EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS The following discussion of the company's financial
condition and results of operations should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and other financial
information included elsewhere in this Report.
FISCAL 1998 COMPARED TO FISCAL 1997 The company reported record sales in 1998 of
$940.4 million, up 12.8 percent from prior-year sales of $833.3 million. Strong
business conditions were evident across all businesses. Sales for the core
Engine Products businesses - first-fit and replacement parts - were up 12.4
percent over last year. Industrial Products businesses, including the Torit
Products and Gas Turbine businesses, were up 13.6 percent from last year.
Domestic Engine Products sales were up 19 percent, primarily from increased
shipments to original equipment manufacturers (OEMs) and overall good economic
conditions in the United States. In addition, domestic Aftermarket sales
increased 13.2 percent year over year. Domestic Industrial Products sales
increased 18.9 percent, led by strong sales in the Torit Products (dust
collection) market and Gas Turbine Systems offset by lower sales in High Purity
Products.
In U.S. dollars overseas Engine Products sales were up 3.3 percent compared
to the prior year, mostly attributable to increased shipments in Europe.
Overseas Industrial Products sales increased approximately 6.2 percent due
primarily to increased sales of High Purity Products and Gas Turbine systems in
Hong Kong. Overseas sales in local currencies were down approximately 3.5
percent in Japan and Australia and were up 23 percent in Europe.
The company reported record net earnings for 1998 of $57.0 million compared
to $50.6 million in 1997, an increase of 12.7 percent. Net earnings per share
were $1.14, up 15 percent from the prior year. Increased sales levels and a
reduction in the effective income tax rate were the primary reasons for the
higher earnings. Overseas operating income totaled approximately 50.3 percent
and 54.7 percent of consolidated operating income in 1998 and 1997.
Gross margin for 1998 decreased to 28 percent compared to 30 percent in the
prior year. The primary factors leading to this decline in margins include:
integration and process problems at Armada Tube facilities; lower gross margins
on automotive product lines; product cost increases in Engine businesses, not
immediately recoverable in price; pricing pressures in certain High Purity
Product market segments.
Operating expenses as a percentage of sales for 1998 and 1997 were 18.8
percent and 20.1 percent, respectively. Operating expenses in 1998 totaled
$176.5 million compared to $167.6 million in 1997, which reflects an increase of
$8.9 million, or 5.3 percent. Selling expenses in 1998 increased $5.2 million,
primarily due to the higher sales levels, while general and administrative
expenses decreased $2.5 million due to lower pension expenses, the write-down in
1997 of purchased intangibles of $5.0 million on a previous business acquisition
in 1997, decreased warranty accruals on product lines and other accruals.
Interest expense increased $2.3 million, or 98 percent, primarily due to the
increase in total debt. Other (income)/expense totaled $(4.3) million in 1998
compared to other (income)/ expense of $1.3 million in the prior year. The
significant items leading to this change in other (income)/expense were a
decrease in charitable contributions of $2.3 million and a decrease in other
miscellaneous items such as legal accruals and non-compete payments related to a
previous business acquisition which were included in 1997 other (income)/expense
totals.
The effective income tax rate of 34 percent in 1998 was lower compared to 36
percent in 1997 due primarily to lower overseas tax rates.
Total backlogs of $243.3 million were down 5.2 percent from the prior
year-end. Hard order backlogs, goods scheduled for delivery in 90 days, were
$138.8 million and $164.2 million at
6
Donaldson Company
July 31, 1998 and 1997, respectively. Worldwide Engine Products backlog
decreased $16.5 million and worldwide Industrial Pro ducts backlog decreased
$8.9 million from 1997. After adjusting for discontinued product lines and other
special factors, hard backlogs were essentially unchanged from last year.
Backlog for Gas Turbine Products was down about $4.6 million after an
exceptionally strong period of shipments in the third quarter of 1998. About
$14.5 million of the hard order backlog decline was associated with discontinued
product lines - automotive systems for GM light trucks, catalytic converter
mufflers for medium and heavy-duty truck OEMs and certain disk drive filter
units. Finally, about $4.5 million of the hard backlog decline related to the
timing of orders in our Engine Aftermarket and High Purity Product lines and
does not reflect an overall change in the level of sales activity.
FISCAL 1997 COMPARED TO FISCAL 1996 The company reported record sales in 1997 of
$833.3 million, up 9.8 percent from prior-year sales of $758.6 million. Strong
business conditions were evident across all businesses. Sales for the core
Engine Products businesses - first-fit and replacement parts - were up 10.2
percent over last year. Industrial Products businesses, including the Torit
Products and Gas Turbine businesses, were up 9.1 percent from last year.
Domestic Engine products sales were up 11.6 percent, primarily from
increased shipments to OEMs and overall good economic conditions in the U.S.
Weakness in the heavy-duty Transportation market was more than offset by
business growth in the Auto motive and Defense markets. In addition, domestic
Aftermarket sales increased 11 percent year over year. Domestic Industrial
Products sales increased 7.1 percent, led by strong sales in the Torit Products
(dust collection) market, offset by lower sales in High Purity Products and Gas
Turbine Products.
Overseas sales increased almost 7 percent, 15 percent in local currencies,
primarily due to increased net sales in Europe, Japan and Hong Kong. Overseas
Engine Products sales were up 7.7 percent compared to the prior year as
shipments increased in Europe. Overseas Industrial Products sales increased
approximately 12.9 percent due primarily to increased sales of High Purity
Products and Gas Turbine systems in Hong Kong.
The company reported record net earnings for 1997 of $50.6 million compared
to $43.4 million in 1996, an increase of 16.6 percent. Net earnings per share
were $.99, up 18.6 percent from the prior year. Increased sales levels and
improvements in the gross margin and a reduction in the effective income tax
rate were the primary reasons for the higher earnings. Overseas operating income
totaled approximately 55 percent of consolidated operating income.
Gross margin for 1997 increased to 30 percent compared to 29.4 percent in
the prior year. Increased manufacturing efficiencies gained by higher operating
levels, product mix and lower raw material prices in 1997 contributed to this
improvement. Margins improved in Industrial Products markets and remained flat
for Engine Products.
Operating expenses as a percentage of sales for 1997 and 1996 were 20.1
percent and 19.4 percent, respectively. Operating expenses in 1997 totaled
$167.6 million compared to $147.2 million in 1996, which reflects an increase of
$20.3 million, or 13.8 percent. Selling expenses in 1997 increased $6.2 million,
primarily due to the higher sales levels, while general and administrative
expenses increased $12.7 million due to higher pension expenses, the write-down
of purchased intangibles of $5.0 million on a previous business acquisition,
increased warranty accruals on product lines and other accruals.
Interest expense declined $0.5 million, or 18.8 percent, primarily due to
the decline in total debt. Other expense totaled $1.3 million in 1997 compared
to other expense of $1.6 million in the prior year. The $0.3 million change is
due to a $0.6 million decrease in foreign exchange loss, a $0.4 million decline
in
7
1998 Annual Report
interest income, an increase in charitable contributions of $1.2 million, an
increase in earnings from joint ventures, including AFSI, a joint venture with
Caterpillar, Inc., of $.06 million and a decrease in other miscellaneous items
of $0.1 million.
The effective income tax rate of 36 percent in 1997 was lower compared to
38.9 percent in 1996 due to lower overseas tax rates.
Hard order backlogs, goods scheduled for delivery in 90 days, were $164.2
million and $121.9 million at July 31, 1997 and 1996, respectively. Worldwide
Engine Products backlog increased $24.5 million and worldwide Industrial
Products backlog increased $17.9 million from 1996. Total backlogs of $257.1
million were up 26.4 percent from the prior year-end, primarily due to higher
overall orders and strong business conditions.
During 1997, the company completed the acquisition of two overseas
operations in our Engine Products businesses. In South Africa, the company
purchased the exhaust products manufacturing assets of the Kilber Division of
N.E.I., which will allow the company to expand its exhaust products into that
market. In Mexico, the company purchased all of the outstanding shares of Diemo,
S.A. de D.V., a supplier of liquid filter components, in what was primarily a
vertical integration. The company also completed the acquisition of the assets
of the Armada Tube Group, including Armada Products Co., located in Armada,
Michigan, and Lakeside Tube Fabricators, Inc., located in Mooresville, North
Carolina. The Armada businesses generated annual sales of more than $15 million
in manufacturing and delivering bent and fabricated tubular assemblies for
exhaust and other engine related products. In addition, the company completed
the acquisition of the assets of Aercology Incorporated, located in Old
Saybrook, Connecticut. The Aercology business generated annual sales of more
than $10 million in the manufacturing of smaller sized industrial air filtration
products. All of the above acquisitions were treated as purchases. The results
of operations of these businesses were not material in relation to the company's
consolidated results of operations for 1997. See Note B in the footnotes to the
Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL CONDITION At July 31, 1998 the company's capital structure was
comprised of $45.8 million of current debt, $50.3 million of long-term debt and
$255.7 million of shareholders' equity. The ratio of long-term debt to total
long-term capital was 16.5 percent, compared with 1.7 percent at July 31, 1997.
