SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
[x] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended July 31, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
for the transition period from ___________ to _____________
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. (See
definition of affiliate in Rule 405) $664,200,195 as of September 27, 1996.
The shares of common stock outstanding as of September 27, 1996 were 25,161,436.
Documents Incorporated by Reference
-----------------------------------
Portions of the 1996 Annual Report to Shareholders of the registrant are
incorporated by reference in Parts I and II, as specifically set forth in Parts
I and II.
Portions of the Proxy Statement for the 1996 annual shareholders meeting are
incorporated by reference in Part III, as specifically set forth in Part III.
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 or any amendment to this
Form 10-K. [X]
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
1996 1995 1994
---- ---- ----
Air cleaners, filtration
devices and accessories 67% 67% 67%
Acoustical products 11% 11% 11%
Other 22% 22% 22%
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 percent of the Company's 1996 sales were made to
Caterpillar Inc. and subsidiaries ("Caterpillar"). Caterpillar has been a
customer of the Company for many years and it purchases 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, 1996, the backlog of orders expected to be delivered within 90
days was $128,624,000. The backlog at August 31, 1995 was $135,038,000.
RESEARCH AND DEVELOPMENT
During 1996 the Company spent $15,906,000 on research and development
activities relating to the development of new products or improvements of
existing products or manufacturing processes. The Company spent $14,487,000 in
1995 and $10,873,000 in 1994 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 5,216 persons in worldwide operations as of July 31,
1996.
GEOGRAPHIC AREAS
Note J of the Notes to Consolidated Financial Statements on page 31 in the
1996 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, France, United Kingdom, Hong Kong, South
Africa, Italy, Belgium, Mexico, India, China and Germany. Page 7 of the
1996 Annual Report to Shareholders lists U.S. plant locations and is
incorporated herein by reference. Note J on page 31 of the 1996 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 an
Name Age Positions and Offices Held Officer
- ---- --- -------------------------- -------
William G. Van Dyke 51 Chairman, Chief Executive 1979
Officer and President
William M. Cook 43 Senior Vice President, 1994
Commercial and Industrial
James R. Giertz 39 Senior Vice President and 1994
Chief Financial Officer
Norman C. Linnell 37 General Counsel and Secretary 1996
Nickolas Priadka 50 Senior Vice President, 1989
OE Engine
Lowell F. Schwab 48 Senior Vice President, 1994
Operations
Thomas A. Windfeldt 47 V.P., Controller and Treasurer 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 and Treasurer of various subsidiaries of General Motors
Corporation, Mr. Linnell who was previously an attorney with the law firm of
Dorsey & Whitney LLP 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
On January 12, 1996, the Board of Directors of the company approved the
extension of the benefits afforded by the company's existing rights plan by
adopting a new shareholder rights plan. The new plan, like the existing plan, is
intended to promote continuity and stability, deter coercive or partial offers
which will not provide fair value to all shareholders and enhance the Board's
ability to represent all shareholders and thereby maximize shareholder value.
Pursuant to the new Rights Agreement, dated as of January 12, 1996, by and
between the company and Norwest Bank Minnesota, National Association, as Rights
Agent, one Right was issued on March 4, 1996 for each outstanding share of
Common Stock, par value $5.00 per share, of the company upon the expiration of
the company's existing rights. Each of the new Rights will entitle the
registered holder to purchase from the company one one-thousandth of a share of
Series A Junior Participating Preferred Stock, without par value, at a price of
$130.00 per one one-thousandth of a share. The Rights, however, will not become
exercisable unless and until, among other things, any person acquires 15 percent
or more of the outstanding Common Stock of the company. If a person acquires 15
percent or more of the outstanding Common Stock of the company (subject to
certain conditions and exceptions more fully described in the Rights Agreement),
each Right will entitle the holder (other than the person who acquired 15
percent or more of the outstanding Common Stock) to purchase Common Stock of the
company having a market value equal to twice the exercise price of a Right. The
new Rights are redeemable under certain circumstances at $.01 per Right and will
expire, unless earlier redeemed, on March 3, 2006.
The foregoing summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
a copy of which is incorporated by reference as Exhibit 4-A to this Annual
Report on form 10-K.
The information in the sections "NYSE Listing," and "Quarterly Financial
Information (Unaudited)" on page 34, and restrictions on payment of dividends in
Note D, page 28 of the 1996 Annual Report to Shareholders is incorporated herein
by reference. As of September 27, 1996, there were approximately 1,551
shareholders of record of Common Stock.
The high and low sales prices for registrant's common stock for each full
quarterly period during 1996 and 1995 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
1996 $23 7/8-26 3/8 $24 1/8-26 1/8 $25 5/8-27 7/8 $24 - 28
Item 6. SELECTED FINANCIAL DATA
The information for the years 1992 through 1996 on pages 32 and 33 of the
1996 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 18 through 20 of the 1996 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 22 through 31, and the Quarterly Financial Information
(Unaudited) on page 34 of the 1996 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 4 and 5 and under the heading "Compliance With
Section 16 (a) of the Securities Exchange Act of 1934" on page 12 of the
Company's definitive proxy statement dated October 15, 1996 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 pages 5 and 6 and in the
section "Executive Compensation" on pages 6 through 10, the "Pension Plan Table"
on page 12 and under the caption "Change-in-Control Arrangements" on page 13 of
the Company's definitive proxy statement dated October 15, 1996, is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the section "Security Ownership" on pages 2 and 3 of the
Company's definitive proxy statement dated October 15, 1996, 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, 1996 and
1995 (incorporated by reference from page 23 of the 1996 Annual
Report to Shareholders)
Consolidated Statements of Earnings--years ended July 31, 1996, 1995
and 1994 (incorporated by reference from page 22 of the 1996 Annual
Report to Shareholders)
Consolidated Statements of Cash Flows--years ended July 31, 1996,
1995 and 1994 (incorporated by reference from page 24 of the 1996
Annual Report to Shareholders)
Consolidated Statements of Changes in Shareholders' Equity--years
ended July 31, 1996, 1995 and 1994 (incorporated by reference from
page 25 of the 1996 Annual Report to Shareholders)
Notes to Consolidated Financial Statements (incorporated by
reference from pages 26 through 31 of the 1996 Annual Report to
Shareholders)
Report of Independent Auditors (incorporated by reference from page
21 of the 1996 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, 1996.
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
DONALDSON COMPANY, INC.
(Registrant)
Date: October 28, 1996 By /s/ Norman C. Linnell
-----------------------------------
Norman C. Linnell
General Counsel and
Corporate Secretary
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 G. Van Dyke Chairman, Chief Executive
------------------------------ Officer and President
William G. Van Dyke
/s/ James R. Giertz Senior Vice President and
------------------------------ Chief Financial Officer
James R. Giertz
/s/ Thomas A. Windfeldt Vice President, Controller
------------------------------ and Treasurer
Thomas A. Windfeldt
*F. Guillaume Bastiaens Director
------------------------------
F. Guillaume Bastiaens
*Michael R. Bonsignore Director
------------------------------
Michael R. Bonsignore
*Paul B. Burke Director
------------------------------
Paul B. Burke
*Janet M. Dolan Director
------------------------------
Janet M. Dolan
*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/Norman C. Linnell Date: October 28, 1996
------------------------------
Norman C. Linnell
* As attorney-in-fact
<TABLE>
<CAPTION>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
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, 1996:
Allowance for doubtful
accounts deducted from
accounts receivable $3,957 $ 511 $(246) $ (527) $3,695
====== ===== ===== ====== ======
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
====== ===== ===== ====== ======
</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 4.1 to Form 8-K Report
Dated January 12, 1996)
* 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.
