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 January 31, 1997 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.
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(Exact name of registrant as specified in its charter)
Delaware 41-0222640
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 West 94th Street
Minneapolis, Minnesota 55431
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(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 -- 25,096,177 shares as of February 28, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
January 31 January 31
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $ 196,849 $ 182,165 $ 384,025 $ 371,032
Cost of Sales 138,654 129,726 269,698 264,694
----------- ----------- ----------- -----------
Gross Margin 58,195 52,439 114,327 106,338
Operating Expenses 40,218 35,999 77,389 72,245
Other (Income) Expense 364 87 606 420
Interest Expense 464 665 1,073 1,376
----------- ----------- ----------- -----------
Earnings Before Income Taxes 17,149 15,688 35,259 32,297
Income Taxes 6,173 6,441 12,693 12,919
----------- ----------- ----------- -----------
Net Earnings $ 10,976 $ 9,247 $ 22,566 $ 19,378
=========== =========== =========== ===========
Average Shares and
Equivalents Outstanding
During Period 25,442,081 26,055,226 25,506,863 26,119,924
=========== =========== =========== ===========
Net Earnings Per Share $ .43 $ .35 $ .88 $ .74
=========== =========== =========== ===========
Dividends Paid Per Share $ .09 $ .07 $ .17 $ .14
=========== =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
January 31, July 31,
1997 1996
--------- ---------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and Cash Equivalents $ 26,364 $ 30,924
Accounts Receivable, Net 134,353 137,145
Inventories
Materials 34,921 30,359
Work in Process 11,111 10,184
Finished Products 33,334 31,427
--------- ---------
Total Inventories 79,366 71,970
Prepaids and Other Current Assets 13,387 10,712
--------- ---------
TOTAL CURRENT ASSETS 253,470 250,751
Property, Plant and Equipment, at Cost 323,620 307,979
Less Accumulated Depreciation 191,437 183,066
--------- ---------
Property, Plant and Equipment, Net 132,183 124,913
Other Assets 24,501 27,186
--------- ---------
TOTAL ASSETS $ 410,154 $ 402,850
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt $ 9,577 $ 8,916
Current Maturities of Long-Term Debt 3,084 4,229
Trade Accounts Payable 61,957 62,020
Accrued Employee Compensation & Related Taxes 22,470 23,524
Other Current Liabilities 43,475 39,889
--------- ---------
TOTAL CURRENT LIABILITIES 140,563 138,578
Long-Term Debt 7,361 10,041
Deferred Income Taxes 678 560
Other Long-Term Liabilities 24,385 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 January 31, 1997 and July 31, 1996 135,317 135,317
Capital Surplus 3,422 2,994
Retained Earnings 145,594 128,795
Cumulative Translation Adjustment 3,870 6,065
Treasury Stock - 1,971,425 and 1,738,793 shares, at cost (48,306) (41,561)
Receivable from ESOP (2,730) (2,730)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 237,167 228,880
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 410,154 $ 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)
Six Months Ended
January 31
---------------------
1997 1996
-------- --------
OPERATING ACTIVITIES
Net Earnings $ 22,566 $ 19,378
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 10,828 10,837
Property, Plant and Equipment Write-down 0 1,130
Changes in Operating Assets and Liabilities (2,680) (2,353)
Other (89) 87
-------- --------
30,625 29,079
INVESTING ACTIVITIES
Net Expenditures on PP&E (20,603) (14,961)
Dividends & Distributions from Affiliates 3,037 0
-------- --------
(17,566) (14,961)
FINANCING ACTIVITIES
Purchase of Treasury Stock (8,904) (14,619)
Net Change in Debt (2,262) 3,939
Dividends Paid (4,281) (3,688)
Other 554 238
-------- --------
(14,893) (14,130)
Effect of Exchange Rate Changes on Cash (2,726) (940)
-------- --------
(Decrease)Increase in Cash and Cash Equivalents (4,560) (952)
Cash and Cash Equivalents-Beginning of Year 30,924 28,565
-------- --------
Cash and Cash Equivalents-End of Period $ 26,364 $ 27,613
======== ========
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 six month period
ended
January 31, 1997 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 $30.6 million of cash and cash equivalents from operations
during the first six months of fiscal 1997. While six month net earnings
increased 16% from the prior year, operating cash flows increased only 5% due
primarily to higher inventory requirements. In addition to the operating cash
flow, $3.1 million was received in dividends and as a return-of-capital from an
unconsolidated affiliate. These cash flows were used primarily to support $20.6
million in capital additions (a 38% increase from the prior year), repurchase
$8.9 million of treasury stock, reduce total debt by $2.3 million, and pay $4.3
million in dividends. For the second quarter, the net change in cash was an
increase of $0.1 million, compared to a $4.7 decrease for the first quarter.
Treasury stock repurchases slowed in the second quarter while inventory
additions and capital spending accelerated. Additionally, the strengthening Yen
and European currencies reduced the reported dollar value of cash and cash
equivalents by $3.0 million for the quarter.
