SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 11K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT of
1934 (FEE REQUIRED) for the fiscal year ended July 31, 1997 or
/ / TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE
ACT of 1934 (NO FEE REQUIRED) for the transition period from
_____________ to _______________
COMMISSION FILE NUMBER 1-7891
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
DONALDSON COMPANY, INC.
1400 WEST 94TH STREET
MINNEAPOLIS, MINNESOTA 55431
<PAGE>
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Audited Financial Statements
Years ended July 31, 1997 and 1996
CONTENTS
Report of Independent Auditors.............................................1
Audited Financial Statements
Statements of Net Assets Available for Benefits............................2
Statements of Changes in Net Assets Available for Benefits.................3
Notes to Financial Statements..............................................5
Item 27(a)--Schedule of Assets Held for Investment Purposes................9
Item 27(b)--Schedule of Loans or Fixed Income Obligations in Default .....10
Item 27(d)--Schedule of Reportable Transactions...........................12
<PAGE>
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
Administrative Committee
Donaldson Company, Inc.
Employees' Retirement Savings Plan
We have audited the accompanying statements of net assets available for benefits
of Donaldson Company, Inc. Employees' Retirement Savings Plan as of July 31,
1997 and 1996, and the related statements of changes in net assets available for
benefits for the years then ended. These financial statements are the
responsibility of the Plan'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 net assets available for benefits of the Plan at July
31, 1997 and 1996, and the changes in its net assets available for benefits for
the years then ended, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
held for investment purposes and schedule of loans or fixed income obligations
in default as of July 31, 1997 and schedule of reportable transactions for the
year then ended are presented for purposes of complying with the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974, and are not a required part of the basic
financial statements. The supplemental schedules have been subjected to the
auditing procedures applied in our audit of the 1997 financial statements and,
in our opinion, are fairly stated in all material respects in relation to the
1997 financial statements taken as a whole.
/s/ ERNST & YOUNG LLP
January 9, 1998
<PAGE>
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Statements of Net Assets Available for Benefits
JULY 31
1997 1996
------------------------------------
Employee contribution receivable $ 308,038 $ 155,980
Investments at fair value:
Mutual funds 64,166,818 47,138,916
Donaldson stock 21,325,572 12,447,111
------------------------------------
Total investments 85,492,390 59,586,027
Participant loans 2,229,630 2,034,683
------------------------------------
Net assets available for benefits $88,030,058 $61,776,690
====================================
SEE ACCOMPANYING NOTES.
<PAGE>
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Statements of Changes in Net Assets Available for Benefits
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1997
------------------------------------------------------------------------------------
FIDELITY MANAGEMENT AND RESEARCH COMPANY
------------------------------------------------------------------
MANAGED
FIXED EQUITY INCOME
INCOME MAGELLAN CONTRA INCOME OVERSEAS PORTFOLIO
FUND FUND FUND FUND FUND FUND
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Additions:
Contribution from employer $ - $ 15,641 $ 2,696 $ 7,844 $ 1,971 $ 13,370
Contribution from employees - 1,079,785 828,419 1,879,341 250,390 1,399,931
Investment income - 221,058 273,605 1,558,377 77,620 1,134,709
Loan repayments - 91,455 86,058 251,963 14,149 266,536
------------------------------------------------------------------------------------
- 1,407,939 1,190,778 3,697,525 344,130 2,814,546
Deductions:
Payments to participants 1,483 124,850 166,351 1,104,536 54,629 1,532,033
Loan withdrawals 60,318 101,499 76,948 373,002 16,444 269,919
Miscellaneous - - - - - -
Administration fees - 1,380 617 1,682 12 1,183
------------------------------------------------------------------------------------
61,801 227,729 243,916 1,479,220 71,085 1,803,135
Interfund transfers (net) (16,462,475) (16,767) 460,329 (114,118) 155,441 16,348,467
Realized/unrealized appreciation
(depreciation) of investments 35,797 1,949,029 1,342,244 7,472,142 289,781 -
------------------------------------------------------------------------------------
Net increase (decrease) (16,488,479) 3,112,472 2,749,435 9,576,329 718,267 17,359,878
Net assets available for benefits:
Beginning of year 16,488,479 4,448,026 3,215,555 19,683,170 1,003,253 2,300,432
------------------------------------------------------------------------------------
End of year $ - $7,560,498 $5,964,990 $29,259,499 $1,721,520 $19,660,310
