-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EK3o/2Ku7IbMzfdiHoJLKXIilkVDKJJatPHjdQAfyVxtGWt6pMKvkAcHdkYL6VAa nhtN/fFSdK07/GRebtLBNQ== 0000897101-95-000394.txt : 19951030 0000897101-95-000394.hdr.sgml : 19951030 ACCESSION NUMBER: 0000897101-95-000394 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19951027 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DONALDSON CO INC CENTRAL INDEX KEY: 0000029644 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL & COMMERCIAL FANS & BLOWERS & AIR PURIFYING EQUIP [3564] IRS NUMBER: 410222640 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07891 FILM NUMBER: 95584752 BUSINESS ADDRESS: STREET 1: 1400 W. 94TH ST. CITY: MINNEAPOLIS STATE: MN ZIP: 55431 BUSINESS PHONE: 6128873131 MAIL ADDRESS: STREET 1: 1400 W 94TH STREET CITY: MINNEAPOLIS STATE: MN ZIP: 55431 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended July 31, 1995 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, 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. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of the close of business on September 29, 1995 was $604,955,750. The shares of Common Stock outstanding as of September 29, 1995 were 25,954,964. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1995 Annual Report to Shareholders of the registrant: Parts I and II. Portions of the Proxy Statement for the 1995 annual shareholders meeting: Part III. 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. The Company's business is not considered to be seasonal. Its principal products are distributed through multiple channels and primarily sold into these channels through a direct sales force. Principal methods of competition are price, geographic coverage, service and product performance. The Company estimates it has more than 20 competitors in the sale of filtration products and less than 10 competitors in the sale of acoustical products. 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 1995 1994 1993 Air cleaners, filtration devices and accessories 67% 67% 68% Acoustical products 11% 11% 11% Other 22% 22% 21% 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 Approximately 12.5 percent of the Company's 1995 sales were made to Caterpillar Inc. and subsidiaries ("Caterpillar"). Caterpillar has been a customer of the Company for many years and they purchase 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, 1995, the backlog of orders expected to be delivered within 90 days was $135,038,000. The backlog at August 31, 1994 was $111,147,000. RESEARCH AND DEVELOPMENT During 1995 the Company spent $14,487,000 on research and development activities relating to the development of new products or improvements of existing products or manufacturing processes. The Company spent $10,873,000 in 1994 and $11,364,000 in 1993 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 5,038 persons in worldwide operations as of July 31, 1995. GEOGRAPHIC AREAS Note J of the Notes to Consolidated Financial Statements on page 29 in the 1995 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 ten plants in the United States, two in Japan and one each in Australia, Brazil, United Kingdom, Hong Kong, South Africa, Italy, Belgium, Mexico, India and Germany. The inside back cover of the 1995 Annual Report to Shareholders lists U.S. plant locations and is incorporated herein by reference. Note J on page 29 of the 1995 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 Name Age Positions and Offices Held an Officer William A. Hodder 64 Chairman, Chief Executive 1973 Officer and Director William G. Van Dyke 50 President, Chief Operating 1979 Officer and Director Erland D. Anderson 54 Vice President, Corporate 1978 Technology William M. Cook 42 Vice President, Commercial 1994 and Industrial Edmund C. Craft 55 Vice President, Engine 1985 Aftermarket James R. Giertz 38 Vice President and Chief 1994 Financial Officer Nickolas Priadka 49 Vice President, OE Engine 1989 Lowell F. Schwab 47 Vice President, Operations 1994 John E. Thames 45 Vice President, Human Resources 1989 Thomas A. Windfeldt 46 Vice President and Controller 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 (1992) and Treasurer of various subsidiaries of General Motors Corporation 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 "NYSE Listing," and "Quarterly Financial Information (Unaudited)" on page 31, and restrictions on payment of dividends in Note D, page 25 of the 1995 Annual Report to Shareholders is incorporated herein by reference. As of September 29, 1995, 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 1995 and 1994 are as follows: First Second Third Fourth Quarter Quarter Quarter Quarter 1995 $20 7/8- 26 $20 7/8-24 1/4 $22 1/2-25 3/4 $24 1/8-28 1994 $18 1/4-21 5/8 $20 - 23 3/4 $21 7/8-25 1/4 $20-26 1/8 Item 6. SELECTED FINANCIAL DATA The information for the years 1991 through 1995 on pages 32 and 33 of the 1995 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 19 of the 1995 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 20 through 29, and the Quarterly Financial Information (Unaudited) on page 31 of the 1995 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 3 and 4 and under the heading "Compliance With Section 16 (a) of the Securities Exchange Act of 1934" on page 10 of the Company's definitive proxy statement dated October 16, 1995 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 4 and in the section "Executive Compensation" on pages 5 through 9, the "Pension Plan Table" on page 10 and under the caption "Change-in-Control Arrangements" on page 11 of the Company's definitive proxy statement dated October 16, 1995, is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information in the section "Security Ownership" on pages 1 and 2 of the Company's definitive proxy statement dated October 16, 1995, 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 Statements of Financial Position--July 31, 1995 and 1994 (incorporated by reference from page 21 of the 1995 Annual Report to Shareholders) Consolidated Statements of Earnings--years ended July 31, 1995, 1994 and 1993 (incorporated by reference from page 20 of the 1995 Annual Report to Shareholders) Consolidated Statements of Cash Flows--years ended July 31, 1995, 1994 and 1993 (incorporated by reference from page 22 of the 1995 Annual Report to Shareholders) Consolidated Statements of Changes in Shareholders' Equity--years ended July 31, 1995, 1994 and 1993 (incorporated by reference from page 23 of the 1995 Annual Report to Shareholders) Notes to Consolidated Financial Statements (incorporated by reference from pages 24 through 29 of the 1995 Annual Report to Shareholders) Report of Independent Auditors (incorporated by reference from page 30 of the 1995 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, 1995. 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 27, 1995 By /s/ Raymond F. Vodovnik Raymond F. Vodovnik Vice President-Legal 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 A. Hodder Chairman, Chief Executive William A. Hodder Officer and Director /s/ James R. Giertz Vice President and Chief James R. Giertz Financial Officer /s/ Thomas A. Windfeldt Vice President and Controller Thomas A. Windfeldt /s/ William G. Van Dyke President, Chief Operating William G. Van Dyke Officer and Director *A. Gary Ames Director A. Gary Ames *F. Guillaume Bastiaens Director F. Guillaume Bastiaens *Michael R. Bonsignore Director Michael R. Bonsignore *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/Raymond F. Vodovnik Date: October 27, 1995 Raymond F. Vodovnik * 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 Deductions Period Year ended July 31, 1995: Allowance for doubtful accounts deducted from accounts receivable $3,443 $ 940 $ 111(A) $ (537)(B) $3,957 Year ended July 31, 1994: Allowance for doubtful accounts deducted from accounts receivable $2,802 $ 949 $ 28(A) $ (336)(B) $3,443 Year ended July 31, 1993: Allowance for doubtful accounts deducted from accounts receivable $2,594 $ 409 $(185)(A) $ (16)(B) $2,802
Note A--Foreign currency translation losses (gains) recorded directly to retained earnings. 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 * 4 - ** * 4-A - Preferred Stock Amended and Restated Rights Agreement (Filed as Exhibit 1 to Form 8-K Report Dated May 19, 1989) * 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) * 4-C - Copy of First Amendment to Preferred Stock Amended and Restated Rights Agreement (Filed as Exhibit 1 to Form 8-K Report Dated September 20, 1991) 10-A - Annual Cash Bonus * 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 * 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-F to 1990 Form 10-K Report) 10-H - Independent Director Retirement and Benefit Plan as amended * 10-I - Excess Benefit Plan (Filed as Exhibit 10-I to 1989 Form 10-K Report) * 10-J - Copy of Supplementary Executive Retirement Plan (Filed as Exhibit 10-J to 1991 Form 10-K Report) 10-K - 1991 Master Stock Compensation Plan as amended * 10-L - Form of Restricted Stock Award under 1991 Master Stock Compensation Plan. (Filed as Exhibit 10-L to 1992 Form 10-K Report) * 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 11 - Statement re computation of per share earnings 13 - Portions of Registrant's Annual Report to Shareholders for the year ended July 31, 1995 21 - Subsidiaries ("Wholly Owned Subsidiaries" and "Joint Ventures" on the inside back cover of the 1995 Annual Report to Shareholders is incorporated by reference) 23 - Consent of Independent Auditors 24 - Powers of Attorney 27 - Financial Data Schedule 99 - Annual Report of Employees' Retirement Savings Plan on Form 11-K for year ended July 31, 1995 * 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. EX-3.B 2 BY-LAWS OF DONALDSON COMPANY, INC. Offices 1. The principal office of the corporation shall be in Wilmington, Delaware, and the resident agent in charge thereof shall be Corporation Service Company. The corporation may also have an office or offices at such place or places, within or without the State of Delaware as the Board of Directors may from time to time designate or the business of the corporation may require. Corporate Seal 2. The corporate seal shall have inscribed thereon the name of the corporation, the year of its incorporation, and the words "Incorporated Delaware". Meetings of Stockholders 3. The Annual Meeting of Shareholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on the third Friday in November of each year at such hour as may be specified in the notice of said meeting; provided, should that day be a legal holiday, then said meeting shall be held on the next succeeding business day which is not a legal holiday. Special meetings of the stockholders may be called at any time by the chairman of the board or the president and shall be called on the request in writing or by vote of a majority of the directors. All meetings of the stockholders, including meetings for the election of directors, shall be held at such place or places within or without the State of Delaware as may from time to time be fixed by the Board of Directors or shall be specified and fixed in the respective notices or waivers of notices thereof. A complete list of stockholders entitled to vote, arranged in alphabetical order, shall be prepared by the secretary and shall be open to the examination of any stockholder at the place of election, for ten days prior thereto, and during the whole time of the election. Except as otherwise provided by statute or by the Certificate of Incorporation, at each meeting of the stockholders each stockholder having the right to vote thereat shall be entitled to (i) one vote, in person or by proxy signed by such stockholder, for each share of common stock of the Corporation standing in his name, and (ii) such voting rights, if any, as are provided in the applicable Certificate of Designation, Preferences and Rights with respect to any series of preferred stock of the Corporation standing in his name, which voting rights may be exercised in person or by proxy signed by such stockholder, and in all such instances on the date fixed by the Board of Directors as the record date for the determination of the stockholders who shall be entitled to notice of and vote at such meeting; or if no record date shall have been fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given. Such right to vote shall be subject to the right of the board of directors to close the transfer books or to fix a record date for voting stockholders as hereinafter provided and if the directors shall not have exercised such right, no share of stock shall be voted on at any election for directors which shall have been transferred on the books of the corporation within twenty days next preceding such election. Written notice of all meetings shall be given by the secretary not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. The holders of a majority of the Common Stock outstanding present in person or represented by proxy shall be requisite to and shall constitute a quorum for the transaction of business except as otherwise provided by law or by the Articles of Incorporation as amended or by these By-laws. However, the holders of the majority of the Common Stock who are present in person or represented by proxy shall have power to adjourn such meeting from time to time without notice other than announcement at the meeting until a quorum is secured. Directors 4. The property and business of the incorporation shall be managed and controlled by its board of directors. The number of directors which shall constitute the whole board shall be such number, not less than three nor more than fifteen, as may be determined from time to time (i) by the shareholders by the affirmative vote of the holders of two thirds of the outstanding shares of all classes of stock of the corporation entitled to vote for the election of directors (considered for this purpose as one class) or (ii) by the board of directors by a vote of not less than a majority of all of the directors then in office. All directors to be elected shall be elected for three year terms (except as hereinafter provided with respect to directors to fill certain vacancies) so that approximately one-third of the directors will be elected to each annual meeting of the shareholders. Each director shall continue in office until the annual meeting in the year in which his term expires and until his successor shall have been elected and qualified, or until his death, or until he shall resign or have been removed by the vote of the holders of a majority of the outstanding shares of capital stock of all classes of the corporation entitled to vote in the election of directors at a special meeting of the shareholders called for that purpose. Any vacancies in the board of directors from any cause, including vacancies created by increase in the number of directors, may be filled either by a majority of the then qualified directors, even though less than a quorum, or by the stockholders. Each director so chosen shall hold office for the unexpired term of the director whose place shall be vacant, providing that each director so chosen to fill a vacancy created by increase in the number of directors shall be elected for an appropriate term so that approximately one-third of the directors will be elected at each annual meeting of the stockholders thereafter. Directors shall be bonafide owners of at least one hundred (100) shares of this corporation's stock, shall not stand for election or re-election after attaining the age of sixty-eight and shall offer their resignation from the Board at such time as they may change their basic business or professional activity or affiliation; provided, however, that non-employee directors need not offer such resignation in the event of normal retirement. Non-employee directors continuous membership on the board of directors shall be limited to five consecutive three year terms. Powers of Directors 5. The board of directors shall have, in addition to such powers as are hereinafter expressly conferred on it, all such powers as may be exercised by the corporation, subject to the provisions of the statute, the certificate of incorporation and the by-laws. The board of directors shall have power: To purchase or otherwise acquire property, rights or privileges for the corporation, which the corporation has power to take, at such prices and on such terms as the board of directors may deem proper. To pay for such property, rights or privileges in whole or in part with money, stock, bonds, debentures or other securities of the corporation, or by the delivery of other property of the corporation. To create, make and issue mortgages, bonds, deeds of trust, trust agreements and negotiable or transferable instruments and securities, secured by mortgages or otherwise, and to do every other act and thing necessary to effectuate the same. To appoint agents, clerks, assistants, factors, employees and trustees, and to dismiss them at its discretion, to fix their duties and emoluments and to change them from time to time and to require security as it may deem proper. To confer on any officer of the corporation the power of selecting, discharging or suspending such employees. To determine by whom and in what manner the corporation's bills, notes, receipts, acceptances, endorsements, checks, releases, contracts or other documents shall be signed. Meetings of Directors 6. Immediately after each annual election of directors, the directors shall meet for the purpose of organization, the election of officers and the transaction of other business at such place as shall be specified in the notice of such meeting provided as hereinafter established for either regular or special meetings. The board of directors may provide by resolution, the time and place, either at the general office of the company or elsewhere, for the holding of regular meetings without other notice than such resolution. Special meetings of the directors may be called at any time by the chairman of the board, the president or any vice president who is also a director and shall be called on the written request of any two directors. Notice of such a special meeting shall be in writing sent to each director at his residence or usual place of business two days prior thereto. Special meetings of the directors may be held within or without the State of Delaware at such place as is indicated in the notice or waiver of notice thereof. A majority of the directors shall constitute a quorum, but a smaller number may adjourn from time to time, without further notice, until a quorum is secured. Executive and Other Committees 7. The board of directors may, by resolution or resolutions passed by a majority of the whole board, designate an executive committee and one or more other committees, each to consist of two or more of the directors of the corporation. The executive committee shall not have authority to make, alter or amend the by-laws, but shall exercise all other powers of the board of directors between the meetings of said board, except the power to fill vacancies in their own membership, which vacancies shall be filled by the board of directors. The executive committee shall meet at stated times or on notice to all by any of their own number. It shall fix its own rules of procedure. A majority shall constitute a quorum, but the affirmative vote of a majority of the whole committee shall be necessary in every case. The executive committee shall keep regular minutes of its proceedings and report the same to the board of directors. Such other committees shall have and may exercise the powers of the board of directors to the extent provided in such resolution or resolutions. Compensation of Directors and Members of Committees 8. Directors and members of standing committees shall receive such compensation for attendance at each regular or special meeting as the board shall from time to time prescribe. Officers of The Corporation 9. The officers of the corporation shall be the chairman of the board of directors (if one is elected by the board of directors), the president, one or more vice presidents, a secretary, a treasurer and such other officers as may from time to time be elected by the board of directors. The officers of the corporation shall hold office until their successors are elected and qualify. An officer elected by the board of directors may be removed either with or without cause at any time by the affirmative vote of a majority of the whole board of directors. Such removal, however, shall be without prejudice of the contract rights of the person so removed. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the affirmative vote of a majority of the whole board of directors. Duties of the Chairman of the Board and the President 10. The chairman of the board of directors, if one is elected, shall preside at all meetings of the shareholders and directors and shall have such other duties as may be prescribed from time to time by the board of directors. In the absence of the chairman of the board of directors, the president shall preside at all meetings of the shareholders and directors and shall have such other duties as may be prescribed from time to time by the board of directors. If the chairman of the board of directors is elected, the board of directors shall designate which of the chairman of the board of directors or the president is the chief executive officer of the corporation, and shall provide for the division of executive duties and responsibilities between those two officers. If the chairman of the board of directors shall not be elected, the president shall be the chief executive officer of the corporation and shall have general and active management of the business of the corporation. Vice President 11. The vice president or vice presidents, in the order designated by the board of directors, shall be vested with all the powers and required to perform all the duties of the president in his absence or disability and shall perform such other duties as may be prescribed by the board of directors. President Pro Tem 12. In the absence or disability of the chairman of the board, the president and the vice presidents, the board may appoint from their own number a president pro tem. Secretary 13. The secretary shall attend all meetings of the corporation, the board of directors, the executive committee and standing committees. He shall act as clerk thereof and shall record all of the proceedings of such meetings in a book kept for that purpose. He shall give proper notice of meetings of stockholders and directors and shall perform such other duties as shall be assigned to him by the chief executive officer or the board of directors. Financial Officers 14. The Vice President - Chief Financial Officer, if one is elected, shall have such authority and responsibility as specified herein for both the Treasurer and the Controller. The treasurer, vice president - finance or such other similar title shall be the financial officer, shall have custody of, and be responsible for, all funds of the corporation; shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors; shall render to the chief executive officer and directors, whenever they may require it, an account of all transactions as treasurer and of the financial condition of the corporation; shall keep an account of stock registered and transferred in such manner and subject to such regulations as the board of directors may prescribe; and shall perform all of the duties incident to the office of the treasurer and such other duties as from time to time, may be assigned by the chief financial officer, chief executive officer of board of directors. The controller shall be the chief accounting officer; shall keep full and accurate accounts of all assets, liabilities, receipts, disbursements and other financial transactions in books belonging to the corporation; shall cause regular audits of such books and records to be made; shall see that all expenditures are made in accordance with procedures duly established by the corporation; shall render to the chief executive officer and board of directors, whenever requested, financial statements of the corporation; and shall perform all the duties incident to the office of controller and such other duties as, from time to time, may be assigned by the chief financial officer, chief executive officer or board of directors. Financial officers may be required to furnish bond in such amount as shall be determined by the board of directors. Duties of Officers May Be Delegated 15. In case of the absence or disability of any officer of the corporation or for any other reason deemed sufficient by a majority of the board, the board of directors may delegate his powers or duties to any other officer or to any director for the time being. Certificates of Stock 16. Certificates of stock shall be signed by the President or a Vice President and the Treasurer, Assistant Treasurer, Secretary or Assistant Secretary. Any or all of the signatures on the certificates may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon any such certificate shall thereafter have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such officer, transfer agent or registrar at the date of issue. If a certificate of stock be lost, mutilated or destroyed, another may be issued in its stead upon proof of such loss, mutilation or destruction, and the giving of a bond of indemnity in form, substance and amount satisfactory to the corporation and to the Transfer Agent and Registrar, if any, of such stock, provided that, if there be no Transfer Agent or Registrar for the class of stock of which the certificate be lost, mutilated or destroyed, the Board of Directors may waive the requirement of a bond indemnity if in its judgment such waiver is warranted by the circumstances. Transfer of Stock 17. All transfers of stock of the corporation shall be made upon its books by the holder of the shares in person or by his lawfully constituted representative, upon surrender of certificates of stock for cancellation. Provided, however, that with respect to stock which has been presumed abandoned under an applicable state law, appropriate officers of the Corporation may effect cancellation of the certificate representing the abandoned shares and cause transfer thereof to such state by means of delivery of a new certificate in the name of such state. Closing of Transfer Books 18. The Board of Directors shall have power to close the stock transfer book for a period not exceeding sixty days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date for allotment of rights or the date when any change, conversion or exchange of stock shall go into effect or in connection with obtaining the consent of stockholders for any purpose. If the stock transfer book is closed preceding the date of any meeting of stockholders, such book shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer book, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of any meeting of stockholders, nor more than sixty days prior to any other action, for the determination of stockholders entitled to notice of, and to vote, at any such meeting or any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of stock or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after such record date fixed as aforesaid. Stockholders of Record 19. The corporation shall be entitled to treat the holder of record of any share or shares as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Delaware. Fiscal Year 20. The fiscal year of the corporation shall begin on the first day of August in each year, commencing with the year 1956. Dividends 21. Dividends upon the capital stock may be declared by the board of directors at any regular or special meeting and may be paid in cash or in property or in shares of the capital stock. Before paying any dividend or making any distribution of profits, the directors may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may alter or abolish any such reserve or reserves. Checks for Money 22. All checks, drafts or orders for the payment of money shall be signed by the treasurer or by such other officer or officers as the board of directors may from time to time designate. No check shall be signed in blank. Books and Records 23. The books, accounts and records of the corporation except as otherwise required by the laws of the State of Delaware, may be kept within or without the State of Delaware, at such place or places as may from time to time be designated by the By-laws or by resolution of the directors. Notices 24. Notice required to be given under the provisions of these By-laws to any director, officer or stockholder shall not be construed to mean personal notice, but may be given in writing by depositing the same in a post office or letter-box, in a post-paid sealed wrapper, addressed to such stockholder, officer or director at such address as appears on the books of the corporation, and such notice shall be deemed to be given at the time when the same shall be thus mailed. Any stockholder, officer or director may waive, in writing, any notice required to be given under these By-laws, whether before or after the time stated therein. Amendments of By-laws 25. Except as hereinafter stated, these By-laws may be amended, altered, repealed or added to by the shareholders by the affirmative vote of a majority of the outstanding shares entitled to vote on the matter, or by the board of directors by a majority of the directors then in office, at any regular meeting or at any special meeting called for that purpose. Provided that, any amendment, alteration or repeal of, or addition to, the first paragraph of By-law 4 or this sentence of By-law 25 by shareholders shall require the affirmative vote of 66-2/3% of the outstanding shares of capital stock of all classes of the corporation entitled to vote generally for the election of directors, considered for this purpose as one class. Indemnification of Directors and Officers 26. The Corporation shall indemnify such persons, for such liability or expense, in such manner, under such circumstances, and to the fullest extent permitted by Section 145 of the Delaware General Corporation Law, as now enacted or hereafter amended. The Board of Directors may authorize the purpose and maintenance of insurance for the purpose of such indemnification. Emergency Bylaws 27. The emergency Bylaws provided in this article shall be operative during any emergency resulting from an attack on the United States or on a locality in which the corporation conducts its business or customarily holds meetings of its board of directors or its shareholders, or during any nuclear or atomic disaster, or during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the board of directors or a standing committee thereof cannot readily be convened for action. Upon termination of such emergency, these Emergency Bylaws shall cease to be operative unless and until another such emergency shall occur. When operative, the provisions of these Emergency Bylaws shall prevail over any contrary provision in the certificate of incorporation or other bylaws of the corporation. During any such emergency: (a) A meeting of the board of directors may be called by any officer or any director of the corporation. (b) Notice of the time and place of such directors' meeting shall be given by such person calling the meeting or by any officer of the corporation; provided, however, that any such notice need be given only to such of the directors and other persons as it may be feasible to reach at that time, and by such means as may be feasible at that time, including, but not limited to radio and publication. Notice shall be similarly given, to the extent feasible, to all persons referred to in paragraph (c) of these Emergency Bylaws. Notice shall be given at least two days before the meeting, if feasible in the judgment of the person giving or authorizing the giving of the notice, and otherwise on any shorter time that such person may deem necessary under the circumstances. (c) At any meeting of the board of directors, a quorum shall consist of a majority of the number of directors fixed at that time. If the directors present at any particular meeting shall be fewer than the number required for such quorum, other persons present, to the number necessary to make up such quorum, shall be deemed directors for that particular meeting to be determined by the following provisions and in the following order of priority: (1) The persons who are designated on a priority list, which shall have been approved by the board of directors before the emergency, such persons to be taken in the order of priority provided by the list and subject to such conditions as may be established therein; or (2) In the absence of sufficient persons designated in such list, all officers of the corporation in order of their seniority of first election to an office or the corporation. (d) The board of directors constituted as provided in these Emergency Bylaws may exercise the full power and authority of the regular board of directors. (e) The board of directors may provide, and from time to time modify, lines of succession in the event that during such emergency any or all officers or agents of the corporation shall for any reason be rendered incapable of discharging their duties. (f) The necessity of holding an annual meeting of shareholders may be suspended for a period not to exceed one year if, in the sole judgment of the board of directors, the holding of such meeting is not feasible under the circumstances prevailing at the time such annual meeting would ordinarily be held; provided, however, that the bylaw provisions for the calling of a special meeting of shareholders shall remain in effect and any special meeting called during said suspension shall have as an item of business the election of a board of directors. (g) No officer, director or employee acting in accordance with these Emergency Bylaws shall be liable except for willful misconduct. EX-10.A 3 Exhibit 10-A DONALDSON COMPANY, INC. ANNUAL CASH BONUS PLAN 1. DEFINITIONS. When the following terms are used herein with initial capital letters, they shall have the following meanings: 1.1 BONUS POOL AMOUNT. An amount from which bonuses as provided herein may be paid equal to two and nine-tenths percent (2.9%) of the Company's earnings before income taxes for the Performance Period for which bonuses are being paid, as computed in accordance with generally accepted accounting principles as in effect from time to time and as applied by the Company in the preparation of its financial statements. For purposes of the foregoing computation, changes in generally accepted accounting principles which occur during a Performance Period shall not be taken into account, and extraordinary items, discontinued operations and restructuring costs, as computed in accordance with generally accepted accounting principles as in effect from time to time and as applied and reported by the Company in the preparation of its financial statements, shall also not be taken into account. 1.2 COMMITTEE. A committee of the Board of Directors comprised solely of two or more members appointed from time to time by the Board of Directors. All members of the committee shall be "outside directors" within the meaning of Section 162(m) of the Code. 1.3 CODE. The Internal Revenue Code of 1986, as it may be amended from time to time, and any proposed, temporary or final Treasury Regulations promulgated thereunder. 1.4 COMPANY. Donaldson Company, Inc., a Delaware corporation, and any of its subsidiaries or affiliates whether nor or hereafter established. 1.5 PARTICIPANT. The Chief Executive Officer, and three other key employees of the Company or any of its subsidiaries or affiliates who are specifically designated by the Committee pursuant to Section 2.2 hereof as the "Second," "Third" and "Fourth Participant. 1.6 PERFORMANCE PERIOD. The period which coincides with the Company's fiscal year. 1.7 COMPANY PERFORMANCE FACTOR. The Company's "return on investment" must be at least nine percent (9%) for the Performance Period for which bonuses are being paid. For purposes of the foregoing computation, "return on investment" means a fraction with a numerator equal to net earnings after income taxes for that Performance Period as computed in accordance with Section 1.1 above, and with a denominator equal to the sum of the Company's long-term debt and stockholders equity, all as computed in accordance with generally accepted accounting principles as in effect from time to time and as applied and reported by the Company in the preparation of its financial statements and annual reports. Such denominator shall be computed as of the last day of the Company's fiscal year which ends immediately before the beginning of a Performance Period and as of the last day of the fiscal year which coincides with the Performance Period, and the sum of the foregoing amounts shall then be divided by two in order to determine such denominator. 2. ADMINISTRATION. 2.1 COMMITTEE. The Plan shall be administered by the Committee. 2.2 DETERMINATIONS MADE AT START OF EACH PERFORMANCE PERIOD. No later than ninety (90) days after the beginning of a Performance Period, the Committee shall designate Participants for that Performance Period. 2.3 CERTIFICATION. Following the close of each Performance Period and prior to payment of any bonus under the Plan, the Committee must certify in writing that the Company Performance Factor has been attained and as to the computation of the Bonus Pool Amount. 2.4 SHAREHOLDER APPROVAL. The material terms of this Plan shall be disclosed to and approved by the stockholders of the Company in accordance with Section 162(m) of the Code. No bonus shall be paid under this Plan unless such stockholder approval has been obtained. 3. BONUS PAYMENT. 3.1 FORMULA. Subject to Section 3.2(b) hereof, the Chief Executive Officer shall receive a cash bonus for each Performance Period in an amount equal to thirty-eight percent (38%) of the Bonus Pool Amount for that Performance Period, and each of the three other Participants in this Plan for a Performance Period shall each receive a cash bonus payment for each Performance Period in an amount equal to twenty-six percent (26%) for the Second Participant, an amount equal to twenty percent (20%) for the Third Participant and an amount equal to sixteen percent (16%) for the Fourth Participant of the Bonus Pool Amount for that Performance Period. 3.2 LIMITATIONS. (a) NO PAYMENT IF PERFORMANCE FACTOR NOT ACHIEVED. In no event shall any Participant receive a bonus payment hereunder if the Company Performance Factor is not achieved during the Performance Period. (b) COMMITTEE MAY REDUCE BONUS PAYMENT. The Committee retains sole discretion to reduce the amount of any bonus otherwise payable under this Plan. If and to the extent permitted by Section 162(m) of the Code, the Bonus Pool Amount in a subsequent Performance Period shall be increased by any portion of the Bonus Pool Amount of a prior Performance Period which has not been paid or credited to or for the benefit of Participants hereunder. 4. BENEFIT PAYMENTS. 4.1 TIME AND FORM OF PAYMENTS. Subject to any deferred compensation election pursuant to any such plans of the Company applicable hereto, benefits shall be paid to the Participant in a single lump sum cash payment as soon as administratively feasible after the Committee has certified that the Company Performance Factor has been attained. 4.2 NONTRANSFERABILITY. Participants and beneficiaries shall not have the right to assign, encumber or otherwise anticipate the payments to be made under this Plan, and the benefits provided hereunder shall not be subject to seizure for payment of any debts or judgments against any Participant or any beneficiary. 