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DONALDSON(R)
ANNUAL REPORT ON FORM 10-K
DONALDSON COMPANY, INC.
JULY 31, 2002
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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, 2002 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
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(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 (952) 887-3131
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH 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. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of September 20, 2002 was $1,530,617,091.
The shares of common stock outstanding as of September 20, 2002 were
43,897,537.
Documents Incorporated by Reference
-----------------------------------
Portions of the 2002 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 2002 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 leading worldwide manufacturer of filtration systems and
replacement parts. The Company's product mix includes air and liquid filters and
exhaust and emission control products for mobile equipment; in-plant air
cleaning systems; compressed air purification systems; air intake systems for
industrial gas turbines; and specialized filters for such diverse applications
as computer disk drives, aircraft passenger cabins and semiconductor processing.
Products are manufactured at more than three dozen plants around the world and
through four joint ventures. The Company has two reporting segments engaged in
the design, manufacture and sale of systems to filter air and liquid and other
complementary products. The two segments are Engine Products and Industrial
Products. Products in the Engine Products segment consist of air intake systems,
exhaust systems, liquid filtration systems and replacement parts. The Engine
Products segment sells to original equipment manufacturers (OEMs) in the
construction, industrial, mining, agriculture and transportation markets and to
independent distributors, OEM dealer networks, private label accounts and large
private fleets. Products in the Industrial Products segment consist of dust,
fume and mist collectors, compressed air purification systems, static and
pulse-clean air filter systems for industrial gas turbines, computer disk drive
filter products and other specialized air filtration systems. The Industrial
Products segment sells to various industrial end-users, OEMs of gas-fired
turbines, OEMs and end users requiring highly purified air.
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
-----------------------
2002 2001 2000
------ ------ -----
Engine Products Segment
Off-Road Equipment Products
(including Defense Products) 16% 16% 18%
Truck Products 8% 7% 14%
Aftermarket Products 30% 31% 30%
Industrial Products Segment
Industrial Air Filtration Products 16% 19% 17%
Gas Turbine Systems Products 20% 17% 11%
Special Applications Products 10% 10% 10%
The segment detail information in Note H in the Notes to Consolidated
Financial Statements on page 36 of the 2002 Annual Report to Shareholders is
incorporated herein by reference.
COMPETITION
The Company's business is not considered to be seasonal. Principal methods
of competition in both the Engine Products and Industrial Products segments are
price, geographic coverage, service and product performance. The Company
competes in a number of filtration markets in both the Engine Products and
Industrial segments and both segments operate in a highly competitive
environment. The Company estimates that it is a market leader in its primary
product lines within the Industrial Products segment. Its principal competitors
vary from country to country and include several large regional or global
competitors and a significant number of small competitors who compete in a
limited geographical region or in a limited number of product applications. The
Company estimates that within the Engine
2
Products segment it is a market leader in its off-road equipment and truck
product lines and is a significant participant in the aftermarket for
replacement filters and hard parts in its engine-related businesses. The Engine
Products segment principal competitors vary from country to country and include
several large regional or global competitors, and small local and regional
competitors, especially in the engine aftermarket businesses.
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.
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 CUSTOMERS
Sales to General Electric Company and subsidiaries ("GE") accounted for 13
and 12 percent of net sales in 2002 and 2001, respectively. There were no sales
over 10 percent of net sales to one customer in 2000. GE has been a customer of
the Company for many years and it purchases several models and types of products
from the Industrial Products segment for a variety of applications, the majority
of which are for use on their gas turbine systems. Sales to the U.S. Government
do not constitute a material portion of the Company's business.
BACKLOG
At September 30, 2002, the backlog of orders expected to be delivered
within 90 days was $172,668,000. The 90 day backlog at September 30, 2001 was
$182,591,000.
RESEARCH AND DEVELOPMENT
During 2002, the Company spent $28,150,000 on research and development
activities relating to the development of new products or improvements of
existing products or manufacturing processes. The Company spent $28,425,000 in
2001 and $27,304,000 in 2000 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 8,898 persons in worldwide operations as of September
30, 2002.
