UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the period ended April 30, 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 Number)
1400 West 94th Street
Minneapolis, Minnesota 55431
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (612) 887-3131
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $5 Par Value -- 26,566,607 shares as of May 31, 1994
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30 April 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net Sales $153,930 $133,411 $432,025 $384,136
Cost of Sales 111,793 95,949 311,448 276,942
Gross Margin 42,137 37,462 120,577 107,194
Operating Expenses 26,764 25,800 82,600 76,939
Other (Income) (599) (893) (1,369) (2,029)
Interest Expense 738 596 2,209 2,188
Earnings Before Income Taxes 15,234 11,959 37,137 30,096
Income Taxes 5,525 4,275 13,629 10,895
Earnings Before Cumulative Effect
of Accounting Change 9,709 7,684 23,508 19,201
Cumulative Effect of Accounting
Change - - 2,206 -
Net Earnings $ 9,709 $ 7,684 $ 25,714 $ 19,201
Average Shares and
Equivalents Outstanding
During Period 27,347,817 27,874,526 27,409,417 27,930,110
Earnings Per Share Before Cumulative
Effect of Accounting Change $ .36 $ .28 $ .86 $ .69
Cumulative Effect of Accounting
Change - - .08 -
Net Earnings per Share $ .36 $ .28 $ .94 $ .69
Dividends Paid Per Share $ .07 $ .05 $ .18 $ .15
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
April 30, July 31,
1994 1993
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 32,758 $ 32,110
Accounts Receivable, Net 112,865 103,320
Inventories
Materials 26,194 23,248
Work in Process 8,580 7,615
Finished Products 20,351 18,062
Total Inventories 55,125 48,925
Other 9,907 11,659
TOTAL CURRENT ASSETS 210,655 196,014
Property, Plant and Equipment, at Cost 247,796 233,847
Less Accumulated Depreciation 153,346 143,332
Property, Plant and Equipment, Net 94,450 90,515
Other Assets 15,365 13,688
TOTAL ASSETS $320,470 $300,217
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt $ 9,367 $ 4,238
Current Maturities of Long-Term Debt 2,739 3,357
Trade Accounts Payable 42,001 38,235
Accrued Employee Compensation & Related Taxes 17,561 16,799
Other Current Liabilities 30,830 31,037
TOTAL CURRENT LIABILITIES 102,498 93,666
Long-Term Debt 18,529 18,920
Deferred Income Taxes 1,561 2,060
Other Long-Term Liabilities 12,013 11,563
SHAREHOLDERS' EQUITY
Preferred Stock, $1 par value,
1,000,000 shares authorized, no shares issued - -
Common Stock, $5 par value, 40,000,000 shares
authorized, 27,061,436 and 13,927,274 issued
on April 30, 1994 and July 31, 1993 135,307 69,636
Capital Surplus - 1,284
Retained Earnings 58,640 117,293
Cumulative Translation Adjustment 6,291 5,646
Treasury Stock - 191,200 and 286,205 shares
in 1994 and 1993 at cost (4,394) (9,876)
Receivable from ESOP (9,975) (9,975)
TOTAL SHAREHOLDERS' EQUITY 185,869 174,008
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $320,470 $300,217
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
Nine Months Ended
April 30
1994 1993
OPERATING ACTIVITIES
Net Earnings $ 25,714 $ 19,201
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 11,612 11,379
Brazilian Asset Write Down 2,200 -
Cumulative Effect of Accounting Change (2,206) -
Changes in Operating Assets and Liabilities (8,417) 7,206
Other (4,389) (4,076)
24,514 33,710
INVESTING ACTIVITIES
Net Expenditures on PP&E (14,547) (11,993)
Business Acquisitions, Net of Cash Acquired - (7,670)
Dividends from Affiliate 2,850 3,500
(11,697) (16,163)
FINANCING ACTIVITIES
Debt Increase (Decrease) 4,094 (6,955)
Dividends Paid (4,886) (4,161)
Purchase of Treasury Stock (9,994) (8,038)
Stock Options 378 (3,237)
(10,408) (22,391)
Effect of Exchange Rate Changes on Cash (1,761) 667
Increase(Decrease) in Cash and Cash Equivalents 648 (4,177)
Cash and Cash Equivalents - Beginning of Year 32,110 31,096
Cash and Cash Equivalents - End of Period $ 32,758 $ 26,919
See Notes to Condensed Consolidated Financial Statements.
Note A - The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of only normal
recurring accruals) considered necessary for a fair presentation
have been included.
Note B - Change in Method of Accounting for 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 $2.2 million (8 cents per share).
Significant components of deferred tax assets and
liabilities at August 1, 1993 were as follows: (Thousands of
Dollars)
Deferred Tax Assets:
Compensation and Retirement Plans $ 5,071
Accrued Expenses 3,730
Tax Loss and Tax Credit Carryforwards 855
Other 2,704
Gross Deferred Tax Assets 12,360
Deferred Tax Liabilities:
Depreciation and Amortization (4,261)
Other (3,396)
Gross Deferred Tax Liabilities (7,657)
Net Deferred Tax Assets $ 4,703
Note C - A two-for-one stock split effected in the form of a 100
percent stock dividend was declared by the Board of Directors on
January 21, 1994 to shareholders of record on March 16, 1994.
This split resulted in the issuance of additional shares of
Common Stock and the reissuance of shares of Common Stock held in
treasury. All per share and certain share amounts have been
adjusted to reflect the stock split.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
A. Financial Condition
Cash flow in the third quarter was a positive $1.1 million.