4.3 TAX WITHHOLDING. In order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal or state payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant. 5. AMENDMENT AND TERMINATION. The Committee may amend this Plan prospectively at any time and for any reason deemed sufficient by it without notice to any person affected by this Plan and may likewise terminate or curtail the benefits of this Plan both with regard to persons expecting to receive benefits hereunder in the future and persons already receiving benefits at the time of such action. 6. MISCELLANEOUS. 6.1 EFFECTIVE DATE. August 1, 1994. 6.2 TERM OF THE PLAN. The Plan shall continue until discontinued or terminated by the Committee. 6.3 APPLICABILITY TO SUCCESSORS. This Plan shall be binding upon and inure to the benefit of the Company and each Participant, the successors and assigns of the Company, and the beneficiaries, personal representatives and heirs of each Participant. If the Company becomes a party to any merger, consolidation or reorganization, this Plan shall remain in full force and effect as an obligation of the Company or its successors in interest. 6.4 EMPLOYMENT RIGHTS AND OTHER BENEFIT PROGRAMS. The provisions of this Plan shall not give any Participant any right to be retained in the employment of the Company. In the absence of any specific agreement to the contrary, this Plan shall not affect any right of the Company, or of any affiliate of the Company, to terminate, with or without cause, the participant's employment at any time. This Plan is in addition to, and not in lieu of, any other employee benefit plan or program in which any Participant may be or become eligible to participate by reason of employment with the Company. Receipt of benefits hereunder shall have such effect on contributions to and benefits under such other plans or programs as the provisions of each such other plan or program may specify. 6.5 NO TRUST OR FUND CREATED. This Plan shall not create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any affiliate and a Participant or any other person. To the extent that any person acquires a right to receive payments from the Company or any affiliate pursuant to this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company or of any affiliate. 6.6 GOVERNING LAW. The validity, construction and effect of the Plan or any bonus payable under the Plan shall be determined in accordance with the internal laws, and not the laws of conflicts, of the State of Minnesota. 6.7 SEVERABILITY. If any provision of the Plan is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan, such provision shall be stricken as to such jurisdiction, and the remainder of the Plan shall remain in full force and effect. 6.8 QUALIFIED PERFORMANCE-BASED COMPENSATION. All of the terms and conditions of the Plan shall be interpreted in such a fashion as to qualify all compensation paid hereunder as "qualified performance-based compensation" within the meaning of Section 162(m) of the Code. EX-10.D 4 Exhibit 10-D DONALDSON COMPANY, INC. Performance Award Agreement This Agreement is made as of the _____ day of _____, 19___, between Donaldson Company, Inc., a Delaware corporation (the "Company") and _________________________ (the "Participant") pursuant to the Donaldson Company, Inc. 1991 Master Stock Compensation Plan (the "Plan"). WITNESSETH: WHEREAS, the Human Resources Committee of the Board of Directors of the Company have decided to enter into agreements with key executives to provide for long term performance awards, and WHEREAS, the Plan contemplates that an award should be evidenced by a written agreement, executed by the Company and the Participant, containing such restrictions, terms and conditions as may be required by the Plan or the Committee. NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth and of other good and valuable consideration, the Participant and the Company hereby agree as follows: 1. Definitions. Participant acknowledges receipt of a copy of the Plan and reference is made to the Plan for definition of certain terms used in this Agreement. (a) "Award Delivery Date" means a date no more than 60 days nor less than 45 days after the end of an Incentive Cycle or such earlier date as hereinafter provided. (b) "Incentive Cycle" is the three consecutive year period set forth in the attached Exhibit A. (c) "Award Split" means Award split between business/corporate Performance Objectives for each Participant as determined by the Committee and set forth in the attached Exhibit A. (d) "Performance Objective" means the primary net earnings per share resulting from the Return on Investment and Compound Sales Growth determined by the Committee and set forth in Exhibit A. (e) "Return on Investment" and "Sales" for purposes of this Plan shall have the meaning and value set forth separately for each operating group and corporate in the monthly operating reports published by the Company's Accounting Department. (f) "Vesting Date" shall be July 31, 19___. 2. Award. The Company hereby grants to the Participant an award (the "Award") based on the number of shares of Common Stock of the Company as set forth in the attached Exhibit A ("Performance Units") subject to the restrictions, terms and conditions set forth below and in the Plan. 3. Award Delivery. Except as provided in Paragraphs 5 and 6 below, the Award will be received only if the Performance Objectives set forth in Exhibit A have been achieved by the end of the Incentive Cycle. The Award shall be calculated by multiplying the Performance Units times a point, in an interpolation of the Award Value Matrix, that coincides with the intersection of the respective Performance Objectives' results. The Award shall be increased for Earnings Per Share consistency as set forth in Exhibit A. If applicable, other Award characteristics have also been referenced in Exhibit A. To avoid the necessity of issuing fractional shares, fractional amounts will be applied to tax withholding requirements. 4. Performance Objectives Alteration. The Performance Objectives may not be changed. Provided, however, that in the event of an acquisition, disposition or other change which, in the judgment of the Committee, may have a significant effect on particular Performance Objectives, the Committee may adopt such changes in the applicable Performance Objectives as it shall, in its sole discretion, deem equitable and appropriate to achieve the purpose of the Plan. 5. Termination and Transfer. (a) If the Plan is terminated or Participant ceases to be an employee by reason of retirement (as defined in the Company's Employee Retirement Plan), disability (as determined under the Company's Long Term Disability Plan), or death prior to the Vesting Date, the Award earned will be based on actual results compared to the Performance Objectives at the end of the Incentive Cycle and multiplied by a fraction whose numerator is the number of months completed in the cycle and denominator is thirty-six with delivery on the Award Delivery Date. (b) If Participant ceases to be an employee for any other reason than stated in (a) above, participation in the Plan will cease and the Award shall be immediately and irrevocably forfeited. (c) If a participant transfers to an ineligible position, the Award earned will be based on actual results compared to the Performance Objectives at the end of the Incentive Cycle and multiplied by a fraction whose numerator is the number of months completed in the cycle and denominator is thirty-six with delivery on the Award Delivery Date. 6. Reorganization. In the event of a reorganization, merger or consolidation of the Company with one or more Corporations in which the Company is not the surviving Corporation or in the event a Change in Control shall have occurred, the Performance Objectives shall be deemed to have been met for the period ending, respectively, on a date prior to such reorganization, merger or consolidation, as determined by the Committee or on the date on which the Change in Control occurs and, the Award shall be calculated in the same manner as provided under Section 5(a). 7. Miscellaneous. (a) The rights and interest under this Agreement or the Plan may not be assigned, pledged or transferred except by will or the laws of descent and distribution. (b) The Company shall have the right to deduct from all Awards any taxes required by law to be withheld. (c) Nothing in the Plan or in this Agreement shall be deemed to grant any right of continued employment to Participant or to limit or waive any rights of the Company to terminate such employment at any time, with or without cause. (d) The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets or assure delivery of the Award under this Agreement. Any liability of the Company to Participant with respect to the Award shall be based solely upon any contractual obligations of this Agreement or that may be created by the Plan; no such obligation shall be deemed to be secured by any pledge or any encumbrance on any property of the Company. (e) The Company, the Company's Board of Directors, the Committee, the officers and other employees and agents of the Company shall be fully protected in relying in good faith on the computations and reports made pursuant to or in connection with the Plan by the Company's accountants or independent public accountants. (f) This Agreement is subject to the requirement that, if at any time the Committee determines, in its sole discretion, that the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the Award or delivery of the Award, no delivery shall be made unless such consent or approval has been obtained free of any conditions not acceptable to the Committee. (g) Participant may elect to defer receipt of the award delivery until January of the year following the Award Delivery Date by executing an Award Delivery Deferral form prior to the Vesting Date. IN WITNESS WHEREOF, Donaldson and the Participant have duly executed Exhibit A to this Agreement effective the day and year first above written. EXHIBIT A DONALDSON COMPANY, INC. INCENTIVE CYCLE: August 1, 19__ to July 31, 19__ PARTICIPANT: __________________________ PERFORMANCE UNITS: ________ PERFORMANCE OBJECTIVES: Compound Sales Return on Growth Per Year Investment Maximum ___________ __________ Corporate Target ___________ __________ Performance Threshold ___________ __________ Maximum ___________ __________ Group Target ___________ __________ Performance Threshold ___________ __________ AWARD SPLIT: Corporate _____% Group _____% AWARD VALUE MATRIX: COMPOUND Maximum 1.00 1.25 1.50 SALES GROWTH Target .75 1.00 1.25 Threshold .50 .75 1.00 Threshold Target Maximum RETURN ON INVESTMENT CONSISTENCY BONUS: If Earnings per Share increase by at least 5% each year of the Incentive Cycle and the threshold Corporate Performance Objectives are achieved, the Award value shall be increased by 25%. OTHER AWARD CHARACTERISTICS: Accepted _____________, 19__. PARTICIPANT DONALDSON COMPANY, INC. ______________________ _______________________ EX-10.H 5 Exhibit 10-H DONALDSON COMPANY, INC. INDEPENDENT DIRECTOR RETIREMENT AND DEATH BENEFIT PLAN This Independent Director Retirement and Death Benefit Plan (the "Plan") has been adopted by the Board of Directors (the "Board") of Donaldson Company, Inc. (the "Company") as of August 1, 1987 (the "Effective Date"). 1. ELIGIBILITY Persons who were directors of the Company on the Effective Date, or who become directors of the Company after the Effective Date, and are neither employees of the Company or its subsidiaries nor former employees of the Company or its subsidiaries ("Participants") will become eligible to receive benefits as and to the extent provided under Sections 2 and 3 of the Plan. 2. RETIREMENT OR OTHER TERMINATION: ELIGIBILITY When a Participant ceases to be a director of the Company because of (i) retirement, (ii) resignation, (iii) failure to be reelected to a succeeding term as a director following expiration of the director's term of office; (iv) involuntary termination other than removal for cause, (v) death or (vi) disability, (in each of which events the directorship of the Participant is herein said to "Terminate"), the Participant shall be eligible to receive benefits hereunder, under the following conditions: (a) Before Participant has Completed five (5) full years of Service as a Director Benefits will be payable only in the event of the Participants's death while serving as a member of the Board. (b) After Participant has completed five (5) full years of Service as a Director Benefits will be payable under the following conditions: (1) Retirement Under Terms of the Donaldson Company, Inc. Directors' Retirement Policy Participant Terminates as a result of retirement as required under the terms of the Donaldson Company, Inc. Directors' Retirement Policy then in effect. (2) Resignation Participant Terminates as a result of a voluntary resignation. (3) Failure to be Reelected Participant Terminates by reason of his/her failure to be reelected to a succeeding term as a director when the Participant's term as director expires. (4) Involuntary Termination Participant Terminates otherwise than by Participant's voluntary act, and otherwise than be removal for cause (i.e., proven dishonesty, gross misconduct or dereliction of duty) due to conflicts of interest such as outlined in the Company's Code of Conduct. A Participant may be required to Terminate because of the Company's entry into a new business, market, activity or relationship which, as determined by that Participant with the concurrence of the Board, creates a conflict between the pre-existing interests of the Participant and the interests of the Company. (5) Death Participant Terminates by reason of death. (6) Disability Participant Terminates following a determination by the Company's Board of Directors that Participant is unable to fulfill the duties of a director of the Company by reason of disability, however caused. 3. BENEFIT AMOUNT AND PAYMENTS (a) Benefit Amount A Participant who becomes eligible to receive benefits under the Plan shall be entitled to a benefit equal to the final annual director retainer fee paid to that participant. (b) Benefit Payments Payments of benefits ("Benefit Payments") to a Participant shall be made in equal annual installments over a period equal to the number of years of the Participant's service as a director of the Company or its subsidiaries up to a maximum of ten (10) years (for directors retiring after December 1, 1992 fifteen (15) years). Provided that if a Participant has completed five (5) full years of service, a partial year of service will be credited as a full year if .50 or greater. If the Participant elects, in writing at least one year prior to termination, a lump sum amount equal to the then present value of Benefit Payments determined in the same manner as set forth in sub section (iv) of this Section 3 but as of Participant's commencement date as hereinafter provided, shall be paid within sixty (60) days after the commencement date. The election may be made or changed anytime while a director; provided, that the election shall be irrevocable after a date one year prior to termination. Exception: A Participant who terminates because of death shall be credited with a full fifteen (15) years of service regardless of that Participant's period of service as a director of the Company or its subsidiaries. Benefits will commence on the later of: (i) the January 1 next following the date on which the Participant Terminates; or (ii) for terminated Participants, the January 1 next following the date on which (a) the Participant attains age sixty-five (65) or (b) (if earlier) the Participant dies; except that: (iii) benefits to a Participant who Terminates upon a determination of disability under Section 2(b) (2) shall become payable commencing the January 1 next following the date on which the Participant Terminates, notwithstanding that the Participant has not attained age sixty-five (65) at that time; and (iv) benefits to be paid after a Participant's death shall be settled, if the Participant had so elected in writing, by payment to the Participant's designated beneficiary within sixty (60) days after death of a lump sum amount equal to the then present value of unpaid Benefit Payments determined by use of the immediate annuity rate being applied at the date of the Participant's death by the Pension Benefit Guaranty Corporation. If not so elected, any remaining installments will be paid to the Participant's designated beneficiary. Notwithstanding anything to the contrary, the Board in its sole and absolute discretion may at any time and for any reason elect to accelerate all or any portion of the Benefit Payments payable to (or with respect to) all or less than all of the Participants. 4. ADMINISTRATION (a) Taxes The Company shall withhold federal, state or local taxes from Benefit Payments to the extent required by law. (b) Non-Funded The Company's obligations under the Plan shall be an unfunded and unsecured promise to pay. Any assets which the Company may acquire to help meet its financial liabilities are and remain general assets of the Company subject to the claims of its creditors. The company does not give,nor does any Participant receive, any beneficial ownership interest in any asset of the Company. (c) Continuation of Directorship The Plan shall not be deemed to give any Participant the right to continue as a director of the Company. (d) Payments After Death Upon a Participant's death, any Benefit Payments (including a lump-sum settlement elected under Section 3(b) (iv) payable with respect to that Participant, whether or not such payment had commenced, shall be paid to the beneficiary or beneficiaries who had been designated in writing to the Company by said Participant, or if such designation had been made, to said Participant's estate. (e) Payments Due Incompetents or Minors If the Board determines that any person to whom a payment is due hereunder is unable to care for his or her affairs because of physical or mental disability, or that such person is a minor, the Company shall have the authority to cause payments becoming due to such person to be made for the benefit of such person to any individual or entity deemed appropriate by the Company without responsibility of the Company to see to the application of such payments and in complete discharge of the obligations of the Company under the Plan. (f) Assignability Except insofar as this provision may be contrary to applicable law, no sale, transfer, alienation, assignment, pledge, collateralization, or attachment of any benefits under the Plan shall be valid or recognized by the Company. (g) Amendment and Termination The Board necessarily reserves the right to amend the Plan from time to time, or to terminate the Plan at any time, except that, notwithstanding such amendment or termination, each Participant shall receive Benefit Payments at least equivalent to (i) Benefit Payments the first of which become payable to or with respect to the Participant under the Plan prior to the date of amendment or termination (whether or not such first payment had been made); or (ii) Benefit Payments none of which had become payable prior to the date of amendment or termination but to which the Participant had become entitled prior to such date because the Participant had Terminated; or (iii) Benefit Payments to which the Participant later would have become entitled when the Participant Terminates, and which would have become payable to the Participant, if (a) the Plan had provided that the Participant receives credit under Section 3(b) hereof only for years of service as a director of the Company or its subsidiaries completed up to the date of amendment or termination, and (b) the Plan had not been terminated or amended (otherwise than to incorporate the assumption in (a) of this clause (iii)). (h) Governing Law The Plan shall be governed by the laws of the State of Minnesota to the extent not superseded by federal law. (i) Company The term "Company" as used in the Plan shall include any successor to the Company by reason of merger, consolidation, the purchase of all or substantially all of the Company's assets, or otherwise. DONALDSON COMPANY, INC. INDEPENDENT DIRECTOR RETIREMENT AND DEATH BENEFIT PLAN BENEFICIARY DESIGNATIONS ________________ Date TO: CHAIRMAN OF THE BOARD I hereby designate the following as my beneficiary or beneficiaries as provided for in the Donaldson company, Inc., Independent Director Retirement and Death Benefit Plan to receive my account under said Plan in the event of my death. I revoke all beneficiary designations previously executed by me under the Plan. 1. _______________________ _____________ ______________________ Full Name Relation Social Security Number 2. _______________________ _____________ ______________________ Full Name Relation Social Security Number 3. _______________________ _____________ ______________________ Full Name Relation Social Security Number 4. _______________________ _____________ ______________________ Full Name Relation Social Security Number I direct that the beneficiaries named above who are living at my death receive my account in the following manner: ___ The entire account to person No. 1, if living. If person No. 1 is not living, then to person No. 2, etc. ___ To person No. 1, if living. If person No. 1 is not living, then to persons No.