UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1994
Commission File Number 1-7891
DONALDSON COMPANY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-0222640
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 West 94th Street, Minneapolis, Minnesota 55431
- - --------------------------------------------- ---------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (612) 887-3131
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
- - ------------------------------- -----------------------
Common Stock, $5 Par Value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes _X_ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of the close of business on September 27, 1994 was $559,158,590.
The shares of Common Stock outstanding as of September 27, 1994 were 26,510,661.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1994 Annual Report to Shareholders of the registrant:
Parts I and II.
Portions of the Proxy Statement for the 1994 annual shareholders meeting:
Part III.
<PAGE> 1
PART I
Item 1. BUSINESS
GENERAL
Donaldson Company, Inc. ("Donaldson" or the "Company") was founded in 1915
and organized in its present corporate form under the laws of the State of
Delaware in 1936.
The Company is a worldwide manufacturer of air cleaners, liquid filters and
exhaust products and accessories for heavy duty mobile equipment; in-plant air
cleaning systems; air intake systems and exhaust products for industrial gas
turbines; and specialized filters for diverse applications. The Company has one
industry segment which consists of the design, manufacture and sale of products
to filter air, sound and liquid.
The Company's principal products are primarily sold through a direct sales
force. The table below shows the percentage of total sales contributed by the
principal classes of similar products for each of the last three fiscal years:
Year Ended July 31
1994 1993 1992
---- ---- ----
Air cleaners, filtration
devices and accessories 67% 68% 71%
Acoustical Products 11% 11% 9%
Other 22% 21% 20%
RAW MATERIALS
The Company experienced no significant or unusual problems in the purchase
of raw materials or commodities. Donaldson has more than one source of raw
materials essential to its business.
The Company is not required to carry significant amounts of inventory to
meet rapid delivery demands or secure supplier allotments.
PATENTS
The Company owns various patents which it considers in the aggregate to
constitute a valuable asset. However, it does not regard the validity of any one
patent as being of material importance.
<PAGE> 2
SEASONALITY
The Company's business is not considered to be seasonal.
MAJOR CUSTOMER
Approximately 12% of the Company's 1994 sales were made to Caterpillar
Inc. and subsidiaries ("Caterpillar"). Caterpillar has been a customer of the
Company for many years and they purchase several models and types of products
for a variety of applications.
Sales to the U.S. Government do not constitute a material portion of the
Company's business.
BACKLOG
At August 31, 1994, the backlog of orders expected to be delivered within 90
days was $111,147,000. The backlog at August 31, 1993 was $88,953,000.
COMPETITION
Principal methods of competition are price, service and product performance.
The Company estimates it has more than 20 competitors in the sale of filtration
products and less than 10 competitors in the sale of acoustical products.
Generally the Company does not provide rights to return merchandise or give
extended payment terms to customers and believes the industry practices are
similar to its own.
RESEARCH AND DEVELOPMENT
During 1994 the Company spent $10,873,000 on research and development
activities relating to the development of new products or improvements of
existing products or manufacturing processes. The Company spent $11,364,000 in
1993 and $10,323,000 in 1992 on research and development activities. Essentially
all commercial research and development is Company sponsored.
ENVIRONMENTAL MATTERS
The Company does not anticipate any material effect on its capital
expenditures, earnings or competitive position due to compliance with government
regulations involving environmental matters.
<PAGE> 3
EMPLOYEES
The Company employed 4,417 persons in worldwide operations as of July 31,
1994.
GEOGRAPHIC AREAS
Note J of the Notes to Consolidated Financial Statements on page 28 in the
1994 Annual Report to Shareholders contains information regarding the Company's
geographic areas and is incorporated herein by reference.
Political conditions, tariffs, local tax structures, and currency exchange
rate fluctuations contribute to the risks of foreign operations.
Item 2. PROPERTIES
The Company's principal office and research facilities are located in
Bloomington, a suburb of Minneapolis, Minnesota. European administrative and
engineering offices are located in Leuven, Belgium.
Manufacturing activities are carried on in ten plants in the United States,
two in Japan and one each in Australia, Brazil, United Kingdom, Hong Kong, South
Africa, Italy, Belgium and Germany. The inside back cover of the 1994 Annual
Report to Shareholders lists U.S. plant locations and is incorporated herein by
reference. Note J on page 28 of the 1994 Annual Report to Shareholders presents
identifiable assets by geographic area and is incorporated herein by reference.
Donaldson is a lessee under several long-term leases pursuant to Industrial
Revenue Bond financings. These leases provide for options to purchase the
facilities at the end of the lease term and have been capitalized.
The Company's properties are considered to be suitable for their present
purposes, well maintained and in good operating condition.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the Company's business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the year ended July 31, 1994.
<PAGE> 4
EXECUTIVE OFFICERS OF THE REGISTRANT
Current information regarding executive officers is presented below. All
terms of office are for one year. There are no arrangements or understandings
between individual officers and any other person pursuant to which he was
selected as an officer.
First Year
Elected or
appointed
as an
Name Age Positions and Offices Held Officer
- - ---- --- -------------------------- ----------
William A. Hodder 63 Chairman, Chief Executive 1973
Officer & Director
Erland D. Anderson 53 Vice President, Corporate 1978
Technology
William M. Cook 41 Vice President, Industrial 1994
Edmund C. Craft 54 Vice President, Engine 1985
Aftermarket
James R. Giertz 37 Vice President, Chief 1994
Financial Officer
Richard M. Negri 61 Vice President, Corporate 1976
Manufacturing
Nickolas Priadka 48 Vice President, Engine OEM 1989
Lowell F. Schwab 46 Vice President, Operations 1994
John R. Schweers 49 Treasurer 1987
John E. Thames 44 Vice President, Human Resources 1989
William G. Van Dyke 49 President, Chief Operating 1979
Officer and Director
Thomas A. Windfeldt 45 Vice President, Controller 1985
All of the above-named executive officers have held executive or
management positions with Registrant for more than the past five years
except Mr. Giertz who was previously Assistant Treasurer Corporate
Finance for General Motors Corporation (1992) and Treasurer of various
subsidiaries of General Motors Corporation and Mr.Schwab who was
previously Vice President and General Manager of the Machinery Division
of Washington Scientific, Inc.
<PAGE> 5
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information in the sections "NYSE Listing," and "Quarterly Financial
Information (Unaudited)" on page 32, and restrictions on payment of dividends in
Note D, page 24 of the 1994 Annual Report to Shareholders is incorporated herein
by reference. As of September 27, 1994, there were approximately 1,500
shareholders of record of Common Stock.
The high and low sales prices for registrant's common stock for each
full quarterly period during fiscal 1993 and 1994 are as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1993 $14-19 $17-19 1/4 $16 5/8-20 1/8 $17-19 1/8
1994 $18 1/4-21 5/8 $20-23 3/4 $21 7/8-25 1/4 $20-26 1/8
Item 6. SELECTED FINANCIAL DATA
The information for the years 1990 through 1994 on pages 12 and 13 of the
1994 Annual Report to Shareholders is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The textual information commencing with "Capital Structure" in the section
"Management's Discussion and Analysis" on pages 14 through 18 of the 1994 Annual
Report to Shareholders is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to Consolidated Financial
Statements on pages 19 through 28, and the Quarterly Financial Information
(Unaudited) on page 32 of the 1994 Annual Report to Shareholders is incorporated
herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the captions "Nominees For Election" and "Directors
Continuing In Office" on pages 3 and 4 and under the heading "Compliance With
Section 16 (a) of the Securities Exchange Act of 1934" on page 10 of the
Company's definitive proxy statement dated October 14, 1994 is incorporated
herein by reference. Information about the executive officers of the Company is
set forth in Part I of this report.
<PAGE> 6
Item 11. EXECUTIVE COMPENSATION
The information under "Director Compensation" on page 4 and in the section
"Executive Compensation" on pages 5 through 9, the "Pension Plan Table" on page
10 and under the captions "Resignation Agreement" and "Change-in-Control
Arrangements" on page 11 of the Company's definitive proxy statement dated
October 14, 1994, is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information in the section "Security Ownership" on pages 1 and 2 of the
Company's definitive proxy statement dated October 14, 1994, is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the section "Resignation Agreement" on page 10 of the
Company's definitive proxy statement, dated October 14, 1994, is incorporated
herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) Documents filed with this report:
(1) Financial Statements -
Consolidated Statements of Financial Position--July 31, 1994
and 1993 (incorporated by reference from page 20 of the 1994
Annual Report to Shareholders)
Consolidated Statements of Earnings--years ended July 31, 1994,
1993 and 1992 (incorporated by reference from page 19 of the
1994 Annual Report to Shareholders)
Consolidated Statements of Cash Flows--years ended July 31,
1994, 1993 and 1992 (incorporated by reference from page 21 of
the 1994 Annual Report to Shareholders)
Consolidated Statements of Changes in Shareholders'
Equity-years ended July 31, 1994, 1993 and 1992 (incorporated
by reference from page 22 of the 1994 Annual Report to
Shareholders)
Notes to Consolidated Financial Statements (incorporated by
reference from pages 23 through 28 of the 1994 Annual Report to
Shareholders)
Report of Independent Auditors (incorporated by reference from
page 29 of the 1994 Annual Report to Shareholders).
<PAGE> 7
(2) Financial Statement Schedules -
Schedule II Amounts receivable from related
parties and underwriters, promoters, and
employees other than related parties
Schedule V Property, plant and equipment
Schedule VI Accumulated depreciation, depletion and
amortization of property, plant and
equipment
Schedule VIII Valuation and qualifying accounts
Schedule IX Short-term borrowings
Schedule X Supplementary income statement information
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instruction, or are inapplicable, and therefore have been
omitted.
(3) Exhibits
The exhibits listed in the accompanying index are filed as part
of this report or incorporated by reference as indicated
therein.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended
July 31, 1994.
<PAGE> 8
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
DONALDSON COMPANY, INC.
(Registrant)
Date: October 28, 1994 By /s/ Raymond F. Vodovnik
Raymond F. Vodovnik
Vice President, Legal
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/ William A. Hodder Chairman, Chief Executive
William A. Hodder Officer and Director
/s/ Thomas A. Windfeldt Vice President, Controller
Thomas A. Windfeldt
/s/ James R. Giertz Vice President, Chief Financial
James R. Giertz Officer
*William G. Van Dyke President, Chief Operating
William G. Van Dyke Officer and Director
*A. Gary Ames Director
A. Gary Ames
*Michael R. Bonsignore Director
Michael R. Bonsignore
*Jack W. Eugster Director
Jack W. Eugster
*Kendrick B. Melrose Director
Kendrick B. Melrose
*S. Walter Richey Director
S. Walter Richey
*Stephen W. Sanger Director
Stephen W. Sanger
*C. Angus Wurtele Director
C. Angus Wurtele
*By /s/Raymond F. Vodovnik Date: October 28, 1994
Raymond F. Vodovnik
* As attorney-in-fact
<PAGE> 9
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
DONALDSON COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- - ----------------------------------------------------------------------------------------------------
Balance at
Beginning Balance at end of period
Name of Debtor of Period Additions Deductions Current Not Current
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1994:
John C. Read
Executive Vice President, Engine $200,000 $ - $(200,000) $ - $ - (1)
======= ======== ========= ======== ========
Year ended July 31, 1993:
John C. Read,
Executive Vice President, Engine $200,000 $ - $ - $ - $200,000 (1)
======== ======== ========= ======== ========
Year ended July 31, 1992:
John C. Read
Executive Vice President, Engine $200,000 $ - $ - $ - $200,000 (1)
======== ======== ========= ======== ========
</TABLE>
(1) The loan was fully secured by a mortgage on Mr. Read's residence
in favor of the Company. The note accrued interest at the rate of 9.1%
per annum. On August 8, 1994, Mr. Read resigned from the Company. The
Company agreed to forgive the outstanding note as part of his
Resignation Agreement.
<PAGE> 10
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- - -------------------------------------------------------------------------------------------------------------
Balance at Other Changes- Balance at
Beginning Additions Add (Deduct)- End of
Classification of Period at Cost Retirements Describe Period
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1994:
Land $ 5,962 $ 162 $ - $ 174 (B) $ 6,298
Buildings 74,742 5,252 (72) 1,761 (B) 81,683
Machinery and equipment 148,790 21,353 (3,101) 376(A,B) 166,666
Construction in progress 4,353 - - (77) 4,276
-------- ------- ------- ------ -------
$233,847 $26,767(C) $ (3,173) $1,482 $258,923
======== ======= ======== ====== ========
Year ended July 31, 1993:
Land $ 5,503 $ 484 $ (6) $ (19)(B) $ 5,962
Buildings 71,679 2,728 (255) 590 (B) 74,742
Machinery and equipment 132,989 17,691 (2,372) 482 (B) 148,790
Construction in progress 3,791 - - 562 4,353
-------- ------- ------- ------ -------
$213,962 $20,903(D) $(2,633) $1,615 $233,847
======== ======= ======= ====== ========
Year ended July 31, 1992:
Land $ 4,671 $ 451 $ (4) $ 385 (B) $ 5,503
Buildings 61,710 5,719 (28) 4,278 (B) 71,679
Machinery and equipment 114,302 15,951 (4,133) 6,869 (B) 132,989
Construction in progress 6,968 - - (3,177) 3,791
-------- ------- ------- ------ -------
$187,651 $22,121(E) $ (4,165) $8,355 $213,962
======== ======= ======== ====== ========
</TABLE>
See notes on following page.
<PAGE> 11
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT--Continued
DONALDSON COMPANY, INC. AND SUBSIDIARIES
Note A--Includes $3,200 related to a write down of certain Brazilian assets.
Note B--Amounts represent the effect of changes in foreign currency exchange
rates on property and equipment. Foreign currency translation methods are
disclosed in Note A to the consolidated financial statements.
Note C--Includes $1,828 relating to the acquisition of property, plant and
equipment of a high purity products materials supplier.
Note D--Includes $5,898 relating to the acquisition of property, plant and
equipment of Filtrobras-Roma Filtros Automotivos Ltda. and ENV Services, Inc.
Note E--Includes $6,583 relating to the acquisition of property,
plant and equipment of Gimetal N.V. and FBO s.r.l.
