Donaldson Company, Inc. 2010 SHAREHOLDERS’ LETTER
“We know that together we have emerged from our trials leaner, stronger, and more determined.” — Frank Donaldson, Jr. (1983)
Frank wrote this after our Company went through a particularly challenging time – the recessions of the early 1980s. We have just emerged from a similarly trying period.
But what a difference a year makes! At this time
last year, we were deep in the midst of the recession and unsure whether we had yet seen the bottom. As I wrote in last year’s letter, we anticipated a modest recovery in our business during the 2nd half of our FY10. I am happy to report that things turned out better than we had expected. Some of our early cycle businesses, including all of our replacement filter businesses and Special Applications, began to recover first. Then our mid cycle businesses, including our Engine Off-Road and On-Road Products, began to improve. Finally, our later cycle businesses, Dust Collection and Gas Turbine Systems (which had been our heroes in FY09), stabilized or began showing signs of an upturn. We experienced a steady recovery in our overall revenue with each quarter of FY10 performing sequentially higher than the previous quarter. In addition, we saw an even more dramatic improvement in our operating performance. As a result of a relentless focus on our Continuous Improvement initiatives, we established new gross and operating margin records of 35.1% and 12.7%, respectively. While our sales for the full year were still below our peak levels of FY08, we delivered Earnings Per Share (EPS) of $2.10, the second best year in our history and only two cents less than our FY08 record of $2.12. And we delivered the $2.10 of EPS on sales which were about $350 million less than FY08. This may be the best indication of how well our Company is now running and how well we are positioned to grow both sales and profits in the future.
Our Gurgaon, India, Air Filter Plant critical to our future. During the past year, we expanded our operation in India and completed a new Technical Center on our Leuven, Belgium, campus that greatly enhances our European product development capabilities. Additionally, we continued our focus on the rapid introduction of new filtration technologies and products which benefit our business in two ways: 1. Improving the value and filtration performance for our Customers’ new equipment, and 2. Helping our Customers (and us) retain their future replacement filter business.
Investments, New Products, and Technology Advances
While we prioritized our work as we navigated through the recession, we continued to invest in long-term projects Engineers testing liquid filters at our new Technical Center in Leuven, Belgium
Our PowerCore and PowerCore G2 filtration technology is used by leading on-road and off-road equipment manufacturers worldwide Some of our Engine Product highlights include the shipment of our 10 millionth Generation 1 PowerCore® filter. We also began full-scale production of our Generation 2 PowerCore filter, another breakthrough which offers even better performance and value than Generation 1. Our PowerCore innovation continues as we are now building prototypes of Generation 3. We have also realized tremendous success with PowerCore in our Industrial Products. Recently, we announced the sale of the 1,000th Torit® PowerCore system. These breakthrough dust collectors offer our Customers a much smaller and higher performance system, better value, and much easier maintenance. In addition to PowerCore, we launched other innovations in air filtration. One example is in our Gas Turbine business with a new static air filtration system. We introduced this product during FY10, and we have already sold more than 10 systems totaling over $10 million. In our Aerospace & Defense business, we introduced our Pulse Jet Air Cleaner (PJAC) Ultra™ product line using our Ultra-Web® fine fiber technology. This new...
Please join StudyMode to read the full document