___ and ___ then living, in equal amounts. ___ To persons No.___ and ___ then living, in equal amounts. I elect that payment be made to my designated beneficiary or beneficiaries as follows: ___ Within sixty (60) days after death of a lump sum amount equal to the then present value of unpaid Benefit Payments determined by use of the immediate annuity rate being applied at the date of my death by the Pension Benefit Guaranty Corporation. ___ In annual installments. ___________________________ Signature __________________________ ___________________________ Witness EX-10.K 6 Exhibit 10-K DONALDSON COMPANY, INC. 1991 MASTER STOCK COMPENSATION PLAN I. GENERAL SECTION 1.01 PURPOSE OF THE PLAN. The purpose of the 1991 Master Stock Compensation Plan is to enhance the long-term profitability of Donaldson and shareholder value by offering stock based incentives in addition to current compensation to those individuals who are key to the growth and success of Donaldson. SECTION 1.02 DEFINITIONS. For all purposes of the Plan, the following terms shall have the meanings assigned to them, unless the context otherwise requires: (a) "Award" means any award described in Parts II and III. (b) "Award Agreement" means an agreement entered into between Donaldson and a Participant setting forth the terms and conditions applicable to the Award granted to the Participant. (c) "Change in Control". A "Change in Control" of Donaldson shall have occurred if (i) any "person", as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than Donaldson, any trustee or other fiduciary holding securities under an employee benefit plan of Donaldson or any corporation owned, directly or indirectly, by the shareholders of Donaldson in substantially the same proportions as their ownership of stock of Donaldson), either is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Donaldson representing 30% or more of the combined voting power of Donaldson's then outstanding securities, (ii) during any period of two consecutive years (not including any period prior to the effective date of this Plan), individuals who at the beginning of such period constitute the Board of Directors of Donaldson (the "Board" ), and any new director (other than a director designated by a person who has entered into an agreement with Donaldson to effect a transaction described in clause (i), (iii) or (iv) of this subparagraph) whose election by the Board or nomination for election by Donaldson's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof, unless the approval of the election or nomination for election of such new directors was in connection with an actual or threatened election or proxy contest, (iii) the shareholders of Donaldson approve a merger or consolidation of Donaldson with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of Donaldson outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of Donaldson or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of Donaldson (or similar transaction) in which no "person" (as hereinabove defined) acquires more than 30% of the combined voting power of Donaldson's then outstanding securities or (iv) the shareholders of Donaldson approve a plan of complete liquidation of Donaldson or an agreement for the sale or disposition by Donaldson of all or substantially all of Donaldson's assets or any transaction having a similar effect (the date upon which an event described in clause (i), (ii), (iii) or (iv) of this paragraph (c) occurs shall be referred to herein as an "Acceleration Date"). (d) "Committee" means the subcommittee (or subcommittees as may be necessary) of the Human Resources Committee of the Board of Directors (the "Board") appointed to administer the Plan and constituted so as to satisfy the legal requirements, including any such requirements for disinterested administration, imposed by Rule 16b-3 of the Exchange Act ("Rule 16b-3"). (e) "Common Stock" means the Common Stock of Donaldson, par value $5.00 per share, including treasury Shares and authorized but unissued Shares or any security of Donaldson issued in substitution, exchange or in lieu thereof. (f) "Donaldson" means Donaldson Company, Inc. and its Subsidiaries. (g) "Limitation Amount" means with respect to any Plan Year, one and one half (1 1/2) percent of the Outstanding Shares. (h) "Market Value" of Common Stock as of any date means the closing sales price on such date on the New York Stock Exchange, or if there was no sale on that date, then, unless otherwise specifically set forth hereinafter, on the preceding date on which a sale occurred. (i) "Outstanding Shares" means, with respect to any Plan Year, the outstanding Shares of Common Stock, outstanding Common Stock equivalents (as determined by Donaldson in the calculation of earnings per share on a fully diluted basis) and Treasury Shares as reported in the Annual Report on Form 10-K of Donaldson for the most recent fiscal year that ends during the Plan Year. (j) "Participant" means an individual who has been granted an Award pursuant to the Plan. (k) "Plan" means this 1991 Master Stock Compensation Plan. (l) "Plan Year" means the calendar year. (m) "Shares" means shares of Common Stock. (n) "Subsidiary" means any corporation or other entity of which a majority of the voting power is owned, directly or indirectly, by Donaldson, or which is otherwise controlled by Donaldson. SECTION 1.03 SHARES SUBJECT TO THE PLAN. (a) Subject to adjustments authorized by Section 1.05 and the provisions of the remaining subsections of this Section 1.03, the number of Shares with respect to which Awards may be issued under the Plan in any Plan Year shall not exceed the Limitation Amount; provided that any Shares with respect to which Awards may be issued, but are not issued, under the Plan in any Plan Year shall be carried forward and shall be available to be covered by Awards issued in any subsequent Plan Year in which Awards may be issued under the Plan. (b) In the event any options granted under the Plan shall terminate or expire for any reason without having been exercised in full, the Shares not purchased under such options shall again be available under the Plan. (c) In the event Shares that are the subject of Awards under the Plan are subsequently forfeited to Donaldson pursuant to the applicable restrictions or Award Agreement, such Shares shall again be available under the Plan. (d) If a Participant exercises a stock appreciation right, any Shares covered by the stock appreciation right in excess of the number of Shares issued (or, in the case of a settlement in cash or any other form of property, in excess of the number of Shares equal in value to the amount of such settlement, based on the Market Value of such Shares on the date of such exercise) shall again be available under the Plan. (e) If pursuant to the terms of the Plan a Participant uses Shares to (i) pay a purchase or exercise price, including an option exercise price, or (ii) satisfy tax withholding or payment requirements, such Shares shall become available for grant under the Plan; provided, however, that such Shares shall not become available for grant under the Plan unless the Committee determines that this provision would be in compliance with the applicable requirements of Rule 16b-3 and other applicable law. (f) The Shares that again become available under the Plan pursuant to Subsections (b), (c), and (d) above, and the Shares that become available under the Plan pursuant to Subsection (e) above, shall be in addition to the number of Shares authorized by Subsection (a) above. (g) Subject to the foregoing provisions of this Section 1.03, the grant of an Award, the payment or settlement of which may be made in Shares, shall be deemed to be a grant of Shares equal to the greater of the number of Shares that may be issued under the Award or the number of Shares on the basis of which the Award is calculated. The grant of an Award that is convertible into, or exercisable for, Shares shall be deemed to be a grant of Shares equal to the number of Shares into which the Award is convertible or exercisable on the date of grant. Where the value of an Award is variable on the date it is granted, the value of the Award shall be deemed to be equal to the maximum limitation on the number of Shares that may be granted or purchased under the Award. Where two or more Awards are granted with respect to the same Shares, such Shares shall be taken into account only once for purposes of this Section 1.03. (h) Shares authorized or issued under any other plan or which are not specifically issued pursuant to this Plan, shall not reduce the number of Shares with respect to which Awards may be issued under this Plan. SECTION 1.04 ADMINISTRATION OF THE PLAN. The Plan shall be administered by the Committee which shall in its sole discretion determine: (a) the individuals to participate in the Plan; (b) the number of Shares to be covered by Awards granted under the Plan and the price to be paid, if any, for such Shares; (c) the size and terms of the Awards, any performance periods and objectives, and range of achievement percentages; (d) the provisions governing the disposition of an Award in the event of retirement, disability, death or other termination of a Participant's employment or relationship to Donaldson; and (e) the interpretation, construction and implementation of the Plan. All determinations of the Committee shall be by a majority of its members. Decisions and determinations by the Committee shall be final. SECTION 1.05 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. (a) In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), extraordinary cash dividend, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, combination, repurchase, or exchange of Shares or other securities, exercisability of stock purchase rights received under the rights plan, issuance of warrants or other rights to purchase Shares or other securities, or other similar corporate transaction or event affects the Shares with respect to which Awards have been or may be issued under the Plan, such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee, in such manner as the Committee may deem equitable, may adjust any or all of (i) the number and type of Shares that thereafter may be made the subject of Awards, (ii) the number and type of Shares (or other securities or property) subject to outstanding Awards, and (iii) the grant, purchase, or exercise price with respect to any Award, or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award; provided, in each case, that with respect to incentive stock options, no such adjustment shall be authorized to the extent that such adjustment would cause such options to violate Section 422 of the Internal Revenue Code of 1988 as amended (the "Code") or any successor provision; and provided further, that the number of Shares subject to any Award denominated in Shares shall always be a whole number. (b) In the event of a corporate merger, consolidation, acquisition of property or stock, reorganization or liquidation, the Committee shall be authorized to cause the Corporation to issue or to assume stock options or stock appreciation rights, whether or not in a transaction to which Section 424(a) of the Code applies, by means of substitution of new options or rights for previously issued options or rights or an assumption or previously issued options or rights, but only if and to the extent that such substitution or assumption is consistent with the other provisions of the Plan, with the applicable requirements of Rule 16b-3, and with any other applicable law. SECTION 1.06 EFFECTIVE DATE. The effective date of the Plan shall be the date upon which the Plan shall be approved by the shareholders of Donaldson. Unless the Plan is terminated earlier in accordance with Section 1.07 hereof, the Plan shall remain in full force and effect until the close of business on December 31, 2001, at which time the right to grant Awards under the Plan shall terminate automatically unless the Shareholders of Donaldson approve an extension or renewal. Any Awards granted under the Plan before such termination date shall continue to be governed, thereafter, by the terms of the Plan and of the Awards. SECTION 1.07 AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate the Plan or from time to time amend or revise the terms of the Plan or any part thereof without further action of the shareholders; provided, however, that the Board may not amend the Plan in any manner or by any procedure that would result in noncompliance with Rule 16b-3 or any applicable law. Notwithstanding any of the above, on or after the occurrence of a Change in Control, no direct or indirect alteration, amendment, suspension, termination or discontinuance of the Plan, no establishment or modification of rules, regulations or procedures under the Plan, no interpretation of the Plan or determination under the Plan, and no exercise of authority or discretion vested in the Committee under any provision of the Plan (collectively or individually, a "Change") shall be made if such Change (1) is not required by applicable law, necessary to meet the requirements of Rule 16b-3, or required to preserve the qualification of incentive stock options under the Code, and (2) would have the effect of: (i) eliminating, reducing or otherwise adversely affecting a Participant's, former Participant's or beneficiary's right with respect to any Award (including without limitation any Award previously deferred and unpaid (including any appreciation, dividend equivalents, interest, or other earnings thereon) in accordance with a deferral election made prior to such Change and in accordance with any investment or payment option permitted (irrespective of any requirement for approval) pursuant to rules, regulations or procedures in effect on the date immediately preceding the date on which the Change in Control occurs), (ii) altering the meaning or operation of the definition of "Change in Control" in Section 1.02 hereof (and of the definition of all the defined terms that appear in the definition of "Change in Control"), the provisions of this Section 1.07 or Section 1.13 or any rule, regulation, procedure, provision or determination made or adopted prior to the Change in Control pursuant to this Section 1.07 or any provision in any rule, regulation, procedure, provision or determination made or adopted pursuant to the Plan that becomes effective upon the occurrence of a Change in Control (collectively, the "Change in Control Provisions"), or (iii) undermining or frustrating the intent of the Change in Control Provisions to secure for Participants, former Participants and beneficiaries the maximum rights and benefits that can be provided under the Plan. Upon and after the occurrence of a Change in Control, all rights of all Participants, former Participants and beneficiaries under the Plan (including without limitation any rules, regulations or procedures promulgated under the Plan) shall be contractual rights enforceable against Donaldson and any successor to all or substantially all of the Donaldson's business or assets. SECTION 1.08 WITHHOLDING OF TAX. Each participant, as a condition precedent to the issuance of Shares hereunder, shall make arrangements with Donaldson for payment or withholding of the amount of any tax required by any government authority to be withheld and paid by Donaldson to such government authority for the account of the participant. SECTION 1.09 EMPLOYMENT. Nothing in the Plan and no grant of an Award shall be deemed to grant any right of continued employment to a participating employee or to limit or waive any rights of Donaldson to terminate such employment at any time, with or without cause. SECTION 1.10 RIGHTS AS SHAREHOLDERS. A participating employee shall have no rights whatsoever as a shareholder of Donaldson with respect to any Shares covered by an Award until the date of issuance of a stock certificate pursuant to the terms of such Award. SECTION 1.11 UNFUNDED PLAN. The Plan shall be unfunded. Donaldson shall not be required to segregate any assets that may at any time be represented by Awards made pursuant to the Plan. Neither Donaldson nor the Board shall be deemed to be a trustee of any amounts to be paid under the Plan. Any liability of Donaldson to any Participant, former Participant or beneficiary with respect to an Award shall be based solely upon contractual obligations created by the Plan and the Award Agreement. No such obligation shall be deemed to be secured by any pledge of or any encumbrance on any property of Donaldson. SECTION 1.12 NO FRACTIONAL SHARES. No fractional Shares shall be issued pursuant to the Plan or any Award. The Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of fractional Shares, or whether fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated. SECTION 1.13 CHANGE IN CONTROL. In the event of a Change in Control of Donaldson: (a) any outstanding options and stock appreciation rights granted under the Plan not previously vested and exercisable shall become fully vested and exercisable and shall remain exercisable thereafter until they are either exercised or expire by their terms; (b) performance objectives applicable to Awards granted under the Plan shall be deemed to have been met at 100% of target then prorated on the basis of the portion of the performance period that has expired; and (c) the restrictions applicable to any restricted Shares awarded under the Plan shall lapse and such Shares shall become fully vested. II. EMPLOYEE AWARDS SECTION 2.01 The following types of Awards may be granted under this Part II, singly or in combination or in tandem with other Awards (or with awards under other plans of Donaldson) as the Committee may determine. All such Awards shall be in a form determined by the Committee provided that no Award may be inconsistent with the terms of the Plan and must be set forth in an Award Agreement. SECTION 2.02 GRANT OF STOCK OPTIONS. Any employee (including officers and employee directors) regularly employed by Donaldson shall be eligible to receive options hereunder. No option may be granted to any employee who owns more than 5% of the Common Stock. Options shall be evidenced by written Award Agreements. The Award Agreements, in such form as the Committee shall from time to time approve, shall