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 October 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 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 -- 26,267,295 shares as of November 30, 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)
Three Months Ended
October 31
-------------------------
1994 1993
-------- ------
Net Sales $ 164,175 $ 142,518
Cost of Sales 118,842 101,982
------------ -----------
Gross Margin 45,333 40,536
Operating Expenses 29,836 27,681
Other (Income) Expense (422) 74
Interest Expense 783 683
------------ -----------
Earnings Before Income Taxes 15,136 12,098
Income Taxes 5,631 4,537
------------ -----------
Earnings Before Cumulative Effect
of Accounting Change 9,505 7,561
Cumulative Effect of Accounting Change -- 2,206
------------ -----------
Net Earnings $ 9,505 $ 9,767
============ ===========
Average Shares and
Equivalents Outstanding
During Period 26,795,987 27,392,970
============ ===========
Earnings Per Share Before Cumulative
Effect of Accounting Change $ .35 $ .27
Cumulative Effect of Accounting Change -- .08
------------ -----------
Net Earnings per Share $ .35 $ .35
============ ===========
Dividends Paid Per Share $ .07 $ .05
============ ===========
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
October 31, July 31,
1994 1994
----------- --------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 29,251 $ 22,945
Accounts Receivable, Net 127,768 122,167
Inventories
Materials 27,560 27,430
Work in Process 8,572 8,521
Finished Products 24,475 24,294
------- -------
Total Inventories 60,607 60,245
Other 10,882 14,951
------- -------
TOTAL CURRENT ASSETS 228,508 220,308
Property, Plant and Equipment, at Cost 263,753 258,923
Less Accumulated Depreciation 163,539 159,364
------- -------
Property, Plant and Equipment, Net 100,214 99,559
Other Assets 17,824 17,493
------- -------
TOTAL ASSETS $346,546 $337,360
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt $ 18,338 $ 14,073
Current Maturities of Long-Term Debt 2,894 2,883
Trade Accounts Payable 45,182 44,541
Accrued Employee Compensation & Related Taxes 19,213 19,755
Other Current Liabilities 32,828 34,505
------- -------
TOTAL CURRENT LIABILITIES 118,455 115,757
Long-Term Debt 15,923 16,028
Deferred Income Taxes 3,404 2,248
Other Long-Term Liabilities 14,744 13,630
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,
27,063,407 issued on October 31, 1994
and July 31, 1994 135,317 135,317
Retained Earnings 73,000 65,654
Cumulative Translation Adjustment 10,182 8,244
Treasury Stock - 789,212 and 552,951 shares,
at cost (16,814) (11,853)
Receivable from ESOP (7,665) (7,665)
------- -------
TOTAL SHAREHOLDERS' EQUITY 194,020 189,697
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $346,546 $337,360
======== ========
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
Three Months Ended
October 31
------------------
1994 1993
---- ----
OPERATING ACTIVITIES
Net Earnings $ 9,505 $ 9,767
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 4,174 3,871
Property, Plant and Equipment Write down 2,247 --
Cumulative Effect of Accounting Change -- (2,206)
Changes in Operating Assets and Liabilities (2,363) (3,003)
Other 749 (2,013)
-------- --------
14,312 6,416
INVESTING ACTIVITIES
Net Expenditures on PP&E (5,570) (4,133)
Dividends from Affiliate -- 850
-------- --------
(5,570) (3,283)
FINANCING ACTIVITIES
Purchase of Treasury Stock (5,162) (1,760)
Net Change in Debt 3,649 (215)
Dividends Paid (1,850) (1,492)
Other (46) 90
-------- --------
(3,409) (3,377)
Effect of Exchange Rate Changes on Cash 973 (55)
-------- --------
Increase(Decrease) in Cash and Cash Equivalents 6,306 (299)
Cash and Cash Equivalents-Beginning of Year 22,945 32,110
-------- --------
Cash and Cash Equivalents-End of Period $ 29,251 $ 31,811
======== ========
See Notes to Condensed Consolidated Financial Statements.
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 - 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. The cumulative effect of adopting
FAS 109 was to increase prior year first quarter net earnings by $2.2 million (8
cents per share).
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 Commmon Stock
held in treasury. All fiscal 1994 per 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 first quarter was a positive $6.3 million. Net
earnings plus depreciation more than covered capital expenditures, an increase
in working capital, and dividends and common stock repurchases in the quarter.
Capital expenditures of $5.6 million included funding for the expansion
of the Stevens Point facility and the addition of a new product line at the
Cresco facility. The Company is on budget to spend $25.0 million on capital
expenditures this year.