Total debt increased $49.7 million during 1998 to $96.2 million. The
increase resulted from the issuance of $50.0 million of senior notes in July
1998 and the use of $45.5 million of short-term debt for operating purposes.
In 1998, the company renewed and modified its multi-currency revolving
credit facility totaling $100.0 million with a group of international banks, led
by Citibank as the agent. There was $22.0 million outstanding under this
facility at July 31, 1998. The company believes that the combination of present
capital resources, internally generated funds, and unused financing sources are
more than adequate to meet cash requirements for 1999.
Shareholders' equity increased $11.8 million in 1998 to $255.7 million. The
increase was primarily due to an increase in retained earnings of $57.0 million
from current year net earnings, issuance of stock awards of $3.7 million offset
by $33.3 million of treasury stock repurchases, a $6.1 million increase in the
cumulative translation adjustment and $9.6 million of dividend payments.
On November 21, 1997 the Board of Directors declared a 2-for-1 stock split
of its common stock, effected in the form of a 100 percent stock dividend. The
stock dividend was issued on January 13, 1998, to shareholders of record as of
December 19, 1997.
CASH FLOWS During 1998, $36.1 million of cash was generated from operating
activities, compared with $54.6 million in 1997 and $76.9 million in 1996. The
decrease in 1998 was largely the result of a significant increase in accounts
receivable and inventory, a significant decrease in trade accounts payable,
accruals and income taxes payable, all of which more than offset the
8
Donaldson Company
results of increased net earnings. In addition to cash generated from operating
activities the company obtained approximately $48.8 million in long-term debt as
a result of the issuance of $50.0 million in senior notes in July 1998.
Significant uses for cash included $54.7 million for capital expenditures, $33.2
million for stock repurchases, $2.5 million for repayment of long-term debt and
$9.6 million for dividend payments. Cash and cash equivalents increased $1.8
million during 1998.
Capital expenditures for property, plant and equipment totaled $54.7 million
in 1998, compared to $47.3 million in 1997 and $39.3 million in 1996. Capital
expenditures related to productivity enhancing projects at various plants in the
U.S. and overseas, capacity expansion at various plants throughout the world and
continuing upgrades to information systems.
Capital spending in 1999 is planned to be $40 million. Significant planned
expenditures include the further upgrade of information systems and investment
in manufacturing equipment and tooling. It is anticipated that 1999 capital
expenditures will be financed primarily from funds from operations.
DIVIDENDS The company's dividend policy is to maintain a payout ratio which
allows dividends to increase with the long-term growth of earnings per share,
while sustaining dividends in down years. The company's dividend payout ratio
target is 20 percent to 25 percent of the average earnings per share of the last
three years. The current quarterly dividend of 5 cents per share equates to 20.2
percent of the 1996 through 1998 average net earnings per share.
SHARE REPURCHASE PLAN In January 1998 the Board of Directors authorized the
company to repurchase 4.0 million shares of common stock. At July 31, 1998, the
company had approximately 2.8 million remaining shares under the repurchase
authorizations. Management and the Board of Directors believe the share
repurchase program is an excellent means of returning value to the shareholders.
In 1998, the company repurchased 1.3 million shares of common stock on the
open market for $33.3 million, at an average price of $24.63 per share. The
company repurchased 1.4 million shares for $24.9 million in 1997 and 1.8 million
shares for $23.1 million in 1996.
ENVIRONMENTAL MATTERS The company is a party to certain remedial activities at
third party-disposed sites claims relating to environmental and waste disposal
matters. The company has established reserves for potential environmental
liabilities and plans to continue to accrue reserves in appropriate amounts.
While uncertainties exist with respect to the amounts and timing of the
company's ultimate environmental liabilities, management believes that such
liabilities, individually and in the aggregate, will not have a material adverse
effect on the company's financial condition or results of operations.
NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards (SFAS) No.
130 "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," are effective for fiscal
years beginning after December 15, 1997 and SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" is effective for fiscal years
beginning after June 15, 1999. SFAS 130 requires a company to display an amount
representing comprehensive income, as defined by the statement, as part of the
company's basic financial statements. Comprehensive income will include items
such as unrealized gains or losses on certain investment securities and foreign
currency items. The adoption of SFAS 130 results in disclosure only for
financial reporting purposes, therefore will not affect the financial results of
the company.
SFAS 131 requires a company to disclose financial and other information, as
defined by the statement, about its business segments, their products and
services, geographic areas, major customers, revenues, profits, assets and other
information. The company has not yet assessed what impact SFAS 131 will have on
its consolidated financial statement reporting.
9
1998 Annual Report
SFAS 133 requires a company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments and recognized through earnings or in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The company has not yet determined what the effect of SFAS 133 will be on
earnings and financial position of the company.
MARKET RISK The market risk inherent in the company's market risk sensitive
instruments and positions is the potential loss arising from adverse changes in
foreign currency exchange rates and interest rates as discussed below.
FOREIGN CURRENCY In 1998, the U.S. dollar was generally stronger relative to the
currencies of foreign countries where the company operates. A stronger dollar
generally has a negative impact on overseas results because foreign-currency
denominated earnings translate into less U.S. dollars; a weaker dollar generally
has a positive translation effect.
It is not possible to determine the true impact of foreign currency
translation changes; however the direct effect on net sales and net earnings can
be estimated. For 1998, the stronger U.S. dollar decreased net sales by $24.5
million and decreased net earnings by $1.9 million. During 1997, the generally
stronger U.S. dollar decreased net sales by $20.2 million and decreased net
earnings by $0.8 million.
The company maintains significant assets and operations in Europe, Japan,
China (including Hong Kong), Australia and Mexico. As a result, exposure to
foreign currency gains and losses exists. A portion of foreign currency exposure
is hedged by incurring liabilities, including bank debt, denominated in the
local currency where subsidiaries are located.
The subsidiaries of the company purchase products and parts in various
currencies. As a result, the company may be exposed to cost increases relative
to local currencies in the markets to which it sells. To mitigate such adverse
trends, the company enters into forward exchange contracts and other hedging
activities. Also, foreign currency positions are partially offsetting and are
netted against one another to reduce exposure.
Some products made in the U.S. are sold abroad, primarily in Canada and
Mexico. As a result, sales of such products are affected by the value of the
U.S. dollar relative to other currencies. Any long-term strengthening of the
U.S. dollar could depress these sales. Also, competitive conditions in the
company's markets may limit its ability to increase product pricing in the face
of adverse currency movements. The potential loss in fair value from a 10
percent adverse change in foreign currency exchange rates is not material.
INTEREST At July 31, 1998 the fair value of the company's long-term debt
approximates market. Market risk is estimated as the potential increase in fair
value resulting from a hypothetical one-half percent decrease in interest rates
and amounts to approximately $2.0 million over the term of the debt.
YEAR 2000 AND EURO CURRENCY ISSUES The company has developed plans to address
the potential for business interruption related to the impact of Year 2000 on
computer systems. Financial, information and operating systems (including any
equipment with embedded microprocessors) have been surveyed and assessed. In
most cases, identified problems have already been rectified or detailed plans
are in place to modify impacted systems prior to the end of 1998. In some cases
identified problems will be addressed with repair projects to be completed in
1999. Progress against these plans is monitored and reported to senior
management and to the Audit Committee of the Board of Directors on a regular
basis. Implementation of required changes to, and testing of, critical business
systems is expected to be complete by the
10
Donaldson Company
end of 1998. Changes to all other systems are expected to be complete by July
1999. Testing of non-critical systems will be performed on a spot basis; more
extensive testing may be initiated if it is deemed appropriate.
The company has also surveyed its significant suppliers to assess the
potential impact on operations if key third parties are not successful in
converting their systems in a timely manner. Responses to these surveys are
incomplete at this time. Responses received to date indicate that our suppliers
are aware of the Year 2000 issue and are implementing all necessary changes,
mostly scheduled for completion by mid-1999. Vendors not responding to surveys
are now being evaluated and follow-up action will take place over the next
several months.
Incremental costs (including contractor expenses and the cost of internal
resources dedicated to achieving Year 2000 compliance) are charged to expense as
incurred. Total costs for all relevant activity is estimated to be $5 million,
of which approximately 70 percent has been spent to date.
