UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the period ended January 31, 1996
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 -- 25,640,935 shares as of February 29, 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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31 JANUARY 31
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 182,165 $ 168,861 $ 371,032 $ 333,036
Cost of Sales 129,726 121,478 264,694 240,320
----------- ----------- ----------- -----------
Gross Margin 52,439 47,383 106,338 92,716
Operating Expenses 35,999 32,961 72,245 62,797
Other Expense 87 1,353 420 931
Interest Expense 665 745 1,376 1,528
----------- ----------- ----------- -----------
Earnings Before Income Taxes 15,688 12,324 32,297 27,460
Income Taxes 6,441 4,639 12,919 10,270
----------- ----------- ----------- -----------
Net Earnings $ 9,247 $ 7,685 $ 19,378 $ 17,190
=========== =========== =========== ===========
Average Shares and
Equivalents Outstanding
During Period 26,055,226 26,541,012 26,119,924 26,668,500
=========== =========== =========== ===========
Net Earnings Per Share $ .35 $ .29 $ .74 $ .64
=========== =========== =========== ===========
Dividends Paid Per Share $ .07 $ .07 $ .14 $ .14
=========== =========== =========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 27,613 $ 28,565
Accounts Receivable, Net 138,417 137,155
Inventories
Materials 29,480 32,225
Work in Process 11,132 12,168
Finished Products 26,562 29,035
--------- ---------
Total Inventories 67,174 73,428
Prepaids and Other Current Assets 18,963 8,756
--------- ---------
TOTAL CURRENT ASSETS 252,167 247,904
Property, Plant and Equipment, at Cost 292,188 292,192
Less Accumulated Depreciation 180,976 181,552
--------- ---------
Property, Plant and Equipment, Net 111,212 110,640
Other Assets 21,397 22,498
--------- ---------
TOTAL ASSETS $ 384,776 $ 381,042
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt $ 17,560 $ 17,802
Current Maturities of Long-Term Debt 2,973 2,998
Trade Accounts Payable 59,278 53,576
Accrued Employee Compensation & Related Taxes 20,539 23,114
Other Current Liabilities 30,596 26,257
--------- ---------
TOTAL CURRENT LIABILITIES 130,946 123,747
Long-Term Debt 13,697 10,167
Deferred Income Taxes 5,232 5,233
Other Long-Term Liabilities 20,834 20,722
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 January 31,
1996 and July 31, 1995 135,317 135,317
Capital Surplus 2,751 2,639
Retained Earnings 109,289 93,746
Cumulative Translation Adjustment 5,700 14,824
Treasury Stock - 1,425,547 and 878,243 shares, at cost (33,740) (20,103)
Receivable from ESOP (5,250) (5,250)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 214,067 221,173
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 384,776 $ 381,042
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
SIX MONTHS ENDED
JANUARY 31
1996 1995
-------- --------
OPERATING ACTIVITIES
Net Earnings $ 19,378 $ 17,190
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 10,837 8,638
Property, Plant and Equipment Write-down 1,130 2,467
Changes in Operating Assets and Liabilities (2,353) (4,191)
Other 87 2,351
-------- --------
29,079 26,455
INVESTING ACTIVITIES
Net Expenditures on PP&E (14,961) (13,069)
FINANCING ACTIVITIES
Purchase of Treasury Stock (14,619) (5,314)
Net Change in Debt 3,939 9,622
Dividends Paid (3,688) (3,692)
Other 238 121
-------- --------
(14,130) 737
Effect of Exchange Rate Changes on Cash (940) 276
-------- --------
(Decrease)Increase in Cash and Cash Equivalents (952) 14,399
Cash and Cash Equivalents-Beginning of Year 28,565 22,945
-------- --------
Cash and Cash Equivalents-End of Period $ 27,613 $ 37,344
======== ========
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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
A. Financial Condition
Operating cash flows have increased this year due to higher net
earnings, increased depreciation and amortization and smaller increases in
working capital requirements. These increases were partially offset by a smaller
amount of property, plant and equipment write-downs. This higher level of
operating cash flows easily covered a relatively high capital spending program
and increased repurchases of treasury stock. Treasury stock repurchases totaled
$5.4 million in the second quarter and $14.6 million for the six month period
ended January 31, 1996.