Net earnings plus depreciation fully funded the Company's capital
expenditures, dividends and share repurchases in the quarter.
Working capital, excluding cash, increased $3.2 million in
the quarter. Increases in receivables and inventories, due
primarily to the strong growth in sales and orders, were somewhat
offset by increases in accounts payables and other current
liabilities.
Capital expenditures of $5.3 million in the quarter and
$14.5 million year-to-date are within the Company's 1994 capital
expenditure budget of $20.0 million. In April, the Company
announced a $3.0 million expansion of its Stevens Point,
Wisconsin liquid filtration plant. Construction is to begin in
June 1994 and is scheduled to be completed by November 1994.
In the third quarter, the Company repurchased 191,200 shares
at an average cost of $23.00 per share. Subsequent to the end of
the quarter through May 31, the Company repurchased another
305,600 shares at an average cost of $20.40 per share. As of May
31, the Company has authorization to repurchase an additional
921,400 shares in the open market.
At the end of the third quarter, the Company has $32.8
million of cash and cash equivalents, $30.6 million of total
debt, and a capitalization ratio of 14.1 percent, up from 13.8
percent as of the end of the second quarter. In the quarter,
debt rose again in Europe as the Company's Belgian Coordination
Center utilized short-term borrowings to hedge its increasing
foreign currency receivables.
The Company believes that operational cash flows should
continue to adequately fund long-term capital needs, but external
funds will be used as necessary.
B. Results of Operations
Third quarter sales of $153.9 million were up 15 percent
from prior year sales of $133.4 million. Net earnings of $9.7
million were up 26 percent from prior year net earnings of $7.7
million. Earnings per share of 36 cents per share were up 29
percent from 28 cents per share the prior year.
For the nine-month period, sales of $432.0 million were up
12 percent from prior year sales of $384.1 million. Before the
cumulative effect of an accounting change, earnings of $23.5
million were up 22 percent from prior year earnings of $19.2
million. Earnings per share of 86 cents per share were up 25
percent compared to 69 cents per share the prior year.
In the first quarter, the Company adopted Financial
Accounting Standards Board (FASB) Statement No. 109, "Accounting
for Income Taxes," which increased net earnings by $2.2 million,
or 8 cents per share. As a result, net earnings for the nine-
month period were $25.7 million, or 94 cents per share.
Worldwide net sales by market for the third quarter were as
follows:
($Millions) 1994 1993 % Change
OEM $ 78.0 $ 63.0 23.8%
Aftermarket 20.9 18.5 13.0
Defense 3.1 4.9 (36.7)
Exhaust Filtration 0.5 3.6 (86.1)
Engine Products $102.5 $ 90.0 13.9%
Dust Collection $ 21.7 $ 21.1 2.8%
Gas Turbine Systems 17.4 9.8 77.6
High Purity Products 12.3 12.5 (1.6)
Industrial Products $ 51.4 $ 43.4 18.4%
Net Sales $153.9 $133.4 15.4%
In Engine Products, sales increases in excess of 20 percent
were reported in the Company's three OEM markets, ie,
construction, transportation and agriculture. Transportation
sales were favorably impacted by the initial sales of catalytic
converter mufflers. Aftermarket sales were up 13 percent, led by
a 17 percent increase domestically. Defense sales continued to
be down on a comparable year-over-year basis. Exhaust filtration
sales in the quarter were for diesel particulate trap replacement
parts.
In Industrial Products, gas turbine systems sales were up
more than 75 percent, led by strong overseas activity. Dust
collection sales were up slightly as domestic sales growth more
than offset overseas softness. High purity products sales were
down slightly with no significant change in product mix.
Operating income as a percent of sales improved in the
quarter from 8.7 percent to 10.0 percent. In the quarter, the
Company wrote down its Brazilian assets by $2.2 million and,
consequently, gross margins declined from 28.1 percent to 27.4
percent. Excluding the write down, gross margins had improved
from 28.1 percent to 28.8 percent reflecting improved domestic
traditional diesel engine and dust collection margins. Operating
expenses as a percent of sales declined from 19.3 percent to 17.4
percent, reflecting both increased sales and continued tight
operating expense controls.
The asset write down in Brazil related to the continuing
economic and political uncertainties in the country and the
resulting losses being incurred by the Company's Brazilian
operations.
Total backlogs of $151.7 million were up 10 percent from the
same period last year and 4 percent from the end of the second
quarter. Hard order backlogs - goods scheduled for delivery in
90 days - of $101.9 million were up 6 percent from both last year
and the end of the second quarter.
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
On January 21, 1994, the Board of Directors of the
Company declared a two-for-one stock split to be
distributed April 6, 1994. In accordance with the
Stockholder Rights Plan adopted by the Board of
Directors on February 21, 1986, as amended, prior to
the stock split each share of Common Stock was
accompanied by one-third Preferred Stock Purchase Right
("Right") and each whole Right had an exercise price of
$85 per one one-hundredth of a share of preferred
stock. To reflect the stock split, effective April 6,
1994, the Right associated with each share of Common
Stock was proportionately adjusted so that each share
of Common Stock is now accompanied by one-sixth of a
Right.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
None
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter
ended April 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DONALDSON COMPANY, INC.
(Registrant)
Date 6/10/94 By /s/Thomas A. Windfeldt
Thomas A. Windfeldt
Vice President -
Corporate Controller
(Chief Accounting
Officer)
Date 6/10/94 By /s/Raymond F. Vodovnik
Raymond F. Vodovnik
Vice President-Law and
Secretary