<PAGE> 12
SCHEDULE VI--ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- - ----------------------------------------------------------------------------------------------------
Additions
Balance at Charged to Other Changes- Balance at
Beginning Costs and Add (Deduct)- End of
Description of Period Expenses Retirements Describe Period
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1994:
Buildings $ 39,058 $ 2,311 $ (39) $ 1,075 $ 42,405
Machinery and equipment 104,274 13,588 (2,912) 2,009 116,959
-------- ------- ------- -------- ---------
$143,332 $15,899 $(2,951) $ 3,084(A) $ 159,364
======== ======= ======= ======== =========
Year ended July 31, 1993:
Buildings $ 35,838 $ 2,439 $ (242) $ 1,023 $ 39,058
Machinery and equipment 93,225 12,006 (2,051) 1,094 104,274
-------- ------- ------- -------- ---------
$129,063 $14,445 $(2,293) $ 2,117(A) $ 143,332
======== ======= ======= ======== =========
Year ended July 31, 1992:
Buildings $ 32,110 $ 2,277 $ (25) $ 1,476 $ 35,838
Machinery and equipment 82,678 11,477 (3,866) 2,936 93,225
-------- ------- ------- -------- ---------
$114,788 $13,754 $(3,891) $ 4,412(A) $ 129,063
======== ======= ======= ======== =========
</TABLE>
Note A--Amounts represent the effect of changes in foreign currency exchange
rates on property, plant and equipment. Foreign currency translation methods are
disclosed in Note A to the consolidated financial statements.
<PAGE> 13
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- - -------------------------------------------------------------------------------------------------
Additions
Balance at Charged to Balance at
Beginning Costs and Charged to End of
Description of Period Expenses Other Accounts Deductions Period
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1994:
Allowance for doubtful
accounts deducted from
accounts receivable $2,802 $ 949 $ 28 (A) $ (336)(B) $3,443
====== ===== ===== ======= ======
Year ended July 31, 1993:
Allowance for doubtful
accounts deducted from
accounts receivable $2,594 $ 409 $(185)(A) $ (16)(B) $2,802
====== ===== ===== ====== ======
Year ended July 31, 1992:
Allowance for doubtful
accounts deducted from
accounts receivable $2,328 $ 571 $ 166 (A) $ (471)(B) $2,594
====== ===== ===== ====== ======
</TABLE>
Note A--Foreign currency translation losses (gains) recorded directly to
retained earnings.
Note B--Bad debts charged to allowance, net of recoveries.
<PAGE> 14
SCHEDULE IX--SHORT-TERM BORROWINGS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- - ----------------------------------------------------------------------------------------------------
Maximum Average Weighted
Weighted Amount Amount Average
Balance Average Outstanding Outstanding Interest Rate
Category of Aggregate at End Interest During During the During the
Short-term Borrowings of Period Rate the Period Period (A) Period (B)
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Notes payable to banks:
Year ended July 31, 1994 $14,073 6.6% $15,218 $8,720 8.1%
Year ended July 31, 1993 $4,238 10.3% $ 6,906 $3,906 8.6%
Year ended July 31, 1992 $6,359 7.8% $ 6,359 $2,553 14.9%
</TABLE>
Note A--The average amount outstanding during the period was computed by
dividing the total of month-end outstanding principal balances by twelve.
Note B--The weighted average interest rate during the period was computed by
dividing the actual interest expense by average month end short-term debt
outstanding.
<PAGE> 15
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
COL. A COL. B
Charged to
Item Costs and Expenses
- - ------------------------- ------------------
Year ended July 31, 1994
Maintenance and repairs $5,935
======
Year ended July 31, 1993
Maintenance and repairs $5,575
======
Year ended July 31, 1992
Maintenance and repairs $4,832
======
Amounts for other items are not presented as such amounts are less than 1% of
total sales.
<PAGE> 16
EXHIBIT INDEX
ANNUAL REPORT ON FORM 10-K
* 3-a - Certificate of Incorporation of Registrant as currently in effect
* 3-B - By-laws of Registrant as currently in effect
* 4 - **
* 4-A - Preferred Stock Amended and Restated Rights
Agreement (Filed as Exhibit 1 to Form 8-K Report
Dated May 19, 1989)
* 4-B - Credit Agreement among Donaldson Company, Inc.
and certain listed banks dated as of October 8,
1987 (Filed as Exhibit 4-B to 1987 Form 10-K Report)
* 4-C - Copy of First Amendment to Preferred Stock Amended and
Restated Rights Agreement (Filed as Exhibit 1 to Form
8-K Report Dated September 20, 1991)
10-A - Copy of Resignation Agreement dated August 21, 1994
between Registrant and John C. Read
* 10-B - Supplementary Retirement Agreement with William A.
Hodder (Filed as Exhibit 10-B to 1993 Form 10-K Report)
* 10-C - 1980 Master Stock Compensation Plan as Amended
(Filed as Exhibit 10-C to 1993 Form 10-K Report)
* 10-D - Form of Performance Award Agreement under 1980 Master
Stock Compensation Plan (Filed as Exhibit 10-D to 1989
Form 10-K Report)
* 10-E - Copy of Phantom Stock Plan (Filed as exhibit 10-E to
1991 Form 10-K Report)
* 10-F - Deferred Compensation Plan for Non-employee Directors
as amended (Filed as Exhibit 10-F to 1990 Form 10-K Report)
* 10-G - Form of "Change in Control" Agreement with key
employees as amended (Filed as Exhibit 10-F to 1990 Form 10-K Report)
* 10-H - Independent Director Retirement and Benefit Plan as
amended (Filed as Exhibit 10-H to 1993 Form 10-K Report)
<PAGE> 17
* 10-I - Excess Benefit Plan (Filed as Exhibit 10-I to 1989
Form 10-K Report)
* 10-J - Copy of Supplementary Executive Retirement Plan (Filed
as Exhibit 10-J to 1991 Form 10-K Report)
* 10-K - 1991 Master Stock Compensation Plan as amended
(Filed as Exhibit 10-K to 1993 Form 10-K Report)
* 10-L - Form of Restricted Stock Award under 1991 Master Stock
Compensation Plan. (Filed as Exhibit 10-L to 1992 Form 10-K Report)
* 10-M - Form of Agreement to Defer Compensation for certain
Executive Officers (Filed as Exhibit 10-M to 1993 Form 10-K Report)
* 10-N - Stock Option Program for Nonemployee Directors (Filed
as Exhibit 10-N to 1993 Form 10-K Report)
11 - Statement re computation of per share earnings
13 - Portions of Registrant's Annual Report to Shareholders
for the year ended July 31, 1994
21 - Subsidiaries ("Wholly Owned Subsidiaries" and "Joint
Ventures" on the inside back cover of Donaldson's 1994
Annual Report is incorporated by reference)
23 - Consent of Independent Auditors
24 - Powers of Attorney
27 - Financial Data Schedule
99 - Annual Report of Employees' Retirement Savings Plan on
Form 11-K for year ended July 31, 1994
* Exhibit has heretofore been filed with the Securities
and Exchange Comission and is incorporated herein by reference
as an exhibit.
** Pursuant to the provisions of Regulation S-K Item
601(b)(4)(iii)(A) copies of instruments defining the rights of
holders of certain long-term debts of Registrant and its
subsidiaries are not filed and in lieu thereof Registrant
agrees to furnish a copy thereof to the Securities and Exchange
Commission upon request.
Note: Exhibits have been furnished only to the Securities and Exchange
Commission. Copies will be furnished to individuals upon request and
payment of $15 representing Registrant's reasonable expense in
furnishing such exhibits.
EXHIBIT 10-A CONFIDENTIAL
RESIGNATION AGREEMENT
This Resignation Agreement is made by and between Donaldson Company,
Inc., a Minnesota corporation (the "Company"), and John C. Read, an individual
resident of Minnesota ("Read").
WHEREAS, Read and the Company entered into a letter agreement dated
February 27, 1990 and an employment agreement dated April 2, 1990;
WHEREAS, Read and the Company wish to effect the termination of Read's
employment with the Company on the terms and conditions set forth herein; and
WHEREAS, Read and the Company mutually desire that, in consideration of
the payments and benefits set forth herein, the employment agreement dated April
2, 1990 (and any remaining rights of Read under the letter agreement dated
February 27, 1990) be terminated and superseded by this Resignation Agreement;
NOW, THEREFORE, Read and the Company agree as follows:
1. Read hereby resigns all officer and other positions with the Company
(and each of its subsidiaries), including, but not limited to, Executive Vice
President, Engine Group, and terminates his employment with the Company (and
each of its subsidiaries), effective as of the close of business on August 8,
1994. The Company accepts Read's resignations and terminations effective as of
such date and time. No rights of an employee will accrue to Read after the close
of business on August 8, 1994 despite the payments and benefits provided
pursuant to paragraph 2 of this Resignation Agreement.
2. In consideration for Read's past services to the Company, Read's
agreement to terminate the employment agreement dated April 2, 1990 (and any
remaining rights of Read under the letter agreement dated February 27, 1990),
the release of any and all claims relating to Read's employment with the
Company, the noncompetition, nondisclosure, and nonsolicitation covenants set
forth herein, and subject to the terms hereof, the Company shall provide Read
with the following payments and benefits, subject to paragraph 7:
(a) The Company shall pay Read one year's salary plus
100% of his target incentive bonus opportunity (60% of his base
salary at the time of his resignation), which amount equals
$470,400, less legally required withholdings and deductions.
This amount, together with interest at the applicable federal
rate on the unpaid principal balance of such amount, shall be
paid in 24 consecutive equal monthly payments.
(b) The Company shall forgive in 24 consecutive equal
monthly increments the outstanding balance, plus accrued and
accruing interest, on the home equity loan it has provided to
Read. As of August 1, 1994, this amount is approximately
$292,000.
(c) Read may continue in the Company's executive tax
preparation plan for the 1994 tax year.
(d) The Company shall continue to provide Read with
group medical insurance and group life insurance at the levels
and on the terms currently provided to Read until December 31,
1994. After December 31, 1994, Read may voluntarily elect to
continue the group medical insurance, in accordance with the
Company's policies for employees, for a period not to exceed 18
months, provided that Read makes full payment for such
insurance at COBRA premium rates. It is agreed by the parties
that in the event Read becomes employed by any other employer
during the 18 month period following December 31, 1994, the
Company will not be required to provide Read with access to its
group medical insurance effective on the first day of the month
following or coinciding with Read's commencement of benefit
eligibility with the new employer. In addition, on or before
December 31, 1994, the Company will provide Read with
information regarding the conversion of the group life
insurance to an individual policy.
(e) The Company shall make a cash payment to Read for
any earned and unused vacation days attributable to calendar
year 1994 that are accrued as of the date of Read's resignation
from the Company in accordance with the Company's standard
policies relating to compensation for earned and unused
vacation at the time of employment termination.
(f) The Company shall provide Read with outplacement
advisory services as arranged by the Company through a
professional firm with national connections and a local office.
(g) Read shall have the option to purchase the
Company automobile currently in his possession from the Company
for a price equal to the book value of the automobile. The book
value of the automobile is currently $14,860. This option must
be exercised within 30 days of the date of Read's resignation
from the Company.
(h) Additional payments and benefits, if any, under
any other employee benefit plans of the Company applicable to
Read will be determined and paid only in accordance with the
express written provisions of such plans.
3. Read acknowledges that during his employment with the Company, he
has been exposed to, or acquired, confidential information as defined in this
paragraph. Read understands and agrees that such confidential information has
been disclosed to him in confidence and for the sole benefit of the Company.
Read agrees that he will: (i) diligently protect the confidentiality of all
confidential information; (ii) not disclose or communicate any confidential
information to any third party without the consent of the Company; and (iii) not
make use of confidential information on his own behalf or on behalf of any third
party. When confidential information becomes generally available to the public
by means other than Read's acts or omissions, it is no longer subject to this
paragraph. Read expressly acknowledges that the undertakings set forth in this
paragraph shall survive indefinitely, notwithstanding the expiration or
termination of other agreements or duties in this Resignation Agreement. As used
in this Resignation Agreement "confidential information" means information not
generally known that is proprietary to the Company. This information includes
trade secret information about the Company's processes, products and business,
such as information relating to research, development, manufacture, purchasing,
accounting, engineering, marketing, merchandising, selling, leasing, servicing,
customers, finance and business systems and techniques. All information which
was disclosed to Read or to which Read obtained access, during the period of his
employment, that he had reasonable basis to believe to be confidential
information shall be presumed to be confidential information. This applies
whether the confidential information was originally identified by Read or by
others.
4. Read agrees to promptly return to the Company all records, manuals,
books, forms, documents, letters, memoranda, notes, notebooks, reports, data,
diagrams, calculations or other materials or copies thereof, which are the
property of the Company or which relate in any way to the business, products,
practices or techniques of the Company, and all other property of the Company,
including, but not limited to, all documents or other materials which in whole
or in part contain any confidential information which in any of these cases are
in the possession or under the control of Read.
5. A. DEFINITIONS:
As used in this Resignation Agreement:
(1) "Company" means Donaldson Company, Inc., and any
existing or future subsidiaries, owned or controlled,
directly or indirectly by such Company.
(2) "Conflicting organization" means any person or
organization that is engaged in or about to become
engaged in, research on or development, production,
marketing, leasing, selling or servicing of a
conflicting product.
(3) "Conflicting product" means any product, method or
process, system or service of any person or
organization other than the Company that is the same
as or similar to a product, method or process, system
or service upon which Read worked, or as to which
Read acquired confidential information (in either a
sales or a non-sales capacity) during the last three
years of his employment with the Company. Conflicting
products also include those under development and
those that compete with or have a usage allied to
Company products.
B. COVENANT NOT TO COMPETE:
(1) For a period of two years after his resignation from
the Company, Read will immediately inform the Company
of any subsequent employment or association with a
new employer. Read will also inform the new employer
or associate of the provisions of this paragraph 5,
providing the employer or associate with a copy.
(2) For a period of two years after his resignation from
the Company, Read agrees that he will not, directly
or indirectly, either as a proprietor, partner,
employee, consultant or agent, do any of the
following:
(a) sell or solicit orders for any conflic-
ting products:
(i) to or from a customer or client
whom, within the three year period
preceding his resignation from the
Company, he solicited or serviced
orders for the Company or in
connection with whom he managed
solicitation or servicing for the
Company; or
(ii) in any territory in which he was
working or which he managed for the
Company, within the three year
period immediately preceding his
resignation from the Company;
(b) direct, promote or assist in the
development, production, or servicing of any
conflicting products; and
(c) provide services of the type provided to the
Company to any conflicting organization in
the United States, or in any country in
which the Company has a plant for
manufacturing a product on which he worked
during his employment with the Company, or
in which the Company provides a service in
which he participated during his employment
with the Company.
