options outstanding and exercisable was $ i 82.2 million and $ i 75.8
million, respectively. As of October 31, 2019, there was $ i 12.0 million of total unrecognized compensation expense related to non-vested stock options granted. This unvested expense is
expected to be recognized over the remaining vesting period. Performance-based awards
The 2010 Plan allowed, and the 2019 plan currently allows, for the granting of performance-based awards to a limited number of key executives. As administered by the Human Resources Committee of the Company’s Board of Directors, these performance-based awards are payable in common stock and are based on a formula that measures performance of the Company over a three-year period. These awards are settled or forfeited after i three
years with payouts ranging from i zero to i 200%
of the target award value depending on achievement. The following table summarizes expense associated with performance-based awards during the three months ended October 31, 2019 and 2018 (in millions): |
| | | | | | | | |
| | |
| | 2019 |
| | 2018 |
|
Pretax compensation expense associated with performance-based awards | | $ | i 0.9 |
| | $ | i 1.7 |
|
i The
following table summarizes performance-based award activity during the three months ended October 31, 2019: |
| | | | | | | |
| | Performance Shares Outstanding | | Weighted Average Grant Date Fair Value |
| | i 174,100 |
| | $ | i 52.87 |
|
Granted | | i 100,500 |
| | i 51.61 |
|
Vested | | i — |
| | i — |
|
Canceled/forfeited | | i — |
| | i — |
|
| | i 274,600 |
| | $ | i 52.41 |
|
/ The
weighted average fair value for performance-based awards granted during the three months ended October 31, 2019 was $ i 5.2 million. As
of October 31, 2019, there was $ i 6.0 million of total unrecognized compensation expense related to non-vested performance-based awards granted. This unvested expense is expected to be recognized over the remaining vesting period.
Note
9. i Employee Benefit Plans
The Company and certain of its international subsidiaries have defined benefit pension plans for many of their hourly and salaried employees. There are i two
types of U.S. plans. The first type of U.S. plan (Hourly Pension Plan) is a traditional defined benefit pension plan primarily for union production employees. The second plan (Salaried Pension Plan) is for some salaried and non-union production employees that provides defined benefits pursuant to a cash balance feature whereby a participant accumulates a benefit comprised of a percentage of current salary that varies with years of service, interest credits and transition credits. The Company no longer allows entrants into the U.S. Salaried Pension Plan and the employees no longer accrue Company contribution credits under the plan. Instead, eligible employees receive a i 3%
annual Company retirement contribution to their 401(k) in addition to the Company’s normal 401(k) match. The non-U.S. 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, net in the Condensed Consolidated Statements of Earnings. i Net periodic benefit costs for the Company’s pension plans include the following
components (in millions): |
| | | | | | | |
| |
| 2019 |
| | 2018 |
|
Net
periodic benefit costs: | |
| | |
|
Service cost | $ | i 1.6 |
| | $ | i 1.5 |
|
Interest
cost | i 3.4 |
| | i 4.1 |
|
Expected
return on assets | ( i 6.5 | ) | | ( i 6.6 | ) |
Prior
service cost amortization | i 0.2 |
| | i 0.1 |
|
Actuarial
loss amortization | i 1.6 |
| | i 1.1 |
|
Net
periodic benefit costs | $ | i 0.3 |
| | $ | i 0.2 |
|
/ 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. For the three months ended October 31, 2019, the Company made required contributions of $ i 1.1
million to its non-qualified U.S. pension plans and $ i 0.3 million to its non-U.S. pension plans. The estimated minimum funding requirement for the Company’s qualified U.S. plans for the plan year ending July 31,
2020 is $ i 4.4 million. In accordance with the Pension Protection Act of 2006, this contribution obligation may be met with existing credit balances that resulted from payments above the minimum obligation in prior years. The
Company has sufficient credit balances to meet the minimum obligation for the plan year ending July 31, 2020. In November 2019, the Company utilized existing credits as contributions to the U.S. pension plans of $ i 1.1
million. The Company estimates it will contribute an additional $ i 0.8 million to its non-U.S. pension plans during the remainder of fiscal 2020 based upon
the local government prescribed funding requirements. 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. i 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 2010. The United States Internal Revenue Service (IRS) has completed examinations of the Company’s U.S. federal income tax returns through 2016. As of October 31, 2019, gross unrecognized tax benefits were $ i 15.8
million and accrued interest and penalties on these unrecognized tax benefits were $ i 1.8 million. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. With an average statute of limitations of approximately five years, up to $ i 1.8
million of the unrecognized tax benefits could potentially expire in the next 12 months, unless extended by an audit. The Company believes that 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. i 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 as follows: |
| |
Level 1 | Inputs to the fair value measurement are quoted prices in active markets for identical assets or liabilities. |
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. |
Level 3 | Inputs to the fair value measurement are unobservable inputs or valuation techniques. |
As of October 31, 2019, the carrying values of cash and cash equivalents, accounts receivables, short-term borrowings and trade accounts payable approximate fair value because of the short-term nature
of these instruments. As of October 31, 2019, the estimated fair value of long-term debt with fixed interest rates was $ i 287.3 million compared to its carrying value of $ i 275.0
million. The carrying values of long-term debt with variable interest rates of $ i 373.8 million as of October 31, 2019 approximate fair value. The fair value is estimated by discounting the projected cash flows using the rate at which similar amounts of debt could currently be borrowed.