* 10-A - Annual Cash Bonus Plan (Filed as Exhibit 10A to 1995 Form 10-K
Report)
* 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 (Filed as Exhibit 10-D to 1995
Form 10-K Report)
* 10-E - Copy of Phantom Stock Plan (Filed as exhibit
10-E to 1991 Form 10-K Report)
* 10-F - Deferred Compensation Plan for Non-employee
Directors as amended (Filed as Exhibit 10-F to 1990
Form 10-K Report)
* 10-G - Form of "Change in Control" Agreement with key
employees as amended (Filed as Exhibit 10-F to 1990
Form 10-K Report)
* 10-H - Independent Director Retirement and Benefit Plan as
amended (Filed as Exhibit 10-H to 1995 Form 10-K Report)
* 10-I - Excess Benefit Plan (Filed as Exhibit 10-I to 1989
Form 10-K Report)
* 10-J - Copy of Supplementary Executive Retirement
Plan (Filed as Exhibit 10-J to 1991 Form 10-K Report)
* 10-K - 1991 Master Stock Compensation Plan as amended (Filed as
Exhibit 10-K to 1995 Form 10-K Report)
* 10-L - Form of Restricted Stock Award under 1991 Master Stock
Compensation Plan.
(Filed as Exhibit 10-L to 1992 Form 10-K Report)
* 10-M - Form of Agreement to Defer Compensation for
certain Executive Officers (Filed as Exhibit 10-M to
1993 Form 10-K Report)
* 10-N - Stock Option Program for Nonemployee Directors as amended
(Filed as Exhibit 10-N to 1995 Form 10-K Report)
11 - Statement re computation of per share earnings
13 - Portions of Registrant's Annual Report to Shareholders for the
year ended July 31, 1996
21 - Subsidiaries ("Subsidiaries" and "Joint Ventures" on page 7 of the
1996 Annual Report to Shareholders is incorporated by reference)
23 - Consent of Independent Auditors
24 - Powers of Attorney
27 - Financial Data Schedule
* 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.
4/96
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.
Any proposal for action to be presented by any stockholder at any annual or
special meeting of stockholders, including nominations for director, shall be
out-of-order and shall not be acted upon at such meeting unless such proposal or
nomination was specifically described in the Company's notice to all
stockholders of the meeting and the statement of matters to be acted upon at
such meeting or unless the stockholder intending to present such proposal or
nomination shall have submitted the matter in writing to the secretary and such
writing is received at the principal executive office of the Company not less
than sixty days nor more than 90 days prior to the date of such annual or
special meeting; provided, however, that in the event the meeting is not to be
held on the day set forth in paragraph one of this By-Law 3 and public
disclosure of such meeting date is made less than seventy days prior to the
meeting, the required notice by the stockholder to be timely must be received by
the secretary no later than the close of business on the tenth day following the
date on which such public disclosure was made. The stockholder's notice to the
secretary shall contain such information as will enable a meaningful review of
the matter which the stockholder intends to present at such meeting.
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 11
COMPUTATION OF NET EARNINGS PER SHARE
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Dollars in Thousands, Except Per Share Amounts)
Year Ended July 31
1996 1995 1994
---------- ---------- ----------
Primary
Average shares outstanding 25,736,941 26,365,316 27,026,291
Effect of stock options based
on the treasury stock method
using average market price 276,483 301,204 260,338
----------- ----------- -----------
Total 26,013,424 26,666,520 27,286,629
=========== =========== ===========
Earnings before accounting change $ 43,436 $ 38,536 $ 31,949
Cumulative effect of accounting
change -- -- 2,206
----------- ----------- -----------
Net Earnings $ 43,436 $ 38,536 $ 34,155
=========== =========== ===========
Earnings Per Share:
Earnings before accounting change $ 1.67 $ 1.45 $ 1.17
Cumulative effect of accounting
change -- -- .08
----------- ----------- -----------
Net Earnings Per Share $ 1.67 $ 1.45 $ 1.25
=========== =========== ===========
Fully Diluted
Average shares outstanding 25,736,941 26,365,316 27,026,291
Effect of stock options based
on the treasury stock method
using average market price
during the year or ending
market price, whichever is
higher 280,493 321,108 287,074
----------- ----------- -----------
Total 26,017,434 26,686,424 27,313,365
=========== =========== ===========
Earnings before accounting change $ 43,436 $ 38,536 $ 31,949
Cumulative effect of accounting
change -- -- 2,206
----------- ----------- -----------
Net Earnings $ 43,436 $ 38,536 $ 34,155
=========== =========== ===========
Earnings Per Share:
Earnings before accounting change $ 1.67 $ 1.44 $ 1.17
Cumulative effect of accounting
change -- -- .08
----------- ----------- -----------
Net Earnings Per Share $ 1.67 $ 1.44 $ 1.25
=========== =========== ===========
All share and per share amounts have been adjusted for all stock splits.
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
Donaldson Company, Inc. and Subsidiaries
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
Record 1996 net sales of $758.6 million were up 8 percent from prior-year
sales of $704.0 million. For the year, Engine Products sales were up 7 percent
and Industrial Products sales were up 9 percent.
Domestic Engine products sales were up 12 percent, primarily from increased
shipments to original equipment manufacturers (OEMs). Weakness in the heavy duty
transportation market was more than offset by new business in the automotive and
defense markets. In addition, domestic aftermarket sales increased 7 percent
year over year. Domestic Industrial Products sales increased 2 percent led by
strong sales in the Torit Products (dust collection) market offset by lower
sales in high purity products.
Overseas sales increased almost 7 percent - 9 percent in local currencies
- -- primarily due to increased net sales in Europe and Hong Kong. Net sales in
Japan decreased 12 percent year over year. Overseas Industrial Products sales
increased 20 percent, primarily due to higher shipments of Torit Products and
gas turbine systems products in Europe and increased sales of high purity
products and gas turbine systems in Hong Kong. High purity product sales in Hong
Kong benefited from the company's decision in early 1996 to consolidate all disk
drive filter production in Hong Kong; clean room operations in the U.S. and
England were discontinued as part of this change. Engine Products sales were
flat compared to the prior year as increased shipments to European OEMs were
offset by lower OEM sales in Japan. In 1996, overseas sales totaled 37 percent
of consolidated net sales, down 1 percentage point from 38 percent in 1995.
Record net earnings for 1996 of $43.4 million were up 13 percent from $38.5
million in the prior year. Increased net sales and improvements in the gross
margin were the primary reasons for the higher earnings. Overseas operating
income totaled approximately 53 percent of consolidated operating income
compared to 54 percent in 1995.