(3) The only exception to the provisions of this
paragraph 5 is that Read may accept employment with a
conflicting organization whose business is
diversified and has separate and distinct divisions,
if:
(a) his services are provided to a separate and
distinct division, which of itself is not a
conflicting organization; and
(b) prior to his accepting employment with this
division, the Company receives separate
written assurances satisfactory to the
Company from the conflicting organization
and from Read that he will not directly or
indirectly provide services in connection
with any conflicting products.
6. Read recognizes that the Company's work force constitutes an
important and valuable asset of its business. Read agrees that for a period of
two years following his execution of this Resignation Agreement he shall not
solicit, or assist anyone else in the solicitation of, any of the Company's then
current employees to terminate their employment with the Company and/or to
become employed by any business enterprise with which Read may then be
associated or connected, whether as an owner, employee, partner, agent,
investor, consultant, contractor or otherwise.
7. If Read breaches any material obligation imposed under this
Resignation Agreement, the Company shall have the right to terminate its
obligations under this Resignation Agreement, Read will repay to the Company any
cash payments made to him pursuant to paragraph 2 of this Resignation Agreement,
and all future obligations of the Company under this Resignation Agreement to
Read or to others whose rights may derive from him will cease.
8. Read acknowledges that it would be difficult to compensate the
Company for damages for any violation of paragraphs 3, 4, 5 and 6 of this
Resignation Agreement. Accordingly, Read specifically agrees that the Company
shall be entitled to injunctive relief to enforce the provisions of those
paragraphs and that such relief may be granted without the necessity of proving
actual damages. This provision with respect to injunctive relief will not,
however, diminish the right of the Company to claim and recover damages in
addition to injunctive relief.
9. By this Resignation Agreement, Read and the Company intend to settle
any and all claims Read has or may have against the Company as the result of its
hiring Read, Read's employment with the Company, and the cessation of Read's
employment with the Company. For the consideration expressed herein, Read hereby
releases and discharges the Company, its officers, directors, shareholders,
employees, agents, insurers, representatives, counsel, administrators,
successors and/or assigns from any and all claims, demands, actions,
liabilities, damages, or rights of any kind, whether known or unknown, arising
out of or resulting from the Company's hiring of Read, Read's employment with
the Company, and the cessation of Read's employment with the Company. Read
further agrees that he will not institute any claim for damages, by charge or
otherwise, nor authorize any other party, governmental or otherwise, to
institute any claim for damages via administrative or legal proceedings against
the Company, its officers, directors, shareholders, employees, agents, insurers,
representatives, counsel, administrators, successors and/or assigns for any such
claims, including, but not limited to, any claims arising under or based upon
the Minnesota Human Rights Act, Minn. Stat. ss.ss. 363.01, et seq.; the
Minnesota Age Discrimination Law, Minn. Stat. ss.ss. 181.81, et seq.; Title VII
of the Civil Rights Act of 1964, 42 U.S.C. ss.ss. 2000e, et seq.; the Age
Discrimination In Employment Act, 29 U.S.C. ss.ss.621, et seq.; the Employee
Retirement Income Security Act of 1973, 29 U.S.C. ss.ss. 1101, et seq.; the
Rehabilitation Act of 1973, 29 U.S.C. ss.ss. 701, et seq.; or the Americans With
Disabilities Act, 42 U.S.C. ss.ss. 12101, et seq.; and any claims based upon
common law theories of recovery, including those in contract, quasi contract or
tort, arising out of or resulting from the Company hiring of Read, Read's
employment with the Company, and the cessation of Read's employment with the
Company. Read and the Company agree that, by signing this Resignation Agreement,
Read does not waive any claims arising after the execution of this Resignation
Agreement.
10. Read has been informed of his right to rescind this Resignation
Agreement as far as it extends to potential claims under the Minnesota Human
Rights Act, Minn. Stat. ss.ss. 363.01, et seq., by written notice to the Company
within 15 calendar days following his execution of this Resignation Agreement.
To be effective, such written notice must be delivered either by hand or by
mail, to John Thames, Vice President, Human Resources, Donaldson Company, Inc.,
P. O. Box 1299, Minneapolis, Minnesota 55440-1299, within the 15 day period. If
a notice of rescission is delivered by mail, it must be: (i) postmarked within
the 15 day period; (ii) properly addressed to John Thames as set forth above;
and (iii) sent by certified mail, return receipt requested. It is understood
that the Company will have no obligations under this Resignation Agreement in
the event such a notice of rescission by Read is timely delivered, and, in the
event this Resignation Agreement is rescinded by Read, Read agrees to repay to
the Company any cash payments made to him pursuant to paragraph 2 of this
Resignation Agreement prior to the date of rescission.
11. Read has been informed of his right to revoke this Resignation
Agreement as far as it extends to potential claims under the Age Discrimination
In Employment Act, 29 U.S.C. ss.ss. 621, et seq., by informing the Company of
his intent to revoke this Resignation Agreement within 7 calendar days following
his execution of this Resignation Agreement. This Resignation Agreement shall
not become effective or enforceable until the 7 day period has expired. In the
event this Resignation Agreement is revoked by Read, Read agrees to repay the
Company any cash payments made to him pursuant to paragraph 2 of this
Resignation Agreement prior to the date of revocation.
12. Read has been informed that the terms of this Resignation Agreement
will be open for acceptance and execution by him for a period of 21 days during
which time he may consult with an attorney and consider whether to accept this
Resignation Agreement. No payments or benefits pursuant to this Resignation
Agreement shall become due until Read has executed this Resignation Agreement.
13. This Resignation Agreement shall not in any way be construed as an
admission by the Company that it has acted wrongfully with respect to Read or
any other person, or that Read has any right whatsoever against the Company, and
the Company specifically disclaims any liability to, or wrongful acts against,
Read or any other person, on the part of itself, its directors, its employees,
its representatives or its agents.
14. Neither this Resignation Agreement nor any of the rights, interests
or benefits of Read hereunder shall be assigned, transferred, pledged, or
otherwise disposed of or encumbered by Read, and, to the extent permitted by
law, no such rights, interests or benefits shall be subject to attachment,
execution or similar process. Any attempted assignment, transfer, pledge,
encumbrance or other disposition of this Resignation Agreement or of any such
rights, interests or benefits, and any such attachment, execution, levy or
similar process, shall be null and void and without effect. This Resignation
Agreement shall inure to the benefit of and be enforceable by Read's personal or
legal representatives, executives, administrators, successors, heirs and
legatees. If Read should die and any amount is payable hereunder, such amount
shall be paid in accordance with the terms of this Resignation Agreement to
Read's devisee, legatee or other designee or, if there is no such designee, to
Read's estate.
15. This Resignation Agreement shall inure to the benefit of and be
binding upon the Company, its successors and assigns.
16. The terms of this Resignation Agreement (with the exception of the
provisions of paragraph 5) shall remain strictly confidential between the
parties hereto, except to the extent that disclosure of such terms is required
by law, and except that Read may disclose such terms to his spouse, his attorney
and his accountant, provided that such persons agree to maintain the
confidentiality of such information.
17. This Resignation Agreement contains the entire understanding
between the parties with respect to the subject matter of this Resignation
Agreement. This Resignation Agreement terminates, replaces and supplants any and
all other agreements, whether written or oral, between the parties relating in
any way to the hiring or employment of Read by the Company or the termination of
such employment, including, but not limited to, the letter agreement dated
February 27, 1990 and the employment agreement dated April 2, 1990. Any
alterations, variations, modifications or waivers of the provisions of this
Resignation Agreement shall be valid only when they have been reduced to writing
and duly signed by the parties. The terms of this paragraph shall not be deemed
to have been waived by oral agreement, course or performance or by any other
means other than a written agreement expressly providing for such waiver.
18. This Resignation Agreement constitutes a contract enforceable
against either party and shall be construed and enforced in accordance with the
laws of the state of Minnesota, both as to interpretation and performance,
without regard to Minnesota's choice of law rules, it being the intent of the
parties that the internal laws and forum of the state of Minnesota shall govern
any and all disputes arising out of or relating to this Resignation Agreement.
By the execution of this Resignation Agreement, the parties hereto consent to
the jurisdiction of the state and federal courts of the state of Minnesota, and
further consent to service of process by mail for purposes of instituting legal
proceedings.
19. Nothing contained in this Resignation Agreement is intended to
violate any applicable law, rule or regulation. If any part of this Resignation
Agreement is construed to be in violation of a federal, state and/or local law,
rule or regulation by the highest court to which the matter is appealed by
either party, then that part shall be null and void, but the balance of the
provisions of this Resignation Agreement shall remain in full force and effect.
20. No failure on the part of either party to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right or remedy hereunder preclude
any other or further exercise thereof, or the exercise of any other right or
remedy granted hereby or by law. No single or partial waiver of rights or
remedies hereunder, nor any course of conduct of the parties, shall be construed
as a waiver of rights or remedies by either party (other than as expressly and
specifically waived).
21. Read hereby affirms and acknowledges that he has read the foregoing
Resignation Agreement and that he has been advised to consult with an attorney
prior to signing this Resignation Agreement. Read agrees that the provisions set
forth in this Resignation Agreement are written in language understandable to
him and further affirms that he understands the meaning of the terms of this
Resignation Agreement and their effect. Read represents that he enters into this
Resignation Agreement freely and voluntarily.
IN WITNESS WHEREOF, the parties have executed this Resignation
Agreement by their signatures below.
Dated: August 21, 1994 /s/ John C. Read
------------------------ -----------------------
John C. Read
Dated: August 29, 1994 DONALDSON COMPANY, INC.
By /s/ John E. Thames
-----------------------
Its Vice President, Human Resources
EXHIBIT 11
COMPUTATION OF NET EARNINGS PER SHARE
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended July 31
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Primary
Average shares outstanding 27,026,291 27,582,628 27,497,198
Effect of stock options based
on the treasury stock method
using average market price 260,338 233,866 469,350
----------- ----------- -----------
Total 27,286,629 27,816,494 27,966,548
=========== =========== ===========
Earnings before accounting
change $ 31,949 $ 28,214 $ 25,769
Cumulative effect of accounting
change 2,206 -- --
----------- ----------- -----------
Net Earnings $ 34,155 $ 28,214 $ 25,769
=========== =========== ===========
Earnings Per Share:
Earnings before accounting $ 1.17 $ 1.01 $ .92
change
Cumulative effect of accounting
change .08 -- --
----------- ----------- -----------
Net Earnings Per Share $ 1.25 $ 1.01 $ .92
=========== =========== ===========
Fully Diluted
Average shares outstanding 27,026,291 27,582,628 27,497,198
Effect of stock options based on the
treasury stock method using average market
price during the year or ending market price,
whichever is higher 287,074 270,834 485,182
----------- ----------- -----------
Total 27,313,365 27,853,462 27,982,380
=========== =========== ===========
Earnings before accounting
change $ 31,949 $ 28,214 $ 25,769
Cumulative effect of accounting
change 2,206 -- --
----------- ----------- -----------
Net Earnings $ 34,155 $ 28,214 $ 25,769
=========== =========== ===========
Earnings Per Share:
Earnings before accounting
change $ 1.17 $ 1.01 $ .92
Cumulative effect of accounting
change .08 -- --
----------- ----------- -----------
Net Earnings Per Share $ 1.25 $ 1.01 $ .92
=========== =========== ===========
</TABLE>
All share and per share amounts have been adjusted for all stock splits.
<TABLE>
<CAPTION>
(Thousands of dollars except per share amounts) 1994 1993 1992 1991 1990
----------- ---------- ----------- ----------- -----------
OPERATING RESULTS
<S> <C> <C> <C> <C> <C>
Net sales $ 593,503 $ 533,327 $ 482,104 $ 457,692 $ 422,885
Gross margin $ 166,599 152,236 133,574 129,858 121,454
Gross margin percentage 28.1% 28.5% 27.7% 28.4% 28.7%
Operating income $ 52,079 45,246 41,249 41,304 44,354
Operating income percentage 8.8% 8.5% 8.6% 9.0% 10.5%
Interest expense $ 3,362 2,723 2,681 3,526 3,731
Earnings before income taxes $ 50,193 44,682 41,721 39,385 34,875
Income taxes $ 18,244 16,468 15,952 15,337 13,849
Effective income tax rate 36.3% 36.9% 38.2% 38.9% 39.7%
Net earnings $ 31,949(1) 28,214 25,769 24,048 21,026
Return on sales 5.4% 5.3% 5.3% 5.3% 5.0%
Return on equity 17.6% 16.9% 17.2% 18.0% 17.8%
Return on investment 16.0% 15.0% 14.8% 14.9% 14.2%
FINANCIAL POSITION
Total assets $ 337,360 300,217 286,348 253,194 245,947
Current assets $ 220,308 196,014 187,360 169,398 168,522
Current liabilities $ 115,757 93,666 89,956 77,537 79,917
Working capital $ 104,551 102,348 97,404 91,861 88,605
Current ratio 1.9 2.1 2.1 2.2 2.1
Current debt $ 16,956 7,595 11,425 6,380 11,384
Long-term debt $ 16,028 18,920 23,482 25,673 28,320
Total debt $ 32,984 26,515 34,907 32,053 39,704
Shareholders' equity $ 189,697 174,008 160,303 138,947 128,787
Capitalization ratio 14.8% 13.2% 17.9% 18.7% 23.6%
Property, plant and
equipment, net $ 99,559 90,515 84,899 72,863 68,290
Net expenditures on
property, plant and equipment $ 24,642 15,005 15,538 16,208 16,055
Depreciation and amortization $ 16,365 14,752 14,047 12,187 10,857
SHAREHOLDER INFORMATION
Net earnings per share $ 1.17(1) 1.01 .92 .84 .73
Dividends per share $ .25 .20 .19 .14 .13
Shareholders' equity per share $ 7.16 6.38 5.81 5.01 4.46
Shares outstanding (000s) 26,510 27,282 27,569 27,739 28,864
Common stock price
range, per share
High $ 26 1/8 20 1/8 15 7/8 13 3/8 11 5/8
Low $ 18 1/4 14 11 5/8 8 1/8 5 5/8
</TABLE>
Amounts are adjusted for all stock splits.
Operating income is gross margin less selling, general and administrative, and
research and development expense.
Return on investment is net earnings divided by average long-term debt plus
average shareholders' equity.
Capitalization ratio is total debt divided by total debt plus shareholders'
equity.