Long-term debt is classified as Level 2 in the fair value hierarchy. The fair values of the Company’s financial assets and liabilities listed below 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. These inputs include foreign currency exchange rates and interest rates. The financial assets and liabilities are primarily valued using standard calculations and models that use as their basis readily observable market parameters. Industry standard data providers are the primary source for forward and spot rate information for both interest rates and currency rates. Derivative
Fair Value Measurements The Company enters into derivative instruments, 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 instruments with counterparties who have highly rated credit. The Company does not enter into derivative contracts for trading or speculative purposes. Forward Foreign Currency Exchange Contracts The
Company uses forward currency exchange contracts to manage exposure to fluctuations in foreign currency. The Company enters into certain purchase commitments with foreign suppliers based on the value of its purchasing subsidiaries’ local currency relative to the currency requirement of the supplier on the date of the commitment. The Company also sells into foreign countries based on the value of purchaser’s local currency. The Company mitigates risk through using forward currency contracts
that generally mature in 12 months or less, which is consistent with the related purchases and sales. Contracts that qualify for hedge accounting are designated as cash flow hedges. 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. The
Company determines the fair values of its derivatives based on valuation models which project future cash flows and discount the future amounts to a present value using market based observable inputs including foreign currency rates, interest rate curves, futures and basis spreads, as applicable. i |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Fair
Values Significant Other Observable Inputs (Level 2) |
| | Notional Amounts | | Assets (1) | | Liabilities (2) |
| | October 31, |
| | July
31, |
| | October 31, |
| | July 31, |
| | October 31, |
| | |
|
| | 2019 |
| | 2019 |
| | 2019 |
| | 2019 |
| | 2019 |
| | 2019 |
|
| | $ | i 27.2 |
| | $ | i 28.2 |
| | $ | i 1.6 |
| | $ | i 1.6 |
| | $ | i 1.3 |
| | $ | ( i 1.8 | ) |
Net
investment hedges | | i 55.8 |
| | i 55.8 |
| | i 1.1 |
| | i 1.1 |
| | i — |
| | ( i 1.9 | ) |
Total
| | $ | i 83.0 |
| | $ | i 84.0 |
| | $ | i 2.7 |
| | $ | i 2.7 |
| | $ | i 1.3 |
| | $ | ( i 3.7 | ) |
(1) Recorded
within prepaid expenses and other current assets in the Company’s Condensed Consolidated Balance Sheets. (2) Recorded within other long-term liabilities in the Company’s Condensed Consolidated Balance Sheets.
/
Changes in the fair value of the
Company’s forward foreign currency exchange contracts are recorded in equity as a component of accumulated other comprehensive income (loss), and are reclassified from accumulated other comprehensive income (loss) into earnings when the items underlying the hedged transactions are recognized into earnings, as a component of cost of sales within the Company’s Condensed Consolidated Statements of Earnings and Condensed Consolidated Statements of Comprehensive Income. The net gain or loss on net investment hedges are reported within foreign currency translation gains and losses as a component of accumulated other comprehensive income (loss) on the Company’s Condensed Consolidated Balance Sheets. The interest earned
is reclassified out of accumulated other comprehensive income (loss) and into other income, net. 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 was a failure under other financing arrangements related to payment terms or covenants. As of October 31, 2019, and July 31,
2019, no collateral has been 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. i i The
following table summarizes the pre-tax impact of the gains and losses on the Company’s designated forward foreign currency exchange contracts and net investment hedges (in millions): |
| | | | | | | | |
| | Pre-tax Gains (Losses) Recognized in Accumulated Other Comprehensive Income (Loss) |
| | |
| | 2019 |
| | 2018 |
|
| | $ | ( i 0.7 | ) | | $ | i 1.0 |
|
Net
investment hedges | | $ | i 0.8 |
| | $ | — |
|
|
| | | | | | | | |
| | Pre-tax
(Gains) Losses Reclassified from Accumulated Other Comprehensive Income (Loss) |
| | |
| | 2019 |
| | 2018 |
|
| | $ | i 1.9 |
| | $ | ( i 0.3 | ) |
Net
investment hedges | | $ | i — |
| | $ | — |
|
/ / The
Company expects that substantially all of the amounts recorded in accumulated other comprehensive income (loss) for its forward foreign currency exchange contracts will be reclassified into earnings during the next 12 months, based upon the timing of inventory purchases and turnover as well as sales. See also Note 13. The Company holds equity method investments, which are classified in other long-term assets in the accompanying Condensed Consolidated Balance Sheets. The aggregate carrying amount of these investments was $ i 23.1
million and $ i 23.0 million as of October 31, 2019 and July 31, 2019, respectively. These equity method investments are measured at fair value on a nonrecurring 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 were required to be measured, these investments 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. Note 12. i Shareholders’
Equity
The Company’s Board of Directors authorized the repurchase of up to i 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
three months ended October 31, 2019, the Company repurchased i 1.4 million shares for $ i 65.0
million. As of October 31, 2019, the Company had remaining authorization to repurchase i 11.4 million shares under this plan. Dividends paid per share were i 21.0
cents and i 19.0 cents, respectively, for the three months ended October 31, 2019 and 2018.