The increase in working capital of $2.4 million was primarily
attributable to a $4.6 million increase in accounts receivable. The increase in
receivables was primarily related to the sales increase in the quarter and
extended terms on gas turbine systems sales in Europe.
In the first quarter, the Company repurchased 238,000 shares in the open
market at an average cost of $21.70 per share. The Company still has Board
authorization to repurchase an additional 627,000 shares.
The Company borrowed $3.7 million in the quarter. The debt increase was
partially domestic, to fund the common stock repurchases, and partially in
Europe, to fund the hedging requirements of the Company's Belgian Coordination
Center.
At the end of the first quarter, the Company had $29.3 million of cash,
$37.2 million of debt and a capitalization ratio of 16.1 percent, up from 14.8
percent as of the prior year end.
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
First quarter net sales of $164.2 million were up 15 percent from
prior-year sales of $142.5 million. First quarter earnings of $9.5 million, or
35 cents per share, were up 26 percent from last year's earnings of $7.6
million, or 27 cents per share, before the cumulative effect of an accounting
change.
In the first quarter of last year, the Company adopted Financial
Accounting Standards Board Statement No. 109, "Accounting For Income Taxes" (FAS
109). The cumulative effect of adopting FAS 109 was to increase net earnings by
$2.2 million, or 8 cents per share. As a result, net earnings in the first
quarter of last year were $9.8 million, or 35 cents per share.
Worldwide net sales by market for the first quarter were as follows:
(In millions) 1995 1994 % Change
- ---------------------- ------ ------ -------
OEM $ 86.1 $ 67.9 26.8%
Aftermarket 24.1 21.3 13.1
Defense 2.1 3.1 (32.3)
Exhaust Filtration -- 4.0 NA
------ ------ ------
Engine Products $112.3 $ 96.3 16.6%
------ ------ ------
Dust Collection $ 24.0 $ 20.0 20.0%
Gas Turbine Systems 14.5 15.6 (7.1)
High Purity Products 13.4 10.6 26.4
------ ------ ------
Industrial Products $ 51.9 $ 46.2 12.3%
------ ------ ------
Net Sales $164.2 $142.5 15.2%
====== ====== ======
In the quarter, overseas sales were up almost 30 percent compared to a
9 percent increase in domestic sales.
Both domestic and overseas diesel engine OEM sales were up
significantly in the quarter; domestic up 28 percent and overseas up 25 percent.
Aftermarket sales were led by a 21 percent increase overseas with domestic sales
up 8 percent in the quarter. Defense sales declined 32 percent in the quarter.
At the end of 1993, the Company made the decision to exit the diesel particulate
trap market. First quarter sales last year reflect the shipment of the remaining
trap backlog.
Dust collection sales were led by a 29 percent increase overseas, with
domestic sales showing a strong 17 percent increase. For high purity products,
overseas sales were up 19 percent and domestic sales were up 30 percent.
Worldwide gas turbine systems sales were down 7 percent primarily due to reduced
sales to Stuart & Stevenson who has begun to manufacture filter housings
previously supplied by the Company.
Gross margins of 27.6 percent were down from prior-year margins of 28.4
percent. However, the Company took a $1.8 million charge against cost of sales
in the quarter to provide for the residual net book value of certain production
lines at two of the Company's plants. The installation of new lines will provide
improved productivity and increased capacity for a growing business segment.
Excluding the charge, gross margins would have been 28.7 percent in the quarter.
Operating expenses as a percentage of sales of 18.2 percent were
improved from prior-year expenses of 19.4 percent. However, excluding the $l.8
million of trap warranty expenses taken last year, operating expenses also would
have been 18.2 percent in the same period last year.
Other income was up $.5 million from last year primarily related to
decreased foreign exchange transaction losses at the Company's Brazilian
operation.
The Company's effective income tax rate decreased slightly from 37.5
percent last year to 37.2 percent in this year's first quarter.
Aided by the implementation in June of the Real Plan, the Brazilian
government's economic plan which ties the country's currency to the U.S. dollar,
the Company's Brazilian operation reported breakeven results in the quarter
compared to $0.5 million of operating losses for the same period last year.
Total backlogs of $179.5 million were up 30 percent relative to the
same period last year and 13 percent from prior year end. Hard order
backlogs--goods scheduled for delivery within 90 days-of $117.4 million were up
34 percent from the same period last year and up 11 percent from prior year end.
PART II. OTHER INFORMATION
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
October 31, 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 12/12/94 By /s/James R. Giertz
-------- ---------------------
James R. Giertz
Vice President -
Chief Financial Officer
Date 12/12/94 By /s/Raymond F. Vodovnik
-------- -------------------------
Raymond F. Vodovnik
Vice President-Legal
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