UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDING October 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 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 Number)
1400 West 94th Street
Minneapolis, Minnesota 55431
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (612) 887-3131
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $5 Par Value -- 25,076,017 shares as of November 30, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars Except Per Share Amounts)
(Unaudited)
Three Months Ended
October 31
---------------------------
1996 1995
----------- -----------
Net Sales $ 187,176 $ 188,867
Cost of Sales 131,044 134,968
----------- -----------
Gross Margin 56,132 53,899
Operating Expenses 37,171 36,246
Other Expense 242 333
Interest Expense 609 711
----------- -----------
Earnings Before Income Taxes 18,110 16,609
Income Taxes 6,520 6,478
----------- -----------
Net Earnings $ 11,590 $ 10,131
=========== ===========
Average Shares and
Equivalents Outstanding
During Period 25,521,134 26,251,614
=========== ===========
Net Earnings Per Share $ .45 $ .39
=========== ===========
Dividends Paid Per Share $ .09 $ .07
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
October 31, July 31,
1996 1996
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 26,268 $ 30,924
Accounts Receivable, Net 134,797 137,145
Inventories
Materials 33,054 30,359
Work in Process 10,763 10,184
Finished Products 33,058 31,427
--------- ---------
Total Inventories 76,875 71,970
Prepaids and Other Current Assets 12,262 10,712
--------- ---------
TOTAL CURRENT ASSETS 250,202 250,751
Property, Plant and Equipment, at Cost 316,149 307,979
Less Accumulated Depreciation 187,396 183,066
--------- ---------
Property, Plant and Equipment, Net 128,753 124,913
Other Assets 26,523 27,186
--------- ---------
TOTAL ASSETS $ 405,478 $ 402,850
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt $ 10,683 $ 8,916
Current Maturities of Long-Term Debt 3,119 4,229
Trade Accounts Payable 60,267 62,020
Accrued Employee Compensation & Related Taxes 24,061 23,524
Other Current Liabilities 43,548 39,889
--------- ---------
TOTAL CURRENT LIABILITIES 141,678 138,578
Long-Term Debt 7,426 10,041
Deferred Income Taxes 632 560
Other Long-Term Liabilities 23,857 24,791
SHAREHOLDERS' EQUITY
Preferred Stock, $1 par value,
1,000,000 shares authorized, no shares issued -- --
Common Stock, $5 par value, 40,000,000 shares authorized,
27,063,407 issued on October 31, 1996 and July 31, 1996 135,317 135,317
Capital Surplus 3,197 2,994
Retained Earnings 137,830 128,795
Cumulative Translation Adjustment 5,505 6,065
Treasury Stock - 1,936,676 and 1,738,793 shares, at cost (47,234) (41,561)
Receivable from ESOP (2,730) (2,730)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 231,885 228,880
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 405,478 $ 402,850
========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
Three Months Ended
October 31
1996 1995
-------- --------
OPERATING ACTIVITIES
Net Earnings $ 11,590 $ 10,131
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 5,325 5,127
Property, Plant and Equipment Write-down 0 330
Changes in Operating Assets and Liabilities (1,763) (5,215)
Other (942) 680
-------- --------
14,210 11,053
INVESTING ACTIVITIES
Net Expenditures on PP&E (9,703) (7,123)
Other 603 0
-------- --------
(9,100) (7,123)
FINANCING ACTIVITIES
Purchase of Treasury Stock (7,109) (9,175)
Net Change in Debt (1,912) 7,376
Dividends Paid (2,027) (1,818)
Other 1,002 122
-------- --------
(10,046) (3,495)
Effect of Exchange Rate Changes on Cash 280 (787)
-------- --------
(Decrease)Increase in Cash and Cash Equivalents (4,656) (352)
Cash and Cash Equivalents-Beginning of Year 30,924 28,565
-------- --------
Cash and Cash Equivalents-End of Period $ 26,268 $ 28,213
======== ========
See Notes to Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended October 31, 1996 are not necessarily indicative of the results that may be
expected for the year ended July 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in Donaldson
Company, Inc. and subsidiaries' annual report Form 10-K for the year ended July
31, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
A. Financial Condition
The Company generated $14.2 million of cash and cash equivalents from operations
during the first quarter of fiscal 1997. Operating cash flows increased 29
percent over the prior year primarily due to higher net earnings and lower
working capital requirements. These cash flows were used primarily to support
$9.7 in capital additions, repurchase $7.1 million of treasury stock, reduce
total debt by $1.9 million, and pay $2.0 million in dividends. Treasury stock
repurchases have totaled $21.1 million over the past 12 months.