contain the terms and conditions of such option including the following: (a) Time of Exercise. An employee may exercise an option at such time or times as determined by the Committee at the time of the grant; provided, however, that all rights to exercise an incentive stock option shall expire not more than ten years after the date such option is granted. (b) Exercise Price. The exercise price per share of Common Stock deliverable upon the exercise of an option shall be determined by the Committee at the time of grant and clearly set forth in the Award Agreement; but shall not be less than the Market Value of the Shares on the date the option is granted. (c) Exercise of Options. To exercise an option in whole or in part, the Participant employee shall give written notice to Donaldson's Treasurer at the principal offices of Donaldson of the exercise of the option, stating the number of Shares with respect to which the Participant is so exercising and accompanying such notice with full payment of the exercise price for such number of Shares. Payment of the exercise price may be made in cash or, with the consent of the Committee, in whole or in part through the delivery or attestation to the ownership of Common Stock valued at the Market Value on the day preceding the date of exercise provided that in the case of attestation, the Shares transferred upon exercise of the option shall be net of the number of Shares attested to. Subject to rules established by the Committee, the amount of any tax required to be paid or withheld pursuant to Section 1.08 may be satisfied by Donaldson withholding Shares issued on exercise having a Market Value on the day preceding the date of exercise equal to such taxes; provided, that the number of Shares so withheld shall be rounded up to avoid the necessity of issuing fractional Shares. (d) The Committee may grant "reload" options pursuant to which, subject to the terms and conditions established by the Committee and any applicable requirements of Rule 16b-3 or any other applicable law, the Participant would be granted a new option when the payment of the exercise price of a previously granted option is made by the delivery or attestation to ownership of Common Stock owned by the Participant, as described in Section 2.02(c) hereof, which new option (i) would be an option to purchase the number of Shares provided as consideration upon the exercise of the previously granted option and (ii) would have a per share exercise price equal to the Market Value as of the date of grant of the new option. SECTION 2.03 STOCK APPRECIATION RIGHTS. The Committee may grant stock appreciation rights under the Plan. A Stock Appreciation Right (SAR) is a right, denominated in Shares, to receive, upon surrender of the right (or of both the right and a related option in the case of a tandem right) in whole or in part, but without payment, an amount (payable in Shares, in cash, or a combination thereof as the Committee shall determine) that does not exceed the excess of the Market Value on the exercise date of the number of Shares for which the SAR is exercised over the exercise price of such right, which exercise price shall not be less than the Market Value for such Shares on the date the right was granted (or, in the case of an option with tandem SAR not less than the option price that the optionee otherwise would have been required to pay for such Shares); provided that, in the case of any SAR granted retroactively in tandem with or in substitution for another Award (or any outstanding award granted under any other plan of Donaldson), the exercise price shall not be less than the Market Value for the number of Shares for which the SAR is exercised on the date of grant of the other Award (or award). The exercise of SARs for cash by a Participant who is an officer or a director for purposes of Sections 16(a) and 16(b) of the Exchange Act or any successor thereto, shall be subject to the requirements of Rule 16b-3. Upon exercise of a tandem SAR as to some or all of the Shares covered by the grant, the related stock option shall be cancelled automatically to the extent of the number of Shares covered by such exercise. If a related stock option is exercised as to some or all of the Shares covered by the grant, the tandem SAR, if any, shall be cancelled automatically to the extent of the number of Shares covered by the stock option exercise. SECTION 2.04 INCENTIVE STOCK OPTIONS. At the discretion of the Committee, options granted under Section 2.02 above may be designated incentive stock options in compliance with Section 422 of the Code or any successor section, as it may be amended from time to time, and the regulations thereunder. Incentive stock options shall be evidenced by written Award Agreements and may be granted only with respect to Shares of Common Stock. The aggregate number of Shares for which incentive stock options may be granted under the Plan shall not exceed 1,000,000 Shares of Common Stock, subject in any Plan Year to the limitations imposed and adjustments required by Section 1.03 hereof and subject to the adjustment provisions set forth in Section 1.05 hereof. Incentive stock options may not be granted under the Plan after November 15, 2001. SECTION 2.05 RESTRICTED STOCK. The Committee may grant to any employee restricted stock, for no cash consideration, if permitted by applicable law, or for such other consideration as may be determined by the Committee and specified in the Award Agreement which sets forth the Award. The terms and conditions of Awards of restricted stock shall be determined by the Committee. Unless otherwise specified in the Award Agreement, holders of restricted stock shall have the right to vote such Shares and receive cash and stock dividends on such shares. Any restricted stock issued hereunder may be evidenced in such manner as the Committee in its sole discretion shall deem appropriate, including, without limitation, bookentry registration or issuance of a stock certificate or certificates, and may be held in escrow by such party as the Committee in its sole discretion shall designate. In the event any stock certificate is issued in respect of restricted stock granted hereunder and not held in escrow, such certificate shall bear an appropriate legend with respect to the restrictions applicable to such Award. SECTION 2.06 OTHER STOCK-BASED AWARDS. The Committee may grant Awards (other than the Awards described above) under the Plan that consist of or are denominated in or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares, provided that such grants must comply with Rule 16b-3 and other applicable law. The Committee may subject such Awards to such restrictions on transfer and/or such other restrictions on incidents of ownership as the Committee may determine, provided that such restrictions must be consistent with the terms of the Plan. The Committee may grant Awards under this Section 2.06 that require no payment of consideration by the Participant (other than services previously rendered or, as may be permitted by applicable law, services to be rendered), either on the date of grant or the date any restriction(s) thereon are removed. In addition, the Committee may grant Awards under this Section 2.06 that provide to the Participant the right to purchase Shares, provided that the purchase price or exercise price, if any, shall in no event be less than the Market Value for such Shares on the date of grant; provided that, in the case of any Award granted retroactively in tandem with or in substitution for another Award (or any outstanding award granted under any other plan of Donaldson) the purchase price or exercise price, if any, shall not be less than the Market Value on the date of grant of the other Award (or award). SECTION 2.07 DOLLAR-DENOMINATED AWARDS. The Committee may grant cash Awards under the Plan that are denominated in, valued by reference to, or otherwise based on or related to, a designated dollar amount or amounts (including dollar amounts that are determined pursuant to a formula), as determined by the Committee, and that are determined in accordance with the achievement of long-term performance criteria applicable to Donaldson, a Subsidiary, division, operating unit or individual Participant, as determined by the Committee. Awards granted pursuant to this Section 2.07 shall be payable only in cash. SECTION 2.08 DIVIDEND EQUIVALENTS The Committee may grant dividend equivalents in respect of Awards. In respect of any such Award that is outstanding on a dividend record date for the Shares covered by the Award, the Participant may be credited with an amount equal to the amount of cash or stock dividends that would have been paid on the Shares covered by the Award if the covered Shares had been issued and outstanding on the dividend record date. Subject to the terms of the Plan and any applicable Award Agreements, the Committee shall establish such rules and procedures governing the crediting of dividend equivalents, including the timing and payment contingencies that apply to the dividend equivalents, as the Committee deems necessary or appropriate and which rules and procedures shall comply with Rule 16b-3 and other applicable law. Dividend equivalents shall be paid only in cash. SECTION 2.09 NON-TRANSFERABILITY OF AWARDS. Awards (other than Restricted Shares, the restrictions upon which have lapsed) are not transferable by an employee other than by will or the laws of descent and distribution. During the employee's lifetime, stock options and stock appreciation rights may be exercised only by such employee. III. NONEMPLOYEE DIRECTOR AWARDS SECTION 3.01 ELIGIBLE PARTICIPANTS. Each member of the Board from time to time who is not a full time employee of Donaldson shall be an eligible participant ("Part III Participant") for an Award under this Part III. SECTION 3.02 RESTRICTED SHARES IN LIEU OF RETAINER OR MEETING FEES. (a) Automatic Receipt of Restricted Shares. Thirty percent (30%) of the annual retainer payable to a Part III Participant for service on the Board shall be payable solely in Shares subject to the restrictions referenced in Section 3.04 hereof. Such fee shall be payable in one annual installment on December 10 of each year of this Plan for services on the Board to be rendered in the following service year. The number of Shares to be issued to each Part III Participant on each payment date shall be determined by dividing such annual installment by the Market Value of such Shares as hereinafter defined. (b) Election To Receive Additional Restricted Shares. Each Part III Participant shall have the right to elect, on forms provided by Donaldson, to receive up to 100% of his or her annual retainer for services on the Board which would otherwise be payable in cash (other than fees which have been deferred under the Company's Compensation Plan for Non-employee Directors), in the form of Shares. Any part of the retainer elected to be paid in Shares shall be payable on December 10 of each year of this Plan for services to be rendered in the following service year. The number of Shares to be issued at the time of payment shall be determined by dividing the amount elected to be taken in the form of Shares by the Market Value of such Shares. Such election must be made prior to the service year for which the retainer is to be paid in Shares. The Shares receivable under this Subsection shall be subject to the restrictions set forth in Section 3.04. Elections under this Subsection shall remain in effect from year to year until changed by the Part III Participant. No change shall be effective until the next service year. (c) Market Value. The Market Value used in subparagraphs (a) and (b) above shall be based on the first business day of December preceding the relevant payment date. (d) Election to Receive Restricted Shares in Lieu of Meeting Fees. The Part III Participant may elect to receive shares of restricted stock in lieu of all per meeting fees; the election must be made on or before November 30 of each year, applicable for the entire service year and payable in stock based on the market Value of Donaldson stock as of the following June 1 (or the first business day thereafter) and November 30 (or the first business day prior thereto) for all fees accrued during the six months preceding such dates. Restrictions to be the same as those applicable to the annual retainer. SECTION 3.03 OTHER RESTRICTED STOCK AWARDS If such grant does not affect the "disinterested administrator" status of the Committee under Rule 16b-3, the Committee may grant to any Part III Participant, restricted stock, for no cash consideration, if permitted by applicable law, or for such other consideration as may be determined by the Committee and specified in the Award. SECTION 3.04 RESTRICTIONS ON SHARES. Prior to the time of each Award of restricted stock under this Part III, the Committee, in its sole discretion, shall establish a restricted period and such additional conditions as may be deemed appropriate for incremental lapse or complete lapse of restrictions with respect to all or any portion of the Shares represented by the restricted stock. In all other respects, the grant of restricted stock under this Part III shall be consistent with Section 2.05 hereof. EX-10.N 7 Exhibit 10-N DONALDSON COMPANY, INC. STOCK OPTION PROGRAM FOR NONEMPLOYEE DIRECTORS 1. Name of Plan. This plan shall be known as the "Donaldson Company Non-Qualified Stock Option Program for Nonemployee Directors" and is hereinafter referred to as the "Plan". 2. Effective Date and Term. The Plan shall be effective as of December 1, 1992 and shall remain in effect until amended or terminated by action of the Board of Directors (the "Board") of Donaldson Company, Inc., a Delaware corporation ("Donaldson"). 3. Eligible Participants. Each member of the Board who shall be a member on December 1 and December 22 of 1992, and each year thereafter, and is not a full time employee of the company or any of its subsidiaries shall be an eligible participant in the Plan (the "Participant"). 4. Automatic Receipt of Stock Options. Commencing with the effective date of this program Donaldson shall irrevocably grant to each Participant the right and option to purchase all or any part of an aggregate of 2,000 shares of Common Stock, par value $5 per share of Donaldson ("Common Stock"). 5. Exercise Price. The exercise price per share of Common Stock deliverable upon the exercise of an option shall be the closing price of the Common Stock in consolidated trading on the first business day of December in the respective year. 6. Term of the Option. The term of option shall be for a period of ten years or such shorter period as provided under the General Terms. The option may not be exercised until December 22 of the respective year. Thereafter, the option may be exercised at any time or from time to time during its term as to any or all full shares which may be purchasable at such time. 7. General Terms. Such other terms and conditions as set forth in the attached Nonemployee Director Stock Option Agreement or as may be approved. from time to time, by the Board of Directors; provided that no such amendment may eliminate, reduce or otherwise adversely affect a Participant's right with respect to the option. EX-11 8 EXHIBIT 11 COMPUTATION OF NET EARNINGS PER SHARE DONALDSON COMPANY, INC. AND SUBSIDIARIES (Dollars in Thousands Except Per Share Amounts) Year Ended July 31 1995 1994 1993 Primary Average shares outstanding 26,365,316 27,026,291 27,582,628 Effect of stock options based on the treasury stock method using average market price 301,204 260,338 233,866 Total 26,666,520 27,286,629 27,816,494 Earnings before accounting change $ 38,536 $ 31,949 $ 28,214 Cumulative effect of accounting change -- 2,206 -- Net Earnings $ 38,536 $ 34,155 $ 28,214 Earnings Per Share: Earnings before accounting $ 1.45 $ 1.17 $ 1.01 change Cumulative effect of accounting change -- .08 -- Net Earnings Per Share $ 1.45 $ 1.25 $ 1.01 Fully Diluted Average shares outstanding 26,365,316 27,026,291 27,582,628 Effect of stock options based on the treasury stock method using average market price during the year or ending market price, whichever is higher 321,108 287,074 270,834 Total 26,686,424 27,313,365 27,853,462 Earnings before accounting change $ 38,536 $ 31,949 $ 28,214 Cumulative effect of accounting change -- 2,206 -- Net Earnings $ 38,536 $ 34,155 $ 28,214 Earnings Per Share: Earnings before accounting change $ 1.44 $ 1.17 $ 1.01 Cumulative effect of accounting change -- .08 -- Net Earnings Per Share $ 1.44 $ 1.25 $ 1.01 All share and per share amounts have been adjusted for all stock splits. EX-13 9 MANAGEMENT'S DISCUSSION AND ANALYSIS DONALDSON COMPANY, INC. AND SUBSIDIARIES RESULTS OF OPERATIONS 1995 Compared to 1994 Record 1995 net sales of $704.0 million were up 19 percent from prior-year sales of $593.5 million. For the year, Engine Products sales were up 20 percent and Industrial Products sales were up 16 percent. Domestic Engine Products sales were up 12 percent, primarily from increased shipments to original equipment manufacturers (OEMs). Industrial Products sales growth of 15 percent was primarily led by strong sales in our dust collection market. Overseas sales in 1995 increased 32 percent -- 21 percent in local currencies - -- generally due to the improving economies in Europe and Japan. Overseas Engine Products sales were up 36 percent, primarily due to strong sales in Europe and Japan. Industrial Products sales increased 23 percent, reflecting increased dust collection sales in Europe, Japan and South Africa. In 1995, overseas sales totaled 38 percent of consolidated net sales, up 4 percentage points from 34 percent in 1994. Record net earnings for 1995 totaled $38.5 million, up significantly from $31.9 million in the prior year. Increased sales levels and operating efficiencies were the primary reasons for the gain in 1995. Overseas operating income totaled approximately 54 percent of consolidated operating income, up from 50 percent the prior year. Gross margin for 1995 was unchanged at 28.1 percent compared to 1994. Increased manufacturing efficiencies gained by higher operating levels in 1995 were offset by a $1.4 million asset write-down, increased plant repairs and increased obsolete inventory expense. Margin improvements in defense and both domestic and overseas aftermarkets were offset by declines in worldwide Industrial Products margins. In 1995, the Company recorded a $1.4 million charge to provide for the residual net book value of certain production assets. In the prior year, the Company wrote down certain of its Brazilian manufacturing capital assets by $3.2 million. Operating expenses as a percentage of sales for 1995 and 1994 were 18.8 percent and 19.3 percent, respectively. Full year spending for 1995 totaled $132.4 million compared to $114.5 million in 1994, which reflects an increase of $17.9 million, or 16 percent. Most of the increased expense resulted from higher selling expenses related to the higher sales level in 1995. In addition, general and administrative expenses reflect the impact of the acquisition of 100 percent of our Mexican joint venture and increased costs from the upgrade of the Company's information systems. Interest expense declined $.3 million, or 8 percent, in the year primarily due to the decrease in long-term debt. Other income totaled $.7 million in 1995 compared to $1.5 million in 1994. The $.8 million decline is primarily due to lower earnings at AFSI, the joint venture with Caterpillar, Inc., and an increase in the contribution to the Donaldson Foundation. The effective income tax rate in 1995 was 39.0 percent, compared to 36.3 percent in 1994. The increase in 1995 was primarily the result of increased profitability in Germany and Japan, the Company's highest taxed subsidiaries. Total backlogs of $214.2 million were up 35 percent from the prior year-end. Strong order increases were reported for domestic defense and worldwide diesel engine OEMs. In addition, worldwide gas turbine systems backlog increased 23 percent. Hard order backlogs, goods scheduled for delivery in 90 days, of $134.1 million were up 26 percent compared to the prior year, primarily due to strong worldwide OEM orders. 