In general, the company has a relatively low risk profile relative to Year
2000 issues. Only a small percentage of our products contain microprocessors and
all of our product range is now Year 2000 compliant. Our information systems
(financial, purchasing, manufacturing planning, etc.) are easily inventoried and
detailed modification plans exist and are being executed. Our manufacturing
systems are, in general, standard pieces of equipment with relatively few
proprietary or unique operating systems or controls. At this time, the company
does not have in place a comprehensive, global contingency plan relative to
potential Year 2000 disruptions. Rather, each significant system either has been
repaired and tested, or is being repaired. For systems currently being reworked,
contingency plans exist to address unforeseen problems.
The most reasonably likely negative scenario is that modification work will
not proceed on schedule, causing some increase to the total cost of achieving
Year 2000 compliance. The impact on the company's results of operations if the
company or its suppliers or customers are not fully Year 2000 compliant is not
reasonably determinable. However, since we are depending on our ability to
execute modification plans and our vendors to continue material supply without
interruption, there can be no assurance that unforeseen difficulties will not
arise for the company or its customers and that related costs will not thereby
be incurred. This dependence on the performance of our employees, contractors
and vendors, as it relates to the Year 2000 issue, does not appear significantly
different from our dependence on these groups relative to a wide range of other
expectations (e.g., product quality, dependable delivery, technical support,
etc.).
The company's current accounting and operational software at its Europe
subsidiaries will accommodate the conversion on January 1, 1999 to a common
currency, the "euro," by members of the European Union. The impact on the
company's results of operation if the company or its suppliers or customers are
not fully able to accommodate the "euro" conversion is not reasonably
determinable.
RISK FACTORS Except for the historical information contained herein, certain of
the matters discussed in this annual report 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, Year 2000 issues,
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 report 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.
11
1998 Annual Report
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended July 31
(Thousands of dollars except share and per share amounts) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
Net sales $ 940,351 $ 833,348 $ 758,646
Cost of sales 677,089 583,075 535,772
- ---------------------------------------------------------------------------------------------------------
Gross Margin 263,262 250,273 222,874
Selling, general and administrative 152,954 150,270 131,326
Research and development 23,509 17,288 15,906
Interest expense 4,671 2,358 2,905
Other expense (income) (4,313) 1,263 1,617
- ---------------------------------------------------------------------------------------------------------
Total Expenses 176,821 171,179 151,754
- ---------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 86,441 79,094 71,120
Income taxes 29,390 28,474 27,684
- ---------------------------------------------------------------------------------------------------------
Net Earnings $ 57,051 $ 50,620 $ 43,436
=========================================================================================================
Weighted Average Shares Outstanding 49,332,266 50,314,976 51,473,882
=========================================================================================================
Diluted Shares Outstanding 50,229,005 51,216,766 52,026,848
=========================================================================================================
Net Earnings Per Share - Basic $ 1.16 $ 1.01 $ .84
=========================================================================================================
Net Earnings Per Share - Assuming Dilution $ 1.14 $ .99 $ .84
=========================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
12
Donaldson Company
CONSOLIDATED BALANCE SHEETS
At July 31
(Thousands of dollars except share amounts) 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 16,069 $ 14,278
Accounts receivable, net 161,914 161,440
Inventories
Raw materials 38,346 36,178
Work in process 14,557 11,488
Finished products 49,114 38,253
- ----------------------------------------------------------------------------------------------------------------------
Total Inventories 102,017 85,919
Prepaids and other current assets 7,341 7,181
- ----------------------------------------------------------------------------------------------------------------------
Total Current Assets 287,341 268,818
Property, Plant and Equipment, at cost
Land 7,726 8,356
Buildings 102,371 98,289
Machinery and equipment 256,698 236,038
Construction in progress 24,586 11,471
- ----------------------------------------------------------------------------------------------------------------------
391,381 354,154
Less accumulated depreciation (212,514) (199,559)
178,867 154,595
Other Assets 33,113 30,981
- ----------------------------------------------------------------------------------------------------------------------
$ 499,321 $ 454,394
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 45,491 $ 42,027
Current maturities of long-term debt 405 647
Trade accounts payable 59,368 68,317
Accrued employee compensation and related taxes 26,837 28,760
Income taxes payable 6,565 2,738
Warranty and customer support 22,691 28,156
Other current liabilities 6,135 5,652
- ----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 167,492 176,297
Long-term Debt 50,349 4,201
Deferred Income Taxes 1,604 1,442
Other Long-term Liabilities 24,205 28,589
Shareholders' Equity
Preferred stock, $1.00 par value, 1,000,000 shares authorized, none issued -- --
Common stock, $5.00 par value, 80,000,000 shares authorized, 49,655,954 and 54,126,814
shares issued in 1998 and 1997 248,280 135,317
Additional paid-in capital 1,199 6,212
Retained earnings 39,965 167,444
Cumulative translation adjustment (5,135) 934
Treasury stock - 1,274,251 and 4,674,758 shares in 1998 and 1997, at cost (28,638) (63,312)
Receivable from ESOP -- (2,730)
- ----------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 255,671 243,865
$ 499,321 $ 454,394
======================================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
13
1998 Annual Report
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended July 31
(Thousands of dollars) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 57,051 $ 50,620 $ 43,436
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization 25,272 21,494 21,674
Write-down of impaired assets 1,000 5,029 2,009
Equity in earnings of affiliates (3,655) (3,025) (2,445)
Deferred income taxes 4,226 (950) (5,683)
Other (7,972) 6,125 6,177
Changes in operating assets and liabilities, net of acquired businesses
Accounts receivable (6,780) (24,949) (7,150)
Inventories (20,037) (14,498) (2,035)
Prepaids and other current assets (656) 3,574 (4,779)
Trade accounts payable and other accrued expenses (12,305) 11,146 25,720
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 36,144 54,566 76,924
INVESTING ACTIVITIES
Net expenditures on property and equipment (54,705) (47,327) (39,297)
Acquisitions and investments in affiliates (920) (23,606) (2,152)
Dividends from affiliate 1,711 3,749 616
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (53,914) (67,184) (40,833)
FINANCING ACTIVITIES
Net change in long-term debt 46,307 (5,280) (361)
Net change in short-term borrowings 4,568 28,976 (8,360)
Payment received from ESOP 2,730 -- 2,520
Purchase of treasury stock (33,250) (24,904) (23,143)
Dividends paid (9,630) (8,799) (7,725)
Exercise of stock options 2,619 1,788 129
- -------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 13,344 (8,219) (36,940)
Effect of exchange rate changes on cash 6,217 4,191 3,208
- -------------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 1,791 (16,646) 2,359
Cash and Cash Equivalents, Beginning of Year 14,278 30,924 28,565
- -------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 16,069 $ 14,278 $ 30,924
=========================================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
14
Donaldson Company
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Additional Cumulative
(Thousands of dollars, Common Paid-in Retained Translation Treasury Receivable
except per share amounts) Stock Capital Earnings Adjustments Stock from ESOP Total
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE JULY 31, 1995 $135,317 $ 2,639 $ 93,746 $ 14,824 $ (20,103) $ (5,250) $221,173
Treasury stock acquired (23,143) (23,143)
Stock options exercised (140) (689) 958 129
Payment received from ESOP 2,520 2,520
Performance awards 114 27 727 868
Tax reduction - employee plans 381 381
Net earnings 43,436 43,436
Translation adjustments (8,759) (8,759)
Cash dividends ($.15 per share) (7,725) (7,725)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE JULY 31, 1996 135,317 2,994 128,795 6,065 (41,561) (2,730) 228,880
Treasury stock acquired (24,904) (24,904)
Stock options exercised 174 (3,266) 2,198 (894)
Performance awards 1,426 94 955 -- 2,475
Tax reduction - employee plans 1,618 1,618
Net earnings 50,620 50,620
Translation adjustments (5,131) (5,131)
Cash dividends ($.17 per share) (8,799) (8,799)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE JULY 31, 1997 135,317 6,212 167,444 934 (63,312) (2,730) 243,865
Treasury stock acquired (33,250) (33,250)
Stock options exercised 143 (5,145) 3,135 (1,867)
Payment received from ESOP 2,730 2,730
Performance awards (1,546) 594 1,349 397
Tax reduction - employee plans 2,444 2,444
Net earnings 57,051 57,051
Translation adjustments (6,069) (6,069)
Two-for-one stock split 112,963 (6,054) (170,349) 63,440 --
Cash dividends ($.19 per share) (9,630) (9,630)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE JULY 31, 1998 $248,280 $ 1,199 $ 39,965 $ (5,135) $ (28,638) $ -- $255,671
==================================================================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
15
1998 Annual Report
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of Donaldson Company, Inc. and all majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated. The
accounts of overseas subsidiaries are included for fiscal years ended June 30.
