Back to GetFilings.com





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[ x ]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED April 30, 2005 OR
[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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
incorporation or organization)		 (I.R.S. Employer
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

Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)

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, and (2) has been subject to such filing requirements for the past 90 days.

Yes     X       No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes     X       No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $5 Par Value – 82,813,547 shares as of April 30, 2005.

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Thousands of dollars, except share and per share amounts)
(Unaudited)


Three Months Ended
April 30 		Nine Months Ended
April 30
2005 2004 2005 2004
Net sales     $ 411,664   $ 370,588   $ 1,172,994   $ 1,031,018  
Cost of sales    277,743    250,353    801,388    700,770  
Gross margin    133,921    120,235    371,606    330,248  
Operating expenses    90,867    82,210    255,450    227,603  
Gain on sale of Ome land and building    —    —    —    (5,616 )
Operating income    43,054    38,025    116,156    108,261  
Other income, net    (996 )  (1,285 )  (6,281 )  (2,697 )
Interest expense    2,470    1,272    6,734    3,666  
Earnings before income taxes    41,580    38,038    115,703    107,292  
Income taxes    10,247    8,467    30,260    27,166  
Net earnings   $ 31,333   $ 29,571   $ 85,443   $ 80,126  
Weighted average shares outstanding    84,768,788    87,975,804    85,132,531    88,073,242  
Diluted shares outstanding    87,103,018    90,317,143    87,465,208    90,479,908  
Basic earnings per share   $ .37   $ .34   $ 1.00   $ .91  
Diluted earnings per share   $ .36   $ .33   $ .98   $ .89  
Dividends paid per share   $ .060   $ .055   $ .175   $ .150  

See Notes to Condensed Consolidated Financial Statements.


2


DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except share amounts)
(Unaudited)


April 30,
2005		 July 31,
2004
ASSETS            
Current Assets  
   Cash and cash equivalents   $ 146,214   $ 99,504  
   Accounts receivable, less allowance of $8,596 and $8,741    292,174    274,120  
   Inventories    162,591    143,418  
   Prepaid and other current assets    44,123    40,338  
      Total current assets    645,102    557,380  
 
Property, plant and equipment, at cost    649,247    623,488  
  Less accumulated depreciation    (371,428 )  (361,959 )
    Property, plant and equipment, net    277,819    261,529  
Goodwill    109,747    96,574  
Intangible assets    24,838    19,127  
Other assets    85,476    66,999  
      Total Assets   $ 1,142,982   $ 1,001,609  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current Liabilities  
   Short-term debt   $ 111,420   $ 19,736  
   Current maturities of long-term debt    31,233    34,346  
   Trade accounts payable    136,496    124,401  
   Other current liabilities    113,424    97,041  
      Total Current Liabilities    392,573    275,524  
 
Long-term debt    104,167    70,856  
Deferred income taxes    29,608    25,981  
Other long-term liabilities    80,434    79,955  
      Total Liabilities    606,782    452,316  
 
SHAREHOLDERS’ EQUITY  
Preferred stock, $1 par value,  
  1,000,000 shares authorized, no shares issued    —    —  
Common stock, $5 par value, 120,000,000 shares authorized,  
  88,643,194 issued    443,216    443,216  
Retained earnings    172,904    113,271  
Stock compensation    29,855    20,589  
Accumulated other comprehensive income    53,351    31,558  
Treasury stock, at cost – 5,679,689 and 2,361,899 shares at  
  April 30, 2005 and July 31, 2004, respectively    (163,126 )  (59,341 )
      Total Shareholders’ Equity    536,200    549,293  
 
         Total Liabilities and Shareholders' Equity   $ 1,142,982   $ 1,001,609  

See Notes to Condensed Consolidated Financial Statements.


3


DONALDSON COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)


Nine Months Ended
April 30
2005 2004
OPERATING ACTIVITIES            
 
   Net earnings   $ 85,443   $ 80,126  
   Adjustments to reconcile net earnings to net cash  
     provided by operating activities:  
        Gain on sale of Ome land and building    —    (5,616 )
        Depreciation and amortization    33,494    30,944  
        Changes in operating assets and liabilities    (2,390 )  (25,740 )
        Other, net    (20,621 )  (7,155 )
           Net cash provided by operating activities    95,926    72,559  
 
INVESTING ACTIVITIES  
 
   Net expenditures on property and equipment    (34,435 )  (36,560 )
   Acquisitions, net of cash acquired    (13,236 )  (4,397 )
         Net cash used in investing activities    (47,671 )  (40,957 )
 
FINANCING ACTIVITIES  
 
   Purchase of treasury stock    (116,268 )  (22,160 )
   Proceeds from long-term debt    30,000    —  
   Repayments of long-term debt    (785 )  (953 )
   Change in short-term debt    91,271    26,709  
   Dividends paid    (14,775 )  (13,027 )
   Other, net    1,875    3,078  
         Net cash used in financing activities    (8,682 )  (6,353 )
 
Effect of exchange rate changes on cash    7,137    2,116  
 
Increase in cash and cash equivalents    46,710    27,365  
 
Cash and cash equivalents - beginning of year    99,504    67,070  
 
Cash and cash equivalents - end of period   $ 146,214   $ 94,435  

See Notes to Condensed Consolidated Financial Statements.


