(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
☒ | Accelerated filer | ☐ | ||
Non-accelerated filer | ☐ | Smaller reporting company | ||
Emerging growth company |
Item 1. | Financial Statements |
Three Months Ended January 31, | Six Months Ended January 31, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Net sales | $ | $ | $ | $ | |||||||||||
Cost of sales | |||||||||||||||
Gross profit | |||||||||||||||
Operating expenses | |||||||||||||||
Operating income | |||||||||||||||
Interest expense | |||||||||||||||
Other income, net | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Earnings before income taxes | |||||||||||||||
Income taxes | |||||||||||||||
Net earnings | $ | $ | $ | $ | |||||||||||
Weighted average shares – basic | |||||||||||||||
Weighted average shares – diluted | |||||||||||||||
Net earnings per share – basic | $ | $ | $ | $ | |||||||||||
Net earnings per share – diluted | $ | $ | $ | $ |
Three Months Ended January 31, | Six Months Ended January 31, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Net earnings | $ | $ | $ | $ | |||||||||||
Other comprehensive income (loss): | |||||||||||||||
Foreign currency translation income (loss) | ( | ) | |||||||||||||
Pension liability adjustment, net of deferred taxes of $(0.4), $(0.2), $(0.3), and $(0.6), respectively | |||||||||||||||
Derivatives: | |||||||||||||||
Gain on hedging derivatives, net of deferred taxes of $0.5, $0.0, $0.7 and $(0.2), respectively | |||||||||||||||
Reclassifications of losses on hedging derivatives to net earnings, net of taxes of $0.0, $0.0, $(0.7), and $0.0, respectively | |||||||||||||||
Total derivatives | |||||||||||||||
Net other comprehensive income | |||||||||||||||
Comprehensive income | $ | $ | $ | $ |
January 31, 2020 | July 31, 2019 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | $ | |||||
Accounts receivable, less allowance of $5.0 and $4.8, respectively | |||||||
Inventories, net | |||||||
Prepaid expenses and other current assets | |||||||
Total current assets | |||||||
Property, plant and equipment, net | |||||||
Right-of-use lease assets | |||||||
Goodwill | |||||||
Intangible assets, net | |||||||
Deferred income taxes | |||||||
Other long-term assets | |||||||
Total assets | $ | $ | |||||
Liabilities and Shareholders’ Equity | |||||||
Current liabilities: | |||||||
Short-term borrowings | $ | $ | |||||
Current maturities of long-term debt | |||||||
Trade accounts payable | |||||||
Current lease liabilities | |||||||
Other current liabilities | |||||||
Total current liabilities | |||||||
Long-term debt | |||||||
Non-current income taxes payable | |||||||
Deferred income taxes | |||||||
Long-term lease liabilities | |||||||
Other long-term liabilities | |||||||
Total liabilities | |||||||
Commitments and contingencies (Note 15) | |||||||
Redeemable non-controlling interest | |||||||
Shareholders’ 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 | |||||||
Retained earnings | |||||||
Non-controlling interest | |||||||
Stock-compensation plans | |||||||
Accumulated other comprehensive loss | ( | ) | ( | ) | |||
Treasury stock, 24,876,430 and 24,324,483 shares, respectively, at cost | ( | ) | ( | ) | |||
Total shareholders’ equity | |||||||
Total liabilities and shareholders’ equity | $ | $ |
Six Months Ended January 31, | |||||||
2020 | 2019 | ||||||
Operating Activities | |||||||
Net earnings | $ | $ | |||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||
Depreciation and amortization | |||||||
Deferred income taxes | |||||||
Stock-based compensation expense | |||||||
Other, net | ( | ) | |||||
Changes in operating assets and liabilities, excluding effect of acquired business | ( | ) | ( | ) | |||
Net cash provided by operating activities | |||||||
Investing Activities | |||||||
Net expenditures on property, plant and equipment | ( | ) | ( | ) | |||
Acquisitions, net of cash acquired | ( | ) | |||||
Net cash used in investing activities | ( | ) | ( | ) | |||
Financing Activities | |||||||
Proceeds from long-term debt | |||||||
Repayments of long-term debt | ( | ) | ( | ) | |||
Change in short-term borrowings | |||||||
Purchase of treasury stock | ( | ) | ( | ) | |||
Dividends paid | ( | ) | ( | ) | |||
Tax withholding payments for stock compensation transactions | ( | ) | ( | ) | |||
Exercise of stock options | |||||||
Net cash (used in) provided by financing activities | ( | ) | |||||
Effect of exchange rate changes on cash | ( | ) | |||||
Increase (decrease) in cash and cash equivalents | ( | ) | |||||
Cash and cash equivalents, beginning of period | |||||||
Cash and cash equivalents, end of period | $ | $ | |||||
Supplemental Cash Flow Information | |||||||
Cash paid during the year for: | |||||||
Income taxes | $ | $ | |||||
Interest | $ | $ | |||||
Supplemental Disclosure of Non-Cash Investing Transactions | |||||||
Accrued property, plant and equipment additions | $ | $ |
Three Months Ended January 31, 2020 and 2019 | |||||||||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Retained Earnings | Non- Controlling Interest | Stock Compensation Plans | Accumulated Other Comprehensive Loss | Treasury Stock | Total | ||||||||||||||||||||||||
Balance October 31, 2019 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
Net earnings | |||||||||||||||||||||||||||||||
Other comprehensive income | |||||||||||||||||||||||||||||||
Dividends declared ($0.42 per share) | ( | ) | ( | ) | |||||||||||||||||||||||||||
Stock compensation and other activity | ( | ) | ( | ) | |||||||||||||||||||||||||||
Balance January 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
Balance October 31, 2018 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
