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, 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.
------------------------------------------------------------------------
(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 -- 24,792,949 shares as of November 28, 1997
<PAGE>
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
1997 1996
------------ -----------
Net Sales $ 234,067 $ 187,176
Cost of Sales 165,677 131,044
------------ -----------
Gross Margin 68,390 56,132
Operating Expenses 46,368 37,171
Other Expense (Income) (202) 242
Interest Expense 985 609
------------ -----------
Earnings Before Income Taxes 21,239 18,110
Income Taxes 7,221 6,520
------------ -----------
Net Earnings $ 14,018 $ 11,590
============ ===========
Average Shares and
Equivalents Outstanding
During Period 25,291,623 25,521,134
============ ===========
Net Earnings Per Share $ .55 $ .45
============ ===========
Dividends Paid Per Share $ .09 $ .09
============ ===========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
October 31 July 31
1997 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 26,257 $ 14,278
Accounts Receivable, Net 153,865 161,440
Inventories
Materials 38,863 36,178
Work in Process 12,030 11,488
Finished Products 41,639 38,253
--------- ---------
Total Inventories 92,532 85,919
Prepaids and Other Current Assets 8,219 7,181
--------- ---------
TOTAL CURRENT ASSETS 280,873 268,818
Property, Plant and Equipment, at Cost 362,660 354,154
Less Accumulated Depreciation (202,753) (199,559)
--------- ---------
Property, Plant and Equipment, Net 159,907 154,595
Other Assets 28,504 30,981
--------- ---------
TOTAL ASSETS $ 469,284 $ 454,394
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt $ 45,471 $ 42,027
Current Maturities of Long-Term Debt 264 647
Trade Accounts Payable 65,549 68,317
Accrued Employee Compensation & Related Taxes 26,135 28,760
Warranty and Customer Support 16,852 16,502
Other Current Liabilities 26,740 20,044
--------- ---------
TOTAL CURRENT LIABILITIES 181,011 176,297
Long-Term Debt 4,355 4,201
Deferred Income Taxes 902 1,442
Other Long-Term Liabilities 28,440 28,589
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 at both dates 135,317 135,317
Additional Paid-In Capital 6,469 6,212
Retained Earnings 178,081 167,444
Cumulative Translation Adjustment (1,853) 934
Treasury Stock - 2,327,767 and 2,337,379 shares, at cost (63,438) (63,312)
Receivable from ESOP 0 (2,730)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 254,576 243,865
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 469,284 $ 454,394
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
(Unaudited)
Three Months Ended
October 31
1997 1996
-------- --------
OPERATING ACTIVITIES
Net Earnings $ 14,018 $ 11,590
Adjustments to Reconcile Net Earnings to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 5,965 5,325
Changes in Operating Assets and Liabilities 7,120 (1,763)
Other (874) (942)
-------- --------
Net Cash Provided by Operating Activities 26,229 14,210
INVESTING ACTIVITIES
Net Expenditures on PP&E (13,309) (9,703)
Return of Investment in Affiliate 1,500 0
Dividends & Distributions from Affiliates 0 603
-------- --------
Net Cash Used in Investing Activities (11,809) (9,100)
FINANCING ACTIVITIES
Purchase of Treasury Stock (939) (7,109)
Net Change in Debt 3,567 (1,912)
Dividends Paid (2,226) (2,027)
Payment Received from ESOP 2,730 0
Other (269) 1,002
-------- --------
Net Cash Provided by (Used in)
Financing Activities 2,863 (10,046)
Effect of Exchange Rate Changes on Cash (5,304) 280
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 11,979 (4,656)
Cash and Cash Equivalents-Beginning of Year 14,278 30,924
-------- --------
Cash and Cash Equivalents-End of Period $ 26,257 $ 26,268
======== ========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
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, 1997 are not necessarily indicative of the results that may be
expected for the year ended July 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in Donaldson
Company, Inc. and subsidiaries' annual report on Form 10-K for the year ended
July 31, 1997.
Note B - New Accounting Standards
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." This new standard requires dual presentation of basic and diluted
earnings per share (EPS) on the statement of earnings for all entities with
complex capital structures. The Company will adopt SFAS No. 128 in the second
quarter of 1998 and will restate prior period earnings per share based on
requirements of the standard. Early adoption is not permitted. If in effect at
such dates, SFAS No. 128 would have resulted in the Company reporting an
increase in basic earnings per share of $.02 and $.01 for the quarters ended
October 31, 1996 and 1997, respectively. There would have been no impact on
fully diluted earnings per share as reported for such quarters.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
A. Financial Condition
The Company generated $26.2 million of cash and cash equivalents from operations
during the first quarter of fiscal 1998. Operating cash flows increased 84.6%
over the prior year period primarily due to higher net earnings and a lower
accounts receivable balance. In addition to the operating cash flow, $1.5
million was received as a return of capital from an unconsolidated affiliate.