Note
13. i Accumulated Other Comprehensive Loss
i Changes in accumulated other comprehensive loss by component for the three
months ended October 31, 2019 and 2018 are as follows (in millions): |
| | | | | | | | | | | | | | | |
| Foreign Currency Translation Adjustment | | Pension Benefits | | Derivative Financial Instruments | | Total |
| $ | ( i 92.7 | ) | | $ | ( i 99.0 | ) | | $ | ( i 1.2 | ) | | $ | ( i 192.9 | ) |
Other
comprehensive income before reclassifications and tax | i 8.1 |
| | i — |
| | i 0.1 |
| | i 8.2 |
|
Tax
benefit | i — |
| | i — |
| | i 0.2 |
| | i 0.2 |
|
Other
comprehensive income before reclassifications, net of tax | i 8.1 |
| | i — |
| | i 0.3 |
| | i 8.4 |
|
Reclassifications,
before tax | i — |
| | i 0.7 |
| | i 1.9 |
| | i 2.6 |
|
Tax
benefit (expense) | i — |
| | i 0.1 |
| | ( i 0.7 | ) | | ( i 0.6 | ) |
Reclassifications,
net of tax | i — |
| | i 0.8 |
| (1) | i 1.2 |
| (2) | i 2.0 |
|
Other
comprehensive income (loss), net of tax | i 8.1 |
| | i 0.8 |
| | i 1.5 |
| | i 10.4 |
|
| $ | ( i 84.6 | ) | | $ | ( i 98.2 | ) | | $ | i 0.3 |
| | $ | ( i 182.5 | ) |
| | | | | | | |
| $ | ( i 66.1 | ) | | $ | ( i 82.9 | ) | | $ | ( i 0.8 | ) | | $ | ( i 149.8 | ) |
Other
comprehensive (loss) income before reclassifications and tax | ( i 24.2 | ) | | i — |
| | i 1.0 |
| | ( i 23.2 | ) |
Tax
expense | i — |
| | i — |
| | ( i 0.3 | ) | | ( i 0.3 | ) |
Other
comprehensive (loss) income before reclassifications, net of tax | ( i 24.2 | ) | | i — |
| | i 0.7 |
| | ( i 23.5 | ) |
Reclassifications,
before tax | i — |
| | i 2.0 |
| | ( i 0.3 | ) | | i 1.7 |
|
Tax
(expense) benefit | i — |
| | ( i 0.4 | ) | | i 0.1 |
| | ( i 0.3 | ) |
Reclassifications,
net of tax | i — |
| | i 1.6 |
| (1) | ( i 0.2 | ) | (2) | i 1.4 |
|
Other
comprehensive (loss) income, net of tax | ( i 24.2 | ) | | i 1.6 |
| | i 0.5 |
| | ( i 22.1 | ) |
| $ | ( i 90.3 | ) | | $ | ( i 81.3 | ) | | $ | ( i 0.3 | ) | | $ | ( i 171.9 | ) |
| |
(1) | Primarily
includes net amortization of prior service costs and actuarial losses included in net periodic benefit cost (see Note 9) that were reclassified from accumulated other comprehensive loss to operating expenses or cost of sales. |
/ | |
(2) | Relates to foreign currency cash flow hedges that were reclassified from accumulated other comprehensive loss to other income, net. |
Note
14. i Guarantees
The Company and Caterpillar Inc. equally own the shares of Advanced Filtration Systems Inc. (AFSI), an unconsolidated joint venture, and guarantee certain debt of the joint venture. The Company accounts for this investment as an equity method investment. i In
the following table, the Outstanding debt relates to the joint venture and the Contingent liability for stand by letters of credit relate to the Company (in millions): |
| | | | | | | | |
| | |
| | |
|
| | $ | i 40.0 |
| | $ | i 38.8 |
|
Contingent
liability for standby letters of credit (1) | | i 10.7 |
| | i 11.0 |
|
Amounts
drawn for letters of credit | | $ | i — |
| | $ | i — |
|
(1) 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. i The following items relate to the Company’s joint venture (in millions): |
| | | | | | | | | |
| | |
| | 2019 |
| | 2018 |
|
Investment earnings (loss) (1) | | $ | i 0.1 |
| 300 |
| $ | ( i 0.3 | ) |
Royalty
income (1) | | $ | i 1.9 |
| 1,700 |
| $ | i 1.7 |
|
/ (1) Recorded
in other income, net.