Net earnings | |||||||||||||||||||||||||||||||
Other comprehensive income | |||||||||||||||||||||||||||||||
Treasury stock acquired | ( | ) | ( | ) | |||||||||||||||||||||||||||
Dividends declared ($0.38 per share) | ( | ) | ( | ) | |||||||||||||||||||||||||||
Stock compensation and other activity | ( | ) | ( | ) | |||||||||||||||||||||||||||
Balance January 31, 2019 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ |
Six Months Ended January 31, 2020 and 2019 | |||||||||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Retained Earnings | Non- Controlling Interest | Stock Compensation Plans | Accumulated Other Comprehensive Loss | Treasury Stock | Total | ||||||||||||||||||||||||
Balance July 31, 2019 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
Net earnings | |||||||||||||||||||||||||||||||
Other comprehensive income | |||||||||||||||||||||||||||||||
Treasury stock acquired | ( | ) | ( | ) | |||||||||||||||||||||||||||
Dividends declared ($0.42 per share) | ( | ) | ( | ) | |||||||||||||||||||||||||||
Stock compensation and other activity | ( | ) | ( | ) | |||||||||||||||||||||||||||
Balance January 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
Balance July 31, 2018 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
Net earnings | |||||||||||||||||||||||||||||||
Other comprehensive income | |||||||||||||||||||||||||||||||
Treasury stock acquired | ( | ) | ( | ) | |||||||||||||||||||||||||||
Dividends declared ($0.38 per share) | ( | ) | ( | ) | |||||||||||||||||||||||||||
Stock compensation and other activity | ( | ) | ( | ) | |||||||||||||||||||||||||||
Balance January 31, 2019 | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ |
January 31, 2020 | July 31, 2019 | ||||||
Raw materials | $ | $ | |||||
Work in process | |||||||
Finished products | |||||||
Inventories, net | $ | $ |
January 31, 2020 | July 31, 2019 | ||||||
Land | $ | $ | |||||
Buildings | |||||||
Machinery and equipment | |||||||
Computer software | |||||||
Construction in progress | |||||||
Less: accumulated depreciation | ( | ) | ( | ) | |||
Property, plant and equipment, net | $ | $ |
Three Months Ended January 31, | Six Months Ended January 31, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Net earnings for basic and diluted earnings per share computation | $ | $ | $ | $ | |||||||||||
Weighted average common shares outstanding: | |||||||||||||||
Weighted average common shares – basic | |||||||||||||||
Dilutive impact of share-based awards | |||||||||||||||
Weighted average common shares – diluted | |||||||||||||||
Net earnings per share – basic | $ | $ | $ | $ | |||||||||||
Net earnings per share – diluted | $ | $ | $ | $ |
Engine Products | Industrial Products | Total | |||||||||
Balance as of July 31, 2019 | $ | $ | $ | ||||||||
Goodwill acquired | |||||||||||
Currency translation | ( | ) | |||||||||
Balance as of January 31, 2020 | $ | $ | $ |
Gross Carrying Amount | Accumulated Amortization | Total | |||||||||
Customer relationships | $ | $ | ( | ) | $ | ||||||
Patents, trademarks and technology | ( | ) | |||||||||
Total intangible assets, net | $ | $ | ( | ) | $ |
Gross Carrying Amount | Accumulated Amortization | Total | |||||||||
Customer relationships | $ | $ | ( | ) | $ | ||||||
Patents, trademarks and technology | ( | ) | |||||||||
Total intangible assets, net | $ | $ | ( | ) | $ |
Three Months Ended January 31, | Six Months Ended January 31, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
United States | $ | $ | $ | $ | |||||||||||
Europe, Middle East and Africa | |||||||||||||||
Asia Pacific | |||||||||||||||
Latin America | |||||||||||||||
Total net sales | $ | $ | $ | $ |
Six Months Ended January 31, | |||||||
2020 | 2019 | ||||||
Balance at beginning of period | $ | $ | |||||
Accruals for warranties issued during the reporting period | |||||||
Accruals related to pre-existing warranties (including changes in estimates) | ( | ) | ( | ) | |||
Less: settlements made during the period | ( | ) | ( | ) | |||
Balance at end of period | $ | $ |
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Pretax compensation expense associated with stock options | $ | $ | $ | $ | ||||||||||||
Tax benefits associated with stock options | $ | $ | $ | $ |
Options Outstanding | Weighted Average Exercise Price | |||||
Outstanding as of July 31, 2019 | $ | |||||
Granted | ||||||
Exercised | ( | ) | ||||
Canceled | ( | ) | ||||
Outstanding as of January 31, 2020 | $ |
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Pretax compensation expense associated with performance-based awards | $ | $ | $ | $ |
Performance Shares Outstanding | Weighted Average Grant Date Fair Value | ||||||
Non-vested at July 31, 2019 | $ | ||||||
Granted | |||||||
Vested | |||||||
Canceled/forfeited | |||||||
Non-vested at January 31, 2020 | $ |
Three Months Ended January 31, | Six Months Ended January 31, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Net periodic benefit costs: | |||||||||||||||
Service cost | $ | $ | $ | $ | |||||||||||
Interest cost | |||||||||||||||
Expected return on assets | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Prior service cost amortization | |||||||||||||||
Actuarial loss amortization | |||||||||||||||
Net periodic benefit costs | $ | $ | $ | $ |
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. |
Fair Values Significant Other Observable Inputs | ||||||||||||||||||||||||
Notional Amounts | Assets (1) | Liabilities (2) (3) | ||||||||||||||||||||||
January 31, | July 31, | January 31, | July 31, | January 31, | July 31, | |||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Forward foreign currency exchange contracts | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Net investment hedges | ||||||||||||||||||||||||