(1) Excludes the cumulative effect of an accounting change of $2,206, or $.08
per share, in 1994 and extraordinary credits of $1,384, or $.05 per share, in
1988 and $1,375, or $.04 per share, in 1987.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL OBJECTIVES
Donaldson Company's primary financial objective is to provide shareholders with
a superior return on investment through a combination of price appreciation and
dividend income. To provide a framework to achieve this objective, management
has established the following internal performance goals:
* Provide consistent sales and earnings per share growth of at least 12 percent
per annum.
* Maintain a dividend payout ratio in line with the long-term, sustainable
growth of net earnings.
* Through effective utilization of resources, earn a return on investment that
exceeds the Company's cost of capital.
* Maintain a rating of at least "A" on the Company's long-term, senior debt.
Compared to these goals, recent performance has been as follows:
1994 1993 5 Years
----- ----- -----
Net Sales 11.3% 10.6% 8.3%
Earnings Per Share(1) 15.8% 9.8% 16.7%
Return on Investment(1) 16.0% 15.0% 15.0%
Dividends Per Share 25.0% 5.3% 15.8%
Long-Term Debt Rating A A A
(1) Excludes cumulative effect of an accounting change.
Sales growth over the last two years has begun to approach the Company's
goal. This growth is primarily unit volume driven, since the Company has not
been able to significantly raise prices on its products during this period.
Acquisitions since 1991 have accounted for about 1 percent of the growth over
the past two years. Earnings per share growth has been above goal over the five
year period, and return on investment has exceeded the Company's cost of
capital, which is currently estimated to be less than 10 percent.
DIVIDENDS
The Company's dividend policy is to maintain a payout ratio which allows
dividends to increase with the long-term growth of earnings per share, while
sustaining dividends in down years. The Company's dividend payout ratio target
is 20 to 25 percent of the average earnings per share of the last three years.
The current quarterly dividend of 7 cents per share equates to 27 percent of the
average of the 1992 through 1994 earnings per share.
Effective with the March payment, the Company announced a 27 percent increase
in its regular quarterly cash dividend to 7 cents per share. This dividend
increase was the fifth since the end of 1989. The dividend has increased 17.2
percent per year during this five year period, slightly in excess of earnings
per share growth.
CAPITAL STRUCTURE
The Company's basic philosophy with regard to leverage is that the proper use of
debt enhances shareholder value. Therefore, the Company will utilize debt as
long as it does not incur undue financial risk or impair its ability to finance
future growth opportunities.
To maintain at least an "A" rating on its long-term, senior debt, the Company
has a targeted capitalization ratio of 20 to 30 percent. As of July 31, 1994,
the Company's capitalization ratio was 14.8 percent compared to 13.2 percent as
of July 31, 1993 and 17.9 percent as of July 31, 1992. In 1994, short-term debt
increased $9.8 million primarily due to the short-term borrowings in the
Company's Belgian Coordination Center. The additional debt was incurred to
provide hedging protection for that entity's foreign exchange denominated
receivables.
Currently, Fitch's maintains "A" ratings for certain of the Company's
long-term debt issues and an "F-1" rating for the Company's commercial paper.
FINANCIAL RESOURCES
The Company has financed most of its growth over the years with internally
generated funds. This trend should continue.
The Company currently has $10.0 million of domestic confirmed lines of
credit. The Company can also borrow domestically under various uncommitted bank
lines of credit. Overseas subsidiaries may borrow under various foreign currency
denominated bank facilities.
As of July 31, 1994, the Company had no outstanding domestic short-term
debt. In 1994, the Company borrowed up to $8.0 million. In 1993 and 1992, the
Company did not borrow. Overseas subsidiary borrowings were as high as $14.1
million in 1994, $6.9 million in 1993 and $6.4 million in 1992.
CASH FLOWS
In 1994, the Company's cash position declined $9.2 million
compared to a $1.0 million increase in 1993 and a $4.0 million decrease in 1992.
Cash flows in 1994 were impacted by a $9.6 million increase in capital
expenditures (See Capital Expenditures), a $14.8 million increase in working
capital and a $7.4 million increase in the Company's stock repurchase program.
These increases were somewhat offset by a $9.1 million increase in the Company's
short-term debt (See Capital Structure).
Excluding cash, working capital increased $14.8 million in 1994. This
compares to a $2.8 million decline in 1993 and a $5.7 million increase in 1992.
The increase in 1994 primarily relates to increased accounts receivable and
inventories offset by increased accounts payable, accrued employee compensation
and accrued diesel particulate trap warranty reserves. The decline in 1993
relates to improved accounts receivable and inventory management; the increase
in 1992 primarily reflects the Company's sales activity during the year.
In 1994, accounts receivable and inventories increased $15.4 million and
$10.0 million, respectively. Days Sales Outstanding (DSO) rose by five days from
65 days to 70 days. The increase in DSO primarily relates to extended terms on
gas turbine filtration sales in Europe and on engine product sales in the Far
East. Inventory turns improved from 5.6 to 6.6 turns during the year.
In 1994, the Company repurchased 835,200 shares of common stock in the open
market at a cost of $17.5 million, or an average cost of $20.90 per share. The
Company repurchased $10.0 million and $7.6 million of its shares in 1993 and
1992, respectively.
In March of this year, the Company's Board of Directors approved an increase
in the existing stock repurchase authorization of 600,000 shares to 1,600,000
shares. Since year end, the Company has not been active in the market and still
has authorization to repurchase an additional 864,400 shares.
CAPITAL EXPENDITURES
Net capital expenditures totaled $24.6 million, $15.0 million and $15.5 million
in 1994, 1993 and 1992, respectively. The increase in 1994 over the planned
expenditures of $19.0 million includes the building of the Rensselaer
distribution center and initial purchases related to the implementation of a new
integrated business information system.
Capital spending in 1995 is planned to be $25.0 million. Significant
expenditures include the expansion of the Company's Stevens Point facility, the
addition of a new production line at the Cresco facility and continued purchases
related to the new integrated business information system. It is anticipated
that the total expenditures will be funded from internal cash flow.
FOREIGN CURRENCY EXPOSURE
To protect the Company's overseas profits from foreign exchange fluctuations,
the Company utilizes flexible pricing, local sourcing and, when appropriate,
hedging. The Company's hedging policy is to cover all material foreign currency
transaction exposures, including sales and purchase commitments. As appropriate,
the Company hedges its current year overseas subsidiary dividends and royalty
payments. The Company has a policy not to hedge its translation, or balance
sheet, exposures.
In 1994, the Company's overseas sales and net earnings were negatively
impacted by foreign exchange fluctuations, and the Company reported $1.3 million
of foreign exchange transaction losses. The losses were almost entirely
attributable to the Company's Brazilian operations for which relevant hedging
strategies were too expensive.
In 1993, the Company's overseas sales and net earnings were favorably
impacted by foreign exchange fluctuations. The Company did, however, report
foreign exchange transaction losses of $1.8 million. These losses primarily
relate to intercompany transactions. For the year, these losses were offset by
favorable purchase price variances in Europe and increased factoring fees in the
Company's Belgian Coordination Center.
FASB ACCOUNTING RULE CHANGE
Effective August 1, 1993, the Company adopted Financial Accounting Standards
Board Statement No. 109, "Accounting for Income Taxes" (FAS 109), which requires
adoption of a liability approach to account for the effects of income taxes. The
cumulative effect of adopting FAS 109 was to increase net earnings by $2.2
million, or 8 cents per share.
When the Company adopted FAS 109, it also changed its accounting for taxes
on the undistributed earnings of its overseas subsidiaries. Beginning in 1994,
the Company no longer accrues U.S. taxes on its overseas undistributed earnings
which are deemed to be indefinitely reinvested. Therefore, the Company's
effective income tax rate reflects the difference between the effective overseas
tax rate compared to the domestic statutory tax rate.
Worldwide Sales By Market
(In millions) 1994 1993 1992
---- ---- ----
Construction $140.0 $120.3 $113.4
Transportation 110.9 92.8 78.6
Agriculture 37.0 31.5 28.6
Aftermarket 84.0 75.0 68.8
Defense 13.7 20.2 25.6
Exhaust Filtration 6.0 12.2 3.7
--- ---- ---
Engine Products $391.6 $352.0 $318.7
====== ====== ======
Dust Collection $ 87.5 $ 84.5 $ 75.3
Gas Turbine Systems 67.5 52.3 41.1
High Purity Products 46.9 44.5 47.0
---- ---- ----
Industrial Products $201.9 $181.3 $163.4
====== ====== ======
Consolidated Net Sales $593.5 $533.3 $482.1
====== ====== ======
1994 COMPARED TO 1993
Consolidated net sales of $593.5 million were up 11 percent from prior year
sales of $533.3 million. For the year, both Engine Products and Industrial
Products sales were up 11 percent.
Domestic sales were up 14 percent, the same as the prior year, with both
Engine and Industrial Products up the same percentage. Diesel engine original
equipment manufacturers (OEM) sales were up 24 percent, with strong growth in
both the construction, industrial, mining and agriculture (CIMA) and
transportation markets. Diesel engine aftermarket sales were up l8 percent.
Defense sales declined 32 percent but have been flat throughout the year.
Exhaust filtration sales reflect the final shipments of diesel particulate traps
in the first half of the year. Industrial Products sales growth was led by gas
turbine filtration sales, up 33 percent. Dust collection sales were up 11
percent. Including the additional sales from ENV Services, Inc., high purity
products sales were up 6 percent year over year.
Overseas sales in 1994 were up 7 percent -- 6 percent in local currencies --
with Engine Products sales up 6 percent and Industrial Products sales up 9
percent. Overseas sales growth was led by a 29 percent increase in gas turbine
filtration sales and a 12 percent increase in diesel engine aftermarket sales.
High purity products sales were up 4 percent, led by a 14 percent increase in
disk drive sales. Due to the continuing economic slowdown in Germany and Japan,
dust collection sales were down 11 percent year over year.
In the year, the Company wrote down certain of its Brazilian capital assets
by $3.2 million. The write down relates to the continuing economic and political
uncertainties in Brazil and the resulting losses being incurred by the Company's
Brazilian operations. The asset impairment was charged to cost of sales.
Total backlogs of $158.4 million were up 21 percent from the prior year end.
Strong increases were reported for diesel engine OEM and dust collection
businesses, both domestic and overseas. After several years of significant
growth, domestic gas turbine systems backlogs declined in 1994. Continuing prior
year trends, defense backlogs again declined in 1994. Hard order backlogs, goods
scheduled for delivery within 90 days, of $106.1 million were up 20 percent
compared to the prior year.
For the year, gross margins declined from 28.5 percent in 1993 to 28.1
percent in 1994. However, excluding the Brazilian capital asset write down,
which was charged to cost of sales, gross margins improved slightly to 28.6
percent. Margins significantly improved in both domestic diesel engine OEM and
aftermarket, with domestic OEM margins up almost 2 percentage points. These
increases were offset by a 2 percentage point decline in gas turbine filtration
margins, which reflects a significant increase in lower margin first fit
production sales.
Operating expenses increased $7.5 million year over year, or 7 percent,
declining from 20.1 percent of sales in 1993 to 19.3 percent of sales in 1994.
For the year, warranty expenses related to the diesel particulate trap increased
$1.3 million to $6.2 million. Excluding the trap warranty expenses, operating
expenses would have been 18.3 percent of sales in 1994 compared to 19.2 percent
in 1993.
Interest expense increased in the year, primarily due to increased borrowings
by the Company's Belgian Coordination Center (See Capital Structure). Other
income of $1.5 million declined $.7 million as the improvement in interest
income was more than offset by an increase in other expense in the overseas
entities. The increase overseas included retirement-related expenses in Japan
and Belgium.
With the adoption of FAS 109 in 1994, comparison of the current year
effective income tax rate of 36.3 percent to prior years is not relevant (See
FASB Accounting Rule Change). The 1994 effective rate is equal to the U.S.
statutory rate plus state income taxes less the tax benefit derived from the
Company's Foreign Sales Corporation. The effective overseas tax rate
approximated the U.S. statutory rate.
In 1994, overseas sales totaled 34 percent of consolidated net sales,
slightly down from 36 percent the prior year. Overseas operating income totaled
50 percent of consolidated operating income, up slightly from 47 percent the
prior year. 1994 overseas results were impacted by $1.7 million of operating
losses in Brazil, while domestic results were negatively impacted by the
recognition of additional accrued warranty expense related to the diesel
particulate trap.
1993 COMPARED TO 1992
Consolidated net sales of $533.3 million were up 11 percent from the prior
year's sales of $482.1 million. For the year, Engine Product sales were up 10
percent and Industrial Products sales were up 11 percent.
Domestic sales were up 14 percent with Engine Products sales up 13 percent.
The Company's sales to diesel engine OEMs rose 16 percent, led by a 27 percent
increase in the transportation market. Defense sales were down 21 percent as
defense procurements have continued to decline since Desert Storm and subsequent
reductions in the defense budget. Industrial Products sales increased 17
percent. Gas turbine filtration sales were up 26 percent and dust collection
sales were up 16 percent. Excluding acquisitions, high purity products sales
were flat year over year.
Overseas sales were up 5 percent in the year -- 2 percent in local currencies
- - -- with Engine Products sales up 6 percent and Industrial Product sales up 2
percent. Gas turbine filtration sales increased 28 percent, diesel engine
aftermarket sales 13 percent, dust collection sales 5 percent and diesel engine
OEM sales 4 percent. High purity products sales declined 28 percent as disk
drive filter sales declined almost 40 percent year over year.
In September 1993, the Company announced it was no longer accepting new
orders for diesel particulate traps. The Company will meet all current order
commitments and warranty obligations.
Total backlogs of $130.9 million were up 1 percent from the prior year. Gas
turbine filtration backlogs were up significantly with strong order flows both
domestically and overseas. Defense and diesel engine OEM backlogs were down year
over year. Hard-order backlogs of $88.2 million were down 1 percent compared to
the prior year.
For the year, gross margins improved to 28.5 percent in 1993 from 27.7
percent in 1992. Year over year, Industrial Products gross margins improved 1.6
percentage points as high purity products margins improved 4.3 percentage points
and gas turbine filtration margins improved 1.6 percentage points. Engine
Products margins declined .4 percentage points. Increases in defense and exhaust
filtration gross margins did not offset a 2.9 percentage point decline in
aftermarket margins as the Company reported significantly lower diesel engine
aftermarket gross margins overseas.