Note 15. i 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 are reviewed quarterly,
and provisions are taken or adjusted to reflect the status of a particular matter. The Company believes the recorded estimated liability in its Condensed Consolidated Financial Statements is adequate in light of the probable and estimable outcomes. The recorded liabilities were not material to the Company’s results of operations, liquidity or financial position and 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. Note 16. i Segment
Reporting
The Company has identified i two reportable segments: Engine Products and Industrial Products. Segment determination is based on the internal organization structure, management of operations and performance evaluation by management and the Company’s Board of Directors. Corporate and Unallocated includes corporate expenses
determined to be non-allocable to the segments, such as interest expense. 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. i Segment
detail is summarized as follows (in millions):
|
| | | | | | | |
| |
| 2019 |
| | 2018 |
|
Net
sales | | | |
Engine Products segment | $ | i 459.2 |
| | $ | i 480.9 |
|
Industrial
Products segment | i 213.5 |
| | i 220.5 |
|
Total | $ | i 672.7 |
| | $ | i 701.4 |
|
| |
| | |
|
Earnings
before income taxes | | | |
Engine Products segment | $ | i 62.4 |
| | $ | i 63.9 |
|
Industrial
Products segment | i 29.5 |
| | i 36.6 |
|
Corporate
and Unallocated | ( i 5.3 | ) | | ( i 4.1 | ) |
Total | $ | i 86.6 |
| | $ | i 96.4 |
|
/
Net
sales by product group within the Engine Products segment and Industrial Products segment is summarized as follows (in millions):
|
| | | | | | | |
| | | |
| |
| 2019 |
| | 2018 |
|
Engine
Products segment | | | |
Off-Road | $ | i 68.6 |
| | $ | i 76.2 |
|
On-Road | i 40.7 |
| | i 45.9 |
|
Aftermarket | i 319.4 |
| | i 331.2 |
|
Aerospace
and Defense | i 30.5 |
| | i 27.6 |
|
Engine
Products segment net sales | i 459.2 |
| | i 480.9 |
|
| | | |
Industrial
Products segment | | | |
Industrial Filtration Solutions | i 149.0 |
| | i 149.4 |
|
Gas
Turbine Systems | i 20.7 |
| | i 25.5 |
|
Special
Applications | i 43.8 |
| | i 45.6 |
|
Industrial
Products segment net sales | i 213.5 |
| | i 220.5 |
|
Total
net sales | $ | i 672.7 |
| | $ | i 701.4 |
|
Note 17. i Leases
The
Company leases certain real estate properties, information technology equipment, manufacturing and warehouse equipment, vehicles and other equipment through operating lease arrangements. Upon lease inception, the Company determines whether an arrangement that provides control over the use of an asset to the Company is a lease. The Company recognizes a lease liability and corresponding right-of-use asset based on the present value of future lease payments. Leases with an initial term of 12 months or less are not recorded on the balance sheet, but rather the Company recognizes lease expense for these leases on a straight-line basis over the
lease term. The Company has elected to separate payments for lease components from non-lease components for all asset classes. Lease agreements may include extension, termination, or purchase options, all of which will be included within the lease liability and right-of-use assets when it is reasonably certain the Company will exercise the option. Most lease agreements do not explicitly state the discount rate implicit in the lease, therefore, the Company’s incremental borrowing rate on the commencement date is used to calculate the present value of future payments. The
Company has elected to exercise the package of practical expedients and has not elected to exercise hindsight in determining lease term and in assessing impairment of the Company’s right-of-use assets. The Company’s finance leases are not significant and therefore, are not included in the following disclosures. i Information for the Company’s operating lease costs is as follows
(in millions): |
| | | | |
| | |
|
Operating lease cost | | $ | i 7.5 |
|
Short-term
lease cost | | i 0.6 |
|
Total lease costs | | $ | i 8.1 |
|
i Supplemental
balance sheet information for the Company is as follows (in millions): |
| | | | | | | | |
| | |
| | |
|
Right-of-use lease assets
| | $ | i 79.3 |
| | $ | i 71.5 |
|
Current
lease liabilities | | i 24.8 |
| | i 26.0 |
|
Long-term
lease liabilities | | $ | i 54.4 |
| | $ | i 45.5 |
|
/
Additional
information related to operating leases is as follows:
|
| | | | | | |
| | |
| | |
|
Weighted
average remaining lease term (years) | | i 4.1 |
| | i 3.7 |
|
Weighted
average discount rates | | i 3.74 | % | | i 3.76 | % |
i Maturities
of operating lease liabilities at October 31, 2019 were as follows (in millions): |
| | | | |
Amounts Due in Year Ending | | |
|
2020 | | $ | i 20.8 |
|
2021 | | i 20.3 |
|
2022 | | i 13.1 |
|
2023 | | i 7.9 |
|
2024 | | i 5.6 |
|
Thereafter | | i 23.6 |
|
Total
future minimum lease payments | | i 91.3 |
|
Less imputed interest | | i 12.1 |
|
Present
value of future lease payments | | $ | i 79.2 |