Gross margin for 1996 increased to 29.4 percent compared to 28.1 percent in
the prior year. Increased manufacturing efficiencies gained by higher operating
levels and lower raw material prices in 1996 were slightly offset by higher
obsolete inventory expense and a $2.0 million impaired asset write-down. Margins
improved in Japan's transportation and Industrial Products markets, and Europe's
high purity products and Torit Products markets. In addition, margin
improvements were noted in all domestic markets. Offsetting these gains were
margin declines in Hong Kong's Industrial Products markets as well as Europe's
OEM and gas turbine systems markets.
Operating expenses as a percentage of sales for 1996 and 1995 were 19.4
percent and 18.8 percent, respectively. 1996 operating expenses totaled $147.2
million compared to $132.4 million in 1995, which reflects an increase of $14.8
million, or 11 percent. Selling expenses in 1996 increased $6.1 million
primarily due to the higher sales levels while general and administrative
expenses increased $7.2 million due to higher medical expenses and increased
warranty accruals on new and existing product lines.
Interest expense declined $0.2 million, or 6 percent, primarily due to the
decline in total debt. Other expense totaled $1.6 million in 1996 compared to
other income of $0.7 million in the prior year. The $2.3 million change is
primarily due to a $1.1 million increase in foreign exchange loss, a $0.2
million decline in interest income, a $0.7 million increase in charitable
contributions, and a $0.3 million charge related to the sale of our Brazilian
operation. Favorable earnings at AFSI, a joint venture with Caterpillar, Inc.,
offset $0.6 million of the unfavorable other expense variance.
The effective income tax rate of 38.9 percent in 1996 was flat compared to
39.0 percent in 1995. For both years, the company's effective rate is higher
than the statutory federal rate due to higher effective overseas, state and
local taxes.
During the fourth quarter of 1996, the company sold the operations and
substantially all of the assets related to its Brazilian subsidiary. The sale
did not result in any material charge or credit to earnings. Net sales for this
operation totaled $3.0 million in 1996 compared to $6.3 million in 1995.
Operating losses for 1996 and 1995 were $1.5 million and $0.3 million,
respectively.
Hard order backlogs, goods scheduled for delivery in 90 days, were $121.9
million and $134.1 million at July 31, 1996 and 1995, respectively. A $2.2
million increase in worldwide Engine Products backlog was offset by a $13.5
million decline in worldwide gas turbine systems backlog. Backlogs, orders and
shipments in the gas turbine business segment typically fluctuate widely from
period to period; the most recent decline in backlogs is consistent with
historical patterns and does not indicate any fundamental change in the current
market conditions. Total backlogs of $203.3 million were down 5 percent from the
prior year-end, primarily due to lower gas turbine systems orders.
1995 COMPARED TO 1994
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 OEMs. Industrial
18
Products sales growth of 15 percent was primarily led by strong sales in our
Torit Products 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 36percent, primarily due to strong sales
in Europe and Japan. Industrial Products sales increased 23 percent, reflecting
increased Torit Products 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.
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 $0.3 million, or 8 percent, in the year primarily
due to the decrease in long-term debt. Other income totaled $0.7 million in 1995
compared to $1.5 million in 1994. The $0.8 million decline is primarily due to
lower earnings at AFSI, 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.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION
At July 31, 1996, the company's capital structure comprised $13.1 million
of current debt, $10.0 million of long-term debt and $228.9 million of
shareholders' equity. The ratio of long-term debt to total long-term capital was
4.2 percent, compared with 4.4 percent at July 31, 1995.
Total debt decreased $7.8 million during 1996 to $23.2 million. Most of the
decrease resulted from the company's decision to discontinue the use of
short-term debt to hedge foreign currency denominated account receivables at
certain of its European subsidiaries.
In December 1995, the company entered into a five- year multi-currency
revolving credit facility totaling $100.0 million with a group of international
banks, led by Citibank as agent. There were no amounts outstanding under this
facility at July 31, 1996. The company believes that the combination of present
capital resources, internally generated funds, and unused financing sources are
more than adequate to meet cash requirements for 1997.
Shareholders' equity increased $7.7 million in 1996 to $228.9 million. The
increase was primarily due to net earnings of $43.4 million, offset by $23.1
million of treasury stock repurchases, an $8.8 million decrease in the
cumulative translation adjustment and $7.7 million of dividend payments.
CASH FLOWS
During 1996, $76.9 million of cash was generated from operating activities,
compared with $52.9 million in 1995 and $31.4 million in 1994. The increase in
1996 was largely the result of increased net earnings, higher depreciation and
amortization expense and a significant increase in trade accounts payable,
accruals and income taxes payable. Significant uses for cash included $39.3
million of capital expenditures, $23.1 million of treasury stock repurchases and
$7.7 million of dividend payments. Cash and cash equivalents increased $2.4
million during 1996.
Capital expenditures for property, plant and equipment totaled $39.3
million in 1996, compared to $25.3 million in 1995 and $24.6 million in 1994.
Significant additions in 1996 include the upgrade of information
19
systems in the U.S., the construction of a new production line at the Stevens
Point, Wisconsin facility, the upgrade of equipment at the Nicholasville,
Kentucky and Grinnell, Iowa facilities, the construction of a second Baldwin,
Wisconsin manufacturing facility and the construction of a new manufacturing
facility in Brugge, Belgium.
Capital spending in 1997 is planned to be $53.0 million. Significant
planned expenditures include the further upgrade of U.S. information systems,
and new production lines for liquid aftermarket products in Stevens Point,
Wisconsin and Aquascalientes, Mexico. It is anticipated that 1997 capital
expenditures will be financed primarily through 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 8 cents per share equates to 22 percent of the
1994 through 1996 average net earnings per share.
SHARE REPURCHASE PLAN
In 1996, the company repurchased 0.9 million shares of common stock on the
open market for $23.1 million, at an average price of $24.83 per share. The
company repurchased 0.6 million shares for $14.7 million in 1995 and 0.8 million
shares for $17.5 million in 1994. At July 31, 1996, the company has
authorization to repurchase an additional 1.6 million shares. Depending on
market conditions, the company expects to maintain or increase its level of
treasury stock repurchases in 1997.
CHANGE IN ACCOUNTING PRINCIPLES
In 1996, the company adopted Financial Accounting Standards Board Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets," which requires
losses on impairment of long-lived assets used in operations to be recorded when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. The
adoption had no impact on the financial statements.
Effective August 1, 1993, the company adopted Financial Accounting
Standards Board Statement No. 109 (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.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123 (FAS 123), "Accounting for Stock Based Compensation." FAS 123 encourages
companies to adopt a fair value based method of accounting for employee stock
options, but allows companies to continue to measure compensation cost for such
plans as it is measured currently. The company plans to continue to use the
current method of accounting for stock compensation in 1997, but will adopt the
disclosure requirements of FAS 123, making pro forma disclosure of net earnings
and earnings per share as if the fair value based method had been applied. FAS
123 will have no impact on the company's financial position or results of
operations.
FOREIGN CURRENCY EFFECTS
In 1996, the U.S. dollar was generally stronger relative to the currencies
of foreign countries where the company operates. A stronger dollar generally has
a negative impact on overseas results because foreign-exchange denominated
earnings translate into less U.S. dollars; a weaker dollar generally has a
positive translation effect.