Total | $ | $ | $ | $ | $ | $ |
(1) | Amounts are recorded within prepaid expenses and other current assets in the Company’s Condensed Consolidated Balance Sheets. |
(2) | Forward foreign currency exchange contracts are recorded within other current liabilities in the Company’s Condensed Consolidated Balance Sheets. |
Pre-tax Gains (Losses) Recognized in Accumulated Other Comprehensive Loss | ||||||||||||||||
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Forward foreign currency exchange contracts | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
Net investment hedges | $ | $ | $ | $ |
Pre-tax (Gains) Losses Reclassified from Accumulated Other Comprehensive Loss | ||||||||||||||||
Three Months Ended January 31, | Six Months Ended January 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Forward foreign currency exchange contracts | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Net investment hedges | $ | $ | $ | $ |
Foreign Currency Translation Adjustment | Pension Benefits | Derivative Financial Instruments | Total | ||||||||||||
Balance as of October 31, 2019, net of tax | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||
Other comprehensive income before reclassifications and tax | |||||||||||||||
Tax benefit | |||||||||||||||
Other comprehensive income before reclassifications, net of tax | |||||||||||||||
Reclassifications, before tax | |||||||||||||||
Tax expense | ( | ) | ( | ) | |||||||||||
Reclassifications, net of tax | (1) | (2) | |||||||||||||
Other comprehensive income, net of tax | |||||||||||||||
Balance as of January 31, 2020, net of tax | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||
Balance as of October 31, 2018, net of tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Other comprehensive income before reclassifications and tax | |||||||||||||||
Other comprehensive income before reclassifications, net of tax | |||||||||||||||
Reclassifications, before tax | ( | ) | |||||||||||||
Tax expense | ( | ) | ( | ) | |||||||||||
Reclassifications, net of tax | (1) | ( | ) | (2) | |||||||||||
Other comprehensive income, net of tax | |||||||||||||||
Balance as of January 31, 2019, net of tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
(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 in the Company’s Condensed Consolidated Balance Sheet to operating expenses or cost of sales in the Company’s Condensed Consolidated Statements of Earnings. |
(2) | Relates to foreign currency cash flow hedges that were reclassified from accumulated other comprehensive loss to other income, net in the Company’s Condensed Consolidated Statements of Earnings. |
Foreign Currency Translation Adjustment | Pension Benefits | Derivative Financial Instruments | Total | ||||||||||||
Balance as of July 31, 2019, net of tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Other comprehensive income before reclassifications and tax | |||||||||||||||
Tax benefit | |||||||||||||||
Other comprehensive income before reclassifications, net of tax | |||||||||||||||
Reclassifications, before tax | |||||||||||||||
Tax expense | ( | ) | ( | ) | ( | ) | |||||||||
Reclassifications, net of tax | (1) | (2) | |||||||||||||
Other comprehensive income, net of tax | |||||||||||||||
Balance as of January 31, 2020, net of tax | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||
Balance as of July 31, 2018, net of tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
Other comprehensive (loss) income before reclassifications and tax | ( | ) | |||||||||||||
Tax expense | ( | ) | ( | ) | |||||||||||
Other comprehensive (loss) income before reclassifications, net of tax | ( | ) | |||||||||||||
Reclassifications, before tax | ( | ) | |||||||||||||
Tax (expense) benefit | ( | ) | ( | ) | |||||||||||
Reclassifications, net of tax | (1) | ( | ) | (2) | |||||||||||
Other comprehensive (loss) income, net of tax | ( | ) | |||||||||||||
Balance as of January 31, 2019, net of tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
(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 in the Company’s Condensed Consolidated Balance Sheet to operating expenses or cost of sales in the Company’s Condensed Consolidated Statements of Earnings. |
(2) | Relates to foreign currency cash flow hedges that were reclassified from accumulated other comprehensive loss to other income, net in the Company’s Condensed Consolidated Statements of Earnings. |
January 31, 2020 | July 31, 2019 | |||||||
Outstanding debt (the Company guarantees half) | $ | $ | ||||||
Contingent liability for standby letters of credit (1) | $ | $ | ||||||
Amounts drawn for letters of credit | $ | $ |
Three Months Ended January 31, | Six Months Ended January 31, 2019 | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Investment earnings (loss) from AFSI (1) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
Royalty income from AFSI (1) | $ | $ | $ | $ |
Three Months Ended January 31, | Six Months Ended January 31, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Net sales | |||||||||||||||
Engine Products segment | $ | $ | $ | $ | |||||||||||
Industrial Products segment | |||||||||||||||
Total | $ | $ | $ | $ | |||||||||||
Earnings before income taxes | |||||||||||||||
Engine Products segment | $ | $ | $ | $ | |||||||||||
Industrial Products segment | |||||||||||||||
Corporate and Unallocated | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Total | $ | $ | $ | $ |
Three Months Ended January 31, | Six Months Ended January 31, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Engine Products segment | |||||||||||||||