Certain amounts in prior periods have been reclassified to conform to the
current presentation. The reclassifications had no impact on the net earnings as
previously reported.
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.
FOREIGN CURRENCY TRANSLATION For most foreign operations, local currencies are
considered the functional currency. Assets and liabilities are translated using
the exchange rates in effect at the balance sheet date. Results of operations
are translated using the average exchange rates prevailing throughout the
period. Translation gains or losses, net of applicable deferred taxes, are
accumulated in the foreign currency adjustment in shareholders' equity. Foreign
currency transaction losses of $1.4 million, $0.5 million and $1.1 million in
1998, 1997 and 1996, respectively, are included in earnings before income taxes.
CASH EQUIVALENTS The company considers all highly liquid temporary investments
with a maturity of three months or less when purchased to be cash equivalents.
Cash equivalents are carried at cost which approximates market value.
INVENTORIES Inventories are stated at the lower of cost or market. Domestic
inventories are valued using the last-in, first-out (LIFO) method, while the
overseas subsidiaries use the first-in, first-out (FIFO) method. Inventories
valued at LIFO were 60 percent and 57 percent of total inventories at July 31,
1998 and 1997, respectively.
The current cost of inventories valued under the LIFO method exceeded their
LIFO carrying values by $19.9 million and $19.5 million at July 31, 1998 and
1997, respectively.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost.
Depreciation is computed principally by use of declining balance methods on
facilities and equipment acquired on or prior to July 31, 1992. The company
adopted the straight-line depreciation method for all property acquired after
July 31, 1992. Accelerated depreciation methods are generally used for income
tax purposes.
The estimated useful lives of property, plant and equipment are as follows:
- --------------------------------------------------------------------------------
Buildings 10 to 40 years
Machinery and Equipment 3 to 10 years
================================================================================
INTANGIBLE ASSETS Intangible assets are recorded at their estimated fair values
at date of acquisition and are amortized on a straight-line basis over periods
ranging up to 15 years.
IMPAIRMENT OF LONG-LIVED ASSETS The company reviews the long-lived assets,
including identifiable intangibles and associated goodwill, for impairment when
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If impairment indicators are present and the estimated
future undiscounted cash flows are less than the carrying value of the assets
and any related goodwill, the carrying value is reduced to the estimated fair
value as measured by the discounted cash flows.
During 1998 and 1997, the company reassessed the carrying value of certain
amounts of purchased intangibles related to previous business acquisitions. As a
result, a total non-cash charge of $1.0 million and $5.0 million was recorded
and is included in selling, general and administrative expenses on the
consolidated statement of earning in 1998 and 1997, respectively.
16
Donaldson Company
INCOME TAXES Deferred tax assets and liabilities are recognized for the expected
future tax consequences attributed to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be reversed.
EARNINGS PER SHARE During the second quarter of fiscal 1998, the company adopted
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share."
All current and prior year earnings per share data have been restated to conform
to the provisions of SFAS 128.
The company's basic net earnings per share is computed by dividing net
earnings by the weighted average number of outstanding common shares. The
company's diluted net earnings per share is computed by dividing net earnings by
the weighted average number of outstanding common shares and common share
equivalents relating to stock options, when dilutive.
The following table presents information necessary to calculate basic and
diluted earnings per common share and common share equivalent:
(Thousands of dollars
except share and per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------------
Weighted average shares
outstanding - Basic $49,332 $50,315 $51,474
Dilutive share equivalents 897 902 553
- --------------------------------------------------------------------------------
Weighted average shares - Diluted 50,229 51,217 52,027
================================================================================
Net earnings for basic and diluted
earnings per share computation $57,051 $50,620 $43,436
================================================================================
Basic earnings per share $ 1.16 $ 1.01 $ .84
================================================================================
Diluted earnings per share $ 1.14 $ .99 $ .84
================================================================================
Earnings per share amounts, stock options, dividends, and shares outstanding
have been restated to reflect the company's 2-for-1 stock split effected in the
form of a stock dividend issued on January 13, 1998.
TREASURY STOCK Repurchased Common Stock is stated at cost and is presented as a
separate reduction of shareholders' equity.
RESEARCH AND DEVELOPMENT All expenditures for research and development are
charged against earnings in the year incurred.
STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Inter pretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the company's stock at the date of the grant over the amount an employee must
pay to acquire the stock. Compensation cost for performance equity units is
recorded based on the quoted market price of the company's stock at the end of
the period.
REVENUE RECOGNITION Revenue is recognized when product is shipped and invoiced
or performance of services is complete.
PRODUCT WARRANTIES The company provides for estimated warranty costs and accrues
for specific items at the time their existence is known and the amounts are
determinable.
NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards (SFAS) No.
130 "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," are effective for fiscal
years beginning after December 15, 1997 and SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" is effective for fiscal years
beginning after June 15, 1999. SFAS 130 requires a company to display an amount
representing comprehensive income, as defined by the statement, as part of the
company's basic financial statements. Comprehensive income will include items
such as unrealized gains or losses on certain investment
17
1998 Annual Report
securities and foreign currency items. The adoption of SFAS 130 results in
disclosure only for financial reporting purposes, therefore will not affect the
financial results of the company.
SFAS 131 requires a company to disclose financial and other information, as
defined by the statement, about its business segments, their products and
services, geographic areas, major customers, revenues, profits, assets and other
information. The company has not yet assessed what impact SFAS 131 will have on
its consolidated financial statement reporting.
SFAS 133 requires a company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of the hedged assets, liabilities, or firm
commitments are recognized through earnings or in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The company has not yet determined what the effect of SFAS 133 will be on
earnings and the financial position of the company.
NOTE B
ACQUISITIONS
All acquisitions were accounted for as purchases. The purchase prices assigned
to the net assets acquired were based on the fair value of such assets and
liabilities at the respective acquisition dates. The operating results of these
acquired companies have been included in the consolidated statement of earnings
from the dates of acquisition. Consolidated pro forma earnings and earnings per
share would not be materially different from the reported amounts for all years
presented.
During 1998, the company acquired an additional 10 percent of PT Panata Jaya
Mandiri in Jakarta, Indonesia for $0.7 million. This additional investment
brought the total ownership in this joint venture to 30 percent.
The company also invested approximately $1.6 million for a 50 percent
ownership in MSCA, LLC in Monticello, Indiana. Operating results were immaterial
in fiscal 1998.
During 1997, the company acquired the remaining 50.1 percent of its
Australian Torit Products distributor; acquired the exhaust products
manufacturing assets of the Kilber Division of N.E.I. in South Africa; and
acquired the common stock of Diemo, S.A. de D.V., a supplier of liquid filter
components in Mexico. Aggregate consideration for these transactions was $3.7
million.
In April 1997, the company acquired the assets of the Armada Tube Group,
including Armada Products Co., located in Armada, Michigan, and Lakeside Tube
Fabricators, Inc., located in Mooresville, North Carolina, for $11.3 million in
cash.
The Armada Tube Group manufactures exhaust products. The excess of purchase
price over the fair values of the net assets acquired was $5.3 million and has
been recorded as goodwill which is being amortized on a straight-line basis over
15 years. In 1998 the company reassessed the goodwill related to this
acquisition and recorded a non-cash charge of $1.0 million included in selling,
general and administrative expenses.
In July 1997, the company acquired the assets of Aercology Incorporated,
located in Old Saybrook, Connecticut, for $9.8 million in cash. Aercology
manufactures industrial air filtration products. The excess purchase price over
the fair value of the net assets acquired was $6.7 million and has been recorded
as goodwill which is being amortized on a straight-line basis over 15 years.
During 1996, the company acquired all of the common stock of Tecnov S.A., a
French manufacturer of heavy-duty exhaust mufflers and invested in a Torit
Products manufacturer in the People's Republic of China.
18
Donaldson Company
NOTE C
CREDIT FACILITIES
In December 1997, the company amended and renewed a five-year revolving facility
with a group of participating banks under which it may borrow up to $100
million. The agreement provides that loans may be made under a selection of rate
formulas including Base Rate Advance or Eurocurrency Rate Advance. The interest
rate on each advance is based on certain adjusted leverage and debt to
capitalization ratios. Facility fees and other fees on the entire loan
commitment are payable for the duration of this facility. Total amount
outstanding under this credit facility was $22.0 million and $25.0 million,
leaving $78.0 million and $75.0 million available for further borrowing under
such facility at July 31, 1998 and 1997, respectively. The weighted average
interest rate on short-term borrowings outstanding at July 31, 1998 and 1997 was
5.29 percent and 5.95 percent, respectively.
