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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, 1997 or
/ / Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required) for the transition period from _______ to ________
Commission File Number 1-7891
DONALDSON COMPANY, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-0222640
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 West 94th Street, Minneapolis, Minnesota 55431
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 887-3131
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $5 Par Value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No ____
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 26, 1997 was $1,162,500,967.50.
The shares of common stock outstanding as of September 26, 1997 were 24,732,385.
Documents Incorporated by Reference
-----------------------------------
Portions of the 1997 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 1997 annual shareholders meeting are
incorporated by reference in Part III, as specifically set forth in Part III.
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./ /
PART I
Item 1. BUSINESS
GENERAL
Donaldson Company, Inc. ("Donaldson" or the "Company") was founded in
1915 and organized in its present corporate form under the laws of the State of
Delaware in 1936.
The Company is a worldwide manufacturer of air cleaners, liquid filters
and exhaust products and accessories for heavy duty mobile equipment; in-plant
air cleaning systems; air intake systems and exhaust products for industrial gas
turbines; and specialized filters for diverse applications. The Company has one
industry segment which consists of the design, manufacture and sale of products
to filter air, sound and liquid. Its principal products are distributed through
multiple channels. The Company has customer relationships with original
equipment manufacturers (OEMs) worldwide for selling first-fit air intake,
exhaust and liquid filtration systems. Sale of aftermarket replacement products
are through OEM dealers and independent wholesalers/distributors. In-plant air
cleaning systems include dust, fume and mist collectors typically found in
manufacturing, production and assembly plants and are sold to end-users
worldwide. Gas turbine products include static and pulse-clean air filter
systems, replacement filters, inlet-exhaust silencers, evaporative coolers,
chiller coils, inlet heating and anti-icing systems. Sales are made through
customer relationships with gas turbine manufacturers and direct sales of
replacement parts to end-users. Specialized filter products for computer disk
drives, aircraft and automotive cabins, industrial and hospital clean rooms,
business machines, room air cleaners and air emission control are sold through
customer relationships with OEMs and end-users for specific applications and/or
markets.
The table below shows the percentage of total net sales contributed by
the principal classes of similar products for each of the last three fiscal
years:
Year Ended July 31
1997 1996 1995
---- ---- ----
Air cleaners, filtration
devices and accessories 66% 67% 67%
Acoustical products 11% 11% 11%
Other 23% 22% 22%
COMPETITION
The Company's business is not considered to be seasonal. Principal
methods of competition are price, geographic coverage, service and product
performance. The Company operates in a highly competitive environment. The
Company estimates it has more than 20 competitors in the sale of filtration
products worldwide and less than 10 competitors in the sale of acoustical
products worldwide.
RAW MATERIALS
The Company experienced no significant or unusual problems in the
purchase of raw materials or commodities. Donaldson has more than one source of
raw materials essential to its business. The Company is not required to carry
significant amounts of inventory to meet rapid delivery demands or secure
supplier allotments.
PATENTS AND TRADEMARKS
The Company owns various patents and trademarks which it considers in
the aggregate to constitute a valuable asset. However, it does not regard the
validity of any one patent or trademark as being of material importance.
MAJOR CUSTOMER
Sales to Caterpillar, Inc. and subsidiaries ("Caterpillar") accounted
for 11 percent, 12 percent and 13 percent of net sales in 1997, 1996 and 1995,
respectively. Caterpillar has been a customer of the Company for many years and
it purchases several models and types of products for a variety of applications.
Sales to the U.S. Government do not constitute a material portion of the
Company's business.
BACKLOG
At August 31, 1997, the backlog of orders expected to be delivered
within 90 days was $163,682,000. The 90 day backlog at August 31, 1996 was
$128,624,000.
RESEARCH AND DEVELOPMENT
During 1997 the Company spent $17,288,000 on research and development
activities relating to the development of new products or improvements of
existing products or manufacturing processes. The Company spent $15,906,000 in
1996 and $14,487,000 in 1995 on research and development activities. Essentially
all commercial research and development is Company-sponsored.
ENVIRONMENTAL MATTERS
The Company does not anticipate any material effect on its capital
expenditures, earnings or competitive position due to compliance with government
regulations involving environmental matters.
EMPLOYEES
The Company employed 6,230 persons in worldwide operations as of July
31, 1997.
GEOGRAPHIC AREAS
Note H of the Notes to Consolidated Financial Statements on page 31 in
the 1997 Annual Report to Shareholders contains information regarding the
Company's geographic areas and is incorporated herein by reference.
Item 2. PROPERTIES
The Company's principal office and research facilities are located in
Bloomington, a suburb of Minneapolis, Minnesota. European administrative and
engineering offices are located in Leuven, Belgium.
Manufacturing activities are carried on in thirteen plants in the
United States, two in Japan and Mexico and one each in Australia, France, United
Kingdom, Hong Kong, South Africa, Italy, Belgium, India, China and Germany. Page
36 of the 1997 Annual Report to Shareholders lists U.S. plant locations and is
incorporated herein by reference. Note H on page 31 of the 1997 Annual Report to
Shareholders presents identifiable assets by geographic area and is incorporated
herein by reference.
