November 27, 2000
FROM: FOR:
Padilla Speer Beardsley Inc. Donaldson Company, Inc.
224 Franklin Avenue West P.O. Box 1299
Minneapolis, MN 55404 Minneapolis, MN 55440
Tony Carideo Tom VanHimbergen
(612) 872-3720 (952) 887-3089
E-mail: [email protected] Rich Sheffer
(952) 887-3753
FOR IMMEDIATE RELEASE
---------------------
DONALDSON COMPANY ANNOUNCES
FIRST QUARTER RESULTS
TOTAL REVENUE UP 17.6 PERCENT FROM PRIOR YEAR, AIDED BY ACQUISITIONS; INDUSTRIAL
SALES REMAIN STRONG, UP 44 PERCENT FROM THE PRIOR YEAR; STEADY GROWTH IN CORE
BUSINESSES; EPS ON TARGET AT 37 CENTS
MINNEAPOLIS, Nov. 27 -- Donaldson Company, Inc. (NYSE: DCI), today
reported first quarter revenue of $289.9 million for the quarter ended October
31, 2000, up 17.6 percent from $246.6 million in the same period last year.
Excluding the impact of businesses acquired in the prior year, revenue was up
8.1 percent. Operating income rose 10.9 percent while a drop in other income
produced net earnings of $16.8 million, down slightly from $17.0 million last
year. Diluted net earnings per share of 37 cents were up 2.8 percent from 36
cents in the prior year.
"Our first-quarter results get us off to a good start in fiscal 2001,"
commented William Van Dyke, chairman, president and chief executive officer.
"The company's recent acquisitions continued to pay off as part of the growth
strategy, particularly on the top line. We are especially pleased by the
performance of our Industrial segment, whose sales were up 44 percent over the
same period last year. This further reinforces our belief that this business
segment will provide significant growth moving forward."
The impact of foreign currency translation, mainly due to the continued
weakness of the Euro against the U.S. dollar, resulted in a decrease in net
sales of $8.3 million and a decrease in net earnings of $0.3 million. Excluding
the effect of foreign currency translation, local currency revenues outside the
U.S. increased almost 40 percent.
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Donaldson Company, Inc.
November 27, 2000
Page 2
Gross margin was 29.7 percent, down slightly from 30.0 percent in the
same period in the prior year. The slight decrease in gross margin resulted from
costs associated with plant rationalizations including product moves,
integration of acquisitions and plant start-ups in the U.S. Operating expenses
were 20.0 percent of sales, up slightly from 19.8 percent last year. Operating
expenses were affected by the AirMaze and DCE acquisitions.
Operating income for the quarter of $27.9 million was up 10.9 percent
from $25.2 million in the prior year, reflecting the positive impact of
increased revenue in the first quarter. Operating margin for the quarter was 9.6
percent, down from 10.2 percent reported for the first quarter in the prior
year.
Other expense increased to $3.9 million, up $3.0 million, mainly due to
an increase in interest expense and a decrease in income from joint ventures.
The income tax rate of 30 percent was unchanged from fiscal 2000.
EBITDA for the quarter was $34.0 million compared with $31.8 million in
the first fiscal quarter of last year.
Cash generated by operations of $2.7 million plus additional debt of
$19.6 million provided the funding for capital expenditures of $6.4 million, the
repurchase of $8.9 million of stock, and the payment of $3.1 million in
dividends.
BACKLOG
Total backlog of $314 million was up 7 percent relative to the same
period last year and down 5 percent from the prior quarter end. Hard order
backlog - goods scheduled for delivery in 90 days - of $183 million was up 8
percent from the same period last year and flat from prior quarter end. In the
Industrial Products segment, hard order backlog increased 7 percent from the
prior quarter end led by an increase in gas turbine products. This was offset by
a decrease of 7 percent in the Engine Products segment, mainly due to a decrease
in U.S. transportation products.
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Donaldson Company, Inc.
November 27, 2000
Page 3
INDUSTRIAL PRODUCTS SEGMENT
Industrial product sales for the first quarter were $122.7 million, an
increase of 44 percent from $85.4 million in the prior year. Excluding the
acquisition of DCE, sales were up 25 percent to $106.4 million compared to the
first quarter in the prior year.
