SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended July 31, 1998 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) 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 No.)
1400 West 94th Street, Minneapolis, Minnesota 55431
- --------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 887-3131
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $5 Par Value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 25, 1998 was $736,424,514.
The shares of common stock outstanding as of September 25, 1998 were 47,587,174.
Documents Incorporated by Reference
-----------------------------------
Portions of the 1998 Annual Report to Shareholders of the registrant are
incorporated by reference in Parts I and II, as specifically set forth in Parts
I and II.
Portions of the Proxy Statement for the 1998 annual shareholders meeting are
incorporated by reference in Part III, as specifically set forth in Part III.
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PART I
Item 1. BUSINESS
GENERAL
Donaldson Company, Inc. ("Donaldson" or the "Company") was founded in 1915
and organized in its present corporate form under the laws of the State of
Delaware in 1936.
The Company is a worldwide manufacturer of air filters, liquid filters and
exhaust and emission control products and accessories for heavy duty mobile
equipment; in-plant air cleaning systems; air intake systems and exhaust
products for industrial gas turbines; and specialized filters for diverse
applications. The Company has one industry segment which consists of the design,
manufacture and sale of products to filter air, sound and liquid. Its principal
products are distributed through multiple channels. The Company has customer
relationships with original equipment manufacturers (OEMs) worldwide for selling
first-fit air intake, exhaust and liquid filtration systems. Sales of
aftermarket replacement products are through OEM dealers and independent
wholesalers/distributors. In-plant air cleaning systems include dust, fume and
mist collectors typically found in manufacturing, production and assembly plants
and are sold to end-users worldwide. Gas turbine products include static and
pulse-clean air filter systems, replacement filters, inlet-exhaust silencers,
evaporative coolers, chiller coils, inlet heating and anti-icing systems. Sales
are made through customer relationships with gas turbine manufacturers and
direct sales of replacement parts to end-users. Specialized filter products for
computer disk drives, aircraft cabins, industrial and hospital clean rooms,
business machines, room air cleaners and other industrial applications are sold
through customer relationships with OEMs and end-users for specific applications
and/or markets.
The table below shows the percentage of total net sales contributed by the
principal classes of similar products for each of the last three fiscal years:
Year Ended July 31
1998 1997 1996
---- ---- ----
Air cleaners, filtration
devices and accessories 66% 66% 67%
Acoustical products 11% 11% 11%
Other 23% 23% 22%
COMPETITION
The Company's business is not considered to be seasonal. Principal methods
of competition are price, geographic coverage, service and product performance.
The Company operates in a highly competitive environment. The Company estimates
it has more than 20 competitors in the sale of filtration products worldwide and
less than 10 competitors in the sale of acoustical products worldwide.
RAW MATERIALS
The Company experienced no significant or unusual problems in the purchase
of raw materials or commodities. Donaldson has more than one source of raw
materials essential to its business. The Company is not required to carry
significant amounts of inventory to meet rapid delivery demands or secure
supplier allotments.
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PATENTS AND TRADEMARKS
The Company owns various patents and trademarks which it considers in the
aggregate to constitute a valuable asset. However, it does not regard the
validity of any one patent or trademark as being of material importance.
MAJOR CUSTOMER
Sales to Caterpillar, Inc. and subsidiaries ("Caterpillar") accounted for 11
percent, 11 percent and 12 percent of net sales in 1998, 1997 and 1996,
respectively. Caterpillar has been a customer of the Company for many years and
it purchases several models and types of products for a variety of applications.
Sales to the U.S. Government do not constitute a material portion of the
Company's business.
BACKLOG
At August 31, 1998, the backlog of orders expected to be delivered within 90
days was $139,749,000. The 90 day backlog at August 31, 1997 was $163,682,000.
RESEARCH AND DEVELOPMENT
During 1998 the Company spent $23,509,000 on research and development
activities relating to the development of new products or improvements of
existing products or manufacturing processes. The Company spent $17,288,000 in
1997 and $15,906,000 in 1996 on research and development activities. Essentially
all commercial research and development is Company-sponsored.
ENVIRONMENTAL MATTERS
The Company does not anticipate any material effect on its capital
expenditures, earnings or competitive position due to compliance with government
regulations involving environmental matters.
EMPLOYEES
The Company employed 6,867 persons in worldwide operations as of July 31,
1998.
