Exhibit 99.1
FOR IMMEDIATE RELEASE: FOR FURTHER INFORMATION:
Wednesday, September 14, 2005 Rich Sheffer (952) 887-3753
DONALDSON COMPANY ANNOUNCES RECORD FULL-YEAR RESULTS
DELIVERS 16TH CONSECUTIVE YEAR OF RECORD EARNINGS
MINNEAPOLIS (Sept. 14, 2005) -- Donaldson Company, Inc. (NYSE: DCI)
announced fourth quarter diluted earnings per share ("EPS") of $.29, even with
last year. Net income was $25.1 million compared to $26.2 million last year.
Sales were a record $422.7 million, up from $384.0 million in fiscal 2004.
For the year, EPS was a record $1.27, up from $1.18 last year. Net
income was a record $110.6 million, versus $106.3 million last year. Record
sales of $1.6 billion were up from $1.4 billion in the prior year.
During the fourth quarter, we recognized a $4.0 million tax charge, or
$.05 per share, for the previously announced $80.0 million foreign repatriation
plan pursuant to the American Jobs Creation Act of 2004. We also increased our
reserve related to the previously disclosed patent litigation between Donaldson
and Engineered Products Company, Inc. ("EPC") by $6.4 million, or $.05 per
share.
"We are very pleased to announce our 16th consecutive record year,
posting all-time highs for sales, earnings and EPS despite these fourth quarter
charges," said Bill Cook, Chairman, President and Chief Executive Officer.
"Demand continues to be strong in most of our end markets. Although we have seen
rising oil prices affect our raw material costs for petroleum-based commodities
and freight, we are working with our customers to offset these increases through
a variety of efforts. We enter fiscal 2006 with continued strong orders and
backlogs, giving us confidence of delivering another strong year of results."
INCOME STATEMENT DISCUSSION
Stronger foreign currencies contributed to the increase in fourth
quarter and full year sales. Translated at constant exchange rates, sales
increased 9.2 percent during the quarter and 10.4 percent for the year. The
impact of foreign currency translation increased net earnings by $0.2 million in
the fourth quarter and $2.0 million for the year.
Gross margin of 31.8 percent for the fourth quarter and 31.7 percent
for the year compares to prior year margins of 31.2 percent and 31.6 percent,
respectively. This year's fourth quarter gross margin was affected by higher
costs for petroleum-based raw materials and freight, and a slower than expected
ramp up of our new Thailand plant. Last year's fourth quarter gross margin was
negatively impacted by $2.3 million from the unusual expenses discussed in last
year's release.
This year's fourth quarter operating expenses were 22.3 percent of
sales, down from 22.5 percent in the prior year. For the year, operating
expenses were 21.9 percent of sales, down from 22.1 percent last year. Included
in this year's fourth quarter operating expenses is the $6.4 million increase to
our reserve for the EPC patent infringement judgment. Last year's fourth quarter
operating expenses included $9.3 million of unusual expenses discussed in last
year's release.
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Donaldson Company, Inc.
September 14, 2005
Page 2
Fourth quarter interest expense was $2.7 million, up from $1.3 million
last year. The increase was driven by additional debt and higher short-term
interest rates. For the year, interest expense was $9.4 million, up from $5.0
million last year. Other income was $1.4 million in the quarter versus $2.5
million last year on lower joint venture income. For the year, other income was
$7.7 million, up from $5.2 million last year.
The effective tax rate of 35.7 percent for the fourth quarter and 28.6
percent for the year compares to prior year rates of 24.2 percent and 25.0
percent, respectively. Excluding the $4.0 million tax charge related to the
$80.0 million dividend reinvestment plan pursuant to the American Jobs Creation
Act of 2004, the effective tax rate was 25.4 percent for the fourth quarter and
26.0 percent for the year.
No shares were repurchased during the fourth quarter. For the year, we
repurchased 3,763,700 shares, or 4.4 percent of outstanding shares, for $116.3
million.
BACKLOG
Total backlog is strong, setting a new fourth quarter record at $412
million, up 11 percent relative to last year.
ENGINE PRODUCTS SEGMENT
Engine Products sales were a record $243.6 million in the quarter, an
increase of 10 percent from last year. For the year, Engine Products sales were
a record $923.8 million, an increase of 14 percent from last year.
