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, 1995
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 29, 1995 was $604,955,750.
The shares of Common Stock outstanding as of September 29, 1995 were 25,954,964.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1995 Annual Report to Shareholders of the registrant: Parts I
and II.
Portions of the Proxy Statement for the 1995 annual shareholders meeting: Part
III.
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 business is not considered to be seasonal. Its principal
products are distributed through multiple channels and primarily sold into these
channels through a direct sales force. Principal methods of competition are
price, geographic coverage, 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.
The table below shows the percentage of total net sales contributed by the
principal classes of similar products for each of the last three fiscal years:
Year Ended July 31
1995 1994 1993
Air cleaners, filtration
devices and accessories 67% 67% 68%
Acoustical products 11% 11% 11%
Other 22% 22% 21%
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 AND TRADEMARKS
The Company owns various patents and trademarks which it considers in the
aggregate to constitute a valuable asset. However, it does not regard the
validity of any one patent or trademark as being of material importance.
MAJOR CUSTOMER
Approximately 12.5 percent of the Company's 1995 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, 1995, the backlog of orders expected to be delivered within
90 days was $135,038,000. The backlog at August 31, 1994 was $111,147,000.
RESEARCH AND DEVELOPMENT
During 1995 the Company spent $14,487,000 on research and development
activities relating to the development of new products or improvements of
existing products or manufacturing processes. The Company spent $10,873,000 in
1994 and $11,364,000 in 1993 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.
EMPLOYEES
The Company employed 5,038 persons in worldwide operations as of July 31,
1995.
GEOGRAPHIC AREAS
Note J of the Notes to Consolidated Financial Statements on page 29 in the
1995 Annual Report to Shareholders contains information regarding the Company's
geographic areas and is incorporated herein by reference.
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, Mexico, India and Germany. The inside back cover of the
1995 Annual Report to Shareholders lists U.S. plant locations and is
incorporated herein by reference. Note J on page 29 of the 1995 Annual Report to
Shareholders presents identifiable assets by geographic area and is incorporated
herein by reference.
The Company is a lessee under several long-term leases. 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 - Not applicable.
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
Name Age Positions and Offices Held an Officer
William A. Hodder 64 Chairman, Chief Executive 1973
Officer and Director
William G. Van Dyke 50 President, Chief Operating 1979
Officer and Director
Erland D. Anderson 54 Vice President, Corporate 1978
Technology
William M. Cook 42 Vice President, Commercial 1994
and Industrial
Edmund C. Craft 55 Vice President, Engine 1985
Aftermarket
James R. Giertz 38 Vice President and Chief 1994
Financial Officer
Nickolas Priadka 49 Vice President, OE Engine 1989
Lowell F. Schwab 47 Vice President, Operations 1994
John E. Thames 45 Vice President, Human Resources 1989
Thomas A. Windfeldt 46 Vice President and 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.
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 31, and restrictions on payment of dividends in
Note D, page 25 of the 1995 Annual Report to Shareholders is incorporated herein
by reference. As of September 29, 1995, 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 1995 and 1994 are as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
1995 $20 7/8- 26 $20 7/8-24 1/4 $22 1/2-25 3/4 $24 1/8-28
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 1991 through 1995 on pages 32 and 33 of the
1995 Annual Report to Shareholders is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth in the section "Management's Discussion and
Analysis" on pages 17 through 19 of the 1995 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 20 through 29, and the Quarterly Financial Information
(Unaudited) on page 31 of the 1995 Annual Report to Shareholders is incorporated
herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE - Not applicable.
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 16, 1995 is incorporated
herein by reference. Information about the executive officers of the Company is
set forth in Part I of this report.
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 caption "Change-in-Control Arrangements" on page 11 of the
Company's definitive proxy statement dated October 16, 1995, 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 16, 1995, is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Not applicable.
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, 1995 and
1994 (incorporated by reference from page 21 of the 1995 Annual
Report to Shareholders)
Consolidated Statements of Earnings--years ended July 31, 1995,
1994 and 1993 (incorporated by reference from page 20 of the 1995
Annual Report to Shareholders)
Consolidated Statements of Cash Flows--years ended July 31, 1995,
1994 and 1993 (incorporated by reference from page 22 of the 1995
Annual Report to Shareholders)
Consolidated Statements of Changes in Shareholders' Equity--years
ended July 31, 1995, 1994 and 1993 (incorporated by reference
from page 23 of the 1995 Annual Report to Shareholders)
Notes to Consolidated Financial Statements (incorporated by
reference from pages 24 through 29 of the 1995 Annual Report to
Shareholders)
Report of Independent Auditors (incorporated by reference from
page 30 of the 1995 Annual Report to Shareholders).
(2) Financial Statement Schedules -
Schedule II Valuation and qualifying accounts
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,
1995.
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 27, 1995 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/ James R. Giertz Vice President and Chief
James R. Giertz Financial Officer
/s/ Thomas A. Windfeldt Vice President and Controller
Thomas A. Windfeldt
/s/ William G. Van Dyke President, Chief Operating
William G. Van Dyke Officer and Director
*A. Gary Ames Director
A. Gary Ames
*F. Guillaume Bastiaens Director
F. Guillaume Bastiaens
*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
*G. Angus Wurtele Director
G. Angus Wurtele
*By /s/Raymond F. Vodovnik Date: October 27, 1995
Raymond F. Vodovnik
* As attorney-in-fact
SCHEDULE II--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, 1995:
Allowance for doubtful
accounts deducted from
accounts receivable $3,443 $ 940 $ 111(A) $ (537)(B) $3,957
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
</TABLE>
Note A--Foreign currency translation losses (gains) recorded directly to
retained earnings.
Note B--Bad debts charged to allowance, net of recoveries.
EXHIBIT INDEX
ANNUAL REPORT ON FORM 10-K
* 3-A - Certificate of Incorporation of Registrant as
currently in effect (Filed as Exhibit 3-a to 1993
Form 10-K Report)
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 - Annual Cash Bonus
* 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 1991 Master Stock
Compensation Plan
* 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
* 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
* 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 as amended
11 - Statement re computation of per share earnings
13 - Portions of Registrant's Annual Report to Shareholders for
the year ended July 31, 1995
21 - Subsidiaries ("Wholly Owned Subsidiaries" and "Joint
Ventures" on the inside back cover of the 1995 Annual Report
to Shareholders 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, 1995
* Exhibit has heretofore been filed with the Securities and Exchange
Commission 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
$20 representing Registrant's reasonable expense in furnishing such exhibits.
BY-LAWS
OF
DONALDSON COMPANY, INC.
Offices
1. The principal office of the corporation shall be in Wilmington,
Delaware, and the resident agent in charge thereof shall be Corporation Service
Company.
The corporation may also have an office or offices at such place or
places, within or without the State of Delaware as the Board of Directors may
from time to time designate or the business of the corporation may require.
Corporate Seal
2. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its incorporation, and the words "Incorporated
Delaware".
Meetings of Stockholders
3. The Annual Meeting of Shareholders for the election of directors and for
the transaction of such other business as may properly come before the meeting
shall be held on the third Friday in November of each year at such hour as may
be specified in the notice of said meeting; provided, should that day be a legal
holiday, then said meeting shall be held on the next succeeding business day
which is not a legal holiday.
Special meetings of the stockholders may be called at any time by the
chairman of the board or the president and shall be called on the request in
writing or by vote of a majority of the directors.
All meetings of the stockholders, including meetings for the election of
directors, shall be held at such place or places within or without the State of
Delaware as may from time to time be fixed by the Board of Directors or shall be
specified and fixed in the respective notices or waivers of notices thereof.
A complete list of stockholders entitled to vote, arranged in
alphabetical order, shall be prepared by the secretary and shall be open to the
examination of any stockholder at the place of election, for ten days prior
thereto, and during the whole time of the election.
Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of the stockholders each stockholder having the
right to vote thereat shall be entitled to (i) one vote, in person or by proxy
signed by such stockholder, for each share of common stock of the Corporation
standing in his name, and (ii) such voting rights, if any, as are provided in
the applicable Certificate of Designation, Preferences and Rights with respect
to any series of preferred stock of the Corporation standing in his name, which
voting rights may be exercised in person or by proxy signed by such stockholder,
and in all such instances on the date fixed by the Board of Directors as the
record date for the determination of the stockholders who shall be entitled to
notice of and vote at such meeting; or if no record date shall have been fixed,
then at the close of business on the day next preceding the day on which notice
thereof shall be given. Such right to vote shall be subject to the right of the
board of directors to close the transfer books or to fix a record date for
voting stockholders as hereinafter provided and if the directors shall not have
exercised such right, no share of stock shall be voted on at any election for
directors which shall have been transferred on the books of the corporation
within twenty days next preceding such election.
Written notice of all meetings shall be given by the secretary not less
than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting.
The holders of a majority of the Common Stock outstanding present in
person or represented by proxy shall be requisite to and shall constitute a
quorum for the transaction of business except as otherwise provided by law or by
the Articles of Incorporation as amended or by these By-laws. However, the
holders of the majority of the Common Stock who are present in person or
represented by proxy shall have power to adjourn such meeting from time to time
without notice other than announcement at the meeting until a quorum is secured.
Directors
4. The property and business of the incorporation shall be managed and
controlled by its board of directors. The number of directors which shall
constitute the whole board shall be such number, not less than three nor more
than fifteen, as may be determined from time to time (i) by the shareholders by
the affirmative vote of the holders of two thirds of the outstanding shares of
all classes of stock of the corporation entitled to vote for the election of
directors (considered for this purpose as one class) or (ii) by the board of
directors by a vote of not less than a majority of all of the directors then in
office. All directors to be elected shall be elected for three year terms
(except as hereinafter provided with respect to directors to fill certain
vacancies) so that approximately one-third of the directors will be elected to
each annual meeting of the shareholders. Each director shall continue in office
until the annual meeting in the year in which his term expires and until his
successor shall have been elected and qualified, or until his death, or until he
shall resign or have been removed by the vote of the holders of a majority of
the outstanding shares of capital stock of all classes of the corporation
entitled to vote in the election of directors at a special meeting of the
shareholders called for that purpose.
Any vacancies in the board of directors from any cause, including
vacancies created by increase in the number of directors, may be filled either
by a majority of the then qualified directors, even though less than a quorum,
or by the stockholders. Each director so chosen shall hold office for the
unexpired term of the director whose place shall be vacant, providing that each
director so chosen to fill a vacancy created by increase in the number of
directors shall be elected for an appropriate term so that approximately
one-third of the directors will be elected at each annual meeting of the
stockholders thereafter.
Directors shall be bonafide owners of at least one hundred (100) shares
of this corporation's stock, shall not stand for election or re-election after
attaining the age of sixty-eight and shall offer their resignation from the
Board at such time as they may change their basic business or professional
activity or affiliation; provided, however, that non-employee directors need not
offer such resignation in the event of normal retirement. Non-employee directors
continuous membership on the board of directors shall be limited to five
consecutive three year terms.
Powers of Directors
5. The board of directors shall have, in addition to such powers as are
hereinafter expressly conferred on it, all such powers as may be exercised by
the corporation, subject to the provisions of the statute, the certificate of
incorporation and the by-laws.
The board of directors shall have power:
To purchase or otherwise acquire property, rights or privileges for the
corporation, which the corporation has power to take, at such prices and on such
terms as the board of directors may deem proper.
To pay for such property, rights or privileges in whole or in part with
money, stock, bonds, debentures or other securities of the corporation, or by
the delivery of other property of the corporation.
To create, make and issue mortgages, bonds, deeds of trust, trust
agreements and negotiable or transferable instruments and securities, secured by
mortgages or otherwise, and to do every other act and thing necessary to
effectuate the same.
To appoint agents, clerks, assistants, factors, employees and trustees,
and to dismiss them at its discretion, to fix their duties and emoluments and to
change them from time to time and to require security as it may deem proper.
To confer on any officer of the corporation the power of selecting,
discharging or suspending such employees.
To determine by whom and in what manner the corporation's bills, notes,
receipts, acceptances, endorsements, checks, releases, contracts or other
documents shall be signed.
Meetings of Directors
6. Immediately after each annual election of directors, the directors shall
meet for the purpose of organization, the election of officers and the
transaction of other business at such place as shall be specified in the notice
of such meeting provided as hereinafter established for either regular or
special meetings.
The board of directors may provide by resolution, the time and place,
either at the general office of the company or elsewhere, for the holding of
regular meetings without other notice than such resolution.
Special meetings of the directors may be called at any time by the
chairman of the board, the president or any vice president who is also a
director and shall be called on the written request of any two directors. Notice
of such a special meeting shall be in writing sent to each director at his
residence or usual place of business two days prior thereto.
Special meetings of the directors may be held within or without the
State of Delaware at such place as is indicated in the notice or waiver of
notice thereof.
A majority of the directors shall constitute a quorum, but a smaller
number may adjourn from time to time, without further notice, until a quorum is
secured.
Executive and Other Committees
7. The board of directors may, by resolution or resolutions passed by a
majority of the whole board, designate an executive committee and one or more
other committees, each to consist of two or more of the directors of the
corporation.
The executive committee shall not have authority to make, alter or amend
the by-laws, but shall exercise all other powers of the board of directors
between the meetings of said board, except the power to fill vacancies in their
own membership, which vacancies shall be filled by the board of directors.
The executive committee shall meet at stated times or on notice to all
by any of their own number. It shall fix its own rules of procedure. A majority
shall constitute a quorum, but the affirmative vote of a majority of the whole
committee shall be necessary in every case.
The executive committee shall keep regular minutes of its proceedings
and report the same to the board of directors.
Such other committees shall have and may exercise the powers of the
board of directors to the extent provided in such resolution or resolutions.
Compensation of Directors and Members of Committees
8. Directors and members of standing committees shall receive such
compensation for attendance at each regular or special meeting as the board
shall from time to time prescribe.
Officers of The Corporation
9. The officers of the corporation shall be the chairman of the board of
directors (if one is elected by the board of directors), the president, one or
more vice presidents, a secretary, a treasurer and such other officers as may
from time to time be elected by the board of directors.
The officers of the corporation shall hold office until their successors
are elected and qualify. An officer elected by the board of directors may be
removed either with or without cause at any time by the affirmative vote of a
majority of the whole board of directors. Such removal, however, shall be
without prejudice of the contract rights of the person so removed. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
affirmative vote of a majority of the whole board of directors.