At July 31, 1998, there was an additional $25 million available for use
under uncommitted facilities which provide unsecured borrowings for general
corporate purposes. The total amount outstanding under this credit facility was
$1.0 million, leaving $24.0 million available for further borrowing under such
facility at July 31, 1998. The weighted average interest rate on this facility
was 5.29 percent. There were no amounts outstanding under these facilities at
July 31, 1997.
Overseas subsidiaries may borrow under various uncommitted facilities. As of
July 31, 1998 and 1997, borrowings under these facilities were $22.5 million and
$17.0 million, respectively. The weighted average interest rate on short-term
borrowings outstanding at July 31, 1998 and 1997 was 5.47 percent and 7.4
percent, respectively.
NOTE D
LONG-TERM DEBT
Long-term debt consists of the following:
(Thousands of dollars) 1998 1997
- --------------------------------------------------------------------------------
U.S.
6.20% Unsecured senior notes due July 15, 2005;
interest payable semi-annually (net of
unamortized issue cost of $0.6 million) $22,446 $ --
6.31% Unsecured senior notes due July 15, 2008;
interest payable semi-annually (net of
unamortized issue cost of $0.6 million) 26,350 --
Other 493 2,950
OVERSEAS SUBSIDIARIES 1,465 1,898
- --------------------------------------------------------------------------------
Total 50,754 4,848
Less Current Maturities 405 647
- --------------------------------------------------------------------------------
Total Long-Term Debt $50,349 $ 4,201
================================================================================
Annual maturities of long-term debt for the next five years are $0.4 million
in 1999, $0.3 million in 2000, $94,000 in 2001, $28,800 in 2002, $28,800 in 2003
and $49.8 million thereafter. The carrying value of long-term debt approximates
its fair market value.
Total interest paid relating to all debt was $4.6 million, $2.4 million and
$2.8 million in 1998, 1997 and 1996, respectively. In addition, total interest
expense recorded in 1998, 1997 and 1996 was $4.7 million, $2.4 million and $2.9
million, respectively. Certain note agreements contain debt covenants related to
working capital levels and limitations on indebtedness. Further, the company is
restricted from paying dividends or repurchasing Common Stock if its tangible
net worth (as defined) does not exceed certain minimum levels. At July 31, 1998,
under the most restrictive agreement, tangible net worth exceeded the minimum by
$85.0 million.
Subsequent to year-end, the company issued an additional $25.0 million in
6.39 percent senior notes due August 15, 2010. These senior notes require
principal payments of $5.0 million per year starting in year eight of the term.
19
1998 Annual Report
NOTE E
EMPLOYEE BENEFIT PLANS
PENSION PLANS Donaldson Company, Inc. and certain of its subsidiaries have
defined benefit pension plans for substantially all hourly and salaried
employees. The domestic plan provides defined benefits pursuant to a cash
balance feature whereby a participant accumulates a benefit comprised of a
percentage of current salary which varies with years of service, interest
credits and transition credits. The overseas plans generally provide pension
benefits based on years of service and compensation level. The company's general
funding policy is to make contributions as required by applicable regulations.
The assets are primarily invested in diversified equity and debt portfolios.
Cost for the company's pension plans includes the following components:
(Thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Service cost $ 6,570 $ 6,184 $ 5,224
Interest cost on projected benefit obligation 8,465 8,189 7,029
Actual return on plan assets (8,955) (26,078) (4,391)
Net amortization and deferral (739) 18,324 (3,221)
- --------------------------------------------------------------------------------
Net Periodic Pension Expense $ 5,341 $ 6,619 $ 4,641
================================================================================
The funded status of the company's pension plans as of July 31, 1998 and
1997, is as follows:
(Thousands of dollars) 1998 1997
- --------------------------------------------------------------------------------
Plan assets at fair value $123,956 $112,161
Accumulated benefit obligation:
Vested (98,712) (85,393)
Nonvested (4,921) (4,015)
Provision for future salary increases (17,580) (28,266)
- --------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 2,743 (5,513)
Unrecognized net loss 1,344 2,547
Unrecognized prior service cost 863 4,987
Unrecognized net transition asset (5,963) (7,059)
Additional minimum liability (2,442) (628)
- --------------------------------------------------------------------------------
Accrued Pension Liability $ (3,455) $ (5,666)
================================================================================
The principal actuarial assumptions:
1998 1997 1996
- --------------------------------------------------------------------------------
Discount rate 7.25% 7.5% 8.0%
Rate of future compensation increases 6.0% 6.0% 5.5%
Expected long-term rate of return 9.0% 9.0% 9.0%
- --------------------------------------------------------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN In 1987, the company established an Employee Stock
Ownership Plan (ESOP) for eligible U.S. employees. The ESOP borrowed $21.0
million from the company to purchase 3,600,000 newly issued shares of Common
Stock. These shares were held in trust and were issued to employees' accounts in
the ESOP as the loan was repaid over 10 years. At July 31, 1998 and 1997, the
total 3,600,000 shares have been allocated to employees. The loan obligation of
the ESOP was considered unearned employee benefit expense and, as such, was
recorded as a reduction of the company's shareholders' equity. The company's
contributions to the ESOP, plus dividends paid on unallocated shares held by the
ESOP, were used to repay the loan principal and interest. Both the loan
obligation and the unearned benefit expense were reduced by the amount of loan
principal repayments made by the ESOP. The ESOP contribution expense totaled
$2.6 million and $2.5 million in 1997 and 1996, respectively. The ESOP's 10-year
term was completed at July 31, 1997.
401(k) SAVINGS PLAN The company provides a contributory employee savings plan
which permits participants to make contributions by salary reduction pursuant to
section 401(k) of the Internal Revenue Code. Company's contributions under this
plan are based primarily on the performance of the business units and employee
compensation. Total contribution expense was $2.9 million for the year ended
July 31, 1998.
20
Donaldson Company
NOTE F
SHAREHOLDERS' EQUITY
STOCK RIGHTS On January 12, 1996, the Board of Directors of the company approved
the extension of the benefits afforded by the company's existing rights plan by
adopting a new shareholder rights plan. Pursuant to the new Rights Agreement,
dated as of January 12, 1996, by and between the company and Norwest Bank
Minnesota, National Association, as Rights Agent, one Right was issued on March
4, 1996 for each outstanding share of Common Stock, par value $5.00 per share,
of the company upon the expiration of the company's existing Rights. Each of the
new Rights will entitle the registered holder to purchase from the company one
one-thousandth of a share of Series A Junior Participating Preferred Stock,
without par value, at a price of $130.00 per one one-thousandth of a share. The
Rights, however, will not become exercisable unless and until, among other
things, any person acquires 15 percent or more of the outstanding Common Stock
of the company. If a person acquires 15 percent or more of the outstanding
Common Stock of the company (subject to certain conditions and exceptions more
fully described in the Rights Agreement), each Right will entitle the holder
(other than the person who acquired 15 percent or more of the outstanding Common
Stock) to purchase Common Stock of the company having a market value equal to
twice the exercise price of a Right. The new Rights are redeemable under certain
circumstances at $.01 per Right and will expire, unless earlier redeemed, on
March 3, 2006.
EMPLOYEE INCENTIVE PLANS In November 1991, shareholders approved the 1991 Master
Stock Compensation Plan. The Plan extends through December 2001 and allows for
the granting of nonqualified stock options, incentive stock options, restricted
stock, stock appreciation rights (SARs), dividend equivalents,
dollar-denominated awards and other stock-based awards.
The 1980 Master Stock Compensation Plan allows for the granting of
nonqualified stock options and incentive stock options. Both plans allow for the
granting of performance awards to a limited number of key executives. The awards
are payable in Common Stock and are based on a formula which measures
performance of the company over a three-year period. Performance award expense
totaled $0.7 million, $3.5 million and $2.1 million in 1998, 1997 and 1996,
respectively. Options under both Plans are granted to key employees at or above
100 percent of the market price at the date of grant. Options are exercisable
for up to 10 years from the date of grant.
STOCK OPTIONS Stock options issued during fiscal 1997 and 1998 become
exercisable in each of the following three years, in an equal number of shares
each year, for both executives and non-executives. Stock options issued prior to
fiscal 1997 for non-executives and during fiscal 1996 for executives become
exercisable over a four-year period in an equal number of shares each year.