1994 Compared to 1993 1994 net sales of $593.5 million were up 11 percent from prior-year sales of $533.3 million. For the year, both Engine Products and Industrial Products sales were up 11 percent. Domestic sales were up 14 percent, the same as the prior year, with both Engine and Industrial Products up the same percentage. Diesel engine OEM sales were up 24 percent, with strong growth in both the construction, industrial, mining and agriculture (off-road) and transportation markets. Diesel engine aftermarket sales were up 18 percent. Defense sales declined 32 percent but have been flat throughout the year. Industrial Products sales growth was led by gas turbine filtration sales, 17 up 33 percent. Dust collection sales were up 11 percent. Including the additional sales from ENV Services, Inc., high purity products sales were up 6 percent year over year. Overseas sales in 1994 were up 7 percent -- 6 percent in local currencies -- with Engine Products sales up 6 percent and Industrial Products sales up 9 percent. Overseas sales growth was led by a 29 percent increase in gas turbine filtration sales and a 12 percent increase in diesel engine aftermarket sales. High purity products sales were up 4 percent, led by a 14 percent increase in disk drive sales. Due to the economic slowdown in Germany and Japan, dust collection sales were down 11 percent year over year. In the year, the Company wrote down certain of its Brazilian capital assets by $3.2 million. The write-down relates to the continuing economic and political uncertainties in Brazil and the resulting losses being incurred by the Company's Brazilian operations. The asset impairment was charged to cost of sales. For the year, gross margins declined from 28.5 percent in 1993 to 28.1 percent in 1994. However, excluding the Brazilian asset write-down, gross margins improved slightly to 28.6 percent. Margins significantly improved in both domestic diesel engine OEM and aftermarket, with domestic OEM margins up almost 2 percentage points. These increases were offset by a 2 percentage point decline in gas turbine filtration margins, which reflects a significant increase in lower margin first-fit production sales. Operating expenses as a percentage of sales for 1994 and 1993 were 19.3 and 20.1 percent, respectively. Full year spending for 1994 totaled $114.5 million compared to $107.0 million in 1993, reflecting an increase of $7.5 million, or 7 percent. In 1994, warranty expenses related to the diesel particulate trap increased $1.3 million to $6.2 million. Excluding the trap warranty expenses, operating expenses would have been 18.3 percent of sales in 1994 compared to 19.2 percent in 1993. Interest expense increased in the year, primarily due to increased borrowings by the Company's Belgian Coordination Center. Other income of $1.5 million declined $.7 million as the improvement in interest income was more than offset by an increase in other expense in the overseas entities. The increase overseas included retirement related expenses in Japan and Belgium. With the adoption of Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes" (FAS 109) in 1994, comparison of the 1994 effective income tax rate of 36.3 percent to prior years is not relevant. The 1994 effective tax rate is equal to the U.S. statutory rate plus state income taxes less the tax benefit derived from the Company's Foreign Sales Corporation. The effective overseas tax rate approximated the U.S. statutory rate. Total backlogs of $158.4 million were up 21 percent from the prior year-end. Strong increases were reported for diesel engine OEM and dust collection businesses, both domestic and overseas. After several years of significant growth, domestic gas turbine systems backlogs declined in 1994. Continuing prior-year trends, defense backlogs again declined in 1994. Hard order backlogs of $106.1 million were up 20 percent compared to the prior year. LIQUIDITY AND CAPITAL RESOURCES Financial Condition At July 31, 1995, the Company's capital structure comprised $20.8 million of current debt, $10.2 million long-term debt and $221.2 million shareholders' equity. The ratio of long-term debt to total long-term capital was 4.4 percent, compared with 7.8 percent at July 31, 1994. Total debt decreased $2.0 million during 1995 to $31.0 million. Most of the decrease resulted from the Company's decision to pre-pay its $3.4 million, 111 1/48 percent note. In 1995, short-term debt increased $3.7 million due to additional short-term borrowings in the Company's Belgian Coordination Center (BCC). The BCC's short-term debt was used to hedge its foreign currency denominated accounts receivables. 18 Shareholders' equity increased $31.5 million in 1995 to $221.2 million. The increase was primarily due to an increase in retained earnings of $38.5 million from current year net earnings, and a $6.6 million increase in the cumulative translation adjustment. These increases were offset by dividends of $7.4 million and $14.7 million of treasury stock repurchases. Cash Flows During 1995, $52.9 million of cash was generated from operating activities, compared with $31.4 million in 1994 and $42.6 million in 1993. The increase in 1995 was largely the result of increased earnings before the cumulative effect of an accounting change and higher depreciation and amortization expense. These funds were used to support $25.3 million of capital expenditures, $7.4 million of dividend payments and $14.7 million of treasury stock purchases. Cash and cash equivalents increased $5.6 million during 1995. Capital expenditures for property, plant and equipment totaled $25.3 million in 1995, compared to $24.6 million in 1994 and $15.0 million in 1993. Significant additions in 1995 include the expansion of the Company's Stevens Point facility, the addition of a new production line at the Cresco facility and the addition of three production lines at the Hull facility. Capital spending in 1996 is planned to be $28.0 million. Significant expenditures include the construction of a new larger Belgian manufacturing facility and sale of the existing facility, and the construction of a second Baldwin manufacturing facility. It is anticipated that 1996 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 to 25 percent of the average earnings per share of the last three years. The current quarterly dividend of 7 cents per share equates to 23 percent of the 1993 through 1995 average earnings per share. Share Repurchase Plan In 1995, the Company repurchased 611,800 shares of common stock on the open market for $14.7 million, at an average cost of $24.01 per share. The Company repurchased $17.5 million and $10.0 million of its shares of common stock in 1994 and 1993, respectively. At July 31, 1995, the Company has authorization to repurchase an additional 665,200 shares. Change in Accounting Principle Effective August 1, 1993, the Company adopted FAS 109 which requires adoption of a liability approach to account for the effects of income taxes. The cumulative effect of adopting FAS 109 was to increase 1994 net earnings by $2.2 million, or 8 cents per share. Foreign Currency Effects In 1995, the U.S. dollar was generally weaker in relation to the foreign currencies of countries where the Company operates. A weaker dollar generally has a positive effect on overseas results because foreign-exchange denominated earnings translate into more U.S. dollars; a stronger dollar has a negative translation effect. However, the cost of overseas sourced products used domestically, which are not significant at this time, are affected in the opposite direction. It is not possible to determine the true impact of foreign currency translation changes; however the direct effect on net sales and earnings can be estimated. For 1995, the weakening U.S. dollar increased net sales by $21.9 million and net earnings by $.4 million. During 1994, the generally stronger U.S. dollar decreased sales and earnings by $1.5 million and $.2 million, respectively. 19
CONSOLIDATED STATEMENTS OF EARNINGS DONALDSON COMPANY, INC. AND SUBSIDIARIES Year ended July 31 (Thousands of dollars except per share amounts) 1995 1994 1993 Net sales $ 703,959 $ 593,503 $ 533,327 Cost of sales 505,980 426,904 381,091 Gross Margin 197,979 166,599 152,236 Selling, general and administrative 117,961 103,647 95,626 Research and development 14,487 10,873 11,364 Interest expense 3,089 3,362 2,723 Other (income) (730) (1,476) (2,159) Total Expenses 134,807 116,406 107,554 Earnings Before Income Taxes 63,172 50,193 44,682 Income taxes 24,636 18,244 16,468 Earnings Before Cumulative Effect of Accounting Change 38,536 31,949 28,214 Cumulative effect of accounting change -- 2,206 -- Net Earnings $ 38,536 $ 34,155 $ 28,214 Earnings per share Earnings before cumulative effect of accounting change $ 1.45 $ 1.17 $ 1.01 Cumulative effect of accounting change -- .08 -- Net Earnings Per Share $ 1.45 $ 1.25 $ 1.01
See notes to consolidated financial statements. 20
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DONALDSON COMPANY, INC. AND SUBSIDIARIES July 31 (Thousands of dollars) 1995 1994 ASSETS Current Assets Cash and cash equivalents $ 28,565 $ 22,945 Accounts receivable, net 137,155 122,167 Inventories Materials 32,225 27,430 Work in process 12,168 8,521 Finished products 29,035 24,294 Total Inventories 73,428 60,245 Prepaids and other current assets 8,756 14,951 Total Current Assets 247,904 220,308 Property, Plant and Equipment Land 7,982 6,298 Buildings 89,684 81,683 Machinery and equipment 189,835 166,666 Construction in progress 4,691 4,276 Property, Plant and Equipment, at Cost 292,192 258,923 Less accumulated depreciation 181,552 159,364 Property, Plant and Equipment, Net 110,640 99,559 Other Assets 22,498 17,493 Total Assets $ 381,042 $ 337,360 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term debt $ 17,802 $ 14,073 Current maturities of long-term debt 2,998 2,883 Trade accounts payable 53,576 44,541 Accrued employee compensation and related taxes 23,114 19,755 Income taxes payable 5,717 3,195 Other current liabilities 20,540 31,310 Total Current Liabilities 123,747 115,757 Long-Term Debt 10,167 16,028 Deferred Income Taxes 5,233 2,248 Other Long-Term Liabilities 20,722 13,630 Shareholders' Equity Preferred stock, $1.00 par value, 1,000,000 shares authorized, no shares issued -- -- Common stock, $5.00 par value, 40,000,000 shares authorized, and 27,063,407 issued in 1995 and 1994 135,317 135,317 Capital surplus 2,639 -- Retained earnings 93,746 65,654 Cumulative translation adjustments 14,824 8,244 Treasury stock--878,243 and552,951 shares in 1995 and 1994, at cost (20,103) (11,853) Receivable from ESOP (5,250) (7,665) Total Shareholders' Equity 221,173 189,697 Total Liabilities and Shareholders' Equity $ 381,042 $ 337,360
See notes to consolidated financial statements. 21
CONSOLIDATED STATEMENTS OF CASH FLOWS DONALDSON COMPANY, INC. AND SUBSIDIARIES Year ended July 31 (Thousands of dollars) 1995 1994 1993 OPERATING ACTIVITIES Net earnings $ 38,536 $ 34,155 $ 28,214 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation and amortization 20,529 16,365 14,752 Cumulative effect of accounting change -- (2,206) -- Property, plant and equipment write-downs 1,427 3,200 -- Equity in earnings of affiliates (1,840) (3,743) (3,498) Deferred income taxes (153) (2,844) 657 Other 5,682 1,235 (309) Changes in operating assets and liabilities Accounts receivable, net (6,159) (15,380) (2,687) Inventories (9,823) (10,029) (4,337) Prepaids and other current assets 7,093 (1,315) (1,365) Trade accounts payable, accruals and income taxes payable (2,398) 11,945 11,155 Net Cash Provided by Operating Activities 52,894 31,383 42,582 INVESTING ACTIVITIES Net expenditures on property and equipment (25,334) (24,642) (15,005) Acquisitions and investments in affiliates (3,911) (6,437) (10,451) Proceeds from disposition of Envirco -- -- 2,782 Dividends from affiliate -- 3,550 4,250 Net Cash Used in Investing Activities (29,245) (27,529) (18,424) FINANCING ACTIVITIES Repayment of long-term debt (5,764) (3,416) (5,681) Net change in short-term debt 1,715 9,098 (1,766) Payment received from ESOP 2,415 2,310 2,100 Purchase of treasury stock (14,692) (17,471) (10,044) Dividends paid (7,372) (6,745) (5,666) Exercise of stock options 3,201 (148) (3,143) Net Cash Used in Financing Activities (20,497) (16,372) (24,200) Effect of exchange rate changes on cash 2,468 3,353 1,056 Increase (Decrease) in Cash and Cash Equivalents 5,620 (9,165) 1,014 Cash and cash equivalents at beginning of year 22,945 32,110 31,096 Cash and Cash Equivalents at End of Year $ 28,565 $ 22,945 $ 32,110
See notes to consolidated financial statements. 22
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY DONALDSON COMPANY, INC. AND SUBSIDIARIES CUMULATIVE TOTAL (Thousands of dollars COMMON CAPITAL RETAINED TRANSLATION TREASURY RECEIVABLE SHAREHOLDERS' except per share amounts) STOCK SURPLUS EARNINGS ADJUSTMENTS STOCK FROM ESOP EQUITY Balance July 31, 1992 $ 68,922 $ 1,823 $ 94,810 $ 6,823 $ -- $(12,075) $160,303 Treasury stock acquired (10,044) (10,044) Stock options exercised 714 (3,951) (67) 161 (3,143) Payment received from ESOP 2,100 2,100 Performance awards 2 7 9 Tax reduction--employee plans 3,412 3,412 Net earnings 28,214 28,214 Translation adjustments (1,177) (1,177) Dividends paid--$.20 per share (5,666) (5,666) Balance July 31, 1993 69,636 1,284 117,293 5,646 (9,876) (9,975) 174,008 Treasury stock acquired (17,471) (17,471) Stock options exercised 10 176 (1,429) 1,095 (148) Payment received from ESOP 2,310 2,310 Performance awards 28 2 14 44 Tax reduction--employee plans 946 946 Net earnings 34,155 34,155 Translation adjustments 2,598 2,598 Two-for-one stock split 65,671 (2,434) (77,622) 14,385 -- Dividends paid--$.25 per share (6,745) (6,745) Balance July 31, 1994 135,317 -- 65,654 8,244 (11,853) (7,665) 189,697 Treasury stock acquired (14,692) (14,692) Stock options exercised (133) (3,073) 6,407 3,201 Payment received from ESOP 2,415 2,415 Performance awards 1,033 1 35 1,069 Tax reduction--employee plans 1,739 1,739 Net earnings 38,536 38,536 Translation adjustments 6,580 6,580 Dividends paid--$.28 per share (7,372) (7,372) Balance July 31, 1995 $135,317 $ 2,639 $ 93,746 $14,824 $(20,103) $ (5,250) $221,173
See notes to consolidated financial statements. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DONALDSON COMPANY, INC. AND SUBSIDIARIES 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. Foreign Currency Translation: Foreign assets and liabilities are generally translated using the year-end rates of exchange. Results of operations are translated using the average rates prevailing throughout the period. Translation gains or losses, net of applicable deferred taxes, are accumulated as a separate component of shareholders' equity. Foreign currency transaction gains/(losses) of $47,000, $(1,337,000) and $(1,790,000), in 1995, 1994 and 1993, respectively, are included in earnings before income taxes. Cash Equivalents: The Company considers all highly liquid investments with a maturity of 90 days 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, determined by the last-in, first-out (LIFO) method, except for certain of the Company's overseas subsidiaries which use the first-in, first-out (FIFO) method. Inventories valued at LIFO were 56 and 60 percent of total inventories at July 31, 1995 and 1994, respectively. The current cost of inventories valued under the LIFO method exceeded their LIFO carrying values by $20,557,000 and $18,635,000 at July 31, 1995 and 1994, respectively. Property, Plant and Equipment: Property, plant and equipment is 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. For financial reporting purposes, the Company adopted the straight-line depreciation method for all property acquired after July 31, 1992. Depreciation expense includes the amortization of capital lease assets. The estimated useful lives of property, plant and equipment are as follows: Buildings 10 to 40 years Machinery and Equipment 3 to 10 years Income Taxes: Income taxes are provided based on earnings reported for financial statement purposes. The provision for income taxes differs from the amounts currently payable because of temporary differences in the recognition of certain assets and liabilities for financial reporting and tax reporting purposes. Deferred taxes are recorded based on enacted tax laws and tax rates. Changes in enacted tax rates are reflected in the income tax provision as they occur. Effective August 1, 1993, the Company adopted Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes" (FAS 109). As permitted under the new Statement, prior years' financial statements have not been restated. Income taxes in 1993 were computed using the deferred method. Net Earnings Per Share: Net earnings per common share is based on the weighted average number of common shares and share equivalents outstanding during the respective years. Treasury Stock: Repurchased Common Stock is stated at cost and is presented as a separate reduction of shareholders' equity. NOTE B ACQUISITIONS AND INVESTMENTS During 1995, the Company acquired the remaining 50 percent of Donaldson Micro Pore Mexico, S.A. de C.V., obtained a 20 percent interest in an Indonesian filter manufacturer and purchased an additional 9.9 percent in an Australian dust collection distributor. 