It is not possible to determine the true impact of foreign currency
translation changes; however, the direct effect on net sales and net earnings
can be estimated. For 1996, the stronger U.S. dollar decreased net sales by $7.4
million and decreased net earnings by $0.6 million. During 1995, the generally
weaker U.S. dollar increased net sales by $21.9 million and net earnings by $0.4
million.
RISK FACTORS
Except for the historical information contained herein, certain of the
matters discussed in this annual report are "forward-looking statements" as
defined in the Private Securities Litigation Reform Act of 1995, which involve
risks and uncertainties, including, but not limited to changing economic and
political conditions in the U.S. and in other countries, changes in governmental
spending and budgetary policies, governmental laws and regulations surrounding
various matters such as environmental remediation, contract pricing, and
international trading restrictions, customer product acceptance, and continued
access to capital markets. All forecasts and projections in this report are
"forward-looking statements," and are based on management's current expectations
of the company's near-term results, based on current information available
pertaining to the company, including the aforementioned risk factors. Actual
results could differ materially.
20
REPORT OF INDEPENDENT AUDITORS
Donaldson Company, Inc. and Subsidiaries
Shareholder 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, 1996 and
1995, 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, 1996. 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, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended July 31, 1996, 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 11, 1996
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS ...............................21
CONSOLIDATED STATEMENTS OF EARNINGS ..........................22
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ................23
CONSOLIDATED STATEMENTS OF CASH FLOWS ........................24
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY ...25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................26-31
21
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
Donaldson Company, Inc. and Subsidiaries
YEAR ENDED JULY 31
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales ......................................................... $ 758,646 $ 703,959 $ 593,503
Cost of sales ..................................................... 535,772 505,980 426,904
--------- --------- ---------
Gross Margin 222,874 197,979 166,599
Selling, general and administrative ............................... 131,326 117,961 103,647
Research and development .......................................... 15,906 14,487 10,873
Interest expense .................................................. 2,905 3,089 3,362
Other expense (income) ............................................ 1,617 (730) (1,476)
--------- --------- ---------
Total Expenses 151,754 134,807 116,406
--------- --------- ---------
Earnings Before Income Taxes 71,120 63,172 50,193
Income taxes ...................................................... 27,684 24,636 18,244
--------- --------- ---------
Earnings Before Cumulative Effect of Accounting Change 43,436 38,536 31,949
Cumulative effect of accounting change ............................ -- -- 2,206
--------- --------- ---------
Net Earnings $ 43,436 $ 38,536 $ 34,155
========= ========= =========
Earnings per share
Earnings before cumulative effect of accounting change ....... $ 1.67 $ 1.45 $ 1.17
Cumulative effect of accounting change ....................... -- -- .08
--------- --------- ---------
Net Earnings Per Share $ 1.67 $ 1.45 $ 1.25
========= ========= =========
See notes to consolidated financial statements.
</TABLE>
22
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Donaldson Company, Inc. and Subsidiaries
JULY 31
(THOUSANDS OF DOLLARS) 1996 1996
- ------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents ................................................. $ 30,924 $ 28,565
Accounts receivable, net .................................................. 137,145 137,155
Inventories
Materials ............................................................ 30,359 32,225
Work in process ...................................................... 10,184 12,168
Finished products .................................................... 31,427 29,035
-------- --------
Total Inventories 71,970 73,428
Prepaids and other current assets ......................................... 10,712 8,756
-------- --------
Total Current Assets 250,751 247,904
Property, Plant and Equipment
Land ...................................................................... 8,216 7,982
Buildings ................................................................. 90,136 89,684
Machinery and equipment ................................................... 202,807 189,835
Construction in progress .................................................. 6,820 4,691
-------- --------
Property, Plant and Equipment, at Cost 307,979 292,192
Less accumulated depreciation ............................................. 183,066 181,552
-------- --------
Property, Plant and Equipment, Net 124,913 110,640
Other Assets ................................................................... 27,186 22,498
-------- --------
Total Assets $402,850 $381,042
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
<S> <C> <C>
Short-term debt ........................................................... $ 8,916 $ 17,802
Current maturities of long-term debt ...................................... 4,229 2,998
Trade accounts payable .................................................... 62,020 53,576
Accrued employee compensation and related taxes ........................... 23,524 23,114
Income taxes payable ...................................................... 12,756 5,717
Other current liabilities ................................................. 27,133 20,540
--------- ---------
Total Current Liabilities 138,578 123,747
Long-term Debt ................................................................. 10,041 10,167
Deferred Income Taxes .......................................................... 560 5,233
Other Long-term Liabilities .................................................... 24,791 20,722
Shareholders' Equity
Preferred stock, $1.00 par value, 1,000,000 shares authorized,
no shares issued..................................................... -- --
Common stock, $5.00 par value, 40,000,000 shares authorized,
27,063,407 issued in 1996 and 1995 ................................... 135,317 135,317
Capital surplus ........................................................... 2,994 2,639
Retained earnings ......................................................... 128,795 93,746
Cumulative translation adjustments ........................................ 6,065 14,824
Treasury stock -- 1,738,793 and 878,243 shares in 1996 and 1995, at cost .. (41,561) (20,103)
Receivable from ESOP ...................................................... (2,730) (5,250)
--------- ---------
Total Shareholders' Equity 228,880 221,173
--------- ---------
Total Liabilities and Shareholders' Equity $ 402,850 $ 381,042
========= =========
See notes to consolidated financial statements.
</TABLE>
23
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Donaldson Company, Inc. and Subsidiaries
YEAR ENDED JULY 31
(THOUSANDS OF DOLLARS) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net earnings ....................................................... $ 43,436 $ 38,536 $ 34,155
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization ................................. 21,674 20,529 16,365
Cumulative effect of accounting change ........................ -- -- (2,206)
Property, plant and equipment write-downs ..................... 2,009 1,427 3,200
Equity in earnings of affiliates .............................. (2,445) (1,840) (3,743)
Deferred income taxes ......................................... (5,683) (153) (2,844)
Other ......................................................... 6,177 5,682 1,235
Changes in operating assets and liabilities
Accounts receivable, net ................................. (7,150) (6,159) (15,380)
Inventories .............................................. (2,035) (9,823) (10,029)
Prepaids and other current assets ........................ (4,779) 7,093 (1,315)
Trade accounts payable, accruals, and income taxes payable 25,720 (2,398) 11,945
-------- -------- --------
Net Cash Provided by Operating Activities 76,924 52,894 31,383
INVESTING ACTIVITIES
Net expenditures on property and equipment ......................... (39,297) (25,334) (24,642)
Acquisitions and investments in affiliates ......................... (2,152) (3,911) (6,437)
Dividends from affiliate ........................................... 616 -- 3,550
-------- -------- --------
Net Cash Used in Investing Activities (40,833) (29,245) (27,529)
FINANCING ACTIVITIES
Repayment of long-term debt ........................................ (361) (5,764) (3,416)
Net change in short-term debt ...................................... (8,360) 1,715 9,098
Payment received from ESOP ......................................... 2,520 2,415 2,310
Purchase of treasury stock ......................................... (23,143) (14,692) (17,471)
Dividends paid ..................................................... (7,725) (7,372) (6,745)
Exercise of stock options .......................................... 129 3,201 (148)
-------- -------- --------
Net Cash Used in Financing Activities (36,940) (20,497) (16,372)
Effect of exchange rate changes on cash ............................ 3,208 2,468 3,353
-------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents 2,359 5,620 (9,165)
Cash and cash equivalents at beginning of year ..................... 28,565 22,945 32,110
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 30,924 $ 28,565 $ 22,945
======== ======== ========
See notes to consolidated financial statements.