Off-Road | $ | $ | $ | $ | |||||||||||
On-Road | |||||||||||||||
Aftermarket | |||||||||||||||
Aerospace and Defense | |||||||||||||||
Engine Products segment net sales | |||||||||||||||
Industrial Products segment | |||||||||||||||
Industrial Filtration Solutions | |||||||||||||||
Gas Turbine Systems | |||||||||||||||
Special Applications | |||||||||||||||
Industrial Products segment net sales | |||||||||||||||
Total net sales | $ | $ | $ | $ |
Three Months Ended January 31, | Six Months Ended January 31, | ||||||||
2020 | 2020 | 2020 | |||||||
Operating lease cost | $ | $ | |||||||
Short-term lease cost | |||||||||
Total lease costs | $ | $ |
January 31, 2020 | August 1, 2019 | |||||||
Right-of-use lease assets | $ | $ | ||||||
Current lease liabilities | $ | $ | ||||||
Long-term lease liabilities | $ | $ |
January 31, 2020 | August 1, 2019 | |||||
Weighted average remaining lease term (years) | ||||||
Weighted average discount rates | % | % |
Amounts Due in Fiscal Year Ending | January 31, 2020 | |||
Remainder of 2020 | $ | |||
2021 | ||||
2022 | ||||
2023 | ||||
2024 | ||||
Thereafter | ||||
Total future lease payments | ||||
Less imputed interest | ||||
Present value of future lease payments | $ |
Amounts Due in Fiscal Year Ending | July 31, 2019 | |||
2020 | $ | |||
2021 | ||||
2022 | ||||
2023 | ||||
2024 | ||||
Thereafter | ||||
Total future lease payments | $ |
Three Months Ended January 31, | |||||||||||||
2020 | % of sales | 2019 | % of sales | ||||||||||
Net sales | $ | 662.0 | $ | 703.7 | |||||||||
Cost of sales | 438.8 | 66.3 | % | 478.3 | 68.0 | % | |||||||
Gross profit | 223.2 | 33.7 | % | 225.4 | 32.0 | % | |||||||
Operating expenses | 138.7 | 21.0 | % | 140.3 | 19.9 | % | |||||||
Operating income | 84.5 | 12.8 | % | 85.1 | 12.1 | % | |||||||
Interest expense | 4.5 | 0.7 | % | 5.3 | 0.8 | % | |||||||
Other income, net | (2.8 | ) | (0.4 | )% | (0.7 | ) | (0.1 | )% | |||||
Earnings before income taxes | 82.8 | 12.5 | % | 80.5 | 11.4 | % | |||||||
Income taxes | 18.4 | 2.8 | % | 20.4 | 2.9 | % | |||||||
Net earnings | $ | 64.4 | 9.7 | % | $ | 60.1 | 8.5 | % |
Six Months Ended January 31, | |||||||||||||
2020 | % of sales | 2019 | % of sales | ||||||||||
Net sales | $ | 1,334.7 | $ | 1,405.1 | |||||||||
Cost of sales | 880.3 | 66.0 | % | 941.3 | 67.0 | % | |||||||
Gross profit | 454.4 | 34.0 | % | 463.8 | 33.0 | % | |||||||
Operating expenses | 281.4 | 21.1 | % | 280.0 | 19.9 | % | |||||||
Operating income | 173.0 | 13.0 | % | 183.8 | 13.1 | % | |||||||
Interest expense | 9.0 | 0.7 | % | 9.5 | 0.7 | % | |||||||
Other income, net | (5.5 | ) | (0.4 | )% | (2.6 | ) | (0.2 | )% | |||||
Earnings before income taxes | 169.5 | 12.7 | % | 176.9 | 12.6 | % | |||||||
Income taxes | 40.0 | 3.0 | % | 43.0 | 3.1 | % | |||||||
Net earnings | $ | 129.5 | 9.7 | % | $ | 133.9 | 9.5 | % |
Three Months Ended January 31, | Six Months Ended January 31, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Net sales: | |||||||||||||||
Engine Products segment | $ | 435.6 | $ | 469.0 | $ | 894.7 | $ | 949.9 | |||||||
Industrial Products segment | 226.4 | 234.7 | 440.0 | 455.2 | |||||||||||
Total | $ | 662.0 | $ | 703.7 | $ | 1,334.7 | $ | 1,405.1 | |||||||
Earnings before income taxes: | |||||||||||||||
Engine Products segment | $ | 53.3 | $ | 53.2 | $ | 115.7 | $ | 117.1 | |||||||
Industrial Products segment | 34.6 | 32.2 | 64.1 | 68.8 | |||||||||||
Corporate and Unallocated (1) | (5.1 | ) | (4.9 | ) | (10.3 | ) | (9.0 | ) | |||||||
Total | $ | 82.8 | $ | 80.5 | $ | 169.5 | $ | 176.9 |
(1) | Corporate and Unallocated includes corporate expenses determined to be non-allocable to the segments, such as interest expense. |
Three Months Ended January 31, | Six Months Ended January 31, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Engine Products segment | |||||||||||||||
Off-Road | $ | 67.5 | $ | 79.0 | $ | 136.1 | $ | 155.2 | |||||||
On-Road | 33.8 | 42.8 | 74.5 | 88.7 | |||||||||||
Aftermarket | 308.1 | 321.1 | 627.5 | 652.3 | |||||||||||
Aerospace and Defense | 26.2 | 26.1 | 56.6 | 53.7 | |||||||||||
Engine Products segment net sales | $ | 435.6 | $ | 469.0 | $ | 894.7 | $ | 949.9 | |||||||
Engine Products segment earnings before income taxes | $ | 53.3 | $ | 53.2 | $ | 115.7 | $ | 117.1 |
Three Months Ended January 31, | Six Months Ended January 31, | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Industrial Products segment: | |||||||||||||||
Industrial Filtration Solutions | $ | 155.0 | $ | 164.6 | $ | 304.1 | $ | 314.0 | |||||||
Gas Turbine Systems | 24.3 | 27.5 | 45.0 | 53.0 | |||||||||||
Special Applications | 47.1 | 42.6 | 90.9 | 88.2 | |||||||||||
Industrial Products segment net sales | $ | 226.4 | $ | 234.7 | $ | 440.0 | $ | 455.2 | |||||||
Industrial Products segment earnings before income taxes | $ | 34.6 | $ | 32.2 | $ | 64.1 | $ | 68.8 |
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 | |||||||||
November 1 - November 30, 2019 | — | $ | — | — | 11,394,455 | ||||||||
December 1 - December 31, 2019 | — | — | — | 11,394,455 | |||||||||
January 1 - January 31, 2020 | — | — | — | 11,394,455 | |||||||||
Total | — | $ | — | — | 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 January 31, 2020. 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 6. | Exhibits |
101 – The following information from Donaldson Company, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2020, 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 January 31, 2020, 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. |
DONALDSON COMPANY, INC. | ||
(Registrant) |
Date: March 6, 2020 | By: | /s/ Tod E. Carpenter |
Tod E. Carpenter Chairman, President and Chief Executive Officer (duly authorized officer) | ||