Duties of the Chairman of the Board and the President
10. The chairman of the board of directors, if one is elected, shall
preside at all meetings of the shareholders and directors and shall have such
other duties as may be prescribed from time to time by the board of directors.
In the absence of the chairman of the board of directors, the president
shall preside at all meetings of the shareholders and directors and shall have
such other duties as may be prescribed from time to time by the board of
directors.
If the chairman of the board of directors is elected, the board of
directors shall designate which of the chairman of the board of directors or the
president is the chief executive officer of the corporation, and shall provide
for the division of executive duties and responsibilities between those two
officers. If the chairman of the board of directors shall not be elected, the
president shall be the chief executive officer of the corporation and shall have
general and active management of the business of the corporation.
Vice President
11. The vice president or vice presidents, in the order designated by the
board of directors, shall be vested with all the powers and required to perform
all the duties of the president in his absence or disability and shall perform
such other duties as may be prescribed by the board of directors.
President Pro Tem
12. In the absence or disability of the chairman of the board, the
president and the vice presidents, the board may appoint from their own number a
president pro tem.
Secretary
13. The secretary shall attend all meetings of the corporation, the board
of directors, the executive committee and standing committees. He shall act as
clerk thereof and shall record all of the proceedings of such meetings in a book
kept for that purpose. He shall give proper notice of meetings of stockholders
and directors and shall perform such other duties as shall be assigned to him by
the chief executive officer or the board of directors.
Financial Officers
14. The Vice President - Chief Financial Officer, if one is elected, shall
have such authority and responsibility as specified herein for both the
Treasurer and the Controller.
The treasurer, vice president - finance or such other similar title
shall be the financial officer, shall have custody of, and be responsible for,
all funds of the corporation; shall deposit all moneys and other valuable
effects in the name and to the credit of the corporation in such depositories as
may be designated by the board of directors; shall render to the chief executive
officer and directors, whenever they may require it, an account of all
transactions as treasurer and of the financial condition of the corporation;
shall keep an account of stock registered and transferred in such manner and
subject to such regulations as the board of directors may prescribe; and shall
perform all of the duties incident to the office of the treasurer and such other
duties as from time to time, may be assigned by the chief financial officer,
chief executive officer of board of directors.
The controller shall be the chief accounting officer; shall keep full
and accurate accounts of all assets, liabilities, receipts, disbursements and
other financial transactions in books belonging to the corporation; shall cause
regular audits of such books and records to be made; shall see that all
expenditures are made in accordance with procedures duly established by the
corporation; shall render to the chief executive officer and board of directors,
whenever requested, financial statements of the corporation; and shall perform
all the duties incident to the office of controller and such other duties as,
from time to time, may be assigned by the chief financial officer, chief
executive officer or board of directors.
Financial officers may be required to furnish bond in such amount as
shall be determined by the board of directors.
Duties of Officers May Be Delegated
15. In case of the absence or disability of any officer of the corporation
or for any other reason deemed sufficient by a majority of the board, the board
of directors may delegate his powers or duties to any other officer or to any
director for the time being.
Certificates of Stock
16. Certificates of stock shall be signed by the President or a Vice
President and the Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary. Any or all of the signatures on the certificates may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon any such certificate shall thereafter
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, such certificate may nevertheless be issued by the
corporation with the same effect as though the person who signed such
certificate, or whose facsimile signature shall have been placed thereupon, were
such officer, transfer agent or registrar at the date of issue. If a certificate
of stock be lost, mutilated or destroyed, another may be issued in its stead
upon proof of such loss, mutilation or destruction, and the giving of a bond of
indemnity in form, substance and amount satisfactory to the corporation and to
the Transfer Agent and Registrar, if any, of such stock, provided that, if there
be no Transfer Agent or Registrar for the class of stock of which the
certificate be lost, mutilated or destroyed, the Board of Directors may waive
the requirement of a bond indemnity if in its judgment such waiver is warranted
by the circumstances.
Transfer of Stock
17. All transfers of stock of the corporation shall be made upon its books
by the holder of the shares in person or by his lawfully constituted
representative, upon surrender of certificates of stock for cancellation.
Provided, however, that with respect to stock which has been presumed abandoned
under an applicable state law, appropriate officers of the Corporation may
effect cancellation of the certificate representing the abandoned shares and
cause transfer thereof to such state by means of delivery of a new certificate
in the name of such state.
Closing of Transfer Books
18. The Board of Directors shall have power to close the stock transfer
book for a period not exceeding sixty days preceding the date of any meeting of
stockholders or the date for payment of any dividend or the date for allotment
of rights or the date when any change, conversion or exchange of stock shall go
into effect or in connection with obtaining the consent of stockholders for any
purpose. If the stock transfer book is closed preceding the date of any meeting
of stockholders, such book shall be closed for at least ten days immediately
preceding such meeting. In lieu of closing the stock transfer book, the Board of
Directors may fix, in advance, a record date, which shall not be more than sixty
nor less than ten days before the date of any meeting of stockholders, nor more
than sixty days prior to any other action, for the determination of stockholders
entitled to notice of, and to vote, at any such meeting or any adjournment
thereof, or entitled to receive payment of any such dividend, or to any such
allotment of rights, or to exercise the rights in respect of any such change,
conversion or exchange of stock or to give such consent, and in such case such
stockholders and only such stockholders as shall be stockholders of record on
the date so fixed shall be entitled to such notice of, and to vote at such
meeting and any adjournment thereof, or to receive payment of such dividend, or
to receive such allotment of rights, or to exercise such rights, or to give such
consent, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after such record date fixed as aforesaid.
Stockholders of Record
19. The corporation shall be entitled to treat the holder of record of any
share or shares as the holder in fact thereof and accordingly shall not be bound
to recognize any equitable or other claim to or interest in such share on the
part of any other person whether or not it shall have express or other notice
thereof, save as expressly provided by the laws of Delaware.
Fiscal Year
20. The fiscal year of the corporation shall begin on the first day of
August in each year, commencing with the year 1956.
Dividends
21. Dividends upon the capital stock may be declared by the board of
directors at any regular or special meeting and may be paid in cash or in
property or in shares of the capital stock. Before paying any dividend or making
any distribution of profits, the directors may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may alter or abolish any such reserve or reserves.
Checks for Money
22. All checks, drafts or orders for the payment of money shall be signed
by the treasurer or by such other officer or officers as the board of directors
may from time to time designate. No check shall be signed in blank.
Books and Records
23. The books, accounts and records of the corporation except as otherwise
required by the laws of the State of Delaware, may be kept within or without the
State of Delaware, at such place or places as may from time to time be
designated by the By-laws or by resolution of the directors.
Notices
24. Notice required to be given under the provisions of these By-laws to
any director, officer or stockholder shall not be construed to mean personal
notice, but may be given in writing by depositing the same in a post office or
letter-box, in a post-paid sealed wrapper, addressed to such stockholder,
officer or director at such address as appears on the books of the corporation,
and such notice shall be deemed to be given at the time when the same shall be
thus mailed. Any stockholder, officer or director may waive, in writing, any
notice required to be given under these By-laws, whether before or after the
time stated therein.
Amendments of By-laws
25. Except as hereinafter stated, these By-laws may be amended, altered,
repealed or added to by the shareholders by the affirmative vote of a majority
of the outstanding shares entitled to vote on the matter, or by the board of
directors by a majority of the directors then in office, at any regular meeting
or at any special meeting called for that purpose. Provided that, any amendment,
alteration or repeal of, or addition to, the first paragraph of By-law 4 or this
sentence of By-law 25 by shareholders shall require the affirmative vote of
66-2/3% of the outstanding shares of capital stock of all classes of the
corporation entitled to vote generally for the election of directors, considered
for this purpose as one class.
Indemnification of Directors and Officers
26. The Corporation shall indemnify such persons, for such liability or
expense, in such manner, under such circumstances, and to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, as now enacted
or hereafter amended. The Board of Directors may authorize the purpose and
maintenance of insurance for the purpose of such indemnification.
Emergency Bylaws
27. The emergency Bylaws provided in this article shall be operative during
any emergency resulting from an attack on the United States or on a locality in
which the corporation conducts its business or customarily holds meetings of its
board of directors or its shareholders, or during any nuclear or atomic
disaster, or during the existence of any catastrophe, or other similar emergency
condition, as a result of which a quorum of the board of directors or a standing
committee thereof cannot readily be convened for action. Upon termination of
such emergency, these Emergency Bylaws shall cease to be operative unless and
until another such emergency shall occur. When operative, the provisions of
these Emergency Bylaws shall prevail over any contrary provision in the
certificate of incorporation or other bylaws of the corporation.
During any such emergency:
(a) A meeting of the board of directors may be called by any officer or
any director of the corporation.
(b) Notice of the time and place of such directors' meeting shall be
given by such person calling the meeting or by any officer of the corporation;
provided, however, that any such notice need be given only to such of the
directors and other persons as it may be feasible to reach at that time, and by
such means as may be feasible at that time, including, but not limited to radio
and publication. Notice shall be similarly given, to the extent feasible, to all
persons referred to in paragraph (c) of these Emergency Bylaws. Notice shall be
given at least two days before the meeting, if feasible in the judgment of the
person giving or authorizing the giving of the notice, and otherwise on any
shorter time that such person may deem necessary under the circumstances.
(c) At any meeting of the board of directors, a quorum shall consist of
a majority of the number of directors fixed at that time. If the directors
present at any particular meeting shall be fewer than the number required for
such quorum, other persons present, to the number necessary to make up such
quorum, shall be deemed directors for that particular meeting to be determined
by the following provisions and in the following order of priority:
(1) The persons who are designated on a priority list, which shall
have been approved by the board of directors before the
emergency, such persons to be taken in the order of priority
provided by the list and subject to such conditions as may be
established therein; or
(2) In the absence of sufficient persons designated in such list, all
officers of the corporation in order of their seniority of first
election to an office or the corporation.
(d) The board of directors constituted as provided in these Emergency
Bylaws may exercise the full power and authority of the regular board of
directors.
(e) The board of directors may provide, and from time to time modify,
lines of succession in the event that during such emergency any or all officers
or agents of the corporation shall for any reason be rendered incapable of
discharging their duties.
(f) The necessity of holding an annual meeting of shareholders may be
suspended for a period not to exceed one year if, in the sole judgment of the
board of directors, the holding of such meeting is not feasible under the
circumstances prevailing at the time such annual meeting would ordinarily be
held; provided, however, that the bylaw provisions for the calling of a special
meeting of shareholders shall remain in effect and any special meeting called
during said suspension shall have as an item of business the election of a board
of directors.
(g) No officer, director or employee acting in accordance with these
Emergency Bylaws shall be liable except for willful misconduct.
Exhibit 10-A
DONALDSON COMPANY, INC.
ANNUAL CASH BONUS PLAN
1. DEFINITIONS. When the following terms are used herein with initial capital
letters, they shall have the following meanings:
1.1 BONUS POOL AMOUNT. An amount from which bonuses as provided herein may
be paid equal to two and nine-tenths percent (2.9%) of the Company's
earnings before income taxes for the Performance Period for which
bonuses are being paid, as computed in accordance with generally
accepted accounting principles as in effect from time to time and as
applied by the Company in the preparation of its financial statements.
For purposes of the foregoing computation, changes in generally
accepted accounting principles which occur during a Performance Period
shall not be taken into account, and extraordinary items, discontinued
operations and restructuring costs, as computed in accordance with
generally accepted accounting principles as in effect from time to
time and as applied and reported by the Company in the preparation of
its financial statements, shall also not be taken into account.
1.2 COMMITTEE. A committee of the Board of Directors comprised solely of
two or more members appointed from time to time by the Board of
Directors. All members of the committee shall be "outside directors"
within the meaning of Section 162(m) of the Code.
1.3 CODE. The Internal Revenue Code of 1986, as it may be amended from
time to time, and any proposed, temporary or final Treasury
Regulations promulgated thereunder.
1.4 COMPANY. Donaldson Company, Inc., a Delaware corporation, and any of
its subsidiaries or affiliates whether nor or hereafter established.
1.5 PARTICIPANT. The Chief Executive Officer, and three other key
employees of the Company or any of its subsidiaries or affiliates who
are specifically designated by the Committee pursuant to Section 2.2
hereof as the "Second," "Third" and "Fourth Participant.
1.6 PERFORMANCE PERIOD. The period which coincides with the Company's
fiscal year.
1.7 COMPANY PERFORMANCE FACTOR. The Company's "return on investment" must
be at least nine percent (9%) for the Performance Period for which
bonuses are being paid. For purposes of the foregoing computation,
"return on investment" means a fraction with a numerator equal to net
earnings after income taxes for that Performance Period as computed in
accordance with Section 1.1 above, and with a denominator equal to the
sum of the Company's long-term debt and stockholders equity, all as
computed in accordance with generally accepted accounting principles
as in effect from time to time and as applied and reported by the
Company in the preparation of its financial statements and annual
reports. Such denominator shall be computed as of the last day of the
Company's fiscal year which ends immediately before the beginning of a
Performance Period and as of the last day of the fiscal year which
coincides with the Performance Period, and the sum of the foregoing
amounts shall then be divided by two in order to determine such
denominator.
2. ADMINISTRATION.
2.1 COMMITTEE. The Plan shall be administered by the Committee.
2.2 DETERMINATIONS MADE AT START OF EACH PERFORMANCE PERIOD. No later than
ninety (90) days after the beginning of a Performance Period, the
Committee shall designate Participants for that Performance Period.
2.3 CERTIFICATION. Following the close of each Performance Period and
prior to payment of any bonus under the Plan, the Committee must
certify in writing that the Company Performance Factor has been
attained and as to the computation of the Bonus Pool Amount.
2.4 SHAREHOLDER APPROVAL. The material terms of this Plan shall be
disclosed to and approved by the stockholders of the Company in
accordance with Section 162(m) of the Code. No bonus shall be paid
under this Plan unless such stockholder approval has been obtained.
3. BONUS PAYMENT.
3.1 FORMULA. Subject to Section 3.2(b) hereof, the Chief Executive Officer
shall receive a cash bonus for each Performance Period in an amount
equal to thirty-eight percent (38%) of the Bonus Pool Amount for that
Performance Period, and each of the three other Participants in this
Plan for a Performance Period shall each receive a cash bonus payment
for each Performance Period in an amount equal to twenty-six percent
(26%) for the Second Participant, an amount equal to twenty percent
(20%) for the Third Participant and an amount equal to sixteen percent
(16%) for the Fourth Participant of the Bonus Pool Amount for that
Performance Period.