GEOGRAPHIC AREAS
Note H of the Notes to Consolidated Financial Statements on page 24 in the
1998 Annual Report to Shareholders contains information regarding the Company's
geographic areas and is incorporated herein by reference.
Item 2. PROPERTIES
The Company's principal office and research facilities are located in
Bloomington, a suburb of Minneapolis, Minnesota. European administrative and
engineering offices are located in Leuven, Belgium.
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Manufacturing activities are carried on in thirteen plants in the
United States, two in Japan and Mexico and one each in Australia, France, United
Kingdom, Hong Kong, South Africa, Italy, Belgium, India, China and Germany. The
back cover of the 1998 Annual Report to Shareholders lists U.S. plant locations
and is incorporated herein by reference. Note H on page 24 of the 1998 Annual
Report to Shareholders presents identifiable assets by geographic area and is
incorporated herein by reference.
The Company is a lessee under several long-term leases. These leases provide
for options to purchase the facilities at the end of the lease term and have
been capitalized.
The Company's properties are considered to be suitable for their present
purposes, well maintained and in good operating condition.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the Company's business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Current information regarding executive officers is presented below. All
terms of office are for one year. There are no arrangements or understandings
between individual officers and any other person pursuant to which he was
selected as an officer.
First Year
Elected or
Appointed
as an
Name Age Positions and Offices Held Officer
- ---- --- -------------------------- -------
William G. Van Dyke 53 Chairman, Chief Executive 1979
Officer and President
William M. Cook 45 Senior Vice President, 1994
Commercial and Industrial
James R. Giertz 41 Senior Vice President and 1994
Chief Financial Officer
Norman C. Linnell 39 General Counsel and Secretary 1996
Nickolas Priadka 52 Senior Vice President, 1989
OE Engine
Lowell F. Schwab 50 Senior Vice President, 1994
Operations
Thomas A. Windfeldt 49 Vice President, Controller 1985
and Treasurer
All of the above-named executive officers have held executive or management
positions with Registrant for more than the past five years except Mr.
Giertz who was previously Assistant Treasurer Corporate Finance for General
Motors Corporation (1995) and Treasurer of various subsidiaries of General
Motors Corporation, Mr. Linnell, who was previously a partner in the law
firm of Dorsey & Whitney LLP, and Mr. Schwab, who was previously Vice
President and General Manager of the Machinery Division of Washington
Scientific, Inc.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information in the sections "Quarterly Financial Information
(Unaudited)" and "NYSE Listing," on pages 25 and 28, and restrictions on payment
of dividends in Note D, page 19 of the 1998 Annual Report to Shareholders is
incorporated herein by reference. As of September 25, 1998, there were
approximately 1,702 shareholders of record of Common Stock.
The high and low sales prices for registrant's common stock for each
full quarterly period during 1998 and 1997, restated to reflect the registrant's
2-for-1 stock split effected in the form of a stock dividend issued on January
13, 1998, are as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1997 $12 11/16-14 5/8 $14 5/16-17 $15 3/8-18 5/16 $17 3/4-20 3/8
1998 $20 5/16-27 3/16 $22 1/4-25 11/16 $22 5/8-26 3/16 $18 9/16-25 1/8
Item 6. SELECTED FINANCIAL DATA
The information for the years 1994 through 1998 on pages 26 and 27 of the
1998 Annual Report to Shareholders is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth in the section "Management's Discussion and
Analysis" on pages 6 through 11 of the 1998 Annual Report to Shareholders is
incorporated herein by reference.
A. MARKET RISK
Market Risk disclosure as discussed under "Market Risk" and "Foreign
Currency" on page 10 of the 1998 Annual Report to Shareholders is incorporated
herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to Consolidated Financial
Statements on pages 12 through 25, and the Quarterly Financial Information
(Unaudited) on page 25 of the 1998 Annual Report to Shareholders is incorporated
herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE - Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the captions "Nominees For Election" and "Directors
Continuing In Office" on page 4 under the heading "Compliance With Section 16
(a) of the Securities Exchange Act of 1934" on page 17 of the Company's
definitive proxy statement dated October 14, 1998 is incorporated herein by
reference. Information about the executive officers of the Company is set forth
in Part I of this report.