The Company is a lessee under several long-term leases. These leases
provide for options to purchase the facilities at the end of the lease term and
have been capitalized.
The Company's properties are considered to be suitable for their
present purposes, well maintained and in good operating condition.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the Company's business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Current information regarding executive officers is presented below.
All terms of office are for one year. There are no arrangements or
understandings between individual officers and any other person pursuant to
which he was selected as an officer.
First Year
Elected or
Appointed
as an
Name Age Positions and Offices Held Officer
- ---- --- -------------------------- -------
William G. Van Dyke 52 Chairman, Chief Executive 1979
Officer and President
William M. Cook 44 Senior Vice President, 1994
Commercial and Industrial
James R. Giertz 40 Senior Vice President and 1994
Chief Financial Officer
Norman C. Linnell 38 General Counsel and Secretary 1996
Nickolas Priadka 51 Senior Vice President, 1989
OE Engine
Lowell F. Schwab 49 Senior Vice President, 1994
Operations
Thomas A. Windfeldt 48 V.P., Controller and Treasurer 1985
All of the above-named executive officers have held executive or
management positions with Registrant for more than the past five years
except Mr. Giertz who was previously Assistant Treasurer Corporate
Finance for General Motors Corporation (1995) and Treasurer of various
subsidiaries of General Motors Corporation, Mr. Linnell who was
previously a partner in the law firm of Dorsey & Whitney LLP and Mr.
Schwab who was previously Vice President and General Manager of the
Machinery Division of Washington Scientific, Inc.
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 32 and 33, and restrictions on payment
of dividends in Note D, page 27 of the 1997 Annual Report to Shareholders is
incorporated herein by reference. As of September 26, 1997, there were
approximately 1,500 shareholders of record of Common Stock.
The high and low sales prices for registrant's common stock for each
full quarterly period during 1997 and 1996 are as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1996 $23 7/8-26 3/8 $24 1/8-26 1/8 $25 5/8-27 7/8 $24 - 28
1997 $25 3/8-29 1/4 $28 5/8-34 $30 3/4-36 5/8 $35 1/2-40 3/4
Item 6. SELECTED FINANCIAL DATA
The information for the years 1993 through 1997 on pages 34 and 35 of
the 1997 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 17 through 20 of the 1997 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 21 through 32, and the Quarterly Financial
Information (Unaudited) on page 32 of the 1997 Annual Report to Shareholders is
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE - Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the captions "Nominees For Election" and
"Directors Continuing In Office" on pages 4 and 5 and under the heading
"Compliance With Section 16 (a) of the Securities Exchange Act of 1934" on page
15 of the Company's definitive proxy statement dated October 14, 1997 is
incorporated herein by reference. Information about the executive officers of
the Company is set forth in Part I of this report.
Item 11. EXECUTIVE COMPENSATION
The information under "Director Compensation" on page 5 and in the
section "Executive Compensation" on pages 8 through 10, the "Pension Plan Table"
on page 14 and under the caption "Change-in-Control Arrangements" on page 15 of
the Company's definitive proxy statement dated October 14, 1997, is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the section "Security Ownership" on pages 2 and 3 of
the Company's definitive proxy statement dated October 14, 1997, is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Not applicable.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed with this report:
(1) Financial Statements -
Consolidated Balance Sheets--July 31, 1997 and 1996
(incorporated by reference from page 22 of the 1997 Annual
Report to Shareholders)
Consolidated Statements of Earnings--years ended July 31,
1997, 1996 and 1995 (incorporated by reference from page 21 of
the 1997 Annual Report to Shareholders)
Consolidated Statements of Cash Flows--years ended July 31,
1997, 1996 and 1995 (incorporated by reference from page 23 of
the 1997 Annual Report to Shareholders)
Consolidated Statements of Changes in Shareholders'
Equity--years ended July 31, 1997, 1996 and 1995 (incorporated
by reference from page 24 of the 1997 Annual Report to
Shareholders)
Notes to Consolidated Financial Statements (incorporated by
reference from pages 25 through 32 of the 1997 Annual Report
to Shareholders)
Report of Independent Auditors (incorporated by reference from
page 32 of the 1997 Annual Report to Shareholders).
(2) Financial Statement Schedules -
Schedule II Valuation and qualifying accounts
All other schedules 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
No reports on Form 8-K were filed for the three months ended
July 31, 1997.