Truck product sales in the quarter totaled $45.2 million, up 15 percent
from last year. NAFTA truck product sales increased 15 percent due to growing
new truck build rates. European truck product sales increased 9 percent on
stronger build rates and increased market share. Truck product sales in Asia
increased 22 percent from strong sales in Japan. For the year, worldwide truck
product sales totaled $175.0 million, an increase of 12 percent from last year.
Worldwide sales of off-road products in the quarter were $74.4 million,
up 14 percent from last year. NAFTA sales increased 11 percent on continued
strength in new construction, agriculture and mining equipment demand. European
off-road product sales increased 12 percent while Asian sales increased 26
percent. Worldwide sales totaled $286.2 million for the year, up 17 percent from
last year.
Engine aftermarket or replacement part sales in the quarter were $124.0
million, an increase of 7 percent from last year. NAFTA aftermarket sales
increased 10 percent as equipment utilization rates remained strong and sales of
diesel emission retrofit equipment continued ramping up. European sales
increased 7 percent and Asian sales were down 6 percent. For the year, worldwide
aftermarket sales were $462.6 million, up 13 percent from the prior year.
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Donaldson Company, Inc.
September 14, 2005
Page 3
INDUSTRIAL PRODUCTS SEGMENT
Industrial Products sales in the quarter were a record $179.1 million, an
increase of 10 percent from last year. For the year, Industrial Products sales
were a record $671.9 million, an increase of 11 percent from last year.
Industrial Filtration Solutions ("IFS") sales in the quarter were a
record $113.5 million, an increase of 10 percent from last year. IFS sales were
strong in NAFTA and Asia as sales increased 18 and 12 percent, respectively.
European sales increased 3 percent over last year. For the year, worldwide IFS
sales totaled a record $424.7 million, up 15 percent from last year.
Gas turbine product sales in the quarter were $31.2 million, up 5
percent from last year. Worldwide sales totaled $112.9 million in fiscal 2005,
down 4 percent from last year.
Sales of special application products in the quarter were a record
$34.4 million, an increase of 16 percent from last year. For the year, worldwide
special application sales were a record $134.3 million, up 16 percent from last
year.
OUTLOOK
ENGINE PRODUCTS: We expect sales growth to be approximately 10 percent in fiscal
2006.
o NAFTA heavy-duty new truck build rates should remain at their current
high levels as truck manufacturers are near capacity. Market share
gains should continue to fuel international sales growth.
o Off-road sales are expected to remain strong worldwide with robust
conditions continuing in the production of new construction and mining
equipment.
o Both NAFTA and international aftermarket sales are expected to
continue growing as continued strong equipment utilization drives
replacement filter sales.
INDUSTRIAL PRODUCTS: We expect high single-digit sales growth in fiscal 2006.
o IFS sales growth is expected to moderate following two consecutive
years of strong growth. Our American and Asian markets remain healthy
and our European market remains stable.
o Globally, we expect full-year gas turbine sales to improve modestly.
Strength is seen in the Middle East and in the oil and gas markets.
o Market conditions for special applications products are expected to
remain strong.
OTHER: We will begin expensing stock options in our first quarter of fiscal
2006, and expect the full year EPS impact to be $.03 to $.06 per share.
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Donaldson Company, Inc.
September 14, 2005
Page 4
ABOUT DONALDSON COMPANY, INC.
Donaldson is a leading worldwide provider of filtration systems and
replacement parts. Donaldson is a technology-driven company committed to
satisfying customer needs for filtration solutions through innovative research
and development. Donaldson serves customers in the diesel engine and industrial
markets including in-plant air cleaning, compressed air and gas purification,
power generation, disk drive filtration, off-road equipment and trucks. Our
11,000 employees contribute to the company's success at over 30 manufacturing
locations around the world. Donaldson is a member of the S&P MidCap 400 Index
and Donaldson shares are traded on the NYSE under the symbol DCI. Additional
company information is available at www.donaldson.com.
SAFE HARBOR STATEMENT UNDER THE SECURITIES REFORM ACT OF 1995
The company desires to take advantage of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 (the "Act") 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,
forecasts and projections which reflect the company's current views with respect
to future events and financial performance but involve uncertainties that could
significantly impact results. The words "believe," "expect," "anticipate,"
"intends," "estimate," "forecast," "outlook," "plan," "promises," "project,"
"should," "will be" and similar expressions are intended to identify
"forward-looking statements" within the meaning of the Act.