Date: March 6, 2020 | By: | /s/ Scott J. Robinson |
Scott J. Robinson Senior Vice President and Chief Financial Officer (principal financial officer) | ||
Date: March 6, 2020 | By: | /s/ Peter J. Keller |
Peter J. Keller Corporate Controller (principal accounting officer) |
1. | I have reviewed this quarterly report on Form 10-Q of Donaldson Company, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: | March 6, 2020 | /s/ Tod E. Carpenter |
Tod E. Carpenter Chairman, President and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Donaldson Company, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: | March 6, 2020 | /s/ Scott J. Robinson |
Scott J. Robinson Senior Vice President and Chief Financial Officer |
1. | The Form 10-Q of Donaldson Company, Inc. for the quarter ended January 31, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Donaldson Company, Inc. |
Date: | March 6, 2020 | /s/ Tod E. Carpenter |
Tod E. Carpenter Chairman, President and Chief Executive Officer |
1. | The Form 10-Q of Donaldson Company, Inc. for the quarter ended January 31, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Donaldson Company, Inc. |
Date: | March 6, 2020 | /s/ Scott J. Robinson |
Scott J. Robinson Senior Vice President and Chief Financial Officer |
Shareholders' Equity |
6 Months Ended |
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Jan. 31, 2020 | |
Stockholders' Equity Note [Abstract] | |
Shareholders' Equity | Shareholders’ Equity The Company’s Board of Directors 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 six months ended January 31, 2020, the Company repurchased 1.4 million shares for $65.0 million. As of January 31, 2020, the Company had remaining authorization to repurchase 11.4 million shares under this plan. Dividends paid per share were 42.0 cents and 38.0 cents for the six months ended January 31, 2020 and 2019, respectively.
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Segment Reporting |
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Jan. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting, Measurement Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting | Segment Reporting The Company has identified 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. Segment detail is summarized as follows (in millions):
Net sales by product group within the Engine Products segment and Industrial Products segment is summarized as follows (in millions):
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Supplemental Balance Sheet Information (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jan. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of inventory | The components of net inventories are as follows (in millions):
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Components of property, plant and equipment | The components of net property, plant and equipment are as follows (in millions):
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Goodwill and Intangible Assets (Reconciliation of Intangible Assets) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jan. 31, 2020 |
Jan. 31, 2019 |
Jan. 31, 2020 |
Jan. 31, 2019 |
Jul. 31, 2019 |
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Finite-Lived Intangible Assets [Line Items] | |||||
Gross Carrying Amount | $ 126.9 | $ 126.9 | $ 123.8 | ||
Accumulated Amortization | (57.2) | (57.2) | (52.9) | ||
Total | 69.7 | 69.7 | 70.9 | ||
Amortization expense | 2.0 | $ 2.1 | 4.1 | $ 3.5 | |
Customer relationships | |||||
Finite-Lived Intangible Assets [Line Items] | |||||
Gross Carrying Amount | 104.0 | 104.0 | 101.5 | ||
Accumulated Amortization | (46.6) | (46.6) | (43.3) | ||
Total | 57.4 | 57.4 | 58.2 | ||
Patents, trademarks and technology | |||||
Finite-Lived Intangible Assets [Line Items] | |||||
Gross Carrying Amount | 22.9 | 22.9 | 22.3 | ||
Accumulated Amortization | (10.6) | (10.6) | (9.6) | ||
Total | $ 12.3 | $ 12.3 | $ 12.7 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jan. 31, 2020 |
Jan. 31, 2019 |
Jan. 31, 2020 |
Jan. 31, 2019 |
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Statement of Comprehensive Income [Abstract] | ||||
Net earnings | $ 64.4 | $ 60.1 | $ 129.5 | $ 133.9 |
Other comprehensive income (loss): | ||||
Foreign currency translation income (loss) | 2.4 | 23.7 | 10.5 | (0.5) |
Pension liability adjustment, net of deferred taxes of $(0.4), $(0.2), $(0.3), and $(0.6), respectively | 1.2 | 0.5 | 2.0 | 2.1 |
Gain on hedging derivatives, net of deferred taxes of $0.5, $0.0, $0.7 and $(0.2), respectively | 0.5 | 0.0 | 0.8 | 0.5 |
Reclassifications of losses on hedging derivatives to net earnings, net of taxes of $0.0, $0.0, $(0.7), and $0.0, respectively | 0.1 | 0.0 | 1.3 | 0.0 |
Total derivatives | 0.6 | 0.0 | 2.1 | 0.5 |
Net other comprehensive income | 4.2 | 24.2 | 14.6 | 2.1 |
Comprehensive income | $ 68.6 | $ 84.3 | $ 144.1 | $ 136.0 |
Supplemental Balance Sheet Information (Property, Plant and Equipment) (Details) - USD ($) $ in Millions |
Jan. 31, 2020 |
Jul. 31, 2019 |
---|---|---|
Property, Plant and Equipment [Line Items] | ||
Less: accumulated depreciation | $ (864.7) | $ (831.2) |
Property, plant and equipment, net | 623.1 | 588.9 |
Land | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | 24.2 | 24.2 |
Buildings | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | 347.6 | 325.3 |
Machinery and equipment | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | 836.2 | 813.5 |
Computer software | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | 144.0 | 142.8 |
Construction in progress | ||
Property, Plant and Equipment [Line Items] | ||
Property, plant and equipment, gross | $ 135.8 | $ 114.3 |
