SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 11K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT
of 1934 (FEE REQUIRED) for the fiscal year ended December 31, 2003 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE
ACT of 1934 (NO FEE REQUIRED) for the transition period from
_____________ to _______________
COMMISSION FILE NUMBER 1-7891
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A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
DONALDSON COMPANY, INC.
1400 WEST 94TH STREET
MINNEAPOLIS, MINNESOTA 55431
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
DECEMBER 31, 2003 AND 2002
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
INDEX
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PAGE(S)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.....................1
FINANCIAL STATEMENTS
Statement of Net Assets Available for Benefits
December 31, 2003 and 2002..................................................2
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2003................................................3
Notes to Financial Statements.............................................4-7
SUPPLEMENTAL SCHEDULE
Schedule H, line 4i - Schedule of Assets (Held at End of Year)
December 31, 2003...........................................................8
Note: Other schedules required by 29 CFR 2520.103-10 of the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974 have been omitted
because they are not applicable.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and Administrator of
Donaldson Company, Inc.
Employees' Retirement Savings Plan
In our opinion, the accompanying statement of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Donaldson Company, Inc. Employees' Retirement Savings Plan (the "Plan")
at December 31, 2003 and 2002, and the changes in net assets available for
benefits for the year ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America. 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 of these statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule referred to in
the accompanying index is presented for the purpose of additional analysis and
is not a required part of the basic financial statements, but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplemental schedule is the responsibility of the Plan's management.
The supplemental schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
June 23, 2004
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2003 AND 2002
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2003 2002
Assets
Investments, at fair value
Interest-bearing cash $ 32,343 $ 3,971
Mutual funds 135,017,301 97,276,727
Donaldson Company, Inc. common stock fund 49,223,743 32,419,115
Participant loans 3,185,225 3,048,038
------------ ------------
Total investments, at fair value 187,458,612 132,747,851
Receivables
Investment income receivable 400 355
------------ ------------
187,459,012 132,748,206
LIABILITIES
Investment settlements payable 2,687 15,665
------------ ------------
Net assets available for benefits $187,456,325 $132,732,541
============ ============
The accompanying notes are an integral part of these financial statements.
2
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2003
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INVESTMENT INCOME
Interest and dividend income $ 3,390,811
Net appreciation of the fair value of investments 38,800,633
-------------
42,191,444
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CONTRIBUTIONS
Employer 170,203
Participants 21,103,618
-------------
21,273,821
-------------
DEDUCTIONS
Benefits paid to participants (8,717,817)
Administrative expenses (23,664)
-------------
(8,741,481)
-------------
Net increase in net assets available for benefits 54,723,784
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 132,732,541
-------------
End of year $ 187,456,325
=============
The accompanying notes are an integral part of these financial statements.
3
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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1. DESCRIPTION OF PLAN
The Donaldson Company, Inc. Employees' Retirement Savings Plan (the
"Plan") is a contributory defined contribution plan sponsored by
Donaldson Company, Inc. (the "Company"). The Plan is subject to the
applicable provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
The following description of the Plan is provided for general
information purposes only. Participants should refer to the summary
plan description for a more complete description of the Plan's
provisions.
Fidelity Management Trust Company is the Plan's trustee (the "Trustee")
and recordkeeper.
ELIGIBILITY
Employees are eligible to participate in the Plan upon employment, as
defined by the Plan document.
CONTRIBUTIONS
Each year, eligible participants may contribute to the Plan up to 25%
of pre-tax annual compensation, as defined by the Plan. Participants
may also contribute amounts representing rollover distributions from
other qualified retirement plans with the approval of the
Administrative Committee.
The Company may make discretionary contributions to the Plan from time
to time. Discretionary contributions are allocated among the
participants pro rata based upon total annual compensation of
participants who have 1,000 hours of service in the Plan year and are
in employment of the Company on the last day of the Plan year. The
Company made no discretionary contributions for the year ended December
31, 2003.
In connection with the Company's acquisition of AirMaze Corporation
("AirMaze") in November 1999, certain monies were placed in escrow
pending finalization of the acquisition. Under the sale and purchase
agreement, any monies released to the Company from the escrow account
are to be contributed to former AirMaze employees participating in the
Plan. During the Plan year ended December 31, 2002, amounts totaling
$722,100 were released and contributed to the Plan as employer
contributions. During the Plan year ended December 31, 2003, an
additional $170,203 was contributed to the Plan as a final payment.
These contributions were allocated to the former AirMaze employees
participating in the Plan pro rata based on the number of shares of
AirMaze stock each Participant had in the AirMaze Plan as of the
acquisition date.