3.2 LIMITATIONS.
(a) NO PAYMENT IF PERFORMANCE FACTOR NOT ACHIEVED. In no event shall
any Participant receive a bonus payment hereunder if the Company
Performance Factor is not achieved during the Performance Period.
(b) COMMITTEE MAY REDUCE BONUS PAYMENT. The Committee retains sole
discretion to reduce the amount of any bonus otherwise payable
under this Plan. If and to the extent permitted by Section 162(m)
of the Code, the Bonus Pool Amount in a subsequent Performance
Period shall be increased by any portion of the Bonus Pool Amount
of a prior Performance Period which has not been paid or credited
to or for the benefit of Participants hereunder.
4. BENEFIT PAYMENTS.
4.1 TIME AND FORM OF PAYMENTS. Subject to any deferred compensation
election pursuant to any such plans of the Company applicable hereto,
benefits shall be paid to the Participant in a single lump sum cash
payment as soon as administratively feasible after the Committee has
certified that the Company Performance Factor has been attained.
4.2 NONTRANSFERABILITY. Participants and beneficiaries shall not have the
right to assign, encumber or otherwise anticipate the payments to be
made under this Plan, and the benefits provided hereunder shall not be
subject to seizure for payment of any debts or judgments against any
Participant or any beneficiary.
4.3 TAX WITHHOLDING. In order to comply with all applicable federal or
state income tax laws or regulations, the Company may take such action
as it deems appropriate to ensure that all applicable federal or state
payroll, withholding, income or other taxes, which are the sole and
absolute responsibility of a Participant, are withheld or collected
from such Participant.
5. AMENDMENT AND TERMINATION. The Committee may amend this Plan prospectively at
any time and for any reason deemed sufficient by it without notice to any person
affected by this Plan and may likewise terminate or curtail the benefits of this
Plan both with regard to persons expecting to receive benefits hereunder in the
future and persons already receiving benefits at the time of such action.
6. MISCELLANEOUS.
6.1 EFFECTIVE DATE. August 1, 1994.
6.2 TERM OF THE PLAN. The Plan shall continue until discontinued or
terminated by the Committee.
6.3 APPLICABILITY TO SUCCESSORS. This Plan shall be binding upon and inure
to the benefit of the Company and each Participant, the successors and
assigns of the Company, and the beneficiaries, personal
representatives and heirs of each Participant. If the Company becomes
a party to any merger, consolidation or reorganization, this Plan
shall remain in full force and effect as an obligation of the Company
or its successors in interest.
6.4 EMPLOYMENT RIGHTS AND OTHER BENEFIT PROGRAMS. The provisions of this
Plan shall not give any Participant any right to be retained in the
employment of the Company. In the absence of any specific agreement to
the contrary, this Plan shall not affect any right of the Company, or
of any affiliate of the Company, to terminate, with or without cause,
the participant's employment at any time. This Plan is in addition to,
and not in lieu of, any other employee benefit plan or program in
which any Participant may be or become eligible to participate by
reason of employment with the Company. Receipt of benefits hereunder
shall have such effect on contributions to and benefits under such
other plans or programs as the provisions of each such other plan or
program may specify.
6.5 NO TRUST OR FUND CREATED. This Plan shall not create or be construed
to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any affiliate and a Participant or
any other person. To the extent that any person acquires a right to
receive payments from the Company or any affiliate pursuant to this
Plan, such right shall be no greater than the right of any unsecured
general creditor of the Company or of any affiliate.
6.6 GOVERNING LAW. The validity, construction and effect of the Plan or
any bonus payable under the Plan shall be determined in accordance
with the internal laws, and not the laws of conflicts, of the State of
Minnesota.
6.7 SEVERABILITY. If any provision of the Plan is or becomes or is deemed
to be invalid, illegal or unenforceable in any jurisdiction such
provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended
without, in the determination of the Committee, materially altering
the purpose or intent of the Plan, such provision shall be stricken as
to such jurisdiction, and the remainder of the Plan shall remain in
full force and effect.
6.8 QUALIFIED PERFORMANCE-BASED COMPENSATION. All of the terms and
conditions of the Plan shall be interpreted in such a fashion as to
qualify all compensation paid hereunder as "qualified
performance-based compensation" within the meaning of Section 162(m)
of the Code.
Exhibit 10-D
DONALDSON COMPANY, INC.
Performance Award Agreement
This Agreement is made as of the _____ day of _____, 19___, between
Donaldson Company, Inc., a Delaware corporation (the "Company") and
_________________________ (the "Participant") pursuant to the Donaldson Company,
Inc. 1991 Master Stock Compensation Plan (the "Plan").
WITNESSETH:
WHEREAS, the Human Resources Committee of the Board of Directors of the Company
have decided to enter into agreements with key executives to provide for long
term performance awards, and
WHEREAS, the Plan contemplates that an award should be evidenced by a written
agreement, executed by the Company and the Participant, containing such
restrictions, terms and conditions as may be required by the Plan or the
Committee.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth
and of other good and valuable consideration, the Participant and the Company
hereby agree as follows:
1. Definitions. Participant acknowledges receipt of a copy of the Plan and
reference is made to the Plan for definition of certain terms used in this
Agreement.
(a) "Award Delivery Date" means a date no more than 60 days nor less than
45 days after the end of an Incentive Cycle or such earlier date as
hereinafter provided.
(b) "Incentive Cycle" is the three consecutive year period set forth in
the attached Exhibit A.
(c) "Award Split" means Award split between business/corporate Performance
Objectives for each Participant as determined by the Committee and set
forth in the attached Exhibit A.
(d) "Performance Objective" means the primary net earnings per share
resulting from the Return on Investment and Compound Sales Growth
determined by the Committee and set forth in Exhibit A.
(e) "Return on Investment" and "Sales" for purposes of this Plan shall
have the meaning and value set forth separately for each operating
group and corporate in the monthly operating reports published by the
Company's Accounting Department.
(f) "Vesting Date" shall be July 31, 19___.
2. Award. The Company hereby grants to the Participant an award (the "Award")
based on the number of shares of Common Stock of the Company as set forth in the
attached Exhibit A ("Performance Units") subject to the restrictions, terms and
conditions set forth below and in the Plan.
3. Award Delivery. Except as provided in Paragraphs 5 and 6 below, the Award
will be received only if the Performance Objectives set forth in Exhibit A have
been achieved by the end of the Incentive Cycle. The Award shall be calculated
by multiplying the Performance Units times a point, in an interpolation of the
Award Value Matrix, that coincides with the intersection of the respective
Performance Objectives' results. The Award shall be increased for Earnings Per
Share consistency as set forth in Exhibit A. If applicable, other Award
characteristics have also been referenced in Exhibit A. To avoid the necessity
of issuing fractional shares, fractional amounts will be applied to tax
withholding requirements.
4. Performance Objectives Alteration. The Performance Objectives may not be
changed. Provided, however, that in the event of an acquisition, disposition or
other change which, in the judgment of the Committee, may have a significant
effect on particular Performance Objectives, the Committee may adopt such
changes in the applicable Performance Objectives as it shall, in its sole
discretion, deem equitable and appropriate to achieve the purpose of the Plan.
5. Termination and Transfer.
(a) If the Plan is terminated or Participant ceases to be an employee by
reason of retirement (as defined in the Company's Employee Retirement
Plan), disability (as determined under the Company's Long Term
Disability Plan), or death prior to the Vesting Date, the Award earned
will be based on actual results compared to the Performance Objectives
at the end of the Incentive Cycle and multiplied by a fraction whose
numerator is the number of months completed in the cycle and
denominator is thirty-six with delivery on the Award Delivery Date.
(b) If Participant ceases to be an employee for any other reason than
stated in (a) above, participation in the Plan will cease and the
Award shall be immediately and irrevocably forfeited.
(c) If a participant transfers to an ineligible position, the Award earned
will be based on actual results compared to the Performance Objectives
at the end of the Incentive Cycle and multiplied by a fraction whose
numerator is the number of months completed in the cycle and
denominator is thirty-six with delivery on the Award Delivery Date.
6. Reorganization. In the event of a reorganization, merger or consolidation of
the Company with one or more Corporations in which the Company is not the
surviving Corporation or in the event a Change in Control shall have occurred,
the Performance Objectives shall be deemed to have been met for the period
ending, respectively, on a date prior to such reorganization, merger or
consolidation, as determined by the Committee or on the date on which the Change
in Control occurs and, the Award shall be calculated in the same manner as
provided under Section 5(a).
7. Miscellaneous.
(a) The rights and interest under this Agreement or the Plan may not be
assigned, pledged or transferred except by will or the laws of descent
and distribution.
(b) The Company shall have the right to deduct from all Awards any taxes
required by law to be withheld.
(c) Nothing in the Plan or in this Agreement shall be deemed to grant any
right of continued employment to Participant or to limit or waive any
rights of the Company to terminate such employment at any time, with
or without cause.
(d) The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other
segregation of assets or assure delivery of the Award under this
Agreement. Any liability of the Company to Participant with respect to
the Award shall be based solely upon any contractual obligations of
this Agreement or that may be created by the Plan; no such obligation
shall be deemed to be secured by any pledge or any encumbrance on any
property of the Company.
(e) The Company, the Company's Board of Directors, the Committee, the
officers and other employees and agents of the Company shall be fully
protected in relying in good faith on the computations and reports
made pursuant to or in connection with the Plan by the Company's
accountants or independent public accountants.
(f) This Agreement is subject to the requirement that, if at any time the
Committee determines, in its sole discretion, that the consent or
approval of any governmental regulatory body is necessary or desirable
as a condition of, or in connection with, the Award or delivery of the
Award, no delivery shall be made unless such consent or approval has
been obtained free of any conditions not acceptable to the Committee.
(g) Participant may elect to defer receipt of the award delivery until
January of the year following the Award Delivery Date by executing an
Award Delivery Deferral form prior to the Vesting Date.
IN WITNESS WHEREOF, Donaldson and the Participant have duly executed
Exhibit A to this Agreement effective the day and year first above written.
EXHIBIT A
DONALDSON COMPANY, INC.
INCENTIVE CYCLE: August 1, 19__ to July 31, 19__
PARTICIPANT: __________________________
PERFORMANCE UNITS: ________
PERFORMANCE OBJECTIVES: Compound Sales Return on
Growth Per Year Investment
Maximum ___________ __________
Corporate Target ___________ __________
Performance Threshold ___________ __________
Maximum ___________ __________
Group Target ___________ __________
Performance Threshold ___________ __________
AWARD SPLIT: Corporate _____% Group _____%
AWARD VALUE MATRIX:
COMPOUND Maximum 1.00 1.25 1.50
SALES GROWTH Target .75 1.00 1.25
Threshold .50 .75 1.00
Threshold Target Maximum
RETURN ON INVESTMENT
CONSISTENCY BONUS: If Earnings per Share increase by at least 5% each year of
the Incentive Cycle and the threshold Corporate Performance
Objectives are achieved, the Award value shall be increased
by 25%.
OTHER AWARD CHARACTERISTICS:
Accepted _____________, 19__.
PARTICIPANT DONALDSON COMPANY, INC.
______________________ _______________________
Exhibit 10-H
DONALDSON COMPANY, INC.
INDEPENDENT DIRECTOR RETIREMENT AND DEATH BENEFIT PLAN
This Independent Director Retirement and Death Benefit Plan (the "Plan") has
been adopted by the Board of Directors (the "Board") of Donaldson Company, Inc.
(the "Company") as of August 1, 1987 (the "Effective Date").
1. ELIGIBILITY
Persons who were directors of the Company on the Effective Date, or who
become directors of the Company after the Effective Date, and are neither
employees of the Company or its subsidiaries nor former employees of the
Company or its subsidiaries ("Participants") will become eligible to
receive benefits as and to the extent provided under Sections 2 and 3 of
the Plan.
2. RETIREMENT OR OTHER TERMINATION: ELIGIBILITY
When a Participant ceases to be a director of the Company because of (i)
retirement, (ii) resignation, (iii) failure to be reelected to a succeeding
term as a director following expiration of the director's term of office;
(iv) involuntary termination other than removal for cause, (v) death or
(vi) disability, (in each of which events the directorship of the
Participant is herein said to "Terminate"), the Participant shall be
eligible to receive benefits hereunder, under the following conditions:
(a) Before Participant has Completed five (5) full years of Service as a
Director
Benefits will be payable only in the event of the Participants's death
while serving as a member of the Board.
(b) After Participant has completed five (5) full years of Service as a
Director
Benefits will be payable under the following conditions:
(1) Retirement Under Terms of the Donaldson Company, Inc. Directors'
Retirement Policy
Participant Terminates as a result of retirement as required
under the terms of the Donaldson Company, Inc. Directors'
Retirement Policy then in effect.
(2) Resignation
Participant Terminates as a result of a voluntary resignation.
(3) Failure to be Reelected
Participant Terminates by reason of his/her failure to be
reelected to a succeeding term as a director when the
Participant's term as director expires.
(4) Involuntary Termination
Participant Terminates otherwise than by Participant's voluntary
act, and otherwise than be removal for cause (i.e., proven
dishonesty, gross misconduct or dereliction of duty) due to
conflicts of interest such as outlined in the Company's Code of
Conduct. A Participant may be required to Terminate because of
the Company's entry into a new business, market, activity or
relationship which, as determined by that Participant with the
concurrence of the Board, creates a conflict between the
pre-existing interests of the Participant and the interests of
the Company.
(5) Death
Participant Terminates by reason of death.
(6) Disability
Participant Terminates following a determination by the Company's
Board of Directors that Participant is unable to fulfill the
duties of a director of the Company by reason of disability,
however caused.
3. BENEFIT AMOUNT AND PAYMENTS
(a) Benefit Amount
A Participant who becomes eligible to receive benefits under the Plan
shall be entitled to a benefit equal to the final annual director
retainer fee paid to that participant.
(b) Benefit Payments
Payments of benefits ("Benefit Payments") to a Participant shall be
made in equal annual installments over a period equal to the number of
years of the Participant's service as a director of the Company or its
subsidiaries up to a maximum of ten (10) years (for directors retiring
after December 1, 1992 fifteen (15) years). Provided that if a
Participant has completed five (5) full years of service, a partial
year of service will be credited as a full year if .50 or greater.