Leases (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jan. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Lease cost | Information for the Company’s operating lease costs is as follows (in millions):
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Supplemental balance sheet information | Supplemental balance sheet information for the Company is as follows (in millions):
Additional information related to operating leases is as follows:
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Operating lease liability schedule | Payments for operating leases having initial terms of more than one year at January 31, 2020 were as follows (in millions):
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Operating lease liability schedule | ayments for operating leases having initial terms of more than one year at July 31, 2019 were as follows (in millions):
|
Leases (Lease Cost) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended |
---|---|---|
Jan. 31, 2020 |
Jan. 31, 2020 |
|
Leases [Abstract] | ||
Operating lease cost | $ 7.7 | $ 15.2 |
Short-term lease cost | 0.5 | 1.1 |
Total lease costs | $ 8.2 | $ 16.3 |
Warranty (Details) - USD ($) $ in Millions |
6 Months Ended | |
---|---|---|
Jan. 31, 2020 |
Jan. 31, 2019 |
|
Movement in Standard and Extended Product Warranty, Increase (Decrease) [Roll Forward] | ||
Balance at beginning of period | $ 11.2 | $ 18.9 |
Accruals for warranties issued during the reporting period | 0.6 | 0.5 |
Accruals related to pre-existing warranties (including changes in estimates) | (0.5) | (1.7) |
Less: settlements made during the period | (1.4) | (3.1) |
Balance at end of period | $ 9.9 | $ 14.6 |
Stock-Based Compensation (Summary of Performance Award Activity) (Details) - Performance Shares |
6 Months Ended |
---|---|
Jan. 31, 2020
$ / shares
shares
| |
Performance Shares Outstanding | |
Non-vested at July 31, 2019 (shares) | shares | 174,100 |
Granted (shares) | shares | 100,500 |
Vested (shares) | shares | 0 |
Canceled/forfeited (shares) | shares | 0 |
Non-vested at January 31, 2020 (shares) | shares | 274,600 |
Weighted Average Grant Date Fair Value | |
Non-vested at July 31, 2019 (in usd per share) | $ / shares | $ 52.87 |
Granted (in usd per share) | $ / shares | 51.61 |
Vested (in usd per share) | $ / shares | 0 |
Canceled/forfeited (in usd per share) | $ / shares | 0 |
Non-vested at January 31, 2020 (in usd per share) | $ / shares | $ 52.41 |
Earnings Per Share |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | 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 0.8 million for the three and six months ended January 31, 2020 and were 0.9 million and 0.8 million for the three and six months ended January 31, 2019, respectively. The following table presents the information necessary to calculate basic and diluted net earnings per share (in millions, except per share amounts):
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Stock-Based Compensation |
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Share-based Payment Arrangement, Noncash Expense [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | Stock-Based Compensation On November 22, 2019, at the Company’s 2019 Annual Meeting of Stockholders, the Company’s stockholders approved the adoption of the 2019 Master Stock Incentive Plan (2019 Plan). As of November 22, 2019, the 2019 Plan replaced the 2010 Master Stock Incentive Plan (2010 Plan). Consistent with the 2010 Plan, the 2019 Plan allows for granting of nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents, and other stock-based awards. Stock Options When options are granted 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 10 years from the date of grant and vest in equal increments over three years. The following table summarizes expense associated with stock options during the three and six months ended January 31, 2020 and 2019 (in millions):
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. The following table summarizes stock option activity during the six months ended January 31, 2020:
The total intrinsic value of options exercised during the six months ended January 31, 2020 was $14.8 million. The weighted average fair value for options granted during the six months ended January 31, 2020 and 2019 was $10.94 and $12.27 per share, respectively. As of January 31, 2020, the aggregate intrinsic value of options outstanding and exercisable was $71.8 million and $69.5 million, respectively. As of January 31, 2020, there was $10.2 million of total unrecognized compensation expense related to non-vested stock options and is expected to be recognized over the remaining vesting period. Performance-based awards Consistent with the 2010 Plan, the 2019 Plan allows for the granting of performance-based awards to a limited number of key executives. 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 Company performance over a three-year period. These awards are settled or forfeited after three years with payouts ranging from zero to 200% of the target award value depending on achievement. The following table summarizes expense associated with performance-based awards during the three and six months ended January 31, 2020 and 2019 (in millions):
The following table summarizes performance-based award activity during the six months ended January 31, 2020:
The weighted average fair value for performance-based awards granted during the six months ended January 31, 2020 was $5.2 million. As of January 31, 2020, there was $5.0 million of total unrecognized compensation expense related to non-vested performance-based awards and is expected to be recognized over the remaining vesting period.