====================================================================================
[WIDE TABLE CONTINUED FROM ABOVE]
YEAR ENDED JULY 31, 1997
---------------------------------------------------------
DONALDSON
STOCK UNALLOCATED LOAN
FUND FUND FUND TOTAL
---------------------------------------------------------
Additions:
Contribution from employer $ 14,615 $ - $ - 56,137
Contribution from employees 1,682,990 152,059 - 7,272,915
Investment income 50,930 - - 3,316,299
Loan repayments 216,483 - (926,644) -
---------------------------------------------------------
1,965,018 152,059 (926,644) 10,645,351
Deductions:
Payments to participants 670,112 - 138,296 3,792,290
Loan withdrawals 361,757 - (1,259,887) -
Miscellaneous - - - -
Administration fees 8,430 - - 13,304
---------------------------------------------------------
1,040,299 - (1,121,591) 3,805,594
Interfund transfers (net) (370,877) - - -
Realized/unrealized appreciation
(depreciation) of investments 8,324,618 - - 19,413,611
---------------------------------------------------------
Net increase (decrease) 8,878,460 152,059 194,947 26,253,368
Net assets available for benefits:
Beginning of year 12,447,112 155,980 2,034,683 61,776,690
---------------------------------------------------------
End of year $21,325,572 $308,039 $2,229,630 $88,030,058
=========================================================
</TABLE>
<PAGE>
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Statements of Changes in Net Assets Available for Benefits
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1996
------------------------------------------------------------------------------------
FIDELITY MANAGEMENT AND RESEARCH COMPANY
------------------------------------------------------------------
MANAGED
FIXED EQUITY INCOME
INCOME MAGELLAN CONTRA INCOME OVERSEAS PORTFOLIO
FUND FUND FUND FUND FUND FUND
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Additions:
Contribution from employer $ - $ 7,671 $ 1,249 $ 7,971 $ 607 $ 12,479
Contribution from employees - 994,969 496,615 1,672,999 214,958 1,481,450
Investment income - 908,412 286,793 1,224,828 16,568 116,063
Loan repayments - 84,328 31,087 215,291 18,645 218,778
------------------------------------------------------------------------------------
- 1,995,380 815,744 3,121,089 250,778 1,828,770
Deductions:
Payments to participants 664,093 89,894 74,287 302,619 9,007 52,131
Loan withdrawals 214,974 113,458 40,165 377,524 17,376 90,752
Miscellaneous - - - - - -
Administration fees 1,523 851 81 586 - 188
------------------------------------------------------------------------------------
880,590 204,203 114,533 680,729 26,383 143,071
Interfund transfers (net) (4,554,873) 3,584,175 2,655,903 (906,126) 734,461 614,733
Realized/unrealized appreciation
(depreciation) of investments 1,023,306 (927,326) (141,559) 1,377,051 44,397 -
------------------------------------------------------------------------------------
Net increase (decrease) (4,412,157) 4,448,026 3,215,555 2,911,285 1,003,253 2,300,432
Net assets available for benefits:
Beginning of year 20,900,636 - - 16,771,885 - -
------------------------------------------------------------------------------------
End of year $16,488,479 $4,448,026 $3,215,555 $19,683,170 $1,003,253 $2,300,432
====================================================================================
[WIDE TABLE CONTINUED FROM ABOVE]
YEAR ENDED JULY 31, 1996
--------------------------------------------------------------------
DONALDSON
STOCK CASH FLOW UNALLOCATED LOAN
FUND FUND FUND FUND TOTAL
------------------------------------------------------------------
Additions:
Contribution from employer $ 19,708 $ - $ - $ - $ 49,685
Contribution from employees 1,611,495 - 155,980 - 6,628,466
Investment income 35,820 - - - 2,588,484
Loan repayments 202,213 - - (770,342) -
------------------------------------------------------------------
1,869,236 - 155,980 (770,342) 9,266,635
Deductions:
Payments to participants 296,204 65,837 - 52,481 1,606,553
Loan withdrawals 342,208 - - (1,196,457) -
Miscellaneous - - - 2,534 2,534
Administration fees 6,351 - - - 9,580
------------------------------------------------------------------
644,763 65,837 - (1,141,442) 1,618,667
Interfund transfers (net) (868,480) (2,923,376) - 1,663,583 -
Realized/unrealized appreciation
(depreciation) of investments (926,822) - - - 449,047
------------------------------------------------------------------
Net increase (decrease) (570,829) (2,989,213) 155,980 2,034,683 8,097,015
Net assets available for benefits:
Beginning of year 13,017,941 2,989,213 - - 53,679,675
------------------------------------------------------------------
End of year $12,447,112 $ - $155,980 $2,034,683 $61,776,690
==================================================================
</TABLE>
<PAGE>
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Notes to Financial Statements
July 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING METHOD
The accounting records of the Plan are maintained on the accrual basis.