If the Participant elects, in writing at least one year prior to
termination, a lump sum amount equal to the then present value of
Benefit Payments determined in the same manner as set forth in sub
section (iv) of this Section 3 but as of Participant's commencement
date as hereinafter provided, shall be paid within sixty (60) days
after the commencement date. The election may be made or changed
anytime while a director; provided, that the election shall be
irrevocable after a date one year prior to termination.
Exception:
A Participant who terminates because of death shall be credited with a
full fifteen (15) years of service regardless of that Participant's
period of service as a director of the Company or its subsidiaries.
Benefits will commence on the later of:
(i) the January 1 next following the date on which the Participant
Terminates; or
(ii) for terminated Participants, the January 1 next following the
date on which (a) the Participant attains age sixty-five (65) or
(b) (if earlier) the Participant dies;
except that:
(iii) benefits to a Participant who Terminates upon a determination of
disability under Section 2(b) (2) shall become payable commencing
the January 1 next following the date on which the Participant
Terminates, notwithstanding that the Participant has not attained
age sixty-five (65) at that time; and
(iv) benefits to be paid after a Participant's death shall be settled,
if the Participant had so elected in writing, by payment to the
Participant's designated beneficiary within sixty (60) days after
death of a lump sum amount equal to the then present value of
unpaid Benefit Payments determined by use of the immediate
annuity rate being applied at the date of the Participant's death
by the Pension Benefit Guaranty Corporation. If not so elected,
any remaining installments will be paid to the Participant's
designated beneficiary.
Notwithstanding anything to the contrary, the Board in its sole
and absolute discretion may at any time and for any reason elect
to accelerate all or any portion of the Benefit Payments payable
to (or with respect to) all or less than all of the Participants.
4. ADMINISTRATION
(a) Taxes
The Company shall withhold federal, state or local taxes from Benefit
Payments to the extent required by law.
(b) Non-Funded
The Company's obligations under the Plan shall be an unfunded and
unsecured promise to pay. Any assets which the Company may acquire to
help meet its financial liabilities are and remain general assets of
the Company subject to the claims of its creditors. The company does
not give,nor does any Participant receive, any beneficial ownership
interest in any asset of the Company.
(c) Continuation of Directorship
The Plan shall not be deemed to give any Participant the right to
continue as a director of the Company.
(d) Payments After Death
Upon a Participant's death, any Benefit Payments (including a lump-sum
settlement elected under Section 3(b) (iv) payable with respect to
that Participant, whether or not such payment had commenced, shall be
paid to the beneficiary or beneficiaries who had been designated in
writing to the Company by said Participant, or if such designation had
been made, to said Participant's estate.
(e) Payments Due Incompetents or Minors
If the Board determines that any person to whom a payment is due
hereunder is unable to care for his or her affairs because of physical
or mental disability, or that such person is a minor, the Company
shall have the authority to cause payments becoming due to such person
to be made for the benefit of such person to any individual or entity
deemed appropriate by the Company without responsibility of the
Company to see to the application of such payments and in complete
discharge of the obligations of the Company under the Plan.
(f) Assignability
Except insofar as this provision may be contrary to applicable law, no
sale, transfer, alienation, assignment, pledge, collateralization, or
attachment of any benefits under the Plan shall be valid or recognized
by the Company.
(g) Amendment and Termination
The Board necessarily reserves the right to amend the Plan from time
to time, or to terminate the Plan at any time, except that,
notwithstanding such amendment or termination, each Participant shall
receive Benefit Payments at least equivalent to
(i) Benefit Payments the first of which become payable to or with
respect to the Participant under the Plan prior to the date of
amendment or termination (whether or not such first payment had
been made); or
(ii) Benefit Payments none of which had become payable prior to the
date of amendment or termination but to which the Participant had
become entitled prior to such date because the Participant had
Terminated; or
(iii) Benefit Payments to which the Participant later would have
become entitled when the Participant Terminates, and which would
have become payable to the Participant, if (a) the Plan had
provided that the Participant receives credit under Section 3(b)
hereof only for years of service as a director of the Company or
its subsidiaries completed up to the date of amendment or
termination, and (b) the Plan had not been terminated or amended
(otherwise than to incorporate the assumption in (a) of this
clause (iii)).
(h) Governing Law
The Plan shall be governed by the laws of the State of Minnesota to
the extent not superseded by federal law.
(i) Company
The term "Company" as used in the Plan shall include any successor to
the Company by reason of merger, consolidation, the purchase of all or
substantially all of the Company's assets, or otherwise.
DONALDSON COMPANY, INC.
INDEPENDENT DIRECTOR RETIREMENT AND DEATH BENEFIT PLAN
BENEFICIARY DESIGNATIONS
________________
Date
TO: CHAIRMAN OF THE BOARD
I hereby designate the following as my beneficiary or beneficiaries as
provided for in the Donaldson company, Inc., Independent Director Retirement and
Death Benefit Plan to receive my account under said Plan in the event of my
death. I revoke all beneficiary designations previously executed by me under the
Plan.
1. _______________________ _____________ ______________________
Full Name Relation Social Security Number
2. _______________________ _____________ ______________________
Full Name Relation Social Security Number
3. _______________________ _____________ ______________________
Full Name Relation Social Security Number
4. _______________________ _____________ ______________________
Full Name Relation Social Security Number
I direct that the beneficiaries named above who are living at my death
receive my account in the following manner:
___ The entire account to person No. 1, if living. If person
No. 1 is not living, then to person No. 2, etc.
___ To person No. 1, if living. If person No. 1 is not living,
then to persons No.___ and ___ then living, in equal amounts.
___ To persons No.___ and ___ then living, in equal amounts.
I elect that payment be made to my designated beneficiary or beneficiaries
as follows:
___ Within sixty (60) days after death of a lump sum amount equal to
the then present value of unpaid Benefit Payments determined by
use of the immediate annuity rate being applied at the date of my
death by the Pension Benefit Guaranty Corporation.
___ In annual installments.
___________________________
Signature
__________________________ ___________________________
Witness
Exhibit 10-K
DONALDSON COMPANY, INC.
1991 MASTER STOCK COMPENSATION PLAN
I. GENERAL
SECTION 1.01 PURPOSE OF THE PLAN.
The purpose of the 1991 Master Stock Compensation Plan is to enhance the
long-term profitability of Donaldson and shareholder value by offering stock
based incentives in addition to current compensation to those individuals who
are key to the growth and success of Donaldson.
SECTION 1.02 DEFINITIONS.
For all purposes of the Plan, the following terms shall have the meanings
assigned to them, unless the context otherwise requires:
(a) "Award" means any award described in Parts II and III.
(b) "Award Agreement" means an agreement entered into between Donaldson and
a Participant setting forth the terms and conditions applicable to the Award
granted to the Participant.
(c) "Change in Control". A "Change in Control" of Donaldson shall have
occurred if (i) any "person", as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other
than Donaldson, any trustee or other fiduciary holding securities under an
employee benefit plan of Donaldson or any corporation owned, directly or
indirectly, by the shareholders of Donaldson in substantially the same
proportions as their ownership of stock of Donaldson), either is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of Donaldson representing 30% or more of the
combined voting power of Donaldson's then outstanding securities, (ii) during
any period of two consecutive years (not including any period prior to the
effective date of this Plan), individuals who at the beginning of such period
constitute the Board of Directors of Donaldson (the "Board" ), and any new
director (other than a director designated by a person who has entered into an
agreement with Donaldson to effect a transaction described in clause (i), (iii)
or (iv) of this subparagraph) whose election by the Board or nomination for
election by Donaldson's shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a majority
thereof, unless the approval of the election or nomination for election of such
new directors was in connection with an actual or threatened election or proxy
contest, (iii) the shareholders of Donaldson approve a merger or consolidation
of Donaldson with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of Donaldson
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of Donaldson or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of Donaldson (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 30% of the combined voting
power of Donaldson's then outstanding securities or (iv) the shareholders of
Donaldson approve a plan of complete liquidation of Donaldson or an agreement
for the sale or disposition by Donaldson of all or substantially all of
Donaldson's assets or any transaction having a similar effect (the date upon
which an event described in clause (i), (ii), (iii) or (iv) of this paragraph
(c) occurs shall be referred to herein as an "Acceleration Date").
(d) "Committee" means the subcommittee (or subcommittees as may be
necessary) of the Human Resources Committee of the Board of Directors (the
"Board") appointed to administer the Plan and constituted so as to satisfy the
legal requirements, including any such requirements for disinterested
administration, imposed by Rule 16b-3 of the Exchange Act ("Rule 16b-3").
(e) "Common Stock" means the Common Stock of Donaldson, par value $5.00 per
share, including treasury Shares and authorized but unissued Shares or any
security of Donaldson issued in substitution, exchange or in lieu thereof.
(f) "Donaldson" means Donaldson Company, Inc. and its Subsidiaries.
(g) "Limitation Amount" means with respect to any Plan Year, one and one
half (1 1/2) percent of the Outstanding Shares.
(h) "Market Value" of Common Stock as of any date means the closing sales
price on such date on the New York Stock Exchange, or if there was no sale on
that date, then, unless otherwise specifically set forth hereinafter, on the
preceding date on which a sale occurred.
(i) "Outstanding Shares" means, with respect to any Plan Year, the
outstanding Shares of Common Stock, outstanding Common Stock equivalents (as
determined by Donaldson in the calculation of earnings per share on a fully
diluted basis) and Treasury Shares as reported in the Annual Report on Form 10-K
of Donaldson for the most recent fiscal year that ends during the Plan Year.
(j) "Participant" means an individual who has been granted an Award
pursuant to the Plan.
(k) "Plan" means this 1991 Master Stock Compensation Plan.
(l) "Plan Year" means the calendar year.
(m) "Shares" means shares of Common Stock.
(n) "Subsidiary" means any corporation or other entity of which a majority
of the voting power is owned, directly or indirectly, by Donaldson, or which is
otherwise controlled by Donaldson.
SECTION 1.03 SHARES SUBJECT TO THE PLAN.
(a) Subject to adjustments authorized by Section 1.05 and the provisions of
the remaining subsections of this Section 1.03, the number of Shares with
respect to which Awards may be issued under the Plan in any Plan Year shall not
exceed the Limitation Amount; provided that any Shares with respect to which
Awards may be issued, but are not issued, under the Plan in any Plan Year shall
be carried forward and shall be available to be covered by Awards issued in any
subsequent Plan Year in which Awards may be issued under the Plan.
(b) In the event any options granted under the Plan shall terminate or
expire for any reason without having been exercised in full, the Shares not
purchased under such options shall again be available under the Plan.
(c) In the event Shares that are the subject of Awards under the Plan are
subsequently forfeited to Donaldson pursuant to the applicable restrictions or
Award Agreement, such Shares shall again be available under the Plan.
(d) If a Participant exercises a stock appreciation right, any Shares
covered by the stock appreciation right in excess of the number of Shares issued
(or, in the case of a settlement in cash or any other form of property, in
excess of the number of Shares equal in value to the amount of such settlement,
based on the Market Value of such Shares on the date of such exercise) shall
again be available under the Plan.
(e) If pursuant to the terms of the Plan a Participant uses Shares to (i)
pay a purchase or exercise price, including an option exercise price, or (ii)
satisfy tax withholding or payment requirements, such Shares shall become
available for grant under the Plan; provided, however, that such Shares shall
not become available for grant under the Plan unless the Committee determines
that this provision would be in compliance with the applicable requirements of
Rule 16b-3 and other applicable law.
(f) The Shares that again become available under the Plan pursuant to
Subsections (b), (c), and (d) above, and the Shares that become available under
the Plan pursuant to Subsection (e) above, shall be in addition to the number of
Shares authorized by Subsection (a) above.
(g) Subject to the foregoing provisions of this Section 1.03, the grant of
an Award, the payment or settlement of which may be made in Shares, shall be
deemed to be a grant of Shares equal to the greater of the number of Shares that
may be issued under the Award or the number of Shares on the basis of which the
Award is calculated. The grant of an Award that is convertible into, or
exercisable for, Shares shall be deemed to be a grant of Shares equal to the
number of Shares into which the Award is convertible or exercisable on the date
of grant. Where the value of an Award is variable on the date it is granted, the
value of the Award shall be deemed to be equal to the maximum limitation on the
number of Shares that may be granted or purchased under the Award. Where two or
more Awards are granted with respect to the same Shares, such Shares shall be
taken into account only once for purposes of this Section 1.03.
(h) Shares authorized or issued under any other plan or which are not
specifically issued pursuant to this Plan, shall not reduce the number of Shares
with respect to which Awards may be issued under this Plan.
SECTION 1.04 ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Committee which shall in its sole
discretion determine:
(a) the individuals to participate in the Plan;
(b) the number of Shares to be covered by Awards granted under the Plan and
the price to be paid, if any, for such Shares;
(c) the size and terms of the Awards, any performance periods and
objectives, and range of achievement percentages;
(d) the provisions governing the disposition of an Award in the event of
retirement, disability, death or other termination of a Participant's employment
or relationship to Donaldson; and
(e) the interpretation, construction and implementation of the Plan.
All determinations of the Committee shall be by a majority of its members.
Decisions and determinations by the Committee shall be final.
SECTION 1.05 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) In the event that the Committee shall determine that any dividend or
other distribution (whether in the form of cash, Shares, other securities, or
other property), extraordinary cash dividend, recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up,
combination, repurchase, or exchange of Shares or other securities,
exercisability of stock purchase rights received under the rights plan, issuance
of warrants or other rights to purchase Shares or other securities, or other
similar corporate transaction or event affects the Shares with respect to which
Awards have been or may be issued under the Plan, such that an adjustment is
determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee, in such manner as the Committee may deem
equitable, may adjust any or all of (i) the number and type of Shares that
thereafter may be made the subject of Awards, (ii) the number and type of Shares
(or other securities or property) subject to outstanding Awards, and (iii) the
grant, purchase, or exercise price with respect to any Award, or, if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Award; provided, in each case, that with respect to incentive stock options, no
such adjustment shall be authorized to the extent that such adjustment would
cause such options to violate Section 422 of the Internal Revenue Code of 1988
as amended (the "Code") or any successor provision; and provided further, that
the number of Shares subject to any Award denominated in Shares shall always be
a whole number.