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Guarantees (Tables) |
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Jan. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Guarantees [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Guarantor obligations | In the following table, the outstanding debt relates to the joint venture and the contingent liability for standby letters of credit relate to the Company (in millions):
(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.
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Joint venture items | The following items relate to the Company’s joint venture (in millions):
(1) Recorded in other income, net in the Company’s Condensed Consolidated Statements of Earnings.
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Stock-Based Compensation (Tables) |
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Share-based Payment Arrangement, Noncash Expense [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock options expense | The following table summarizes expense associated with stock options during the three and six months ended January 31, 2020 and 2019 (in millions):
The following table summarizes expense associated with performance-based awards during the three and six months ended January 31, 2020 and 2019 (in millions):
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Summary of stock option activity | The following table summarizes stock option activity during the six months ended January 31, 2020:
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Schedule of performance shares activity | The following table summarizes performance-based award activity during the six months ended January 31, 2020:
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Earnings Per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of information necessary to calculate basic and diluted net earnings per common share | The following table presents the information necessary to calculate basic and diluted net earnings per share (in millions, except per share amounts):
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Income Taxes (Details) $ in Millions |
Jan. 31, 2020
USD ($)
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Income Tax Disclosure [Abstract] | |
Unrecognized tax benefits | $ 16.0 |
Accrued interest and penalties on unrecognized tax benefits | 1.9 |
Unrecognized tax benefits that could potentially expire | $ 1.8 |
Revenue (Narrative) (Details) - USD ($) $ in Millions |
6 Months Ended | |
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Jan. 31, 2020 |
Jul. 31, 2019 |
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Revenue from Contract with Customer [Abstract] | ||
Contract assets | $ 11.2 | $ 12.4 |
Contract liabilities | $ 15.4 | $ 10.4 |
Description of performance obligation timing | Generally, these contracts have terms of one year or less |
Stock-Based Compensation (Summary of Stock Option Activity) (Details) |
6 Months Ended |
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Jan. 31, 2020
$ / shares
shares
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Options Outstanding | |
Beginning balance (in shares) | shares | 6,531,250 |
Options granted (in shares) | shares | 929,941 |
Options exercised (in shares) | shares | (610,997) |
Options canceled (in shares) | shares | (45,894) |
Ending balance (in shares) | shares | 6,804,300 |
Weighted Average Exercise Price | |
Beginning balance (in usd per share) | $ / shares | $ 39.66 |
Granted (in usd per share) | $ / shares | 51.96 |
Exercised (in usd per share) | $ / shares | 29.06 |
Canceled (in usd per share) | $ / shares | 53.27 |
Ending balance (in usd per share) | $ / shares | $ 42.20 |
Supplemental Balance Sheet Information |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Balance Sheet Information | Supplemental Balance Sheet Information The components of net inventories are as follows (in millions):
The components of net property, plant and equipment are as follows (in millions):
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Warranty |
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Standard Product Warranty Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warranty | Warranty The Company estimates warranty expense on certain products at the time of sale. The following is a reconciliation of warranty reserves for the six months ended January 31, 2020 and 2019 (in millions):
There were no material specific warranty matters accrued for or significant settlements made in the six months ended January 31, 2020 or 2019.
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Employee Benefit Plans (Tables) |
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Retirement Benefits, Description [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of net periodic pension costs | Net periodic benefit costs for the Company’s pension plans include the following components (in millions):
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Goodwill and Intangible Assets (Tables) |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of goodwill | The following is a reconciliation of goodwill by reportable segment for the six months ended January 31, 2020 (in millions):
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Schedule of finite-lived intangible assets | The following table summarizes the net intangible asset classes as of January 31, 2020 (in millions):
The following table summarizes the net intangible asset classes as of July 31, 2019 (in millions):
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Segment Reporting (Tables) |
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Segment Reporting, Measurement Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of segment detail | Segment detail is summarized as follows (in millions):
Net sales by product group within the Engine Products segment and Industrial Products segment is summarized as follows (in millions):
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Summary of Significant Accounting Policies (Policies) |
6 Months Ended |
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Jan. 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | 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 and six month periods ended January 31, 2020 are not necessarily indicative of the results that may be expected for future periods. The year-end Condensed Consolidated Balance Sheet information was derived from the Company’s Audited Consolidated Financial Statements but does not include all disclosures required by GAAP. For further information, refer to the Audited Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2019.
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New Accounting Standards Recently Adopted and New Accounting Standards Not Yet Adopted | 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 and the Company adopted the guidance 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 $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 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 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, trade receivables, other financial assets measured at amortized cost and other off-balance sheet credit exposures. The 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 standards on credit losses (Topic 326), derivatives and hedging (Topic 815), and recognition and measurement of financial instruments (Topic 825). The 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.