Operating expenses increased $14.7 million year over year, or 16 percent,
increasing from 19.2 percent of sales in 1992 to 20.1 percent of sales in 1993.
The increases were primarily related to increased marketing and warranty
expenses for the diesel particulate trap. For the year, trap warranty expenses
of $4.8 million were $2.8 million more than in 1992. Excluding the warranty
expenses, operating expenses would have been 19.2 percent of sales in 1993 and
18.7 percent of sales in 1992.
Other income declined to $2.2 million in 1993 from $3.2 million in 1992.
Profitability improvement at AFSI was offset by foreign exchange losses and
lower interest income due to declining interest rates. Interest expense was
unchanged year over year.
The Company's effective income tax rate declined from 38.2 percent in 1992
to 36.9 percent in 1993. The decline related to continued profit improvement at
AFSI, whose income is basically untaxed due to tax loss carryforwards, and
reduced profitability in Germany and Japan, the Company's two highest tax rate
subsidiaries.
In 1993, overseas sales totaled 36 percent of consolidated net sales,
slightly down from 38 percent the prior year. Overseas operating income totaled
47 percent of consolidated operating income, down significantly from 58 percent
the prior year. Results in 1993 were impacted by recessions in Europe and Japan
and $1.9 million of operating losses reported in Brazil.
Consolidated Statements of Earnings
Donaldson Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year ended July 31
(Thousands of dollars except per share amounts) 1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 593,503 $ 533,327 $ 482,104
Cost of sales 426,904 381,091 348,530
------- ------- -------
Gross Margin 166,599 152,236 133,574
Selling, general and administrative 103,647 95,626 82,002
Research and development 10,873 11,364 10,323
Interest expense 3,362 2,723 2,681
Other (income) (1,476) (2,159) (3,153)
------ ------ ------
Total Expenses 116,406 107,554 91,853
------- ------- ------
Earnings Before Income Taxes 50,193 44,682 41,721
Income taxes 18,244 16,468 15,952
------ ------ ------
Earnings Before Cumulative Effect
of Accounting Change 31,949 28,214 25,769
Cumulative effect of accounting change 2,206 -- --
------ ------ ------
Net Earnings $ 34,155 $ 28,214 $ 25,769
=========== =========== ===========
Earnings per share
Earnings before cumulative effect of accounting change $ 1.17 $ 1.01 $ .92
Cumulative effect of accounting change .08 -- --
------ ------ ------
Net Earnings Per Share $ 1.25 $ 1.01 $ .92
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
Consolidated Statements of Financial Position
Donaldson Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
July 31
(Thousands of dollars) 1994 1993
----------- -----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 22,945 $ 32,110
Accounts receivable, net 122,167 103,320
Inventories
Materials 27,430 23,248
Work in process 8,521 7,615
Finished products 24,294 18,062
------ ------
Total Inventories 60,245 48,925
Prepaids and other 14,951 11,659
------ ------
Total Current Assets 220,308 196,014
Property, Plant and Equipment
Land 6,298 5,962
Buildings 81,683 74,742
Machinery and equipment 166,666 148,790
Construction in progress 4,276 4,353
----- -----
Property, Plant and Equipment, at Cost 258,923 233,847
Less accumulated depreciation 159,364 143,332
------- -------
Property, Plant and Equipment, Net 99,559 90,515
Other Assets 17,493 13,688
------ ------
Total Assets $ 337,360 $ 300,217
=========== ===========
Liabilities and Shareholders' Equity
Current Liabilities
Short-term debt $ 14,073 $ 4,238
Current maturities of long-term debt 2,883 3,357
Trade accounts payable 44,541 38,235
Accrued employee compensation and related taxes 19,755 16,799
Income taxes payable 3,195 4,983
Other current liabilities 31,310 26,054
------ ------
Total Current Liabilities 115,757 93,666
Long-Term Debt 16,028 18,920
Deferred Income Taxes 2,248 2,060
Other Long-Term Liabilities 13,630 11,563
Shareholders' Equity
Preferred stock, $1.00 par value,
1,000,000 shares authorized, no shares issued -- --
Common stock, $5.00 par value, 40,000,000 shares
authorized, 27,063,407 and 13,927,274 issued in 1994 and 1993 135,317 69,636
Capital surplus -- 1,284
Retained earnings 65,654 117,293
Cumulative translation adjustments 8,244 5,646
Treasury common stock--552,951 and 286,205
shares in 1994 and 1993, at cost (11,853) (9,876)
Receivable from ESOP (7,665) (9,975)
------ ------
Total Shareholders' Equity 189,697 174,008
------- -------
Total Liabilities and Shareholders' Equity $ 337,360 $ 300,217
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
Donaldson Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year ended July 31
(Thousands of dollars) 1994 1993 1992
Operating Activities
<S> <C> <C> <C>
Net earnings $ 34,155 $ 28,214 $ 25,769
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation and amortization 16,365 14,752 14,047
Cumulative effect of accounting change (2,206) -- --
Brazilian asset write down 3,200 -- --
Equity in earnings of affiliates (3,743) (3,498) (1,880)
Deferred taxes (2,844) 657 (446)
Other 1,235 (309) (770)
Changes in operating assets and liabilities
Accounts receivable (15,380) (2,687) (7,249)
Inventories (10,029) (4,337) (3,391)
Prepaids and other current assets (1,315) (1,365) 2,524
Accounts payable, accruals
and income taxes payable 11,945 11,155 2,425
------ ------ -----
Net Cash Provided by Operating Activities 31,383 42,582 31,029
Investing Activities
Net expenditures on property, plant and equipment (24,642) (15,005) (15,538)
Acquisitions and investments in affiliates (6,437) (10,451) (6,607)
Proceeds from disposition of Envirco -- 2,782 --
Dividends from affiliate 3,550 4,250 --
------ ------ -----
Net Cash Used in
Investing Activities (27,529) (18,424) (22,145)
Financing Activities
Repayment of long-term debt (3,416) (5,681) (2,829)
Net change in short-term debt 9,098 (1,766) 1,033
Payment received from ESOP 2,310 2,100 1,995
Purchase of common stock (17,471) (10,044) (7,635)
Dividends paid (6,745) (5,666) (5,230)
Exercise of stock options (148) (3,143) (1,631)
---- ------ ------
Net Cash Used in
Financing Activities (16,372) (24,200) (14,297)
Effect of exchange rate changes on cash 3,353 1,056 1,416
----- ----- -----
(Decrease) Increase in Cash and
Cash Equivalents (9,165) 1,014 (3,997)
Cash and cash equivalents at beginning of year 32,110 31,096 35,093
------ ------ ------
Cash and Cash Equivalents at
End of Year $ 22,945 $ 32,110 $ 31,096
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
Consolidated Statements of Changes in Shareholders' Equity
Donaldson Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Cumulative Treasury Total
(Thousands of dollars Common Capital Retained Translation Common Receivable Shareholders'
except per share amounts) Stock Surplus Earnings Adjustments Stock from ESOP Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance July 31, 1991 $ 48,205 $ 1,849 $ 114,547 $ 1,114 $ (12,698) $ (14,070) $ 138,947
--------- --------- --------- --------- --------- --------- ---------
Treasury stock acquired (7,635) (7,635)
Stock options exercised 281 (416) (3,779) 2,283 (1,631)
Payment received from ESOP 1,995 1,995
Performance awards (1,285) 223 1,106 44
Tax reduction--employee plans 2,349 2,349
Net earnings 25,769 25,769
Translation adjustments 5,709 5,709
Three-for-two stock split 20,436 (674) (36,720) 16,944 (14)
Dividends paid--$.19 per share (5,230) (5,230)
--------- --------- --------- --------- --------- --------- ---------
Balance July 31, 1992 68,922 1,823 94,810 6,823 -- (12,075) 160,303
--------- --------- --------- --------- --------- --------- ---------
Treasury stock acquired (10,044) (10,044)
Stock options exercised 714 (3,951) (67) 161 (3,143)
Payment received from ESOP 2,100 2,100
Performance awards 2 7 9
Tax reduction--employee plans 3,412 3,412
Net earnings 28,214 28,214
Translation adjustments (1,177) (1,177)
Dividends paid--$.20 per share (5,666) (5,666)
--------- --------- --------- --------- --------- --------- ---------
Balance July 31, 1993 69,636 1,284 117,293 5,646 (9,876) (9,975) 174,008
--------- --------- --------- --------- --------- --------- ---------
Treasury stock acquired (17,471) (17,471)
Stock options exercised 10 176 (1,429) 1,095 (148)
Payment received from ESOP 2,310 2,310
Performance awards 28 2 14 44
Tax reduction--employee plans 946 946
Net earnings 34,155 34,155
Translation adjustments 2,598 2,598
Two-for-one stock split 65,671 (2,434) (77,622) 14,385 --
Dividends paid--$.25 per share (6,745) (6,745)
--------- --------- --------- --------- --------- --------- ---------
Balance July 31, 1994 $ 135,317 $ -- $ 65,654 $ 8,244 $ (11,853) $ (7,665) $ 189,697
=== ==== ========= ========= ========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of Donaldson Company, Inc. and all majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated. The
accounts of overseas subsidiaries are included for fiscal years ended June 30.
Certain amounts in prior periods have been reclassified to conform to the
current presentation.
Foreign Currency Translation: Foreign assets and liabilities are generally
translated using the year-end rates of exchange. Results of operations are
translated using the average rates prevailing throughout the period. Translation
gains or losses, net of applicable deferred taxes, are accumulated as a separate
component of shareholders' equity. Foreign currency transaction (losses)/gains
of $(1,337,000), $(1,790,000) and $918,000, in 1994, 1993 and 1992,
respectively, are included in earnings before income taxes.
Cash Equivalents: The Company considers all highly liquid investments with a
maturity of 90 days or less when purchased to be cash equivalents. Cash
equivalents are carried at cost which approximates market value.
Inventories: Inventories are stated at the lower of cost or market, determined
by the last-in, first-out (LIFO) method, except for certain of the Company's
overseas subsidiaries which use the first-in, first-out (FIFO) method.
Inventories valued at LIFO were 60 and 63 percent of total inventories at July
31, 1994 and 1993, respectively.
The current cost of inventories valued under the LIFO method exceeded their
LIFO carrying values by $18,635,000 and $18,172,000 at July 31, 1994 and 1993,
respectively.
Property, Plant and Equipment: Property, plant and equipment is stated at cost.
Depreciation is computed principally by use of declining balance methods on
facilities and equipment acquired on or prior to July 31, 1992. For financial
reporting purposes, the Company adopted the straight line depreciation method
for all property acquired after July 31, 1992. The effect of the change was not
material to the 1993 financial results. Depreciation expense includes the
amortization of capital lease assets.
The estimated useful lives of property, plant and equipment are as follows:
Buildings 10 to 40 years
Machinery and Equipment 3 to 10 years
Income Taxes: Income taxes are provided based on earnings reported for financial
statement purposes. The provision for income taxes differs from the amounts
currently payable because of temporary differences in the recognition of certain
assets and liabilities for financial reporting and tax reporting purposes.
Deferred taxes are recorded based on enacted tax laws and tax rates. Changes in
enacted tax rates are reflected in the income tax provision as they occur.
Effective August 1, 1993, the Company adopted Financial Accounting Standards
Board Statement No. 109, "Accounting for Income Taxes" (FAS 109). As permitted
under the new Statement, prior years' financial statements have not been
restated. Income taxes in 1993 and 1992 were computed using the deferred method.
Net Earnings Per Share: Net earnings per common share is based on the weighted
average number of common shares and share equivalents outstanding during the
respective years.
Treasury Common Stock: Repurchased Common Stock is
stated at cost and is presented as a separate reduction of shareholders' equity.
NOTE B ACQUISITIONS AND INVESTMENTS
During 1994, the Company increased its investment in Donaldson Micro Pore
Mexico, S.A. de C.V. from 40 percent to 50 percent, obtained a 40 percent
interest in an Australian dust collection distributor, invested in a gas turbine
system joint venture in India, created a dust collection subsidiary in Mexico
and completed an acquisition of a high purity products materials supplier
located in the United States.
During 1993, the Company completed two acquisitions. On September 24, 1992,
Donaldson do Brasil, Ltda., acquired all of the common stock of Filtrobras-Roma
Filtros Automotivos Ltda. (Roma), a liquid filtration manufacturer located in
Sao Paulo, Brazil. On December 28, 1992, the Company purchased all of the common
stock of ENV Services, Inc. (ENV), an air quality testing and monitoring service
firm located in Philadelphia, Pennsylvania. In connection with the ENV
acquisition, the Company also purchased the Envirco Division of Environmental
Air Control, Inc. with the intent to sell the business. On February 12, 1993,
the divestiture was completed.
During 1992, the Company completed two acquisitions. On November 25, 1991,
Donaldson Europe, N.V., acquired all of the common stock of Gimetal N.V., a
sheet metal vendor located in Gistel, Belgium. On May 19, 1992, Donaldson Italia
s.r.l. acquired all of the common stock of FBO s.r.l., a hydraulic filter
manufacturer located in Ostiglia, Italy.
All acquisitions have been accounted for as purchases and, accordingly, their
net assets and operating results are included in the Company's financial
statements from the respective dates of acquisition. The pro forma impact of the
acquisitions on the Company's results of operations for all years presented was
not material.
NOTE C SHORT-TERM DEBT
The Company has domestic lines of credit at July 31, 1994 of $10,000,000 which
provide for borrowing amounts at or below the prime rate. Commitment fees of 20
basis points per annum are payable on the unused amounts. There were no amounts
outstanding under these lines of credit at July 31, 1994 or 1993.
Overseas subsidiaries may borrow under various uncommitted facilities. As of
July 31, 1994 and 1993, borrowings under these facilities were $14,073,000 and
$4,238,000, respectively.
NOTE D LONG-TERM DEBT
Long-term debt consists of the following:
(Thousands of dollars) 1994 1993
---- ----
ESOP promissory note due in increasing
annual installments through 1997. Interest
rate is either 82 percent of prime or
91 percent of the adjusted CD rate $ 7,665 $ 9,975
6 3/8 percent mortgage due 2002 1,000 1,000
7 percent note due in 2008 500 1,000
11 1/8 percent note due
in five annual installments
of $670 beginning 2008 3,350 3,350
Other 519 650
--- ---
Total Notes 13,034 15,975
Capitalized leases 5,877 6,302
----- -----
Total 18,911 22,277
Less current maturities 2,883 3,357
----- -----
Total Long-Term Debt $16,028 $18,920
======= =======
Annual maturities of long-term debt for the next five years are $2,883 in 1995,
$2,988 in 1996, $3,213 in 1997, $516 in 1998 and $492 in 1999.