4


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Donaldson Company, Inc. (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. Operating results for the nine-month period ended April 30, 2005 are not necessarily indicative of the results that may be expected for future periods. For further information, refer to the consolidated financial statements and notes thereto included in Donaldson Company, Inc. and Subsidiaries’ Annual Report on Form 10-K for the year ended July 31, 2004.

Note B – Inventories

The components of inventory as of April 30, 2005 and July 31, 2004 are as follows (thousands of dollars):

April 30,
2005 		July 31,
2004
Materials     $ 60,061   $ 52,979  
Work in process    23,933    21,109  
Finished products    78,597    69,330  
Total inventories   $ 162,591   $ 143,418  

Note C – Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation under the recognition and measurement principles using the intrinsic value method. Accordingly, no stock-based compensation cost related to stock options is reflected in net earnings because all options granted under the Company’s stock option plans have exercise prices equal to the fair value of the stock on the date of grant. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value-based method of accounting to measure compensation expense for its stock option plans and charged compensation cost against earnings over the vesting periods. Amounts are in thousands of dollars, except per share amounts:




5


Three Months Ended
April 30 		Nine Months Ended
April 30
2005 2004 2005 2004
Net earnings, as reported     $ 31,333   $ 29,571   $ 85,443   $ 80,126  
Less total stock-based employee compensation  
    expense under the fair value-based method,  
    net of tax    (1,251 )  (771 )  (4,386 )  (5,762 )
Pro forma net earnings   $ 30,082   $ 28,800   $ 81,057   $ 74,364  
 
Weighted average shares outstanding - basic  
     As reported and pro forma    84,769    87,976    85,133    88,073  
Weighted average shares outstanding - diluted  
     As reported    87,103    90,317    87,465    90,480  
     Pro forma    87,356    90,487    87,718    90,651  
 
Basic net earnings per share  
    As reported   $ .37   $ .34   $ 1.00   $ .91  
    Pro forma   $ .35   $ .33   $ .95   $ .84  
Diluted net earnings per share  
     As reported   $ .36   $ .33   $ .98   $ .89  
     Pro forma   $ .34   $ .32   $ .92   $ .82  

Note D – Net Earnings Per Share

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 dilutive shares relating to stock options, restricted stock and stock incentive plans. Certain outstanding options are excluded from the diluted net earnings per share calculations if their exercise prices were greater than the average market price of the Company’s common stock during those periods. For the three months and nine months ended April 30, 2005 there were 59,371 and 89,557 options excluded from the diluted net earnings per share calculation, respectively. For the three months and nine months ended April 30, 2004 there were 1,040,926 and 1,048,726 options excluded from the diluted net earnings per share calculation, respectively.

The following table presents information necessary to calculate basic and diluted net earnings per common share (thousands of dollars, except per share amounts):






6


Three Months Ended
April 30 		Nine Months Ended
April 30
2005 2004 2005 2004
Weighted average shares outstanding – basic      84,769    87,976    85,133    88,073  
 
   Diluted share equivalents    2,334    2,341    2,332    2,407  
 
Weighted average shares outstanding – diluted    87,103    90,317    87,465    90,480  
 
Net earnings for basic and diluted  
  earnings per share computation   $ 31,333   $ 29,571   $ 85,443   $ 80,126  
 
Net earnings per share – basic   $ .37   $ .34   $ 1.00   $ .91  
 
Net earnings per share – diluted   $ .36   $ .33   $ .98   $ .89  


Note E – Shareholders’ Equity

The Company reports accumulated other comprehensive income as a separate item in the shareholders’ equity section of the balance sheet. Other comprehensive income consists of foreign currency translation adjustments and net gains or losses on cash flow hedging derivatives.

Total comprehensive income and its components are as follows (thousands of dollars):


Three Months Ended
April 30 		Nine Months Ended
April 30
2005 2004 2005 2004
Net earnings     $ 31,333   $ 29,571   $ 85,443   $ 80,126