Prior to fiscal 1996 stock options vested immediately for executives. At July
31, 1998, options to purchase 3,348,176 shares are outstanding under these
plans.
In fiscal 1997, the company adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for
Stock-Based Compensation." SFAS 123 encourages entities to adopt a fair
value-based method of accounting for employee stock compensation plans, but
allows companies to continue to account for those plans using the accounting
prescribed by APB Opinion 25, "Accounting for Stock Issued to Employees." The
company has elected to continue to account for stock based compensation using
APB 25, making pro forma disclosures of net earnings and earnings per share as
if the fair value-based method had been applied. Accordingly, no compensation
expense has been recorded for the stock option plans. Had compensation expense
for the stock option plans been determined under SFAS 123 in fiscal 1998, 1997
and 1996, the company's net income and earnings per share would have been
approximately $55.7 million and $1.11; $49.4 million and $.97, and $42.8 million
and $.83, respectively. The pro forma effect on net income and earnings per
share is not representative of the pro forma net earnings in future years
because it does not take into consideration pro forma compensation expense
related to grants made prior to 1996.
21
1998 Annual Report
For purposes of computing compensation cost of stock options granted, the
fair value of each stock option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions: 5.63 percent risk free interest rate in 1998 and 6.13 percent risk
free interest rate in 1997 and 1996, three, six, seven or nine year lives in
1998 and five or seven year lives in 1997 and 1996, 22.5 percent expected
volatility in 1998 and 19.4 percent expected volatility in 1997 and 1996, and 1
percent expected dividend yield in 1998, 1997 and 1996. Black-Scholes is a
widely accepted stock option pricing model; however, the ultimate value of stock
options granted will be determined by the actual lives of options granted and
future price levels of the company's common stock.
The weighted average fair value for options granted during fiscal 1998, 1997
and 1996 is $6.35, $7.76 and $6.19 per share, respectively.
The number and option price of options granted under these plans were as
follows:
Options Weighted Average
Outstanding Exercise Price
- --------------------------------------------------------------------------------
Outstanding at July 31, 1995 3,084,982 $ 9.27
Granted 402,582 12.58
Exercised (191,798) 9.12
Canceled (34,000) 7.68
- --------------------------------------------------------------------------------
Outstanding at July 31, 1996 3,261,766 9.70
Granted 627,778 15.94
Exercised (567,736) 9.14
Canceled (4,500) 12.38
- --------------------------------------------------------------------------------
Outstanding at July 31, 1997 3,317,308 10.98
Granted 472,595 22.83
Exercised (419,728) 8.40
Canceled (21,999) 14.98
- --------------------------------------------------------------------------------
OUTSTANDING AT JULY 31, 1998 3,348,176 $12.95
================================================================================
At July 31, 1998 and 1997 there were 2,536,342 and 2,648,258 options
exercisable, respectively. Shares reserved at July 31, 1998 for outstanding
options and future grants were 7,930,077.
The following table summarizes information concerning currently outstanding
and exercisable options:
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
- --------------------------------------------------------------------------------
$0 to $5 52,200 .94 $ 3.33 52,200 $ 3.33
$5 to $10 1,184,312 2.50 8.76 1,184,312 8.76
$10 to $15 1,170,224 5.93 12.28 1,023,524 12.27
$15 and above 941,440 8.64 19.58 276,306 18.38
- --------------------------------------------------------------------------------
3,348,176 5.40 $12.95 2,536,342 $11.11
================================================================================
NOTE G
INCOME TAXES
The components of earnings before income taxes are as follows:
(Thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Earnings before income taxes:
United States $60,673 $50,259 $47,589
Overseas 25,768 28,835 23,531
- --------------------------------------------------------------------------------
Total $86,441 $79,094 $71,120
================================================================================
The components of the provision for income taxes are as follows:
(Thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Income Taxes:
Current:
Federal $15,931 $18,527 $21,796
State 1,837 2,092 2,047
Overseas 7,396 8,805 9,524
- --------------------------------------------------------------------------------
25,164 29,424 33,367
================================================================================
Deferred:
Federal 3,410 (525) (5,424)
State 195 (30) (470)
Overseas 621 (395) 211
- --------------------------------------------------------------------------------
4,226 (950) (5,683)
- --------------------------------------------------------------------------------
Total $29,390 $28,474 $27,684
================================================================================
22
Donaldson Company
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
(Thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Deferred Tax Assets:
Compensation and retirement plans $ 5,705 $ 6,979 $10,587
Accrued expenses 8,365 9,758 7,155
Brazilian asset write-down 720 498 571
NOL carryforwards 2,070 2,115 1,553
Inventories 1,095 1,074 1,861
Investment in joint venture 1,195 1,306 957
Cumulative translation adjustment 2,646 -- --
Other 3,630 3,650 4,689
- --------------------------------------------------------------------------------
Gross Deferred Tax Assets 25,426 25,380 27,373
Valuation Allowance (1,172) (1,316) (1,615)
- --------------------------------------------------------------------------------
Net Deferred Tax Assets 24,254 24,064 25,758
Deferred Tax Liabilities:
Depreciation and amortization (8,573) (6,756) (5,397)
Cumulative translation adjustment -- (502) (3,264)
Other (2,224) (1,987) (1,445)
- --------------------------------------------------------------------------------
Gross Deferred Tax Liabilities (10,797) (9,245) (10,106)
- --------------------------------------------------------------------------------
Net Deferred Taxes $13,457 $14,819 $15,652
================================================================================
The following table reconciles the U.S. statutory income tax rate with the
effective income tax rate:
1998 1997 1996
- --------------------------------------------------------------------------------
Statutory U.S. federal rate 35.0% 35.0% 35.0%
State income taxes 1.4 1.7 1.5
Overseas taxes at (lower) higher rates (1.3) (2.1) 2.1
Other (1.1) 1.4 0.3
- --------------------------------------------------------------------------------
34.0% 36.0% 38.9%
================================================================================
At July 31, 1998, certain overseas subsidiaries had available net operating
loss carryforwards of approximately $5.8 million to offset future taxable
income. The majority of such carryforwards expire after 2001. Unremitted
earnings of overseas subsidiaries amounted to approximately $79.8 million at
July 31, 1998. The majority of those earnings are intended to be indefinitely
reinvested and, accordingly, no income taxes have been provided. If a portion
were to be remitted, foreign tax credits would substantially offset any
resulting tax liability. It is not practicable to estimate the amount of
unrecognized taxes on these undistributed earnings due to the complexity of the
computation.
The company made cash payments for income taxes of $22.5 million, $30.7
million and $20.5 million in 1998, 1997 and 1996, respectively.
NOTE H
SEGMENT INFORMATION
The company operates on a worldwide basis in a single business segment which
consists of the design, manufacture and sale of filtration products. The
company's key markets for filters are heavy-duty truck and equipment, light-duty
truck, in-plant air cleaning systems, industrial gas turbines and computer disk
drives.