The company wishes to caution investors that any forward-looking
statements are subject to uncertainties and other risk factors that could cause
actual results to differ materially from such statements, including but not
limited to risks associated with: currency fluctuations, commodity prices, world
economic factors, political factors, the company's international operations,
including production facilities in China, highly competitive markets, changes in
capital spending levels by customers, changes in product demand, cancellations
of orders, litigation, including the EPC litigation disclosed in the Company's
SEC filings, integration of 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, see the
company's 2004 Form 10-K filed with the Securities and Exchange Commission. The
company wishes to caution investors that 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.
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Donaldson Company, Inc.
September 14, 2005
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DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
(Thousands of dollars, except share and per share amounts)
(Unaudited)
Three Months Ended Year Ended
July 31 July 31
---------------------------- ----------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Net sales $422,739 $383,962 $1,595,733 $1,414,980
Cost of sales 288,157 264,346 1,090,158 967,254
------------ ------------ ------------ ------------
Gross margin 134,582 119,616 505,575 447,726
Operating expenses 94,248 86,289 349,085 311,754
Gain on sale of Ome land and
building -- -- -- (5,616)
------------ ------------ ------------ ------------
Operating income 40,334 33,327 156,490 141,588
Other income, net (1,376) (2,505) (7,657) (5,202)
Interest expense 2,680 1,288 9,414 4,954
------------ ------------ ------------ ------------
Earnings before income taxes 39,030 34,544 154,733 141,836
Income taxes 13,919 8,353 44,179 35,519
------------ ------------ ------------ ------------
Net earnings $25,111 $26,191 $110,554 $106,317
============ ============ ============ ============
Weighted average shares
outstanding 84,565,352 87,621,312 84,990,739 87,960,423
Diluted shares outstanding 86,626,761 90,053,066 86,883,408 90,429,956
Net earnings per share $.30 $.30 $1.30 $1.21
Net earnings per share
assuming dilution $.29 $.29 $1.27 $1.18
Dividends paid per share $.060 $.055 $.235 $.205
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Donaldson Company, Inc.
September 14, 2005
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DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
(Unaudited)
July 31 July 31
2005 2004
---------- ----------
ASSETS
Cash and cash equivalents $134,066 $99,504
Accounts receivable - net 294,016 274,120
Inventories - net 151,599 143,418
Prepaid expenses and other current assets 39,141 40,338
---------- ----------
Total current assets 618,822 557,380
Other assets and deferred taxes 217,458 182,700
Property, plant and equipment - net 275,493 261,529
---------- ----------
Total assets $1,111,773 $1,001,609
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable $134,063 $124,401
Employee compensation and other liabilities 98,083 87,385
Notes payable 102,004 19,736
Income taxes payable 12,280 9,656
Current maturity long-term debt 7,772 34,346
---------- ----------
Total current liabilities 354,202 275,524
Long-term debt 103,302 70,856
Other long-term liabilities 129,653 105,936
---------- ----------
Total liabilities 587,157 452,316
Equity 524,616 549,293
---------- ----------
Total liabilities and equity $1,111,773 $1,001,609
========== ==========
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Donaldson Company, Inc.
September 14, 2005
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DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
Year Ended
July 31
----------------------
2005 2004
--------- ---------
OPERATING ACTIVITIES
Net earnings $110,554 $106,317
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on sale of Ome land and building -- (5,616)
Depreciation and amortization 44,284 41,555
Changes in operating assets and liabilities (14,050) (31,812)
Other, net 1,800 7,608
--------- ---------
Net cash provided by operating activities 142,588 118,052
INVESTING ACTIVITIES
Net expenditures on property and equipment (50,198) (43,030)
Acquisitions and investments in unconsolidated
affiliates, net of cash acquired (13,362) (4,397)
--------- ---------
Net cash used in investing activities (63,560) (47,427)
FINANCING ACTIVITIES
Purchase of treasury stock (116,268) (29,765)
Net change in debt 87,973 3,322
Dividends paid (19,757) (17,779)
Other, net 2,703 3,298
--------- ---------
Net cash used in financing activities (45,349) (40,924)
Effect of exchange rate changes on cash 883 2,733
--------- ---------
Increase in cash and cash equivalents 34,562 32,434
Cash and cash equivalents - beginning of year 99,504 67,070
--------- ---------
Cash and cash equivalents - end of year $134,066 $99,504
========= =========
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Donaldson Company, Inc.