GEOGRAPHIC AREAS
Note H of the Notes to Consolidated Financial Statements on page 37 in the
2002 Annual Report to Shareholders contains information regarding the Company's
geographic areas and is incorporated herein by reference.
3
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.
Manufacturing activities are carried on in fifteen plants in the United
States and twenty-one plants internationally. The back cover of the 2002 Annual
Report to Shareholders lists fourteen of the U.S. plant locations and is
incorporated herein by reference. In addition to these U.S. plant locations the
company has a manufacturing facility in Norcross, GA which was acquired in the
acquisition of ultrafilter. Internationally, the company's manufacturing
facilities are in the following locations: Wyong, Australia; Brugge, Belgium;
Hong Kong, China; Wuxi, China; Domjean, France, Dulmen, Germany; Haan, Germany;
Flensburg, Germany; Ostiglia, Italy; Tokyo, Japan; Gunma, Japan; New Delhi,
India; Aguascalientes, Mexico; Guadalajara, Mexico; Monterrey, Mexico; Cape
Town, South Africa; Johannesburg, South Africa; Barcelona, Spain; Hull, United
Kingdom; Leicester, United Kingdom; Wigan, United Kingdom. Note H on page 37 of
the 2002 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
The Company has been party to various legal proceedings 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NOT APPLICABLE.
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 57 Chairman, President and 1979
Chief Executive Officer
William M. Cook 49 Senior Vice President, International 1994
and Chief Financial Officer
James R. Giertz 45 Senior Vice President, 1994
Commercial and Industrial
Norman C. Linnell 43 Vice President, General 1996
Counsel and Secretary
Nickolas Priadka 56 Senior Vice President, 1989
Engine Systems and Parts
Lowell F. Schwab 54 Senior Vice President, Operations 1994
Thomas A. Windfeldt 53 Vice President, Controller 1985
All of the above-named executive officers have held executive management
positions with Registrant during the past five years.
4
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 38 and 40, and restrictions on payment
of dividends in Note D, page 33 of the 2002 Annual Report to Shareholders is
incorporated herein by reference. As of September 20, 2002, there were
approximately 1,871 shareholders of record of Common Stock.
The high and low sales prices for registrant's common stock for each full
quarterly period during 2002 and 2001, are as follows:
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
-------------- -------------- -------------- --------------
2001 $19.13 - 23.86 $21.62 - 29.48 $24.39 - 28.92 $27.30 - 33.05
2002 $26.93 - 32.80 $32.35 - 40.35 $34.10 - 44.99 $30.03 - 43.12
The following table sets forth information as of July 31, 2002, regarding
the Company's equity compensation plans:
NUMBER OF SECURITIES
REMAINING FOR FUTURE
NUMBER OF SECURITIES WEIGHTED-AVERAGE ISSUANCE UNDER EQUITY
TO BE ISSUED UPON EXERCISE EXERCISE PRICE OF COMPENSATION PLANS
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (a))
----------------------------------------------------------------------------
(a) (b) (c)
EQUITY COMPENSATION PLANS APPROVED BY SECURITY HOLDERS
1980 Master Stock Compensation Plan:
Stock Options 204,867 $ 12.6957 --
1991 Master Stock Compensation Plan:
Stock Options 2,994,718 $ 23.9052 --
Deferred Stock Option
Gain Plan 440,495 $ 30.6128 --
Long Term Compensation 139,916 $ 31.9000 --
Deferred LTC/Restricted Stock 111,745 $ 25.2350 --
2001 Master Stock Incentive Plan:
Stock Options 3,000 $ 32.2400 See Note 1
---------- --------- ----------
SUBTOTAL FOR PLANS APPROVED BY
SECURITY HOLDERS: 3,894,741 $ 24.4060
========== ========= ==========
EQUITY COMPENSATION PLANS NOT APPROVED BY SECURITY HOLDERS
Nonqualified Stock Option Program for
Non-Employee Directors: 268,330 $ 20.4733 See Note 2
ESOP Restoration 58,489 $ 20.8804 See Note 3
SUBTOTAL FOR PLANS NOT APPROVED BY
SECURITY HOLDERS: 326,819 $ 20.5462
========== ========= ==========
TOTAL: 4,221,560 $ 24.1072
========== ========= ==========
Note 1: Shares authorized for issuance during the ten year term are limited in
each plan year to 1.5% of the Company's "outstanding shares" (as defined
in the 2001 Master Stock Incentive Plan).