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Item 11. EXECUTIVE COMPENSATION
The information under "Director Compensation" on page 5 and in the section
"Executive Compensation" on pages 10 through 12, the "Pension Plan Table" on
page 16 and under the caption "Change-in-Control Arrangements" on page 17 of the
Company's definitive proxy statement dated October 14, 1998, is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the section "Security Ownership" on page 2 of
the Company's definitive proxy statement dated October 14, 1998, is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Not applicable.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed with this report:
(1) Financial Statements -
Consolidated Balance Sheets--July 31, 1998 and 1997 (incorporated by
reference from page 13 of the 1998 Annual Report to Shareholders)
Consolidated Statements of Earnings--years ended July 31, 1998, 1997
and 1996 (incorporated by reference from page 12 of the 1998 Annual
Report to Shareholders)
Consolidated Statements of Cash Flows--years ended July 31, 1998,
1997 and 1996 (incorporated by reference from page 14 of the 1998
Annual Report to Shareholders)
Consolidated Statements of Changes in Shareholders' Equity--years
ended July 31, 1998, 1997 and 1996 (incorporated by reference from
page 15 of the 1998 Annual Report to Shareholders)
Notes to Consolidated Financial Statements (incorporated by
reference from pages 16 through 25 of the 1998 Annual Report to
Shareholders)
Report of Independent Auditors (incorporated by reference from page
25 of the 1998 Annual Report to Shareholders).
(2) Financial Statement Schedules -
Schedule II Valuation and qualifying accounts
All other schedules (Schedules I, III, IV and V) for which provision
is made in the applicable accounting regulations of the Securities
and Exchange Commission are not required under the related
instruction, or are inapplicable, and therefore have been omitted.
(3) Exhibits
The exhibits listed in the accompanying index are filed as part of
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this report or incorporated by reference as indicated therein.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended July 31,
1998.
Pursuant to the requirements of Section 13 or 15(d) 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: October 29, 1998 By /s/ Norman C. Linnell
----------------------- -----------------------------
Norman C. Linnell
General Counsel and
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/ William G. Van Dyke Chairman, Chief Executive
- ----------------------------- Officer and President
William G. Van Dyke
/s/ James R. Giertz Senior Vice President and
- ----------------------------- Chief Financial Officer
James R. Giertz
/s/ Thomas A. Windfeldt Vice President, Controller
- ----------------------------- and Treasurer
Thomas A. Windfeldt
*F. Guillaume Bastiaens Director
- -----------------------------
F. Guillaume Bastiaens
*Paul B. Burke Director
- -----------------------------
Paul B. Burke
*Janet M. Dolan Director
- -----------------------------
Janet M. Dolan
*Jack W. Eugster Director
- -----------------------------
Jack W. Eugster
*John F. Grundhofer Director
- -----------------------------
John F. Grundhofer
*Kendrick B. Melrose Director
- -----------------------------
Kendrick B. Melrose
*S. Walter Richey Director
- -----------------------------
S. Walter Richey
*Stephen W. Sanger Director
- -----------------------------
Stephen W. Sanger
*By /s/ Norman C. Linnell Date: October 29, 1998
- ----------------------------- ----------------
Norman C. Linnell
* As attorney-in-fact
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SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------
Additions
----------------------------
Balance at Charged to Balance at
Beginning Costs and Charged to End of
Description of Period Expenses Other Accounts(A) Deductions(B) Period
- ------------------------------------------------------------------------------------------------------
Year ended July 31, 1998:
Allowance for doubtful
accounts deducted from
accounts receivable $ 4,094 $ 413 $(136) $ (675) $3,696
======= ======= ====== ========= ======
Warranty Reserves $19,197 $ 7,254 $(10,355) $16,096
======= ======= ========= =======
Year ended July 31, 1997:
Allowance for doubtful
accounts deducted from
accounts receivable $ 3,695 $ 894 $(161) $ (334) $ 4,094
======= ======= ====== ========= =======
Warranty Reserves $12,750 $12,080 $ (5,633) $19,197
======= ======= ========= =======
Year ended July 31, 1996:
Allowance for doubtful
accounts deducted from
accounts receivable $ 3,957 $ 511 $(246) $ (527) $ 3,695
======= ======= ====== ======== =======
Warranty Reserves $ 6,442 $ 9,894 $(3,586) $12,750
======= ======= ======== =======
Note A--Foreign currency translation losses (gains) recorded directly to equity.
Note B--Bad debts charged to allowance, net of recoveries.