PARTICIPANT ACCOUNTS
Participants direct the investment of their contributions into various
investment options offered by the Plan. If a participant does not
allocate their contributions, the contributions are placed in the
Fidelity Managed Income Portfolio II Fund. Company contributions are
allocated among the investment options in the same manner as
participant contributions.
4
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
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The allocation of the participant's contributions to the investment
funds may be changed daily. There are no restrictions on transfers
among or between the various investment options. Each participant's
account is credited with his or her contributions, including rollover
distributions, and his or her share of Company contributions, and an
allocation of related investment earnings thereon. Allocation of
investment earnings is based on the value of the participant's account
at the close of each day.
VESTING
Participants are 100% vested in their accounts at all times.
PAYMENT OF BENEFITS
Upon termination of employment, disability or termination of the Plan,
a participant or designated beneficiary will receive the vested portion
of the participant's account balance in a lump-sum payment. Hardship
withdrawals, as defined in the Plan document, are allowed at any time,
subject to approval by the Plan.
PARTICIPANT LOANS
Under the Plan document, participants may borrow up to 50% of their
account balance or $50,000, whichever is less. Loans must be repaid by
the participant within five years, unless the loan is used to acquire
the participant's primary residence in which case the term may not
exceed ten years. The loan interest is one percent over the prime
lending rate on the last business day of the month preceding the month
in which the loan is granted. Interest rates on outstanding loans at
December 31, 2003, ranged from 5.25% to 10.50%. Loans mature at various
dates through September 2012 and are generally paid through monthly
payroll deductions.
PLAN TERMINATION
The Company has the right under the plan agreement to amend or
terminate the Plan. In the event of termination of the Plan, the assets
of the Plan will be distributed to the participants in accordance with
the Plan document.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared on an accrual
basis. The following is a summary of significant policies which are in
conformity with accounting principles generally accepted in the United
States of America and are consistently followed by the Plan in the
preparation of its financial statements.
VALUATION OF INVESTMENTS
Investments in mutual funds are stated at fair value based on quoted
market prices. Participant loans are valued at estimated fair value,
which consists of outstanding principal and any related accrued
interest. Investments in the Donaldson Company, Inc. Common Stock Fund
are valued based on the fair value of the underlying investments,
primarily Donaldson Company, Inc. common stock, which is valued at
quoted market prices.
5
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------------------------------------------------------------
INVESTMENT EARNINGS
Investment income is recorded as earned. Dividend income is recorded on
the ex-dividend date. The Plan presents the net appreciation
(depreciation) in the fair value of its investments in the Statement of
Changes in Net Assets Available for Benefits. Net appreciation
(depreciation) consists of the realized gains or losses and the
unrealized appreciation (depreciation) on those investments.
CONTRIBUTIONS
Participant contributions are recorded in the period the employer makes
the payroll deductions. Employer discretionary contributions, if any,
are recorded in the period they are approved by the Company.
BENEFITS PAID TO PARTICIPANTS
Benefits paid to participants are recorded when paid.
PLAN EXPENSES
Investment management fees and administrative fees charged by the
Trustee are paid by the Plan. All other expenses are paid by the
Company, including legal, accounting and other services.
USE OF ESTIMATES
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of net assets available for benefits at the date of the
financial statements and the reported amounts of changes in net assets
available for benefits during the reporting period. Ultimate results
could differ from those estimates.
RISKS AND UNCERTAINTIES
The Plan provides for various investment options in various
combinations of investment securities. Investment securities are
exposed to various risk factors including, but not limited to, interest
rates, market conditions and credit risks. Due to the level of risk
associated with certain investment securities and the level of
uncertainty related to changes in the value of investment securities,
it is at least reasonably possible that changes in the values of
investment securities will occur in the near term and that such changes
could materially affect participants' account balances and the amounts
reported in the Statement of Net Assets Available for Benefits in
future periods.
CONCENTRATION OF MARKET RISK
As of December 31, 2003 and 2002, approximately 26% and 24% of the
Plan's net assets were invested in the Donaldson Company, Inc. Common
Stock Fund, respectively. The underlying value of this fund is
dependent on the performance of Donaldson Company, Inc. and the
market's evaluation of such performance. It is at least reasonably
possible that changes in the fair value of Donaldson Company, Inc.
common stock in the near term could materially affect participants'
account balances and the amounts reported in the Statement of Net
Assets Available for Benefits and the Statement of Changes in Net
Assets Available for Benefits.