Note 2: The stock option program for non-employee directors (filed as exhibit
10-N to 1998 Form 10-K report) provides for each non-employee director
to receive annual option grants of 3,600 shares. The 2001 Master Stock
Incentive Plan, which was approved by the Company's stockholders on
November 16, 2001, provides for the issuance of stock options to non-
employee directors.
Note 3: The Company has a non-qualified ESOP Restoration Plan established on
August 1, 1990 (filed as exhibit 10-E to Form 10-Q for the Quarter
ended January 31, 1998), to supplement the benefits for executive
employees under the Company's Employee Stock Ownership Plan that would
otherwise be reduced because of the compensation limitations under the
Internal Revenue Code. The ESOP's ten-year term was completed on July
31, 1997, and the only ongoing benefits under the ESOP Restoration Plan
are the accrual of dividend equivalent rights to the participants in the
Plan.
5
ITEM 6. SELECTED FINANCIAL DATA
The information for the years 1992 through 2002 on pages 12 and 13 of the
2002 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 14 through 22 of the 2002 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 20 of the 2002 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 23 through 38, including the Quarterly Financial Information
(Unaudited) on page 38 of the 2002 Annual Report to Shareholders is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 18, 2002, the board of directors (the "Board") of Donaldson
Company, Inc. (the "Company"), at the recommendation of its audit committee,
dismissed Arthur Andersen LLP ("Andersen") as the Company's independent public
accountants and engaged PricewaterhouseCoopers LLP ("PWC") to serve as the
Company's independent public accountants for fiscal year 2002.
Andersen's reports on the Company's consolidated financial statements for
each of the years ended July 31, 2001 and 2000 did not contain an adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles.
During the years ended July 31, 2001 and 2000 and through April 18, 2002,
there were no disagreements with Andersen on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to Andersen's satisfaction, would have caused them to
make reference to the subject matter of the disagreements in connection with
their report on the Company's consolidated financial statements for such years;
and there were no "reportable events," as such term is defined in Item
304(a)(1)(v) of Regulation S-K.
The Company reported the change in accountants on Form 8-K filed on April
24, 2002. The Form 8-K contained a letter from Arthur Andersen, addressed to the
Securities and Exchange Commission, stating that it agreed with the disclosures
set forth in the preceding three paragraphs.
During the years ended July 31, 2001 and 2000 and through the date of the
Board's decision to engage PWC, the Company did not consult PWC with respect to
the application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Company's consolidated financial statements, or any other matters or
reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
6
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 7 and under the heading "Compliance With Section
16(a) of the Securities Exchange Act of 1934" on page 18 of the Company's
definitive proxy statement dated October 8, 2002 is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under "Director Compensation" on page 8 and in the section
"Executive Compensation" on pages 12 through 14, the "Pension Benefits" on page
17 and under the caption "Change-in-Control Arrangements" on page 18 of the
Company's definitive proxy statement dated October 8, 2002, is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the section "Security Ownership" on page 4 of the
Company's definitive proxy statement dated October 8, 2002, is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - NOT APPLICABLE.
ITEM 14. CONTROLS AND PROCEDURES
There were no significant changes in the Company's internal controls or in
other factors that could have significantly affected those controls subsequent
to the date of the Company's most recent evaluation of internal controls,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed with this report:
(1) Financial Statements
Consolidated Balance Sheets -- July 31, 2002 and 2001
(incorporated by reference from page 24 of the 2002 Annual Report
to Shareholders)
Consolidated Statements of Earnings -- years ended July 31, 2002,
2001 and 2000 (incorporated by reference from page 23 of the 2002
Annual Report to Shareholders)
Consolidated Statements of Cash Flows -- years ended July 31,
2002, 2001 and 2000 (incorporated by reference from page 25 of
the 2002 Annual Report to Shareholders)
Consolidated Statements of Changes in Shareholders' Equity --
years ended July 31, 2002, 2001 and 2000 (incorporated by
reference from page 26 of the 2002 Annual Report to Shareholders)
Notes to Consolidated Financial Statements (incorporated by
reference from pages 27 through 38 of the 2002 Annual Report to
Shareholders)
Reports of Independent Accountants (filed as part of this report)
7
(2) Financial Statement Schedules --
Reports of Independent Accountants (filed as part of this report)
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 this report or incorporated by reference as indicated therein.