23
1998 Annual Report
The table below sets forth information about operations in different
geographic areas:
(Thousands of dollars) United States Europe Japan China/Hong Kong Other Countries Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
1998
Sales to customers $ 615,770 $ 160,211 $ 69,695 $ 55,506 $ 39,169 $ -- $ 940,351
Sales between geographic areas 81,256 1,995 1,484 2,179 1,812 (88,726) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Sales $ 697,026 $ 162,206 $ 71,179 $ 57,685 $ 40,981 $ (88,726) $ 940,351
====================================================================================================================================
Operating Income $ 43,664 $ 18,974 $ 7,183 $ 15,369 $ 3,066 $ (1,457) $ 86,799
====================================================================================================================================
Identifiable Assets:
Accounts receivable, net $ 82,711 $ 39,206 $ 16,446 $ 16,856 $ 6,695 $ -- $ 161,914
Other 256,483 118,953 21,183 33,951 25,532 (137,609) 318,493
- ------------------------------------------------------------------------------------------------------------------------------------
Total identifiable assets $ 339,194 $ 158,159 $ 37,629 $ 50,807 $ 32,227 $(137,609) $ 480,407
General corporate assets 18,914
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 499,321
====================================================================================================================================
1997
Sales to customers $ 522,289 $ 141,358 $ 78,704 $ 54,437 $ 36,560 $ -- $ 833,348
Sales between geographic areas 46,414 1,930 2,006 1,831 621 (52,802) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Sales $ 568,703 $ 143,288 $ 80,710 $ 56,268 $ 37,181 $ (52,802) $ 833,348
====================================================================================================================================
Operating Income $ 37,397 $ 17,739 $ 9,331 $ 13,910 $ 4,525 $ (187) $ 82,715
====================================================================================================================================
Identifiable Assets:
Accounts receivable, net $ 77,201 $ 38,766 $ 22,635 $ 15,776 $ 7,062 $ -- $ 161,440
Other 157,235 104,445 23,788 23,154 26,661 (56,096) 279,187
- ------------------------------------------------------------------------------------------------------------------------------------
Total identifiable assets $ 234,436 $ 143,211 $ 46,423 $ 38,930 $ 33,723 $ (56,096) $ 440,627
General corporate assets 13,767
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 454,394
====================================================================================================================================
1996
Sales to customers $ 474,831 $ 129,765 $ 80,734 $ 36,466 $ 36,850 $ -- $ 758,646
Sales between geographic areas 36,566 1,137 1,910 1,766 418 (41,797) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net Sales $ 511,397 $ 130,902 $ 82,644 $ 38,232 $ 37,268 $ (41,797) $ 758,646
====================================================================================================================================
Operating Income $ 35,535 $ 17,713 $ 10,955 $ 9,775 $ 1,864 $ (200) $ 75,642
====================================================================================================================================
Identifiable Assets:
Accounts receivable, net $ 58,591 $ 37,403 $ 24,515 $ 8,919 $ 7,679 $ 38 $ 137,145
Other 143,975 59,616 24,169 17,167 8,708 (29,216) 224,419
- ------------------------------------------------------------------------------------------------------------------------------------
Total identifiable assets $ 202,566 $ 97,019 $ 48,684 $ 26,086 $ 16,387 $ (29,178) $ 361,564
General corporate assets 41,286
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 402,850
====================================================================================================================================
24
Donaldson Company
Sales between geographic areas are made at cost plus a proportionate share
of operating profit. Net income of foreign operations includes royalty income
and reflects the gain or loss in foreign currency exchange. General corporate
assets include corporate cash and cash equivalents and buildings and equipment
used for corporate purposes. Sales to one customer accounted for 11 percent, 11
percent and 12 percent of net sales in 1998, 1997 and 1996, respectively.
NOTE I
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(Thousand of dollars, First Second Third Fourth
except per share amounts) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
1998
Net Sales $234,067 $232,974 $233,840 $239,470
Gross Margin 68,390 64,940 62,744 67,188
Net Earnings 14,018 12,509 15,924 14,600
Diluted Earnings Per Share .27 .25 .32 .30
Dividends Declared Per Share .05 .05 .05 .05
- --------------------------------------------------------------------------------
1997
Net Sales $187,176 $196,849 $213,876 $235,447
Gross Margin 56,132 58,195 66,204 69,742
Net Earnings 11,590 10,976 14,200 13,854
Diluted Earnings Per Share .22 .22 .28 .27
Dividends Declared Per Share .04 .04 .05 .05
- --------------------------------------------------------------------------------
The above diluted earnings per share and dividends declared per share
amounts have been restated for the 2-for-1 stock split issued in January 1998
and the adoption of SFAS 128 in the second quarter of fiscal 1998.
NOTE J
CONTINGENCIES
The company is involved on an on-going basis in litigation arising in the
ordinary course of business. In the opinion of management, the outcome of
litigation currently pending will not materially affect the company's results of
operations, financial condition or liquidity.
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Donaldson Company, Inc.
We have audited the accompanying consolidated balance sheets of Donaldson
Company, Inc. and subsidiaries as of July 31, 1998 and 1997, and the related
consolidated statements of earnings, changes in shareholders' equity and cash
flows for each of the three years in the period ended July 31, 1998. These
financial statements are the responsibility of the Company'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 consolidated financial position of Donaldson
Company, Inc. and subsidiaries at July 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended July 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
September 11, 1998
25
1998 Annual Report
ELEVEN-YEAR COMPARISON OF RESULTS
(Thousands of dollars, except per share
amounts) 1998 1997 1996
- --------------------------------------------------------------------------------
OPERATING RESULTS
Net sales $940,351 $833,348 $758,646
Gross margin $263,262 250,273 222,874
Gross margin percentage 28.0% 30.0% 29.4%
Operating income $ 86,799 82,715 75,642
Operating income percentage 9.2% 9.9% 10.0%
Interest expense $ 4,671 2,358 2,905
Earnings before income taxes $ 86,441 79,094 71,120
Income taxes $ 29,390 28,474 27,684
Effective income tax rate 34.0% 36.0% 38.9%
Net earnings $ 57,051 50,620 43,436
Return on sales 6.1% 6.1% 5.7%
Return on average shareholders' equity 22.8% 21.4% 19.3%
Return on investment 20.6% 20.8% 18.5%
FINANCIAL POSITION
Total assets $499,321 454,394 402,850
Current assets $287,341 268,818 250,751
Current liabilities $167,492 176,297 138,578
Working capital $119,849 92,521 112,173
Current ratio 1.7 1.5 1.8
Current debt $ 45,896 42,674 13,145
Long-term debt $ 50,349 4,201 10,041
Total debt $ 96,245 46,875 23,186
Shareholders' equity $255,671 243,865 228,880
Long-term capitalization ratio 16.5% 1.7% 4.2%
Property, plant and equipment, net $178,867 154,595 124,913
Net expenditures on
property, plant and equipment $ 54,705 47,327 39,297
Depreciation and amortization $ 25,272 21,494 21,674
SHAREHOLDER INFORMATION
Net earnings per share - Assuming Dilution $ 1.14 .99 .84
Dividends paid per share $ .19 .17 .15
Shareholders' equity per share $ 5.28 4.93 4.52
Shares outstanding (000s) 48,382 49,452 50,650
Common stock price range, per share
High $27 3/16 20 3/8 14
Low $18 9/16 12 5/8 11 15/16
- --------------------------------------------------------------------------------
AMOUNTS ARE ADJUSTED FOR ALL STOCK SPLITS AND REFLECT ADOPTION OF SFAS 128.
OPERATING INCOME IS GROSS MARGIN LESS SELLING, GENERAL AND ADMINISTRATIVE,
AND RESEARCH AND DEVELOPMENT EXPENSE.
RETURN ON INVESTMENT IS NET EARNINGS DIVIDED BY AVERAGE LONG-TERM DEBT PLUS
AVERAGE SHAREHOLDERS' EQUITY.
LONG-TERM CAPITALIZATION RATIO IS LONG-TERM DEBT DIVIDED BY LONG-TERM DEBT
PLUS SHAREHOLDERS' EQUITY.
(1)EXCLUDES THE CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE OF $2,206, OR $.08 PER
SHARE, IN 1994 AND EXTRAORDINARY CREDITS OF $1,384, OR $.05 PER SHARE, IN
1988.
26
Donaldson Company
[REPORT CONTINUED FROM PREVIOUS PAGE]
1995 1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------
$703,959 $593,503 $533,327 $482,104 $457,692 $422,885 $397,535 $362,862
197,979 166,599 152,236 133,574 129,858 121,454 105,275 104,828
28.1% 28.1% 28.5% 27.7% 28.4% 28.7% 26.5% 28.9%
65,531 52,079 45,246 41,249 41,304 44,354 37,851 36,047
9.3% 8.8% 8.5% 8.6% 9.0% 10.5% 9.5% 9.9%
3,089 3,362 2,723 2,681 3,526 3,731 3,555 3,229
63,172 50,193 44,682 41,721 39,385 34,875 27,664 29,868
24,636 18,244 16,468 15,952 15,337 13,849 12,230 13,630
39.0% 36.3% 36.9% 38.2% 38.9% 39.7% 44.2% 45.6%
38,536 31,949(1) 28,214 25,769 24,048 21,026 15,434 16,238(1)
5.5% 5.4% 5.3% 5.3% 5.3% 5.0% 3.9% 4.5%
18.8% 17.6% 16.9% 17.2% 18.0% 17.8% 15.1% 15.6%
17.6% 16.0% 15.0% 14.8% 14.9% 14.2% 11.5% 11.7%
381,042 337,360 300,217 286,348 253,194 245,947 204,813 193,548
247,904 220,308 196,014 187,360 169,398 168,522 130,848 122,602
123,747 115,757 93,666 89,956 77,537 79,917 58,009 52,126
124,157 104,551 102,348 97,404 91,861 88,605 72,839 70,476
2.0 1.9 2.1 2.1 2.2 2.1 2.3 2.4
20,800 16,956 7,595 11,425 6,380 11,384 8,602 3,875
10,167 16,028 18,920 23,482 25,673 28,320 30,750 33,784
30,967 32,984 26,515 34,907 32,053 39,704 39,352 37,659
221,173 189,697 174,008 160,303 138,947 128,787 107,516 97,254
4.4% 7.8% 9.8% 12.8% 15.6% 18.0% 22.2% 25.8%
110,640 99,559 90,515 84,899 72,863 68,290 61,914 62,160
25,334 24,642 15,005 15,538 16,208 16,055 11,567 9,954
20,529 16,365 14,752 14,047 12,187 10,857 10,583 10,351
.73 .59(1) .51 .46 .42 .37 .27 .28(1)
.14 .12 .10 .09 .07 .06 .06 .05
4.23 3.58 3.19 2.91 2.51 2.23 1.88 1.70
52,370 53,020 54,564 55,138 55,478 57,728 57,386 57,194
14 131/16 101/16 715/16 69/16 513/16 215/16 413/16
10 15/16 9 1/8 7 5 3/16 4 1/16 2 13/16 2 3/4 11 3/16
- -----------------------------------------------------------------------------------------------
27
1998 Annual Report
CORPORATE AND SHAREHOLDER INFORMATION
NYSE LISTING
The common shares of Donaldson Company, Inc. are traded on the New York Stock
Exchange, under the symbol DCI.