INVESTMENTS
Investments are recorded at fair value. Securities which are traded on a
national securities exchange are valued at the last reported sales price of the
year.
The change in the difference between fair value and the cost of investments is
reflected in the statement of changes in net assets available for benefits as
unrealized appreciation (depreciation) of investments.
The net gain (loss) on the sale of investments is the difference between the
proceeds received and the historical average cost of investments sold. For
purposes of complying with the Department of Labor's requirements for preparing
Form 5500, the Company determines net gain based on a revalued, rather than
historical, cost.
EXPENSES
Except for investment management fees, Donaldson Company, Inc. (the Plan's
sponsor) pays all Plan related expenses including legal, accounting and other
services.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 statements to conform with
the 1997 presentation.
<PAGE>
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Notes to Financial Statements (continued)
2. DESCRIPTION OF THE PLAN
The following description of the Plan provides only general information.
Participants should refer to the Summary Plan Description for a more complete
description of the Plan's provisions.
The Plan is a defined contribution plan sponsored by Donaldson Company, Inc. The
Plan allows employee contributions to the Plan through payroll deductions of 1%
to 10% of their salary. Employees are 100% vested in their accounts at all
times.
The Plan sponsor can elect to make employer contributions. The employees of the
Rensselaer plant receive an employer contribution that is a percentage of the
ratio of the participant income. The percentage is tied to the performance of
the Rensselaer plant. Participants are 100% vested at the time of the
contribution.
Amounts contributed to the Plan are invested in one of six investment options.
Participants may choose between the following investment alternatives:
* FIDELITY EQUITY INCOME FUND: Monies are invested in a diversified
portfolio of common stocks which have above average dividend yields and
potential for capital appreciation.
* FIDELITY MANAGED INCOME PORTFOLIO FUND: Monies are invested in a
portfolio of investments consisting primarily of investment contracts
issued by high quality financial institutions. The fund's objective is
to earn a competitive level of income with preservation of capital. The
portfolio carries a low-to-moderate level of investment risk in return
for low-to-moderate earnings potential.
* FIDELITY CONTRAFUND: Monies are invested in foreign and domestic common
stocks of companies that the fund's manager believes are undervalued or
show potential for growth. This investment option carries a high level
of investment risk in return for high earnings potential.
<PAGE>
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Notes to Financial Statements (continued)
2. DESCRIPTION OF THE PLAN (CONTINUED)
* FIDELITY MAGELLAN FUND: Monies are invested in a wide variety of common
and preferred stock from domestic, foreign and multi-national companies
of all sizes that offer potential for growth. An investment in this fund
carries a high level of investment risk in return for high earnings
potential.
* FIDELITY OVERSEAS FUND: Monies are invested mostly in securities such as
stocks and bonds from at least three developed countries outside North
America. The value of this fund can be affected by the performance of
foreign markets, the changing value of the American dollar and foreign
political events. An investment in this fund carries a high level of
investment risk in return for high earnings potential.
* DONALDSON COMMON STOCK FUND: Monies are invested in the common stock of
Donaldson Company, Inc. This investment option is presented to provide
participants with the opportunity to invest in the future growth of the
Company.
The changes in net assets of the Plan are allocated to the individual
participants' accounts quarterly as provided for in the Plan Agreement.
The Company has the right under the Plan agreement to terminate the Plan. In the
event of termination of the Plan, each participant is fully vested and the
assets of the Plan shall be distributed to the participants.