Total interest paid relating to all debt was $2,906,000, $2,577,000 and
$2,616,000 in 1994, 1993 and 1992, respectively.
Certain note agreements contain debt covenants related to working capital
levels and limitation on indebtedness. Further, the Company is restricted from
paying dividends or repurchasing Common Stock if its tangible net worth (as
defined) does not exceed certain minimum levels. At July 31, 1994, under the
most restrictive agreement, tangible net worth exceeded the minimum by
$66,790,000.
NOTE E CAPITALIZED LEASES
The Company leases several production facilities under long-term leases and has
the option to purchase the facilities for a nominal cost at the termination of
the lease.
Included in property, plant and equipment are the following assets held under
capital leases:
(Thousands of dollars) 1994 1993
---- ----
Land $ 242 $ 242
Buildings 11,081 11,081
Machinery and equipment 2,356 2,356
----- -----
Subtotal 13,679 13,679
Less accumulated amortization 7,283 7,034
----- -----
Total $ 6,396 $6,645
======= ======
Future minimum lease payments for assets under capital leases at July 31, 1994
are as follows:
(Thousands of dollars)
1995 $ 844
1996 838
1997 839
1998 839
1999 790
Thereafter 4,900
-----
Total minimum lease payments 9,050
Less amount representing interest 3,173
-----
Present value of net minimum lease payments 5,877
Less current maturities 347
---
Long-Term Obligation $5,530
======
NOTE F EMPLOYEE BENEFIT PLANS
Pension Plans: Donaldson Company, Inc. and certain of its subsidiaries have
defined benefit pension plans for substantially all hourly and salaried
employees. The domestic plans provide benefits based on the employee's years of
service and compensation during the years immediately preceding retirement. The
overseas plans generally provide similar types of benefits.
The Company's general funding policy is to make contributions as required by
applicable regulations. The assets are primarily invested in diversified
portfolios comprised of equity and debt securities.
Cost for the Company's pension plans includes the following components:
(Thousands of dollars) 1994 1993 1992
---- ---- ----
Service cost $ 4,187 $ 3,769 $ 3,371
Interest cost on projected
benefit obligation 5,504 5,050 4,624
Actual return on plan assets (3,608) (7,310) (5,160)
Net amortization and deferral (3,015) 1,178 (680)
------ ----- ----
Net Periodic Pension Expense $ 3,068 $ 2,687 $ 2,155
======= ======= =======
The funded status of the Company's pension plans as of July 31, 1994 and 1993,
is as follows:
(Thousands of dollars) 1994 1993
---- ----
Plan assets at fair value $ 69,313 $ 65,414
Accumulated benefit obligation:
Vested (55,710) (50,262)
Nonvested (2,201) (1,976)
Provision for future salary increases (15,206) (13,382)
------- -------
Plan assets less than projected
benefit obligation (3,804) (206)
Unrecognized net loss 5,684 3,718
Unrecognized prior service cost 1,721 3,616
Unrecognized net transition asset (7,133) (11,446)
------ -------
Accrued Pension Liability $ (3,532) $ (4,318)
======== ========
Assumptions used to develop pension data were:
1994 1993 1992
---- ---- ----
Discount rate 8.0% 8.0% 8.5%
Rate of compensation increases 5.5% 5.5% 6.5%
Expected long-term rate of return 9.0% 9.0% 9.0%
Employee Stock Ownership Plan: In 1987, the Company established an Employee
Stock Ownership Plan (ESOP) for eligible U.S. employees. The ESOP borrowed $21
million from the Company to purchase newly issued shares of Common Stock. The
loan obligation of the ESOP is considered unearned employee benefit expense and,
as such, is recorded as a reduction of the Company's shareholders' equity. The
Company's contributions to the ESOP, plus dividends paid on unallocated Common
Stock held by the ESOP, are used to repay the loan principal and interest. Both
the loan obligation and the unearned benefit expense are reduced by the amount
of loan principal repayments made by the ESOP. The ESOP contribution expense
totaled $2,020,000, $1,745,000 and $1,590,000 in 1994, 1993 and 1992,
respectively.
NOTE G EMPLOYEE INCENTIVE PLANS
In November 1991, shareholders approved the 1991 Master Stock Compensation Plan.
The Plan extends through December 2001 and allows for the granting of
nonqualified stock options, incentive stock options, restricted stock, stock
appreciation rights (SARs), dividend equivalents, dollar-denominated awards and
other stock-based awards.
The 1980 Master Stock Compensation Plan allows for the granting of
nonqualified stock options and incentive stock options.
Both plans allow for the granting of performance awards to a limited number
of key executives. The awards are payable in Common Stock and are based on a
formula which measures performance of the Company over a three year period.
Performance award expense totaled $57,000, $19,000 and $14,000 in 1994, 1993 and
1992, respectively.
Options under both Plans are granted to key employees at or above 100 percent
of the market price at the date of grant. Options are exercisable for up to 10
years from the date of grant.
The number and option price of options granted under these plans were as
follows:
Options Option Price
Outstanding Per Share
----------- ----------------
Outstanding at July 31, 1992 1,595,738 $ 4.62 / $14.56
Exercised (922,812) 4.62 / 12.54
Granted 784,786 17.81 / 18.56
------- ----- -----
Outstanding at July 31, 1993 1,457,712 4.62 / 18.56
Cancelled (750) 12.54
Exercised (212,446) 4.62 / 18.06
Granted 330,330 18.87 / 23.56
------- ----- -----
Outstanding at July 31, 1994 1,574,846 $ 4.62 / $23.56
========= ======= ======
At July 31, 1994 and 1993 there were 1,459,910 and 1,319,224 options
exercisable, respectively. Shares reserved for future grants at July 31, 1994
were 1,072,144.
NOTE H INCOME TAXES
Effective August 1, 1993, the Company changed its method of accounting for
income taxes to comply with Financial Accounting Standards Board Statement No.
109, "Accounting for Income Taxes" (FAS 109). The new Statement requires a
liability approach for computing income taxes. As permitted under the new
Statement, prior years' financial statements have not been restated. The
cumulative effect of adopting FAS 109 was to increase net earnings by $2,206,000
($.08 per share).
The components of earnings before income taxes are as follows:
(Thousands of dollars) 1994 1993 1992
---- ---- ----
United States $37,781 $33,474 $25,110
Overseas 12,412 11,208 16,611
------ ------ ------
Total $50,193 $44,682 $41,721
======= ======= =======
The components of the provision for income taxes are as follows:
(Thousands of dollars) 1994 1993 1992
---- ---- ----
Current:
Federal $12,897 $ 9,271 $ 8,191
State 1,536 1,438 1,267
Overseas 6,655 5,102 6,940
----- ----- -----
Total Current 21,088 15,811 16,398
------ ------ ------
Deferred:
Federal (2,353) 95 (816)
State (202) -- --
Overseas (289) 562 370
---- --- ---
Total Deferred (2,844) 657 (446)
------ --- ----
Total Income Taxes $18,244 $16,468 $15,952
======= ======= =======
Significant components of deferred tax assets and liabilities at July 31, 1994
are as follows:
(Thousands of dollars)
Deferred Tax Assets:
Compensation and retirement plans $ 5,417
Accrued expenses 5,372
Brazilian asset write down 1,216
Tax loss and tax credit carryforwards 273
Other 5,449
-----
Gross Deferred Tax Assets 17,727
------
Deferred Tax Liabilities:
Depreciation and amortization (4,895)
Cumulative translation adjustment (4,440)
Other (2,262)
------
Gross Deferred Tax Liabilities (11,597)
-------
Net Deferred Tax Assets $ 6,130
=========
The components of the provision for deferred income taxes for 1993 and 1992 are
as follows:
(Thousands of dollars) 1993 1992
---- ----
Accrued expenses $ 220 $(693)
Depreciation and amortization 1,049 122
Compensation and retirement plans (509) (352)
Other (103) 477
---- ---
Deferred Income Tax Expense $ 657 $(446)
====== =====
A reconciliation of the statutory U.S. federal income tax rate to the effective
income tax rate is as follows:
1994 1993 1992
---- ---- ----
Statutory U.S. federal rate 35.0% 34.0% 34.0%
State income taxes 2.0 2.1 2.0
Effect of overseas operations (.2) 1.7 3.7
Earnings of affiliates (.7) (2.0) (1.6)
Tax credits -- (.4) (.4)
Other .2 1.5 .5
-- -- --
Effective Income Tax Rate 36.3% 36.9% 38.2%
==== ==== ====
At July 31, 1994, certain overseas subsidiaries had available net operating loss
carryforwards of approximately $662,000, which may be used indefinitely to
offset future taxable income. Unremitted earnings of overseas subsidiaries
amounted to approximately $51,100,000 at July 31, 1994. Those earnings are
intended to be indefinitely reinvested and, accordingly, no income taxes have
been provided. If a portion were to be remitted, income tax credits would
substantially offset any resulting tax liability. It is not practicable to
estimate the amount of unrecognized taxes on these undistributed earnings due to
the complexity of the computation.
The Company made cash payments for income taxes of $20,557,000, $6,875,000,
and $16,233,000 in 1994, 1993 and 1992, respectively.
NOTE I SHAREHOLDERS' EQUITY
On January 21, 1994, the Company's Board of Directors authorized a two-for-one
stock split effected in the form of a 100 percent stock dividend, payable April
6, 1994 to shareholders of record March 16. The split resulted in the issuance
of 13,134,162 new shares of Common Stock and the reissuance of 396,556 shares of
Common Stock held in treasury. On May 20, 1992, the Company's Board of Directors
authorized a three-for-two stock split effected in the form of a stock dividend,
payable July 10, 1992 to shareholders of record June 19. The split resulted in
the issuance of 8,174,294 new shares of Common Stock and the reissuance of
979,644 shares of Common Stock held in treasury. All references in the financial
statements to average numbers of shares outstanding and related prices, per
share amounts, and Stock Option Plan data have been restated to reflect the
splits.
Non-voting rights, authorized by the Board of Directors, were distributed as
a dividend to stockholders of record as of March 4, 1986 at the rate of one
right for each outstanding share of Common Stock. As a result of the two-for-one
stock split of the Company's Common Stock, effective May 2, 1988, and the
three-for-two and the two-for-one stock splits discussed above, the rights
associated with each share of Common Stock have been proportionately adjusted so
that each share of Common Stock is now accompanied by one-sixth of a right
instead of a full right. Under certain conditions, each full right may be
exercised to purchase one one-hundredth of a newly issued share of Series A
Junior Participating Preferred Stock at an exercise price of $85.
Generally, except for acquisitions of Common Stock pursuant to a tender or
exchange offer found to be fair to shareholders by the Company's independent
directors, the rights become exercisable if a person or group acquires
beneficial ownership of 15 percent or more of the Common Stock or commences a
tender or exchange offer the consummation of which would result in such person
or group beneficially owning 15 percent or more of the Common Stock.
If any person becomes the beneficial owner of 15 percent or more of the
Common Stock, or the Company is the surviving corporation in a merger with a 15
percent-or-more stockholder and its Common Stock is not changed, or a 15
percent-or-more stockholder engages in certain self-dealing transactions with
the Company, each right not held by such person or related parties will entitle
its holder to purchase shares of Company Common Stock having a value of twice
the right's then current exercise price. If after a person or group acquires
beneficial ownership of 15 percent or more of the Common Stock or the Company is
acquired in a merger or business combination, each right may be exercised to
purchase common stock of the surviving company having a value of twice the
right's then current exercise price.
The rights, which expire March 4, 1996, may be redeemed by the Company at 10
cents per right at any time until 15 days following a public announcement that a
15 percent position has been acquired.
NOTE J SEGMENT INFORMATION
The Company has one business segment which consists of the design,
manufacture and sale of filtration products. The table below sets forth
information about operations in different geographic areas:
<TABLE>
<CAPTION>
United Other
(Thousands of dollars) States Europe Japan Countries Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C>
1994
Sales to customers $391,234 $ 87,945 $70,981 $43,343 $ -- $593,503
Sales between geographic areas 21,839 496 1,911 1,502 (25,748) --
-------- -------- ------- ------- -------- --------
Net Sales $413,073 $ 88,441 $72,892 $44,845 $(25,748) $593,503
======== ======== ======= ======= ======== ========
Operating Income $ 26,112 $ 11,510 $ 8,175 $ 6,446 $ (164) $ 52,079
======== ======== ======= ======= ======== ========
Identifiable Assets
Accounts receivable, net $ 60,179 $ 26,408 $27,768 $ 7,462 $ 350 $122,167
Other 88,858 84,280 29,173 17,978 (37,793) 182,496
-------- -------- ------- ------- -------- --------
Total identifiable assets $149,037 $110,688 $56,941 $25,440 $(37,443) $304,663
General corporate assets 32,697
-------- -------- ------- ------- -------- --------
Total Assets $337,360
======== ======== ======= ======= ======== ========
1993
Sales to customers $342,890 $ 81,305 $64,378 $44,754 $ -- $533,327
Sales between geographic areas 18,909 567 1,453 366 (21,295) --
-------- -------- ------- ------- -------- --------
Net Sales $361,799 $ 81,872 $65,831 $45,120 $(21,295) $533,327
======== ======== ======= ======= ======== ========
Operating Income $ 23,754 $ 7,659 $ 7,352 $ 6,427 $ 54 $ 45,246
======== ======== ======= ======= ======== ========
Identifiable Assets
Accounts receivable, net $ 45,244 $ 22,878 $24,920 $ 9,969 $ 309 $103,320
Other 77,341 62,646 29,095 19,922 (36,302) 152,702
-------- -------- ------- ------- -------- --------
Total identifiable assets $122,585 $ 85,524 $54,015 $29,891 $(35,993) $256,022
General corporate assets 44,195
-------- -------- ------- ------- -------- --------
Total Assets $300,217
======== ======== ======= ======= ======== ========
1992
Sales to customers $300,359 $ 74,959 $65,785 $41,001 $ -- $482,104
Sales between geographic areas 18,430 987 985 447 (20,849) --
-------- -------- ------- ------- -------- --------
Net Sales $318,789 $ 75,946 $66,770 $41,448 $(20,849) $482,104
======== ======== ======= ======= ======== ========
Operating Income $ 17,151 $ 9,031 $ 7,834 $ 7,245 $ (12) $ 41,249
======== ======== ======= ======= ======== ========
Identifiable Assets
Accounts receivable, net $ 44,296 $ 22,405 $24,320 $ 8,118 $ -- $ 99,139
Other 73,763 62,606 27,266 16,305 (26,692) 153,248
-------- -------- ------- ------- -------- --------
Total identifiable assets $118,059 $ 85,011 $51,586 $24,423 $(26,692) $252,387
General corporate assets 33,961
-------- -------- ------- ------- -------- --------
Total Assets $286,348
======== ======== ======= ======= ======== ========
</TABLE>
Sales between geographic areas are made at cost plus a proportionate share of
operating profit. General corporate assets include corporate cash and cash
equivalents and buildings and equipment used for corporate purposes. Sales to
one customer amounted to $69,107,000, $55,616,000 and $49,337,000 in 1994, 1993
and 1992, respectively.