These cash flows were used primarily to support $13.3 million in capital
additions (a 37.2% increase from the prior year), and pay $2.2 million in
dividends during the first quarter of fiscal 1998.
At the end of the first quarter, the Company held $26.3 million in cash and cash
equivalents. Short-term debt totaled $45.5 million, up from $42.0 million at
July 31, 1997. Long-term debt of $4.4 million at October 31, 1997, represented
1.7% of total long-term capital, unchanged from July 31, 1997.
A two-for-one stock split effected in the form of a 100 percent stock dividend
was declared by the Board of Directors on November 21, 1997, to be distributed
on January 13, 1998 to shareholders of record on December 19, 1997.
B. Results of Operations
The Company reported record net earnings for the first quarter ended October 31,
1997 of $14.0 million, up 20.9% from the $11.6 million recorded in the first
quarter last year. Earnings per share were 55 cents, up 22.2% from prior-year
earnings per share of 45 cents as the average number of shares outstanding
decreased 0.9%. Increase in net earnings was primarily due to higher sales and a
reduction in the effective income tax rate offset by slightly lower margins.
Total net sales of $234.1 million were up 25.0% from prior year sales of $187.2
million. Engine products revenues were $161.2 million, a 20.6% increase over the
first quarter last year. Significant factors supporting the growth in engine
products include an increase in automotive billings from last year, growth in
replacement part sales and the addition of $5.5 million in revenue from the
Armada Tube Group acquired in the third quarter of fiscal 1997. Strong gas
turbine growth contributed to a 36.3% increase in industrial product sales.
Other significant contributors to revenue growth in industrial products include
an increase in Torit dust collection sales due to strong shipments and the
acquisition of Aercology business in the fourth quarter of fiscal 1997.
<PAGE>
The gross margins for the quarter decreased to 29.2 % from 30.0 % in the first
quarter of fiscal 1997. The decrease was due to product mix changes resulting in
lower profitability in the automotive business and lower than expected margins
in the acquired Armada Tube business, but was offset partially by higher margins
in gas turbine.
Operating expenses during the first quarter of fiscal 1998 were $46.4 million,
19.8 % of sales, compared to $37.2 million, 19.9% of sales in the same quarter
of 1997.
The effective income tax rate of 34% in the first quarter of fiscal 1998 was
lower than the 36% in the first quarter of fiscal 1997 due to lower overseas
tax rates.
Hard order backlogs - goods scheduled for delivery in 90 days - of $158.2
million at October 31, 1997, increased 19.6 percent from the same period last
year. Hard order backlogs relative to one year ago increased for all significant
business segments and indicate continued revenue growth in the near term. A
modest decline in hard order backlogs of 3.7% from the previous quarter is
consistent with observed seasonal patterns.
The U.S. dollar continues to be strong relative to the currencies of foreign
countries where the Company operates. The strong dollar continues to have a
negative impact on overseas results because foreign exchange denominated
earnings translate into less U.S. dollars. The impact of foreign exchange
translation was a negative $6.3 million in the quarter relative to last year.
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 both due to the risk factors mentioned here and
to other factors not so referenced.
<PAGE>
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, 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 12/12/97 By /s/James R. Giertz
---------------- ------------------
James R. Giertz
Senior Vice President and
Chief Financial Officer
Date 12/12/97 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-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 26,257
<SECURITIES> 0
<RECEIVABLES> 153,865
<ALLOWANCES> 4,174
<INVENTORY> 92,532
<CURRENT-ASSETS> 280,873
<PP&E> 362,660
<DEPRECIATION> 202,753
<TOTAL-ASSETS> 469,284
<CURRENT-LIABILITIES> 181,011
<BONDS> 4,355
0
0
<COMMON> 135,317
<OTHER-SE> 119,259
<TOTAL-LIABILITY-AND-EQUITY> 469,284
<SALES> 234,067
<TOTAL-REVENUES> 0
<CGS> 165,677
<TOTAL-COSTS> 46,368
<OTHER-EXPENSES> (202)
<LOSS-PROVISION> 80
<INTEREST-EXPENSE> 985
<INCOME-PRETAX> 21,239
<INCOME-TAX> 7,221
<INCOME-CONTINUING> 14,018
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,018
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