At the end of the first quarter, the Company held $26.3 million in cash and cash
equivalents. Cash balances net of short-term debt and current maturities of
long-term debt totaled $12.5 million, down from $17.8 million at July 31, 1996.
Long-term debt of $7.4 million at October 31, 1996, represented 3.1 percent of
total long-term capital, down from 4.2 percent at July 31, 1996. During the
quarter, the company exercised early retirement options on $3.0 million of
long-term debt. Subsequent to quarter end, an additional $0.5 million has been
retired early.
B. Results of Operations
The Company reported record net earnings for the first quarter ended October 31,
1996 of $11.6 million, up 14% from the $10.1 million recorded in the first
quarter last year. Earnings per share were 45 cents, up 15% from prior-year
earnings of 39 cents per share as the average number of shares outstanding
decreased 2.8%. A 1% drop in sales, from $188.9 million to $187.2 million, was
offset by a better gross margin and a 3 point decline in the Company's effective
tax rate. The foreign exchange translation effect was generally negative,
quarter to quarter, reducing reported dollar sales approximately $4.9 million.
Excluding the gas turbine business unit, sales were up 8% relative to the first
quarter of last year. Engine product revenues were up 9% to $133.7 million with
the strongest increases being in the off-road and aftermarket segments. The
heavy-duty transportation market segment continues to be weak overall, but the
Company's transportation business unit posted a modest revenue increase in the
quarter due to higher market share in air cleaner products, favorable product
mix and new business in the defense and automotive market segments. Other
Industrial sales (excluding gas turbine)increased 7% from the prior year. The
gas turbine business unit, which normally experiences significant revenue
fluctuations from quarter to quarter, suffered both from weaker market
conditions and from comparison to last year's record quarter, posting a 65%
decline in sales. However, total backlogs in the gas turbine business unit
increased 29% in the quarter (38% from a year ago) and full-year revenues are
expected to meet or slightly exceed last year's level.
The gross margins for the quarter increased to 30.0 percent from 28.5 percent in
the first quarter of fiscal 1996 but is unchanged from the 30.1 percent achieved
over the second half of fiscal 1996. The improvement was due to a combination of
favorable material prices and product mix, notably, lower gas turbine sales and
the introduction of the new light-duty truck programs.
Operating expenses during the first quarter of fiscal 1997 were $37.2 million,
19.9 percent of sales, compared to $36.2 million, 19.2 percent of sales in the
same quarter of 1996. Operating expenses in the quarter were higher primarily
due to increased selling expenses.
The Company's effective tax rate for the quarter is down to 36% from the 39%
booked in the first quarter of fiscal 1996. A favorable shift of profits between
the overseas entities is the primary cause of the lower rate.
Inventory levels are up nearly 7% in the quarter despite the flat sales due to a
combination of increased stocking levels to cover product line extensions and
improve aftermarket service levels, and gas turbine sales delays.
Hard order backlogs -- goods scheduled for delivery in 90 days -- of $132.3
million at October 31, 1996, increased 6.5 percent from the same period last
year. Strong order increases in the gas turbine, dust collection, high purity
products and engine off-road equipment markets more than offset a decline in
transportation due to working off a large U.S. defense contract.
C. Risk Factors
Except for the historical information contained herein, certain of the matters
discussed in this Form 10-Q 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 Form 10-Q 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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
None
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
October 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DONALDSON COMPANY, INC.
-----------------------
(Registrant)
Date 12/13/96 By /s/James R. Giertz
-----------------------------
James R. Giertz
Senior Vice President and
Chief Financial Officer
Date 12/13/96 By /s/Norman C. Linnell
-----------------------------
Norman C. Linnell
General Counsel and
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 26,268
<SECURITIES> 0
<RECEIVABLES> 135,514
<ALLOWANCES> 717
<INVENTORY> 76,875
<CURRENT-ASSETS> 250,202
<PP&E> 316,149
<DEPRECIATION> 187,396
<TOTAL-ASSETS> 405,478
<CURRENT-LIABILITIES> 141,678
<BONDS> 7,426
0
0
<COMMON> 135,317
<OTHER-SE> 96,568
<TOTAL-LIABILITY-AND-EQUITY> 405,478
<SALES> 187,176
<TOTAL-REVENUES> 0
<CGS> 131,044
<TOTAL-COSTS> 36,246
<OTHER-EXPENSES> 242
<LOSS-PROVISION> 38
<INTEREST-EXPENSE> 609
<INCOME-PRETAX> 18,110
<INCOME-TAX> 6,520
<INCOME-CONTINUING> 11,590
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,590
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