(b) In the event of a corporate merger, consolidation, acquisition of
property or stock, reorganization or liquidation, the Committee shall be
authorized to cause the Corporation to issue or to assume stock options or stock
appreciation rights, whether or not in a transaction to which Section 424(a) of
the Code applies, by means of substitution of new options or rights for
previously issued options or rights or an assumption or previously issued
options or rights, but only if and to the extent that such substitution or
assumption is consistent with the other provisions of the Plan, with the
applicable requirements of Rule 16b-3, and with any other applicable law.
SECTION 1.06 EFFECTIVE DATE.
The effective date of the Plan shall be the date upon which the Plan shall
be approved by the shareholders of Donaldson. Unless the Plan is terminated
earlier in accordance with Section 1.07 hereof, the Plan shall remain in full
force and effect until the close of business on December 31, 2001, at which time
the right to grant Awards under the Plan shall terminate automatically unless
the Shareholders of Donaldson approve an extension or renewal. Any Awards
granted under the Plan before such termination date shall continue to be
governed, thereafter, by the terms of the Plan and of the Awards.
SECTION 1.07 AMENDMENT OR TERMINATION OF PLAN.
The Board may at any time terminate the Plan or from time to time amend or
revise the terms of the Plan or any part thereof without further action of the
shareholders; provided, however, that the Board may not amend the Plan in any
manner or by any procedure that would result in noncompliance with Rule 16b-3 or
any applicable law.
Notwithstanding any of the above, on or after the occurrence of a Change in
Control, no direct or indirect alteration, amendment, suspension, termination or
discontinuance of the Plan, no establishment or modification of rules,
regulations or procedures under the Plan, no interpretation of the Plan or
determination under the Plan, and no exercise of authority or discretion vested
in the Committee under any provision of the Plan (collectively or individually,
a "Change") shall be made if such Change (1) is not required by applicable law,
necessary to meet the requirements of Rule 16b-3, or required to preserve the
qualification of incentive stock options under the Code, and (2) would have the
effect of:
(i) eliminating, reducing or otherwise adversely affecting a Participant's,
former Participant's or beneficiary's right with respect to any Award (including
without limitation any Award previously deferred and unpaid (including any
appreciation, dividend equivalents, interest, or other earnings thereon) in
accordance with a deferral election made prior to such Change and in accordance
with any investment or payment option permitted (irrespective of any requirement
for approval) pursuant to rules, regulations or procedures in effect on the date
immediately preceding the date on which the Change in Control occurs),
(ii) altering the meaning or operation of the definition of "Change in
Control" in Section 1.02 hereof (and of the definition of all the defined terms
that appear in the definition of "Change in Control"), the provisions of this
Section 1.07 or Section 1.13 or any rule, regulation, procedure, provision or
determination made or adopted prior to the Change in Control pursuant to this
Section 1.07 or any provision in any rule, regulation, procedure, provision or
determination made or adopted pursuant to the Plan that becomes effective upon
the occurrence of a Change in Control (collectively, the "Change in Control
Provisions"), or
(iii) undermining or frustrating the intent of the Change in Control
Provisions to secure for Participants, former Participants and beneficiaries the
maximum rights and benefits that can be provided under the Plan.
Upon and after the occurrence of a Change in Control, all rights of all
Participants, former Participants and beneficiaries under the Plan (including
without limitation any rules, regulations or procedures promulgated under the
Plan) shall be contractual rights enforceable against Donaldson and any
successor to all or substantially all of the Donaldson's business or assets.
SECTION 1.08 WITHHOLDING OF TAX.
Each participant, as a condition precedent to the issuance of Shares
hereunder, shall make arrangements with Donaldson for payment or withholding of
the amount of any tax required by any government authority to be withheld and
paid by Donaldson to such government authority for the account of the
participant.
SECTION 1.09 EMPLOYMENT.
Nothing in the Plan and no grant of an Award shall be deemed to grant any
right of continued employment to a participating employee or to limit or waive
any rights of Donaldson to terminate such employment at any time, with or
without cause.
SECTION 1.10 RIGHTS AS SHAREHOLDERS.
A participating employee shall have no rights whatsoever as a shareholder
of Donaldson with respect to any Shares covered by an Award until the date of
issuance of a stock certificate pursuant to the terms of such Award.
SECTION 1.11 UNFUNDED PLAN.
The Plan shall be unfunded. Donaldson shall not be required to segregate
any assets that may at any time be represented by Awards made pursuant to the
Plan. Neither Donaldson nor the Board shall be deemed to be a trustee of any
amounts to be paid under the Plan. Any liability of Donaldson to any
Participant, former Participant or beneficiary with respect to an Award shall be
based solely upon contractual obligations created by the Plan and the Award
Agreement. No such obligation shall be deemed to be secured by any pledge of or
any encumbrance on any property of Donaldson.
SECTION 1.12 NO FRACTIONAL SHARES.
No fractional Shares shall be issued pursuant to the Plan or any Award. The
Committee shall determine whether cash, other securities, or other property
shall be paid or transferred in lieu of fractional Shares, or whether fractional
Shares or any rights thereto shall be canceled, terminated or otherwise
eliminated.
SECTION 1.13 CHANGE IN CONTROL.
In the event of a Change in Control of Donaldson:
(a) any outstanding options and stock appreciation rights granted under the
Plan not previously vested and exercisable shall become fully vested and
exercisable and shall remain exercisable thereafter until they are either
exercised or expire by their terms;
(b) performance objectives applicable to Awards granted under the Plan
shall be deemed to have been met at 100% of target then prorated on the basis of
the portion of the performance period that has expired; and
(c) the restrictions applicable to any restricted Shares awarded under the
Plan shall lapse and such Shares shall become fully vested.
II. EMPLOYEE AWARDS
SECTION 2.01
The following types of Awards may be granted under this Part II, singly or
in combination or in tandem with other Awards (or with awards under other plans
of Donaldson) as the Committee may determine. All such Awards shall be in a form
determined by the Committee provided that no Award may be inconsistent with the
terms of the Plan and must be set forth in an Award Agreement.
SECTION 2.02 GRANT OF STOCK OPTIONS.
Any employee (including officers and employee directors) regularly employed
by Donaldson shall be eligible to receive options hereunder. No option may be
granted to any employee who owns more than 5% of the Common Stock.
Options shall be evidenced by written Award Agreements. The Award
Agreements, in such form as the Committee shall from time to time approve, shall
contain the terms and conditions of such option including the following:
(a) Time of Exercise. An employee may exercise an option at such time or
times as determined by the Committee at the time of the grant; provided,
however, that all rights to exercise an incentive stock option shall expire not
more than ten years after the date such option is granted.
(b) Exercise Price. The exercise price per share of Common Stock
deliverable upon the exercise of an option shall be determined by the Committee
at the time of grant and clearly set forth in the Award Agreement; but shall not
be less than the Market Value of the Shares on the date the option is granted.
(c) Exercise of Options. To exercise an option in whole or in part, the
Participant employee shall give written notice to Donaldson's Treasurer at the
principal offices of Donaldson of the exercise of the option, stating the number
of Shares with respect to which the Participant is so exercising and
accompanying such notice with full payment of the exercise price for such number
of Shares. Payment of the exercise price may be made in cash or, with the
consent of the Committee, in whole or in part through the delivery or
attestation to the ownership of Common Stock valued at the Market Value on the
day preceding the date of exercise provided that in the case of attestation, the
Shares transferred upon exercise of the option shall be net of the number of
Shares attested to. Subject to rules established by the Committee, the amount of
any tax required to be paid or withheld pursuant to Section 1.08 may be
satisfied by Donaldson withholding Shares issued on exercise having a Market
Value on the day preceding the date of exercise equal to such taxes; provided,
that the number of Shares so withheld shall be rounded up to avoid the necessity
of issuing fractional Shares.
(d) The Committee may grant "reload" options pursuant to which, subject to
the terms and conditions established by the Committee and any applicable
requirements of Rule 16b-3 or any other applicable law, the Participant would be
granted a new option when the payment of the exercise price of a previously
granted option is made by the delivery or attestation to ownership of Common
Stock owned by the Participant, as described in Section 2.02(c) hereof, which
new option (i) would be an option to purchase the number of Shares provided as
consideration upon the exercise of the previously granted option and (ii) would
have a per share exercise price equal to the Market Value as of the date of
grant of the new option.
SECTION 2.03 STOCK APPRECIATION RIGHTS.
The Committee may grant stock appreciation rights under the Plan. A Stock
Appreciation Right (SAR) is a right, denominated in Shares, to receive, upon
surrender of the right (or of both the right and a related option in the case of
a tandem right) in whole or in part, but without payment, an amount (payable in
Shares, in cash, or a combination thereof as the Committee shall determine) that
does not exceed the excess of the Market Value on the exercise date of the
number of Shares for which the SAR is exercised over the exercise price of such
right, which exercise price shall not be less than the Market Value for such
Shares on the date the right was granted (or, in the case of an option with
tandem SAR not less than the option price that the optionee otherwise would have
been required to pay for such Shares); provided that, in the case of any SAR
granted retroactively in tandem with or in substitution for another Award (or
any outstanding award granted under any other plan of Donaldson), the exercise
price shall not be less than the Market Value for the number of Shares for which
the SAR is exercised on the date of grant of the other Award (or award). The
exercise of SARs for cash by a Participant who is an officer or a director for
purposes of Sections 16(a) and 16(b) of the Exchange Act or any successor
thereto, shall be subject to the requirements of Rule 16b-3. Upon exercise of a
tandem SAR as to some or all of the Shares covered by the grant, the related
stock option shall be cancelled automatically to the extent of the number of
Shares covered by such exercise. If a related stock option is exercised as to
some or all of the Shares covered by the grant, the tandem SAR, if any, shall be
cancelled automatically to the extent of the number of Shares covered by the
stock option exercise.
SECTION 2.04 INCENTIVE STOCK OPTIONS.
At the discretion of the Committee, options granted under Section 2.02
above may be designated incentive stock options in compliance with Section 422
of the Code or any successor section, as it may be amended from time to time,
and the regulations thereunder.
Incentive stock options shall be evidenced by written Award Agreements and
may be granted only with respect to Shares of Common Stock. The aggregate number
of Shares for which incentive stock options may be granted under the Plan shall
not exceed 1,000,000 Shares of Common Stock, subject in any Plan Year to the
limitations imposed and adjustments required by Section 1.03 hereof and subject
to the adjustment provisions set forth in Section 1.05 hereof. Incentive stock
options may not be granted under the Plan after November 15, 2001.
SECTION 2.05 RESTRICTED STOCK.
The Committee may grant to any employee restricted stock, for no cash
consideration, if permitted by applicable law, or for such other consideration
as may be determined by the Committee and specified in the Award Agreement which
sets forth the Award. The terms and conditions of Awards of restricted stock
shall be determined by the Committee. Unless otherwise specified in the Award
Agreement, holders of restricted stock shall have the right to vote such Shares
and receive cash and stock dividends on such shares.
Any restricted stock issued hereunder may be evidenced in such manner as
the Committee in its sole discretion shall deem appropriate, including, without
limitation, bookentry registration or issuance of a stock certificate or
certificates, and may be held in escrow by such party as the Committee in its
sole discretion shall designate. In the event any stock certificate is issued in
respect of restricted stock granted hereunder and not held in escrow, such
certificate shall bear an appropriate legend with respect to the restrictions
applicable to such Award.
SECTION 2.06 OTHER STOCK-BASED AWARDS.
The Committee may grant Awards (other than the Awards described above)
under the Plan that consist of or are denominated in or payable in, valued in
whole or in part by reference to, or otherwise based on or related to, Shares,
provided that such grants must comply with Rule 16b-3 and other applicable law.
The Committee may subject such Awards to such restrictions on transfer and/or
such other restrictions on incidents of ownership as the Committee may
determine, provided that such restrictions must be consistent with the terms of
the Plan. The Committee may grant Awards under this Section 2.06 that require no
payment of consideration by the Participant (other than services previously
rendered or, as may be permitted by applicable law, services to be rendered),
either on the date of grant or the date any restriction(s) thereon are removed.
In addition, the Committee may grant Awards under this Section 2.06 that provide
to the Participant the right to purchase Shares, provided that the purchase
price or exercise price, if any, shall in no event be less than the Market Value
for such Shares on the date of grant; provided that, in the case of any Award
granted retroactively in tandem with or in substitution for another Award (or
any outstanding award granted under any other plan of Donaldson) the purchase
price or exercise price, if any, shall not be less than the Market Value on the
date of grant of the other Award (or award).
SECTION 2.07 DOLLAR-DENOMINATED AWARDS.
The Committee may grant cash Awards under the Plan that are denominated in,
valued by reference to, or otherwise based on or related to, a designated dollar
amount or amounts (including dollar amounts that are determined pursuant to a
formula), as determined by the Committee, and that are determined in accordance
with the achievement of long-term performance criteria applicable to Donaldson,
a Subsidiary, division, operating unit or individual Participant, as determined
by the Committee. Awards granted pursuant to this Section 2.07 shall be payable
only in cash.
SECTION 2.08 DIVIDEND EQUIVALENTS
The Committee may grant dividend equivalents in respect of Awards. In
respect of any such Award that is outstanding on a dividend record date for the
Shares covered by the Award, the Participant may be credited with an amount
equal to the amount of cash or stock dividends that would have been paid on the
Shares covered by the Award if the covered Shares had been issued and
outstanding on the dividend record date. Subject to the terms of the Plan and
any applicable Award Agreements, the Committee shall establish such rules and
procedures governing the crediting of dividend equivalents, including the timing
and payment contingencies that apply to the dividend equivalents, as the
Committee deems necessary or appropriate and which rules and procedures shall
comply with Rule 16b-3 and other applicable law. Dividend equivalents shall be
paid only in cash.
SECTION 2.09 NON-TRANSFERABILITY OF AWARDS.
Awards (other than Restricted Shares, the restrictions upon which have
lapsed) are not transferable by an employee other than by will or the laws of
descent and distribution. During the employee's lifetime, stock options and
stock appreciation rights may be exercised only by such employee.
III. NONEMPLOYEE DIRECTOR AWARDS
SECTION 3.01 ELIGIBLE PARTICIPANTS.
Each member of the Board from time to time who is not a full time employee
of Donaldson shall be an eligible participant ("Part III Participant") for an
Award under this Part III.
SECTION 3.02 RESTRICTED SHARES IN LIEU OF RETAINER OR MEETING FEES.