At the end of the first quarter, the Company held $26.4 million in cash and cash
equivalents. Cash balances net of short-term debt and current maturities of
long-term debt totaled $13.7 million, down from $17.8 million at July 31, 1996.
Long-term debt of $7.4 million at January 31, 1997, represented 3.0 % of total
long-term capital, down from 4.2 % at July 31, 1996. During the quarter, the
company exercised early retirement options on an additional $0.6 million of long
term domestic debt, bringing the year-to-date total to $3.6 million.
During the quarter, the Company purchased the remaining 50.1% of its Torit
Products distributor in Australia. Subsequent to quarter end, the Company has
completed the acquisition of two overseas operations in our Engine Products
Group. In South Africa, the Company purchased the exhaust products manufacturing
assets of the Kilber Division of N.E.I., which will allow the Company to expand
its exhaust products into that geography. In Mexico, the company purchased the
shares of Diemo, SA de CV, a supplier of liquid filter components, in what was
primarily a vertical integration. All of the above were treated as purchases and
the pro-forma impact is not material.
B. Results of Operations
The Company reported record net earnings for the second quarter ended January
31, 1997 of $11.0 million, up 19% from the $9.2 million recorded in the second
quarter last year. Earnings per share were 43 cents, up 23% from prior-year
earnings of 35 cents per share as the average number of shares outstanding
decreased 2.4%. An 8% increase in sales, from $182.2 million to $196.8 million,
coupled with a 0.8 point improvement in the gross margin percentage and a lower
effective tax rate combined to boost the earnings growth quarter to quarter. For
the six months, net earnings were a record $22.6 million, up 16% from fiscal 96.
Earnings per share were 88 cents, up 19% from last year's 74 cents. Year-to-date
sales are up 4% to $384.0 million while the gross margin percentage has improved
1.1 points and the effective tax rate has declined 4 points. The foreign
exchange translation effect remained generally negative for the quarter,
reducing reported dollar sales approximately $3.6 million for the quarter and
$8.4 million year-to-date from the prior year.
Gas Turbine business unit sales, which had negatively impacted the first quarter
results, rebounded in the second quarter to be flat with the second quarter last
year. Engine Products group, up 8% in the quarter, and high purity filter
market, up 23% in the quarter, continued to show strong sales results. Engine
Product revenues continue to be paced by the Off-Road and Aftermarket segments.
Filters for computer disk drives are the primary driver of the high purity sales
increase. For the six months, gas turbine filter sales remain 38% below the
prior year but backlogs are up 28% from a year ago. Total transportation market
sales remain just above the prior year as the heavy-duty transportation segment
continues to be weak. However, transportation hard order backlogs increased
quarter over quarter for the first time in five quarters.
The gross margins for the quarter increased to 29.6% from 28.8% in the second
quarter of fiscal 1996. The six months figures are 29.8% and 28.7%,
respectively. The improvement from the prior year is 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 second quarter of fiscal 1997 were $40.2 million,
20.4% of sales, compared to $36.0 million, 19.8% of sales in the same quarter of
1996. Year-to-date operating expenses have increased from 19.5% to 20.2%.
Operating expenses in the quarter were higher primarily due to increased selling
expenses and actuarial assumption changes in a defined benefit plan.
Hard order backlogs -- goods scheduled for delivery in 90 days -- of $143.8
million at January 31, 1997, increased 20.0% from the same period last
year and are up 9% in the quarter. Only the Torit Products market has softened
against the prior year. Besides the gas turbine and transportation increases
mentioned above, year over year backlogs are up in high purity (up 43%) and
off-road ( up 15%) markets.
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
January 31, 1997.
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 3/13/97 By /s/James R. Giertz
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James R. Giertz
Vice President -
Chief Financial Officer
Date 3/13/97 By /s/Norman C. Linnell
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Norman C. Linnell
General Counsel and Secretary
<TABLE> <S> <C>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 26,364
<SECURITIES> 0
<RECEIVABLES> 138,249
<ALLOWANCES> 3,896
<INVENTORY> 79,366
<CURRENT-ASSETS> 253,470
<PP&E> 323,620
<DEPRECIATION> 191,437
<TOTAL-ASSETS> 410,154
<CURRENT-LIABILITIES> 140,563
<BONDS> 7,361
0
0
<COMMON> 135,317
<OTHER-SE> 101,850
<TOTAL-LIABILITY-AND-EQUITY> 410,154
<SALES> 384,025
<TOTAL-REVENUES> 0
<CGS> 269,698
<TOTAL-COSTS> 77,389
<OTHER-EXPENSES> 606
<LOSS-PROVISION> 201
<INTEREST-EXPENSE> 1,073
<INCOME-PRETAX> 35,259
<INCOME-TAX> 12,693
<INCOME-CONTINUING> 22,566
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,566
<EPS-PRIMARY> .88
<EPS-DILUTED> .89
</TABLE>