|
/ i Minimum
payments for operating leases having initial terms of more than one year at July 31, 2019 were as follows (in millions): |
| | | | |
Amounts Due in Year Ending | | |
|
2020 | | $ | i 24.0 |
|
2021 | | i 17.5 |
|
2022 | | i 11.3 |
|
2023 | | i 6.4 |
|
2024 | | i 4.6 |
|
Thereafter | | i 19.0 |
|
Total
future minimum lease payments | | i 82.8 |
|
Less imputed interest | | i 11.3 |
|
Present
value of future lease payments | | $ | i 71.5 |
|
/
Right-of-use
lease assets obtained in exchange for new lease liabilities were $ i 13.0 million for the three months ended October 31, 2019. Note 18. i Borrowings
In
October 2019, the Company entered into a term loan agreement of € i 80.0 million, or $ i 89.2
million, based on the exchange rate in effect on October 28, 2019. The loan is unsecured and matures in October 2024. As of October 31, 2019, the Company had borrowed the full capacity of the term loan. The term loan includes customary representations and warranties and covenants for a transaction of this type. The loan has a floating rate based on margin plus EURIBOR. The margin will vary according to a leverage-based pricing grid. The rate as of October 31, 2019 was i 0.7%.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The Company is a worldwide manufacturer of filtration systems and replacement parts. The Company’s core strengths are leading filtration technology, strong customer relationships and its global presence. Products are manufactured around the world and through three joint ventures. The Company has two operating segments: Engine Products
and Industrial Products. Products in the Engine Products segment consist of replacement filters for both air and liquid filtration applications, air filtration systems, liquid filtration systems for fuel, lube and hydraulic applications, and exhaust and emissions systems and sensors, indicators and monitoring systems. The Engine Products segment sells to original equipment manufacturers (OEMs) in the construction, mining, agriculture, aerospace, defense and truck end markets and to independent distributors, OEM dealer networks, private label accounts and large equipment fleets. Products in the Industrial Products segment consist 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 Products segment sells to various dealers, distributors and OEMs for specific markets and replacement filters. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and Notes included in Item 1 of this report. Consolidated Results of Operations
Operating results for the three months ended October 31, 2019 and 2018
are as follows (in millions): |
| | | | | | | | | | | | | |
| |
| 2019 |
| | %
of sales |
| | 2018 |
| | % of sales |
|
Net sales | $ | 672.7 |
| | | | $ | 701.4 |
| | |
Cost
of sales | 441.4 |
| | 65.6 | % | | 463.0 |
| | 66.0 | % |
Gross profit | 231.3 |
| | 34.4 | % | | 238.4 |
| | 34.0 | % |
Operating
expenses | 142.6 |
| | 21.2 | % | | 139.7 |
| | 19.9 | % |
Operating income | 88.7 |
| | 13.2 | % | | 98.7 |
| | 14.1 | % |
Interest
expense | 4.7 |
| | 0.7 | % | | 4.2 |
| | 0.6 | % |
Other income, net | (2.6 | ) | | (0.4 | )% | | (1.9 | ) | | (0.3 | )% |
Earnings
before income taxes | 86.6 |
| | 12.9 | % | | 96.4 |
| | 13.8 | % |
Income taxes | 21.6 |
| | 3.2 | % | | 22.6 |
| | 3.2 | % |
Net
earnings | $ | 65.0 |
| | 9.7 | % | | $ | 73.8 |
| | 10.5 | % |
Net sales for the three
months ended October 31, 2019 were $672.7 million, compared with $701.4 million for the three months ended October 31, 2018, a decrease of $28.7 million, or 4.1%. Net sales decreased $21.7 million, or 4.5%, in the Engine Products segment and decreased $7.0 million, or 3.2%, 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. Net sales for the three months ended October 31, 2019 were negatively impacted by foreign currency translation, which decreased net sales by $9.6 million, or 1.4% compared with the same period in the prior fiscal year. Cost of sales for the three months ended October 31, 2019 was $441.4 million, compared with $463.0 million for the three months ended October 31, 2018,
a decrease of $21.6 million, or 4.7%. Gross margin for the current year quarter was 34.4%, compared with 34.0% during the same period in the prior fiscal year. The gross margin increase reflects lower raw materials costs, combined with benefits from the Company’s efforts related to pricing initiatives and optimizing its supply chain, partially offset by loss of leverage on lower sales. Operating expenses for the three months ended October 31, 2019 were $142.6
million, compared with $139.7 million for the three months ended October 31, 2018, an increase of $2.9 million, or 2.1%. As a percentage of net sales, operating expenses for the current year quarter were 21.2%, compared with 19.9% during the same period in the prior fiscal year. The increase reflects loss of leverage on lower sales, combined with higher personnel expense related to investments in support of the Company’s strategic growth initiatives.