(a) Automatic Receipt of Restricted Shares. Thirty percent (30%) of the
annual retainer payable to a Part III Participant for service on the Board shall
be payable solely in Shares subject to the restrictions referenced in Section
3.04 hereof. Such fee shall be payable in one annual installment on December 10
of each year of this Plan for services on the Board to be rendered in the
following service year. The number of Shares to be issued to each Part III
Participant on each payment date shall be determined by dividing such annual
installment by the Market Value of such Shares as hereinafter defined.
(b) Election To Receive Additional Restricted Shares. Each Part III
Participant shall have the right to elect, on forms provided by Donaldson, to
receive up to 100% of his or her annual retainer for services on the Board which
would otherwise be payable in cash (other than fees which have been deferred
under the Company's Compensation Plan for Non-employee Directors), in the form
of Shares. Any part of the retainer elected to be paid in Shares shall be
payable on December 10 of each year of this Plan for services to be rendered in
the following service year. The number of Shares to be issued at the time of
payment shall be determined by dividing the amount elected to be taken in the
form of Shares by the Market Value of such Shares. Such election must be made
prior to the service year for which the retainer is to be paid in Shares. The
Shares receivable under this Subsection shall be subject to the restrictions set
forth in Section 3.04. Elections under this Subsection shall remain in effect
from year to year until changed by the Part III Participant. No change shall be
effective until the next service year.
(c) Market Value. The Market Value used in subparagraphs (a) and (b) above
shall be based on the first business day of December preceding the relevant
payment date.
(d) Election to Receive Restricted Shares in Lieu of Meeting Fees. The Part
III Participant may elect to receive shares of restricted stock in lieu of all
per meeting fees; the election must be made on or before November 30 of each
year, applicable for the entire service year and payable in stock based on the
market Value of Donaldson stock as of the following June 1 (or the first
business day thereafter) and November 30 (or the first business day prior
thereto) for all fees accrued during the six months preceding such dates.
Restrictions to be the same as those applicable to the annual retainer.
SECTION 3.03 OTHER RESTRICTED STOCK AWARDS
If such grant does not affect the "disinterested administrator" status of
the Committee under Rule 16b-3, the Committee may grant to any Part III
Participant, restricted stock, for no cash consideration, if permitted by
applicable law, or for such other consideration as may be determined by the
Committee and specified in the Award.
SECTION 3.04 RESTRICTIONS ON SHARES.
Prior to the time of each Award of restricted stock under this Part III,
the Committee, in its sole discretion, shall establish a restricted period and
such additional conditions as may be deemed appropriate for incremental lapse or
complete lapse of restrictions with respect to all or any portion of the Shares
represented by the restricted stock. In all other respects, the grant of
restricted stock under this Part III shall be consistent with Section 2.05
hereof.
Exhibit 10-N
DONALDSON COMPANY, INC.
STOCK OPTION PROGRAM FOR NONEMPLOYEE DIRECTORS
1. Name of Plan. This plan shall be known as the "Donaldson Company
Non-Qualified Stock Option Program for Nonemployee Directors" and is
hereinafter referred to as the "Plan".
2. Effective Date and Term. The Plan shall be effective as of December 1, 1992
and shall remain in effect until amended or terminated by action of the
Board of Directors (the "Board") of Donaldson Company, Inc., a Delaware
corporation ("Donaldson").
3. Eligible Participants. Each member of the Board who shall be a member on
December 1 and December 22 of 1992, and each year thereafter, and is not a
full time employee of the company or any of its subsidiaries shall be an
eligible participant in the Plan (the "Participant").
4. Automatic Receipt of Stock Options. Commencing with the effective date of
this program Donaldson shall irrevocably grant to each Participant the
right and option to purchase all or any part of an aggregate of 2,000
shares of Common Stock, par value $5 per share of Donaldson ("Common
Stock").
5. Exercise Price. The exercise price per share of Common Stock deliverable
upon the exercise of an option shall be the closing price of the Common
Stock in consolidated trading on the first business day of December in the
respective year.
6. Term of the Option. The term of option shall be for a period of ten years
or such shorter period as provided under the General Terms. The option may
not be exercised until December 22 of the respective year. Thereafter, the
option may be exercised at any time or from time to time during its term as
to any or all full shares which may be purchasable at such time.
7. General Terms. Such other terms and conditions as set forth in the attached
Nonemployee Director Stock Option Agreement or as may be approved. from
time to time, by the Board of Directors; provided that no such amendment
may eliminate, reduce or otherwise adversely affect a Participant's right
with respect to the option.
EXHIBIT 11
COMPUTATION OF NET EARNINGS PER SHARE
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Dollars in Thousands Except Per Share Amounts)
Year Ended July 31
1995 1994 1993
Primary
Average shares outstanding 26,365,316 27,026,291 27,582,628
Effect of stock options based
on the treasury stock method
using average market price 301,204 260,338 233,866
Total 26,666,520 27,286,629 27,816,494
Earnings before accounting
change $ 38,536 $ 31,949 $ 28,214
Cumulative effect of accounting
change -- 2,206 --
Net Earnings $ 38,536 $ 34,155 $ 28,214
Earnings Per Share:
Earnings before accounting $ 1.45 $ 1.17 $ 1.01
change
Cumulative effect of accounting
change -- .08 --
Net Earnings Per Share $ 1.45 $ 1.25 $ 1.01
Fully Diluted
Average shares outstanding 26,365,316 27,026,291 27,582,628
Effect of stock options based
on the treasury stock method
using average market price
during the year or ending
market price, whichever is
higher 321,108 287,074 270,834
Total 26,686,424 27,313,365 27,853,462
Earnings before accounting
change $ 38,536 $ 31,949 $ 28,214
Cumulative effect of accounting
change -- 2,206 --
Net Earnings $ 38,536 $ 34,155 $ 28,214
Earnings Per Share:
Earnings before accounting
change $ 1.44 $ 1.17 $ 1.01
Cumulative effect of accounting
change -- .08 --
Net Earnings Per Share $ 1.44 $ 1.25 $ 1.01
All share and per share amounts have been adjusted for all stock splits.
MANAGEMENT'S DISCUSSION AND ANALYSIS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
1995 Compared to 1994
Record 1995 net sales of $704.0 million were up 19 percent from prior-year sales
of $593.5 million. For the year, Engine Products sales were up 20 percent and
Industrial Products sales were up 16 percent.
Domestic Engine Products sales were up 12 percent, primarily from increased
shipments to original equipment manufacturers (OEMs). Industrial Products sales
growth of 15 percent was primarily led by strong sales in our dust collection
market.
Overseas sales in 1995 increased 32 percent -- 21 percent in local currencies
- -- generally due to the improving economies in Europe and Japan. Overseas Engine
Products sales were up 36 percent, primarily due to strong sales in Europe and
Japan. Industrial Products sales increased 23 percent, reflecting increased dust
collection sales in Europe, Japan and South Africa. In 1995, overseas sales
totaled 38 percent of consolidated net sales, up 4 percentage points from 34
percent in 1994.
Record net earnings for 1995 totaled $38.5 million, up significantly from
$31.9 million in the prior year. Increased sales levels and operating
efficiencies were the primary reasons for the gain in 1995. Overseas operating
income totaled approximately 54 percent of consolidated operating income, up
from 50 percent the prior year.
Gross margin for 1995 was unchanged at 28.1 percent compared to 1994.
Increased manufacturing efficiencies gained by higher operating levels in 1995
were offset by a $1.4 million asset write-down, increased plant repairs and
increased obsolete inventory expense. Margin improvements in defense and both
domestic and overseas aftermarkets were offset by declines in worldwide
Industrial Products margins.
In 1995, the Company recorded a $1.4 million charge to provide for the
residual net book value of certain production assets. In the prior year, the
Company wrote down certain of its Brazilian manufacturing capital assets by $3.2
million.
Operating expenses as a percentage of sales for 1995 and 1994 were 18.8
percent and 19.3 percent, respectively. Full year spending for 1995 totaled
$132.4 million compared to $114.5 million in 1994, which reflects an increase of
$17.9 million, or 16 percent. Most of the increased expense resulted from higher
selling expenses related to the higher sales level in 1995. In addition, general
and administrative expenses reflect the impact of the acquisition of 100 percent
of our Mexican joint venture and increased costs from the upgrade of the
Company's information systems.
Interest expense declined $.3 million, or 8 percent, in the year primarily
due to the decrease in long-term debt. Other income totaled $.7 million in 1995
compared to $1.5 million in 1994. The $.8 million decline is primarily due to
lower earnings at AFSI, the joint venture with Caterpillar, Inc., and an
increase in the contribution to the Donaldson Foundation.
The effective income tax rate in 1995 was 39.0 percent, compared to 36.3
percent in 1994. The increase in 1995 was primarily the result of increased
profitability in Germany and Japan, the Company's highest taxed subsidiaries.
Total backlogs of $214.2 million were up 35 percent from the prior year-end.
Strong order increases were reported for domestic defense and worldwide diesel
engine OEMs. In addition, worldwide gas turbine systems backlog increased 23
percent. Hard order backlogs, goods scheduled for delivery in 90 days, of $134.1
million were up 26 percent compared to the prior year, primarily due to strong
worldwide OEM orders.
1994 Compared to 1993
1994 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 OEM sales
were up 24 percent, with strong growth in both the construction, industrial,
mining and agriculture (off-road) and transportation markets. Diesel engine
aftermarket sales were up 18 percent. Defense sales declined 32 percent but have
been flat throughout the year. Industrial Products sales growth was led by gas
turbine filtration sales,
<PAGE> 17
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 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.
For the year, gross margins declined from 28.5 percent in 1993 to 28.1
percent in 1994. However, excluding the Brazilian asset write-down, 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 as a percentage of sales for 1994 and 1993 were 19.3 and
20.1 percent, respectively. Full year spending for 1994 totaled $114.5 million
compared to $107.0 million in 1993, reflecting an increase of $7.5 million, or 7
percent. In 1994, 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. 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 Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes" (FAS 109) in 1994, comparison of the 1994
effective income tax rate of 36.3 percent to prior years is not relevant. The
1994 effective tax 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.
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
of $106.1 million were up 20 percent compared to the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
At July 31, 1995, the Company's capital structure comprised $20.8 million of
current debt, $10.2 million long-term debt and $221.2 million shareholders'
equity. The ratio of long-term debt to total long-term capital was 4.4 percent,
compared with 7.8 percent at July 31, 1994.
Total debt decreased $2.0 million during 1995 to $31.0 million. Most of the
decrease resulted from the Company's decision to pre-pay its $3.4 million, 111
1/48 percent note. In 1995, short-term debt increased $3.7 million due to
additional short-term borrowings in the Company's Belgian Coordination Center
(BCC). The BCC's short-term debt was used to hedge its foreign currency
denominated accounts receivables.
<PAGE> 18
Shareholders' equity increased $31.5 million in 1995 to $221.2 million. The
increase was primarily due to an increase in retained earnings of $38.5 million
from current year net earnings, and a $6.6 million increase in the cumulative
translation adjustment. These increases were offset by dividends of $7.4 million
and $14.7 million of treasury stock repurchases.
Cash Flows
During 1995, $52.9 million of cash was generated from operating activities,
compared with $31.4 million in 1994 and $42.6 million in 1993. The increase in
1995 was largely the result of increased earnings before the cumulative effect
of an accounting change and higher depreciation and amortization expense. These
funds were used to support $25.3 million of capital expenditures, $7.4 million
of dividend payments and $14.7 million of treasury stock purchases. Cash and
cash equivalents increased $5.6 million during 1995.
Capital expenditures for property, plant and equipment totaled $25.3 million
in 1995, compared to $24.6 million in 1994 and $15.0 million in 1993.
Significant additions in 1995 include the expansion of the Company's Stevens
Point facility, the addition of a new production line at the Cresco facility and
the addition of three production lines at the Hull facility.
Capital spending in 1996 is planned to be $28.0 million. Significant
expenditures include the construction of a new larger Belgian manufacturing
facility and sale of the existing facility, and the construction of a second
Baldwin manufacturing facility. It is anticipated that 1996 capital expenditures
will be financed primarily from funds from operations.
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 23 percent of the
1993 through 1995 average earnings per share.
Share Repurchase Plan
In 1995, the Company repurchased 611,800 shares of common stock on the open
market for $14.7 million, at an average cost of $24.01 per share. The Company
repurchased $17.5 million and $10.0 million of its shares of common stock in
1994 and 1993, respectively. At July 31, 1995, the Company has authorization to
repurchase an additional 665,200 shares.
Change in Accounting Principle
Effective August 1, 1993, the Company adopted 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 1994 net earnings by $2.2 million, or
8 cents per share.
Foreign Currency Effects
In 1995, the U.S. dollar was generally weaker in relation to the foreign
currencies of countries where the Company operates. A weaker dollar generally
has a positive effect on overseas results because foreign-exchange denominated
earnings translate into more U.S. dollars; a stronger dollar has a negative
translation effect. However, the cost of overseas sourced products used
domestically, which are not significant at this time, are affected in the
opposite direction.
It is not possible to determine the true impact of foreign currency
translation changes; however the direct effect on net sales and earnings can be
estimated. For 1995, the weakening U.S. dollar increased net sales by $21.9
million and net earnings by $.4 million. During 1994, the generally stronger
U.S. dollar decreased sales and earnings by $1.5 million and $.2 million,
respectively.
<PAGE> 19
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
Year ended July 31
(Thousands of dollars except per share amounts) 1995 1994 1993
<S> <C> <C> <C>
Net sales $ 703,959 $ 593,503 $ 533,327
Cost of sales 505,980 426,904 381,091
Gross Margin 197,979 166,599 152,236
Selling, general and administrative 117,961 103,647 95,626
Research and development 14,487 10,873 11,364
Interest expense 3,089 3,362 2,723
Other (income) (730) (1,476) (2,159)
Total Expenses 134,807 116,406 107,554
Earnings Before Income Taxes 63,172 50,193 44,682
Income taxes 24,636 18,244 16,468
Earnings Before Cumulative Effect
of Accounting Change 38,536 31,949 28,214
Cumulative effect of accounting change -- 2,206 --
Net Earnings $ 38,536 $ 34,155 $ 28,214
Earnings per share
Earnings before cumulative effect of accounting change $ 1.45 $ 1.17 $ 1.01
Cumulative effect of accounting change -- .08 --
Net Earnings Per Share $ 1.45 $ 1.25 $ 1.01
</TABLE>
See notes to consolidated financial statements.