Report of Independent Auditors
Shareholders and Board of Directors
Donaldson Company, Inc.
We have audited the accompanying consolidated statements of financial position
of Donaldson Company, Inc. and subsidiaries as of July 31, 1994 and 1993, and
the related consolidated statements of earnings, changes in shareholders' equity
and cash flows for each of the three years in the period ended July 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Donaldson Company,
Inc. and subsidiaries at July 31, 1994 and 1993, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended July 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note H, in 1994 the Company changed its method of accounting
for income taxes.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
September 9, 1994
Shareholder Information
Donaldson Company, Inc. and Subsidiaries
Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
(Thousands of dollars Net Gross Net Earnings Dividends
except per share amounts) Sales Margin Earnings Per Share Per Share
<S> <C> <C> <C> <C> <C>
1994
First Quarter $142,51 8 $ 40,536 $ 7,561 $ .27 $ .05
9,767(1) .35(1)
Second Quarter 135,577 37,904 6,238 .23 .06
Third Quarter 153,930 42,137 9,709 .36 .07
Fourth Quarter 161,478 46,022 8,441 .31 .07
1993
First Quarter $125,678 $ 36,200 $ 6,295 $ .23 $ .05
Second Quarter 125,047 33,532 5,222 .18 .05
Third Quarter 133,411 37,462 7,684 .28 .05
Fourth Quarter 149,191 45,042 9,013 .32 .05
</TABLE>
(1) Includes cumulative effect of an accounting change of $2,206 or $.08 per
share.
All 1994 and 1993 per share amounts have been adjusted for the two-for-one
stock split, effected in the form of a 100% stock dividend.
NYSE LISTING
The common shares of Donaldson Company, Inc. are traded on the New York
Stock Exchange, under the symbol DCI.
SHAREHOLDER INFORMATION
For any concerns relating to your current or prospective shareholdings, please
contact Shareholder Services at (800) 468-9716 or (612) 450-4064.
DIVIDEND REINVESTMENT PLAN
As of July 31, 1994, more than 700 of Donaldson Company's approximately 1,485
shareholders of record were participating in the Dividend Reinvestment Plan.
Under the plan, shareholders can invest Donaldson Company dividends in
additional shares of Company stock. They may also make periodic voluntary cash
investments for the purchase of Company stock.
Both alternatives are provided without service charges or brokerage
commissions. Shareholders may obtain a brochure giving further details by
writing Shareholder Services, Donaldson Company, Inc., M.S. 101, P.O. Box 1299,
Minneapolis, MN 55440.
CORPORATE INFORMATION
ANNUAL MEETING
The annual meeting of shareholders will be held at 10 a.m. on Friday, November
18, in the first floor auditorium of the Lutheran Brotherhood Building, 625
Fourth Avenue South, Minneapolis, Minnesota. You are urged to attend.
10-K REPORTS
Copies of the Report 10-K, filed with the Securities and Exchange Commission,
are available on request from Shareholder Services, Donaldson Company, Inc.,
M.S. 101, P.O. Box 1299, Minneapolis, Minnesota 55440.
AUDITORS Ernst & Young LLP, Minneapolis, Minnesota
GENERAL COUNSEL Dorsey & Whitney, Minneapolis, Minnesota
PATENT COUNSEL Merchant, Gould, Smith, Edell, Welter & Schmidt, Minneapolis,
Minnesota
PUBLIC RELATIONS COUNSEL Padilla Speer Beardsley Inc., Minneapolis, Minnesota
TRANSFER AGENT AND REGISTRAR Norwest Bank Minnesota, N.A., South St. Paul,
Minnesota
WORLD WIDE OPERATIONS
ADMINISTRATION
Donaldson Company, Inc.
Minneapolis, Minnesota
U.S. PLANTS
Cresco, Iowa
Frankfort, Indiana
Oelwein, Iowa
Chillicothe, Missouri
Grinnell, Iowa
Stevens Point, Wisconsin
Nicholasville, Kentucky
Baldwin, Wisconsin
Dixon, Illinois
Philadelphia, Pennsylvania
DISTRIBUTION CENTERS
Rensselaer, Indiana
Ontario, California
Antwerp, Belgium
JOINT VENTURES
Advanced Filtration Systems Inc.,
Champaign, Illinois
Donaldson Micro Pore Mexico,
S.A. de C.V.,
Aguascalientes, Mexico
D.I. Filter Systems Pvt. Ltd.,
New Delhi, India
WHOLLY OWNED SUBSIDIARIES
ENV Services, Inc.,
Philadelphia, Pennsylvania
Donaldson Europe, N.V.,
Leuven, Belgium
Donaldson Coordination Center, N.V.,
Leuven, Belgium
Donaldson Gesellschaft m.b.H.,
Dulmen, Germany
Donaldson Filter Components, Ltd.,
Hull, England
Donaldson Torit, B.V.,
Haarlem, Netherlands
Donaldson France, S.A.,
Bron, France
Donaldson Italia s.r.l.,
Ostiglia, Italy
Nippon Donaldson, Ltd.,
Tokyo, Japan
Donaldson Far East Limited,
Kowloon, Hong Kong
Donaldson Australasia (Pty.) Ltd.,
Wyong, Australia
Donaldson Filtration Systems (Pty.) Ltd.,
Cape Town, South Africa
Donaldson do Brasil, Ltda.,
Sao Paulo, Brazil
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Donaldson Company, Inc. of our report dated September 9, 1994,
included in the 1994 Annual Report to Shareholders of Donaldson Company, Inc.
Our audit also included the financial statement schedules of Donaldson
Company, Inc. listed in Item 14(a). These schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statement Number 33-27086 on Form S-8 dated February 17, 1989, Registration
Statement Number 2-90488 on Form S-8 dated May 2, 1984 as amended through Post
Effective Amendment No. 1 dated January 7, 1988, and Registration Statement
Number 33-44624 dated December 20, 1991 of our report dated September 9, 1994,
with respect to the consolidated financial statements incorporated herein by
reference and our report included in the preceding paragraph with respect to the
financial statement schedules of Donaldson Company, Inc. included in this Annual
Report on Form 10-K of Donaldson Company, Inc.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
October 25, 1994
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8, No. 2-90488) pertaining to the Donaldson Company, Inc.
Employees' Retirement Savings Plan and in the related Prospectus of our report
dated October 14, 1994, with respect to the financial statements and schedules
of the Donaldson Company, Inc. Employees' Retirement Savings Plan included in
this Annual Report (Form 11-K) for the year ended July 31, 1994.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
October 24, 1994
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William A. Hodder and Raymond
F. Vodovnik, and each of them, his attorney-in-fact for the purpose of signing
in his name and on his behalf as a Director of Donaldson Company, Inc., a report
on Form 10-K for the Annual Report, pursuant to Section 13 or 15(d) of the
Securities Act of 1934, of Donaldson Company, Inc. and to deliver on his behalf
said report so signed for filing with the Securities and Exchange Commission.
Dated: October 17, 1994
/s/ A. Gary Ames
-----------------
A. Gary Ames
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William A. Hodder and Raymond
F. Vodovnik, and each of them, his attorney-in-fact for the purpose of signing
in his name and on his behalf as a Director of Donaldson Company, Inc., a report
on Form 10-K for the Annual Report, pursuant to Section 13 or 15(d) of the
Securities Act of 1934, of Donaldson Company, Inc. and to deliver on his behalf
said report so signed for filing with the Securities and Exchange Commission.
Dated: October 17, 1994
/s/ Michael R. Bonsignore
--------------------------
Michael R. Bonsignore
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William A. Hodder and Raymond
F. Vodovnik, and each of them, his attorney-in-fact for the purpose of signing
in his name and on his behalf as a Director of Donaldson Company, Inc., a report
on Form 10-K for the Annual Report, pursuant to Section 13 or 15(d) of the
Securities Act of 1934, of Donaldson Company, Inc. and to deliver on his behalf
said report so signed for filing with the Securities and Exchange Commission.
Dated: October 17, 1994
/s/ Jack Eugster
-----------------
Jack Eugster
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William A. Hodder and Raymond
F. Vodovnik, and each of them, his attorney-in-fact for the purpose of signing
in his name and on his behalf as a Director of Donaldson Company, Inc., a report
on Form 10-K for the Annual Report, pursuant to Section 13 or 15(d) of the
Securities Act of 1934, of Donaldson Company, Inc. and to deliver on his behalf
said report so signed for filing with the Securities and Exchange Commission.
Dated: October 17, 1994
/s/ Kendrick B. Melrose
--------------------------
Kendrick B. Melrose
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William A. Hodder and Raymond
F. Vodovnik, and each of them, his attorney-in-fact for the purpose of signing
in his name and on his behalf as a Director of Donaldson Company, Inc., a report
on Form 10-K for the Annual Report, pursuant to Section 13 or 15(d) of the
Securities Act of 1934, of Donaldson Company, Inc. and to deliver on his behalf
said report so signed for filing with the Securities and Exchange Commission.
Dated: October 17, 1994
/s/ S. Walter Richey
--------------------
S. Walter Richey
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William A. Hodder and Raymond
F. Vodovnik, and each of them, his attorney-in-fact for the purpose of signing
in his name and on his behalf as a Director of Donaldson Company, Inc., a report
on Form 10-K for the Annual Report, pursuant to Section 13 or 15(d) of the
Securities Act of 1934, of Donaldson Company, Inc. and to deliver on his behalf
said report so signed for filing with the Securities and Exchange Commission.
Dated: October 17, 1994
/s/ C. Angus Wurtele
---------------------
C. Angus Wurtele
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William A. Hodder and Raymond
F. Vodovnik, and each of them, his attorney-in-fact for the purpose of signing
in his name and on his behalf as a Director of Donaldson Company, Inc., a report
on Form 10-K for the Annual Report, pursuant to Section 13 or 15(d) of the
Securities Act of 1934, of Donaldson Company, Inc. and to deliver on his behalf
said report so signed for filing with the Securities and Exchange Commission.
Dated: October 17, 1994
/s/ William G. Van Dyke
-----------------------
William G. Van Dyke
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William A. Hodder and Raymond
F. Vodovnik, and each of them, his attorney-in-fact for the purpose of signing
in his name and on his behalf as a Director of Donaldson Company, Inc., a report
on Form 10-K for the Annual Report, pursuant to Section 13 or 15(d) of the
Securities Act of 1934, of Donaldson Company, Inc. and to deliver on his behalf
said report so signed for filing with the Securities and Exchange Commission.
Dated: October 17, 1994
/s/ Stephen W. Sanger
----------------------
Stephen W. Sanger
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-START> AUG-01-1993
<PERIOD-END> JUL-31-1994
<CASH> 22,945
<SECURITIES> 0
<RECEIVABLES> 125,610
<ALLOWANCES> 3,443
<INVENTORY> 60,245
<CURRENT-ASSETS> 220,308
<PP&E> 258,923
<DEPRECIATION> 159,364
<TOTAL-ASSETS> 337,360
<CURRENT-LIABILITIES> 115,757
<BONDS> 16,028
<COMMON> 135,317
0
0
<OTHER-SE> 54,380
<TOTAL-LIABILITY-AND-EQUITY> 337,360
<SALES> 593,503
<TOTAL-REVENUES> 0
<CGS> 426,904
<TOTAL-COSTS> 114,520
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 949
<INTEREST-EXPENSE> 3,362
<INCOME-PRETAX> 50,193
<INCOME-TAX> 18,244
<INCOME-CONTINUING> 31,949
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2,206
<NET-INCOME> 34,155
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
</TABLE>
EXHIBIT 99
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended July 31, 1994
-----------------------------------------
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
-----------------------------------------
DONALDSON COMPANY, INC.
1400 WEST 94TH STREET
MINNEAPOLIS, MINNESOTA 55431
FINANCIAL STATEMENTS
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
YEARS ENDED JULY 31, 1994 AND 1993
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Financial Statements
Years ended July 31, 1994 and 1993
Contents
Report of Independent Auditors .............................1
Audited Financial Statements
Statements of Net Assets
Available for Benefits ....................................2
Statements of Changes in
Net Assets Available for Benefits .........................4
Notes to Financial Statements ..............................6
Schedule A--Assets Held for Investment ....................12
Schedule B--Transactions or
Series of Transactions in Excess
of 5% of the Current Value of Plan Assets ................13
Report of Independent Auditors
Administrative Committee
Donaldson Company, Inc. Employees' Retirement
Savings Plan
We have audited the accompanying statements of net assets available for benefits
of Donaldson Company, Inc. Employees' Retirement Savings Plan as of July, 31,
1994 and 1993, and the related statements of changes in net assets available for
benefits for each of the two years in the period ended July 31, 1994. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at July
31, 1994 and 1993, and the changes in its net assets available for benefits for
each of the two years in the period ended July 31, 1994, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investment as of July 31, 1994 and transactions or series of
transactions in excess of 5% of the current value of Plan assets for the year
then ended are presented for purposes of complying with the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974, and are not a required part of the basic
financial statements. The supplemental schedules have been subjected to the
auditing procedures applied in our audit of the 1994 financial statements and,
in our opinion, are fairly stated in all material respects in relation to the
1994 financial statements taken as a whole.