September 14, 2005
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SEGMENT DETAIL
(Thousands of dollars)
(Unaudited)
Engine Industrial Corporate & Total
Products Products Unallocated Company
---------- ---------- ----------- ----------
3 Months Ended July 31, 2005:
Net sales $243,611 $179,128 -- $422,739
Earnings before income taxes 29,528 15,715 (6,213) 39,030
3 Months Ended July 31, 2004:
Net sales $221,089 $162,873 -- $383,962
Earnings before income taxes 33,039 11,311 (9,806) 34,544
Year Ended July 31, 2005:
Net sales $923,840 $671,893 -- $1,595,733
Earnings before income taxes 125,454 53,709 (24,430) 154,733
Year Ended July, 2004:
Net sales $811,543 $603,437 -- $1,414,980
Earnings before income taxes 114,662 42,985 (15,811) 141,836
NET SALES BY PRODUCT
(Thousands of dollars)
(Unaudited)
Three Months Ended Year Ended
July 31 July 31
----------------------- -----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Engine Products segment:
Off-road products $74,381 $65,559 $286,230 $244,749
ransportation products 45,201 39,164 175,048 156,373
Aftermarket products 124,029 116,366 462,562 410,421
---------- ---------- ---------- ----------
Total Engine Products Segment $243,611 $221,089 $923,840 $811,543
---------- ---------- ---------- ----------
Industrial Products segment:
Industrial filtration solutions products $113,469 $103,361 $424,727 $370,095
Gas turbine products 31,249 29,858 112,872 117,705
Special applications products 34,410 29,654 134,294 115,637
---------- ---------- ---------- ----------
Total Industrial Products segment $179,128 $162,873 $671,893 $603,437
---------- ---------- ---------- ----------
Total Company $422,739 $383,962 $1,595,733 $1,414,980
========== ========== ========== ==========
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September 14, 2005
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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Thousands of dollars)
(Unaudited)
Three Months Ended Year Ended
July 31 July 31
-------------------------- --------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Free cash flow $30,899 $39,023 $92,390 $75,022
Net capital expenditures 15,763 6,470 50,198 43,030
----------- ----------- ----------- -----------
Net cash provided by
operating activities $46,662 $45,493 $142,588 $118,052
=========== =========== =========== ===========
EBITDA $51,647 $45,376 $205,765 $186,486
Income taxes (13,919) (8,353) (44,179) (35,519)
Interest expense (net) (1,827) (221) (6,748) (3,095)
Depreciation and
amortization (10,790) (10,611) (44,284) (41,555)
----------- ----------- ----------- -----------
Net earnings $25,111 $26,191 $110,554 $106,317
=========== =========== =========== ===========
Net sales, excluding foreign
currency translation $419,373 $374,528 $1,561,626 $1,345,020
Foreign currency translation 3,366 9,434 34,107 69,960
----------- ----------- ----------- -----------
Net sales $422,739 $383,962 $1,595,733 $1,414,980
=========== =========== =========== ===========
Net earnings, excluding
foreign currency translation $24,945 $25,528 $108,516 $101,603
Foreign currency translation 166 663 2,038 4,714
----------- ----------- ----------- -----------
Net earnings $25,111 $26,191 $110,554 $106,317
=========== =========== =========== ===========
Although free cash flow, EBITDA, net sales excluding foreign currency
translation and net earnings excluding foreign currency translation are not
measures of financial performance under GAAP, the company believes they are
useful in understanding its financial results. Free cash flow is a commonly used
measure of a company's ability to generate cash in excess of its operating
needs. EBITDA is a commonly used measure of operating earnings less non-cash
expenses. Both net sales and net earnings excluding foreign currency translation
provide a comparable measure for understanding the operating results of the
company's foreign entities excluding the impact of foreign exchange. A
shortcoming of these financial measures is that they do not reflect the
company's actual results under GAAP. Management does not intend these items to
be considered in isolation or as a substitute for the related GAAP measures.
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