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, 2002
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, 2002 AND 2001
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
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PAGE(S)
REPORT OF INDEPENDENT AUDITORS.................................................1
FINANCIAL STATEMENTS
Statement of Net Assets Available for Benefits.................................2
Statement of Changes in Net Assets Available for Benefits......................3
Notes to Financial Statements................................................4-7
SUPPLEMENTAL SCHEDULE
Schedule I: Schedule H, line 4i - Schedule of Assets (Held at End of Year).....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 AUDITORS
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, 2002, and the changes in net assets available for benefits for
the year then ended, 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 audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The statement of net assets
available for benefits at December 31, 2001, was audited by other independent
accountants who have ceased operations. Those independent accountants issued an
unqualified opinion on that statement in their report dated April 26, 2002.
Our audit was 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
June 23, 2003
Minneapolis, MN
1
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002 AND 2001
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2002 2001
Assets
Investments, at fair value
Interest-bearing cash $ 3,971 $ 2,380,207
Mutual funds 97,276,727 99,861,823
Donaldson Company, Inc. common stock fund 32,419,115 34,500,290
Participant loans 3,048,038 3,184,602
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Total investments, at fair value 132,747,851 139,926,922
Receivables
Income receivable 355 639
Employee contributions receivable -- 259,818
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Total assets available for benefits 132,748,206 140,187,379
LIABILITIES
Investment settlements payable (15,665) (1,203)
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Net assets available for benefits $ 132,732,541 $ 140,186,176
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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, 2002
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INVESTMENT INCOME (LOSS)
Interest and dividend income $ 2,621,585
Net depreciation of the fair value of investments (16,762,029)
-------------
(14,140,444)
-------------
CONTRIBUTIONS
Employer 722,100
Participants 15,026,352
-------------
15,748,452
-------------
DEDUCTIONS
Benefits paid to participants (9,036,511)
Administrative expenses (22,379)
Other deductions (2,753)
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(9,061,643)
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Net decrease in net assets available for benefits (7,453,635)
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 140,186,176
-------------
End of year $ 132,732,541
-------------
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, 2002 AND 2001
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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
percent 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, at its discretion, make discretionary contributions from
time to time. Discretionary contributions are allocated 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, 2002.
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. These
contributions were allocated to the former AirMaze employees participating
in the Plan pro rata based on the total account balances of these
participants.
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.
The allocation of the participant's contributions to the investment funds
may be changed daily. Each participant's account is credited with his or
her contributions 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.
4
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
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VESTING
Participants are 100 percent 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. Rollover
contributions and hardship withdrawals are allowed at any time.
PARTICIPANT LOANS
Under the Plan document, participants may borrow up to 50 percent 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, 2002, ranged
from 5.75 percent to 10.5 percent. 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, each participant is
fully vested and the assets of the Plan will be distributed to the
participants in accordance with the Plan document.
2. 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.
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.
5
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
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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, 2002 and 2001, approximately 24 percent and 25 percent
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, 2002 AND 2001
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3. INVESTMENTS
The current value of individual investments that represent 5 percent or
more of the Plan's net assets is as follows:
2002 2001
Donaldson Company, Inc. Common Stock Fund $ 32,419,115 $ 34,500,290
Fidelity Magellan Fund 14,165,809 17,877,506
Fidelity Contrafund 11,466,592 12,168,004
Fidelity Equity Income Fund 25,451,498 30,384,287
Fidelity Managed Income Portfolio II Fund 32,486,923 26,325,549
All other investments 16,757,914 18,671,286
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$132,747,851 $139,926,922
============ ============
During the year ended December 31, 2002, investments depreciated value
was as follows:
Mutual funds $(14,676,668)
Donaldson Company, Inc. Common Stock Fund (2,085,361)
------------
$(16,762,029)
============
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
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, 2002, purchases
and sales of securities of the Company were $1,878,072 and $1,476,534,
respectively. In addition, participants have the option to direct their
contributions to be invested in mutual funds which are sponsored by the
Trustee.
7
SUPPLEMENTAL SCHEDULE
DONALDSON COMPANY, INC.
EMPLOYEES' RETIREMENT SAVINGS PLAN
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2002
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
* Fidelity Management Trust Managed Income Portfolio II Fund,
Company 32,486,923 units of participation $ 32,486,923
* Donaldson Company, Inc. Common Stock Fund, 1,134,404 shares 32,419,115
* Fidelity Management Trust Equity Income Fund, 641,580 units
Company of participation 25,451,498
* Fidelity Management Trust Magellan Fund, 179,405 units of
Company participation 14,165,809
* Fidelity Management Trust Contrafund, 297,062 units of
Company participation 11,466,592
Schroder U.S. Smaller Companies Fund, 287,839
units of participation 3,580,719
* Fidelity Management Trust Overseas Fund, 158,182 units of
Company participation 3,480,001
* Fidelity Management Trust Balanced Fund, 208,127 units of
Company participation 2,766,003
Spartan U.S. Equity Income Fund, 76,336 units
of participation 2,377,864
Sterling Small Cap Mutual Fund, 65,580 units 803,355
Brokeragelink Growth Oriented Fund, 306,288 units 306,288
Turner Concentrated
Growth I Mutual Fund, 67,388 units 277,640
FMI KB Emerging Growth Mutual Fund, 14,303 units 94,399
Brokeragelink Income Oriented Fund, 19,636 units 19,636
Brokeragelink Money Market Fund, 3,971 units 3,971
* Participants Participant loans receivable, interest
rates from 5.75 percent to 10.5 percent,
payable through September 2012 3,048,038
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$ 132,747,851
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* 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.
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EMPLOYEES' RETIREMENT SAVINGS PLAN
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(Name of Plan)
Date June 30, 2003 By: /s/ Thomas A. Windfeldt
--------------------- ------------------------------
Thomas A. Windfeldt
Vice President, Controller
EXHIBIT INDEX
ANNUAL REPORT ON FORM 11-K
Exhibit 23 Consent of Independent Public Accountants
Exhibit 99 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002