(b) Reports on Form 8-K
A report on Form 8-K was filed on June 14, 2002. On June 13, 2002, the
Company issued a press release in the form attached as Exhibit 99.1 to its
Form 8-K announcing that it had signed a definitive agreement to acquire
ultrafilter international AG.
8
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, 2002 By: /s/ William G. Van Dyke
---------------- ------------------------------------
Chairman, President and
Chief Executive Officer
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, President and
------------------------------------- Chief Executive Officer
William G. Van Dyke
/s/ William M. Cook Senior Vice President,
------------------------------------- International and
William M. Cook Chief Financial Officer
/s/ Thomas A. Windfeldt Vice President, Controller
-------------------------------------
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
*Jeffrey Noddle Director
-------------------------------------
Jeffrey Noddle
*S. Walter Richey Director
-------------------------------------
S. Walter Richey
*Stephen W. Sanger Director
-------------------------------------
Stephen W. Sanger
*By /s/ Norman C. Linnell Date: October 29, 2002
-------------------------------------
Norman C. Linnell
*As attorney-in-fact
9
CERTIFICATIONS
I, William G. Van Dyke, Chief Executive Officer of Donaldson Company, Inc.,
certify that:
1. I have reviewed this annual report on Form 10-K of Donaldson Company, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report.
Date: October 29, 2002 /s/ William G. Van Dyke
-------------------------------------
Chief Executive Officer
I, William M. Cook, Chief Financial Officer of Donaldson Company, Inc., certify
that:
1. I have reviewed this annual report on Form 10-K of Donaldson Company, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report.
Date: October 29, 2002 /s/ William M. Cook
-------------------------------------
Chief Financial Officer
10
DONALDSON COMPANY, INC. AND SUBSIDIARIES
FORM 10-K
Item 15 (a) (1)
Index of Independent Accountants' Reports
Report of PricewaterhouseCoopers LLP .................................. 12 & 13
Report of Arthur Andersen LLP ......................................... 14 & 15
11
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Directors of Donaldson Company, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) on page 7 present fairly, in all material
respects, the consolidated financial position of Donaldson Company Inc. as of
July 31, 2002, and the consolidated results of its operations and its cash flows
for the period ended July 31, 2002, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of Donaldson Company Inc.'s management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. The financial statements of Donaldson Company
Inc. as of July 31, 2001, and for the two years in the period then ended, were
audited by other independent accountants who have ceased operations. Those
independent accountants expressed an unqualified opinion on those financial
statements in their report dated August 27, 2001.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
August 21, 2002
12
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of Donaldson Company, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated August 21, 2002 appearing in the 2002 Annual Report to Shareholders
of Donaldson Company, Inc. (which report and consolidated financial statements
are incorporated by reference in this Annual Report on Form 10-K) also included
an audit of the financial statement schedules listed in Item 15(a)(2) of this
Form 10-K. In our opinion, these financial statement schedules present fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
August 21, 2002
13
THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Shareholders and Board of Directors
of Donaldson Company, Inc.:
We have audited the accompanying consolidated balance sheets of Donaldson
Company, Inc. (a Delaware corporation) and subsidiaries as of July 31, 2001 and
2000, and the related consolidated statements of earnings, changes in
shareholders' equity and cash flows for the years then ended. 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 auditing standards generally
accepted in the United States. 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 financial position of Donaldson Company, Inc. and
subsidiaries as of July 31, 2001 and 2000, and the results of their operations
and their cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Minneapolis, Minnesota,
August 27, 2001
14
THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Donaldson Company, Inc.