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Fair Value Measurements |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | 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:
As of January 31, 2020, 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 January 31, 2020, the estimated fair value of long-term debt with fixed interest rates was $290.2 million compared to its carrying value of $275.0 million. The carrying values of long-term debt with variable interest rates of $322.7 million as of January 31, 2020 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, and therefore are classified as Level 2 in the fair value hierarchy. 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 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 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’s 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, that mature in July 2029, to hedge its exposure to adverse foreign currency exchange rate movements for its operations in Europe. The Company has elected the spot method for assessing effectiveness of 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. The following table details the fair value of the Company’s derivative contracts, which are recorded on a gross basis in the Company’s Condensed Consolidated Balance Sheets as of January 31, 2020 and July 31, 2019 (in millions):
(3) Net investment hedges are 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 loss, and are reclassified from accumulated other comprehensive income 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 loss in the Company’s Condensed Consolidated Balance Sheets. The interest earned is reclassified out of accumulated other comprehensive loss and into other income, net on the Company’s Condensed Consolidated Statements of Earnings. 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 January 31, 2020 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. 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):
The Company expects that substantially all of the amounts recorded in accumulated other comprehensive loss for its forward foreign currency exchange contracts recorded within the Company’s Condensed Consolidated Balance Sheet will be reclassified into earnings during the next 12 months, based upon the timing of inventory purchases and 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 $23.1 million and $23.0 million as of January 31, 2020 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 circumstances 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.
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Commitments and Contingencies |
6 Months Ended |
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Jan. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | 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 adjusted to reflect the status of a particular matter. The Company believes the recorded estimated liability in its Condensed Consolidated Financial Statements is adequate considering 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.
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Earnings Per Share (Details) - shares shares in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jan. 31, 2020 |
Jan. 31, 2019 |
Jan. 31, 2020 |
Jan. 31, 2019 |
|
Earnings Per Share [Abstract] | ||||
Options excluded from the diluted net earnings per share calculation (in shares) | 0.8 | 0.9 | 0.8 | 0.8 |
Summary of Significant Accounting Policies (Details) - USD ($) $ in Millions |
Jan. 31, 2020 |
Aug. 01, 2019 |
Jul. 31, 2019 |
---|---|---|---|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Assets | $ 2,262.2 | $ 2,142.6 | |
Liabilities | $ 1,311.0 | $ 1,239.9 | |
Accounting Standards Update 2016-02 | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Assets | $ 71.5 | ||
Liabilities | $ 71.5 |
Revenue (Disaggregation of Revenue by Geographical Area) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jan. 31, 2020 |
Jan. 31, 2019 |
Jan. 31, 2020 |
Jan. 31, 2019 |
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Disaggregation of Revenue [Line Items] | ||||
Total net sales | $ 662.0 | $ 703.7 | $ 1,334.7 | $ 1,405.1 |
United States | ||||
Disaggregation of Revenue [Line Items] | ||||
Total net sales | 267.5 | 289.4 | 554.4 | 594.5 |
Europe, Middle East and Africa | ||||
Disaggregation of Revenue [Line Items] | ||||
Total net sales | 194.1 | 207.4 | 388.8 | 403.7 |
Asia Pacific | ||||
Disaggregation of Revenue [Line Items] | ||||
Total net sales | 144.4 | 149.3 | 278.0 | 296.6 |
Latin America | ||||
Disaggregation of Revenue [Line Items] | ||||
Total net sales | $ 56.0 | $ 57.6 | $ 113.5 | $ 110.3 |
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - USD ($) shares in Millions, $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jan. 31, 2020 |
Jan. 31, 2019 |
Jan. 31, 2020 |
Jan. 31, 2019 |
|
Income Statement [Abstract] | ||||
Net sales | $ 662.0 | $ 703.7 | $ 1,334.7 | $ 1,405.1 |
Cost of sales | 438.8 | 478.3 | 880.3 | 941.3 |
Gross profit | 223.2 | 225.4 | 454.4 | 463.8 |
Operating expenses | 138.7 | 140.3 | 281.4 | 280.0 |
Operating income | 84.5 | 85.1 | 173.0 | 183.8 |
Interest expense | 4.5 | 5.3 | 9.0 | 9.5 |
Other income, net | (2.8) | (0.7) | (5.5) | (2.6) |
Earnings before income taxes | 82.8 | 80.5 | 169.5 | 176.9 |
Income taxes | 18.4 | 20.4 | 40.0 | 43.0 |
Net earnings | $ 64.4 | $ 60.1 | $ 129.5 | $ 133.9 |
Weighted average shares - basic (in shares) | 127.1 | 128.3 | 127.0 | 128.6 |
Weighted average shares - diluted (in shares) | 128.9 | 130.0 | 128.8 | 130.6 |
Net earnings per share - basic (in usd per share) | $ 0.51 | $ 0.47 | $ 1.02 | $ 1.04 |
Net earnings per share - diluted (in usd per share) | $ 0.50 | $ 0.46 | $ 1.01 | $ 1.03 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Millions |
Jan. 31, 2020 |
Jul. 31, 2019 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Accounts receivable, allowance | $ 5.0 | $ 4.8 |
Preferred stock, par value (in usd per share) | $ 1 | $ 1 |
Preferred stock, shares authorized (in shares) | 1,000,000 | 1,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Common stock, par value (in usd per share) | $ 5 | $ 5 |
Common stock, shares authorized (in shares) | 240,000,000 | 240,000,000 |
Common stock, shares issued (in shares) | 151,643,194 | 151,643,194 |
Treasury stock, shares (in shares) | 24,876,430 | 24,324,483 |
Shareholders' Equity (Details) - USD ($) $ / shares in Units, $ in Millions |
6 Months Ended | |
---|---|---|
Jan. 31, 2020 |
Jan. 31, 2019 |
|
Stockholders' Equity Note [Abstract] | ||
Number of shares authorized to be repurchased (in shares) | 13,000,000.0 | |
Stock repurchased during the period (in shares) | 1,400,000 | |
Stock repurchased during the period | $ 65.0 | $ 102.0 |
Shares with remaining authorization for repurchase under stock repurchase plan (in shares) | 11,400,000 | |
Dividends paid per share (in usd per share) | $ 0.420 | $ 0.380 |
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