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EXHIBIT INDEX
ANNUAL REPORT ON FORM 10-K
* 3-A - Certificate of Incorporation of Registrant as currently in effect
(Filed as Exhibit 3-A to Form 10-Q for the Second Quarter ended
January 31, 1998)
* 3-B - By-laws of Registrant as currently in effect (Filed as Exhibit 3-B to
1996 Form 10-K Report)
* 4 - **
* 4-A - Preferred Stock Amended and Restated Rights Agreement (Filed as
Exhibit 4.1 to Form 8-K Report Dated January 12, 1996)
* 10-A - Annual Cash Bonus Plan (Filed as Exhibit 10-A to 1995 Form 10-K
Report)***
* 10-B - Supplementary Retirement Agreement with William A. Hodder (Filed as
Exhibit 10-B to 1993 Form 10-K Report)***
* 10-C - 1980 Master Stock Compensation Plan as Amended (Filed as Exhibit 10-C
to 1993 Form 10-K Report)***
* 10-D - Form of Performance Award Agreement under 1991 Master Stock
Compensation Plan (Filed as Exhibit 10-D to 1995 Form 10-K Report)***
* 10-E - Copy of ESOP Restoration Plan as Amended and Restated (Filed as
Exhibit 10-E to Form 10-Q for the Second Quarter ended January 31,
1998)***
* 10-F - Deferred Compensation Plan for Non-employee Directors as amended
(Filed as Exhibit 10-F to 1990 Form 10-K Report)***
* 10-G - Form of "Change in Control" Agreement with key employees as amended
(Filed as Exhibit 10-G to 1990 Form 10-K Report)***
* 10-H - Independent Director Retirement and Benefit Plan as amended (Filed as
Exhibit 10-H to 1995 Form 10-K Report)***
* 10-I - Excess Benefit Plan (Filed as Exhibit 10-I to 1989 Form 10-K Report)
***
* 10-J - Copy of Supplementary Executive Retirement Plan (Filed as Exhibit
10-J to 1991 Form 10-K Report)***
10-K - 1991 Master Stock Compensation Plan as amended***
* 10-L - Form of Restricted Stock Award under 1991 Master Stock Compensation
Plan. (Filed as Exhibit 10-L to 1992 Form 10-K Report)***
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* 10-M - Form of Agreement to Defer Compensation for certain Executive
Officers (Filed as Exhibit 10-M to 1993 Form 10-K Report)***
10-N - Stock Option Program for Nonemployee Directors***
* 10-O - Salaried Employees' Pension Plan - 1997 Restatement (Filed as Exhibit
l0-0 to 1997 10-K Report)***
* 10-P - Eighth Amendment of Employee Stock Ownership Plan Trust Agreement -
1987 Restatement (Filed as Exhibit 10-P to 1997 10-K Report)***
* 10-Q - Deferred Compensation and 401(K) Excess Plan (Filed as Exhibit 10-Q
to Form 10-Q for the Second Quarter ended January 31, 1998)***
10-R - Note Purchase Agreement among Donaldson Company, Inc. and certain
listed Insurance Companies dated as of July 15, 1998.
10-S - First Supplement to Note Purchase Agreement among Donaldson Company,
Inc. and certain listed Insurance Companies dated as of August 1,
1998.
10-T - Deferred Stock Option Gain Plan***
11 - Computation of net earnings per share ("Earnings Per Share" in
"Summary of Significant Accounting Policies" in Note A, page 16 of
the 1998 Annual Report to Shareholders is incorporated herein by
reference)
13 - Portions of Registrant's Annual Report to Shareholders for the year
ended July 31, 1998
21 - Subsidiaries ("Wholly Owned Subsidiaries" and "Joint Ventures" on the
back cover of the 1998 Annual Report to Shareholders is incorporated
by reference)
23 - Consent of Independent Auditors
24 - Powers of Attorney
27 - Financial Data Schedule
* Exhibit has heretofore been filed with the Securities and Exchange
Commission and is incorporated herein by reference as an exhibit.
** Pursuant to the provisions of Regulation S-K Item 601(b)(4)(iii)(A) copies
of instruments defining the rights of holders of certain long-term debts of
Registrant and its subsidiaries are not filed and in lieu thereof
Registrant agrees to furnish a copy thereof to the Securities and Exchange
Commission upon request.
*** Denotes compensatory planor management contract.
Note: Exhibits have been furnished only to the Securities and Exchange
Commission. Copies will be furnished to individuals upon request and
payment of $20 representing Registrant's reasonable expense in furnishing
such exhibits.
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