6
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
--------------------------------------------------------------------------------
3. INVESTMENTS
The current value of individual investments that represent 5% or more
of the Plan's net assets is as follows:
2003 2002
Donaldson Company, Inc. Common Stock Fund $ 49,223,743 $ 32,419,115
Fidelity Managed Income Portfolio II Fund 39,448,813 32,486,923
Fidelity Equity Income Fund 34,570,063 25,451,498
Fidelity Magellan Fund 18,338,352 14,165,809
Fidelity Contrafund 16,304,415 11,466,592
All other investments-individually
less than 5% 29,573,226 16,757,914
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$187,458,612 $132,747,851
============ ============
During the year ended December 31, 2003, investments had net
appreciation value as follows:
Mutual funds $ 18,811,811
Donaldson Company, Inc. Common Stock Fund 19,988,822
------------
$ 38,800,633
============
4. TAX STATUS
The Plan has received a favorable determination letter from the
Internal Revenue Service, dated October 20, 1995, stating that the Plan
is designed in accordance with the applicable sections of the Internal
Revenue Code (the "Code") and is therefore generally exempt from
federal income taxes under provisions of Section 501(a). The Plan has
been amended since receiving the determination letter. However, the
Plan administrator believes that the Plan is currently designed and
being operated in compliance with the applicable requirements of the
Code. Therefore, no provision for income taxes has been included in the
Plan's financial statements.
5. RELATED PARTY TRANSACTIONS
Participants have the option to direct their contributions to be
invested in mutual funds which are sponsored by the Trustee, and a
Company stock fund. The Trustee is authorized, under contract
provisions and by exemption under 29 CFR 408(b) of ERISA regulations,
to invest in securities under its control and in the Company. For the
year ended December 31, 2003, purchases and sales of securities of the
Company were $1,890,976 and $2,696,853, respectively.
7
SUPPLEMENTAL SCHEDULE
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
SCHEDULE H, LINE 4I - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2003
EIN 41-0222640
PLAN NUMBER 007 SCHEDULE I
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(A) (B) (C) (D) (E)
DESCRIPTION OF INVESTMENT
IDENTITY OF ISSUE, INCLUDING THE MATURITY DATE,
BORROWER, LESSOR RATE OF INTEREST, COLLATERAL, CURRENT
OR SIMILAR PARTY PAR OR MATURITY VALUE COST** VALUE
* Donaldson Company, Inc. Common Stock Fund, 1,046,212 shares $ 49,223,743
* Fidelity Management Trust Managed Income Portfolio II Fund,
Company 39,448,813 units of participation 39,448,813
* Fidelity Management Trust Equity Income Fund, 694,876 units of
Company participation 34,570,063
* Fidelity Management Trust Magellan Fund, 187,624 units of
Company participation 18,338,352
* Fidelity Management Trust
Company Contrafund, 330,383 units of participation 16,304,415
* Fidelity Management Trust
Company Divers International Fund, 232,140 units 5,599,214
* Fidelity Management Trust Balanced Fund, 339,111 units of
Company participation 5,680,110
Schroder U.S. Smaller Companies Fund, 325,526 units
of participation 5,553,481
* Fidelity Spartan U.S. Equity Index Fund, 94,554 units of
participation 3,726,392
Sterling Small Cap Value I Fund, 137,087 units 2,305,800
PIMCO Total Return Fund, 157,679 units 1,688,741
Brokeragelink Growth Oriented Fund, 743,911 units 743,911
Brokeragelink Interest bearing cash 32,343
Turner Concentrated Growth Institutional Fund,
116,867 units 771,319
FMI Knappenberger Partners Emerging Growth Fund, 29,830 units 286,669
* Fidelity Management Trust
Company Retiree Government Fund, 21 units 21
* Participants Participant loans receivable, interest
rates from 5.25% to 10.50%, payable
through September 2012 3,185,225
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$ 187,458,612
=============
* Denotes party-in-interest.
** Historical cost information is omitted as it is not required by the
Department of Labor under the instructions to the Form 5500 for
participant directed accounts.
8
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned
thereunto duly authorized.
DONALDSON COMPANY, INC.
-----------------------
EMPLOYEES' RETIREMENT SAVINGS PLAN
----------------------------------
(Name of Plan)
Date June 28, 2004 By: Donaldson Company, Inc., the Plan Administrator
/s/ Thomas R. VerHage
--------------------------------------
Thomas R. VerHage
Vice President, Chief Financial Officer
EXHIBIT INDEX
ANNUAL REPORT ON FORM 11-K
Exhibit 23 Consent of Independent Public Accountants