Interest
expense was $4.7 million for the three months ended October 31, 2019, compared with $4.2 million for the three months ended October 31, 2018, an increase of $0.5 million, or 11.9%. The increase is primarily due to a higher average level of debt outstanding in the current year quarter compared with the prior year quarter. Other income, net for the three months ended October 31, 2019 was $2.6 million, compared with
$1.9 million for the three months ended October 31, 2018, an increase of $0.7 million. The increase was primarily due to higher joint venture performance in the current quarter compared with the prior year quarter. The effective tax rate for the three months ended October 31, 2019 was 24.9%, compared with 23.5% for the three months ended October 31, 2018. The effective tax rate for the three months ended October 31,
2018 included a net discrete tax benefit of $0.9 million related to ongoing Tax Cuts and Jobs Act-based global cash optimization initiatives. Excluding this benefit, the effective tax rate for the three months ended October 31, 2018 was 24.3%. The increase in the effective tax rate between periods was primarily due to a decrease in excess tax benefits on stock-based compensation. Net earnings for the three months ended October 31, 2019 were $65.0 million, compared with net earnings of $73.8 million for the three months ended October 31, 2018, a decrease
of $8.8 million. Segment Results of Operations
Net sales and earnings before income taxes for the Engine Products and Industrial Products segments are summarized as follows (in millions):
|
| | | | | | | |
| |
| 2019 |
| | 2018 |
|
Net
sales: | | | |
Engine Products segment | $ | 459.2 |
| | $ | 480.9 |
|
Industrial Products segment | 213.5 |
| | 220.5 |
|
Total | $ | 672.7 |
| | $ | 701.4 |
|
| | | |
Earnings
before income taxes: | | | |
Engine Products segment | $ | 62.4 |
| | $ | 63.9 |
|
Industrial Products segment | 29.5 |
| | 36.6 |
|
Corporate
and Unallocated (1) | (5.3 | ) | | (4.1 | ) |
Total | $ | 86.6 |
| | $ | 96.4 |
|
| |
(1) | Corporate
and Unallocated includes corporate expenses determined to be non-allocable to the segments, such as interest expense. |
Engine Products Segment
The following is a summary of net sales by product group within the Company’s Engine Products segment (in millions): |
| | | | | | | |
| |
| 2019 |
| | 2018 |
|
Engine
Products segment | | | |
Off-Road | $ | 68.6 |
| | $ | 76.2 |
|
On-Road | 40.7 |
| | 45.9 |
|
Aftermarket | 319.4 |
| | 331.2 |
|
Aerospace
and Defense | 30.5 |
| | 27.6 |
|
Engine Products segment net sales | $ | 459.2 |
| | $ | 480.9 |
|
| | | |
Engine
Products segment earnings before income taxes | $ | 62.4 |
| | $ | 63.9 |
|
Net sales for the Engine Products segment for the three months ended October 31, 2019 were $459.2 million, compared with $480.9 million for the three months ended October
31, 2018, a decrease of $21.7 million, or 4.5%, or 3.1% excluding the impact from currency translation. The Engine Products segment realized benefits from price increases of approximately 0.8%. The sales increase in Aerospace and Defense was driven by new equipment in both commercial aerospace and ground defense. The declines in Off-Road and On-Road reflect lower levels of equipment production, with continued variability by geography. The Aftermarket decline reflects lower levels of equipment utilization, primarily in off-road markets.