3. INVESTMENTS
The current value of individual investments that represent 5% or more of the
Plan's net assets is as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------- -------------------------
UNITS OR CURRENT UNITS OR CURRENT
SHARES VALUE SHARES VALUE
----------------------------- -------------------------
<S> <C> <C> <C> <C>
Common Stock of Donaldson Company,
Inc. (sponsor) 1,375,843 $21,325,572 1,335,527 $12,447,112
Fixed Income Fund - - 15,588,405 16,488,479
Fidelity Magellan Fund 76,609 7,560,498 62,367 4,448,026
Fidelity Contrafund 119,252 5,964,990 85,725 3,215,555
Fidelity Equity Income Fund 554,788 29,259,499 505,994 19,683,170
Fidelity Managed Income Portfolio Fund 19,660,310 19,660,310 - -
</TABLE>
<PAGE>
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Notes to Financial Statements (continued)
4. LOANS TO PARTICIPANTS
Under the Plan agreement, participants may borrow up to 50% of their account
balance or $50,000, whichever is less. At July 31, 1997 and 1996, $2,229,630 and
$2,034,683, respectively, of loans were outstanding at interest rates varying
from 7% to 11.5%.
5. INCOME TAX STATUS
The Internal Revenue Service issued a favorable determination letter dated
October 20, 1995 stating that the Plan, as amended, is qualified under Section
401(a) and is exempt from federal income taxes under Section 501(a) of the
Internal Revenue Code. Accordingly, no provision for income taxes has been
included in these financial statements. Once qualified, the Plan is required to
operate in conformity with the Code and ERISA to maintain its tax-exempt status.
The administrator is not aware of any course of action or series of events that
have occurred that might adversely affect the Plan's qualified status.
6. TRANSACTIONS WITH PARTIES-IN-INTEREST
The Plan received $175,981 and $146,561 in Common Stock dividends from Donaldson
Company, Inc. for the years ended July 31, 1997 and 1996, respectively.
<PAGE>
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Item 27(a)--Schedule of Assets Held for Investment Purposes
EIN: 41-0222640
Plan #: 007
July 31, 1997
<TABLE>
<CAPTION>
IDENTITY OF ISSUE, CURRENT
BORROWER OR SIMILAR PARTY DESCRIPTION OF INVESTMENT COST VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*Donaldson Company, Inc. 1,375,843 shares of Common Stock $ 9,460,728 $21,325,572
*Fidelity Magellan Fund 76,609 units of participation 6,472,295 7,560,498
*Fidelity Contrafund 119,252 units of participation 4,838,934 5,964,990
*Fidelity Equity Income Fund 554,788 units of participation 18,394,837 29,259,499
*Fidelity Overseas Fund 46,540 units of participation 1,399,177 1,721,520
*Fidelity Managed Income Portfolio Fund 19,660,310 units of participation 19,660,310 19,660,310
Participant loans Interest rates from 7% to 11.5% 0 2,229,630
-----------------------------
TOTAL ASSETS HELD FOR INVESTMENT $60,226,281 $87,722,020
=============================
</TABLE>
* Indicates party-in-interest.
<PAGE>
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Item 27(b)--Schedule of Loans or Fixed Income Obligations in Default
EIN: 41-0222640
Plan #: 007
July 31, 1997
<TABLE>
<CAPTION>
AMOUNT DETAILED DESCRIPTION OF LOAN
ORIGINAL RECEIVED DURING UNPAID INCLUDING DATES OF MAKING
AMOUNT OF REPORTING BALANCE AT AND MATURITY, INTEREST RATE, THE AMOUNT OVERDUE
IDENTITY OF OBLIGOR LOAN YEAR END OF YEAR TYPE AND VALUE OF COLLATERAL, ETC. PRINCIPAL INTEREST
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Benny Bartley $ 6,000 $ 751.96 $1,393.53 Date of loan 10/31/93, last payment $1,393.53 $ -
due 10/98, 7.0% interest,
William Biebesheimer 2,000 342.72 921.98 Date of loan 5/1/95, last payment due 921.98 -
5/00, 10.0% interest
Joyce Callahan 10,000 1,324.68 2,195.92 Date of loan 1/31/93, last payment due 2,195.92 -
1/98, 7.0% interest