Gas turbine product sales grew 64 percent. Gas turbine sales grew in
all major geographic regions and surged on unprecedented domestic power
generation investments.
Dust collection product sales grew 57 percent. Excluding the
acquisition of DCE, sales in dust collection products increased by 14 percent
from the prior year. Dust collection product sales increased across all regions,
with especially strong growth in North America and Asia Pacific.
Sales in special application products increased 8 percent. The growth
came from new disk drive product releases in Asia, strong lithography markets in
the United States and Europe, and an increase in expanded PTFE membrane demand
overseas.
ENGINE PRODUCTS SEGMENT
Underlining the success of our commitment to build the aftermarket
business and moderate the role of truck production in our financials, total
Engine product revenue was up 4 percent in the quarter despite the dramatic
contraction in the U.S. heavy truck build rate. Engine product sales for the
first quarter were $167.1 million from $161.2 million in the prior year.
Excluding the acquisition of AirMaze, sales were flat. Within this segment,
sales of transportation products were down 46 percent.
Worldwide sales of off-road products grew 9 percent. Stronger
construction and agricultural equipment markets, along with growth in light
industrial equipment, contributed to the increase.
The continued softness in new truck business was more than offset by
strong sales of aftermarket products, which were up 21 percent over the same
period last year. Aftermarket products contributed to a modest increase in
overall sales in the Engine Products segment with growth in all major geographic
regions.
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Donaldson Company, Inc.
November 27, 2000
Page 4
OUTLOOK
Overall, the company expects that activity in the Industrial Products
segment will remain strong, especially in gas turbine and special application
products. Within the Engine Products segment, Donaldson anticipates continued
growth in aftermarket product sales, but expects continued weakness in
transportation products. Globally, the company expects revenue to remain strong
in local currencies, partially offset by the stronger dollar, and anticipates
the effects of the Euro to be minimal.
"Looking forward, we continue to devote a great deal of time, energy
and resources to the on-going integration of our recent acquisitions and plant
and product rationalizations," said Van Dyke. "We anticipate that recent revenue
trends will continue with strength in some sectors, such as gas turbine,
offsetting the predictable weakness in others, such as U.S. heavy trucks. We
expect that the diversification we built into our revenue streams over the last
15 years will continue to serve us well."
Donaldson Company, Inc., headquartered in Minneapolis, Minnesota, is a
leading worldwide provider of filtration systems and replacement parts. Founded
in 1915, Donaldson is a technology-driven company committed to satisfying
customer needs for filtration solutions through innovative research and
development. Donaldson serves customers in the industrial and engine markets
including dust collection, power generation, specialty filtration, off-road
equipment, trucks, and automotive. Over 8,400 employees contribute to the
company's success at roughly forty manufacturing locations around the world. In
fiscal year 2000, Donaldson reported record sales of over $1 billion and
achieved its eleventh consecutive year of double-digit earnings growth.
Donaldson is a member of the S&P MidCap 400 Index and Donaldson shares are
traded on the New York Stock Exchange under the symbol DCI.
FORWARD-LOOKING STATEMENTS: The company desires to take advantage of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995 and
is making this cautionary statement in connection with such safe harbor
legislation. This earnings release, the Annual Report to Shareholders, any Form
10-K, 10-Q or Form 8-K of the company or any other written or oral statements
made by or on behalf of the company may include forward-looking statements
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Donaldson Company, Inc.
November 27, 2000
Page 5
which reflect the company's current views with respect to future events and
financial performance. The words "believe," "expect," "anticipate," "intends,"
"estimate," "forecast," "plan," "project," "should" and similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. All forecasts and projections
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 risk factors noted below.