Earnings before income taxes for the Engine Products
segment for the three months ended October 31, 2019 were $62.4 million, or 13.6% of Engine Products’ sales, an increase from 13.3% for the three months ended October 31, 2018. The increase was driven by price increases, operational gains and slightly lower raw material costs. Industrial Products Segment
The following is a summary of net sales by product group within the Company’s Industrial Products segment (in millions): |
| | | | | | | |
| |
| 2019 |
| | 2018 |
|
Industrial Products segment: | | | |
Industrial Filtration Solutions | $ | 149.0 |
| | $ | 149.4 |
|
Gas
Turbine Systems | 20.7 |
| | 25.5 |
|
Special Applications | 43.8 |
| | 45.6 |
|
Industrial Products segment net sales | $ | 213.5 |
| | $ | 220.5 |
|
| | | |
Industrial
Products segment earnings before income taxes | $ | 29.5 |
| | $ | 36.6 |
|
Net sales for the Industrial Products segment for the three months ended October 31, 2019 were $213.5 million, compared with $220.5 million for the three months ended October
31, 2018, a decrease of $7.0 million, or 3.2%, or 2.0% excluding the impact from currency translation. The Industrial Products segment realized benefits of approximately 3.6% from BOFA International LTD (BOFA) and 0.2% from increased pricing. Sales of Industrial Filtration Solutions reflect benefits from BOFA and strong growth in sales of Process Filtration products, partially offset by lower sales of new equipment. The Gas Turbine Systems sales decline was primarily driven by lower sales of new equipment, and the decline in sales of Special Applications was primarily driven by lower sales of Disk Drive filters. Earnings before income taxes for the Industrial Products segment for the three months ended October
31, 2019 were $29.5 million, or 13.8% of Industrial Products’ sales, a decrease from 16.6% for the three months ended October 31, 2018. The earnings before income taxes percentage decrease was driven by the lower net sales as well as continued investment in our strategic growth businesses. Liquidity and Capital Resources
Cash provided by operating activities for the three months ended October 31,
2019 was $86.1 million, compared with $63.3 million for the three months ended October 31, 2018, an increase of $22.8 million. The increase in cash provided by operating activities was primarily driven by the reduction of days sales outstanding, and lower incentive compensation payments, partially offset by lower earnings. Cash used in investing activities for the three months ended October 31, 2019 was $37.1 million, compared with $124.2 million
for the three months ended October 31, 2018, a decrease of $87.1 million. The decrease resulted primarily from $96.0 million of net cash used for the BOFA acquisition in fiscal 2019, partially offset by an increase in capital expenditures in fiscal 2020 of $8.9 million to expand capacity and invest in technology. Cash used in financing activities for the three months ended October 31, 2019 was $14.7 million, compared with cash provided by financing activities of $61.3 million
for the three months ended October 31, 2018, a change of $76.0 million. In fiscal 2020, proceeds from a new term loan and short-term debt were used to repay long-term debt and for share repurchases. In fiscal 2019, proceeds from long-term debt and short-term borrowings were used primarily to fund the BOFA acquisition and for share repurchases. Cash and cash equivalents as of October 31, 2019 was $210.0 million, compared with $177.8 million as of July 31, 2019. The
Company has capacity of $505.5 million available for further borrowing under existing credit facilities as of October 31, 2019. 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 to meet cash requirements for the next twelve months, including working capital needs, debt service obligations, capital expenditures, payment of anticipated dividends, share repurchase activity, and potential acquisitions. Accounts receivable, net as of October 31, 2019 was $501.5 million,
compared with $529.5 million as of July 31, 2019, a decrease of $28.0 million. Days sales outstanding was flat at 65 days, as of October 31, 2019 and July 31, 2019. Days sales outstanding was 69 days at October 31, 2018. 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.
Inventories,
net as of October 31, 2019 was $361.5 million, compared with $332.8 million as of July 31, 2019, an increase of $28.7 million. Inventory turns were 5.1 times and 5.6 times per year as of October 31, 2019 and July 31, 2019, 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 increase was spread across all of the major regions, driven by sourcing changes in the Company’s supply chain. Long-term debt outstanding was $596.8 million as of October 31, 2019, compared with $584.4 million as of July 31, 2019, an increase of $12.4 million. This increase is primarily due to higher short-term borrowings and lower share repurchases, partially offset by increased capital
expenditures. As of October 31, 2019, total debt, including long-term debt and short-term borrowings, represented 43.6% of total capitalization, defined as total debt plus total shareholders’ equity, compared with 41.6% as of July 31, 2019. In October 2019, the Company entered into a term loan agreement of €80.0 million, or $89.2 million, based on the exchange rate in effect on October 28, 2019. The loan is unsecured and matures in October 2024. As of October 31, 2019,
the Company had borrowed the full capacity of the term loan. The term loan includes customary representations and warranties and covenants for a transaction of this type. The loan has a floating rate based on margin plus EURIBOR. The margin will vary according to a leverage-based pricing grid. The rate as of October 31, 2019 was zero. The Company guarantees 50% of certain debt of its joint venture, AFSI, as further discussed in Note 14 in the Notes to Condensed Consolidated Financial Statements included in Item 1 of this report. New
Accounting Standards Not Yet Adopted
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
Safe
Harbor Statement under the Securities 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 year ended July 31, 2019, which could cause actual results to differ materially from historical results or those anticipated. The words or phrases “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 cause the Company’s results to differ materially from these statements. These factors include, but are not limited to, 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; 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 in capital and credit markets; execution of the Company’s