</TABLE>
24
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Donaldson Company, Inc. and Subsidiaries
CUMULATIVE TOTAL
(THOUSANDS OF DOLLARS, EXCEPT COMMON CAPITAL RETAINED TRANSLATION TREASURY RECEIVABLE SHAREHOLDERS'
PER SHARE AMOUNTS) STOCK SURPLUS EARNINGS ADJUSTMENTS STOCK FROM ESOP EQUITY
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
--------- --------- --------- --------- --------- --------- ---------
Treasury stock acquired (23,143) (23,143)
Stock options exercised (140) (689) 958 129
Payment received from ESOP 2,520 2,520
Performance awards 114 27 727 868
Tax reduction -- employee plans 381 381
Net earnings 43,436 43,436
Translation adjustments (8,759) (8,759)
Dividends paid -- $.30 per share (7,725) (7,725)
--------- --------- --------- --------- --------- --------- ---------
BALANCE JULY 31, 1996 $ 135,317 $ 2,994 $ 128,795 $ 6,065 $ (41,561) $ (2,730) $ 228,880
--------- --------- --------- --------- --------- --------- ---------
See notes to consolidated financial statements.
</TABLE>
25
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.
USE OF ESTIMATES: Preparing financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
FOREIGN CURRENCY TRANSLATION: Foreign assets and liabilities are generally
translated using the year-end rates of exchange. Results of operations are
translated using the average rates prevailing throughout the period. Translation
gains or losses, net of applicable deferred taxes, are accumulated as a separate
component of shareholders' equity. Foreign currency transaction (losses)/gains
of $(1,067,000), $47,000 and $(1,337,000), in 1996, 1995 and 1994, 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 55 and 56 percent of total inventories at July
31, 1996 and 1995, respectively.
The current cost of inventories valued under the LIFO method exceeded their
LIFO carrying values by $19,909,000 and $20,557,000 at July 31, 1996 and 1995,
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 company adopted Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets," which requires losses on
impairment of long-lived assets used in operations to be recorded when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. The
adoption had no impact on the financial statements.
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 Statement, prior years' financial statements have not been
restated.
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.
26
STOCK OPTIONS: In October 1995, Financial Accounting Standards Board Statement
No. 123 (FAS 123), "Accounting for Stock-Based Compensation" was issued, which
is effective for fiscal years beginning after December 15, 1995. FAS 123
encourages companies to adopt a fair value based method of accounting for
employee stock options, but allows companies to continue to account for those
plans using the accounting prescribed by APB Opinion 25, "Accounting for Stock
Issued to Employees." The company will adopt the disclosure requirements of FAS
123 in 1997 and plans to continue accounting for stock compensation using APB
25, making pro forma disclosures of net earnings and earnings per share as if
the fair value based method had been applied.
NOTE B: ACQUISITIONS AND DIVESTITURE
ACQUISITIONS
During 1996, the company acquired all of the common stock of Tecnov S.A., a
French manufacturer of heavy duty exhaust mufflers, and the company invested in
a Torit Products manufacturer in the People's Republic of China.
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 its Australian
Torit Products distributor.
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 Torit Products 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.
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.
DIVESTITURE
During the fourth quarter of 1996, the company sold the operations and
substantially all the assets related to its Brazilian subsidiary, Donaldson do
Brasil, Ltda., (DBL). The sale did not result in any material charge or credit
to earnings. DBL's results of operations prior to the divestiture date have been
included in the company's consolidated results of operations.
NOTE C: SHORT-TERM DEBT
The company has a five-year $100 million multi-currency credit facility. The
interest rate for borrowings is based on certain of the company's adjusted
leverage and debt to capitalization ratios at various points in time. Facility
fees and other fees on the entire loan commitment are payable for the duration
of this facility. There were no amounts outstanding under lines of credit at
July 31, 1996 and 1995.
Overseas subsidiaries may borrow under various uncommitted facilities. As
of July 31, 1996 and 1995, borrowings under these facilities were $8,916,000 and
$17,802,000, respectively. The weighted average interest rate on short-term debt
outstanding at July 31, 1996 and 1995 was 5.6 percent and 7.1 percent,
respectively.
NOTE D: LONG-TERM DEBT
Long-term debt consists of the following:
(THOUSANDS OF DOLLARS) 1996 1995
- ---------------------------------------------------------------------
U.S.
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.. $ 2,730 $ 5,250
6 3/8 perrcent mortgage due 1997 .. 1,000 1,000
7 percent note due in 2008 ........ 500 500
Overseas
Variable rate note due in 1999.
Interest rate is Italian LIBOR
plus .25 percent ................ 3,805 --
Other subsidiaries ................ 898 836
------- -------
Total Notes 8,933 7,586
Capitalized leases ................ 5,337 5,579
------- -------
Total 14,270 13,165
Less current maturities ........... 4,229 2,998
------- -------
Total Long-Term Debt $10,041 $10,167
======= =======
27
Annual maturities of long-term debt and capitalized leases for the next
five years are $4,229,000 in 1997, $839,000 in 1998, $4,523,000 in 1999,
$699,000 in 2000 and $383,000 in 2001.
Total interest paid relating to all debt was $2,764,000, $2,809,000 and
$2,906,000 in 1996, 1995 and 1994, respectively.
Certain note agreements contain debt covenants related to working capital
levels and limitations 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, 1996, under the
most restrictive agreement, tangible net worth exceeded the minimum by
$71,964,000.