The company wishes to caution investors that any forward-looking statements made
by or on behalf of the company are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements. These
uncertainties and other risk factors include, but are not limited to: risks
associated with currency fluctuations, commodity prices, world economic factors,
political factors, international operations, highly competitive markets, changes
in product demand and changes in the geographic and product mix of sales,
acquisition opportunities and integration of recent acquisitions, facility and
product line rationalization, research and development expenditures, including
ongoing information technology improvements, and governmental laws and
regulations, including diesel emissions controls. For a more detailed
explanation of the foregoing and other risks, see Exhibit 99, which is filed
with the Securities and Exchange Commission. The company wishes to caution
investors that other factors may in the future prove to be important in
affecting the company's results of operations. New factors emerge from time to
time and it is not possible for management to predict all such factors, nor can
it assess the impact of each such factor on the business or the extent to which
any factor, or a combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
Investors are further cautioned not to place undue reliance on such
forward-looking statements as they speak only to the company's views as of the
date the statement is made. The company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
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Donaldson Company, Inc.
November 27, 2000
Page 6
CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of dollars, except per share amounts)
(Unaudited)
Three Months Ended
October 31
--------------------------
2000 1999
----------- -----------
Net sales $ 289,869 $ 246,550
Cost of sales 203,913 172,669
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Gross margin 85,956 73,881
Operating expenses 58,047 48,716
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Operating income 27,909 25,165
Other expense 1,070 191
Net interest expense 2,833 677
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Earnings before income taxes 24,006 24,297
Income taxes 7,202 7,289
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Net earnings $ 16,804 $ 17,008
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Weighted average shares
outstanding 44,560,523 46,087,151
Diluted shares outstanding 45,456,932 46,955,529
Net earnings per share $ .38 $ .37
Net earnings per share
assuming dilution $ .37 $ .36
Dividends paid per share $ .07 $ .06
Capital expenditures $ 6,387 $ 11,243
Depreciation and amortization $ 10,012 $ 7,524
EBITDA $ 34,018 $ 31,821
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Donaldson Company, Inc.
November 27, 2000
Page 7
DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
(Unaudited)
October 31 July 31
2000 2000
-------- --------
ASSETS
Cash and cash equivalents 27,061 24,149
Accounts receivable - net 208,332 202,361
Inventories - net 118,398 119,363
Prepaid expenses and other current assets 35,531 29,606
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TOTAL CURRENT ASSETS 389,322 375,479
Other assets and deferred taxes 87,361 89,633
Property, plant and equipment - net 199,464 204,545
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TOTAL ASSETS 676,147 669,657
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LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable 81,342 82,320
Employee compensation and other liabilities 55,617 68,031
Notes payable 103,590 85,034
Income taxes payable 2,813 58
Current maturity long-term debt 207 279
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TOTAL CURRENT LIABILITIES 243,569 235,722
Long-term debt 92,686 92,645
Other long-term liabilities 67,462 61,125
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TOTAL LIABILITIES 403,717 389,492
EQUITY 272,430 280,165
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TOTAL LIABILITIES & EQUITY 676,147 669,657
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Donaldson Company, Inc.
November 27, 2000
Page 8
DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
Three Months Ended
October 31
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2000 1999
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OPERATING ACTIVITIES
Net earnings $ 16,804 $ 17,008
Adjustments to reconcile net earnings to net
provided by operating activities:
Depreciation and amortization 10,012 7,524
Changes in operating assets and liabilities (25,932) 3,457
Other 1,789 (281)
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Net Cash Provided by Operating Activities 2,673 27,708
INVESTING ACTIVITIES
Net expenditures on property and equipment (6,387) (11,243)
Acquisitions and investments in unconsolidated
affiliates net of cash acquired 0 10
-------- --------
Net Cash Used in Investing Activities (6,387) (11,233)
FINANCING ACTIVITIES
Purchase of treasury stock (8,891) (3,339)
Net change in debt 19,625 3,181
Dividends paid (3,126) (2,766)
Other 396 (88)
-------- --------
Net Cash Provided by (Used in) Financing
Activities 8,004 (3,012)
Effect of exchange rate changes on cash (1,378) 1,009
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Increase in cash and cash equivalents 2,912 14,472
Cash and Cash Equivalents-Beginning of Year 24,149 41,944
-------- --------
Cash and Cash Equivalents-End of Period $ 27,061 $ 56,416
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