24 During 1994, the Company increased its investment in Donaldson Micro Pore Mexico, S.A. de C.V., from 40 percent to 50 percent, obtained a 40 percent interest in an Australian dust collection distributor, invested in a gas turbine system joint venture in India and completed an acquisition of a high purity products materials supplier located in the United States. During 1993, the Company completed two acquisitions. On September 24, 1992, Donaldson do Brasil, Ltda., acquired all of the common stock of Filtrobras-Roma Filtros Automotivos Ltda. (Roma), a liquid filtration manufacturer located in Sao Paulo, Brazil. On December 28, 1992, the Company purchased all of the common stock of ENV Services, Inc. (ENV), an air quality testing and monitoring service firm located in Philadelphia, Pennsylvania. In connection with the ENV acquisition, the Company also purchased the Envirco Division of Environmental Air Control, Inc. with the intent to sell the business. On February 12, 1993, the divestiture was completed. All acquisitions have been accounted for as purchases and, accordingly, their net assets and operating results are included in the Company's financial statements from the respective dates of acquisition. The pro forma impact of the acquisitions on the Company's results of operations for all years presented was not material. NOTE C SHORT-TERM DEBT The Company has domestic lines of credit at July 31, 1995 of $10,000,000 which provide for borrowing amounts at or below the prime rate. Commitment fees of 20 basis points per annum are payable on the unused amounts. There were no amounts outstanding under these lines of credit at July 31, 1995 or 1994. Overseas subsidiaries may borrow under various uncommitted facilities. As of July 31, 1995 and 1994, borrowings under these facilities were $17,802,000 and $14,073,000, respectively. The weighted average interest rate on short-term debt outstanding at July 31, 1995 and 1994 was 7.1 percent and 6.6 percent, respectively. NOTE D LONG-TERM DEBT Long-term debt consists of the following: (Thousands of dollars) 1995 1994 ESOP promissory note due in increasing annual installments through 1997. Interest rate is either 82 percent of prime or 91 percent of the adjusted CD rate $ 5,250 $ 7,665 6 3/8 percent mortgage due 2002 1,000 1,000 7 percent note due in 2008 500 500 11 1/8 percent note -- 3,350 Other 836 519 Total Notes 7,586 13,034 Capitalized leases 5,579 5,877 Total 13,165 18,911 Less current maturities 2,998 2,883 Total Long-Term Debt $10,167 $16,028 Annual maturities of long-term debt for the next five years are $2,998,000 in 1996, $3,271,000 in 1997, $616,000 in 1998, $650,000 in 1999 and $642,000 in 2000. Total interest paid relating to all debt was $2,809,000, $2,906,000 and $2,577,000 in 1995, 1994 and 1993, respectively. Certain note agreements contain debt covenants related to working capital levels and limitation 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, 1995, under the most restrictive agreement, tangible net worth exceeded the minimum by $82,044,000. NOTE E CAPITALIZED LEASES The Company leases several production facilities under long-term leases and has the option to purchase the facilities for a nominal cost at the termination of the lease. Included in property, plant and equipment are the following assets held under capital leases: (Thousands of dollars) 1995 1994 Land $ 121 $ 157 Buildings 5,894 6,384 Machinery and equipment 550 1,098 Subtotal 6,565 7,639 Less accumulated amortization 2,568 3,252 Total $3,997 $4,387 25 Future minimum lease payments for assets under capital leases at July 31, 1995 are as follows: (Thousands of dollars) 1996 $ 827 1997 828 1998 828 1999 827 2000 757 Thereafter 4,041 Total minimum lease payments 8,108 Less amount representing interest 2,529 Present value of net minimum lease payments 5,579 Less current maturities 378 Long-Term Obligation $5,201 NOTE F 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 plans provide benefits based on the employee's years of service and compensation during the years immediately preceding retirement. The overseas plans generally provide similar types of benefits. The Company's general funding policy is to make contributions as required by applicable regulations. The assets are primarily invested in diversified portfolios comprised of equity and debt securities. Cost for the Company's pension plans includes the following components: (Thousands of dollars) 1995 1994 1993 Service cost $ 5,024 $ 4,187 $ 3,769 Interest cost on projected benefit obligation 6,167 5,504 5,050 Actual return on plan assets (12,238) (3,608) (7,310) Net amortization and deferral 5,265 (3,015) 1,178 Net Periodic Pension Expense $ 4,218 $ 3,068 $ 2,687 The funded status of the Company's pension plans as of July 31, 1995 and 1994, is as follows: (Thousands of dollars) 1995 1994 Plan assets at fair value $ 81,029 $ 69,313 Accumulated benefit obligation: Vested (61,400) (55,710) Nonvested (2,356) (2,201) Provision for future salary increases (18,197) (15,206) Plan assets less than projected benefit obligation (924) (3,804) Unrecognized net loss 3,122 8,901 Unrecognized prior service cost 3,126 1,721 Unrecognized net transition asset (9,253) (10,350) Additional minimum liability (1,806) -- Accrued Pension Liability $ (5,735) $ (3,532) The principal actuarial assumptions for 1995, 1994 and 1993 were: Discount rate 8.0% Rate of compensation increases 5.5% Expected long-term rate of return 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 million from the Company to purchase 3,600,000 newly issued shares of Common Stock. These shares are held in trust and are issued to employees' accounts in the ESOP as the loan is repaid over 10 years. At July 31, 1995 and 1994, 2,928,170 and 2,514,170 shares have been allocated to employees. The loan obligation of the ESOP is considered unearned employee benefit expense and, as such, is 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, are used to repay the loan principal and interest. Both the loan obligation and the unearned benefit expense are reduced by the amount of loan principal repayments made by the ESOP. The ESOP contribution expense totaled $2,130,000, $2,020,000 and $1,745,000 in 1995, 1994 and 1993, respectively. NOTE G 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 26 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 $2,064,000, $57,000 and $19,000 in 1995, 1994 and 1993, 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. The number and option price of options granted under these plans were as follows: Options Option Price Outstanding Per Share Outstanding at July 31, 1993 1,457,712 $ 4.62/$18.56 Cancelled (750) 12.54 Exercised (212,446) 4.62/ 18.06 Granted 330,330 18.87/ 23.56 Outstanding at July 31, 1994 1,574,846 4.62/ 23.56 Cancelled (4,875) 10.71/ 18.06 Exercised (378,657) 4.62/ 23.50 Granted 307,177 22.38/ 28.00 Outstanding at July 31, 1995 1,498,491 $ 4.62/$28.00 At July 31, 1995 and 1994 there were 1,400,428 and 1,459,910 options exercisable, respectively. Shares reserved at July 31, 1995 for outstanding options and future grants were 2,647,672. NOTE H INCOME TAXES Effective August 1, 1993, the Company changed its method of accounting for income taxes to comply with Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes" (FAS 109). The new Statement requires a liability approach for computing income taxes. As permitted under the new statement, prior years' financial statements have not been restated. The cumulative effect of adopting FAS 109 was to increase 1994 net earnings by $2,206,000 ($.08 per share). The components of earnings before income taxes are as follows: (Thousands of dollars) 1995 1994 1993 United States $42,355 $37,781 $33,474 Overseas 20,817 12,412 11,208 Total $63,172 $50,193 $44,682 The components of the provision for income taxes are as follows: (Thousands of dollars) 1995 1994 1993 Current: Federal $12,425 $12,897 $ 9,271 State 1,810 1,536 1,438 Overseas 10,554 6,655 5,102 Total Current 24,789 21,088 15,811 Deferred: Federal 716 (2,353) 95 State 49 (202) -- Overseas (918) (289) 562 Total Deferred (153) (2,844) 657 Total Income Taxes $24,636 $18,244 $16,468 Significant components of deferred tax assets and liabilities are as follows: (Thousands of dollars) 1995 1994 Deferred Tax Assets: Compensation and retirement plans $ 8,514 $ 5,417 Accrued expenses 4,572 5,372 Brazilian asset write-down 1,040 1,216 Tax loss and tax credit carryforwards 1,263 273 Other 6,076 5,449 Gross Deferred Tax Assets 21,465 17,727 Valuation Allowance (1,426) -- Net Deferred Tax Assets 20,039 17,727 Deferred Tax Liabilities: Depreciation and amortization (1,844) (4,895) Cumulative translation adjustment (7,980) (4,440) Other (2,192) (2,262) Gross Deferred Tax Liabilities (12,016) (11,597) Net Deferred Tax Assets $ 8,023 $ 6,130 27 The components of the provision for deferred income taxes for 1993 are as follows: (Thousands of dollars) 1993 Accrued expenses $ 220 Depreciation and amortization 1,049 Compensation and retirement plans (509) Other (103) Deferred Income Tax Expense $ 657 A reconciliation of the statutory U.S. federal income tax rate to the effective income tax rate is as follows: 1995 1994 1993 Statutory U.S. federal rate 35.0% 35.0% 34.0% State income taxes 1.9 2.0 2.1 Effect of overseas operations 1.9 .3 1.7 Earnings of affiliates -- -- (2.0) Other .2 (1.0) 1.1 Effective Income Tax Rate 39.0% 36.3% 36.9% At July 31, 1995, certain overseas subsidiaries had available net operating loss carryforwards of approximately $4,780,000 to offset future taxable income. The majority of such carryforwards expire after 1998. Unremitted earnings of overseas subsidiaries amounted to approximately $53,890,000 at July 31, 1995. Those earnings are intended to be indefinitely reinvested and, accordingly, no income taxes have been provided. If a portion were to be remitted, income 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 $21,824,000, $20,557,000 and $6,875,000 in 1995, 1994 and 1993, respectively. NOTE I SHAREHOLDERS' EQUITY On January 21, 1994, the Company's Board of Directors authorized a two-for-one stock split effected in the form of a 100 percent stock dividend, payable April 6, 1994 to shareholders of record March 16. The split resulted in the issuance of 13,134,162 new shares of Common Stock and the reissuance of 396,556 shares of Common Stock held in treasury. All references in the financial statements to average numbers of shares outstanding and related prices, per share amounts, and Stock Option Plan data have been restated to reflect the split. Non-voting rights, authorized by the Board of Directors, were distributed as a dividend to stockholders of record as of March 4, 1986 at the rate of one right for each outstanding share of Common Stock. As a result of the two-for-one stock split of the Company's Common Stock, effective May 2, 1988, a three-for-two stock split effective July 10, 1992 and the two-for-one stock split discussed above, the rights associated with each share of Common Stock have been proportionately adjusted so that each share of Common Stock is now accompanied by one-sixth of a right instead of a full right. Under certain conditions, each full right may be exercised to purchase one one-hundredth of a newly issued share of Series A Junior Participating Preferred Stock at an exercise price of $85. Generally, except for acquisitions of Common Stock pursuant to a tender or exchange offer found to be fair to shareholders by the Company's independent directors, the rights become exercisable if a person or group acquires beneficial ownership of 15 percent or more of the Common Stock or commences a tender or exchange offer the consummation of which would result in such person or group beneficially owning 15 percent or more of the Common Stock. If any person becomes the beneficial owner of 15 percent or more of the Common Stock, or the Company is the surviving corporation in a merger with a 15 percent-or-more stockholder and its Common Stock is not changed, or a 15 percent-or-more stockholder engages in certain self-dealing transactions with the Company, each right not held by such person or related parties will entitle its holder to purchase shares of Company Common Stock having a value of twice the right's then current exercise price. If after a person or group acquires beneficial ownership of 15 percent or more of the Common Stock or the Company is acquired in a merger or business combination, each right may be exercised to purchase common stock of the surviving company having a value of twice the right's then current exercise price. The rights, which expire March 4, 1996, may be redeemed by the Company at 10 cents per right at any time until 15 days following a public announcement that a 15 percent position has been acquired. 28 NOTE J SEGMENT INFORMATION The Company has one business segment which consists of the design, manufacture and sale of filtration products. The table below sets forth information about operations in different geographic areas:
UNITED OTHER (Thousands of dollars) STATES EUROPE JAPAN COUNTRIES ELIMINATIONS CONSOLIDATED 1995 Sales to customers $437,463 $114,731 $91,248 $60,517 $ -- $703,959 Sales between geographic areas 28,416 1,163 2,254 2,424 (34,257) -- Net Sales $465,879 $115,894 $93,502 $62,941 $(34,257) $703,959 Operating Income $ 29,968 $ 15,384 $10,741 $10,148 $ (710) $ 65,531 Identifiable Assets: Accounts receivable, net $ 58,146 $ 31,705 $33,740 $13,548 $ 16 $137,155 Other 117,249 61,753 35,324 28,511 (29,650) 213,187 Total identifiable assets $175,395 $ 93,458 $69,064 $42,059 $(29,634) $350,342 General corporate assets 30,700 Total Assets $381,042 1994 Sales to customers $391,234 $ 87,945 $70,981 $43,343 $ -- $593,503 Sales between geographic areas 21,839 496 1,911 1,502 (25,748) -- Net Sales $413,073 $ 88,441 $72,892 $44,845 $(25,748) $593,503 Operating Income $ 26,112 $ 11,510 $ 8,175 $ 6,446 $ (164) $ 52,079 Identifiable Assets: Accounts receivable, net $ 60,179 $ 26,408 $27,768 $ 7,462 $ 350 $122,167 Other 88,858 63,216 29,173 17,978 (16,729) 182,496 Total identifiable assets $149,037 $ 89,624 $56,941 $25,440 $(16,379) $304,663 General corporate assets 32,697 Total Assets $337,360 1993 Sales to customers $342,890 $ 81,305 $64,378 $44,754 $ -- $533,327 Sales between geographic areas 18,909 567 1,453 366 (21,295) -- Net Sales $361,799 $ 81,872 $65,831 $45,120 $(21,295) $533,327 Operating Income $ 23,754 $ 7,659 $ 7,352 $ 6,427 $ 54 $ 45,246 Identifiable Assets: Accounts receivable, net $ 45,244 $ 22,878 $24,920 $ 9,969 $ 309 $103,320 Other 77,341 45,568 29,095 19,922 (19,224) 152,702 Total identifiable assets $122,585 $ 68,446 $54,015 $29,891 $(18,915) $256,022 General corporate assets 44,195 Total Assets $300,217
Sales between geographic areas are made at cost plus a proportionate share of operating profit. General corporate assets include corporate cash and cash equivalents and buildings and equipment used for corporate purposes. Sales to one customer amounted to $88,199,000, $69,107,000 and $55,616,000 in 1995, 1994 and 1993, respectively. 29 REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors Donaldson Company, Inc. We have audited the accompanying consolidated statements of financial position of Donaldson Company, Inc. and subsidiaries as of July 31, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended July 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note H, in 1994 the Company changed its method of accounting for income taxes. /s/ Ernst & Young LLP Minneapolis, Minnesota September 7, 1995 30 SHAREHOLDER INFORMATION DONALDSON COMPANY, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (Thousands of dollars NET GROSS NET EARNINGS DIVIDENDS except per share amounts) SALES MARGIN EARNINGS PER SHARE PER SHARE 1995 First Quarter $164,175 $45,333 $ 9,505 $.35 $.07 Second Quarter 168,861 47,383 7,685 .29 .07 Third Quarter 186,764 53,706 11,456 .43 .07 Fourth Quarter 184,159 51,557 9,890 .38 .07 1994 First Quarter $142,518 $40,536 $ 7,561 $.27 $.05 9,767(1) .35(1) Second Quarter 135,577 37,904 6,238 .23 .06 Third Quarter 153,930 42,137 9,709 .36 .07 Fourth Quarter 161,478 46,022 8,441 .31 .07
(1) Includes cumulative effect of an accounting change of $2,206, or $.08 per share. 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 July 31, 1995, more than 700 of Donaldson Company's approximately 1,500 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, MN 55440. CORPORATE INFORMATION ANNUAL MEETING The annual meeting of shareholders will be held at 10 a.m. on Friday, November 17, in the first floor auditorium of the Lutheran Brotherhood Building, 625 Fourth Ave. South, Minneapolis, Minnesota. You are urged 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. AUDITORS Ernst & Young LLP, Minneapolis, Minnesota GENERAL COUNSEL Dorsey & Whitney, Minneapolis, Minnesota PATENT COUNSEL Merchant, Gould, Smith, Edell, Welter & Schmidt, 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 [graph] 31
ELEVEN-YEAR COMPARISON OF RESULTS DONALDSON COMPANY, INC. AND SUBSIDIARIES (Thousands of dollars except per share amounts) 1995 1994 1993 1992 OPERATING RESULTS Net sales $703,959 $593,503 $533,327 $482,104 Gross margin $197,979 166,599 152,236 133,574 Gross margin percentage 28.1% 28.1% 28.5% 27.7% Operating income $ 65,531 52,079 45,246 41,249 Operating income percentage 9.3% 8.8% 8.5% 8.6% Interest expense $ 3,089 3,362 2,723 2,681 Earnings before income taxes $ 63,172 50,193 44,682 41,721 Income taxes $ 24,636 18,244 16,468 15,952 Effective income tax rate 39.0% 36.3% 36.9% 38.2% Net earnings $ 38,536 31,949(1) 28,214 25,769 Return on sales 5.5% 5.4% 5.3% 5.3% Return on average shareholders' equity 18.8% 17.6% 16.9% 17.2% Return on investment 17.6% 16.0% 15.0% 14.8% FINANCIAL POSITION Total assets $381,042 337,360 300,217 286,348 Current assets $247,904 220,308 196,014 187,360 Current liabilities $123,747 115,757 93,666 89,956 Working capital $124,157 104,551 102,348 97,404 Current ratio 2.0 1.9 2.1 2.1 Current debt $ 20,800 16,956 7,595 11,425 Long-term debt $ 10,167 16,028 18,920 23,482 Total debt $ 30,967 32,984 26,515 34,907 Shareholders' equity $221,173 189,697 174,008 160,303 Long-term capitalization ratio 4.4% 7.8% 9.8% 12.8% Property, plant and equipment, net $110,640 99,559 90,515 84,899 Net expenditures on property, plant and equipment $ 25,334 24,642 15,005 15,538 Depreciation and amortization $ 20,529 16,365 14,752 14,047 SHAREHOLDER INFORMATION Net earnings per share $ 1.45 1.17(1) 1.01 .92 Dividends per share $ .28 .25 .20 .19 Shareholders' equity per share $ 8.45 7.16 6.38 5.81 Shares outstanding (000s) 26,185 26,510 27,282 27,569 Common stock price range, per share High $ 28 26 1/8 20 1/8 15 7/8 Low $ 20 7/8 18 1/4 14 11 5/8
Amounts are adjusted for all stock splits. 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 and $1,375, or $.04 per share, in 1987. 32
(Table continued from previous page) 1991 1990 1989 1988 1987 1986 1985 $457,692 $422,885 $397,535 $362,862 $294,993 $266,668 $257,381 129,858 121,454 105,275 104,828 83,336 83,736 76,361 28.4% 28.7% 26.5% 28.9% 28.3% 31.4% 29.7% 41,304 44,354 37,851 36,047 24,648 30,324 25,150 9.0% 10.5% 9.5% 9.9% 8.4% 11.4% 9.8% 3,526 3,731 3,555 3,229 2,359 2,162 2,504 39,385 34,875 27,664 29,868 21,748 30,850 21,783 15,337 13,849 12,230 13,630 10,782 15,214 10,365 38.9% 39.7% 44.2% 45.6% 49.6% 49.3% 47.6% 24,048 21,026 15,434 16,238(1) 10,966(1) 15,636 11,418 5.3% 5.0% 3.9% 4.5% 3.7% 5.9% 4.4% 18.0% 17.8% 15.1% 15.6% 9.8% 14.9% 12.2% 14.9% 14.2% 11.5% 11.7% 7.9% 12.8% 10.2% 253,194 245,947 204,813 193,548 200,827 191,348 153,659 169,398 168,522 130,848 122,602 128,370 125,635 90,475 77,537 79,917 58,009 52,126 44,609 50,515 30,724 91,861 88,605 72,839 70,476 83,761 75,120 59,751 2.2 2.1 2.3 2.4 2.9 2.5 2.9 6,380 11,384 8,602 3,875 4,302 4,634 2,688 25,673 28,320 30,750 33,784 35,353 16,674 17,489 32,053 39,704 39,352 37,659 39,655 21,308 20,177 138,947 128,787 107,516 97,254 110,517 113,588 96,284 15.6% 18.0% 22.2% 25.8% 24.2% 12.8% 15.4% 72,863 68,290 61,914 62,160 62,575 54,431 51,064 16,208 16,055 11,567 9,954 15,460 7,343 4,901 12,187 10,857 10,583 10,351 8,857 7,377 7,401 .84 .73 .54 .55(1) .36(1) .50 .37 .14 .13 .12 .11 .11 .11 .11 5.01 4.46 3.75 3.40 3.34 3.58 3.06 27,739 28,864 28,693 28,597 33,131 31,730 31,466 13 3/8 11 5/8 5 7/8 8 5/8 6 3/4 6 5/8 3 1/2 8 1/8 5 5/8 5 1/2 3 5/8 5 3/8 3 2 5/8