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) 1996 1995
- ------------------------------------------------------------------
Land ............................. $ 121 $ 121
Buildings ........................ 5,894 5,894
Machinery and equipment .......... 608 550
------ ------
Subtotal 6,623 6,565
Less accumulated amortization .... 2,429 2,568
------ ------
Total $4,194 $3,997
====== ======
Future minimum lease payments for assets under capital leases at July 31,
1996 are as follows:
(THOUSANDS OF DOLLARS)
- ------------------------------------------------------------------
1997 ............................. $ 849
1998 ............................. 849
1999 ............................. 849
2000 ............................. 760
2001 ............................. 513
Thereafter ....................... 3,602
--------
Total minimum lease payments ..... 7,422
Less amount representing interest 2,085
--------
Present value of net minimum
lease payments ................. 5,337
Less current maturities .......... 433
--------
Long-Term Obligation $ 4,904
=========
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) 1996 1995 1994
- ----------------------------------------------------------------------------
Service cost ............. $ 5,224 $ 5,024 $ 4,187
Interest cost on projected
benefit obligation .... 7,029 6,167 5,504
Actual return on
plan assets ........... (4,391) (12,238) (3,608)
Net amortization
and deferral .......... (3,221) 5,265 (3,015)
-------- -------- --------
Net Periodic
Pension Expense $ 4,641 $ 4,218 $ 3,068
======== ======== ========
The funded status of the company's pension plans as of July 31, 1996, and
1995, is as follows:
(THOUSANDS OF DOLLARS) 1996 1995
- --------------------------------------------------------------------------
Plan assets at fair value ........... $ 85,172 $ 81,029
Accumulated benefit obligation:
Vested ........................... (71,887) (61,400)
Nonvested ........................ (3,019) (2,356)
Provision for future salary increases (20,250) (18,197)
-------- ---------
Plan assets less than
projected benefit obligation ..... (9,984) (924)
Unrecognized net loss ............... 9,040 3,122
Unrecognized prior service cost ..... 4,611 3,126
Unrecognized net transition asset ... (8,156) (9,253)
Additional minimum liability ........ (970) (1,806)
-------- ---------
Accrued Pension Liability $ (5,459) $ (5,735)
======== ========
The principal actuarial assumptions for 1996, 1995 and 1994 were:
Discount rate ....................... 8.0%
Rate of future compensation
increases ........................ 5.5%
Expected long-term
rate of return ................... 9.0%
28
EMPLOYEE STOCK OWNERSHIP PLAN: In 1987, the company established an Employee
Stock Ownership Plan (ESOP) for eligible U.S. employees. The ESOP borrowed
$21,000,000 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, 1996 and 1995,
3,314,364 and 2,928,170 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 $2,453,000, $2,130,000 and $2,020,000 in 1996, 1995 and 1994,
respectively.
NOTE G: EMPLOYEE INCENTIVE PLANS
In November 1991, shareholders approved the 1991 Master Stock Compensation
Plan. The Plan extends through December 2001 and allows for the granting of
nonqualified stock options, incentive stock options, restricted stock, stock
appreciation rights (SARs), dividend equivalents, dollar-denominated awards and
other stock-based awards.
The 1980 Master Stock Compensation Plan allows for the granting of
nonqualified stock options and incentive stock options.
Both plans allow for the granting of performance awards to a limited number
of key executives. The awards are payable in Common Stock and are based on a
formula which measures performance of the company over a three- year period.
Performance award expense totaled $2,135,000, $2,064,000 and $57,000 in 1996,
1995 and 1994, 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, 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
Cancelled ............... (17,000) 14.56/ 22.37
Exercised ............... (95,899) 4.62/ 22.37
Granted ................. 185,291 24.00/ 28.00
--------- ----------------
Outstanding at July 31, 1996 1,570,883 $ 4.62/$28.00
========= ================
At July 31, 1996 and 1995 there were 1,385,932 and 1,400,428 options
exercisable, respectively. Shares reserved at July 31, 1996 for outstanding
options and future grants were 2,908,433.
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 statement requires a liability
approach for computing income taxes. As permitted under the 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) 1996 1995 1994
- -------------------------------------------------------------------
United States ........ $47,589 $42,355 $37,781
Overseas ............. 23,531 20,817 12,412
------- ------- -------
Total $71,120 $63,172 $50,193
======= ======= =======
The components of the provision for income taxes are as follows:
(THOUSANDS OF DOLLARS) 1996 1995 1994
- ------------------------------------------------------------------
Current:
Federal ........... $ 21,796 $ 12,425 $ 12,897
State ............. 2,047 1,810 1,536
Overseas .......... 9,524 10,554 6,655
-------- -------- --------
Total Current 33,367 24,789 21,088
-------- -------- --------
Deferred:
Federal ........... (5,424) 716 (2,353)
State ............. (470) 49 (202)
Overseas .......... 211 (918) (289)
-------- -------- --------
Total Deferred (5,683) (153) (2,844)
-------- -------- --------
Total Income Taxes $ 27,684 $ 24,636 $ 18,244
======== ======== ========
29
Significant components of deferred tax assets and liabilities are as
follows:
(THOUSANDS OF DOLLARS) 1996 1995 1994
- --------------------------------------------------------------------------
Deferred Tax Assets:
Compensation and
retirement plans ........ $ 10,587 $ 8,514 $ 5,417
Accrued expenses .......... 7,155 4,572 5,372
Brazilian asset write-down 571 1,040 1,216
NOL carryforwards ......... 1,553 1,263 273
Inventories ............... 1,861 1,260 318
Investment in joint venture 957 1,606 2,382
Other ..................... 4,689 3,210 2,749
-------- -------- --------
Gross Deferred
Tax Assets 27,373 21,465 17,727
Valuation Reserve ......... (1,615) (1,426) --
-------- -------- --------
Net Deferred Tax Assets ... 25,758 20,039 17,727
Deferred Tax Liabilities:
Depreciation and
amortization ........... (5,397) (1,844) (4,895)
Cumulative translation
adjustment ............. (3,264) (7,980) (4,440)
Other ..................... (1,445) (2,192) (2,262)
-------- -------- --------
Gross Deferred
Tax Liabilities (10,106) (12,016) (11,597)
-------- -------- --------
Net Deferred Taxes $ 15,652 $ 8,023 $ 6,130
======== ======== ========
A reconciliation of the statutory U.S. federal income tax rate to the
effective income tax rate is as follows:
(THOUSANDS OF DOLLARS) 1996 1995 1994
- --------------------------------------------------------------------
Statutory U.S.
federal rate ..... 35.0% 35.0% 35.0%
State income taxes .. 1.5 1.9 2.0
Overseas taxes at
higher rates ..... 2.1 1.9 0.3
Other ............... 0.3 0.2 (1.0)
---- ---- ----
Effective Income
Tax Rate 38.9% 39.0% 36.3%
==== ==== ====
At July 31, 1996, certain overseas subsidiaries had available net operating
loss carryforwards of approximately $4,569,000 to offset future taxable income.
The majority of such carryforwards expire after 2001. Unremitted earnings of
overseas subsidiaries amounted to approximately $75,318,000 at July 31, 1996.
Those earnings are intended to be indefinitely reinvested and, accordingly, no
income taxes have been provided. If a portion were to be remitted, income tax
credits would substantially offset any resulting tax liability. It is not
practicable to estimate the amount of unrecognized taxes on these undistributed
earnings due to the complexity of the computation.
The company made cash payments for income taxes of $20,516,000,
$21,824,000, and $20,557,000 in 1996, 1995 and 1994, respectively.
NOTE I: SHAREHOLDERS' EQUITY
On January 12, 1996, the Board of Directors of the company approved the
extension of the benefits afforded by the company's existing rights plan by
adopting a new shareholder rights plan. The new plan, like the existing plan, is
intended to promote continuity and stability, deter coercive or partial offers
which will not provide fair value to all shareholders and enhance the Board's
ability to represent all shareholders and thereby maximize shareholder value.