In January 1996, the Company's Board of Directors authorized a program
to repurchase up to 2.0 million shares of its common stock. Less than 0.1
million shares have been repurchased under this authority. The Board had granted
authority to repurchase 1.0 million shares in May 1995, and almost 0.9 million
shares were bought under this authorization. The most recent Board authority
replaces and expands the Company's ongoing repurchase program.
At the end of the second quarter, the Company held $27.6 million in
cash and cash equivalents. Cash balances net of short-term debt and current
maturities of long-term debt totaled $7.1 million, down from $7.8 million at
July 31, 1995. Long-term debt of $13.7 million at January 31, 1996, represented
6.0 percent of total long-term capital, up from 4.4 percent at the end of the
prior year.
In December 1995, the Company entered into a five year multi-currency
revolving credit facility totaling $100 million with a group of international
banks, led by Citibank as the agent. There were no amounts outstanding under
this facility at January 31, 1996.
B. Results of Operations
The Company reported record net sales and earnings in the second
quarter and first six months of 1996. Second quarter net sales of $182.2 million
increased 7.9 percent from $168.9 million in the second quarter of 1995. In the
first six months, sales reached $371.0 million, up 11.4 percent from $333.0
million a year ago.
Second quarter net earnings were $9.2 million, compared to $7.7 million
in the second quarter of 1995. Earnings per share were 35 cents, up 20.7 percent
from 29 cents a year earlier. Net earnings in the first six months were $19.4
million, compared with $17.2 million in 1995. Earnings per share were 74 cents,
up 15.6 percent from 64 cents a year earlier.
Sales increased, in part, due to a higher demand for the Company's dust
collection and gas turbine systems products. In addition, the original equipment
engine business benefited from solid growth in our traditional heavy duty
transportation market combined with new programs in the light duty truck market.
The Company's operating profitability also continues to be positively affected
by broad based volume increases across all major product lines and its
continuing efforts to control costs.
For the second quarter, gross margins increased to 28.8 percent in 1996
from 28.1 percent in the second quarter of 1995. Gross margins for the first six
months of 1996 were 28.7 percent compared to 27.8 percent in the prior year. The
improvement reflects manufacturing efficiencies achieved from higher operating
levels this year.
Operating expenses during the second quarter of 1996 were $36.0
million, 19.8 percent of sales, compared to $33.0 million, 19.5 percent of sales
in the same quarter a year ago. Operating expenses for the first six months were
$72.2 million, 19.5 percent of sales, compared to $62.8 million, 18.9 percent of
sales in 1995. Operating expenses in the first half of 1996 were higher
primarily due to increased accrued warranty reserves.
Hard order backlogs -- goods scheduled for delivery in 90 days -- of
$120.2 million at January 31, 1996, declined 3 percent from the same period last
year primarily due to a decline in gas turbine backlog following strong sales
during the first six months of 1996 and generally soft market conditions. Hard
order backlogs in the engine business (original equipment and aftermarket) are
13 percent higher than at the same time last year.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
None
(b) Reports on Form 8-K.
During the quarter ended January 31, 1996, Registrant filed a
report on Form 8-K reporting adoption by the Board of
Directors of a Rights Agreement and exhibits under Items 5 and
7. The report was filed January 30, 1996 and there were no
financial statements filed with it.
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 3/13/96 By /s/James R. Giertz
James R. Giertz
Vice President -
Chief Financial Officer
Date 3/13/96 By /s/Raymond F. Vodovnik
Raymond F. Vodovnik
Vice President-Legal
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 27,613
<SECURITIES> 0
<RECEIVABLES> 142,311
<ALLOWANCES> 3,894
<INVENTORY> 67,174
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<PP&E> 292,188
<DEPRECIATION> 180,976
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<CURRENT-LIABILITIES> 130,946
<BONDS> 13,697
0
0
<COMMON> 135,317
<OTHER-SE> 78,750
<TOTAL-LIABILITY-AND-EQUITY> 384,776
<SALES> 371,032
<TOTAL-REVENUES> 0
<CGS> 264,694
<TOTAL-COSTS> 72,245
<OTHER-EXPENSES> 420
<LOSS-PROVISION> 472
<INTEREST-EXPENSE> 1,376
<INCOME-PRETAX> 32,297
<INCOME-TAX> 12,919
<INCOME-CONTINUING> 19,378
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,378
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
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