33 WORLDWIDE OPERATIONS ADMINISTRATION Donaldson Company, Inc. Minneapolis, Minnesota U.S. PLANTS Cresco, Iowa Frankfort, Indiana Oelwein, Iowa Chillicothe, Missouri Grinnell, Iowa Stevens Point, Wisconsin Nicholasville, Kentucky Baldwin, Wisconsin Dixon, Illinois Philadelphia, Pennsylvania DISTRIBUTION CENTERS Rensselaer, Indiana Ontario, California Antwerp, Belgium JOINT VENTURES Advanced Filtration Systems Inc., Champaign, Illinois D.I. Filter Systems Pvt. Ltd., New Delhi, India WHOLLY OWNED SUBSIDIARIES ENV Services, Inc., Philadelphia, Pennsylvania Donaldson Europe, N.V., Leuven, Belgium Donaldson Coordination Center, N.V., Leuven, Belgium Donaldson Gesellschaft m.b.H., Dulmen, Germany Donaldson Filter Components, Ltd., Hull, England Donaldson Torit, B.V., Haarlem, Netherlands Donaldson France, S.A., Bron, France Donaldson Italia s.r.l., Ostiglia, Italy Nippon Donaldson, Ltd., Tokyo, Japan Donaldson Far East Limited, Kowloon, Hong Kong Donaldson Australasia (Pty.) Ltd., Wyong, Australia Donaldson Filtration Systems (Pty.) Ltd., Cape Town, South Africa Donaldson, S.A. de C.V., Aguascalientes, Mexico Donaldson do Brasil, Ltda., Sao Paulo, Brazil 34 EX-23 10 Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Donaldson Company, Inc. of our report dated September 7, 1995, included in the 1995 Annual Report to Shareholders of Donaldson Company, Inc. Our audit also included the financial statement schedule of Donaldson Company, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statement Number 33-27086 on Form S-8 dated February 17, 1989, Registration Statement Number 2-90488 on Form S-8 dated May 2, 1984 as amended through Post Effective Amendment No. 1 dated January 7, 1988, and Registration Statement Number 33-44624 dated December 20, 1991 of our report dated September 7, 1995, with respect to the consolidated financial statements incorporated herein by reference and our report included in the preceding paragraph with respect to the financial statement schedules of Donaldson Company, Inc. included in this Annual Report on Form 10-K of Donaldson Company, Inc. /s/ Ernst & Young LLP Ernst & Young LLP Minneapolis, Minnesota October 20, 1995 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-8, No. 2-90488) pertaining to the Donaldson Company, Inc. Employees' Retirement Savings Plan and in the related Prospectus of our report dated October 20, 1995, with respect to the financial statements and schedules of the Donaldson Company, Inc. Employees' Retirement Savings Plan included in this Annual Report (Form 11-K) for the year ended July 31, 1995. /s/ Ernst & Young LLP Ernst & Young LLP Minneapolis, Minnesota October 27, 1995 EX-24 11 POWER OF ATTORNEY The undersigned does hereby constitute and appoint William A. Hodder and Raymond F. Vodovnik, and each of them, his attorney-in-fact for the purpose of signing in his name and on his behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc. and to deliver on his behalf said report so signed for filing with the Securities and Exchange Commission. Dated: October 16, 1995 /s/ A. Gary Ames A. Gary Ames POWER OF ATTORNEY The undersigned does hereby constitute and appoint William A. Hodder and Raymond F. Vodovnik, and each of them, his attorney-in-fact for the purpose of signing in his name and on his behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc. and to deliver on his behalf said report so signed for filing with the Securities and Exchange Commission. Dated: October 16, 1995 /s/ F. Guillaume Bastiaens F. Guillaume Bastiaens POWER OF ATTORNEY The undersigned does hereby constitute and appoint William A. Hodder and Raymond F. Vodovnik, and each of them, his attorney-in-fact for the purpose of signing in his name and on his behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc. and to deliver on his behalf said report so signed for filing with the Securities and Exchange Commission. Dated: October 16, 1995 /s/ Michael R. Bonsignore Michael R. Bonsignore POWER OF ATTORNEY The undersigned does hereby constitute and appoint William A. Hodder and Raymond F. Vodovnik, and each of them, his attorney-in-fact for the purpose of signing in his name and on his behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc. and to deliver on his behalf said report so signed for filing with the Securities and Exchange Commission. Dated: October 16, 1995 /s/ Jack W. Eugster Jack W. Eugster POWER OF ATTORNEY The undersigned does hereby constitute and appoint William A. Hodder and Raymond F. Vodovnik, and each of them, his attorney-in-fact for the purpose of signing in his name and on his behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc. and to deliver on his behalf said report so signed for filing with the Securities and Exchange Commission. Dated: October 16, 1995 /s/ Kendrick B. Melrose Kendrick B. Melrose POWER OF ATTORNEY The undersigned does hereby constitute and appoint William A. Hodder and Raymond F. Vodovnik, and each of them, his attorney-in-fact for the purpose of signing in his name and on his behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc. and to deliver on his behalf said report so signed for filing with the Securities and Exchange Commission. Dated: October 16, 1995 /s/ S. Walter Richey S. Walter Richey POWER OF ATTORNEY The undersigned does hereby constitute and appoint William A. Hodder and Raymond F. Vodovnik, and each of them, his attorney-in-fact for the purpose of signing in his name and on his behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc. and to deliver on his behalf said report so signed for filing with the Securities and Exchange Commission. Dated: October 16, 1995 /s/ Stephen W. Sanger Stephen W. Sanger POWER OF ATTORNEY The undersigned does hereby constitute and appoint William A. Hodder and Raymond F. Vodovnik, and each of them, his attorney-in-fact for the purpose of signing in his name and on his behalf as a Director of Donaldson Company, Inc., a report on Form 10-K for the Annual Report, pursuant to Section 13 or 15(d) of the Securities Act of 1934, of Donaldson Company, Inc. and to deliver on his behalf said report so signed for filing with the Securities and Exchange Commission. Dated: October 16, 1995 /s/ C. Angus Wurtele C. Angus Wurtele EX-99 12 EXHIBIT 99 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 11K ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended July 31, 1995 _________________________________________ DONALDSON COMPANY, INC. EMPLOYEES' RETIREMENT SAVINGS PLAN _________________________________________ DONALDSON COMPANY, INC. 1400 WEST 94TH STREET MINNEAPOLIS, MINNESOTA 55431 FINANCIAL STATEMENTS DONALDSON COMPANY, INC. EMPLOYEES' RETIREMENT SAVINGS PLAN YEARS ENDED JULY 31, 1995 AND 1994 Donaldson Company, Inc. Employees' Retirement Savings Plan Financial Statements Years ended July 31, 1995 and 1994 CONTENTS Report of Independent Auditors...............................................1 Audited Financial Statements Statements of Net Assets Available for Benefits..............................2 Statements of Changes in Net Assets Available for Benefits...................4 Notes to Financial Statements................................................6 Schedule A--Assets Held for Investment......................................12 Schedule B--Transactions or Series of Transactions in Excess of 5% of the Current Value of Plan Assets....................................13 Report of Independent Auditors Administrative Committee Donaldson Company, Inc. Employees' Retirement Savings Plan We have audited the accompanying statements of net assets available for benefits of Donaldson Company, Inc. Employees' Retirement Savings Plan as of July 31, 1995 and 1994, and the related statements of changes in net assets available for benefits for each of the two years in the period ended July 31, 1995. These financial statements are the responsibility of the Plan'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 net assets available for benefits of the Plan at July 31, 1995 and 1994, and the changes in its net assets available for benefits for each of the two years in the period ended July 31, 1995, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedules of assets held for investment as of July 31, 1995 and transactions or series of transactions in excess of 5% of the current value of Plan assets for the year then ended are presented for purposes of complying with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974, and are not a required part of the basic financial statements. The supplemental schedules have been subjected to the auditing procedures applied in our audit of the 1995 financial statements and, in our opinion, are fairly stated in all material respects in relation to the 1995 financial statements taken as a whole. /s/ Ernst & Young LLP October 20, 1995 Donaldson Company, Inc. Employees' Retirement Savings Plan Statements of Net Assets Available for Benefits
JULY 31, 1995 FIDELITY EQUITY FIXED DONALDSON INCOME CASH FLOW INCOME COMMON STOCK FUND FUND FUND FUND TOTAL Cash $ (6,964) $ 1,347,809 $ 6,104 $ 157,108 $ 1,504,057 Loans to participants -- 1,635,557 -- -- 1,635,557 Investments: Fidelity Equity Income Fund 16,778,655 -- -- -- 16,778,655 Common Stock of Donaldson Company, Inc. -- -- -- 12,859,929 12,859,929 Investment in fixed income funds -- -- 20,894,297 -- 20,894,297 16,778,655 -- 20,894,297 12,859,929 50,532,881 Accrued interest 194 5,847 235 904 7,180 Net assets available for benefits $ 16,771,885 $ 2,989,213 $20,900,636 $13,017,941 $53,679,675
Donaldson Company, Inc. Employees' Retirement Savings Plan Statements of Net Assets Available for Benefits (continued)
JULY 31, 1994 FIDELITY EQUITY FIXED DONALDSON INCOME CASH FLOW INCOME COMMON STOCK FUND FUND FUND FUND TOTAL Cash $ 27,767 $ 1,069,004 $ 35,396 $ 67,104 $ 1,199,271 Loans to participants -- 1,325,377 -- -- 1,325,377 Investments: Fidelity Equity Income Fund 13,678,993 -- -- -- 13,678,993 Common Stock of Donaldson Company, Inc. -- -- -- 9,387,910 9,387,910 Investment in fixed income funds -- -- 20,337,318 -- 20,337,318 13,678,993 -- 20,337,318 9,387,910 43,404,221 Accrued interest 106 3,422 135 256 3,919 Net assets available for benefits $13,706,866 $ 2,397,803 $20,372,849 $ 9,455,270 $45,932,788
See accompanying notes. Donaldson Company, Inc. Employees' Retirement Savings Plan Statements of Changes in Net Assets Available for Benefits
YEAR ENDED JULY 31, 1995 FIDELITY EQUITY FIXED DONALDSON INCOME CASH FLOW INCOME COMMON STOCK FUND FUND FUND FUND TOTAL Additions: Contribution from employees $ -- $ 4,582,545 $ -- $ -- $ 4,582,545 Investment income 1,104,530 143,511 789,948 134,022 2,172,011 Net gain on sales of other investments 32,752 87,304 33,030 -- 153,086 1,137,282 4,813,360 822,978 134,022 6,907,642 Deductions: Interfund transfers (net) (810,415) 4,702,786 (1,355,172) (2,537,199) -- Payments to participants 352,186 (480,836) 2,023,912 269,505 2,164,767 (458,229) 4,221,950 668,740 (2,267,694) 2,164,767 Unrealized appreciation of investments 1,469,508 -- 373,549 1,160,955 3,004,012 Net increase 3,065,019 591,410 527,787 3,562,671 7,746,887 Net assets available for benefits: Beginning of year 13,706,866 2,397,803 20,372,849 9,455,270 45,932,788 End of year $ 16,771,885 $ 2,989,213 $ 20,900,636 $ 13,017,941 $53,679,675
Donaldson Company, Inc. Employees' Retirement Savings Plan Statements of Changes in Net Assets Available for Benefits (continued)
YEAR ENDED JULY 31, 1994 FIDELITY EQUITY FIXED DONALDSON INCOME CASH FLOW INCOME COMMON STOCK FUND FUND FUND FUND TOTAL Additions: Contribution from employees $ -- $ 4,094,610 $ -- $ -- $ 4,094,610 Investment income 815,299 73,988 1,179,413 88,498 2,157,198 Net gain on sales of other investments -- -- 13,491 -- 13,491 815,299 4,168,598 1,192,904 88,498 6,265,299 Deductions: Interfund transfers (net) (3,873,912) 3,946,807 1,701,752 (1,774,647) -- Payments to participants 594,259 (96,400) 827,413 146,404 1,471,676 (3,279,653) 3,850,407 2,529,165 (1,628,243) 1,471,676 Unrealized appreciation (depreciation) of investments 69,187 -- (1,047) 1,988,494 2,056,634 Net increase (decrease) 4,164,139 318,191 (1,337,308) 3,705,235 6,850,257 Net assets available for benefits: Beginning of year 9,542,727 2,079,612 21,710,157 5,750,035 39,082,531 End of year $ 13,706,866 $ 2,397,803 $ 20,372,849 $ 9,455,270 $45,932,788
See accompanying notes. Donaldson Company, Inc. Employees' Retirement Savings Plan Notes to Financial Statements July 31, 1995 1. SIGNIFICANT ACCOUNTING POLICIES ACCOUNTING METHOD The accounting records of the Plan are maintained on the accrual basis. INVESTMENTS Investments are recorded at current value. Securities which are traded on a national securities exchange are valued at the last reported sales price of the year. The market value of the units of participation in collective investment funds is based on the fair market value of the underlying investments. Investments in the guaranteed investment contracts are valued at contract value. Contract value represents contributions made under the contract, plus interest at the contract rate, less funds withdrawn. The change in the difference between current value and the cost of investments is reflected in the statement of changes in net assets available for benefits as unrealized appreciation (depreciation) of investments. The net gain (loss) on the sale of investments is the difference between the proceeds received and the historical average cost of investments sold. For purposes of complying with the Department of Labor's requirements for preparing Form 5500, the Company determines net gain based on a revalued, rather than historical, cost. EXPENSES Except for investment management fees, which are netted against investment income, Donaldson Company, Inc. (the Plan's sponsor) pays all Plan related expenses including legal, accounting and other services. 2. DESCRIPTION OF THE PLAN Effective February 1, 1991, the Donaldson Company, Inc. Salaried Employees' Retirement Savings Plan was amended and renamed the Donaldson Company, Inc. Employees' Retirement Savings Plan (the Plan). Effective February 1, 1991, hourly employees represented by a labor union for collective bargaining purposes are eligible to participate in the Plan under the terms of a collective bargaining agreement and shall not be eligible for any employer discretionary contributions or loans. The Plan is a defined contribution plan sponsored by Donaldson Company, Inc. The Plan allows employee contributions to the Plan through payroll deductions of 1% to 10% of their salary. Employees are 100% vested in their accounts at all times. Amounts contributed to the Plan are invested in one of four investment options. Participants may choose between the following investment alternatives: * FIDELITY EQUITY INCOME FUND: Monies are invested in a mutual fund managed by Fidelity Management & Research Company. The fund invests in a diversified portfolio of common stocks which have above average dividend yields and potential for capital appreciation. * FIXED INCOME FUND: Monies are invested in two separate funds each comprised of highly diversified Guaranteed Investment Contracts and high quality money market investments. One of the funds is managed by IDS Trust Company and the other by US Trust Company. The Fixed Income Fund is designed to be a secure investment that will earn a relatively stable rate of interest. * DONALDSON COMMON STOCK FUND: Monies are invested in the common stock of Donaldson Company, Inc. This investment option is presented to provide participants with the opportunity to invest in the future growth of the Company. The changes in net assets of the Plan are allocated to the individual participants' accounts quarterly as provided for in the Plan Agreement. The Company has the right under the Plan agreement to terminate the Plan. In the event of termination of the Plan, each participant is fully vested and the assets of the Plan shall be distributed to the participants. 3. INVESTMENTS The current value of individual investments that represent 5% or more of the Plan's net assets is as follows:
1995 1994 UNITS OR CURRENT UNITS OR CURRENT SHARES VALUE SHARES VALUE Fidelity Equity Income Fund 467,112 $16,778,655 416,281 $13,678,993 Common Stock of Donaldson Company, Inc. (Sponsor) 480,745 12,859,929 383,180 9,387,910 IDS Trust Collective Income Fund 267,326 10,374,919 285,432 10,397,156 Capital Trust Company Guaranteed Investment Contract Fund 414,034 10,519,378 415,888 9,940,162
Following is information regarding investments:
YEAR ENDED JULY 31 1995 1994 Cost of investments: Common Stock of Donaldson Company, Inc. (Sponsor) $ 6,763,261 $ 4,452,196 Fidelity Equity Income Fund 13,505,151 11,874,998 Investment in fixed income funds 20,524,630 20,341,200 Total cost 40,793,042 36,668,394 Current value 50,532,881 43,404,221 Unrealized appreciation $ 9,739,839 $ 6,735,827
During the two years ended July 31, 1995, the Plan's investments appreciated (depreciated) in fair value as follows:
1995 1994 Common Stock of Donaldson Company, Inc. (Sponsor) $1,160,954 $1,988,494 Fidelity Equity Income Fund 1,469,509 69,187 IDS Trust Collective Income Fund 373,549 (1,047) $3,004,012 $2,056,634
During the two years ended July 31, 1995, the Plan experienced net realized gains on the sale of its investments as follows: COST PROCEEDS GAIN 1995 $1,666,297 $1,819,383 $153,086 1994 $2,651,174 $2,664,665 $ 13,491 4. LOANS TO PARTICIPANTS Under the Plan agreement, a salaried participant may borrow up to 50% of their account balance or $50,000, whichever is less. At July 31, 1995 and 1994, $1,635,557 and $1,325,377, respectively, of loans were outstanding at interest rates varying from 7% to 11.5%. 5. INCOME TAX STATUS The Internal Revenue Service issued a favorable determination letter dated November 14, 1991 stating that the Plan, as amended, is qualified under Section 401(a) and is exempt from federal income taxes under Section 501(a) of the Internal Revenue Code. Accordingly, no provision for income taxes has been included in these financial statements. Once qualified, the Plan is required to operate in conformity with the Code and ERISA to maintain its tax-exempt status. The administrator is not aware of any course of action or series of events that have occurred that might adversely affect the Plan's qualified status. 6. TRANSACTIONS WITH PARTIES-IN-INTEREST During the year ended July 31, 1995, the Plan purchased 97,565 shares of Donaldson Company, Inc. Common Stock on the open market for $2,311,064 and sold none. During the year ended July 31, 1994, the Plan purchased 70,456 shares of Donaldson Company, Inc. Common Stock on the open market for $1,682,463 and sold none. The Plan also received 158,732 shares as a result of a two-for-one stock split. The Plan received $125,305 and $85,650 in Common Stock dividends from Donaldson Company, Inc. for the years ended July 31, 1995 and 1994, respectively. 7. SUBSEQUENT EVENT Subsequent to July 31, 1995, the Company removed Harris Trust and appointed Fidelity Investment Company as the new Trustee of the Plan effective August 1, 1995. 8. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500 The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500: JULY 31 1995 1994 Net assets available for benefits per the financial statements $ 53,679,675 $ 45,932,788 Amounts allocated to withdrawing participants (117,743) (293,923) Net assets available for benefits per Form 5500 $ 53,561,932 $ 45,638,865 Amounts allocated to withdrawing participants by fund option are as follows:
YEAR ENDED JULY 31, 1995 DONALDSON COMMON STOCK FIDELITY EQUITY FIXED FUND INCOME FUND INCOME FUNDS TOTAL 1994 TOTAL $32,231 $51,193 $34,319 $117,743 $293,923
The following is a reconciliation of benefits paid to participants reported in the financial statements versus the Form 5500:
JULY 31, 1995 Benefits paid to participants per the financial statements $ 2,164,767 Add amounts allocated to withdrawing participants at July 31, 1995 117,743 Less amounts allocated to withdrawing participants at July 31, 1994 (293,923) Benefits paid to participants per the Form 5500 $ 1,988,587
Donaldson Company, Inc. Employees' Retirement Savings Plan Schedule A--Assets Held for Investment July 31, 1995
IDENTITY OF ISSUE, CURRENT BORROWER OR SIMILAR PARTY DESCRIPTION OF INVESTMENT COST VALUE Fidelity Equity Income Fund 467,112 units of participation $13,505,151 $16,778,655 *Donaldson Company, Inc. 480,745 shares of Common Stock 6,763,261 12,859,929 IDS Trust Collective Income Fund 267,326 units of participation 10,005,252 10,374,919 Capital Trust Company Guaranteed Investment Contract Fund 414,034 units of participation 10,519,378 10,519,378 TOTAL ASSETS HELD FOR INVESTMENT $40,793,042 $50,532,881
* Indicates party-in-interest Donaldson Company, Inc. Employees' Retirement Savings Plan Schedule B--Transactions or Series of Transactions in Excess of 5% of the Current Value of Plan Assets Year ended July 31, 1995 IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET CATEGORY (III)--A SERIES OF TRANSACTIONS IN EXCESS OF 5% OF BEGINNING PLAN ASSETS. Donaldson Company, Inc. Common Stock Donaldson Company Stock Fund Purchased 97,565 participating units in 9 transactions There were no category (i), (ii) or (iv) reportable transactions in fiscal 1995.
CURRENT VALUE OF PURCHASE SELLING COST OF ASSET ON TRANSACTION PRICE PRICE ASSET DATE NET GAIN $2,311,064 $2,311,064 $2,311,064
EX-27 13
5 1,000 YEAR JUL-31-1995 AUG-01-1994 JUL-31-1995 28,565 0 137,155 3,957 73,428 247,904 292,192 181,552 381,042 123,747 10,167 135,317 0 0 85,856 381,042 703,959 0 505,980 132,448 (730) 940 3,089 63,172 24,636 38,536 0 0 0 38,536 1.45 1.44
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