Pursuant to the new Rights Agreement, dated as of January 12, 1996, by and
between the company and Norwest Bank Minnesota, National Association, as Rights
Agent, one Right was issued on March 4, 1996 for each outstanding share of
Common Stock, par value $5.00 per share, of the company upon the expiration of
the company's existing rights. Each of the new Rights will entitle the
registered holder to purchase from the company one one-thousandth of a share of
Series A Junior Participating Preferred Stock, without par value, at a price of
$130.00 per one one-thousandth of a share. The Rights, however, will not become
exercisable unless and until, among other things, any person acquires 15 percent
or more of the outstanding Common Stock of the company. If a person acquires 15
percent or more of the outstanding Common Stock of the company (subject to
certain conditions and exceptions more fully described in the Rights Agreement),
each Right will entitle the holder (other than the person who acquired 15
percent or more of the outstanding Common Stock) to purchase Common Stock of the
company having a market value equal to twice the exercise price of a Right. The
new Rights are redeemable under certain circumstances at $.01 per Right and will
expire, unless earlier redeemed, on March 3, 2006.
30
NOTE J: SEGMENT INFORMATION
The company has one business segment which consists of the design,
manufacture and sale of filtration products. The company's key markets for
filters are heavy-duty truck and equipment, light-duty truck, in-plant air
cleaning systems, industrial gas turbines and computer disk drives.
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
- ----------------------------------------------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C> <C>
Sales to customers ........................ $474,831 $129,765 $ 80,734 $ 73,316 $ -- $758,646
Sales between geographic areas ............ 36,566 1,137 1,910 2,184 (41,797) --
-------- -------- -------- -------- -------- --------
Net Sales $511,397 $130,902 $ 82,644 $ 75,500 $(41,797) $758,646
-------- -------- -------- -------- -------- --------
Operating Income $ 35,535 $ 17,713 $ 10,955 $ 11,639 $ (200) $ 75,642
======== ======== ======== ======== ======== ========
Identifiable Assets:
Accounts receivable, net .................. $ 58,591 $ 37,403 $ 24,515 $ 16,598 $ 38 $137,145
Other ..................................... 143,975 59,616 24,169 25,875 (29,216) 224,419
-------- -------- -------- -------- -------- --------
Total identifiable assets ................. $202,566 $ 97,019 $ 48,684 $ 42,473 $(29,178) $361,564
General corporate assets .................. 41,286
-------- -------- -------- -------- -------- --------
Total Assets $402,850
======== ======== ======== ======== ======== ========
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
======== ======== ======== ======== ======== ========
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 $88,691,000, $88,199,000 and $69,107,00 in 1996, 1995
and 1994, respectively.
</TABLE>
31
<TABLE>
<CAPTION>
ELEVEN-YEAR COMPARISON OF RESULTS
Donaldson Company, Inc. and Subsidiaries
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $ 758,646 $ 703,959 $ 593,503 $ 533,327
Gross margin $ 222,874 197,979 166,599 152,236
Gross margin percentage 29.4% 28.1% 28.1% 28.5%
Operating income $ 75,642 65,531 52,079 45,246
Operating income percentage 10.0% 9.3% 8.8% 8.5%
Interest expense $ 2,905 3,089 3,362 2,723
Earnings before income taxes $ 71,120 63,172 50,193 44,682
Income taxes $ 27,684 24,636 18,244 16,468
Effective income tax rate 38.9% 39.0% 36.3% 36.9%
Net earnings $ 43,436 38,536 31,949(1) 28,214
Return on sales 5.7% 5.5% 5.4% 5.3%
Return on average shareholders' equity 19.3% 18.8% 17.6% 16.9%
Return on investment 18.5% 17.6% 16.0% 15.0%
- ----------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets $ 402,850 381,042 337,360 300,217
Current assets $ 250,751 247,904 220,308 196,014
Current liabilities $ 138,578 123,747 115,757 93,666
Working capital $ 112,173 124,157 104,551 102,348
Current ratio 1.8 2.0 1.9 2.1
Current debt $ 13,145 20,800 16,956 7,595
Long-term debt $ 10,041 10,167 16,028 18,920
Total debt $ 23,186 30,967 32,984 26,515
Shareholders' equity $ 228,880 221,173 189,697 174,008
Long-term capitalization ratio 4.2% 4.4% 7.8% 9.8%
Property, plant and equipment, net $ 124,913 110,640 99,559 90,515
Net expenditures on
property, plant and equipment $ 39,297 25,334 24,642 15,005
Depreciation and amortization $ 21,674 20,529 16,365 14,752
- ----------------------------------------------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
Net earnings per share $ 1.67 1.45 1.17(1) 1.01
Dividends per share $ .30 .28 .25 .20
Shareholders' equity per share $ 9.04 8.45 7.16 6.38
Shares outstanding (000s) 25,325 26,185 26,510 27,282
Common stock price range, per share
High $ 28 28 26 1/8 20 1/8
Low $ 23 7/8 20 7/8 18 1/4 14
- ----------------------------------------------------------------------------------------------------------------------
</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.
32
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $ 482,104 $ 457,692 $ 422,885 $ 397,535
Gross margin 133,574 129,858 121,454 105,275
Gross margin percentage 27.7% 28.4% 28.7% 26.5%
Operating income 41,249 41,304 44,354 37,851
Operating income percentage 8.6% 9.0% 10.5% 9.5%
Interest expense 2,681 3,526 3,731 3,555
Earnings before income taxes 41,721 39,385 34,875 27,664
Income taxes 15,952 15,337 13,849 12,230
Effective income tax rate 38.2% 38.9% 39.7% 44.2%
Net earnings 25,769 24,048 21,026 15,434
Return on sales 5.3% 5.3% 5.0% 3.9%
Return on average shareholders' equity 17.2% 18.0% 17.8% 15.1%
Return on investment 14.8% 14.9% 14.2% 11.5%
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets 286,348 253,194 245,947 204,813
Current assets 187,360 169,398 168,522 130,848
Current liabilities 89,956 77,537 79,917 58,009
Working capital 97,404 91,861 88,605 72,839
Current ratio 2.1 2.2 2.1 2.3
Current debt 11,425 6,380 11,384 8,602
Long-term debt 23,482 25,673 28,320 30,750
Total debt 34,907 32,053 39,704 39,352
Shareholders' equity 160,303 138,947 128,787 107,516
Long-term capitalization ratio 12.8% 15.6% 18.0% 22.2%
Property, plant and equipment, net 84,899 72,863 68,290 61,914
Net expenditures on
property, plant and equipment 15,538 16,208 16,055 11,567
Depreciation and amortization 14,047 12,187 10,857 10,583
- ---------------------------------------------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
Net earnings per share .92 .84 .73 .54
Dividends per share .19 .14 .13 .12
Shareholders' equity per share 5.81 5.01 4.46 3.75
Shares outstanding (000s) 27,569 27,739 28,864 28,693
Common stock price range, per share
High 15 7/8 13 3/8 11 5/8 5 7/8
Low 11 5/8 8 1/8 5 5/8 5 1/2
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
1988 1987 1986
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING RESULTS
Net sales $ 362,862 $ 294,993 $ 266,668
Gross margin 104,828 83,336 83,736
Gross margin percentage 28.9% 28.3% 31.4%
Operating income 36,047 24,648 30,324
Operating income percentage 9.9% 8.4% 11.4%
Interest expense 3,229 2,359 2,162
Earnings before income taxes 29,868 21,748 30,850
Income taxes 13,630 10,782 15,214
Effective income tax rate 45.6% 49.6% 49.3%
Net earnings 16,238(1) 10,966(1) 15,636
Return on sales 4.5% 3.7% 5.9%
Return on average shareholders' equity 15.6% 9.8% 14.9%
Return on investment 11.7% 7.9% 12.8%
- ----------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets 193,548 200,827 191,348
Current assets 122,602 128,370 125,635
Current liabilities 52,126 44,609 50,515
Working capital 70,476 83,761 75,120
Current ratio 2.4 2.9 2.5
Current debt 3,875 4,302 4,634
Long-term debt 33,784 35,353 16,674
Total debt 37,659 39,655 21,308
Shareholders' equity 97,254 110,517 113,588
Long-term capitalization ratio 25.8% 24.2% 12.8%
Property, plant and equipment, net 62,160 62,575 54,431
Net expenditures on
property, plant and equipment 9,954 15,460 7,343
Depreciation and amortization 10,351 8,857 7,377
- ----------------------------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
Net earnings per share .55(1) .36(1) .50
Dividends per share .11 .11 .11
Shareholders' equity per share 3.40 3.34 3.58
Shares outstanding (000s) 28,597 33,131 31,730
Common stock price range, per share
High 8 5/8 6 3/4 6 5/8
Low 3 5/8 5 3/8 3
- ----------------------------------------------------------------------------------------------------
</TABLE>
33
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>
1996
First Quarter $ 188,867 $ 53,899 $ 10,131 $ .39 $ .07
Second Quarter 182,165 52,439 9,247 .35 .07
Third Quarter 185,225 55,372 12,625 .49 .08
Fourth Quarter 202,389 61,164 11,433 .44 .08
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
</TABLE>
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, 1996, 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, Minnesota 55440
CORPORATE INFORMATION
ANNUAL MEETING: The annual meeting of shareholders will be held at 10 a.m. on
Friday, November 15, 1996, in the first floor auditorium of the Lutheran
Brotherhood Building, 625 Fourth Avenue South, Minneapolis, Minnesota. You are
urged to attend.