<PAGE> 20
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DONALDSON COMPANY, INC. AND SUBSIDIARIES
July 31
(Thousands of dollars) 1995 1994
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 28,565 $ 22,945
Accounts receivable, net 137,155 122,167
Inventories
Materials 32,225 27,430
Work in process 12,168 8,521
Finished products 29,035 24,294
Total Inventories 73,428 60,245
Prepaids and other current assets 8,756 14,951
Total Current Assets 247,904 220,308
Property, Plant and Equipment
Land 7,982 6,298
Buildings 89,684 81,683
Machinery and equipment 189,835 166,666
Construction in progress 4,691 4,276
Property, Plant and Equipment, at Cost 292,192 258,923
Less accumulated depreciation 181,552 159,364
Property, Plant and Equipment, Net 110,640 99,559
Other Assets 22,498 17,493
Total Assets $ 381,042 $ 337,360
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 17,802 $ 14,073
Current maturities of long-term debt 2,998 2,883
Trade accounts payable 53,576 44,541
Accrued employee compensation and related taxes 23,114 19,755
Income taxes payable 5,717 3,195
Other current liabilities 20,540 31,310
Total Current Liabilities 123,747 115,757
Long-Term Debt 10,167 16,028
Deferred Income Taxes 5,233 2,248
Other Long-Term Liabilities 20,722 13,630
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,
and 27,063,407 issued in 1995 and 1994 135,317 135,317
Capital surplus 2,639 --
Retained earnings 93,746 65,654
Cumulative translation adjustments 14,824 8,244
Treasury stock--878,243 and552,951 shares in 1995 and 1994, at cost (20,103) (11,853)
Receivable from ESOP (5,250) (7,665)
Total Shareholders' Equity 221,173 189,697
Total Liabilities and Shareholders' Equity $ 381,042 $ 337,360
</TABLE>
See notes to consolidated financial statements.
<PAGE> 21
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
Year ended July 31
(Thousands of dollars) 1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 38,536 $ 34,155 $ 28,214
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation and amortization 20,529 16,365 14,752
Cumulative effect of accounting change -- (2,206) --
Property, plant and equipment write-downs 1,427 3,200 --
Equity in earnings of affiliates (1,840) (3,743) (3,498)
Deferred income taxes (153) (2,844) 657
Other 5,682 1,235 (309)
Changes in operating assets and liabilities
Accounts receivable, net (6,159) (15,380) (2,687)
Inventories (9,823) (10,029) (4,337)
Prepaids and other current assets 7,093 (1,315) (1,365)
Trade accounts payable, accruals
and income taxes payable (2,398) 11,945 11,155
Net Cash Provided by Operating Activities 52,894 31,383 42,582
INVESTING ACTIVITIES
Net expenditures on property and equipment (25,334) (24,642) (15,005)
Acquisitions and investments in affiliates (3,911) (6,437) (10,451)
Proceeds from disposition of Envirco -- -- 2,782
Dividends from affiliate -- 3,550 4,250
Net Cash Used in Investing Activities (29,245) (27,529) (18,424)
FINANCING ACTIVITIES
Repayment of long-term debt (5,764) (3,416) (5,681)
Net change in short-term debt 1,715 9,098 (1,766)
Payment received from ESOP 2,415 2,310 2,100
Purchase of treasury stock (14,692) (17,471) (10,044)
Dividends paid (7,372) (6,745) (5,666)
Exercise of stock options 3,201 (148) (3,143)
Net Cash Used in Financing Activities (20,497) (16,372) (24,200)
Effect of exchange rate changes on cash 2,468 3,353 1,056
Increase (Decrease) in Cash and Cash Equivalents 5,620 (9,165) 1,014
Cash and cash equivalents at beginning of year 22,945 32,110 31,096
Cash and Cash Equivalents at End of Year $ 28,565 $ 22,945 $ 32,110
</TABLE>
See notes to consolidated financial statements.
<PAGE> 22
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
DONALDSON COMPANY, INC. AND SUBSIDIARIES
CUMULATIVE TOTAL
(Thousands of dollars COMMON CAPITAL RETAINED TRANSLATION TREASURY 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, 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--$.25 per share (6,745) (6,745)
Balance July 31, 1994 135,317 -- 65,654 8,244 (11,853) (7,665) 189,697
Treasury stock acquired (14,692) (14,692)
Stock options exercised (133) (3,073) 6,407 3,201
Payment received from ESOP 2,415 2,415
Performance awards 1,033 1 35 1,069
Tax reduction--employee plans 1,739 1,739
Net earnings 38,536 38,536
Translation adjustments 6,580 6,580
Dividends paid--$.28 per share (7,372) (7,372)
Balance July 31, 1995 $135,317 $ 2,639 $ 93,746 $14,824 $(20,103) $ (5,250) $221,173
</TABLE>
See notes to consolidated financial statements.
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
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 gains/(losses)
of $47,000, $(1,337,000) and $(1,790,000), in 1995, 1994 and 1993, 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 56 and 60 percent of total inventories at July
31, 1995 and 1994, respectively.
The current cost of inventories valued under the LIFO method exceeded their
LIFO carrying values by $20,557,000 and $18,635,000 at July 31, 1995 and 1994,
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. 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 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 Stock: Repurchased Common Stock is stated at cost and is presented as a
separate reduction of shareholders' equity.
NOTE B ACQUISITIONS AND INVESTMENTS
During 1995, the Company acquired the remaining 50 percent of Donaldson Micro
Pore Mexico, S.A. de C.V., obtained a 20 percent interest in an Indonesian
filter manufacturer and purchased an additional 9.9 percent in an Australian
dust collection distributor.
<PAGE> 24
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 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.
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, 1995 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, 1995 or 1994.
Overseas subsidiaries may borrow under various uncommitted facilities. As of
July 31, 1995 and 1994, borrowings under these facilities were $17,802,000 and
$14,073,000, respectively. The weighted average interest rate on short-term debt
outstanding at July 31, 1995 and 1994 was 7.1 percent and 6.6 percent,
respectively.
NOTE D LONG-TERM DEBT
Long-term debt consists of the following:
(Thousands of dollars) 1995 1994
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 $ 5,250 $ 7,665
6 3/8 percent mortgage due 2002 1,000 1,000
7 percent note due in 2008 500 500
11 1/8 percent note -- 3,350
Other 836 519
Total Notes 7,586 13,034
Capitalized leases 5,579 5,877
Total 13,165 18,911
Less current maturities 2,998 2,883
Total Long-Term Debt $10,167 $16,028
Annual maturities of long-term debt for the next five years are $2,998,000 in
1996, $3,271,000 in 1997, $616,000 in 1998, $650,000 in 1999 and $642,000 in
2000.
Total interest paid relating to all debt was $2,809,000, $2,906,000 and
$2,577,000 in 1995, 1994 and 1993, 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, 1995, under the
most restrictive agreement, tangible net worth exceeded the minimum by
$82,044,000.
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) 1995 1994
Land $ 121 $ 157
Buildings 5,894 6,384
Machinery and equipment 550 1,098
Subtotal 6,565 7,639
Less accumulated amortization 2,568 3,252
Total $3,997 $4,387
<PAGE> 25
Future minimum lease payments for assets under capital leases at July 31,
1995 are as follows:
(Thousands of dollars)
1996 $ 827
1997 828
1998 828
1999 827
2000 757
Thereafter 4,041
Total minimum lease payments 8,108
Less amount representing interest 2,529
Present value of net minimum
lease payments 5,579
Less current maturities 378
Long-Term Obligation $5,201
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) 1995 1994 1993
Service cost $ 5,024 $ 4,187 $ 3,769
Interest cost on projected
benefit obligation 6,167 5,504 5,050
Actual return on plan assets (12,238) (3,608) (7,310)
Net amortization and deferral 5,265 (3,015) 1,178
Net Periodic Pension Expense $ 4,218 $ 3,068 $ 2,687
The funded status of the Company's pension plans as of July 31, 1995 and
1994, is as follows:
(Thousands of dollars) 1995 1994
Plan assets at fair value $ 81,029 $ 69,313
Accumulated benefit obligation:
Vested (61,400) (55,710)
Nonvested (2,356) (2,201)
Provision for future salary increases (18,197) (15,206)
Plan assets less than projected
benefit obligation (924) (3,804)
Unrecognized net loss 3,122 8,901
Unrecognized prior service cost 3,126 1,721
Unrecognized net transition asset (9,253) (10,350)
Additional minimum liability (1,806) --
Accrued Pension Liability $ (5,735) $ (3,532)
The principal actuarial assumptions for 1995, 1994 and 1993 were:
Discount rate 8.0%
Rate of compensation increases 5.5%
Expected long-term rate of return 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 3,600,000 newly issued shares of Common
Stock. These shares are held in trust and are issued to employees' accounts in
the ESOP as the loan is repaid over 10 years. At July 31, 1995 and 1994,
2,928,170 and 2,514,170 shares have been allocated to employees. 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 shares
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 $2,130,000, $2,020,000 and $1,745,000 in 1995, 1994 and 1993,
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
<PAGE> 26
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 $2,064,000, $57,000 and $19,000 in 1995, 1994
and 1993, 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, 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
Cancelled (4,875) 10.71/ 18.06
Exercised (378,657) 4.62/ 23.50
Granted 307,177 22.38/ 28.00
Outstanding at July 31, 1995 1,498,491 $ 4.62/$28.00
At July 31, 1995 and 1994 there were 1,400,428 and 1,459,910 options
exercisable, respectively. Shares reserved at July 31, 1995 for outstanding
options and future grants were 2,647,672.
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 1994 net earnings by
$2,206,000 ($.08 per share).
The components of earnings before income taxes are as follows:
(Thousands of dollars) 1995 1994 1993
United States $42,355 $37,781 $33,474
Overseas 20,817 12,412 11,208
Total $63,172 $50,193 $44,682
The components of the provision for income taxes are as follows:
(Thousands of dollars) 1995 1994 1993
Current:
Federal $12,425 $12,897 $ 9,271
State 1,810 1,536 1,438
Overseas 10,554 6,655 5,102
Total Current 24,789 21,088 15,811
Deferred:
Federal 716 (2,353) 95
State 49 (202) --
Overseas (918) (289) 562
Total Deferred (153) (2,844) 657
Total Income Taxes $24,636 $18,244 $16,468
Significant components of deferred tax assets and liabilities are as follows:
(Thousands of dollars) 1995 1994
Deferred Tax Assets:
Compensation and
retirement plans $ 8,514 $ 5,417
Accrued expenses 4,572 5,372
Brazilian asset write-down 1,040 1,216
Tax loss and tax credit
carryforwards 1,263 273
Other 6,076 5,449
Gross Deferred Tax Assets 21,465 17,727
Valuation Allowance (1,426) --
Net Deferred Tax Assets 20,039 17,727
Deferred Tax Liabilities:
Depreciation and
amortization (1,844) (4,895)
Cumulative translation
adjustment (7,980) (4,440)
Other (2,192) (2,262)
Gross Deferred Tax Liabilities (12,016) (11,597)
Net Deferred Tax Assets $ 8,023 $ 6,130
<PAGE> 27
The components of the provision for deferred income taxes for 1993 are as
follows:
(Thousands of dollars) 1993
Accrued expenses $ 220
Depreciation and amortization 1,049
Compensation and
retirement plans (509)
Other (103)
Deferred Income Tax Expense $ 657
A reconciliation of the statutory U.S. federal income tax rate to the
effective income tax rate is as follows:
1995 1994 1993
Statutory U.S. federal rate 35.0% 35.0% 34.0%
State income taxes 1.9 2.0 2.1
Effect of overseas operations 1.9 .3 1.7
Earnings of affiliates -- -- (2.0)
Other .2 (1.0) 1.1
Effective Income Tax Rate 39.0% 36.3% 36.9%
At July 31, 1995, certain overseas subsidiaries had available net operating
loss carryforwards of approximately $4,780,000 to offset future taxable income.
The majority of such carryforwards expire after 1998. Unremitted earnings of
overseas subsidiaries amounted to approximately $53,890,000 at July 31, 1995.
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 $21,824,000, $20,557,000
and $6,875,000 in 1995, 1994 and 1993, 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. 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 split.
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, a
three-for-two stock split effective July 10, 1992 and the two-for-one stock
split 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.
<PAGE> 28
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>
1995
Sales to customers $437,463 $114,731 $91,248 $60,517 $ -- $703,959
Sales between geographic areas 28,416 1,163 2,254 2,424 (34,257) --
Net Sales $465,879 $115,894 $93,502 $62,941 $(34,257) $703,959
Operating Income $ 29,968 $ 15,384 $10,741 $10,148 $ (710) $ 65,531
Identifiable Assets:
Accounts receivable, net $ 58,146 $ 31,705 $33,740 $13,548 $ 16 $137,155
Other 117,249 61,753 35,324 28,511 (29,650) 213,187
Total identifiable assets $175,395 $ 93,458 $69,064 $42,059 $(29,634) $350,342
General corporate assets 30,700
Total Assets $381,042
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 63,216 29,173 17,978 (16,729) 182,496
Total identifiable assets $149,037 $ 89,624 $56,941 $25,440 $(16,379) $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 45,568 29,095 19,922 (19,224) 152,702
Total identifiable assets $122,585 $ 68,446 $54,015 $29,891 $(18,915) $256,022
General corporate assets 44,195
Total Assets $300,217
</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 $88,199,000, $69,107,000 and $55,616,000 in 1995, 1994
and 1993, respectively.
<PAGE> 29
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, 1995 and 1994, 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, 1995.
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, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended July 31, 1995, 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 7, 1995
<PAGE> 30
SHAREHOLDER INFORMATION
DONALDSON COMPANY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(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>
1995
First Quarter $164,175 $45,333 $ 9,505 $.35 $.07
Second Quarter 168,861 47,383 7,685 .29 .07
Third Quarter 186,764 53,706 11,456 .43 .07
Fourth Quarter 184,159 51,557 9,890 .38 .07
1994
First Quarter $142,518 $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
</TABLE>
(1) Includes cumulative effect of an accounting change of $2,206, or $.08 per
share.