SHAREHOLDER INFORMATION
For any concerns relating to your current or prospective shareholdings, please
contact Shareholder Services at (800)468-9716 or (612)450-4064.
DIVIDEND REINVESTMENT PLAN
As of September 21, 1998, 1,000 of Donaldson Company's approximately 1,700
shareholders of record were participating in the Dividend Reinvestment Plan.
Under the plan, shareholders can invest Donaldson Company dividends in
additional shares of company stock. They may also make periodic voluntary cash
investments for the purchase of company stock.
Both alternatives are provided without service charges or brokerage
commissions. Shareholders may obtain a brochure giving further details by
writing Shareholder Services, Donaldson Company, Inc., M.S. 101, P.O. Box 1299,
Minneapolis, Minnesota 55440.
ANNUAL MEETING
The annual meeting of shareholders will be held at 10 a.m. on Friday, November
20, 1998, at The Conference Center at Atrium Center, 3105 E. 80th Street,
Bloomington, Minnesota. You are welcome to attend.
10-K REPORTS
Copies of the Report 10-K, filed with the Securities and Exchange Commission,
are available on request from Shareholder Services, Donaldson Company, Inc.,
M.S. 101, P.O. Box 1299, Minneapolis, Minnesota 55440. In addition, these and
similar reports can be accessed through our web site at www.donaldson.com.
AUDITORS
Ernst & Young LLP,
Minneapolis, Minnesota
PUBLIC RELATIONS COUNSEL
Padilla Speer Beardsley Inc.,
Minneapolis, Minnesota
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A.,
South St. Paul, Minnesota
SIX-YEAR QUARTERLY HIGH-LOW STOCK PRICES
[PLOT POINTS CHART OMITTED]
28
Donaldson Company
BOARD OF DIRECTORS AND CORPORATE OFFICERS
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS CORPORATE OFFICERS
F. GUILLAUME BASTIAENS, 55, KENDRICK B. MELROSE, 58, WILLIAM G. VAN DYKE, 53,
Vice Chairman, Chairman and Chief Executive Officer, Chairman, President and
Cargill Inc., Minneapolis (Agribusiness). The Toro Company, Minneapolis (Manufacturing). Chief Executive Officer.
Director since 1995.(2),(3) Director since 1991.(1),(2) 26 years service.
PAUL B. BURKE, 42, S. WALTER RICHEY, 62, WILLIAM M. COOK, 45,
Chairman, President and Retired Chairman, President and Senior Vice President,
Chief Executive Officer, Chief Executive Officer, Commercial and Industrial.
BMC Industries, Inc., Minneapolis Meritex, Inc., Minneapolis, 18 years service.
(Manufacturing). (Distribution Services).
Director since 1996.(1),(3) Director since 1991.(2),(3) JAMES R. GIERTZ, 41,
Senior Vice President and
JANET M. DOLAN, 49, STEPHEN W. SANGER, 52, Chief Financial Officer.
President and Chief Operating Officer, Chairman and Chief Executive Officer, 5 years service.
Tennant Company, Minneapolis General Mills, Inc., Minneapolis
(Manufacturing). (Consumer Products). NICKOLAS PRIADKA, 52,
Director since 1996.(2),(3) Director since 1992.(1),(2) Senior Vice President, OE Engine.
29 years service.
JACK W. EUGSTER, 53, WILLIAM G. VAN DYKE, 53,
Chairman, President and Chairman, President and LOWELL F. SCHWAB, 50,
Chief Executive Officer, Chief Executive Officer, Senior Vice President, Operations.
The Musicland Group, Inc., Donaldson Company, Inc. 19 years service.
Minneapolis (Consumer Products). Director since 1994.
Director since 1993.(1),(3) EDMUND C. CRAFT, 58,
(1) HUMAN RESOURCES COMMITTEE VICE PRESIDENT, ENGINE AFTERMARKET.
JOHN F. GRUNDHOFER, 59, (2) AUDIT COMMITTEE 19 YEARS SERVICE.
President And Chief Executive Officer, (3) DIRECTORS AFFAIRS COMMITTEE
U.S. Bancorp, Minneapolis NORMAN C. LINNELL, 39,
(Financial Services). General Counsel and Secretary.
Director since 1997.(1),(3) 3 years service.
JOHN E. THAMES, 48,
Vice President, Human Resources.
10 years service.
THOMAS A. WINDFELDT, 49,
Vice President, Controller and Treasurer.
18 years service.
1998 ANNUAL REPORT
WORLDWIDE OPERATIONS
WORLD HEADQUARTERS JOINT VENTURES Tecnov-Donaldson, S.A.,
DOMJEAN, FRANCE
Donaldson Company, Inc. Advanced Filtration Systems Inc.,
CHAMPAIGN, ILLINOIS Donaldson Filtros Iberica S.L.,
Minneapolis, Minnesota MADRID, SPAIN
MSCA, LLC,
MONTICELLO, INDIANA Donaldson Italia s.r.l.,
U.S. PLANTS OSTIGLIA, ITALY
Guilin Air King Enterprises Ltd.,
OLD SAYBROOK, CONNECTICUT GUILIN, PEOPLE'S REPUBLIC OF CHINA Nippon Donaldson, Ltd.,
DIXON, ILLINOIS TOKYO, JAPAN
FRANKFORT, INDIANA PT Panata Jaya Mandiri,
CRESCO, IOWA JAKARTA, INDONESIA Donaldson Korea Co., Ltd.,
GRINNELL, IOWA SEOUL, SOUTH KOREA
OELWEIN, IOWA
NICHOLASVILLE, KENTUCKY SUBSIDIARIES Donaldson Far East Ltd.,
PORT HURON, MICHIGAN HONG KONG, S.A.R.,
CHILLICOTHE, MISSOURI ENV Services, Inc., PEOPLE'S REPUBLIC OF CHINA
MOORESVILLE, NORTH CAROLINA MINNEAPOLIS, MINNESOTA
PHILADELPHIA, PENNSYLVANIA Donaldson (Wuxi) Filters Co., Ltd.,
BALDWIN, WISCONSIN Donaldson Europe, N.V., WUXI, PEOPLE'S REPUBLIC OF CHINA
STEVENS POINT, WISCONSIN LEUVEN, BELGIUM
D.I. Filter Systems Pvt. Ltd.,
Donaldson Coordination Center, N.V., NEW DELHI, INDIA
DISTRIBUTION CENTERS LEUVEN, BELGIUM
Donaldson Australasia (Pty.) Ltd.,
RENSSELAER, INDIANA Donaldson Gesellschaft m.b.H., WYONG, AUSTRALIA
ONTARIO, CALIFORNIA DULMEN, GERMANY
ANTWERP, BELGIUM Donaldson Filtration Systems (Pty.) Ltd.,
Donaldson Filter Components, Ltd., CAPE TOWN, SOUTH AFRICA
HULL, ENGLAND
Donaldson, S.A. de C.V.,
Donaldson Torit, B.V., AGUASCALIENTES, MEXICO
HAARLEM, NETHERLANDS
Diemo S.A. de C.V.,
Donaldson France, S.A., GUADALAJARA, MEXICO
BRON, FRANCE
LICENSEE
Parker Hannifin Ind. Com. Ltda.,
SAO PAULO, BRAZIL
[LOGO] DONALDSON(R) Donaldson Company, Inc. MAILING ADDRESS:
1400 West 94th Street P.O. Box 1299
Minneapolis, Minnesota Minneapolis, Minnesota
U.S.A. 55440 U.S.A
612-887-3131
www.donaldson.com