10-K REPORTS: Copies of the Report 10-K, filed with the Securities and Exchange
Commission, are available on request from Shareholder Services, Donaldson
Company, Inc., M.S. 101, P.O. Box 1299, Minneapolis, Minnesota 55440
AUDITORS: Ernst & Young LLP, Minneapolis, Minnesota
GENERAL COUNSEL: Dorsey & Whitney LLP, 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]
34
EXHIBIT 21
JOINT VENUTURES
Advanced Filtration Systems, Inc.,
CHAMPAIGN, ILLINOIS
D.I. Filter Systems Pvt. Ltd.,
NEW DELHI, INDIA
Guilin Air King Enterprises Ltd.,
GUILIN, PEOPLE'S REPUBLIC OF CHINA
PT Panata Java Mandiri,
JAKARTA, INDONESIA
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
Tecnov-Donaldson, S.A.,
DOMJEAN, FRANCE
Donaldson Italia s.r.l.,
OSTIGLIA, ITALY
Nippon Donaldson, Ltd.,
TOKYO, JAPAN
Donaldson Far East Limited,
NEW TERRITORIES, HONG KONG
Doanldson Australasia (Pty.) Ltd.,
WYONG, AUSTRALIA
Donaldson Filtration Systems (Pty.) Ltd.,
CAPE TOWN, SOUTH AFRICA
Donaldson, S.A. de C.V.,
AGUASCALIENTES, MEXICO
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 11, 1996, included in
the 1996 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 11, 1996, 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 schedule 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 28, 1996
EXHIBIT 24
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke and
Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's 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 any and all amendments thereto, and
to deliver on the undersigned's behalf said report so signed for filing with the
Securities and Exchange Commission.
Dated: September 20, 1996
/s/ F. Guillaume Bastiaens
-----------------------------------
F. Guillaume Bastiaens
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke and
Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's 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 any and all amendments thereto, and
to deliver on the undersigned's behalf said report so signed for filing with the
Securities and Exchange Commission.
Dated: September 20, 1996
/s/ Michael R. Bonsignore
-----------------------------------
Michael R. Bonsignore
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke and
Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's 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 any and all amendments thereto, and
to deliver on the undersigned's behalf said report so signed for filing with the
Securities and Exchange Commission.
Dated: September 20, 1996
/s/ Paul B. Burke
-----------------------------------
Paul B. Burke
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke and
Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's 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 any and all amendments thereto, and
to deliver on the undersigned's behalf said report so signed for filing with the
Securities and Exchange Commission.
Dated: September 20, 1996
/s/ Janet M. Dolan
-----------------------------------
Janet M. Dolan
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke and
Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's 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 any and all amendments thereto, and
to deliver on the undersigned's behalf said report so signed for filing with the
Securities and Exchange Commission.
Dated: September 20, 1996
/s/ Jack W. Eugster
-----------------------------------
Jack W. Eugster
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke and
Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's 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 any and all amendments thereto, and
to deliver on the undersigned's behalf said report so signed for filing with the
Securities and Exchange Commission.
Dated: September 20, 1996
/s/ Kendrick B. Melrose
-----------------------------------
Kendrick B. Melrose
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke and
Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's 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 any and all amendments thereto, and
to deliver on the undersigned's behalf said report so signed for filing with the
Securities and Exchange Commission.
Dated: September 20, 1996
/s/ S. Walter Richey
-----------------------------------
S. Walter Richey
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke and
Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's 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 any and all amendments thereto, and
to deliver on the undersigned's behalf said report so signed for filing with the
Securities and Exchange Commission.
Dated: September 20, 1996
/s/ Stephen W. Sanger
-----------------------------------
Stephen W. Sanger
POWER OF ATTORNEY
The undersigned does hereby constitute and appoint William G. Van Dyke and
Norman C. Linnell, and each of them, the undersigned's attorneys-in-fact and
agents for the purpose of signing in the undersigned's name and on the
undersigned's 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 any and all amendments thereto, and
to deliver on the undersigned's behalf said report so signed for filing with the
Securities and Exchange Commission.
Dated: September 20, 1996
/s/ C. Angus Wurtele
-----------------------------------
C. Angus Wurtele
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 30,924
<SECURITIES> 0
<RECEIVABLES> 131,145
<ALLOWANCES> 3,695
<INVENTORY> 71,970
<CURRENT-ASSETS> 250,751
<PP&E> 307,979
<DEPRECIATION> 183,066
<TOTAL-ASSETS> 402,850
<CURRENT-LIABILITIES> 138,578
<BONDS> 10,041
0
0
<COMMON> 135,317
<OTHER-SE> 93,563
<TOTAL-LIABILITY-AND-EQUITY> 402,850
<SALES> 758,646
<TOTAL-REVENUES> 0
<CGS> 535,772
<TOTAL-COSTS> 147,232
<OTHER-EXPENSES> 1,617
<LOSS-PROVISION> 511
<INTEREST-EXPENSE> 2,905
<INCOME-PRETAX> 71,120
<INCOME-TAX> 27,684
<INCOME-CONTINUING> 43,436
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,436
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.67
</TABLE>