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, 1997 By /s/ Norman C. Linnell
---------------------------------
Norman C. Linnell
General Counsel and
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/ William G. Van Dyke Chairman, Chief Executive
- ----------------------------- Officer and President
William G. Van Dyke
/s/ James R. Giertz Senior Vice President and
- ----------------------------- Chief Financial Officer
James R. Giertz
/s/ Thomas A. Windfeldt Vice President, Controller
- ----------------------------- and Treasurer
Thomas A. Windfeldt
*F. Guillaume Bastiaens Director
- -----------------------------
F. Guillaume Bastiaens
*Michael R. Bonsignore Director
- -----------------------------
Michael R. Bonsignore
*Paul B. Burke Director
- -----------------------------
Paul B. Burke
*Janet M. Dolan Director
- -----------------------------
Janet M. Dolan
*Jack W. Eugster Director
- -----------------------------
Jack W. Eugster
*Kendrick B. Melrose Director
- -----------------------------
Kendrick B. Melrose
*S. Walter Richey Director
- -----------------------------
S. Walter Richey
*Stephen W. Sanger Director
- -----------------------------
Stephen W. Sanger
*G. Angus Wurtele Director
- -----------------------------
G. Angus Wurtele
*By /s/ Norman C. Linnell Date: October 29, 1997
- -----------------------------
Norman C. Linnell
* As attorney-in-fact
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
DONALDSON COMPANY, INC. AND SUBSIDIARIES
(Thousands of Dollars)
COL. A COL. B COL. C COL. D COL. E
- ----------------------------------------------------------------------------------------------------------
Additions
--------------------------
Balance at Charged to Balance at
Beginning Costs and Charged to End of
Description of Period Expenses Other Accounts(A) Deductions(B) Period
- ----------------------------------------------------------------------------------------------------------
Year ended July 31, 1997:
Allowance for doubtful
accounts deducted from
accounts receivable $3,695 $ 894 $(161) $ (334) $4,094
====== ====== ====== ======== ======
Warranty and customer support $9,760 $6,901 $ (159) $16,502
====== ====== ======== =======
Year ended July 31, 1996:
Allowance for doubtful
accounts deducted from
accounts receivable $3,957 $ 511 $(246) $ (527) $3,695
====== ====== ====== ======== ======
Warranty and customer support $3,893 $7,779 $(1,912) $9,760
====== ====== ======== ======
Year ended July 31, 1995:
Allowance for doubtful
accounts deducted from
accounts receivable $3,443 $ 940 $ 111 $ (537) $3,957
====== ====== ======== ======
Warranty and customer support $8,232 $ 648 $(4,987) $3,893
====== ====== ======== ======
Note A--Foreign currency translation losses (gains) recorded directly to
equity.
Note B--Bad debts charged to allowance, net of recoveries.
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 1993
Form 10-K Report)
* 3-B - By-laws of Registrant as currently in effect (Filed as
Exhibit 3-B to 1996 Form 10-K Report)
* 4 - **
* 4-A - Preferred Stock Amended and Restated Rights
Agreement (Filed as Exhibit 4.1 to Form 8-K Report
Dated January 12, 1996)
* 4-B - Credit Agreement among Donaldson Company, Inc.
and certain listed banks dated as of October 8, 1987
(Filed as Exhibit 4-B to 1987 Form 10-K Report)
* 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 Phantom Stock Plan (Filed as Exhibit 10-E to 1991
Form 10-K Report)
* 10-F - Deferred Compensation Plan for Non-employee Directors as
amended (Filed as Exhibit 10-F to 1990 Form 10-K Report)
* 10-G - Form of "Change in Control" Agreement with key employees
as amended (Filed as Exhibit 10-G to 1990 Form 10-K Report)
* 10-H - Independent Director Retirement and Benefit Plan as
amended (Filed as Exhibit 10-H to 1995 Form 10-K Report)
* 10-I - Excess Benefit Plan (Filed as Exhibit 10-I to 1989
Form 10-K Report)
* 10-J - Copy of Supplementary Executive Retirement Plan (Filed as
Exhibit 10-J to 1991 Form 10-K Report)
* 10-K - 1991 Master Stock Compensation Plan as amended (Filed as
Exhibit 10-K to 1995 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 as amended
(Filed as Exhibit 10-N to 1995 10-K Report)
10-O - Salaried Employees' Pension Plan (1997 Restatement)
10-P - Eighth Amendment of Employee Stock Ownership Plan Trust
Agreement (1987 Restatement)
11 - Computation of net earnings per share
13 - Portions of Registrant's Annual Report to Shareholders
for the year ended July 31, 1997
21 - Subsidiaries ("Wholly Owned Subsidiaries" and "Joint
Ventures" on page 36 of the 1997 Annual Report to Shareholders
is incorporated by reference)
23 - Consent of Independent Auditors
24 - Powers of Attorney
27 - Financial Data Schedule
* Exhibit has heretofore been filed with the Securities and
Exchange Commission and is incorporated herein by
reference as an exhibit.
** Pursuant to the provisions of Regulation S-K Item
601(b)(4)(iii)(A) copies of instruments defining the rights of
holders of certain long-term debts of Registrant and its
subsidiaries are not filed and in lieu thereof Registrant
agrees to furnish a copy thereof to the Securities and
Exchange Commission upon request.
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.