acquisition strategy; the possibility of intangible asset impairment; the Company’s ability to manage productivity improvements; unexpected events and the disruption on operations; the Company’s ability to maintain an effective system of internal control over financial reporting; the United Kingdom’s decision to end its membership in the European Union and other factors included in Part I, Item 1A, “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended July 31, 2019. 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 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 three months ended October 31, 2019, the U.S. dollar was generally stronger than in the three months ended October 31, 2018 compared with many of the currencies of the foreign countries in which the Company operates. The overall stronger dollar had a negative impact on the Company’s international net sales results because the foreign denominated revenues translated into less U.S. dollars. Foreign currency translation had a negative impact to net sales and net earnings in many regions around the world. The estimated impact of foreign currency translation for the three months ended October
31, 2019, resulted in an overall decrease in reported net sales by $9.6 million and net earnings of approximately $0.7 million. Forward Foreign Currency Exchange Contracts The Company uses forward currency exchange contracts to manage exposure to fluctuations in foreign currency. The Company enters into certain purchase commitments with foreign suppliers based on the value of its purchasing subsidiaries’ local currency relative to the currency
requirement of the supplier on the date of the commitment. The Company also sells into foreign countries based on the value of purchaser’s local currency. The Company mitigates risk through using forward currency contracts that generally mature in 12 months or less, which is consistent with the related purchases and sales. Contracts that qualify for hedge accounting are designated as cash flow hedges. 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. Based on the net investment hedge outstanding as of October 31, 2019 a 10% appreciation of the U.S. Dollar compared to the Euro, would result in a net gain of $5.7 million in the fair value of these contracts. Interest rates The Company’s exposure to
market risk for changes in interest rates relates primarily to debt obligations that are at variable rates, as well as the potential increase in fair value of long-term debt resulting from a potential decrease in interest rates. As of October 31, 2019, the Company’s financial liabilities with exposure to changes in interest rates consisted mainly of $293.9 million outstanding on the Company’s revolving credit facility, term loan and short-term borrowings, €92.5 million, or $103.2 million of variable rate term loan and commercial paper, and ¥2.65 billion, or $24.5 million, of variable rate long-term debt. Assuming a hypothetical increase of 0.5% in short-term interest rates, with all other variables remaining constant,
interest expense would have increased $0.5 million and interest income would have increased $0.2 million in the three months ended October 31, 2019. Interest rate changes would also affect the fair market value of fixed-rate debt. As of October 31, 2019, the estimated fair value of long-term debt with fixed interest rates was $287.3 million compared to its carrying value of $275.0 million. The fair value is estimated by discounting the projected cash flows using the 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 certain 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 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 operating margins. 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 of bankers’ acceptance notes varies, but it is the Company’s policy to only accept bankers’ acceptance notes with maturity dates no more than 270 days from the date of the
Company’s receipt of such draft. As of October 31, 2019 and July 31, 2019, the Company owned $9.7 million and $16.7 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 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 in Rule 13a-15(f) under the Exchange Act) occurred during the fiscal quarter ended October 31, 2019, 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 believes the recorded estimated liability in its Condensed Consolidated Financial Statements for claims or litigation is adequate in light of the probable and estimable outcomes. Any recorded liabilities were not material to the Company’s financial position, results of operations or liquidity and the Company believes it is remote that the settlement of any of the currently identified claims or litigation will be materially in excess of what is accrued. The Company 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. 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, 2019 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
|
| | | | | | | | | | | | | |
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 Yet Be Purchased Under the Plans or Programs |
| | 1,274,345 |
| | $ | 48.06 |
| | 1,274,345 |
| | 11,475,655 |
|
| | 81,200 |
| | 46.32 |
| | 81,200 |
| | 11,394,455 |
|
| | — |
| | — |
| | — |
| | 11,394,455 |
|
Total | | 1,355,545 |
| | $ | 47.95 |
| | 1,355,545 |
| | 11,394,455 |
|
| |
(1) | 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 had remaining authorization to repurchase 11.4 million shares under this plan. There were no repurchases of common stock made outside of the Company’s current repurchase authorization during the three months ended October
31, 2019. 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 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.
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Item 6. | Exhibits |
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| 101
– The following information from Donaldson Company, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2019, 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’ 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 October 31, 2019,
formatted in iXBRL (included as Exhibit 101).
|
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) |
|
| | |
| By: | |
| | Chairman, President and Chief Executive Officer (duly authorized officer) |
| | |
| | |
| By: | |
| | Senior Vice President and Chief Financial Officer (principal financial officer) |
| | |
| | |
| By: | |
| | Corporate Controller (principal accounting officer) |