/s/ Ernst & Young LLP
October 14, 1994
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Statements of Net Assets Available for Benefits
<TABLE>
<CAPTION>
July 31, 1994
--------------------------------------------------------------------
Fidelity
Equity Fixed Donaldson
Income Cash Flow Income Common Stock
Fund Fund Fund Fund Total
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Cash $ 27,767 $ 1,069,004 $ 35,396 $ 67,104 $ 1,199,271
Loans to participants -- 1,325,377 -- -- 1,325,377
Investments:
Fidelity Equity Income Fund 13,678,993 -- -- -- 13,678,993
Common Stock of Donaldson Company, Inc. -- -- -- 9,387,910 9,387,910
Investment in fixed income funds -- -- 20,337,318 -- 20,337,318
----------- ----------- ----------- ----------- -----------
13,678,993 -- 20,337,318 9,387,910 43,404,221
Accrued interest 106 3,422 135 256 3,919
----------- ----------- ----------- ----------- -----------
Net assets available for benefits $13,706,866 $ 2,397,803 $20,372,849 $ 9,455,270 $45,932,788
=========== =========== =========== =========== ===========
</TABLE>
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Statements of Net Assets Available for Benefits (continued)
<TABLE>
<CAPTION>
July 31, 1993
-----------------------------------------------------------------
Fidelity
Equity Fixed Donaldson
Income Cash Flow Income Common Stock
Fund Fund Fund Fund Total
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Cash $ 14,914 $ 939,272 $ 40,134 $ 32,987 $ 1,027,307
Loans to participants -- 1,138,107 -- -- 1,138,107
Investments:
Fidelity Equity Income Fund 9,527,770 -- -- -- 9,527,770
Common Stock of Donaldson Company, Inc. -- -- -- 5,716,953 5,716,953
Investment in fixed income funds -- -- 21,669,908 -- 21,669,908
----------- ----------- ----------- ----------- -----------
9,527,770 -- 21,669,908 5,716,953 36,914,631
Accrued interest 43 2,233 115 95 2,486
----------- ----------- ----------- ----------- -----------
Net assets available for benefits $ 9,542,727 $ 2,079,612 $21,710,157 $ 5,750,035 $39,082,531
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Statements of Changes in Net Assets Available for Benefits
<TABLE>
<CAPTION>
Year ended July 31, 1994
---------------------------------------------------------------------------
Fidelity
Equity Fixed Donaldson
Income Cash Flow Income Common Stock
Fund Fund Fund Fund Total
---------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Additions:
Contribution from employees $ -- $ 4,094,610 $ -- $ -- $ 4,094,610
Investment income 815,299 73,988 1,179,413 88,498 2,157,198
Net gain on sales of other investments -- -- 13,491 -- 13,491
------------ ------------ ------------ ------------ ------------
815,299 4,168,598 1,192,904 88,498 6,265,299
Deductions:
Interfund transfers (net) (3,873,913) 3,946,807 1,701,752 (1,774,647) --
Payments to participants 594,259 (96,400) 827,413 146,404 1,471,676
------------ ------------ ------------ ------------ ------------
(3,279,653) 3,850,407 2,529,165 (1,628,243) 1,471,676
Unrealized appreciation
(depreciation) of investments
69,187 -- (1,047) 1,988,494 2,056,634
------------ ------------ ------------ ------------ ------------
Net increase (decrease) 4,164,139 318,191 (1,337,308) 3,705,235 6,850,257
Net assets available for benefits:
Beginning of year 9,542,727 2,079,612 21,710,157 5,750,035 39,082,531
------------ ------------ ------------ ------------ ------------
End of year $ 13,706,866 $ 2,397,803 $ 20,372,849 $ 9,455,270 $ 45,932,788
============ ============ ============ ============ ============
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Statements of Changes in Net Assets Available for Benefits (continued)
</TABLE>
<TABLE>
<CAPTION>
Year ended July 31, 1993
------------------------------------------------------------------------
Fidelity
Equity Fixed Donaldson
Income Cash Flow Income Common Stock
Fund Fund Fund Fund Total
---------- ------------ --------- ---------- -----------
<S>
Additions: <C> <C> <C> <C> <C>
Contribution from employees $ -- $ 3,353,464 $ -- $ -- $ 3,353,464
Investment income 283,085 117,980 1,324,335 61,750 1,787,150
Net loss on sales of other investments -- -- (133) -- (133)
Other -- -- 4,100 -- 4,100
--------- --------- ---------- --------- ----------
283,085 3,471,444 1,328,302 61,750 5,144,581
Deductions:
Interfund transfers (net) (1,663,604) 3,570,121 (732,487) (1,174,030) --
Payments to participants 253,206 (274,634) 1,651,911 121,785 1,752,268
--------- --------- ---------- --------- ----------
(1,410,398) 3,295,487 919,424 (1,052,245) 1,752,268
Unrealized appreciation (depreciation) of investments
1,237,536 -- (967) 917,610 2,154,179
--------- --------- ---------- --------- ----------
Net increase 2,931,019 175,957 407,911 2,031,605 5,546,492
Net assets available for benefits:
Beginning of year 6,611,708 1,903,655 21,302,246 3,718,430 33,536,039
--------- --------- ---------- --------- ----------
End of year $ 9,542,727 $ 2,079,612 $ 21,710,157 $ 5,750,035 $ 39,082,531
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Notes to Financial Statements
July 31, 1994
1. SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING METHOD
The accounting records of the Plan are maintained on the accrual basis.
INVESTMENTS
Investments are recorded at current value. Securities which are traded on a
national securities exchange are valued at the last reported sales price of the
year. The market value of the units of participation in collective investment
funds is based on the fair market value of the underlying investments.
Investments in the guaranteed investment contracts are valued at contract value.
Contract value represents contributions made under the contract, plus interest
at the contract rate, less funds withdrawn.
The change in the difference between current value and the cost of investments
is reflected in the statement of changes in net assets available for benefits as
unrealized appreciation (depreciation) of investments.
The net gain (loss) on the sale of investments is the difference between the
proceeds received and the historical average cost of investments sold. For
purposes of complying with the Department of Labor's requirements for preparing
Form 5500, the Company determines net gain based on a revalued, rather than
historical, cost.
EXPENSES
Except for investment management fees, which are netted against investment
income, Donaldson Company, Inc. (the Plan's sponsor) pays all Plan related
expenses including legal, accounting and other services.
RECLASSIFICATION
Certain amounts from the prior year have been reclassified to conform to the
current year presentation.
2. DESCRIPTION OF THE PLAN
Effective February 1, 1991, the Donaldson Company, Inc. Salaried Employees'
Retirement Savings Plan was amended and renamed the Donaldson Company, Inc.
Employees' Retirement Savings Plan (the Plan).
Effective February 1, 1991, hourly employees represented by a labor union for
collective bargaining purposes are eligible to participate in the Plan under the
terms of a collective bargaining agreement and shall not be eligible for any
employer discretionary contributions or loans.
The Plan is a defined contribution plan sponsored by Donaldson Company, Inc. The
Plan allows employee contributions to the Plan through payroll deductions of 1%
to 10% of their salary. Employees are 100% vested in their accounts at all
times.
Amounts contributed to the Plan are invested in one of four investment options.
Participants may choose between the following investment alternatives:
* FIDELITY EQUITY INCOME FUND: Monies are invested in a mutual fund
managed by Fidelity Management & Research Company. The fund invests in a
diversified portfolio of common stocks which have above average dividend
yields and potential for capital appreciation.
* FIXED INCOME FUND: Monies are invested in two separate funds each
comprised of highly diversified Guaranteed Investment Contracts and high
quality money market investments. One of the funds is managed by IDS Trust
Company and the other by US Trust Company. The Fixed Income Fund is
designed to be a secure investment that will earn a relatively stable rate
of interest.
* DONALDSON COMMON STOCK FUND: Monies are invested in the common stock
of Donaldson Company, Inc. This investment option is presented to
provide participants with the opportunity to invest in the future growth
of the Company.
The changes in net assets of the Plan are allocated to the individual
participants' accounts quarterly as provided for in the Plan Agreement.
2. DESCRIPTION OF THE PLAN (CONTINUED)
The Company has the right under the Plan agreement to terminate the Plan. In the
event of termination of the Plan, each participant is fully vested and the
assets of the Plan shall be distributed to the participants.
3. INVESTMENTS
The current value of individual investments that represent 5% or more of the
Plan's net assets is as follows:
<TABLE>
<CAPTION>
1994 1993
------------------------------------------------------
Units or Current Units or Current
Shares Value Shares Value
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Fidelity Equity Income Fund 416,280.981 $13,678,993 293,613.856 $ 9,527,770
Common Stock of Donaldson
Company, Inc. (Sponsor) 383,180 9,387,910 153,992 5,716,953
IDS Trust Collective Income Fund 285,432.293 10,397,156 357,854.799 12,269,052
Capital Trust Company Guaranteed
Investment Contract Fund 415,888 9,940,162 417,289 9,400,856
</TABLE>
Following is information regarding investments:
Year ended July 31
1994 1993
------------ -----------
Cost of investments:
Common Stock of Donaldson
Company, Inc. (Sponsor) $ 4,452,196 $ 2,769,735
Fidelity Equity Income Fund 11,874,998 7,792,961
Investment in fixed income funds 20,341,200 21,672,742
---------- ----------
Total cost 36,668,394 32,235,438
Current value 43,404,221 36,914,631
---------- ----------
Unrealized appreciation $ 6,735,827 $ 4,679,193
=========== ===========
3. INVESTMENTS (CONTINUED)
During the two years ended July 31, 1994, the Plan's investments appreciated
(depreciated) in fair value as follows:
1994 1993
----------- -----------
Common Stock of
Donaldson Company, Inc. (Sponsor) $ 1,988,494 $ 917,610
Fidelity Equity Income Fund 69,187 1,237,536
IDS Trust Collective Income Fund (1,047) (967)
----------- -----------
$ 2,056,634 $ 2,154,179
=========== ===========
During the two years ended July 31, 1994, the Plan experienced net realized
gains and losses on the sale of its investments as follows:
Cost Proceeds Net Gain
---------- ---------- ----------
1994:
Other $2,651,174 $2,664,665 $ 13,491
---------- ---------- ----------
Total $2,651,174 $2,664,665 $ 13,491
========== ========== ==========
1993:
Other $ 960,302 $ 960,169 $ (133)
---------- ---------- ----------
Total $ 960,302 $ 960,169 $ (133)
========== ========== ==========
4. LOANS TO PARTICIPANTS
Under the Plan agreement, a salaried participant may borrow up to 50% of their
account balance or $50,000, whichever is less. At July 31, 1994 and 1993,
$1,325,377 and $1,138,107, respectively, of loans were outstanding at interest
rates varying from 7% to 11.5%.
5. INCOME TAX STATUS
The Internal Revenue Service issued a favorable determination letter dated
November 14, 1991 stating that the Plan, as amended, is qualified under Section
401(a) and is exempt from federal income taxes under Section 501(a) of the
Internal Revenue Code. Accordingly, no provision for income taxes has been
included in these financial statements. Once qualified, the Plan is required to
operate in conformity with the Code and ERISA to maintain its tax-exempt status.
The administrator is not aware of any course of action or series of events that
have occurred that might adversely affect the Plan's qualified status.
6. TRANSACTIONS WITH PARTIES-IN-INTEREST
During the year ended July 31, 1994, the Plan purchased 70,456 shares of
Donaldson Company, Inc. Common Stock on the open market for $1,682,463 and sold
none. The Plan also received 158,732 shares as a result of a two-for-one stock
split.
During the year ended July 31, 1993, the Plan purchased 32,690 shares of
Donaldson Company, Inc. Common Stock on the open market for $1,129,958 and sold
none.
The Plan received $85,650 and $57,789 in Common Stock dividends from Donaldson
Company, Inc. for the years ended July 31, 1994 and 1993, respectively.
7. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to the Form 5500:
July 31
1994 1993
-----------------------------
Net assets available for
benefits per the financial statements
$ 45,932,788 $ 39,082,531
Amounts allocated to withdrawing participants (293,923) (169,155)
------------ ------------
Net assets available for benefits per Form 5500 $ 45,638,865 $ 38,913,376
============ ============
7. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500 (CONTINUED)
Amounts allocated to withdrawing participants by fund option are as follows:
<TABLE>
<CAPTION>
Year ended July 31, 1994
- - ----------------------------------------------------------------------------
Donaldson
Fidelity Equity Fixed Common Stock
Income Fund Income Funds Fund Total 1993 Total
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$72,042 $200,072 $21,809 $293,923 $169,155
======= ======== ======= ======== ========
</TABLE>
The following is a reconciliation of benefits paid to participants reported in
the financial statements versus the Form 5500:
July 31,
1994
------------
Benefits paid to participants
per the financial statements $ 1,471,676
Add amounts allocated to withdrawing
participants at July 31, 1994 293,923
Less amounts allocated to withdrawing
participants at July 31, 1993 (169,155)
--------
Benefits paid to participants
per the Form 5500 $ 1,596,444
===========
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Schedule A--Assets Held for Investment
July 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C>
IDENTITY OF ISSUE, CURRENT
BORROWER OR SIMILAR PARTY DESCRIPTION OF INVESTMENT COST VALUE
- - ---------------------------------------------------------------------------------------------------------------
Fidelity Equity Income Fund 416,280.981 units of participation $11,874,998 $13,678,993
*Donaldson Company, Inc. 383,180 shares of Common Stock 4,452,196 9,387,910
IDS Trust Collective Income Fund 285,432.293 units of participation 10,401,038 10,397,156
Capital Trust Company Guaranteed
Investment Contract Fund 415,888 units of participation 9,940,162 9,940,162
---------- ----------
TOTAL ASSETS HELD FOR INVESTMENT $36,668,394 $43,404,221
=========== ===========
</TABLE>
* Indicates party-in-interest
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Schedule B--Transactions or Series of Transactions in
Excess of 5% of the Current Value of Plan Assets
Year ended July 31, 1994
<TABLE>
<CAPTION>
CURRENT VALUE
OF ASSET ON
PURCHASE SELLING COST OF TRANSACTION NET GAIN
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET PRICE PRICE ASSET DATE OR (LOSS)
- - -------------------------- ----------------------------------------- ----------- ---------- ---------- ------------ -------
CATEGORY (iii)--A SERIES OF TRANSACTIONS IN EXCESS OF 5% OF BEGINNING PLAN ASSETS.
<S> <C> <C> <C> <C> <C> <C>
Fidelity Investments Fidelity Equity Income Fund
Purchased 122,677.125 participating units
in 10 transactions $4,082,037 $4,082,037 $4,082,037
IDS Trust Company Collective Income Fund
Purchased 20,501.346 participating units
in 13 transactions 727,183 727,183 727,183
Sold 73,263.785 participating units in
11 transactions $2,599,314 2,598,031 2,599,314 $1,283
</TABLE>
There were no category (i), (ii) or (iv) reportable transactions in fiscal 1994.