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, 1995, more than 700 of Donaldson
Company's approximately 1,500 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
17, in the first floor auditorium of the Lutheran Brotherhood Building, 625
Fourth Ave. 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
SIX-YEAR QUARTERLY
HIGH-LOW
STOCK PRICES
[graph]
<PAGE> 31
<TABLE>
<CAPTION>
ELEVEN-YEAR COMPARISON OF RESULTS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of dollars except
per share amounts) 1995 1994 1993 1992
OPERATING RESULTS
<S> <C> <C> <C> <C>
Net sales $703,959 $593,503 $533,327 $482,104
Gross margin $197,979 166,599 152,236 133,574
Gross margin percentage 28.1% 28.1% 28.5% 27.7%
Operating income $ 65,531 52,079 45,246 41,249
Operating income percentage 9.3% 8.8% 8.5% 8.6%
Interest expense $ 3,089 3,362 2,723 2,681
Earnings before income taxes $ 63,172 50,193 44,682 41,721
Income taxes $ 24,636 18,244 16,468 15,952
Effective income tax rate 39.0% 36.3% 36.9% 38.2%
Net earnings $ 38,536 31,949(1) 28,214 25,769
Return on sales 5.5% 5.4% 5.3% 5.3%
Return on average
shareholders' equity 18.8% 17.6% 16.9% 17.2%
Return on investment 17.6% 16.0% 15.0% 14.8%
FINANCIAL POSITION
Total assets $381,042 337,360 300,217 286,348
Current assets $247,904 220,308 196,014 187,360
Current liabilities $123,747 115,757 93,666 89,956
Working capital $124,157 104,551 102,348 97,404
Current ratio 2.0 1.9 2.1 2.1
Current debt $ 20,800 16,956 7,595 11,425
Long-term debt $ 10,167 16,028 18,920 23,482
Total debt $ 30,967 32,984 26,515 34,907
Shareholders' equity $221,173 189,697 174,008 160,303
Long-term capitalization ratio 4.4% 7.8% 9.8% 12.8%
Property, plant and equipment, net $110,640 99,559 90,515 84,899
Net expenditures on property,
plant and equipment $ 25,334 24,642 15,005 15,538
Depreciation and amortization $ 20,529 16,365 14,752 14,047
SHAREHOLDER INFORMATION
Net earnings per share $ 1.45 1.17(1) 1.01 .92
Dividends per share $ .28 .25 .20 .19
Shareholders' equity per share $ 8.45 7.16 6.38 5.81
Shares outstanding (000s) 26,185 26,510 27,282 27,569
Common stock price range,
per share
High $ 28 26 1/8 20 1/8 15 7/8
Low $ 20 7/8 18 1/4 14 11 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.
Long-term capitalization ratio is long-term debt divided by long-term 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.
<PAGE> 32
<TABLE>
<CAPTION>
(Table continued from previous page)
1991 1990 1989 1988 1987 1986 1985
<C> <C> <C> <C> <C> <C> <C>
$457,692 $422,885 $397,535 $362,862 $294,993 $266,668 $257,381
129,858 121,454 105,275 104,828 83,336 83,736 76,361
28.4% 28.7% 26.5% 28.9% 28.3% 31.4% 29.7%
41,304 44,354 37,851 36,047 24,648 30,324 25,150
9.0% 10.5% 9.5% 9.9% 8.4% 11.4% 9.8%
3,526 3,731 3,555 3,229 2,359 2,162 2,504
39,385 34,875 27,664 29,868 21,748 30,850 21,783
15,337 13,849 12,230 13,630 10,782 15,214 10,365
38.9% 39.7% 44.2% 45.6% 49.6% 49.3% 47.6%
24,048 21,026 15,434 16,238(1) 10,966(1) 15,636 11,418
5.3% 5.0% 3.9% 4.5% 3.7% 5.9% 4.4%
18.0% 17.8% 15.1% 15.6% 9.8% 14.9% 12.2%
14.9% 14.2% 11.5% 11.7% 7.9% 12.8% 10.2%
253,194 245,947 204,813 193,548 200,827 191,348 153,659
169,398 168,522 130,848 122,602 128,370 125,635 90,475
77,537 79,917 58,009 52,126 44,609 50,515 30,724
91,861 88,605 72,839 70,476 83,761 75,120 59,751
2.2 2.1 2.3 2.4 2.9 2.5 2.9
6,380 11,384 8,602 3,875 4,302 4,634 2,688
25,673 28,320 30,750 33,784 35,353 16,674 17,489
32,053 39,704 39,352 37,659 39,655 21,308 20,177
138,947 128,787 107,516 97,254 110,517 113,588 96,284
15.6% 18.0% 22.2% 25.8% 24.2% 12.8% 15.4%
72,863 68,290 61,914 62,160 62,575 54,431 51,064
16,208 16,055 11,567 9,954 15,460 7,343 4,901
12,187 10,857 10,583 10,351 8,857 7,377 7,401
.84 .73 .54 .55(1) .36(1) .50 .37
.14 .13 .12 .11 .11 .11 .11
5.01 4.46 3.75 3.40 3.34 3.58 3.06
27,739 28,864 28,693 28,597 33,131 31,730 31,466
13 3/8 11 5/8 5 7/8 8 5/8 6 3/4 6 5/8 3 1/2
8 1/8 5 5/8 5 1/2 3 5/8 5 3/8 3 2 5/8
</TABLE>
<PAGE> 33
WORLDWIDE 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
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, S.A. de C.V.,
Aguascalientes, Mexico
Donaldson do Brasil, Ltda.,
Sao Paulo, Brazil
<PAGE> 34
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 7, 1995, included in
the 1995 Annual Report to Shareholders of Donaldson Company, Inc.
Our audit also included the financial statement schedule of Donaldson Company,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents 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 7, 1995, 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
Ernst & Young LLP
Minneapolis, Minnesota
October 20, 1995
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 20, 1995, 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, 1995.
/s/ Ernst & Young LLP
Ernst & Young LLP
Minneapolis, Minnesota
October 27, 1995
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 16, 1995 /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 16, 1995 /s/ F. Guillaume Bastiaens
F. Guillaume Bastiaens
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 16, 1995 /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 16, 1995 /s/ Jack W. Eugster
Jack W. 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 16, 1995 /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 16, 1995 /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 16, 1995 /s/ Stephen W. Sanger
Stephen W. Sanger
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 16, 1995 /s/ C. Angus Wurtele
C. Angus Wurtele
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, 1995
_________________________________________
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, 1995 AND 1994
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Financial Statements
Years ended July 31, 1995 and 1994
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,
1995 and 1994, and the related statements of changes in net assets available for
benefits for each of the two years in the period ended July 31, 1995. 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, 1995 and 1994, and the changes in its net assets available for benefits for
each of the two years in the period ended July 31, 1995, 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, 1995 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 1995 financial statements and,
in our opinion, are fairly stated in all material respects in relation to the
1995 financial statements taken as a whole.
/s/ Ernst & Young LLP
October 20, 1995
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Statements of Net Assets Available for Benefits
<TABLE>
<CAPTION>
JULY 31, 1995
FIDELITY
EQUITY FIXED DONALDSON
INCOME CASH FLOW INCOME COMMON STOCK
FUND FUND FUND FUND TOTAL
<S> <C> <C> <C> <C> <C>
Cash $ (6,964) $ 1,347,809 $ 6,104 $ 157,108 $ 1,504,057
Loans to participants -- 1,635,557 -- -- 1,635,557
Investments:
Fidelity Equity Income Fund 16,778,655 -- -- -- 16,778,655
Common Stock of Donaldson Company, Inc. -- -- -- 12,859,929 12,859,929
Investment in fixed income funds -- -- 20,894,297 -- 20,894,297
16,778,655 -- 20,894,297 12,859,929 50,532,881
Accrued interest 194 5,847 235 904 7,180
Net assets available for benefits $ 16,771,885 $ 2,989,213 $20,900,636 $13,017,941 $53,679,675
</TABLE>
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Statements of Net Assets Available for Benefits (continued)
<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>
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, 1995
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 $ -- $ 4,582,545 $ -- $ -- $ 4,582,545
Investment income 1,104,530 143,511 789,948 134,022 2,172,011
Net gain on sales of other investments 32,752 87,304 33,030 -- 153,086
1,137,282 4,813,360 822,978 134,022 6,907,642
Deductions:
Interfund transfers (net) (810,415) 4,702,786 (1,355,172) (2,537,199) --
Payments to participants 352,186 (480,836) 2,023,912 269,505 2,164,767
(458,229) 4,221,950 668,740 (2,267,694) 2,164,767
Unrealized appreciation of investments 1,469,508 -- 373,549 1,160,955 3,004,012
Net increase 3,065,019 591,410 527,787 3,562,671 7,746,887
Net assets available for benefits:
Beginning of year 13,706,866 2,397,803 20,372,849 9,455,270 45,932,788
End of year $ 16,771,885 $ 2,989,213 $ 20,900,636 $ 13,017,941 $53,679,675
</TABLE>
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Statements of Changes in Net Assets Available for Benefits (continued)
<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) (3,873,912) 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
</TABLE>
See accompanying notes.
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Notes to Financial Statements
July 31, 1995
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.
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.
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>
1995 1994
UNITS OR CURRENT UNITS OR CURRENT
SHARES VALUE SHARES VALUE
<S> <C> <C> <C> <C>
Fidelity Equity Income Fund 467,112 $16,778,655 416,281 $13,678,993
Common Stock of Donaldson
Company, Inc. (Sponsor) 480,745 12,859,929 383,180 9,387,910
IDS Trust Collective Income Fund 267,326 10,374,919 285,432 10,397,156
Capital Trust Company Guaranteed
Investment Contract Fund 414,034 10,519,378 415,888 9,940,162
</TABLE>
Following is information regarding investments:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
1995 1994
<S> <C> <C>
Cost of investments:
Common Stock of Donaldson Company, Inc. (Sponsor) $ 6,763,261 $ 4,452,196
Fidelity Equity Income Fund 13,505,151 11,874,998
Investment in fixed income funds 20,524,630 20,341,200
Total cost 40,793,042 36,668,394
Current value 50,532,881 43,404,221
Unrealized appreciation $ 9,739,839 $ 6,735,827
</TABLE>
During the two years ended July 31, 1995, the Plan's investments appreciated
(depreciated) in fair value as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Common Stock of Donaldson Company, Inc. (Sponsor) $1,160,954 $1,988,494
Fidelity Equity Income Fund 1,469,509 69,187
IDS Trust Collective Income Fund 373,549 (1,047)
$3,004,012 $2,056,634
</TABLE>
During the two years ended July 31, 1995, the Plan experienced net realized
gains on the sale of its investments as follows:
COST PROCEEDS GAIN
1995 $1,666,297 $1,819,383 $153,086
1994 $2,651,174 $2,664,665 $ 13,491
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, 1995 and
1994, $1,635,557 and $1,325,377, 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, 1995, the Plan purchased 97,565 shares of
Donaldson Company, Inc. Common Stock on the open market for $2,311,064 and sold
none.
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.
The Plan received $125,305 and $85,650 in Common Stock dividends from Donaldson
Company, Inc. for the years ended July 31, 1995 and 1994, respectively.
7. SUBSEQUENT EVENT
Subsequent to July 31, 1995, the Company removed Harris Trust and appointed
Fidelity Investment Company as the new Trustee of the Plan effective August 1,
1995.
8. 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
1995 1994
Net assets available for benefits per
the financial statements $ 53,679,675 $ 45,932,788
Amounts allocated to withdrawing participants (117,743) (293,923)
Net assets available for benefits per Form 5500 $ 53,561,932 $ 45,638,865
Amounts allocated to withdrawing participants by fund option are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1995
DONALDSON
COMMON STOCK
FIDELITY EQUITY FIXED FUND
INCOME FUND INCOME FUNDS TOTAL 1994 TOTAL
<S> <C> <C> <C> <C>
$32,231 $51,193 $34,319 $117,743 $293,923
</TABLE>
The following is a reconciliation of benefits paid to participants reported in
the financial statements versus the Form 5500:
<TABLE>
<CAPTION>
JULY 31, 1995
<S> <C>
Benefits paid to participants per the financial statements $ 2,164,767
Add amounts allocated to withdrawing participants at July 31, 1995 117,743
Less amounts allocated to withdrawing participants at July 31, 1994 (293,923)
Benefits paid to participants per the Form 5500 $ 1,988,587
</TABLE>
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Schedule A--Assets Held for Investment
July 31, 1995
<TABLE>
<CAPTION>
IDENTITY OF ISSUE, CURRENT
BORROWER OR SIMILAR PARTY DESCRIPTION OF INVESTMENT COST VALUE
<S> <C> <C> <C>
Fidelity Equity Income Fund 467,112 units of participation $13,505,151 $16,778,655
*Donaldson Company, Inc. 480,745 shares of Common Stock 6,763,261 12,859,929
IDS Trust Collective Income Fund 267,326 units of participation 10,005,252 10,374,919
Capital Trust Company Guaranteed
Investment Contract Fund 414,034 units of participation 10,519,378 10,519,378
TOTAL ASSETS HELD FOR INVESTMENT $40,793,042 $50,532,881
</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, 1995
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET
CATEGORY (III)--A SERIES OF TRANSACTIONS IN EXCESS OF 5% OF BEGINNING PLAN
ASSETS.
Donaldson Company, Inc. Common Stock Donaldson Company Stock Fund
Purchased 97,565 participating units
in 9 transactions
There were no category (i), (ii) or (iv) reportable transactions in fiscal 1995.
<TABLE>
<CAPTION>
CURRENT VALUE OF
PURCHASE SELLING COST OF ASSET ON TRANSACTION
PRICE PRICE ASSET DATE NET GAIN
<C> <C> <C> <C> <C>
$2,311,064 $2,311,064 $2,311,064
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<CASH> 28,565
<SECURITIES> 0
<RECEIVABLES> 137,155
<ALLOWANCES> 3,957
<INVENTORY> 73,428
<CURRENT-ASSETS> 247,904
<PP&E> 292,192
<DEPRECIATION> 181,552
<TOTAL-ASSETS> 381,042
<CURRENT-LIABILITIES> 123,747
<BONDS> 10,167
<COMMON> 135,317
0
0
<OTHER-SE> 85,856
<TOTAL-LIABILITY-AND-EQUITY> 381,042
<SALES> 703,959
<TOTAL-REVENUES> 0
<CGS> 505,980
<TOTAL-COSTS> 132,448
<OTHER-EXPENSES> (730)
<LOSS-PROVISION> 940
<INTEREST-EXPENSE> 3,089
<INCOME-PRETAX> 63,172
<INCOME-TAX> 24,636
<INCOME-CONTINUING> 38,536
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,536
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.44
</TABLE>