We have audited, in accordance with auditing standards generally accepted
in the United States, the consolidated financial statements included in
Donaldson Company Inc.'s annual report to shareholders incorporated by reference
in this Form 10-K, and have issued our report thereon dated August 27, 2001. Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The schedule listed as part of item 14 in this Form 10-K is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
Minneapolis, Minnesota,
August 27, 2001
15
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 CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES (A) & (B) (C) & (D) PERIOD
- ----------- ---------- ---------- -------------- ---------- ----------
Year ended July 31, 2002:
Allowance for doubtful accounts
deducted from accounts receivable $6,309 $1,820 $ 198 $(1,707) $6,620
====== ====== ====== ======= ======
Restructuring Reserves -- AirMaze
Acquisition $ 166 $ (166) $ 0
====== ======= ======
Restructuring Reserves -- DCE
Acquisition $2,125 $(2,125) $ 0
====== ======= ======
Restructuring Reserves -- ultrafilter $ 0 $1,219 $1,219
====== ====== ======
Year ended July 31, 2001:
Allowance for doubtful accounts
deducted from accounts receivable $4,380 $2,512 $ (154) $ (429) $6,309
====== ====== ====== ======= ======
Restructuring Reserves -- AirMaze
Acquisition $1,183 $(1,017) $ 166
====== ======= ======
Restructuring Reserves -- DCE
Acquisition $2,775 $1,555 $(2,205) $2,125
====== ====== ======= ======
Year ended July 31, 2000:
Allowance for doubtful accounts
deducted from accounts receivable $4,341 $1,077 $ (156) $ (882) $4,380
====== ====== ====== ======= ======
Restructuring Reserves -- AirMaze
Acquisition $ 0 $1,488 $ (305) $1,183
====== ====== ======= ======
Restructuring Reserves -- DCE
Acquisition $ 0 $2,775 $2,775
====== ====== ======
- ------------------
Note A -- Allowance for doubtful accounts foreign currency translation losses
(gains) recorded directly to equity.
Note B -- Acquisition related restructuring reserves recorded to goodwill.
Note C -- Bad debts charged to allowance, net of recoveries.
Note D -- Acquisition related restructuring reserves utilized and/or reversed
against goodwill.
16
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 Form 10-Q for the Second Quarter ended January 31, 1999)
* 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 Form 10-Q for the Second Quarter
ended January 31, 1999)***
*10-H -- Independent Director Retirement and Benefit Plan as amended (Filed
as Exhibit 10-H to 1995 Form 10-K Report)***
*10-I -- Excess Pension Plan (1999 Restatement)***
*10-J -- Supplementary Executive Retirement Plan (1999 Restatement)***
*10-K -- 1991 Master Stock Compensation Plan as amended (Filed as Exhibit
10-K to 1998 Form 10-K Report)***
*10-L -- Form of Restricted Stock Award under 1991 Master Stock
Compensation Plan (Filed as Exhibit 10-L to 1992 Form 10-K
Report)***
*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 (Filed as Exhibit
10-N to 1998 Form 10-K Report)***
17
*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 (1999 Restatement)***
*10-R -- Note Purchase Agreement among Donaldson Company, Inc. and certain
listed Insurance Companies dated as of July 15, 1998 (Filed as
Exhibit 10-R to 1998 Form 10-K Report)
*10-S -- First Supplement to Note Purchase Agreement among Donaldson
Company, Inc. and certain listed Insurance Companies dated as of
August 1, 1998 (Filed as Exhibit 10-S to 1998 Form 10-K Report)
*10-T -- Deferred Stock Option Gain Plan (1999 Restatement)***
*10-U -- 2001 Master Stock Incentive Plan (Filed as Exhibit 4.1 to Form S-8
(SEC File No. 333-97771))
11 -- Computation of net earnings per share ("Earnings Per Share" in
"Summary of Significant Accounting Policies" in Note A, page 20 of
the 2001 Annual Report to Shareholders is incorporated herein by
reference)
13 -- Portions of Registrant's Annual Report to Shareholders for the
year ended July 31, 2002
21 -- Subsidiaries
23 -- Consent of PricewaterhouseCoopers LLP
23(A) -- Notice Regarding Consent of Arthur Andersen LLP
24 -- Powers of Attorney
99-A -- Litigation Reform Act of 1995 -- Cautionary Statement
99-B -- Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99-C -- Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
* 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 plan or 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.
18