Karen Cherney 1,890 20.48 1,890.00 Date of loan 2/18/97, last payment due 1,890.00 -
2/02, 9.25% interest
John Crossfield 12,000 1,175.31 1,119.62 Date of loan 11/18/96, last payment 1,119.62 -
due 11/01, 9.75% interest
Jean Gentilini 27,000 4,038.40 7,031.50 Date of loan 4/30/93, last payment due 7,031.50 -
4/98, 7.0% interest
Myrtle Griffin 6,800 948.48 5,131.56 Date of loan 11/13/95, last payment 5,131.56 -
due 11/00, 9.75% interest
Michelle Jordan 1,396 631.47 1,223.49 Date of loan 12/20/96, last payment 1,223.49 -
due 12/01, 9.75% interest
</TABLE>
<PAGE>
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Item 27(b)--Schedule of Loans or Fixed Income Obligations in Default (continued)
EIN: 41-0222640
Plan #: 007
<TABLE>
<CAPTION>
AMOUNT DETAILED DESCRIPTION OF LOAN
ORIGINAL RECEIVED DURING UNPAID INCLUDING DATES OF MAKING
AMOUNT OF REPORTING YEAR BALANCE AT AND MATURITY, INTEREST RATE, THE AMOUNT OVERDUE
IDENTITY OF OBLIGOR LOAN END OF YEAR TYPE AND VALUE OF COLLATERAL, ETC. PRINCIPAL INTEREST
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gerald Lindner $10,000 $ - $7,927.96 Date of loan 5/1/95, last payment due $7,927.96 $ -
5/00, 10.0% interest
Kim Mitchell 800 165.50 485.44 Date of loan 8/1/91 last payment due 485.44 -
8/01, 9.5% interest
James Sadler 800 355.74 470.82 Date of loan 8/22/96, last payment due 470.82 -
8/01, 9.75% interest
</TABLE>
<PAGE>
Donaldson Company, Inc.
Employees' Retirement Savings Plan
Item 27(d)--Schedule of Reportable Transactions
EIN: 41-0222640
Plan #: 007
Year ended July 31, 1997
<TABLE>
<CAPTION>
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET
- ---------------------------------------------------------------------------------------
CATEGORY (iii)--A SERIES OF TRANSACTIONS IN EXCESS OF 5% OF BEGINNING PLAN ASSETS
<S> <C>
Donaldson Company, Inc. Common Stock Purchased 340,995 shares of common stock
in 228 transactions
Sold 300,678 shares of common stock in
171 transactions
Fixed Income Fund Sold 15,288,405 participating units in
10 transactions
Fidelity Contrafund Purchased 63,387 participating units in
186 transactions
Sold 29,860 participating units in
129 transactions
Fidelity Equity Income Fund Purchased 118,435 participating units in
234 transactions
Sold 69,642 participating units in
184 transactions
Fidelity Managed Income Portfolio Fund Purchased 22,724,012 participating units in
199 transactions
Sold 5,364,134 participating units in
134 transactions
</TABLE>
There were no category (i), (ii) or (iv) reportable transactions in fiscal 1997.
<PAGE>
CURRENT VALUE
OF ASSET ON
PURCHASE SELLING COST OF TRANSACTION NET
PRICE PRICE ASSET DATE GAIN
- -------------------------------------------------------------------------
$ 4,298,734 $4,298,734 $4,298,734
$ 3,744,894 2,805,410 3,744,894 $939,484
16,524,321 15,592,873 16,524,321 931,448
2,700,334 2,700,334 2,700,334
1,293,143 1,214,661 1,293,143 78,482
5,188,114 5,188,114 5,188,114
3,083,927 2,420,522 3,083,927 663,405
22,724,012 22,724,012 22,724,012
5,364,134 5,364,134 5,364,134 -
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned
thereunto duly authorized.
DONALDSON COMPANY, INC. EMPLOYEES'
RETIREMENT SAVINGS PLAN
(Name of Plan)
Date 1-27-98 By: /s/ Norman C. Linnell
------------------------ ----------------------------------
Norman C. Linnell
Secretary
<PAGE>
EXHIBIT INDEX
ANNUAL REPORT ON FORM 11-K
23 - Consent of Independent Auditors
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8, No. 2-90488) pertaining to the Donaldson Comapany, Inc. Employees'
Retirement Savings Plan and in the related Prospectus of our report dated
January 9, 1998, with respect to the financial statements and schedules of the
Donaldson Comapny, Inc. Employees' Retirement Savings Plan included in this
Annual Report (Form 11-K) for the year ended July 31, 1997.
/s/ Ernst & Young, LLP
Minneapolis, Minnesota
January 23, 1998
